AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1998.
REGISTRATION STATEMENT NO. 333-61107
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
IT PARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 52-2056858
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
9881 BROKEN LAND PARKWAY, SUITE 102 DANIEL J. KLEIN
COLUMBIA, MARYLAND 21046 CHIEF EXECUTIVE OFFICER
(410) 309-9800 IT PARTNERS, INC.
(Address, including zip code, and 9881 BROKEN LAND PARKWAY, SUITE 102
telephone number, including area code, COLUMBIA, MARYLAND 21046
of registrant's principal executive offices) TELEPHONE (410) 309-9800
FACSIMILE (410) 309-9801
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
Copies to:
MORRIS F. DEFEO, JR., ESQ. GEORGE P. STAMAS, ESQ.
SWIDLER BERLIN SHEREFF WILMER, CUTLER & PICKERING
FRIEDMAN, LLP 2445 M STREET, N.W.
3000 K STREET, N.W., SUITE 300 WASHINGTON, D.C. 20037-1420
WASHINGTON, D.C. 20007 TELEPHONE (202) 663-6000
TELEPHONE (202) 424-7500 FACSIMILE (202) 663-6363
FACSIMILE (202) 424-7647
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Title of Amount Proposed Maximum Proposed Maximum Amount of
Shares to be to be Offering Price Aggregate Offering Registration
Registered Registered Per Unit(1) Price Fee
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value 6,900,000 $ 16.00 $110,400,000 $32,568*
- --------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933.
*Previously paid
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below sets forth the expenses to be incurred by the Company in
connection with the issuance and distribution of the shares registered for offer
and sale hereby, other than underwriting discounts and commissions. All amounts
shown represent estimates except the Securities Act registration fee.
Registration fee under the Securities Act of 1933. ......... $32,568
Printing and EDGAR expenses. ............................... *
Registrar and Transfer Agent's fees and expenses. .......... *
Accountants' fees and expenses. ............................ *
Legal fees and expenses. ................................... *
-------
Total. ..................................................... $ *
- ----------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and By-Laws provide, to the
maximum extent provided by applicable law, that a director of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. If the General Corporation
Law of the State of Delaware is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Company shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of the relevant Article of By-Laws of the
Company shall not adversely affect any right or protection of a director of the
Company existing at the time of such repeal or modification.
Each person who was or is made a party or is threatened to be made a party
to or is or was involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or a person of whom he is the legal representative is
or was a director, officer or employee of the Company or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his heirs, executors, and
administrators; provided, however, that except as provided in the Company's
By-Laws with respect to proceedings seeking to enforce rights to
indemnification, the Company shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Company. The right to indemnification conferred in the
Company's By-Laws shall be a contract right and shall include the right to be
paid by the Company the
II-1
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<PAGE>
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the General Corporation Law of the State
of Delaware requires, the payment of such expenses incurred by a director or
officer in his capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking by or on behalf of such director of officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director of officer is not entitled to be indemnified.
The Company may purchase and maintain insurance to protect itself and any
such director, officer or other person against any liability asserted against
him and incurred by him in respect of such service whether or not the Company
would have the power to indemnify him against such liability by law or under the
provisions of the Company's By-Laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following paragraphs of this Item 15 describe all sales of securities
by the Company within the past three years which were not registered under the
Securities Act of 1933.
On May 29, 1997, the Company issued 194,691 shares of Common Stock to
Martin G. Kandl and Haeyoung Kandl jointly for the aggregate consideration of
$1,328,175.
On May 30, 1997, the Company issued 50,000 shares of Series A Preferred and
Equity Warrants to purchase 137,380 shares of either Common Stock or Series B
Preferred to Creditanstalt for the aggregate consideration of $500,000.
On May 30, 1997, the Company issued 100,000 shares of Series A Preferred
and Equity Warrants to purchase 274,760 shares of either Common Stock or Series
B Preferred to FF-ITP for the aggregate consideration of $1,000,000.
On May 30, 1997, the Company issued 10,900 shares of Series A Preferred to
Daniel J. Klein for the aggregate consideration of $109,000.
On May 30, 1997, the Company issued 10,900 shares of Series A Preferred to
Jamie E. Blech for the aggregate consideration for $109,000.
On May 30, 1997, the Company issued 293,075 shares of Common Stock to
Daniel J. Klein for nominal consideration in connection with the formation of
the Company.
On May 30, 1997, the Company issued 293,075 shares of Common Stock to Jamie
E. Blech for nominal consideration in connection with the formation of the
Company.
On May 30, 1997, the Company issued 26,638 shares of Common Stock to Mark
F. Yanson for nominal consideration in connection with the formation of the
Company.
On May 30, 1997, the Company issued 165,680 shares of Common Stock to the
shareholders of CNS for the aggregate consideration of $1,554,905.
On May 30, 1997, the Company issued Debt Warrants to purchase 219,808
shares of Common Stock or Series B Preferred to Creditanstalt for nominal
consideration in connection with the execution of the Credit Facility.
On June 30, 1997, the Company issued 495,260 shares of Common Stock to
Christopher R. Corbett and Merrie Corbett jointly for the aggregate
consideration of $4,648,015.
On July 11, 1997, the Company issued 23,334 shares of Series A Preferred
and Equity Warrants to purchase 64,110 shares of either Common Stock of Series B
Preferred to Creditanstalt for the aggregate consideration of $233,340.
On October 20, 1997, the Company issued 393,040 shares of Common Stock to
shareholders of FSC for the aggregate consideration of $3,910,000.
II-2
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<PAGE>
On October 27, 1997, the Company issued 26,666 shares of Series A Preferred
and Equity Warrants to purchase 41,934 shares of either Common Stock of Series B
Preferred to Creditanstalt for the aggregate consideration of $266,660.
On October 31, 1997, the Company issued 10,000 shares of Series A Preferred
to FF-ITP for the aggregate consideration of $100,000.
On October 31, 1997, the Company issued 15,725 shares of Common Stock to
Christopher R. Corbett and Merrie Corbett jointly for the aggregate
consideration of $100,000.
On October 31, 1997, the Company issued 15,725 shares of Common Stock to
FF-ITP for the aggregate consideration of $100,000.
On October 31, 1997, the Company issued 7,863 shares of Common Stock to
Martin G. Kandl and Haeyoung Kandl jointly for the aggregate consideration of
$50,000.
On October 31, 1997, the Company issued 533 shares of Common Stock to
Thomas Gardner for the aggregate consideration of $3,393.
On October 31, 1997, the Company issued 38,053 shares of Common Stock to
shareholders of CNS for the aggregate consideration of $357,130.
On January 7, 1998, the Company issued 100,000 shares of Series A Preferred
and Equity Warrants to purchase 100,522 shares of either Common Stock or Series
B Preferred to Creditanstalt for the aggregate consideration of $1,000,000.
On January 7, 1998, the Company issued 222,222 shares of Series B Preferred
to Creditanstalt for the aggregate consideration of $1,000,000.
On January 7, 1998, the Company issued Debt Warrants to purchase 106,553
shares of Common Stock or Series B Preferred to Creditanstalt for nominal
consideration in connection with the execution of the Credit Facility.
On January 8, 1998, the Company issued 1,191,416 shares of Common Stock to
17 shareholders of Sequoia for the aggregate consideration of $11,852,326.
On February 5, 1998, the Company issued 700,636 shares of Common Stock to
the shareholders of Incline for the aggregate consideration of $6,969,998.
On March 31, 1998, the Company issued 345,204 shares of Series B Preferred
to Wachovia for the aggregate consideration of $3,000,000.
On March 31, 1998, the Company issued 230,136 shares of Series B Preferred
to Indosuez IT Partners for the aggregate consideration of $2,000,000.
On April 30, 1998, the Company issued Equity Warrants to purchase 8,544
shares of either Common Stock or Series B Preferred to Creditanstalt in the form
of a PIK Dividend on the outstanding Equity Warrants.
On April 30, 1998, the Company issued Equity Warrants to purchase 8,960
shares of either Common Stock or Series B Preferred to FF-ITP in the form of a
PIK Dividend on the outstanding Equity Warrants.
On April 30, 1998, the Company issued 7,569 shares of Series A Preferred to
Creditanstalt in the form of a PIK Dividend.
On April 30, 1998, the Company issued 6,525 shares of Series A Preferred to
FF-ITP in the form of a PIK Dividend.
On April 30, 1998, the Company issued 668 shares of Series A Preferred to
Daniel J. Klein in the form of a PIK Dividend.
On April 30, 1998, the Company issued 668 shares of Series A Preferred to
Jamie E. Blech in the form of a PIK Dividend.
On May 1, 1998, the Company issued 45,452 shares of Series B Preferred to
Indosuez IT Partners II for the aggregate consideration of $400,000.
On May 11, 1998, the Company issued 267,433 shares of Common Stock to the
shareholders of Sequoia for the aggregate consideration of $2,660,446.
On May 13, 1998, the Company issued 312,270 shares of Common Stock to
Stanton L. Call for the aggregate consideration of $3,340,947.
On June 1, 1998, the Company issued 4,151 shares of Series A Preferred to
Creditanstalt in the form of a PIK Dividend.
On June 1, 1998, the Company issued 2,330 shares of Series A Preferred to
FF-ITP in the form of a PIK Dividend.
On June 1, 1998, the Company issued 231 shares of Series A Preferred to
Daniel J. Klein in the form of a PIK Dividend.
II-3
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<PAGE>
On July 28, 1998, the Company issued 700 shares of Series C Preferred to
BDC for the aggregate consideration of $7,000,000.
On August 4, 1998, the Company issued 300 shares of Series C Preferred to
Wachovia for the aggregate consideration of $3,000,000.
On June 1, 1998, the Company issued 231 shares of Series A Preferred to
Jamie E. Blech in the form of a PIK Dividend.
Amended 1997 Long-Term Incentive Plan. See "Management--Stock Option Plan,"
which is incorporated by reference herein from the Prospectus included in Part I
of this Registration Statement.
Issuance of Warrants. See "The Recapitalization--Warrant Agreement and Debt
Warrants" and "The Recapitalization--Purchase Agreement and Equity Warrants,"
which is incorporated by reference herein from the Prospectus included in Part I
of this Registration Statement.
Each issuance of securities described above was made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act as a
transaction by an issuer not including any public offering. The issuance of the
PIK Dividends was made in reliance on the exemption from registration provided
by Rule 416 of Regulation C promulgated by the SEC. The recipients of securities
in each such transaction represented their intention to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Company, to information about the Company.
II-4
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<PAGE>
ITEM 16(A). EXHIBITS.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation, as amended.
*3.2 By-Laws, as amended.
*4.1 Specimen Common Stock Certificate.
4.2 Amended and Restated Warrant Agreement dated December 16,
1997, as amended.
4.3 Amended and Restated Stockholder Agreement dated March 31, 1998,
as amended.
4.4 Preferred Stock and Warrant Purchase Agreement dated May 30, 1997,
as amended.
4.5 Promissory Note from IT Partners to Stanton L. Call dated May 13,
1998 in the original principal amount of $2,876,206, convertible
into Common Stock.
4.6 Convertible Promissory Note from IT Partners to Servinet dated June
10, 1998, with any unpaid principal amount outstanding convertible
at Servinet's option into Common Stock.
4.10 12.0% Series C Senior Redeemable Preferred Stock Purchase
Agreement dated July 28, 1998, between IT Partners and FBR
Business Development Capital.
4.11 Certificate of Designation of Preferences and Rights of 12.0%
Series C Redeemable Preferred Stock of IT Partners, dated July 28,
1998.
4.12 12.0% Series C Senior Redeemable Preferred Stock Purchase
Agreement dated July 31, 1998, between IT Partners and Wachovia
Capital Associates, Inc.
**5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.
10.1 Asset Purchase Agreement between IT Partners and Servinet, dated
June 10, 1998.
10.2 Asset Purchase Agreement between IT Partners and Stanton L. Call,
dated May 13, 1998.
10.3 Business Combination Agreement among IT Partners, ITP Acquisition
Corp., A-COM, Christopher Corbett and Merrie Corbett, dated June
30, 1997.
10.4 Business Combination Agreement among IT Partners, CNS, Stanley
Nice, and John Clement, dated May 27, 1997.
10.5 Agreement and Plan of Organization among IT Partners, ITP No. 4,
Inc., FSC, Charles Schaeffer and Garrett Schaeffer, dated October
20, 1997.
10.6 Agreement and Plan of Organization among IT Partners, ITP No. 11,
Inc., Incline, Robert Wentworth, John DeFina, Philip Tomasi and
Charles Menzel, dated February 5, 1998.
10.7 Business Combination Agreement among IT Partners, KDP, Martin
Kandl and Haeyoung Kandl, dated May 29, 1997.
10.8 Agreement and Plan of Organization among IT Partners, ITP No. 10,
Inc., Sequoia, John Bamberger, Alan Wise, William Murray, Michael
Baltosiewich, Carl Griffin, William Church and Michael Ryan, dated
January 8, 1998.
10.9 Amended and Restated Loan and Security Agreement, dated March 31,
1998, among IT Partners, Sequoia, FSC, Incline, A-COM, CNS, KDP and
Creditanstalt, as amended.
10.10 IT Partners, Inc. Amended 1997 Long-Term Incentive Plan.
II-5
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<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------
10.11 Senior Executive Employment Agreement between IT Partners and
Christopher R. Corbett, dated June 30, 1997.
10.12 Executive Employment Agreement between IT Partners and Daniel J.
Klein, dated March 7, 1997.
10.13 Employment Agreement between IT Partners and John D. Bamberger,
dated January 8, 1998.
10.14 Employment Agreement, between IT Partners and Christine E.
Norcross, dated September 16, 1997.
10.15 Executive Employment Agreement between IT Partners and Jamie E.
Blech, dated March 7, 1997.
10.16 Promissory Note from IT Partners to Christopher R. Corbett dated
June 30, 1997, in the original principal amount of $2,226,000.
10.17 Promissory Note from IT Partners to Stanton L. Call dated May 13,
1998, in the original principal amount of $2,876,206.
10.18 Promissory Note from IT Partners to Stanley Nice dated July 28,
1997, in the original principal amount of $102,036.50.
10.19 Promissory Note from IT Partners to John Clement dated July 28,
1997,in the original principal amount of $102.036.50.
10.20 Promissory Note from IT Partners to Stanley A. Nice dated May 27,
1997, in the original principal amount of $472,409.90.
10.21 Promissory Note from IT Partners to John Clement dated May 27,
1997, in the original principal amount of $432,998.90.
10.22 Amended and Restated Promissory Note from IT Partners to
Creditanstalt dated October for $14,000,000, dated October 1997.
10.23 Promissory Note from IT Partners to Charles Schaeffer dated
October 20, 1997, in the original principal amount of $199,375.
10.24 Promissory Note from IT Partners to Garrett Schaeffer dated October
20, 1997, in the original principal amount of $244,375.
10.25 Promissory Note from IT Partners to Martin and Haeyoung Kandl
dated May 22, 1997, in the original principal amount of $568,790.
10.26 Promissory Note from IT Partners to John D. Bamberger dated January
8, 1998, in the original principal amount of $2,014,240.
10.27 Promissory Note from IT Partners to Alan Wise dated January 8,
1998, in the original principal amount of $1,278,078.
*21.1 List of Subsidiaries.
**23.1 Consent of Swidler Berlin Shereff Friedman, LLP (filed as part of
Exhibit 5.1).
**23.2 Consent of Arthur Andersen, LLP.
**24.1 Power of Attorney (set forth on signature page).
*27.1 Financial Data Schedule.
- ----------
* To be filed by amendment.
** Previously filed
ITEM 16(B). FINANCIAL STATEMENT SCHEDULES.*
* To be completed by amendment.
ITEM 17. UNDERTAKINGS.
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 part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
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(2) For the purpose of determining any liability under the Securities Act,
each such post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, D.C., on August 31, 1998.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
----------------------------------------
Daniel J. Klein
Chairman, Chief Executive Officer and
Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON AUGUST 31, 1998.
NAME TITLE
---- -----
/s/ Daniel J. Klein Chairman, Chief Executive Officer and
- ------------------------- Director (Principal Executive Officer)
Daniel J. Klein
* President, Secretary and Director
- -------------------------
Jamie E. Blech
* Chief Financial Officer, Treasurer
- ------------------------- and Senior Vice President (Principal
Mark F. Yanson Financial Officer)
* Chief Accounting Officer, Corporate
- ------------------------- Controller and Vice President
Anthony M. Corbi (Principal Accounting Officer)
* Director
- -------------------------
John D. Bamberger
* Director
- -------------------------
Christopher R. Corbett
Director
- -------------------------
Charles Schaeffer
* Director
- -------------------------
James D. Lumsden
* Director
- -------------------------
Martin S. Pinson
* Daniel J. Klein, by signing his name hereto, signs this document on
behalf of each of the persons so indicated above pursuant to powers of
attorney duly executed by such person and filed with the Securities and
Exchange Commission
II-9
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation, as amended.
*3.2 By-Laws, as amended.
*4.1 Specimen Common Stock Certificate.
4.2 Amended and Restated Warrant Agreement dated December 16,
1997, as amended.
4.3 Amended and Restated Stockholder Agreement dated March 31, 1998,
as amended.
4.4 Preferred Stock and Warrant Purchase Agreement dated May 30, 1997,
as amended.
4.5 Promissory Note from IT Partners to Stanton L. Call dated May 13,
1998 in the original principal amount of $2,876,206, convertible
into Common Stock.
4.6 Convertible Promissory Note from IT Partners to Servinet dated June
10, 1998, with any unpaid principal amount outstanding convertible
at Servinet's option into Common Stock.
4.10 12.0% Series C Senior Redeemable Preferred Stock Purchase
Agreement dated July 28, 1998, between IT Partners and FBR
Business Development Capital.
4.11 Certificate of Designation of Preferences and Rights of 12.0%
Series C Redeemable Preferred Stock of IT Partners, dated July 28,
1998.
4.12 12.0% Series C Senior Redeemable Preferred Stock Purchase
Agreement dated July 31, 1998, between IT Partners and Wachovia
Capital Associates, Inc.
**5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.
10.1 Asset Purchase Agreement between IT Partners and Servinet, dated
June 10, 1998.
10.2 Asset Purchase Agreement between IT Partners and Stanton L. Call,
dated May 13, 1998.
10.3 Business Combination Agreement among IT Partners, ITP Acquisition
Corp., A-COM, Christopher Corbett and Merrie Corbett, dated June
30, 1997.
10.4 Business Combination Agreement among IT Partners, CNS, Stanley
Nice, and John Clement, dated May 27, 1997.
10.5 Agreement and Plan of Organization among IT Partners, ITP No. 4,
Inc., FSC, Charles Schaeffer and Garrett Schaeffer, dated October
20, 1997.
10.6 Agreement and Plan of Organization among IT Partners, ITP No. 11,
Inc., Incline, Robert Wentworth, John DeFina, Philip Tomasi and
Charles Menzel, dated February 5, 1998.
10.7 Business Combination Agreement among IT Partners, KDP, Martin
Kandl and Haeyoung Kandl, dated May 29, 1997.
10.8 Agreement and Plan of Organization among IT Partners, ITP No. 10,
Inc., Sequoia, John Bamberger, Alan Wise, William Murray, Michael
Baltosiewich, Carl Griffin, William Church and Michael Ryan, dated
January 8, 1998.
10.9 Amended and Restated Loan and Security Agreement, dated March 31,
1998, among IT Partners, Sequoia, FSC, Incline, A-COM, CNS, KDP and
Creditanstalt, as amended.
10.10 IT Partners, Inc. Amended 1997 Long-Term Incentive Plan.
II-5
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<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------
10.11 Senior Executive Employment Agreement between IT Partners and
Christopher R. Corbett, dated June 30, 1997.
10.12 Executive Employment Agreement between IT Partners and Daniel J.
Klein, dated March 7, 1997.
10.13 Employment Agreement between IT Partners and John D. Bamberger,
dated January 8, 1998.
10.14 Employment Agreement, between IT Partners and Christine E.
Norcross, dated September 16, 1997.
10.15 Executive Employment Agreement between IT Partners and Jamie E.
Blech, dated March 7, 1997.
10.16 Promissory Note from IT Partners to Christopher R. Corbett dated
June 30, 1997, in the original principal amount of $2,226,000.
10.17 Promissory Note from IT Partners to Stanton L. Call dated May 13,
1998, in the original principal amount of $2,876,206.
10.18 Promissory Note from IT Partners to Stanley Nice dated July 28,
1997, in the original principal amount of $102,036.50.
10.19 Promissory Note from IT Partners to John Clement dated July 28,
1997, in the original principal amount of $102.036.50.
10.20 Promissory Note from IT Partners to Stanley A. Nice dated May 27,
1997, in the original principal amount of $472,409.90.
10.21 Promissory Note from IT Partners to John Clement dated May 27,
1997, in the original principal amount of $432,998.90.
10.22 Amended and Restated Promissory Note from IT Partners to
Creditanstalt dated October for $14,000,000, dated October 1997.
10.23 Promissory Note from IT Partners to Charles Schaeffer dated
October 20, 1997, in the original principal amount of $199,375.
10.24 Promissory Note from IT Partners to Garrett Schaeffer dated October
20, 1997, in the original principal amount of $244,375.
10.25 Promissory Note from IT Partners to Martin and Haeyoung Kandl
dated May 22, 1997, in the original principal amount of $568,790.
10.26 Promissory Note from IT Partners to John D. Bamberger dated
January 8, 1998, in the original principal amount of $2,014,240.
10.27 Promissory Note from IT Partners to Alan Wise dated January 8,
1998, in the original principal amount of $1,278,078.
*21.1 List of Subsidiaries.
**23.1 Consent of Swidler Berlin Shereff Friedman, LLP (filed as part of
Exhibit 5.1).
**23.2 Consent of Arthur Andersen, LLP.
**24.1 Power of Attorney (set forth on signature page).
*27.1 Financial Data Schedule.
- ----------
* To be filed by amendment.
** Previously filed
AMENDED AND RESTATED WARRANT AGREEMENT
THIS AMENDED AND RESTATED WARRANT AGREEMENT dated as of December 16,
1997 (as amended, restated, supplemented or modified from time to time, the
"Warrant Agreement") between IT Partners, Inc., a Delaware corporation (the
"Issuer"), and Creditanstalt Corporate Finance, Inc. having offices at Two
Greenwich Plaza, Greenwich, Connecticut 06830 ("Creditanstalt").
W I T N E S S E T H:
WHEREAS, pursuant to the Loan and Security Agreement dated as of May 30,
1997, as amended by that certain First Amendment to Loan and Security
Agreement dated as of October 17, 1997 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Loan Agreement")
among Issuer, the financial institutions named therein as lenders (the
"Lenders"), Creditanstalt-Bankverein, as the issuing bank (the "Issuing
Bank"), and Creditanstalt as the agent for the Lenders (in such capacity, the
"Agent"), Creditanstalt as sole lender under the Loan Agreement agreed to make
certain loans (the "Loans") to the Issuer upon the terms, and subject to the
conditions, set forth in the Loan Agreement; and
WHEREAS, in order to induce Creditanstalt to structure and to provide
the Loans, the Issuer executed and delivered a Warrant Agreement dated as of
May 30, 1997, as amended by that certain First Amendment to Warrant Agreement
dated as of July 11, 1997, as further amended by that certain Second Amendment
to Warrant Agreement dated as of October 27, 1997 (as amended, the "Original
Warrant Agreement") and issued to Creditanstalt warrants exercisable for up to
412,579 shares of Common Stock or Convertible Preferred Stock as hereinafter
described; and
WHEREAS, the Issuer, the Lenders, the Issuing Bank, and the Agent wish
to enter into a Second Amendment to Loan and Security Agreement dated as of
the date hereof (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "Loan Agreement Amendment") to
increase the aggregate maximum amount of Loans available to Issuer thereunder
from Fourteen Million Dollars ($14,000,000) to Thirty-Five Million Dollars
($35,000,000); and
WHEREAS, in connection with and to induce Creditanstalt as sole lender
under the Loan Agreement to enter into the Loan Agreement Amendment, the
Issuer has agreed to amend and restate the Original Warrant Agreement, as
further set forth herein, in order to provide for the issuance of certain
additional Warrants and make certain other changes set forth herein;
NOW, THEREFORE, in consideration of the premises, the terms and
conditions herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. (a) As used in this Warrant Agreement,
unless otherwise defined herein, terms defined in the Loan Agreement (as in
effect on the date hereof, whether or not the Loan Agreement is thereafter
terminated or expires according to its terms) shall have such defined meanings
when used herein and the following terms shall have the following meanings,
unless the context otherwise requires:
<PAGE>
"Affiliate" of any Person shall mean any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such Person. For purposes of this definition, a Person shall be
deemed to control another Person if such first Person possesses directly or
indirectly the power to (i) vote 10% or more of the securities having ordinary
voting power for the selection of directors of such Person or (ii) direct, or
cause the direction of, the management and policies of the second Person,
whether through the ownership of voting securities, by contract or otherwise.
In addition, as to Creditanstalt, "Affiliate" shall include any partnership a
majority of the partners of which are officers, directors, employees or
Affiliates of Creditanstalt, and as to the Issuer, "Affiliate" shall not
include Creditanstalt or any Affiliate of Creditanstalt which is a holder of
any Warrants.
"Business Combination Options" shall mean options to purchase Common
Stock of the Issuer which (a) are issued to employees of Subsidiaries acquired
by the Issuer after the date hereof or to employees of the Issuer hired after
the date hereof; (b) in the aggregate do not exceed 12% of the Common Stock
issued by the Issuer as a portion of the purchase price in Acquisitions
consummated by the Issuer after the date hereof (other than any Acquisition of
LanVantage, Inc.) and (c) have an exercise price equal to the fair market
value of the Common Stock on the date such option is granted, as determined in
good faith by the Board of Directors of the Issuer and giving effect to any
Acquisition consummated on such date.
"Closing Date" shall mean December 16, 1997, the date of the closing of
the Loan Agreement Amendment.
"Commission" shall mean the Securities and Exchange Commission or any
entity succeeding to any or all of its functions under the Securities Act and
the Exchange Act.
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Issuer, which has voting rights, and shall include any stock into which
such Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock and all other stock of any class or
classes (however designated) of the Issuer the registered holders of which
have the right, without limitation as to amount, either to all or to a share
of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference.
"Composite Transaction Tape" shall mean a security price reporting
service that includes all transactions in a security on each of the exchanges
and in the over-the-counter market.
"Convertible Preferred Stock" shall mean the Series B Preferred Stock,
par value $.01 per share, of the Issuer which is convertible into Common Stock
of the Issuer, and shall include any stock into which such Series B Preferred
Stock shall have been changed or any stock resulting from any reclassification
of such Series B Preferred Stock.
"Current Market Price Per Share" shall mean, with respect to any share
of the Common Stock, as of any particular date of determination:
<PAGE>
(i) if the Common Stock is then reported on the Composite
Transaction Tape, the
average of the daily closing prices for the 30 consecutive trading
days immediately prior
to such date as reported on the Composite Transactions Tape (as
adjusted for any stock
dividend, split, combination or reclassification that occurred during
such 30-day
period); or
(ii) if the Common Stock is not then reported on the Composite
Transaction Tape
but is then listed or admitted to trading on a national securities
exchange, the average
of the daily last sale prices regular way of the Common Stock, for the
30 consecutive
trading days immediately prior to such date (as adjusted for any stock
dividend, split,
combination or reclassification that occurred during such 30-day
period), on the
principal national securities exchange on which the Common Stock is
traded or, in case no
such sale takes place on any such day, the average of the closing bid
and asked prices
regular way, in either case on such national securities exchange; or
(iii) if the Common Stock is not then reported on the Composite
Transaction Tape
but is then traded in the over-the-counter market, the average of the
daily closing sales
prices, or, if there is no closing sales price, the average of the
closing bid and asked
prices, in the over-the-counter market, for the 30 consecutive trading
days immediately
prior to such date (as adjusted for any stock dividend, split,
combination or
reclassification that occurred during such 30-day period), as reported
by the National
Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as
reported by the National Quotation Bureau, Incorporated or any
successor thereof, or, if
not so reported the average of the closing bid and asked prices as
furnished by any
member of the National Association of Securities Dealers, Inc.
selected from time to time
by the Board of Directors of the Issuer for that purpose; or
(iv) if no such prices are then furnished, the higher of (x) the
Exercise Price
and (y) the fair market value of a share of Common Stock as determined
by agreement
between the holders of a majority of the Warrants and the Issuer or,
in the absence of
such an agreement, by an independent investment banking firm or an
independent appraiser
engaged by the Issuer (in either case the cost of which engagement
will be borne by the
Issuer) and reasonably acceptable to the holders of a majority of the
Warrants;
provided, however, that between the date hereof and 60 days from the date
hereof, the Current Market Price Per Share of the Common Stock shall not be
less than $5.00 per share.
"Equity of the Issuer" shall mean the total stockholders' equity of the
Issuer, determined in accordance with generally accepted accounting
principles. The amount of Equity of the Issuer represented by any Warrant
Shares shall be determined by subtracting from total Equity of the Issuer the
aggregate amount distributable as a preference upon dissolution of the Issuer
to the holders of any then outstanding shares of any class or series of
preferred stock (other than the Convertible Preferred Stock), dividing the
balance obtained by the number of shares of Common Stock then outstanding or
issuable upon conversion of any Convertible Preferred Stock then outstanding,
and multiplying that per share amount by the aggregate number of Warrant
Shares.
<PAGE>
"Equity Warrants" shall mean the warrants issued pursuant to the Series
A Preferred Stock and Warrant Purchase Agreement, dated as of May 30, 1997, as
amended by that certain First Amendment to Preferred Stock and Warrant
Purchase Agreement dated as of July 11, 1997, as further amended by that
certain Second Amendment to Preferred Stock and Warrant Purchase Agreement
dated as of October 27, 1997, as further amended by that certain Third
Amendment to Preferred Stock and Warrant Purchase Agreement dated as of
October 31, 1997, and as further amended by that certain Fourth Amendment to
Preferred Stock and Warrant Purchase Agreement dated as of the date hereof (as
such may be amended, restated, supplemented or otherwise modified from time to
time), among the Issuer, Creditanstalt, FF-ITP, L.P. and certain shareholders
of the Issuer named therein.
"Equity Warrant Shares" shall mean the shares of Common Stock issued or
issuable upon exercise of the Equity Warrants.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute.
"Exempted Securities" shall mean (A) Warrant Shares, (B) shares of the
Issuer's capital stock issued as a stock dividend described in subsection
12(b), (C) shares of Series A Preferred Stock issued as preferred in kind
dividends on the Series A Preferred Stock; (D) options and warrants as listed
on Schedule I attached hereto and shares of capital stock issuable upon
exercise thereof; (E) the Business Combination Options and shares of capital
stock issuable upon exercise thereof; (F) options to be granted to employees
of the Issuer and its Subsidiaries to purchase up to 351,029 shares of Common
Stock of the Issuer at an exercise price of not less than fair market value on
the date such option is granted, as determined in good faith by the Board of
Directors of the Issuer and giving effect to any Acquisitions consummated on
or before such date, and shares of capital stock issuable upon exercise
thereof, (G) 34,364 shares of Common Stock issuable to Terry Hardcastle on or
before February 2, 1998 for an aggregate purchase price of $66,666; (H)
103,093 shares of Common Stock issued to Chris Corbett at an aggregate
purchase price of $200,000; (I) 29,516 shares of Common Stock issued to FF-ITP
on October 31, 1997; (J) additional Equity Warrants for the purchase of
188,680 shares of Common Stock or Convertible Preferred Stock; and (K) 222,222
shares of Convertible Preferred Stock issuable to Creditanstalt at an
aggregate purchase price of $1,000,000. The limits in clauses (C), (D), (E),
(F), (J), and (K) shall be proportionately adjusted for dividends and other
distributions payable in and for subdivisions and combinations of shares of
Common Stock.
"Exercise Price" shall mean the exercise price of a Warrant, which shall
be $.01 per Warrant.
"Expiration Date" shall mean, with respect to any Warrant issued
hereunder, 5:00 p.m., New York time, on the tenth anniversary of the date on
which such Warrant became exercisable.
"Indebtedness" shall mean, collectively but without duplication, (a) all
indebtedness, obligations or other liabilities for borrowed money or evidenced
by debt securities, debentures, acceptances, notes or other similar
instruments, which would, in accordance with GAAP, be classified as long-term
debt, together with the current maturities thereof, (b) all indebtedness
outstanding under any revolving credit, line of credit or similar agreement
providing for borrowings (and any extensions or renewals thereof),
notwithstanding that any such indebtedness is created within one year of the
expiration
<PAGE>
of such agreement; and (c) the principal component of Capital Lease
Obligations, in each case calculated on a consolidated basis for Issuer and
its Subsidiaries in accordance with GAAP.
"Mandatory Exchange" shall have the meaning given to such term in
subsection 16(c).
"Mandatory Redemption" shall have the meaning given to such term in
subsection 16(a)(i).
"Non-Attributable Stock" shall mean shares of Common Stock or
Convertible Preferred Stock which have been previously sold, or were issued
pursuant to the exercise of Warrants which were previously sold, either (a) in
a widely dispersed public offering; (b) in a private placement in which no
purchaser, individually or in concert with others, acquired Warrants, Common
Stock, Convertible Preferred Stock or any combination thereof, representing
(upon conversion, in the case of the Convertible Preferred Stock, and upon
exercise for Common Stock, in the case of the Warrants) more than 2% of the
outstanding Common Stock; (c) in compliance with Rule 144 (or any rule which
is a successor thereto) of the Securities Act or (d) into the secondary market
in a market transaction executed through a registered broker-dealer in blocks
of no more than 2.0% of the shares outstanding of the Issuer in any six month
period.
"Non-Public Warrant Shares" shall mean Warrant Shares that have not been
sold to the public and bear the legend set forth in subsection 14(b).
"Non-Surviving Combination" shall mean any merger, consolidation or
other business combination by the Issuer with one or more Persons in which the
Issuer is not the survivor, or a sale of all or substantially all of the
assets of the Issuer to one or more such other Persons.
"Operating Cash Flow" shall mean, for any period for which the same is
computed, the sum of (i) the Issuer's and its Subsidiaries' consolidated net
income (loss) for such period, plus (ii) the Issuer's and its Subsidiaries'
interest expense for such period, plus (iii) the Issuer's and its
Subsidiaries' depreciation and amortization for financial reporting purposes
for such period, plus (iv) the Issuer's and its Subsidiaries' income tax
expense for such period, computed in each case on a consolidated basis in
accordance with generally accepted accounting principles.
"Put Closing Date" shall have the meaning given to such term in
subsection 16 (a)(iii).
"Put Period" shall mean the period commencing on November 30, 2001 and
ending at 5:00 p.m., New York time, on the Expiration Date; provided that in
the event that, on or before November 30, 2001, all indebtedness outstanding
under the Loans has been repaid in full and all loan commitments under the
Loan Agreement have been terminated, said period shall commence on the date of
said repayment of indebtedness and termination of loan commitments.
"Put Price" shall have the meaning given to such term in subsection
16(a)(i).
<PAGE>
"Put Right" shall have the meaning given to such term in subsection
16(a)(i).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute and the rules and regulations of the Commission
thereunder, all as the same may be in effect from time to time.
"Series A Preferred Stock" shall mean the Issuer's Series A Preferred
Stock, $.01 par value per share, and shall include any stock into which such
Series A Preferred Stock shall have been changed or any stock resulting from
any reclassification of such Series A Preferred Stock.
"Series A Warrants" shall mean the stock purchase warrants issued on May
30, 1997 pursuant to this Warrant Agreement entitling the record holder
thereof to purchase from the Issuer at the Warrant Office an aggregate of
412,579 shares of Common Stock or Convertible Preferred Stock (in the
percentages and to the extent provided in subsections 6(e) and 6(f) hereof and
subject in each case to adjustment as provided in Section 12) at the Exercise
Price at any time before 5:00 p.m., New York time, on the Expiration Date.
"Series B Warrants" shall mean the stock purchase warrants issued
pursuant to this Warrant Agreement entitling the record holder thereof to
purchase from the Issuer at the Warrant Office an aggregate of 45,000 shares
of Common Stock or Convertible Preferred Stock (in the percentages and to the
extent provided in subsections 6(e) and 6(f) hereof and subject in each case
to adjustment as provided in Section 12) at the Exercise Price at any time
before 5:00 p.m., New York time, on the Expiration Date.
"Series C Issuance Date" shall mean the date on which the Series C
Warrants when aggregated with all other capital stock of the Issuer (other
than shares of Non-Attributable Stock) currently held or previously held by or
currently issuable to Creditanstalt or its Affiliates, would not, upon and
giving effect to such issuance, represent in excess of 24.99% of the Equity of
the Issuer.
"Series C Warrants" shall mean the stock purchase warrants issued or to
be issued pursuant to this Warrant Agreement entitling the record holder
thereof to purchase from the Issuer at the Warrant Office an aggregate of
155,000 shares of Common Stock or Convertible Preferred Stock (in the
percentages and to the extent provided in subsections 6(e) and 6(f) hereof and
subject in each case to adjustment as provided in Section 12) at the Exercise
Price at any time before 5:00 p.m., New York time, on the Expiration Date.
"Subsidiary" shall mean, as to any Person, a corporation of which shares
of stock having ordinary voting power (other than stock having such power only
by reason of the happening of a contingency) to elect a majority of the board
of directors or other managers of such corporation are at the time owned, or
the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Warrant Agreement shall refer to a Subsidiary or Subsidiaries of the Issuer.
"Trigger Date" shall have the meaning given to such term in subsection
16(a)(i).
<PAGE>
"Valuation Amount" shall mean, as of any date, the greater of (x) zero
or (y) an amount equal to Operating Cash Flow for the most recently ended
twelve months preceding the date of determination multiplied by six (6), less
the principal amount of Indebtedness of Issuer on such date of determination,
plus the aggregate amount of cash and/or cash equivalents held by the Issuer
on such date of determination; provided, however, that if the holders exercise
their Put Right in connection with the termination of the Loan Agreement and
the repayment in full of the Loans thereunder, then, for purposes of this
definition, the amount of Indebtedness used to calculate the Valuation Amount
shall be the principal amount of Indebtedness outstanding immediately prior to
such repayment and termination.
"Warrant Certificate" shall mean certificate evidencing one or more
Warrants, substantially in the form of Exhibit B-1 attached hereto with
respect to the Series B Warrants and Exhibit C-1 attached hereto with respect
to the Series C Warrants, with such changes therein as may be required to
reflect any adjustments made pursuant to Section 12.
"Warrant Holders" shall mean Creditanstalt or an Affiliate thereof and
such other Persons to whom Creditanstalt or an Affiliate thereof transfers
Warrants in compliance with the terms of this Warrant Agreement, and for
purposes of Section 15 shall include holders of Non-Public Warrant Shares.
"Warrant Office" shall mean the office or agency of the Issuer at which
the Warrant Register shall be maintained and where the Warrants may be
presented for exercise, exchange, substitution and transfer, which office or
agency will be the office of the Issuer at 1006 Highland Drive, Silver Spring,
Maryland 20910, which office or agency may be changed by the Issuer pursuant
to notice in writing to the Persons named in the Warrant Register as the
holders of the Warrants.
"Warrant Register" shall mean the register, substantially in the form of
Exhibit D attached hereto, maintained by the Issuer at the Warrant Office.
"Warrant Shares" shall mean the shares of Common Stock or Convertible
Preferred Stock issued or issuable upon exercise of the Warrants, or Common
Stock issued or issuable upon conversion of the Convertible Preferred Stock,
in each case as the number of such shares may be adjusted from time to time
pursuant to Section 12 and the provisions of the Issuer's Certificate of
Incorporation.
"Warrants" shall mean the stock purchase warrants issued or issuable
pursuant to this Warrant Agreement entitling the record holder thereof to
purchase from the Issuer at the Warrant Office an aggregate of 612,579 shares
of Common Stock or Convertible Preferred Stock (in the percentages and to the
extent provided in subsections 6(e) and 6(f) hereof and subject in each case
to adjustment as provided in Section 12) at the Exercise Price at any time
after the issuance of such Warrant and before 5:00 p.m., New York time, on the
Expiration Date; individually, a "Warrant."
(b) For all purposes of this Warrant Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE>
(i) "Herein," "hereof" and "hereunder" and other words of similar
import refer to this Warrant Agreement as a whole and not to any particular
Section or other subdivision;
(ii) Any uses of the masculine, feminine or neuter gender shall
also be deemed to include any other gender as appropriate;
(iii) The exhibits and schedules to this Warrant Agreement shall
be deemed an integral part of this Warrant Agreement;
(iv) Except as specifically set forth in such representation,
each of the representations and warranties of the Issuer in Section 3 hereof
is separate and is not limited, qualified or modified by the existence,
wording or satisfaction of any other representation of the Issuer in Section 3
or otherwise;
(v) All references herein (in covenants or otherwise) to any
action(s) which are to be taken (or which are prohibited from being taken) by
any Person, the Issuer or any Subsidiary shall apply to such Person, the
Issuer or such Subsidiary, as the case may be, whether such action is taken
directly or indirectly; and
(vi) All references herein to actions by the Issuer or any
Subsidiary (including, without limitation, actions denoted by terms such as
"create," "sell," "transfer" or "dispose of") mean such action whether
voluntary or involuntary, by operation of law or otherwise.
Section 2. Issuance of Warrants. The Issuer hereby agrees to issue
and
deliver to Creditanstalt or, at the option of Creditanstalt, an Affiliate
thereof, the Warrants and one or more Warrant Certificates evidencing the
Warrants as set forth in this Section 2. No payment shall be required from
Creditanstalt or its Affiliate in consideration of its receipt of the
Warrants.
(a) On the Closing Date, Issuer shall issue to Creditanstalt the
Series B Warrants entitling Creditanstalt to purchase from the Issuer an
aggregate of 45,000 shares of Common Stock or Convertible Preferred Stock,
which Series B Warrants shall be immediately exercisable.
(b) On the Series C Exercise Date, Issuer shall issue to Creditanstalt
the Series C Warrants entitling Creditanstalt to purchase from the Issuer an
aggregate of 155,000 shares of Common Stock or Convertible Preferred Stock,
which Series C Warrants shall be exercisable only upon such issuance.
Section 3. Representations and Warranties. The Issuer hereby
represents and warrants to Creditanstalt, for the benefit of Creditanstalt and
any other Warrant Holder, as follows:
(a) The Issuer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, has the
corporate power and authority to conduct its business as presently conducted
and as intended to be conducted, has the corporate power and authority to
execute and deliver this Warrant Agreement and the Warrant Certificates,
<PAGE>
to issue the Warrants and to perform its obligations under this Warrant
Agreement and the Warrant Certificates, has the corporate power and authority
and legal right to own and lease its properties and is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which it owns
or leases real property or in which the conduct of its business requires such
qualification, except where failure to be so qualified could not be reasonably
expected to have a material adverse effect on the business, properties,
financial condition or results of operations of the Issuer and its
Subsidiaries taken as a whole.
(b) The execution, delivery and performance by the Issuer of this
Warrant Agreement and the Warrant Certificates, the issuance of the Warrants
and the issuance of the Warrant Shares upon the exercise of the Warrants and
the issuance of Common Stock upon conversion of the Convertible Preferred
Stock have been duly authorized by all necessary corporate action and do not
and will not violate, or result in a breach of, or constitute a default under,
or require any consent under, or result in the creation of any lien, charge or
encumbrance upon the assets of the Issuer pursuant to, any law, statute,
ordinance, rule, regulation, order or decree of any court, governmental body
or regulatory authority or administrative agency having jurisdiction over the
Issuer or its Subsidiaries or the Issuer's Certificate of Incorporation or any
contract, mortgage, loan agreement, note, lease or other instrument binding
upon the Issuer or its Subsidiaries or by which their properties are bound.
(c) This Warrant Agreement has been duly executed and delivered by the
Issuer and constitutes a legal, valid, binding and enforceable obligation of
the Issuer. When the Warrants and Warrant Certificates have been issued as
contemplated hereby, (i) the Warrants and the Warrant Certificates will
constitute legal, valid, binding and enforceable obligations of the Issuer and
(ii) the Warrant Shares, when issued upon exercise of the Warrants in
accordance with the terms hereof, and the Common Stock, when issued upon
conversion of the Convertible Preferred Stock in accordance with the terms of
the Issuer's Certificate of Incorporation relating to the Convertible
Preferred Stock, will be duly authorized, validly issued, fully paid and
nonassessable shares of the Common Stock and Convertible Preferred Stock, as
applicable, with no personal liability attaching to the ownership thereof.
(d) The Issuer has authorized capital stock consisting of 10,000,000
shares of Common Stock, par value $.01 per share, of which 3,640,174 shares
are issued and outstanding and 2,000,000 shares of Preferred Stock, par value
$.01 per share, of which 450,000 shares are designated as Series A Preferred
Stock, of which 231,800 shares are issued and outstanding, and 1,400,000
shares are designated as Series B Preferred Stock, none of which are issued
and outstanding. Except as set forth on Schedule I hereto, there are no
outstanding options, warrants, subscriptions, rights, convertible or
exchangeable securities or other agreements or plans under which the Issuer
may be or become obligated to issue, sell or transfer shares of its capital
stock of other securities. The Convertible Preferred Stock has no voting
rights, except as required by law, and is convertible on a share-for-share
basis into Common Stock of the Issuer. To the Issuer's best knowledge, other
than the Stockholder Agreement dated May 30, 1997 (as amended, restated,
supplemented or otherwise modified from time to time) by and among the Issuer,
Daniel J. Klein, Jamie Blech, Martin F. Kandl and Haeyoung Kandl, Stanley
Nice, John Clement, Creditanstalt, FF-ITP, L.P. and subsequent stockholders,
there are no voting agreements, voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of the Issuer
or any Subsidiary.
<PAGE>
(e) Except as set forth on Schedule II hereto, no holder of securities
of the Issuer has any right to the registration of such securities under the
Securities Act and any applicable state securities law.
(f) Each of the Subsidiaries of the Issuer is listed on Schedule III
to this Warrant Agreement. All outstanding shares of capital stock of such
Subsidiaries have been duly authorized and validly issued and are fully paid
and nonassessable and are owned beneficially and of record by the Issuer free
and clear of all Liens, options or claims of any kind. There are no
outstanding options, warrants, subscriptions, rights, convertible securities
or other agreements or plans under which Subsidiary of the Issuer may become
obligated to issue, sell or transfer shares of its capital stock or other
securities.
Section 4. Registration, Transfer and Exchange of Certificates.
(a) The Issuer shall maintain, at the Warrant Office, the Warrant
Register for registration of the Warrants and Warrant Certificates and
transfers thereof. On the Closing Date, the Issuer shall register the
Warrants and Warrant Certificates in the Warrant Register in the name of
Creditanstalt or an Affiliate thereof, as the case may be. The Issuer may
deem and treat the registered holders of the Warrant Certificates as the
absolute owners thereof and the Warrants represented thereby (notwithstanding
any notation of ownership or other writing on the Warrant Certificates made by
any person) for the purpose of any exercise thereof or any distribution to the
holders thereof, and for all other purposes, and the Issuer shall not be
affected by any notice to the contrary.
(b) Subject to Section 14, the Issuer shall register the transfer of
any outstanding Warrants in the Warrant Register upon surrender of the Warrant
Certificates evidencing such Warrants to the Issuer at the Warrant Office,
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to it, duly executed by the registered holder or
holders thereof or by the duly appointed legal representative thereof. Upon
any such registration of transfer, new Warrant Certificates evidencing such
transferred Warrants shall be issued to the transferee and the surrendered
Warrant Certificates shall be canceled. If less than all the Warrants
evidenced by Warrant Certificates surrendered for transfer are to be
transferred, new Warrant Certificates shall be issued to the holder
surrendering such Warrant Certificates evidencing such remaining number of
Warrants.
(c) Warrant Certificates may be exchanged at the option of the holders
thereof, when surrendered to the Issuer at the Warrant Office, for another
Warrant Certificate or other Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrants. Warrant Certificates
surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange except
for any tax or other governmental charge imposed in connection therewith.
Except as provided in subsection 14(b) each Warrant Certificate issued upon
transfer or exchange shall bear the legend set forth in subsection 14(b) if
the Warrant Certificate presented for transfer or exchange bore such legend.
<PAGE>
Section 5. Mutilated or Missing Warrant Certificates. If any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Issuer shall
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Issuer of such loss, theft or destruction of such
Warrant Certificate and, if requested, indemnity satisfactory to it. The
Issuer acknowledges that a written indemnity by Creditanstalt or, if an
Affiliate of Creditanstalt is the holder of such lost, stolen or destroyed
Warrant Certificate, by such Affiliate, shall be satisfactory to the Issuer
for such purpose. No service charge shall be made for any such substitution,
but all expenses and reasonable charges associated with procuring such
indemnity and all stamp, tax and other governmental duties that may be imposed
in relation thereto shall be borne by the holder of such Warrant Certificate.
Each Warrant Certificate issued in any such substitution shall bear the legend
set forth in subsection 14(b) if the Warrant Certificate for which such
substitution was made bore such legend.
Section 6. Duration and Exercise of Warrants.
(a) A Warrant evidenced by a Warrant Certificate shall be exercisable
in whole or in part by the registered holder thereof on any Business Day after
the issuance of such Warrant, and on or before 5:00 P.M., New York time, on
the Expiration Date.
(b) Subject to the provisions of this Warrant Agreement, the Warrants
evidenced by a Warrant Certificate may be exercised by the registered holder
thereof by the surrender of the Warrant Certificate evidencing the Warrants to
be exercised, with the form of election to purchase on the reverse thereof or
attached thereto duly completed and signed, to the Issuer at the Warrant
Office, and upon payment of the aggregate Exercise Price for the number of
Warrant Shares in respect of which such Warrants are being exercised in lawful
money of the United States of America and/or by surrender to the Issuer of
shares of Common Stock then owned by the Warrant Holder and valued for
purposes hereof at their Current Market Price Per Share at the time of
exercise. In lieu of exercising Warrants pursuant to the immediately
preceding sentence, the Warrant Holder shall have the right to require the
Issuer to convert the Warrants, in whole or in part and at any time or times
(the "Conversion Right"), into Warrant Shares, by surrendering to the Issuer
the Warrant Certificate evidencing the Warrants to be converted, accompanied
by the form of conversion notice on the reverse thereof or attached thereto
which has been duly completed and signed. Upon exercise of the Conversion
Right, the Issuer shall deliver to the Warrant Holder (without payment by the
Warrant Holder of any Exercise Price) that number of Warrant Shares which is
equal to the quotient obtained by dividing (x) the value of the number of
Warrants being converted at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price for all such Warrants
immediately prior to the exercise of the Conversion Right from the aggregate
current market price (determined on the basis of the Current Market Price Per
Share) of that number of Warrant Shares purchasable upon exercise of such
Warrants immediately prior to the exercise of the Conversion Right (taking
into account all applicable adjustments pursuant to Section 12, including
without limitation any adjustments which would be made pursuant to subdivision
(7) of subsection 12(c) upon exercise of the Warrants being converted) by (y)
the Current Market Price Per Share of one share of Common Stock (or the number
<PAGE>
of shares of Common Stock into which one share of Convertible Preferred Stock
can be converted if the Warrants are being converted into Convertible
Preferred Stock) immediately prior to the exercise of the Conversion Right.
Any references in this Warrant Agreement to the "exercise" of any Warrants,
and the use of the term "exercise" herein, shall be deemed to include (without
limitation) any exercise of the Conversion Right. Any exercise of a Warrant
hereunder may be made subject to the satisfaction of one or more conditions
(including, without limitation, the consummation of a sale of the capital
stock of the Issuer or a merger or other business combination involving the
Issuer) which are set forth in a writing which is made a part of or is
appended to the aforementioned form of election to purchase or conversion
notice (as the case may be) by the Warrant Holder.
(c) Upon exercise of any Warrants hereunder, the Issuer shall issue
and cause to be delivered to or upon the written order of the registered
holders of such Warrants and in such name or names as such registered holders
may designate, a certificate for the Warrant Share or Warrant Shares issued
upon such exercise of such Warrants. Any Persons so designated to be named
therein shall be deemed to have become holders of record of such Warrant Share
or Warrant Shares as of the date of exercise of such Warrants.
(d) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or
Certificates shall be issued for the remaining number of Warrants evidenced by
such Warrant Certificate. Each new Warrant Certificate so issued shall bear
the legend set forth in subsection 14(b) if the Warrant Certificate presented
in connection with partial exercise thereof bore such legend unless the
transfer restrictions referred to in such legend are no longer applicable
pursuant to subsection 14(d). All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled.
(e) At the election of a Warrant Holder made at the time of exercise,
the Warrant Shares to be issued upon such exercise may be either Common Stock
or Convertible Preferred Stock (or a combination thereof), provided that the
Warrant Holder shall not have the right to have issued to it upon exercise
Common Stock which, when aggregated with all other shares of Common Stock
(other than shares of Non-Attributable Stock) currently or previously held by
or currently issuable without restriction to the Warrant Holder, will exceed
4.99% of the then outstanding Common Stock unless such Warrant Holder
certifies that such Warrants have previously been transferred either (i) in a
widely dispersed public offering of the Warrants, or (ii) in a private
placement in which no purchaser, individually or in concert with others, would
have acquired more than 2% of the outstanding Common Stock if the Warrants so
transferred had been exercised for Common Stock, or (iii) in compliance with
Rule 144 (or any rule which is a successor thereto) of the Securities Act, or
(iv) into the secondary market in a market transaction executed through a
registered broker-dealer in blocks of no more than 2.0% of the shares
outstanding of the Issuer in any six month period; provided further that if
the Warrant Holder is a bank or an Affiliate of a bank subject to the
provisions of the Bank Holding Company Act of 1956, as amended, such Common
Stock, together with all other shares of Common Stock currently or previously
held by or currently issuable without restriction to such Warrant Holder and
its Affiliates (not including Non-Attributable Stock), will not exceed 4.99%
of the then outstanding Common Stock. In the event two or more Warrant
Holders attempt to exercise Warrants for Common Stock simultaneously and, if
permitted, such exercises would cause the 4.99% limitation to be exceeded,
then the Issuer shall notify the Warrant Holders who had attempted to exercise
Warrants for Common Stock and each such Warrant Holder shall be entitled to
exercise for
<PAGE>
Common Stock only such number of Warrants as shall equal the product of (i)
the number of Warrants the Warrant Holder sought to exercise for Common Stock
times (ii) a fraction, the numerator of which is the maximum number of
Warrants which may be exercised for Common Stock without exceeding the 4.99%
limitation and the denominator of which is the maximum number of Warrants
sought to be exercised for Common Stock by such Warrant Holders.
(f) Notwithstanding the foregoing provisions of this Section 6, in no
event shall any Warrant be exercisable for shares of Common Stock or
Convertible Preferred Stock which, when aggregated with all other capital
stock of the Issuer (other than shares of Non-Attributable Stock) currently
held or previously held by or currently issuable without restriction to
Creditanstalt or its Affiliates, would, upon issuance, represent in excess of
24.99% of the Equity of the Issuer unless such shares, when issued, would
constitute Non-Attributable Stock.
Section 7. No Fractional Shares. The Issuer shall not be required to
issue fractional shares of Common Stock or Convertible Preferred Stock upon
exercise of the Warrants but shall pay for any such fraction of a share an
amount in cash equal to the then Current Market Price Per Share of one share
of Common Stock multiplied by such fraction.
Section 8. Payment of Taxes. The Issuer will pay all taxes
attributable to the initial issuance of Warrant Shares upon the exercise of
the Warrants, provided that the Issuer shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue of any
Warrant Certificate or any certificate for Warrant Shares in a name other than
that of the registered holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Issuer shall not be required to issue or
deliver such certificate unless or until the person or persons requesting the
issuance thereof shall have paid to the Issuer the amount of such tax or shall
have established to the satisfaction of the Issuer that such tax has been
paid.
Section 9. Stockholder Rights.
(a) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the holders thereof
the right to vote or to consent or to receive notice as a stockholder in
respect of the meetings of stockholders or the election of directors of the
Issuer or any other matter, or any rights whatsoever as a stockholder of the
Issuer.
(b) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as imposing any obligation on the
registered holders thereof to purchase any securities or as imposing any
liabilities on such holders as stockholders of the Issuer, whether such
obligation or liabilities are asserted by the Issuer or by creditors of the
Issuer.
Section 10. Reservation and Issuance of Warrant Shares; Certain
Corporate Actions.
(a) The Issuer will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon the exercise of the
Warrants and conversion of the Convertible Preferred Stock, the number of
shares of Common Stock and Convertible Preferred Stock deliverable upon
exercise of all outstanding Warrants and conversion of Convertible Preferred
Stock.
<PAGE>
(b) The Issuer covenants that all Warrant Shares will, upon issuance
in accordance with the terms of this Warrant Agreement and the Issuer's
Certificate of Incorporation, be fully paid and nonassessable and free from
all taxes (except as otherwise contemplated in Section 8 hereof) with respect
to the issuance thereof and from all liens, charges and security interests
(other than any created by or on behalf of any Warrant Holder).
(c) So long as any Warrants are outstanding, the Issuer shall make no
amendment of its Certificate of Incorporation which would affect the
authorization, dividend, put, voting, liquidation, conversion, exchange or
notice rights or additional remedies provisions of the Convertible Preferred
Stock without the written consent of all of the Warrant Holders.
(d) The Issuer will not, by amendment of its Certificate of
Incorporation or through any consolidation, merger, reorganization, transfer
of assets, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant Agreement or the Warrant Certificates. Without limiting
the generality of the foregoing, the Issuer (i) will not permit the par value
or the determined or stated value of any shares of the Issuer's Common Stock
or Convertible Preferred Stock receivable upon the exercise of the Warrants to
exceed the amount payable therefor upon such exercise, (ii) will take all such
action as may be necessary or appropriate in order that the Issuer may validly
and legally issue fully paid and nonassessable shares of the Issuer's Common
Stock or Convertible Preferred Stock (as the case may be), upon the exercise
of the Warrants from time to time outstanding, including, without limitation,
amending its Certificate of Incorporation to reduce or eliminate the par value
of the Common Stock, (iii) will not take any action which results in an
adjustment in the number of Warrant Shares obtainable upon the exercise of any
Warrants if the total number of shares of the Issuer's Common Stock (or other
securities) issuable after such action upon the exercise of all of the
then-outstanding Warrants would exceed the total number of shares of the
Issuer's Common Stock (or other securities) then authorized by the Issuer's
Certificate of Incorporation and available for purpose of issuance upon such
exercise, (iv) will not have any authorized Common Stock other than its
existing authorized Common Stock, and (v) will not amend its Certificate of
Incorporation to change any terms of its Common Stock.
(e) If the Issuer proposes, prior to the Expiration Date, to enter
into a transaction that would constitute a Non-Surviving Combination, if
consummated, the Issuer shall give written notice thereof to each of the
Warrant Holders promptly after an agreement is reached with respect to the
Non-Surviving Combination but in any event no less than thirty (30) days prior
to the consummation thereof. Such notice shall describe the proposed
transaction in reasonable detail and specify the consideration to be received
by the Warrant Holders in respect thereto and/or any adjustment to be made to
the number of Warrant Shares obtainable upon the exercise of the Warrants as a
result of such Non-Surviving Combination. The Issuer shall also furnish to
each Warrant Holder all notices and materials furnished to its stockholders in
connection with such transaction as and when such notices and materials are
furnished to its stockholders. The Issuer agrees that it will not enter into
an agreement providing for a Non-Surviving Combination or effect any such
Non-Surviving Combination unless the party to such transaction that is the
surviving entity thereof or the purchaser or purchasers of substantially all
of the assets of the Issuer (the "Survivor") (i) shall be obligated to
distribute or pay to each Warrant Holder, upon payment of the Exercise Price
prior to the Expiration Date, the number of shares of stock or other
securities or other property (including any cash) of the Survivor that would
have been distributable or payable on account of the Warrant Shares if such
Warrant Holder's Warrants had been exercised immediately prior to such
Non-Surviving Combination (or, if applicable, the record date therefor), as
such number of shares or other securities or other property may thereafter be
adjusted pursuant to Section 12 of this Warrant Agreement and (ii) shall
assume by written instrument all of the obligations of the Issuer under this
Warrant Agreement.
<PAGE>
Section 11. Obtaining of Governmental Approvals and Stock Exchange
Listings. Subject, in the case of any registration under the Securities Act,
to the limitations set forth in Section 15, the Issuer will, at its own
expense, from time to time take all action which may be necessary to obtain
and keep effective any and all permits, consents and approvals of governmental
agencies and authorities which are or become requisite in connection with the
issuance, sale, transfer and delivery of the Warrant Certificates and the
exercise of the Warrants and the issuance, sale, transfer and delivery of the
Warrant Shares and all action which may be necessary so that such Warrant
Shares, immediately upon their issuance upon the exercise of Warrants and
conversion of the Convertible Preferred Stock, will be listed on each
securities exchange, if any, on which the Common Stock and/or Convertible
Preferred Stock is then listed.
Section 12. Adjustment of Number of Warrant Shares Purchasable.
(a) The number of shares of Common Stock or Convertible Preferred
Stock purchasable upon the exercise of each Warrant is subject to adjustment
from time to time upon the occurrence of any of the events enumerated in this
Section 12 at any time or from time to time after the date hereof and prior to
the Expiration Date.
(b) If the Issuer shall (i) declare a dividend on the Common Stock or
Convertible Preferred Stock in shares of its capital stock (whether shares of
Common Stock, Convertible Preferred Stock or of capital stock of any other
class), (ii) split or subdivide the outstanding Common Stock or Convertible
Preferred Stock or (iii) combine the outstanding Common Stock or Convertible
Preferred Stock into a smaller number of shares, each Warrant outstanding at
the time of the record date for such dividend or of the effective date of such
split, subdivision or combination shall thereafter entitle the holder of such
Warrant to receive the aggregate number and kind of shares which, if such
Warrant had been exercised immediately prior to such time, such holder would
have owned or have become entitled to receive by virtue of such dividend,
subdivision or combination. Such adjustment shall be made successively
whenever any event listed above shall occur and, if a dividend which is
declared is not paid, each Warrant outstanding shall again entitle the holder
thereof to receive the number of shares of Common Stock or Convertible
Preferred Stock as would have been the case had such dividend not been
declared. If at any time, as a result of an adjustment made pursuant to this
subsection 12(b), the holder of any Warrant thereafter exercised shall become
entitled to receive any shares of capital stock of the Issuer other than
shares of Common Stock and Convertible Preferred Stock, thereafter the number
of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Section 12, and the provisions of this Warrant Agreement
with respect to the Warrant Shares shall apply on like terms to such other
shares.
<PAGE>
(c) If the Issuer shall issue any shares of Common Stock without
consideration or at a price per share less than the Current Market Price Per
Share of the Common Stock as at the date of such issuance, including any
shares of Common Stock deemed to have been issued pursuant to this subsection
12(c) but excluding any Exempted Securities, each Warrant outstanding on the
date of such issuance shall thereafter entitle the holder of such Warrant to
receive a number of shares of Common Stock or Convertible Preferred Stock
equal to the product of (i) the number of shares of Common Stock or
Convertible Preferred Stock to which the holder of such Warrant was entitled
immediately prior to such issuance and (ii) the quotient that is obtained by
dividing:
(X) the total number of shares of Common Stock outstanding
immediately after such issuance (including any shares of Common Stock deemed
to have been issued pursuant to this subsection 12(c))
by
(Y) the sum of
(i) the number of shares of Common Stock outstanding
immediately prior to such issuance plus
(ii) the number of shares of Common Stock which the
aggregate consideration received (or deemed to be received) by the Issuer upon
such issuance would purchase at such Current Market Price Per Share.
For purposes of any adjustment of the number of shares of Common Stock or
Convertible Preferred Stock obtainable upon the exercise of any Warrants
pursuant to this subsection 12(c), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration therefor shall be deemed to be the amount of cash paid therefor,
without deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Issuer in connection with the issuance or
sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined by agreement between the
holders of a majority of the Warrants outstanding and the Issuer or, in the
absence of such an agreement, by an independent investment banking firm or an
independent appraiser engaged by the Issuer and reasonably acceptable to the
holders of a majority of the Warrants outstanding (in either case the cost of
which engagement will be borne by the Issuer). In the case of any issuance of
Common Stock upon the exercise of any warrants, options or other rights or the
conversion or exchange of any convertible or exchangeable securities, the
aggregate consideration received by the Issuer upon such issuance shall be
deemed to include the consideration, if any, received by the Issuer as
consideration for the issuance of such warrants, options or rights or such
convertible or exchangeable securities (excluding any cash received on account
of accrued interest or accrued dividends) and, in the case of any conversion
or exchange of securities, shall not include any amount attributable to the
converted or exchanged securities. If any warrant, option or right to
purchase or subscribe for any Common
<PAGE>
Stock or convertible securities is issued in connection with the issuance or
sale of other securities by the Issuer, together comprising one integrated
transaction in which no specific consideration is allocated to such warrant,
option, right or security, such warrant, option, right, or security shall be
deemed to have been issued for no consideration.
(3) If (a) the Issuer shall issue warrants or options to
purchase or rights to subscribe for Common Stock other than Exempted
Securities, and (b) the consideration, if any, received by the Issuer as
consideration for the issuance of such warrants, options or rights plus the
minimum aggregate consideration required to be paid upon exercise of such
warrants, options or rights (the amount of such consideration to be determined
in each case as set forth above) shall be less than the product of the Current
Market Price Per Share on the date of such issuance multiplied by the maximum
number of shares of Common Stock deliverable upon such exercise, then such
aggregate maximum number of shares shall be deemed to have been issued at the
time such warrants, options or rights were issued and for a consideration
equal to such minimum aggregate consideration.
(4) If (a) the Issuer shall issue (i) securities (other than
Exempted Securities) which are by their terms convertible into or exchangeable
for Common Stock or (ii) warrants or options to purchase or rights to
subscribe for any such convertible or exchangeable securities, and (b) the
consideration received by the Issuer for any such securities or any such
warrants, options or rights (excluding any cash received on account of accrued
interest or accrued dividends) plus the minimum aggregate consideration (not
including any amount attributed to the converted or exchanged securities), if
any, to be received by the Issuer upon the conversion or exchange of such
securities or upon the exercise of such warrants, options or rights and the
conversion or exchange of the securities received upon such exercise, as the
case may be (the amount of such consideration to be determined in each case as
set forth above) shall be less than the product of the Current Market Price
Per Share on the date of such issuance multiplied by the maximum number of
shares deliverable upon conversion of or in exchange for such convertible or
exchangeable securities or upon the exercise of any such warrants, options or
rights and subsequent conversion or exchanges thereof, then such securities,
warrants, options or rights shall be deemed to have been exercised and/or
converted or exchanged, and the aggregate maximum number of shares of Common
Stock shall be deemed to have been issued at the time such securities,
warrants, options or rights were issued for a consideration equal to such
minimum aggregate consideration.
(5) Upon any reduction in the exercise price of Common Stock
deliverable upon exercise of any of such warrants, options or rights as are
referred to in this subsection 12(c) or any reduction in the amount of
consideration required to be paid or the conversion or exchange price or ratio
payable upon conversion or exchange of any of such convertible or exchangeable
securities, in each case other than a change resulting from any antidilution
provisions thereof which are no more favorable in such instance to the holder
thereof than the provisions of this Section 12 are to the Warrant Holders, (i)
if an adjustment shall previously have been made pursuant to this subsection
12(c) in respect of such warrants, options or rights or such securities, the
number of shares of Common Stock or Convertible Preferred Stock obtainable
upon the exercise of the Warrants shall forthwith be readjusted to such number
of shares as would have obtained had the adjustment made upon the issuance of
such warrants, options, rights or
<PAGE>
securities as have not been exercised, converted or exchanged prior to such
change (or any prior adjustment made pursuant to this subdivision (5)) been
made upon the basis of such change, and (ii) if an adjustment has not
previously been made pursuant to this subsection 12(c) in respect of such
options or rights or such securities, then such warrants, options or rights or
such securities shall be deemed to have been granted or issued (as the case
may be) for purposes of this subsection 12(c) as of the date of such
reduction, and any adjustments required to be made pursuant to this subsection
12(c) as a result of such deemed grant or issuance shall forthwith be made
effective as of such date.
(6) All grants or issuances of options or other rights to
acquire shares of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock) issued to any officer, director or employee of the
Issuer or of any Subsidiary of the Issuer or to members of the immediate
family of any of them ("Management Options"), and all issuances of shares of
Common Stock (or securities convertible into or exchangeable for shares of
Common Stock) under or pursuant to such Management Options shall, for purposes
of subsection 12(c), be deemed to be granted and issued for no consideration
except to the extent cash or notes are paid therefor.
(7) If and when any Warrants shall be exercised as set forth
herein, (i) if there shall be any outstanding warrants (other than the
Warrants) or options to purchase or rights to subscribe for shares of Common
Stock or any outstanding warrants (other than the Warrants) or options to
purchase or rights to subscribe for or securities which are by their terms
convertible into or exchangeable for Common Stock which in each case would, if
issued on the date of such Warrant exercise, result in an adjustment pursuant
to either of subdivisions (3) or (4) of this subsection 12(c), then such
warrants or options shall be deemed to have been exercised in full immediately
prior to the exercise of such Warrants for a consideration equal to the
consideration, if any, received by the Issuer upon the issuance of such
options or rights plus the minimum aggregate consideration required to be paid
upon exercise of such options or rights (the amount of such consideration to
be determined in each case as set forth above), and (ii) if there shall be any
outstanding securities which are by their terms convertible into or
exchangeable for Common Stock at the time of such warrant exercise or at any
time thereafter which in each case would, if issued on the date of such
Warrant exercise, result in an adjustment pursuant to subdivision (4) of this
subsection, then such securities shall be deemed to have been converted or
exchanged in full immediately prior to the exercise of such Warrants for a
consideration equal to the aggregate consideration received by the Issuer for
any such securities plus the minimum aggregate consideration (not including
any amount attributed to the converted or exchanged securities), if any,
required to be paid upon the conversion or exchange of such securities (the
amount of such consideration to be determined in each case as set forth
above); provided that any adjustment made pursuant to this subdivision (7) of
subsection 12(c) shall only be made with respect to such Warrants as are then
being exercised.
(8) Shares of Common Stock owned by or held for the account of
the Issuer or any majority-owned Subsidiary shall not be deemed outstanding
for the purpose of any computation made pursuant to this subsection 12(c).
Any adjustment required to be made pursuant to this subsection 12(c) shall be
made successively whenever the date of issuance or deemed issuance of any such
Common Stock or any such options, rights or convertible or exchangeable
securities is fixed (which date of issuance shall be the record date for such
issuance if a record date therefor is fixed) and, in the event that (A) such
shares or options, rights, warrants or convertible or exchangeable securities
are not so issued, or (B) any such option, right, warrant or convertible or
exchangeable security (or the conversion or exchange right thereunder) expires
according to its terms without having been exercised, converted or exchanged,
each Warrant outstanding shall, as of the date of cancellation of such
issuance in the case of clause (A) above and the date of such expiration in
the case of clause (B) above, entitle the holder thereof to receive the number
of shares of Common Stock or Convertible Preferred Stock as would have been
the case had the date of such issuance of such unissued options, rights,
warrants or convertible or exchangeable securities not been fixed or such
expired options, rights, warrants or convertible or exchangeable securities
not been issued, as the case may be. If any adjustment is
<PAGE>
made pursuant to either of subdivisions (3) or (4) of this subsection 12(c)
upon the granting or issuance of any warrants, options or other rights or any
convertible or exchangeable securities or any adjustment or readjustment is
made pursuant to subdivision (5) of this subsection 12(c), then any adjustment
required to be made hereunder upon the exercise of any such warrants, options
or other rights or upon the exchange or conversion of any such convertible or
exchangeable securities (including any deemed exercise, conversion or exchange
pursuant to subdivision (7) of this subsection 12(c)) shall be made only to
the extent that the number of shares of Common Stock or Convertible Preferred
Stock purchasable upon the exercise of a Warrant shall not previously have
been increased pursuant to this subsection 12(c) upon such grant or issuance
(or upon such adjustment or readjustment made pursuant to subdivision (5) of
this subsection 12(c), if applicable).
(d) In case the Issuer shall make a distribution to all holders of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Issuer is the continuing corporation) of
evidences of its indebtedness, cash or other assets, each Warrant outstanding
on the date of such distribution shall thereafter entitle the holder of such
Warrant to receive a number of shares of Common Stock and Convertible
Preferred Stock equal to the product of (i) the number of shares of Common
Stock and Convertible Preferred Stock to which the holder of such Warrant was
entitled immediately prior to such date of distribution and (ii) a fraction of
which the numerator shall be the then Current Market Price Per Share of Common
Stock on such date and of which the denominator shall be the then Current
Market Price Per Share of Common Stock on such date less the fair market
value, as determined by agreement between the holders of a majority of the
Warrants and the Issuer or, in the absence of such an agreement, by an
independent investment banking firm or an independent appraiser engaged by the
Issuer and reasonably acceptable to the holders of a majority of the Warrants
(in either case the cost of which engagement will be borne by the Issuer) of
the portion of the assets or evidences of indebtedness, or the portion of the
cash, so to be distributed applicable to one share of then-outstanding Common
Stock. Such adjustment shall be made successively whenever a date for such
distribution is fixed (which date of distribution shall be the record date for
such distribution if a record date therefor is fixed) and, if such
distribution is not so made, each Warrant outstanding shall again entitle the
holder thereof to receive the number of shares of Common Stock and Convertible
Preferred Stock as would have been the case had such date of distribution not
been fixed.
(e) In the event of any capital reorganization of the Issuer, or of
any reclassification of the Common Stock (other than a subdivision or
combination of outstanding shares of Common Stock), or in case of the
consolidation of the Issuer with or the merger of the Issuer with or into any
other corporation or of the sale of the properties and assets of the Issuer
as, or substantially as, an entirety to any other corporation, each Warrant
shall after such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale be exercisable upon the terms and conditions
specified in this Warrant Agreement, for the number of
<PAGE>
shares of stock or other securities or assets to which a holder of the number
of Warrant Shares purchasable (at the time of such capital reorganization,
reclassification of Common Stock, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled upon such capital reorganization,
reclassification of Common Stock, consolidation, merger or sale; and in any
such case, if necessary, the provisions set forth in this Section 12 with
respect to the rights thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or assets thereafter deliverable on
the exercise of the Warrants.
(f) If any event occurs, as to which, in the good faith opinion of the
Board of Directors of the Issuer, the other provisions of this Section 12 are
not strictly applicable or (if strictly applicable) would not fairly protect
the purchase rights of the Warrants in accordance with the essential intent
and principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
decreasing the number of shares of Common Stock or Convertible Preferred Stock
purchasable upon the exercise of each Warrant from that which would otherwise
be determined pursuant to this Section 12.
(g) No adjustment in the number of Warrant Shares purchasable shall be
required unless such adjustment would require an increase or decrease in the
aggregate number of Warrant Shares purchasable of at least 1%, provided that
any adjustments which by reason of this subsection 12(g) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 12 shall be made to the
nearest cent or to the nearest hundredth of a share, as the case may be.
(h) Irrespective of any adjustments in the number or kind of shares
purchasable upon the exercise of the Warrant, Warrant Certificates theretofore
or thereafter issued may continue to express the same number and kind of
shares as are stated on the Warrant Certificates initially issuable pursuant
to this Warrant Agreement.
(i) If any question shall at any time arise with respect to the number
of Warrant Shares purchasable following any adjustment pursuant to this
Section 12, such question shall be determined by agreement between the holders
of a majority of the Warrants and the Issuer or, in the absence of such an
agreement, by an independent investment banking firm or an independent
appraiser engaged by the Issuer (in either case the cost of which engagement
will be borne by the Issuer) and reasonably acceptable to the Issuer and the
holders of a majority of Warrants and such determination shall be binding upon
the Issuer and the holders of the Warrants.
(j) Anything in this Section 12 to the contrary notwithstanding:
(1) the Issuer shall be entitled to make such increases in the
number of Warrant Shares purchasable upon the exercise of each Warrant, in
addition to those adjustments required by this Section 12, as it in its sole
discretion shall determine to be advisable in order that any consolidation or
subdivision of the Common Stock, or any issuance wholly for cash or any shares
of Common Stock at less than the Current Market Price Per Share, or any
issuance
<PAGE>
wholly for cash or shares of Common Stock or securities which by their terms
are convertible into or exchangeable for shares of Common Stock or any stock
dividend, or any issuance of rights, options or warrants referred to
hereinabove in this Section 12, hereinafter made by the Issuer to the holders
of its Common Stock shall not be taxable to them; and
(2) no adjustment in the number of Warrant Shares purchasable
shall be required in the event the Issuer pays a cash dividend to holders of
Common Stock and/or Convertible Preferred Stock; provided that the Issuer also
pays a cash dividend to all holders of Warrants which dividend shall be
calculated as if the Warrants had been exercised.
Section 13. Notices to Warrant Holders; Notices of Issuances and Dividends.
(a) Upon any adjustment of the number of Warrant Shares purchasable
upon exercise of a Warrant pursuant to Section 12, the Issuer shall promptly
but in any event within 20 days thereafter, cause to be given to each of the
registered holders of the Warrants at its address appearing on the Warrant
Register by registered mail, postage prepaid, return receipt requested a
certificate signed by its chairman, president or chief financial officer
setting forth the number of Warrant Shares purchasable upon exercise of a
Warrant as so adjusted and describing in reasonable detail the facts
accounting for such adjustment and the method of calculation used. Where
appropriate, such certificate may be given in advance and included as a part
of the notice required to be mailed under the other provisions of this Section
13.
(b) In the event:
(i) that the Issuer shall authorize the issuance to all holders
of Common Stock or Convertible Preferred Stock of rights or warrants to
subscribe for or purchase capital stock of the Issuer or of any other
subscription rights or warrants; or
(ii) that the Issuer shall authorize the distribution to all
holders of Common Stock or Convertible Preferred Stock of evidences of its
indebtedness or assets (including, without limitation cash dividends or cash
distributions payable out of consolidated earnings or earned surplus or
dividends payable in Common Stock or Convertible Preferred Stock); or
(iii) of any consolidation or merger to which the Issuer is a
party and for which approval of any stockholders of the Issuer is required, or
of the conveyance or transfer of the properties and assets of the Issuer
substantially as an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination); or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Issuer; or
<PAGE>
(v) that the Issuer proposes to take any other action which
would require an adjustment in the number of Warrant Shares or other
securities or assets to which each Warrant Holder is entitled pursuant to
Section 12;
then the Issuer shall cause to be given to each of the registered holders of
the Warrants at its address appearing on the Warrant Register at least 20
calendar days prior to the applicable record date, if any, hereinafter
specified, or, if no such record date is specified, 20 calendar days prior to
the taking of any action referred to in clauses (i) through (v) above, by
registered mail, postage prepaid, return receipt requested, a written notice
stating (i) the date as of which the holders of record of Common Stock or
Convertible Preferred Stock to be entitled to receive any such rights,
warrants or distribution are to be determined, or (ii) the date on which any
such consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective, or (iii) the date on which such
other action is to be effected, and the date as of which it is expected that
holders of record of Common Stock or Convertible Preferred Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up or other action. The failure
to give the notice required by this Section 13 or any defect therein shall not
affect the legality or validity of any distribution, right, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up or other action referred to above, or the vote upon any such
action.
(c) Prior to the expiration or exercise of all outstanding Warrants,
the Issuer shall furnish to each Warrant Holder:
(i) as soon as available, but in any event within 90 days after
the end of each fiscal year of the Issuer, either (A) a copy of the Issuer's
Annual Report on Form 10-K (or any successor form) and any documents
incorporated by reference into such form for the prior fiscal year, as filed
with the Commission under the Exchange Act, or (B) a copy of the consolidated
balance sheet of the Issuer and its consolidated Subsidiaries as at the end of
such year and the related consolidated statement of income and retained
earnings and of cash flow for such year, setting forth in each case in
comparative form the figures for the previous year certified by certified
independent public accountants not unacceptable to Creditanstalt, and the
consolidated balance sheet of the Issuer and its consolidated Subsidiaries as
at the end of such fiscal year, showing inter-company eliminations, and the
related consolidating statements of income and retained earnings and changes
in financial position of the Issuer and its consolidated Subsidiaries for such
year, showing inter-company eliminations, setting forth in each case in
comparative form the figures for the previous fiscal year, certified by a firm
of nationally recognized independent certified public accountants;
(ii) as soon as available but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal year
of the Issuer, either (A) a copy of the Issuer's Quarterly Report on Form 10-Q
(or any successor form) for the preceding fiscal quarter, as filed with the
Commission under the Exchange Act, or (B) the unaudited consolidated balance
sheet of the Issuer and its consolidated Subsidiaries as at the end of each
such quarter and the related unaudited consolidated statements of income and
retained earnings and of cash
<PAGE>
flow of the Issuer and its consolidated Subsidiaries for such quarter and the
portion of the fiscal year through such date setting forth in each case in
comparative form the figures for the same period of the previous fiscal year,
reviewed by independent certified public accountants and certified by the
chief financial or accounting officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments); and
(iii) promptly after the sending or filing thereof, as the case
may be, copies of any reports, certificates, budgets, definitive proxy
statements or financial statements which Issuer sends to its stockholders and
copies of any regular periodic and special reports or registration statements
which Issuer files with the Commission (or any governmental agency substituted
therefor), including, but not limited to, any report or registration statement
which Issuer files with any national securities exchange;
(iv) no later than April 30 of each year, a certificate of the
chairman, president or chief financial officer of the Issuer setting forth the
number of Warrant Shares purchasable upon exercise of a Warrant as of the end
of the preceding fiscal year and a description in reasonable detail of any
adjustments in such number during the preceding fiscal year;
all such financial statements to be prepared in reasonable detail and in
accordance with generally accepted accounting principles applied consistently
throughout the periods reflected therein (except as approved by such
accountants and officer and disclosed therein). So long as the Loan Agreement
remains in effect, compliance by the Issuer with the provisions of Section 7.2
thereof shall be deemed to be compliance with subsections 13(c)(i) and
13(c)(ii).
Section 14. Restrictions on Transfer.
(a) Each of Creditanstalt and its Affiliates who are issued Warrants
pursuant to this Agreement (i) represents that it is an "accredited investor"
within the meaning of the Securities Act and the rules and regulations
promulgated thereunder, (ii) represents that it has received adequate
information about the Issuer to determine the advisability of a purchase of
the Issuer's securities, (iii) represents that it is acquiring the Warrants
for its own account for investment and not with a view to any distribution or
public offering within the meaning of the Securities Act, except in any case
pursuant to the registration of such Warrants or Warrant Shares under the
Securities Act or pursuant to a valid exemption from such registration
requirement, (iv) acknowledges that the Warrants and the Warrant Shares
issuable upon exercise thereof have not been registered under the Securities
Act and (v) agrees that it will not sell or otherwise transfer any of its
Warrants or Warrant Shares except upon the terms and conditions specified
herein and that it will cause any transferee thereof to agree to take and hold
the same subject to the terms and conditions specified herein, provided that
the Warrant Holders may sell the Warrants or the Warrant Shares purchased upon
exercise of the Warrants and issued on conversion of the Convertible Preferred
Stock in one or more private transactions not requiring registration under the
Securities Act, as provided in Section 14(c) below.
(b) Except as provided in subsection 14(d) hereof each Warrant
Certificate and each certificate for the Warrant Shares issued to
Creditanstalt or an Affiliate thereof or to a
<PAGE>
subsequent transferee thereof pursuant to subsection 14(c) shall include a
legend in substantially the following form (with such changes therein as may
be appropriate to reflect whether such legend refers to Warrants or Warrant
Shares), provided that such legend shall not be required if such transfer is
being made in connection with a sale which is exempt from registration
pursuant to Rule 144 under the Securities Act or if the opinion of counsel
referred to in subsection 14(c) is to the further effect that neither such
legend nor the restrictions on transfer in this Section 14 are required in
order to ensure compliance with the Securities Act:
THE WARRANTS AND SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW. SUCH WARRANTS
AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED
IN AND ARE SUBJECT TO OTHER PROVISIONS OF THE AMENDED AND RESTATED WARRANT
AGREEMENT, DATED AS OF DECEMBER 16, 1997 (AS SUCH AGREEMENT MAY BE AMENDED,
RESTATED, SUPPLEMENTED OR MODIFIED FROM TIME TO TIME), BETWEEN THE ISSUER AND
CREDITANSTALT CORPORATE FINANCE, INC., A COMPLETE AND CORRECT COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
(c) Prior to or promptly after any assignment, transfer or sale of any
Warrant or any Warrant Shares (other than a transfer among Creditanstalt
and/or its Affiliates), the holder thereof shall give written notice to the
Issuer of such holder's intention to effect such assignment, transfer or sale,
which notice shall set forth the date of such proposed assignment, transfer or
sale and the identity of the proposed transferee. Each holder wishing to
effect such a transfer of any Warrant or Warrant Shares shall also furnish to
the Issuer an agreement by the transferee thereof that it is taking and
holding the same subject to the terms and conditions specified herein and,
unless the transferee is an Affiliate of such holder, a written opinion of
such holder's counsel, in form reasonably satisfactory to the Issuer, to the
effect that the proposed transfer may be effected without registration under
the Securities Act.
(d) The restrictions set forth in this Section 14 shall terminate and
cease to be effective with respect to any Warrants or Warrant Shares which are
registered under the Securities Act or upon receipt by the Issuer of an
opinion of counsel, in form reasonably satisfactory to the Issuer, to the
effect that compliance with such restrictions is not necessary in order to
comply with the Securities Act with respect to the transfer of the Warrants
and the Warrant Shares; provided, however, that after two (2) years from the
date of issuance of any Warrants (or such shorter period as may be provided by
Rule 144(k) promulgated under the Securities Act), such restrictions will
automatically terminate (without the necessity of any opinion of counsel) as
to such Warrants and as to any Warrant Shares issued in respect of such
Warrants upon exercise of the Conversion Right set forth in subsection 6(b)
above. Whenever such restrictions shall so terminate the holder of such
Warrants and/or Warrant Shares shall be entitled to receive from the Issuer,
without expense (other than transfer taxes, if any), Warrant
<PAGE>
Certificates or certificates for such Warrant Shares not bearing the legend
set forth in subsection 14(b) at which time the Issuer will rescind any
transfer restrictions relating thereto.
(e) With a view to making available to Creditanstalt and its
Affiliates and subsequent holders of the Warrant Shares the benefits of
certain rules and regulations of the Securities and Exchange Commission
(including, without limitation, Rules 144 and 144A under the Securities Act)
which may permit the sale of Warrants and Warrant Shares to the public or
certain other institutions without registration, the Issuer agrees to take any
and all such actions as may be required of it to make available to
Creditanstalt and its Affiliates and such subsequent holders such benefits,
including without limitation, to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act or any
successor provision thereto from and after the date the Issuer first becomes
subject to the provisions of Section 13 or 15(d) of the Exchange Act;
(ii) file with the Commission in a timely manner all reports and
other documents required of the Issuer under the Securities Act and the
Exchange Act from and after the date the Issuer first becomes subject to the
provisions of Section 13 or 15(d) of the Exchange Act; and
(iii) so long as Creditanstalt or an Affiliate thereof owns any
Warrants or Warrant Shares, furnish to Creditanstalt forthwith upon request a
written statement by the Issuer as to its compliance with the reporting
requirements of Rule 144 or any successor provision thereto, and of the
Securities Act and the Exchange Act, (to the extent not previously furnished
to Creditanstalt under subsection 13(d)) a copy of the most recent annual or
quarterly report of the Issuer filed with the Commission, in each case from
and after the date the Issuer first becomes subject to the provisions of
Section 13 or 15(d) of the Exchange Act, and such other reports and documents
of the Issuer and other information in the possession of or reasonably
obtainable by the Issuer as Creditanstalt and its Affiliates and subsequent
holders of the Warrants may reasonably request in availing itself of any rule
or regulation of the Commission allowing Creditanstalt and its Affiliates and
subsequent holders of the Warrants to sell any such securities without
registration.
Section 15. Registration.
(a) (i) Upon the written demand of any Warrant Holder to the Issuer
(a "Demand") at any time and from time to time after the Closing Date
requesting that the Issuer effect the registration under the Securities Act of
Warrants or Non-Public Warrant Shares of such Warrant Holder, the Issuer will
promptly give written notice (a "Demand Notice") of such Demand to all other
Warrant Holders. Each other Warrant Holder may request that the Issuer effect
the registration under the Securities Act of additional Warrants or Non-Public
Warrant Shares of such Warrant Holder by delivering written notice to the
Issuer specifying such number of Warrants or Non-Public Warrant Shares within
20 days of receipt of the Demand Notice. In the event that the Issuer
receives requests for the registration under the Securities Act of at least an
aggregate of 20% of the Warrants or Non-Public Warrant Shares (or if less than
an aggregate of 20% of the Warrants or Non-Public Warrant Shares are
outstanding, the remainder of the Warrants and Non-Public Warrant Shares then
outstanding) within such 20-day period the Issuer shall give written notice (a
"Registration Notice") to all Warrant Holders and holders of unregistered
<PAGE>
Equity Warrant Shares that the Issuer will be filing a registration statement
pursuant to this subsection 15(a) and will thereupon use its reasonable best
efforts promptly to effect the registration under the Securities Act of (i)
the Warrants or Non-Public Warrant Shares which Warrant Holders have requested
to be registered within 20 days of the Demand Notice, (ii) additional Warrants
and Non-Public Warrant Shares which Warrant Holders have requested to be
registered within 10 days of the Registration Notice and (iii) unregistered
Equity Warrant Shares which the holders thereof have requested to be
registered within 10 days of the Registration Notice. Promptly within 20 days
of the Registration Notice, the Issuer will notify all Warrant Holders whose
Warrants or Non-Public Warrant Shares are to be included in the registration
and all holders of unregistered Equity Warrant Shares whose unregistered
Warrant Shares are to be included in the registration of the number of
additional Warrants, Non-Public Warrant Shares and unregistered Equity Warrant
Shares requested to be included therein.
(ii) If the registration of which the Issuer gives notice
pursuant to subsection 15(a)(i) is for an underwritten public offering, only
Warrants, Non-Public Warrant Shares and unregistered Equity Warrant Shares
which are to be included in the underwriting may be included in such
registration, and the selling Warrant Holders shall, after reasonable
consultation with the Issuer, have the right to designate the managing
underwriter(s) in any such underwritten public offering with the consent of
the Issuer (which consent shall not be unreasonably withheld).
Notwithstanding any other provision of this Section 15(a), if the underwriter
advises the Warrant Holders and holders of Equity Warrant Shares in writing
that marketing factors require a limitation of the number of Warrants, Warrant
Shares and Equity Warrant Shares to be underwritten, then (A) the maximum
number of Warrants, Warrant Shares and Equity Warrant Shares to be sold
pursuant to such registration shall not exceed the maximum number of Warrants,
Warrant Shares and Equity Warrant Shares which the managing underwriter then
considers, in good faith, to be appropriate based on market conditions and
other relevant factors (including pricing) (the "Maximum Number") and (B) if
the total quantity of Warrants, Warrant Shares and Equity Warrant Shares
desired to be sold exceeds the Maximum Number, the Warrant Holders shall be
entitled to include in the offering the full amount of Warrants and Warrant
Shares which they desire to include, provided that if the Maximum Number is
insufficient to cover the full amount which the Warrant Holders desire to
include, the Warrant Holders, as a group, shall be entitled to sell up to the
Maximum Number in proportion to the amount of Warrants and Warrant Shares that
each proposes to sell. Only after the Warrant Holders have been entitled to
include the full amount of Warrants and Warrant Shares which they desire to
include shall the holders of Equity Warrant Shares be entitled to sell Equity
Warrant Shares up to the Maximum Number, and, if the Maximum Number is
insufficient to cover the full amount which the holders of Equity Warrant
Shares desire to include, the holders of Equity Warrant Shares shall be
entitled to sell up to the Maximum Number in proportion to the amount of
Equity Warrant Shares that each proposes to sell. Holders who include
Warrants, Warrant Shares or Equity Warrant Shares in a registration pursuant
to subsection 15(a) shall bear the cost of any underwriters' discounts and
commissions and transfer taxes, if any, relating to their Warrants, Warrant
Shares or Equity Warrant Shares which are sold.
<PAGE>
(b) The Issuer is obligated to effect any and all demand registrations
under subsection 15(a) and, with respect to each such registration, the Issuer
shall bear all expenses other than underwriting discounts and commissions, if
any, in connection with registrations, filings or qualifications pursuant to
subsection 15(a), including without limitation all registration, filing and
qualification fees, printers' and accounting fees, the fees and disbursements
of counsel for the Issuer and the fees and disbursements of one counsel for
the selling Warrant Holders, provided that (i) a registration will not
constitute a demand registration under subsection 15(a) until it has been
declared effective under the Securities Act, and (ii) no Person other than
holders of Warrants, Non-Public Warrant Shares and Equity Warrant Shares shall
have any right to have securities included in any registration under
subsection 15(a).
(c) If, at any time after the date hereof, the Issuer proposes to
register any of its securities under the Securities Act (except pursuant to a
registration statement filed on Form S-8 or Form S-4 or such other form as
shall be prescribed under the Act for the same purposes), it will at each such
time give written notice (which notice shall state the intended method of
disposition thereof by the prospective sellers) to all holders of outstanding
Warrants and Non-Public Warrant Shares of its intention to do so and the
proposed minimum offering price per Warrant or Warrant Shares and upon the
written request of any holder thereof given within 10 days after the Issuer's
giving of such notice, the Issuer will use its reasonable best efforts to
effect the registration of the Warrants and/or Non-Public Warrant Shares which
it shall have been so requested to register by including the same in such
registration statement all to the extent required to permit the sale or other
disposition thereof in accordance with the intended method of sale or other
disposition given in each such request. If the registration of which the
Issuer gives notice pursuant to this subsection 15(c) is for an underwritten
public offering, only Warrants or Non-Public Warrant Shares which are to be
included in the underwriting may be included in such registration, and the
Issuer shall have the right to designate the managing underwriter(s) in any
such underwritten public offering; provided that (i) the Issuer shall use its
best efforts to cause the managing underwriter(s) to include the Warrants or
Non-Public Warrant Shares requested to be included in the registration in the
underwriting; (ii) if the managing underwriter(s) advises the holders of the
Warrants or Non-Public Warrant Shares in writing that the total amount of
securities which they and the Issuer intend to include in such offering is
sufficiently large to materially and adversely affect the success of such
offering, the amount of securities to be offered for the accounts of all
holders or Warrants and Non-Public Warrant Shares shall be reduced pro rata
(based upon the amount of securities each such Person sought to include in the
offering) to the extent necessary to reduce the total amount of securities to
be included in the offering to the amount recommended by such managing
underwriter(s) (which amount may be zero, if so recommended by such managing
underwriter(s). Any registration statement filed pursuant to this subsection
15(c) may be withdrawn at any time at the discretion of the Issuer.
(d) If a registration under subsection 15(a) or 15(c) shall be in
connection with an underwritten public offering, each holder of Warrants or
Non-Public Warrant Shares shall be deemed to have agreed by acquisition of
such Warrants or Non-Public Warrant Shares not to effect any sale or
distribution, including any sale pursuant to Rule 144 or Rule 144A, of any
Warrants or Non-Public Warrant Shares, and to use such holder's reasonable
best efforts not to effect any such sale or distribution of any other equity
security of the Issuer or of any security convertible into or exchangeable or
exercisable for any equity security of the Issuer (other than
<PAGE>
as part of such underwritten public offering) within seven days before or 90
days after the effective date of such registration statement (and the Issuer
hereby also so agrees and agrees to cause each holder of any equity security,
or of any security convertible into or exchangeable or exercisable for any
equity security, of the Issuer purchased from the Issuer at any time other
than in a public offering, so to agree).
(e) As a condition to the inclusion of a holder's Warrants or
Non-Public Warrant Shares in any registration statements, each such holder of
Warrants or Non-Public Warrant Shares requesting registration thereof will
furnish to the Issuer such information with respect to such holder as is
required to be disclosed in the registration statement (and the prospectus
included therein) by the applicable rules, regulations and guidelines of the
Commission promptly upon the Issuer's request for such information. Failure
of a holder to furnish such information or agreement shall not affect the
obligation of the Issuer under this Section 15 to the remaining holders who
furnish such information.
(f) If and whenever the Issuer is required under this Section 15 to
use its reasonable best efforts to effect the registration of Warrants or
Non-Public Warrant Shares under the Securities Act, the Issuer shall:
(i) as expeditiously as possible and subject to the limitations
set forth in subsections 15(a) and 15(c), prepare and file with the Commission
a registration statement on the appropriate form with respect to such Warrants
or Non-Public Warrant Shares and use its best efforts to cause such
registration statement to become effective as soon as practicable after such
filing;
(ii) as expeditiously as possible, prepare and file with the
Commission such amendments and supplements (including post-effective
amendments and supplements) to the registration statement covering such
Warrants or Non-Public Warrant Shares and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
and usable for resale for a period necessary to complete the distribution of
such securities, but in no event in excess of 24 months plus any period during
which the holders of Warrants or Warrant Shares are obligated to refrain from
selling because the Issuer is required to amend or supplement the prospectus
under subsection 15(f)(iv), and to comply with the provisions of the
Securities Act with respect to the disposition of all Warrants or Non-Public
Warrant Shares covered by such registration statement during such period in
accordance with the intended method of disposition of the sellers set forth
therein;
(iii) as expeditiously as possible, furnish to each seller of
such Warrants or Non-Public Warrant Shares registered, or to be registered
under the Securities Act, and to each underwriter, if any, of such Warrants or
Non-Public Warrant Shares such number of copies of a prospectus and
preliminary prospectus in conformity with the requirements of the Securities
Act, and such other documents as such seller or underwriter may reasonably
request in order to facilitate the public sale or other disposition of such
Warrants or Non-Public Warrant Shares;
<PAGE>
(iv) as expeditiously as possible, notify each seller of such
Warrants or Non-Public Warrant Shares if, at any time when a prospectus
relating to such Warrants or Non-Public Warrant Shares, is required to be
delivered under the Securities Act, any event shall have occurred as a result
of which the prospectus then in use with respect to such Warrants or
Non-Public Warrant Shares would include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or for any other reason it shall be
necessary to amend or supplement such prospectus in order to comply with the
Securities Act and prepare and furnish to all sellers as promptly as possible,
and in any event within ninety (90) days of such notice, a reasonable number
of copies of a supplement to or an amendment of such prospectus which will
correct such statement or omission or effect such compliance;
(v) as expeditiously as possible, use its reasonable best efforts
to register or qualify such Warrants or Non-Public Warrant Shares under such
other securities or blue sky laws of such jurisdictions as such seller shall
reasonably request and do any and all other acts and things which may be
reasonably necessary to enable such seller to consummate the public sale or
other disposition in each such jurisdiction of the Warrants or Non-Public
Warrant Shares owned by such seller and included in such registration
statement, provided that the Issuer shall not be required to consent to the
general service of process or to qualify to do business in any jurisdiction
where it is not then qualified;
(vi) use its reasonable best efforts to keep the holders of such
Warrants or Non-Public Warrant Shares informed of the Issuer's best estimate
of the earliest date on which such registration statement or any
post-effective amendment or supplement thereto will become effective and will
promptly notify such holders and the managing underwriters, if any,
participating in the distribution pursuant to such registration statement of
the following: (A) when such registration statement or any post-effective
amendment or supplement thereto becomes effective or is approved; (B) of the
issuance by any competent authority of any stop order suspending the
effectiveness or qualification of such registration statement or the
prospectus then in use or the initiation or threat of any proceeding for that
purpose; and (C) of the suspension of the qualification of any Warrants or
Non-Public Warrant Shares included in such registration statement for sale in
any jurisdiction;
(vii) make available to its security holders, as soon as
practicable, an earnings statement covering a period of at least twelve months
which satisfies the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder;
(viii) cooperate with the sellers of such Warrants or Non-Public
Warrant Shares and the underwriters, if any, of such Warrants or Non-Public
Warrant Shares; give each seller of such Warrants or Non-Public Warrant
Shares, and the underwriters, if any, of such Warrants or Non-Public Warrant
Shares and their respective counsel and accountants, such access to its books
and records and such opportunities to discuss the business of the Issuer with
its officers and independent public accountants as shall be necessary to
enable them to conduct a reasonable investigation within the meaning of the
Securities Act and, in the event that Warrants or Non-Public Warrant Shares
are to be sold in an underwritten offering, enter into an underwriting
agreement containing customary representations and warranties, covenants,
conditions and indemnification provisions, including without limitation the
furnishing to the underwriters of a
<PAGE>
customary opinion of independent counsel to the Issuer and a customary
"comfort" letter from the Issuer's independent public accountants;
(ix) provide a CUSIP number for all Warrants and Non-Public
Warrant Shares not later than the effective date of the registration
statement;
(x) as to all registrations under subsection 15(a) and all
registrations under subsection 15(c), pay all costs and expenses incident to
the performance and compliance by the Issuer of this Section 15, including
without limitation (A) all registration and filing fees; (B) all printing
expenses; (C) all fees and disbursements of counsel and independent public
accountants for the Issuer; (D) all blue sky fees and expenses (including fees
and expenses of counsel in connection with blue sky surveys); (E) all transfer
taxes; (F) the entire expense of any special audits required by the rules and
regulations of the Commission; (G) the cost of distributing prospectuses in
preliminary and final form as well as any supplements thereto and (H) the fees
and expenses of one counsel for the holders of the Warrants or Non-Public
Warrant Shares being registered; and
(xi) as to the first registration under subsection 15(a) which is
in respect of an underwritten offering, as expeditiously as possible, take
such actions as the underwriters reasonably request in order to expedite or
facilitate the disposition of the Warrants or Non-Public Warrant Shares to be
included in such offering (including, without limitation, effecting a stock
split, stock dividend or a combination of shares of Common Stock).
(g)(i) The Issuer will indemnify and hold harmless each seller of
Warrants or Non-Public Warrant Shares, each director, officer, employee and
agent of each seller, and each other person, if any, who controls such seller
within the meaning of the Securities Act or the Exchange Act from and against
any and all losses, claims, damages, liabilities and legal and other expenses
(including costs of investigation) caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which such Warrants or Non-Public Warrant Shares were registered under
the Securities Act, any prospectus or preliminary prospectus contained therein
or any amendment or supplement thereto, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or expenses are caused by any such
untrue statement or omission or alleged untrue statement or omission based
upon information relating to such seller and furnished to the Issuer in
writing by such seller expressly for use therein, and provided that the Issuer
will not be liable to any Person who participates as an underwriter in the
offering or sale of Warrants or Non-Public Warrant Shares or any other Person,
if any, who controls such underwriter within the
<PAGE>
meaning of the Securities Act under the indemnity agreement in this subsection
15(g) with respect to any preliminary prospectus or the final prospectus or
the final prospectus as amended or supplemented, as the case may be, to the
extent that any such loss, claim, damage or liability of such underwriter or
controlling Person results from the sale by such underwriter of Warrants or
Non-Public Warrant Shares to a Person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the final
prospectus or of the final prospectus as then amended or supplemented,
whichever is most recent, if the Issuer has previously furnished copies
thereof to such underwriter, or from a sale to a Person in a state where the
offering has not been registered or qualified, if the Issuer has notified the
seller and any underwriter involved in such sale of the states where the
offering has been registered or qualified.
(ii) It shall be a condition to the obligation of the Issuer to
effect a registration of Warrants or Non-Public Warrant Shares under the
Securities Act pursuant hereto that (X) each seller, severally and not
jointly, indemnify and hold harmless the Issuer and each person, if any, who
controls the Issuer within the meaning of the Securities Act or the Exchange
Act to the same extent as the indemnity from the Issuer in the foregoing
paragraph, but only with reference to any breach by such seller of any
agreement between such seller, and the Issuer with respect to the offering and
with reference to information relating to such seller furnished to the Issuer
in writing by such seller expressly for use in the registration statement, any
prospectus or preliminary prospectus contained therein or any amendment or
supplement thereto and (Y) each seller, in the event that Warrants or
Non-Public Warrant Shares are to be sold in an underwritten offering, enters
into an underwriting agreement containing customary representations and
warranties, covenants, conditions and indemnification provisions.
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted involving any
indemnified party in respect of which indemnity may be sought pursuant to this
subsection 15(g), such indemnified party shall promptly notify the
indemnifying party in writing of the same, provided that failure to notify the
indemnifying party shall not relieve it from any liability it may have to an
indemnified party otherwise than under this subsection 15(g). The
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party in such proceeding and shall pay the fees and disbursements
of such counsel. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and disbursements of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party shall have failed to retain counsel for the indemnified
party as aforesaid, (B) the indemnifying party and such indemnified party
shall have mutually agreed to the retention of such counsel or (C)
representation of such indemnified party by the counsel retained by the
indemnifying party would, in the reasonable opinion of the indemnified party,
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding, provided that the Issuer shall not be liable for the fees and
disbursements of more than one additional counsel for all indemnified parties.
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(h) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in subsection 15(g) is
due in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Issuer or the applicable
sellers, as the case may be, shall contribute to the aggregate losses, claims,
damages and liabilities incurred (including legal or other expenses reasonably
incurred in connection with the investigating or defending of same) by the
other and for which such indemnification was sought. In determining the amount
of contribution to which the respective parties are entitled, there shall be
considered the relative benefits received by each party from the offering of
the securities included in the registration statement (taking into account the
portion of the proceeds of the offering realized by each), the parties'
relative knowledge and
<PAGE>
access to information concerning the matter with respect to which the claim
was asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate in the
circumstances; provided, however, that (i) in no case shall any seller of
Warrants or Non-Public Warrant Shares be required to contribute any amount in
excess of the total public offering price of the Warrants or Non-Public
Warrant Shares sold by him and (ii) no person 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 guilty of such
fraudulent misrepresentation. For purposes of this subsection 15(h), each
person who controls any seller of Warrants or Non-Public Warrant Shares or the
Issuer shall have the same rights to contribution as such seller or the
Issuer. Any party entitled to contribution shall, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against the Issuer or
the seller of Warrants or Non-Public Warrant Shares under this subsection
15(h), notify the Issuer or such seller, as the case may be, but the omission
to so notify the Issuer or such seller, as the case may be, shall not relieve
it from any other obligation it may have hereunder or otherwise.
(i) After the date hereof, the Issuer shall not grant to any holder of
securities of the Issuer any registration rights which have a priority greater
than or equal to those granted to holders of Warrants or Non-Public Warrant
Shares pursuant to this Section 15 without the prior written consent of the
holders of at least a majority of the aggregate outstanding Warrants and
Non-Public Warrant Shares, voting as a single group.
Section 16. Mandatory Redemption, Put Rights and Mandatory Exchange.
(a)(i) Subject to the limitations hereinafter set forth, (A)
if the Issuer takes any action with respect to its capital stock (including
without limitation any purchase of its shares or any combination of shares or
reverse stock split and elimination of fractional shares) which would cause
the capital stock currently or previously held by or currently issuable
without restriction to Creditanstalt and its Affiliates (not including
Non-Attributable Stock) to exceed 24.99% of the Equity of the Issuer, then
prior to or simultaneously with such action, the Issuer shall purchase from
Creditanstalt and/or its Affiliates such number of Warrants, Warrant Shares
<PAGE>
or other shares of capital stock as will reduce the shares of capital stock
currently or previously held by or currently issuable without restriction to
Creditanstalt and its Affiliates (not including Non-Attributable Stock) to
24.99% of the Equity of the Issuer (any such mandatory purchase being herein
called a "Mandatory Redemption"); and (B) any holder of Warrants and/or
Warrant Shares shall have the right at any time, and from time to time, during
the Put Period, at its option, upon written notice to the Issuer, to require
the Issuer to purchase all or a portion of the Warrants and/or Warrant Shares
held by such holder (any such right being herein called a "Put Right"). The
price to be paid to the holder upon a Mandatory Redemption or the exercise of
a Put Right shall be an amount equal to the Valuation Amount at the date the
event causing such Mandatory Redemption occurs or the date the notice
exercising such Put Right is given to the Issuer, as the case may be (the
"Trigger Date"), multiplied by a fraction the denominator of which is the
number of issued and outstanding shares of Common Stock of the Issuer at the
Trigger Date, calculated on a fully diluted basis in accordance with generally
accepted accounting principles, and the numerator of which is (Y) the
aggregate number of shares of Common Stock of the Issuer (i) comprising the
Warrant Shares to be purchased by the Issuer, and/or (ii) issuable upon
exercise of the Warrants to be purchased by the Issuer, and/or (iii) issuable
upon conversion of the Convertible Preferred Stock comprising the Warrant
Shares to be purchased by the Issuer, and/or (iv) issuable upon conversion of
the Convertible Preferred Stock issuable upon exercise of the Warrants to be
purchased by the Issuer (assuming Convertible Preferred Stock, rather than
Common Stock, is then issuable under such Warrants), and/or (v) comprising any
other shares of capital stock of the Issuer then held or previously held by
Creditanstalt or its Affiliates (excluding Non-Attributable Stock) (the "Put
Price").
(ii) The Put Rights described in subsection 16(a)(i)(B) shall
terminate upon (i) the effectiveness of a registration statement filed by the
Issuer with the Commission with respect to a public offering of shares of
Common Stock with proceeds paid to the Issuer and any selling stockholders of
not less than $40,000,000 or (ii) the consummation by the Issuer of a
transaction that constitutes a Non-Surviving Combination.
(iii) The completion of all purchases and sales of Warrants and
Warrant Shares pursuant to a Mandatory Redemption or the exercise of Put
Rights shall take place on the thirtieth (30th) day following respective
Trigger Date, unless another date is mutually agreed upon by the Issuer and
the selling holder (the "Put Closing Date"). The Put Prices for all such
purchases and sales shall be paid by the Issuer issuing to the selling holder
in immediately available funds against delivery of certificates representing
the Warrants and/or Warrant Shares to be purchased, duly endorsed for transfer
to the Issuer.
(b) The Put Prices for all purchases and sales of Warrants and Warrant
Shares pursuant to exercises of Put Rights shall be determined and calculated
in accordance with subsection 16(a) by the Issuer's regularly engaged
independent accountants. The Issuer shall cause such accountants to deliver
to the Issuer and the selling holder, not later than 15 days prior to the
completion of each purchase and sale under subsection 16(a), a written
statement, signed by such accountants, setting forth in reasonable detail the
respective purchase price and the calculation thereof and stating that such
calculation was based on the books and records of the Issuer and was made and
delivered pursuant to this Section 16.
<PAGE>
(c) If the Issuer takes any action with respect to its capital stock
(including without limitation any purchase of its shares or any combination of
shares or reverse stock split and elimination of fractional shares) which
would cause the Common Stock currently or previously held by or currently
issuable without restriction to Creditanstalt and its Affiliates (other than
shares of Non-Attributable Stock) to exceed 4.99% of the aggregate number of
issued and outstanding shares of Common Stock, prior to or simultaneously with
such action, the Issuer shall exchange such portion of Common Stock for
Convertible Preferred Stock as will reduce the shares of Common Stock
currently or previously held by or currently issuable without restriction to
Creditanstalt and its Affiliates (not including "Non-Attributable Stock") to
4.99% of the aggregate number of issued and outstanding shares of Common Stock
(a "Mandatory Exchange").
(d) As used in this Section 16, "Warrant Shares" shall include all
shares of Common Stock and/or Convertible Preferred Stock and other securities
of the Issuer or its Affiliates issued to holders of the Issuer's Common Stock
and/or Convertible Preferred Stock in respect of stock dividends, stock splits
and other distributions and any recapitalizations, to the extent the same were
not included in any adjustment of the Warrant Shares issuable upon exercise of
Warrants pursuant to Section 12 hereof.
(e) The certificates representing the Warrants and the Warrant Shares
shall bear a legend indicating that the Warrants and Warrant Shares are
subject to the provisions of this Section 16.
(f) Notwithstanding any provision of this Warrant Agreement to the
contrary, all Warrants and Warrant Shares which are sold pursuant to an
effective registration statement under the Securities Act shall, upon such
sale, cease to be subject to the provisions of this Section 16.
Section 17. Amendments and Waivers. Any provision of this Warrant
Agreement may be amended, supplemented, waived, discharged or terminated by a
written instrument signed by the Issuer and the holders of not less than a
majority of the outstanding Warrants (or in the case of Sections 14, 15 and
16, the holders of a majority of the aggregate outstanding Warrants and
Non-Public Warrant Shares, voting as a single group), provided that (i) this
Agreement may not be amended, supplemented or waived so as to increase the
Exercise Price, reduce the number of Warrant Shares issuable upon exercise of
any Warrants, alter the period during which any Warrants may be exercised
(except to provide for a later Expiration Date), or reduce the Put Valuation
Amount, in each case without the consent of the holders of all outstanding
Warrants (and, with respect to any reduction in the Put Valuation Amount, all
outstanding Non-Public Warrant Shares), and (ii) this Section 17 may not be
amended or supplemented without the consent of the holders of all outstanding
Warrants and Non-Public Warrant Shares, voting as a single group, and no
waiver of the requirements of this Section 17 shall be binding upon any such
holder without its consent.
Section 18. Specific Performance. The parties agree that irreparable
damage will result in the event that the obligations of the Issuer under this
Warrant Agreement are not specifically enforced, and that any damages
available at law for a breach of any such obligations would be inadequate.
Therefore, the holders of the Warrants and/or Non-Public Warrant Shares shall
have the right to specific performance by the Issuer of the provisions of this
Warrant Agreement, and appropriate injunctive relief may be applied for and
granted in connection therewith. The Issuer hereby irrevocably waives, to the
extent that it may do so under
<PAGE>
applicable law, any defense based on the adequacy of a remedy at law which may
be asserted as a bar to the remedy of specific performance in any action
brought against the Issuer for specific performance of this Warrant Agreement
by the holders of the Warrants and/or Non-Public Warrant Shares. Such
remedies and all other remedies provided for in this Warrant Agreement shall,
however, be cumulative and not exclusive and shall be in addition to any other
remedies which may be available under this Warrant Agreement.
Section 19. Notices.
(a) Any notice or demand to be given or made by the Warrant Holders or
the holders of Warrant Shares to or on the Issuer pursuant to this Warrant
Agreement shall be sufficiently given or made if sent by registered mail,
return receipt requested, postage prepaid, addressed to the Issuer at the
Warrant Office.
(b) Any notice to be given by the Issuer to the Warrant Holders or the
holders of Warrant Shares shall be sufficiently given or made if sent by
registered mail, return receipt requested, postage prepaid, addressed to such
holder as such holder's name and address shall appear on the Warrant Register
or the Common Stock or Convertible Preferred Stock registry of the Issuer, as
the case may be.
Section 20. Binding Effect. This Warrant Agreement shall be binding
upon and inure to the sole and exclusive benefit of the Issuer, its successors
and assigns, Creditanstalt, Affiliates of Creditanstalt and the registered
holders from time to time of the Warrants and the Warrant Shares.
Section 21. Continued Validity. A holder of Warrant Shares shall
continue to be entitled with respect to such Warrant Shares to all rights and
subject to all obligations to which it would have been entitled or subject as
a Warrant Holder under Sections 14 through 24 of this Warrant Agreement. The
Issuer will, at the time of each exercise of any Warrant, in whole or in part,
upon the request of the holder of the Warrant Shares issued upon such exercise
thereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford to such holder all such rights,
provided, however, that if such holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Issuer to
afford to such holder all such rights.
Section 22. Counterparts. This Warrant Agreement may be executed in
one
or more separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
Section 23. New York Law. THIS WARRANT AGREEMENT AND EACH WARRANT
CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
<PAGE>
Section 24. Benefits of This Warrant Agreement. Nothing in this
Warrant
Agreement shall be construed to give to any Person other than the Issuer and
the registered holders of the Warrants and the Warrant Shares any legal or
equitable right, remedy or claim under this Warrant Agreement.
Section 25. Voting and Consents to be on a Fully Converted Basis.
Wherever this Warrant Agreement calls for the written consent or vote of any
combinations of the holders of the Warrants, any of the Warrant Shares and/or
the Convertible Preferred Stock, voting as a single group, the Warrants shall
be counted as if they had been exercised for Common Stock and shares of
Convertible Preferred Stock shall be counted as if they had been converted to
Common Stock.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Amended and
Restated Warrant Agreement to be duly executed and delivered by their proper
and duly authorized officers, as of the date and year first above written.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
--------------------
Daniel J. Klein
Chief Executive Officer
Attest: /s/Jamie E. Blech
---------------------
Jamie Blech
Secretary
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Bibinger
----------------------
Robert M. Biringer
Executive Vice President
Attest: /s/ Carl Drake
---------------------
Carl Drake
Senior Associate
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
WARRANT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED WARRANT AGREEMENT (this
"First Amendment") is made and entered into as of this 31st day March, 1998
by and between IT PARTNERS, INC., a Delaware corporation (the "Issuer") and
CREDITANSTALT CORPORATE FINANCE, INC., having offices at Two Greenwich Plaza,
Greenwich, Connecticut 06830 ("Creditanstalt").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Preferred Stock and Warrant Purchase
Agreement, dated as of May 30, 1997, as amended by the First Amendment to
Preferred Stock and Warrant Purchase Agreement dated July 11, 1997, as further
amended by the Second Amendment to Preferred Stock and Warrant Purchase
Agreement dated October 27, 1997, as further amended by the Third Amendment to
Preferred Stock and Warrant Purchase Agreement dated October 31, 1997, as
further amended by the Fourth Amendment to Preferred Stock and Warrant
Purchase Agreement dated December 16, 1997, and as amended and restated by the
Amended and Restated Preferred Stock and Warrant Purchase Agreement dated
January 8, 1998 (the "Original Purchase Agreement") among Issuer,
Creditanstalt and certain other parties, Creditanstalt purchased an aggregate
of 200,000 shares of the Issuer's Series A Redeemable Preferred Stock with
warrants for the purchase of up to 645,587 shares of either the Issuer's
common stock, $.01 par value (the "Common Stock") or the Issuer's Convertible
Preferred Stock, $.01 par value per share (the "Convertible Preferred Stock"),
and 222,222 shares of the Issuer's Convertible Preferred Stock (as such
figures may be adjusted pursuant to the terms of the Original Purchase
Agreement and the Issuer's Certificate of Incorporation);
WHEREAS, in connection with a certain Loan and Security Agreement dated
as of May 30, 1997 (the "Loan Agreement") among Issuer, the financial
institutions named therein, as lenders (the "Lenders"), Creditanstalt AG, as
the issuing bank, and Creditanstalt as the agent for the Lenders (in such
capacity, the "Agent"), the Issuer executed and delivered a Warrant Agreement
dated as of May 30, 1997, as amended by the First Amendment to Warrant
Agreement dated July 11, 1997, as further amended by the Second Amendment to
Warrant Agreement dated October 27, 1997, and as amended and restated by the
Amended and Restated Warrant Agreement dated December 16, 1997 (the "Warrant
Agreement") in favor of Creditanstalt, and issued to Creditanstalt warrants
exercisable for up to 612,579 shares of the Issuer's Common Stock or
Convertible Preferred Stock; and
WHEREAS, Creditanstalt and Issuer desire to amend and restated the
Original Purchase Agreement to provide for the purchase of shares of Issuer's
Convertible Preferred Stock by Indosuez IT Partners ("Indosuez") and Wachovia
Capital Associates, Inc. ("Wachovia"); and
<PAGE>
WHEREAS, in connection with such proposed purchases of Convertible
Preferred Stock by Indosuez and Wachovia, the Issuer and Creditanstalt desire
to amend the Warrant Agreement in order to reflect such additional purchases
of Convertible Preferred Stock;
NOW, THEREFORE, in consideration of the premises, the terms and
conditions herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
Section 1. Definitions. As used in this First Amendment, unless
otherwise defined herein, terms defined in the Warrant Agreement shall have
the meaning set forth therein when used herein.
Section 2. Equity Warrants. The term "Equity Warrants," as set forth
in Section 1 of the Warrant Agreement is hereby deleted in its entirety and
the following definition is substituted in lieu thereof:
"Equity Warrants" shall mean the warrants issued pursuant to the
Purchase Agreement.
Section 3. Equity Warrant Shares. The term "Equity Warrant Shares,"
as
set forth in Section 1 of the Warrant Agreement, is hereby deleted in its
entirety and the following definition is substituted in lieu thereof:
"Equity Warrant Shares" shall mean the shares of Common Stock or
Convertible Preferred Stock issued or issuable upon exercise of the Equity
Warrants.
Section 4. Exempted Securities. The term "Exempted Securities," as
set forth in Section 1 of the Warrant Agreement, is hereby deleted in its
entirety and the following definition is substituted in lieu thereof:
"Exempted Securities" shall mean (A) Warrant Shares and Equity
Warrant Shares; (B) shares of the Issuer's capital stock issued as a stock
dividend described in subsection 12(b); (C) shares of the Series A Preferred
Stock and Convertible Preferred Stock issued pursuant to the Purchase
Agreement (as such agreement may be amended, restated, supplemented, or
otherwise modified from time to time); (D) shares of Series A Preferred Stock
issued as preferred in kind dividends on the Series A Preferred Stock; (E)
shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock; (F) options and warrants as listed on Schedule I attached hereto and
shares of capital stock issuable upon exercise thereof; (G) the Business
Combination Options and shares of capital stock issuable upon exercise
thereof; (H) options to be granted to employees of the Issuer and its
Subsidiaries to purchase up to 351,029 shares of Common Stock of the Issuer at
an exercise price of not less than fair market value on the date such option
is granted, as determined in good faith by the Board of Directors of the
Issuer and giving effect to any Acquisitions consummated on or before such
date, and shares of capital stock issuable upon exercise thereof; (I) 103,093
shares of Common Stock issued to Christopher A. and Merrie Corbett (jointly)
for an aggregate purchase price of $200,000; (J) 29,516 shares of Common Stock
issued to FF-ITP, L.P. pursuant to the Purchase Agreement; (K) 29,516 shares
of Common Stock issued to Christopher A. and Merrie Corbett (jointly) for an
aggregate purchase price of $100,000; (L)
<PAGE>
14,758 shares of Common Stock issued to Martin and Haeyoung Kandl (jointly)
for an aggregate purchase price of $50,000; (M) 1,001 shares of Common Stock
issued to Thomas Gardner for an aggregate purchase price of $3,390. The
limits in clauses (E), (H), (I), (J), (K), (L) and (M) shall be
proportionately adjusted for dividends and other distributions payable in and
for subdivisions and combinations of shares of Common Stock.
Section 5. Purchase Agreement. Section 1 of the Warrant Agreement is
hereby amended by adding following the definition of "Operating Cash Flow" a
new definition of "Purchase Agreement" as follows:
"Purchase Agreement" shall mean the Preferred Stock and
Warrant Purchase Agreement, dated as of May 30, 1997, as amended by the First
Amendment to Preferred Stock and Warrant Purchase Agreement dated July 11,
1997, as further amended by the Second Amendment to Preferred Stock and
Warrant Purchase Agreement dated October 27, 1997, as further amended by that
certain Third Amendment to Preferred Stock and Warrant Purchase Agreement
dated October 31, 1997, as further amended by the Fourth Amendment to
Preferred Stock and Warrant Purchase Agreement dated December 16, 1997, as
amended and restated by the Amended and Restated Preferred Stock and Warrant
Purchase Agreement dated January 8, 1998, and as further amended and restated
by the Second Amended and Restated Preferred Stock and Warrant Purchase
Agreement dated March 31, 1998 (as such may be amended, restated, supplemented
or otherwise modified from time to time), by and between the Issuer,
Creditanstalt, FF-ITP, L.P., Credit Agricole Indosuez, Wachovia Capital
Associates, Inc., and certain stockholders of the Issuer named therein.
Section 6. Representations and Warranties. The Issuer hereby
represents and warrants to Creditanstalt, for the benefit of Creditanstalt and
any other Warrant Holder, as follows:
(a) The Issuer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, has the
corporate power and authority to conduct its business as presently conducted
and as intended to be conducted, has the corporate power and authority to
execute and deliver this First Amendment, has the corporate power and
authority and legal right to own and lease its properties and is duly
qualified and in good
<PAGE>
standing as a foreign corporation in each jurisdiction in which the conduct of
its business requires such qualification, except where failure to be so
qualified could not be reasonably expected to have a material adverse effect
on the business, properties, financial condition or results of operations of
the Issuer and its Subsidiaries taken as a whole.
(b) The execution, delivery and performance by the Issuer of this
First Amendment have been duly authorized by all necessary corporate action
and do not and will not violate, or result in a breach of, or constitute a
default under, or require any consent under, or result in the creation of any
lien, charge or encumbrance upon the assets of the Issuer pursuant to, any
law, statute, ordinance, rule, regulation, order or decree of any court,
governmental body or regulatory authority or administrative agency having
jurisdiction over the Issuer or its Subsidiaries or the Issuer's Certificate
of Incorporation or any contract, mortgage, loan agreement, note, lease or
other instrument binding upon the Issuer or its Subsidiaries or by which their
properties are bound.
(c) This First Amendment has been duly executed and delivered by the
Issuer and constitutes a legal, valid, binding and enforceable obligation of
the Issuer.
Section 7. Expenses. Issuer agrees to pay, immediately upon demand
by
Creditanstalt, all costs, expenses, attorneys' fees, and other charges and
expenses incurred by Creditanstalt in connection with the negotiation,
preparation, execution and delivery of this First Amendment and any other
instrument, document, agreement or amendment executed in connection with this
First Amendment.
Section 8. Limitation of Amendment. Except as expressly set forth
herein, this First Amendment shall not be deemed to waive, amend or modify any
term or condition of the Warrant Agreement, each of which is hereby ratified
and reaffirmed and shall remain in full force and effect, nor to serve as a
consent to any matter prohibited by the terms and conditions thereof.
Section 9. Counterparts. This First Amendment may be executed in any
number of counterparts and any party hereto may execute any counterpart, each
of which when executed and delivered will be deemed to be an original and all
of which, taken together, will be deemed but one and the same agreement.
Section 10. Governing Law; Jurisdiction. THIS FIRST AMENDMENT, AND
THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW).
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment under seal as of the date and year first above written.
"ISSUER"
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
---------------------
Daniel J. Klein
Chairman of the Board
Attest: /s/Jamie E. Blech
------------------
Name:Jamie E. Blech
Title:
"CREDITANSTALT"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
-------------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl Drake
--------------------------
Carl Drake
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED
WARRANT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED WARRANT AGREEMENT (this
"Second Amendment to First Restatement") is made and entered into as of this
27th day of July, 1998 by and between IT PARTNERS, INC., a Delaware
corporation (the "Issuer") and CREDITANSTALT CORPORATE FINANCE, INC., having
offices at Two Greenwich Plaza, Greenwich, Connecticut 06830
("Creditanstalt").
W I T N E S S E T H:
WHEREAS, the Issuer desires to enter into a certain 12% Series C Senior
Redeemable Preferred Stock Purchase Agreement, dated as of the date hereof
(the "Series C Purchase Agreement"), among Issuer and FBR Business Development
Capital ("FBR"), pursuant to which FBR will purchase an aggregate of 700
shares of the Issuer's 12% Series C Senior Redeemable Preferred Stock (the
"Series C Preferred Stock"); and
WHEREAS, the Company intends to enter into a stock purchase agreement
with Wachovia Capital Associates, Inc. ("Wachovia") pursuant to which Wachovia
may purchase up to 300 shares of Series C Preferred Stock; and
WHEREAS, in connection with a certain Loan and Security Agreement dated
as of May 30, 1997 (the "Loan Agreement") among Issuer, the financial
institutions named therein, as lenders (the "Lenders"), Creditanstalt AG, as
the issuing bank, and Creditanstalt as the agent for the Lenders (in such
capacity, the "Agent"), the Issuer executed and delivered a Warrant Agreement
dated as of May 30, 1997, as amended by the First Amendment to Warrant
Agreement dated July 11, 1997, as further amended by the Second Amendment to
Warrant Agreement dated October 27, 1997, (the "Original Warrant Agreement"),
as amended and restated by the Amended and Restated Warrant Agreement dated
December 16, 1997, and as amended by the First Amendment to Amended and
Restated Warrant Agreement dated March 31, 1998 (the "First Restated Warrant
Agreement") in favor of Creditanstalt, and issued to Creditanstalt warrants
exercisable for up to 612,579 shares of the Issuer's Common Stock or Series B
Convertible Preferred Stock (subject to adjustment pursuant to the First
Restated Warrant Agreement); and
WHEREAS, in connection with the execution, delivery and performance of
the Series C Purchase Agreement and the issuance of the Series C Preferred
Stock by the Issuer to FBR and Wachovia, the Issuer and Creditanstalt have
agreed to amend the First Restated Warrant Agreement and to waive certain
provisions thereunder in order to provide for the issuance of the Series C
Preferred Stock to FBR and Wachovia and the issuance of Common Stock as a
dividend upon redemption of the Series C Preferred Stock;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the terms and
conditions herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
Section 1. Definitions. As used in this Second Amendment to First
Restatement, unless otherwise defined herein, terms defined in the First
Restated Warrant Agreement shall have the meaning set forth therein when used
herein.
Section 2. Schedule I. The First Restated Warrant Agreement is hereby
amended by deleting Schedule I in its entirety and substituting in lieu
thereof a new Schedule I in the form attached as Schedule I hereto. All
references to Schedule I in the Warrant Agreement shall mean new Schedule I
attached hereto.
Section 3. Schedule II. The First Restated Warrant Agreement is hereby
amended by deleting Schedule II in its entirety and substituting in lieu
thereof a new Schedule II in the form attached as Schedule II hereto. All
references to Schedule II in the Warrant Agreement shall mean new Schedule II
attached hereto.
Section 4. Series C Preferred Stock. Section 1 of the First Restated
Warrant Agreement is hereby amended by adding following the definition of
"Series C Issuance Date" a new definition of "Series C Preferred Stock" as
follows:
"Series C Preferred Stock" shall mean the Issuer's 12% Series C
Senior Redeemable Preferred Stock, $.01 par value per share, and shall include
any stock into which such Series C Preferred Stock shall have been changed or
any stock resulting from any reclassification of such Series C Preferred
Stock.
Section 5. Series C Purchase Agreement. Section 1 of the Warrant
Agreement is hereby amended by adding following the definition of "Series C
Preferred Stock" a new definition of "Series C Purchase Agreement" as follows:
"Series C Purchase Agreement" shall mean the 12% Series C Senior
Redeemable Preferred Stock Purchase Agreement, dated as of July 27, 1998,
among Issuer and FBR Business Development Capital (as such may be amended,
restated, supplemented or otherwise modified from time to time).
Section 6. Waiver of Section 10(c). In connection with the
execution,
delivery and performance of the Series C Purchase Agreement and the
Certificate of Designation of the Series C Preferred Stock, the issuance of
shares of Series C Preferred Stock to FBR and Wachovia and the issuance of
Common Stock as a dividend upon redemption of the Series C Preferred Stock,
Creditanstalt hereby waives forever the application of the provisions of
Section 10(c) (restricting amendments to Issuer's Certificate of
Incorporation) and Section 10(d) (restricting the authorization of additional
Common Stock) of the Warrant Agreement.
<PAGE>
Section 7. Representations and Warranties. The Issuer hereby
represents and warrants to Creditanstalt, for the benefit of Creditanstalt and
any other Warrant Holder, as follows:
(a) The Issuer is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, has the
corporate power and authority to conduct its business as presently conducted
and as intended to be conducted, has the corporate power and authority to
execute and deliver this Second Amendment to First Restatement, has the
corporate power and authority and legal right to own and lease its properties
and is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the conduct of its business requires such qualification,
except where failure to be so qualified could not be reasonably expected to
have a material adverse effect on the business, properties, financial
condition or results of operations of the Issuer and its Subsidiaries taken as
a whole.
(b) The execution, delivery and performance by the Issuer of this
Second Amendment to First Restatement have been duly authorized by all
necessary corporate action and do not and will not violate, or result in a
breach of, or constitute a default under, or require any consent under, or
result in the creation of any lien, charge or encumbrance upon the assets of
the Issuer pursuant to, any law, statute, ordinance, rule, regulation, order
or decree of any court, governmental body or regulatory authority or
administrative agency having jurisdiction over the Issuer or its Subsidiaries
or the Issuer's Certificate of Incorporation or any contract, mortgage, loan
agreement, note, lease or other instrument binding upon the Issuer or its
Subsidiaries or by which their properties are bound.
(c) This Second Amendment to First Restatement has been duly executed
and delivered by the Issuer and constitutes a legal, valid, binding and
enforceable obligation of the Issuer.
(d) As of the date hereof, and giving effect to all issuances on such date
of shares of Series C Preferred Stock and FBR Warrants, the authorized capital
stock of Issuer consists of (i) 20,000,000 shares of Common Stock of which
8,279,658 shares are issued and outstanding; and (ii) 6,000,000 shares of
Preferred Stock, of which 600,000 shares have been designated Series A
Preferred Stock, 347,230 of which are issued and outstanding; 5,000,000 shares
have been designated Series B Preferred Stock, 1,387,448 of which are issued
and outstanding; and 1,000 shares have been designated Series C Preferred
Stock, 700 of which will be issued and outstanding upon the closing of the
Second Amendment to First Restatement. An aggregate of 4,000,000 shares of
Common Stock are reserved for issuance on the exercise of the Warrants and the
Equity Warrants and conversion of the Series B Preferred Stock, and 2,000,000
shares of Series B Preferred Stock are reserved for issuance on exercise of
the Warrants and the Equity Warrants. As of the date hereof, an aggregate of
1,000,000 shares of Common Stock are reserved for issuance to employees of
Issuer and of Subsidiaries of Issuer. All of the issued and outstanding
shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock
are, and upon issuance and payment therefor in accordance with the terms of
the Series C Purchase Agreement, all of the outstanding Series C Preferred
Stock will be, validly issued, fully paid and nonassessable. To the Issuer's
best knowledge, other than the Amended and Restated Stockholder Agreement
dated March 31, 1998, as amended (as further amended, restated, supplemented
or otherwise modified from time to time),
<PAGE>
there are no voting agreements, voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of the Issuer
or any Subsidiary. Except as set forth on Schedule II hereto, no holder of
securities of the Issuer has any right to the registration of such securities
under the Securities Act and any applicable state securities law.
Section 8. Expenses. Issuer agrees to pay, immediately upon demand
by
Creditanstalt, all costs, expenses, attorneys' fees, and other charges and
expenses incurred by Creditanstalt in connection with the negotiation,
preparation, execution and delivery of this Second Amendment to First
Restatement and any other instrument, document, agreement or amendment
executed in connection with this Second Amendment to First Restatement.
Section 9. Limitation of Amendment. Except as expressly set forth
herein, this Second Amendment to First Restatement shall not be deemed to
waive, amend or modify any term or condition of the Warrant Agreement, each of
which is hereby ratified and reaffirmed and shall remain in full force and
effect, nor to serve as a consent to any matter prohibited by the terms and
conditions thereof.
Section 10. Counterparts. This Second Amendment to First Restatement
may be executed in any number of counterparts and any party hereto may execute
any counterpart, each of which when executed and delivered will be deemed to
be an original and all of which, taken together, will be deemed but one and
the same agreement.
Section 11. Governing Law; Jurisdiction. THIS SECOND AMENDMENT TO
FIRST
RESTATEMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW).
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to First Restatement under seal as of the date and year first above
written.
"ISSUER"
IT PARTNERS, INC.
By:/s/Daniel J. Klein
-------------------
Daniel J. Klein
Chief Executive Officer
Attest:/s/ Jamie Blech
------------------
Jamie Blech
President
"CREDITANSTALT"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
----------------------
Robert M. Biringer
Executive Vice President
By: /s/John G. Taylor
--------------------
Name:John G. Taylor
Title: Senior Associate
<PAGE>
SCHEDULE I
List of outstanding options, warrants, subscriptions, rights, convertible or
exchangeable securities or other agreements or plans under which the Issuer
may be or become obligated to issue, sell or transfer shares of its capital
stock or other securities
1. Equity Warrants issued to FF-ITP, L.P. to purchase shares of Common
Stock (subject to the adjustments set forth in Section 2.08 of the Preferred
Stock and Warrant Purchase Agreement (as amended)) at an exercise price of
$.01 per share.
2. Equity Warrants issued to Creditanstalt Corporate Finance, Inc. to
purchase shares of Common Stock and/or Series B Preferred Stock (subject to
the adjustments set forth in Section 2.08 of the Preferred Stock and Warrant
Purchase Agreement (as amended)) at an exercise price of $.01 per share.
3. Shares of the Series B Preferred Stock of Issuer are convertible on a
share-for-share basis into Common Stock of the Issuer.
4. Shares of Common Stock issuable as a dividend upon redemption of the
Series C Preferred Stock, subject to the provisions of the Issuer's
Certificate of Incorporation.
The following items are for disclosure purposes only and are not to be
included in the definition of "Exempted Securities":
1. Earn out rights granted to certain sellers in connection with
Acquisitions consummated by the Issuer.
2. Unsecured Notes convertible into Common Stock, which were issued as a
portion of the purchase price in Acquisitions consummated by the Issuer.
<PAGE>
SCHEDULE II
List of Registration Rights
1. Registration rights granted to the Purchasers, Initial Stockholders and
Subsequent Stockholders pursuant to the Amended and Restated Stockholder
Agreement dated March 31, 1998, as amended by the First Amendment to Amended
and Restated Stockholder Agreement (as further amended, restated, supplemented
or modified from time to time) by and among the Issuer, Daniel J. Klein, Jamie
Blech, Martin F. Kandl and Haeyoung Kandl, Stanley Nice, John Clement,
Creditanstalt Corporate Finance, Inc., FF-ITP, L.P., Indosuez IT Partners,
Indosuez IT Partners II, Wachovia Capital Associates, Inc., and subsequent
stockholders.
2. Registration rights to be granted pursuant to the Series C Purchase
Agreement (as amended, restated, supplemented or modified from time to time).
AMENDED AND RESTATED STOCKHOLDER AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDER AGREEMENT (the "Agreement") is made
as of March 31, 1998, by and among IT PARTNERS, INC., a Delaware corporation
(the "Company"), DANIEL F. KLEIN ("Klein"), JAMIE BLECH ("Blech"), MARTIN F.
KANDL and HAEYOUNG P. KANDL (collectively, "Kandl"), JOHN CLEMENT ("Clement"),
STANLEY NICE ("Nice," together with Klein, Blech, Kandl, Clement and Nice are
referred to, as the context requires, individually as an "Initial Stockholder"
or collectively as the "Initial Stockholders"), any additional stockholders of
the Company listed on the signature pages hereof (the "Subsequent
Stockholders"), CREDITANSTALT CORPORATE FINANCE, INC., a Delaware corporation
(together with any successor, assignee or transferee, the "Creditanstalt"),
FF-ITP, L.P., a Delaware limited partnership ("FF-ITP"), INDOSUEZ IT PARTNERS
(together with any successor, assignee or transferee, "Indosuez"), WACHOVIA
CAPITAL ASSOCIATES, Inc., a Georgia corporation, (together with any successor,
assignee or transferee, "Wachovia", which, together with the Creditanstalt,
FF-ITP and Indosuez are, as the context requires, referred to herein
individually as a "Purchaser" and collectively as the "Purchasers"). The
Initial Stockholders, Subsequent Stockholders, and Purchasers shall be
collectively referred to herein, as the context requires, as the
"Stockholders."
W I T N E S E T H:
WHEREAS, the Company, Klein, Blech, Kandl, Clement, Nice, Creditanstalt,
and FF-ITP are parties to that certain Stockholder Agreement, dated as of May
30, 1997, as amended by the First Amendment to Stockholder Agreement dated as
of July 11, 1997, as further amended by the Second Amendment to Stockholder
Agreement dated as of October 17, 1997, as further amended by the Third
Amendment to Stockholder Agreement dated as of October 27, 1997, as further
amended by the Fourth Amendment to Stockholder Agreement dated as of October
31, 1997, as further amended by the Fifth Amendment to Stockholder Agreement
dated as of December 16, 1997 (as amended, the "Original Stockholder
Agreement"); and
WHEREAS, the Company, Creditanstalt, FF-ITP, Indosuez, and Wachovia wish
to enter into a Second Amended and Restated Preferred Stock and Warrant
Purchase Agreement dated as of the date hereof (the "Purchase Agreement"),
which provides for the issuance by the Company of its Series B Convertible
Preferred Stock to Indosuez and Wachovia (the "Additional Equity
Investments"); and
<PAGE>
<PAGE>
WHEREAS, the Purchasers are willing to enter into and consummate the
transactions contemplated by the Purchase Agreement only if, among other
things, the Company and each Stockholder enter into, and perform under, this
Agreement; and
WHEREAS, the parties hereto wish to amend and restate the Original
Stockholder Agreement in order to provide for the Additional Equity
Investments and to make certain other changes set forth herein; and
WHEREAS, each Stockholder owns beneficially and of record the number of
shares or share equivalents of the issued and outstanding capital stock of the
Company as set forth on Exhibit A attached hereto; and
WHEREAS, the parties hereto acknowledge that the Company intends to
continue to engage in a program of acquiring assets (including the stock or
other ownership interests of Persons which are identified by the Company as
acquisition targets) in consideration for the Company's Capital Stock and
certain other consideration and acknowledge that each Person acquiring Capital
Stock of the Company, and any successor, assignee or transferee of a
Purchaser, will be required to execute a joinder agreement, in form and
substance substantially similar to Exhibit B attached hereto, pursuant to
which such person shall consent to be bound by all the terms and provisions
hereof. Exhibit A shall be deemed automatically amended by the Stockholders
to reflect the addition of a Subsequent Stockholder or a Purchaser pursuant to
this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Purchaser, the
Stockholders, and the Company, intending to be legally bound, agree as
follows.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the meanings
indicated.
"Acquisition Stock". This term shall mean Common Stock of the Company
issued subsequent to the Original Closing Date in consideration for the
acquisition of all or substantially all the assets (including the stock or
other ownership interests) of Persons that are identified by the Company as
acquisition targets, provided that the Fair Market Value of such Common Stock
as well as other consideration paid by the Company for such assets is not
unreasonably disproportionate to the fair market value of the assets being
acquired, as determined by the Company's Board of Directors or its executive
committee.
"Adjustment Event". Any event in which (a) the Company issues any shares
of Capital Stock in an Adjustment Public Offering for consideration per share
that exceeds the amount received per share by any Purchaser in connection with
the exercise of the Call Option with respect to such Purchaser; (b) any Person
acquires Capital Stock in connection with the acquisition of the beneficial
ownership of more than fifty percent (50%) of the voting securities of the
-2-<PAGE>
<PAGE>
Company, or acquires Capital Stock and the right to elect a majority of the
members of the Company's board of directors for a consideration per share or
unit that exceeds the amount received per share by any such Purchaser in
connection with the exercise of such Call Option; (c) the Company sells all or
a majority of its assets or revenue or income generating capacity for such
amount of consideration that, if the Company were liquidated on the date that
such sale is consummated, the holders of any class of Capital Stock would
receive per share distributions exceeding the amount received per share by any
such Purchaser in connection with the exercise of such Call Option; or (d) the
Company participates in any merger, consolidation, reorganization, share
exchange, recapitalization, or similar transaction or series of related
transactions involving a change of control of the Company or disposition of
all or a majority of its assets or revenue or income generating capacity,
directly or indirectly, in which the holders of any class of Capital Stock
receive per share consideration for, or distributions with respect to, their
shares in an amount that exceeds the amount received per share by such
Purchaser in connection with the exercise of such Call Option.
"Adjustment Public Offering". Each public offering of shares of any
class of Capital Stock pursuant to a registration statement filed with the
Commission.
"Affiliate". With respect to any Person, (a) a Person that, directly or
indirectly or through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person; (b) any Person of which such
Person or such Person's spouse is an officer, director, security holder,
partner, or, in the case of a trust, the beneficiary or trustee, and (c) any
Person that is an officer, director, security holder, partner, or, in the case
of a trust, the beneficiary or trustee of such Person. The term "control" as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract,
or otherwise. In addition, as to any Purchaser, "Affiliate" shall include any
partnership a majority of the partners of which are officers, directors,
employees or Affiliates of such Purchaser, and as to the Company, "Affiliate"
shall not include any Purchaser or any Affiliate of any Purchaser.
"Appraised Value". The value determined in accordance with the following
procedures. For a period of thirty (30) days after the date of a Valuation
Event (the "Negotiation Period"), the Purchasers and the Company agree to
negotiate in good faith to reach agreement upon the Appraised Value of the
securities or property at issue, as of the date of the Valuation Event, which
will be the fair market value of such securities or property, without premium
for control or discount for minority interests, illiquidity, or restrictions
on transfer. In the event that the parties are unable to agree upon the
Appraised Value of such securities or other property by the end of the
Negotiation Period, then the Appraised Value of such securities or property
will be determined for purposes of this Agreement by an Appraiser. An
"Appraiser" shall be a recognized appraisal or investment firm with experience
in making determinations of value of the type required to be made under this
definition. If the Purchasers and the Company cannot agree on an Appraiser
within thirty (30) days after the end of the Negotiation Period, the Company,
on the one hand, and the Purchasers, on the other hand, shall each select an
Appraiser within forty (40) days after the end of the Negotiation Period and
those two Appraisers shall select within fifty (50) days after the end of the
Negotiation Period an independent Appraiser to determine the fair market value
of such securities or property, without premium for control or discount for
-3-<PAGE>
<PAGE>
minority interests. Such independent Appraiser shall be directed to determine
fair market value of such securities or property as soon as practicable, but
in no event later than thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will be conclusive and
binding on all parties to this Agreement. Appraised Value of each share of
Common Stock at a time when (i) the Company is not a reporting company under
the Securities Exchange Act of 1934, as amended, and (ii) the Common Stock is
not traded in the organized securities markets, will, in all cases, be
calculated by determining the Appraised Value of the entire Company taken as a
whole (plus the exercise price of all options, warrants and other rights to
acquire Capital Stock of the Company having an exercise price per share less
than the Fair Market Value of such Capital Stock) and dividing that value by
the sum of (x) the number of shares of Common Stock then outstanding plus (y)
the number of shares of Common Stock Equivalents, without premium for control
or discount for minority interests, illiquidity, or restrictions on transfer.
The costs of the Appraiser or Appraisers will be borne by the Company. In no
event will the Appraised Value of the Common Stock or Other Securities be less
than the per share consideration received or receivable with respect to the
Common Stock or securities or property of the same class as the Other
Securities, as the case may be, in connection with a pending transaction
involving a sale, merger, recapitalization, reorganization, consolidation,
share exchange, dissolution of the Company, sale or transfer of all or a
majority of its assets or revenue or income generating capacity, or similar
transaction. The prevailing market prices for any security or property will
not be dispositive of the Appraised Value thereof.
"Average Market Value". The average of the closing prices for the
security in question for the thirty (30) trading days immediately preceding
the date of determination.
"Book Value". With respect to shares of Common Stock an amount equal to
the quotient determined by dividing (a) the sum of (x) the total consolidated
assets of the Company shown on the most recent regularly prepared consolidated
balance sheet of the Company prior to the date of the Valuation Event in
question minus (y) the total consolidated liabilities of the Company as shown
on the most recent regularly prepared consolidated balance sheet of the
Company prior to the date of the Valuation Event by (b) the aggregate number
of shares of Common Stock and Common Stock Equivalents as of the date of the
Valuation Event.
"Business Combination Options". This term shall mean options to purchase
Common Stock of the Company that (a) are issued to employees of the Company or
of Subsidiaries of the Company hired after the Original Closing Date; (b) in
the aggregate do not exceed 12% of the Acquisition Stock issued by the
Company; and (c) have an exercise price equal to the Fair Market Value on the
date such options are granted, giving effect to any such acquisition
consummated on such date.
"Buyer". This term is defined in Section 6.02(a)(ii).
"Call Option". This term is defined in Section 5.01.
"Call Option Closing". This term is defined in Section 5.04.
"Call Option Period". This term is defined in Section 5.01.
"Capital Stock". As to any Person, its common stock and any other
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<PAGE>
capital stock of such Person authorized from time to time, and any other
shares, options, interests, participations, or other equivalents (however
designated) of or in such Person, whether voting or nonvoting, including,
without limitation, common stock, options, warrants, preferred stock
(including the Series A Preferred Stock and the Series B Preferred Stock),
phantom stock, stock appreciation rights, convertible notes or debentures,
stock purchase rights, and all agreements, instruments, documents, and
securities convertible, exercisable, or exchangeable, in whole or in part,
into any one or more of the foregoing.
"Closing Date". March 31, 1998.
"Common Stock". The common stock, $ .01 par value, of the Company.
"Common Stock Equivalent". Any option, warrant, right, or similar
security exercisable into, exchangeable for, or convertible to Common Stock.
"Conversion Shares". Shares of Common Stock issued or issuable upon
conversion of the Series B Preferred Stock.
"Co-Sell Shares". This term is defined in Section 6.02(d).
"Co-Sellers". This term is defined in Section 6.02(d).
"Election Notice". This term is defined in Section 6.02(b).
"Event of Default". This term shall mean any default by the Company or a
Stockholder (other than a Purchaser) under this Agreement and the failure to
cure such default within thirty (30) days after notice of the same.
"Excess Consideration". The amount that a Purchaser would have realized
following the Adjustment Event had the Call Option not been exercised by the
Company until such time, minus the amount that such Purchaser realized due to
the exercise of the Call Option; provided, however, that the amount of Excess
Consideration will in all events be deemed to be at least zero.
"Exchange Common Stock". This term is defined in Section 7.12.
"Exchange Company". This term is defined in Section 7.12.
"Exchange Notice". This term is defined in Section 7.12.
"Fair Market Value".
(a) As to securities regularly traded in the organized securities
markets, the Average Market Value; and
(b) As to all securities not regularly traded in the securities
markets and other property, the fair market value of such securities or
property as determined in good faith by disinterested members of the Board of
Directors of the Company at the time it authorizes the transaction (a
"Valuation Event") requiring a determination of Fair Market Value under this
Agreement; provided, however, that, at the election of the Purchasers, or if
there are no disinterested members of the Board of Directors of the Company,
the Fair Market Value of such securities and other property will be the
Appraised Value.
"GAAP". Generally accepted accounting principles, consistently applied.
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"Issuable Warrant Shares". Shares of Common Stock or Other Securities
issuable on exercise of the Warrants.
"Issued Warrant Shares". Shares of Common Stock or Other Securities
issued on exercise of the Warrants.
"Loan Agreement". This term shall mean that Amended and Restated Loan
and Security Agreement, dated as of the Closing Date, between the Company, the
Lenders named therein, Creditanstalt as the LC Issuer, Indosuez as the Co-
Agent and Creditanstalt as the Administrative Agent and Collateral Agent (as
such agreement may be amended, restated, supplemented or modified from time to
time).
"Loan Warrant Agreement". This term shall mean the Amended and Restated
Warrant Agreement, dated as of December 16, 1997, between the Company and
Creditanstalt (as such agreement may be amended, restated, supplemented or
modified from time to time).
"Loan Warrants." This term shall mean the stock purchase warrants issued
pursuant to the Loan Warrant Agreement (in the percentages and to the extent,
and subject to adjustment, as provided in the Loan Warrant Agreement) and all
warrants issued upon the transfer or the division of, or in substitution for,
such Loan Warrants.
"Loan Warrant Shares". Shares of Common Stock or Other Securities issued
on exercise of the Loan Warrants.
"Major Stockholder". This term is defined in Section 6.01.
"New Securities". Any Capital Stock of the Company, other than Warrant
Shares, Loan Warrant Shares and the Permitted Stock.
"Notice of Sale". This term is defined in Section 6.02(a).
"Operating Cash Flow". This term shall mean, for any Person, for any
period for which the same is computed, the sum of (a) such Person's net income
(loss) for such period, plus (b) such Person's interest expense for such
period, plus (c) such Person's depreciation and amortization for financial
reporting purposes for such period, plus (d) income tax expense for such
period, computed in each case on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP.
"Original Closing Date". May 30, 1997.
"Other Securities". Any stock, other securities, property, or other
property or rights (other than Common Stock) that the Holders become entitled
to receive upon exercise of the Warrants, including, but not limited to, the
Series B Preferred Stock.
"Permitted Stock". (a) Issuable or Issued Warrant Shares, Conversion
Shares, Loan Warrant Shares and shares of the Company's Capital Stock issuable
upon conversion thereof; (b) Capital Stock of the Company issued as a dividend
on shares of the Company's Capital Stock or as a result of a stock split with
respect thereto; (c) options and warrants granted (or for which the Board of
Directors has approved the grants to specified individuals) as of the date
hereof to purchase the Company's Capital Stock, and shares of the Company's
Capital Stock issuable upon exercise thereof; (d) the Business Combination
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Options, and shares of the Company's Capital Stock issuable upon exercise
thereof; (e) options to be granted after the Original Closing Date to
employees of the Company and its Subsidiaries to purchase up to 335,286 shares
of Common Stock of the Company, at the exercise price not less than the Fair
Market Value at the time of issuance of such options, and shares of the
Company's Capital Stock issuable upon exercise thereof; (f) shares of Series A
Preferred Stock issuable pursuant to the Purchase Agreement; (g) shares of
Series B Preferred Stock issuable pursuant to the Purchase Agreement; (h)
103,093 shares of Common Stock issued to Christopher A. and Merrie Corbett
(jointly) at an aggregate purchase price of $200,000; (i) solely for the
purpose of Article II of this Agreement, Acquisition Stock; (j) 29,516 shares
of Common Stock issuable to FF-ITP pursuant to the Purchase Agreement; (k)
29,516 shares of Common Stock issuable to Christopher A. and Merrie Corbett
(jointly) at an aggregate purchase price of $100,000; (l) 14,758 shares of
Common Stock issuable to Martin and Haeyoung Kandl (jointly) at an aggregate
purchase price of $50,000; and (m) 1,001 shares of Common Stock issuable to
Thomas Gardner at an aggregate purchase price of $3,390. The limits in
clauses (e), (h), (j), (k), (l) and (m) shall be proportionately adjusted for
dividends and other distributions payable in and for subdivisions and
combinations of shares of Common Stock.
"Person". This term will be interpreted broadly to include any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, company, institution,
entity, party, or government (whether national, federal, state, county, city,
municipal, or otherwise, including, without limitation, any instrumentality,
division, agency, body, or department of any of the foregoing).
"Preferred Shares". The Series A Preferred Stock and Series B Preferred
Stock.
"Purchase Agreement". This term shall mean the Second Amended and
Restated Preferred Stock and Warrant Purchase Agreement, dated as of the
Closing Date, between the Company, the Purchasers, Klein and Blech (as such
agreement may be amended, restated, supplemented or modified from time to
time).
"Purchaser". This term is defined in the preamble.
"Put Option". This term is defined in Section 4.01.
"Put Option Closing". This term is defined in Section 4.05.
"Put Option Period". This term is defined in Section 4.01.
"Put Price". This term is defined in Section 4.02.
"Put Shares". The Warrant Shares plus any other shares of Capital Stock
owned from time to time by a Purchaser which were issued in respect of the
Warrant Shares.
"Registrable Securities". (a) The Issuable Warrant Shares, (b) the
Issued Warrant Shares, (c) the Preferred Shares and (d) the Conversion Shares
that, in each case, have not been previously sold to the public.
"Regulated Holder". Any Purchaser or any Affiliate of any Purchaser
subject to the provisions of (a) the Bank Holding Company Act of 1956, as
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amended; (b) Regulation Y of the Board of Governors of the Federal Reserve
System (12 C.F.R. part 225), or (c) any law, rule or regulation that is a
successor to either of the foregoing; provided that a "Regulated Holder"
shall not include a Purchaser or an Affiliate of a Purchaser that is a small
business investment company licensed by the Small Business Administration.
"Related Party". An entity wholly owned by a Selling Stockholder or one
or more Related Parties, or an Affiliate of a Selling Stockholder.
"Selling Stockholder". This term is defined in Section 6.02.
"Securities Act". The Securities Act of 1933, as amended, and the rules
and regulations thereunder.
"Series A Preferred Stock". Series A Preferred Stock, $.01 par value, of
the Company having the rights, restrictions, privileges and preferences of the
series of preferred stock designated as "Series A Preferred Stock" set forth
in the Certificate of Incorporation of the Company.
"Series B Preferred Stock". Series B Preferred Stock, $.01 par value, of
the Company having the rights, restrictions, privileges and preferences of the
series of preferred stock designation as "Series B Preferred Stock" set forth
in the Certificate of Incorporation of the Company.
"Stockholder". This term is defined in the preamble.
"Subsequent Stockholder". This term is defined in the preamble.
"Subsidiary". Each Person of which or in which the Company or its other
Subsidiaries own directly or indirectly fifty percent (50%) or more of (i) the
combined voting power of all classes of stock having general voting power
under ordinary circumstances to elect a majority of the board of directors or
equivalent body of such Person, if it is a corporation or similar person; (ii)
the capital interest or profits interest of such Person, if it is a
partnership, joint venture, or similar entity; or (iii) the beneficial
interest of such Person, if it is a trust, association, or other
unincorporated organization.
"Valuation Amount" shall mean, as of any date, the greater of (x) zero or
(y) an amount equal to Operating Cash Flow for the most recently ended twelve
months preceding the date of determination multiplied by six (6), less the
principal amount of Indebtedness of the Company on such date of determination,
plus the aggregate amount of cash and/or cash equivalents held by the Company
on such date of determination.
"Valuation Event". This term is defined in the definition of Fair Market
Value.
"Warrants". All warrants issued pursuant to the Purchase Agreement (in
the percentages and to the extent, and subject to adjustment, as provided in
the Purchase Agreement) and all Warrants issued upon the transfer or the
division of, or in substitution for, such Warrants.
"Warrant Shares". The Issuable Warrant Shares and the Issued Warrant
Shares.
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ARTICLE II
STOCKHOLDERS' PREEMPTIVE RIGHTS
2.01 Preemptive Rights. The Company will not issue or sell any New
Securities without first complying with this Article II. The Company hereby
grants to each Stockholder the preemptive right to purchase, pro rata, all or
any part of the New Securities that the Company may, from time to time,
propose to sell or issue. Each Stockholder's pro rata share for purposes of
Article II is the ratio that the number of shares of Common Stock owned of
record by or issuable to such Stockholder upon full exercise of all
outstanding options, warrants or other rights to acquire Common Stock or
securities convertible into Common Stock and full conversion of all securities
convertible into Common Stock, all calculated immediately prior to the
issuance of the New Securities, bears to the total number of shares of Common
Stock then outstanding assuming full exercise or conversion, as the case may
be, of all outstanding securities exercisable for or convertible into Common
Stock.
2.02 Notice. In the event the Company proposes to issue or sell New
Securities, it will give each Stockholder written notice of its intention,
describing the type of New Securities and the price and terms upon which the
Company proposes to issue or sell the New Securities. Each Stockholder will
have ten (10) days from the date of receipt of any such notice and such
information as such Stockholder may reasonably request to facilitate such
Stockholder's investment decision to agree to purchase up to such
Stockholder's pro rata share of the New Securities for the price (valued at
Fair Market Value for any noncash consideration) and upon the terms specified
in the notice by giving written notice to the Company stating the quantity of
New Securities agreed to be purchased.
2.03 Allocation of Unsubscribed New Securities. In the event a
Stockholder fails to exercise such preemptive right within such ten (10) day
period, the other Stockholders, if any, will have an additional five (5) day
period to purchase such Stockholder's portion not so agreed to be purchased in
the same proportion in which such other Stockholders were entitled to purchase
the New Securities (excluding for such purposes such nonpurchasing
Stockholder). Thereafter, the Company will have ninety (90) days to sell the
New Securities not elected to be purchased by the Stockholders at the same
price and upon the same terms specified in the Company's notice described in
Section 2.02. In the event the Company has not sold the New Securities within
such ninety (90) day period, the Company will not thereafter issue or sell any
New Securities without first offering such securities in the manner provided
above.
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ARTICLE III
DILUTION FEE
In the event that, during the term of the Warrants, the Company pays any
cash dividend or makes any cash distribution to any holder of any class of its
Capital Stock with respect to such Capital Stock, each holder of the Warrants
will be entitled to receive in respect of its Warrant a dilution fee in cash
(the "Dilution Fee") on the date of payment of such dividend or distribution,
which Dilution Fee will be equal to the difference between (a) the highest
amount per share paid to any class of Capital Stock times the number of
Issuable Warrant Shares then owned by such holder, and (b) the amount of such
dividend or distribution otherwise paid to such holder as a result of its
ownership of Capital Stock. This provision shall not apply to the payment of
cash dividends on the Series A Preferred Stock.
ARTICLE IV
PUT OPTION
4.01 Grant of Option. The Company hereby grants to each Purchaser an
option to sell to the Company, and the Company is obligated to purchase from
each Purchaser under such option (the "Put Option"), all (or such portion as
is designated by any such Purchaser pursuant to Section 4.03 below) of the Put
Shares owned by such Purchaser. The Put Option will be effective at any time
or times after the five-year and six-month anniversary of the date of issuance
of such Put Shares, or at any time or times after the occurrence of the
following events (the "Put Option Period").
(a) Subject to such Purchaser obtaining any required consents or
waivers under the Loan Agreement, a merger, consolidation, share exchange, or
similar transaction involving the Company, as a result of which stockholders
of the Company immediately prior to such acquisition possess a minority of the
voting power of the acquiring entity immediately following such acquisition,
or sale in one or more related transactions of all or a substantial portion of
the assets, business, or revenue or income generating operations of the
Company or any substantial change in the type of business conducted by the
Company; or
(b) After the occurrence and during the continuance of an Event of
Default or any failure of the Company in any material respect to perform or
comply with any of its obligations hereunder; provided, however, that the Put
Option Period will continue with respect to such Event of Default or other
failure, even after the same has been cured, if notice of exercise of the Put
Option by such Purchaser is provided pursuant to this Article IV during the
continuance of such Event of Default or such other failure, as the case may
be.
4.02 Put Price. In the event that any Purchaser exercises the Put
Option, the price (the "Put Price") to be paid to each such Purchaser pursuant
to this Agreement will be cash in the sum of the amount determined by
multiplying the higher of (a) the Book Value or (b) the Fair Market Value per
share of Common Stock as of the end of the month immediately preceding the
date notice is given of the exercise of the Put Option pursuant to Section
4.03 times the number of shares of Common Stock which were issued upon
exercise of the Warrants for which the Put Option is being exercised by such
Purchaser plus the higher of (a) the Book Value or (b) the Fair Market Value
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of the Other Securities issuable upon exercise of the portion of the Warrants
subject to the Put Option.
4.03 Exercise of Put Option. The Put Option may be exercised during
the Put Option Period with respect to all or any portion of the Put Shares.
Such option shall be exercised by such Purchaser giving notice to the Company
and each other Purchaser during the Put Option Period of the Purchaser's
election to exercise the Put Option, and the date of the Put Option Closing,
which will be not less than fifteen (15) nor more than ninety (90) days after
the date of such notice. The Company will provide each Purchaser desiring to
exercise its Put Option the name and address of each other Purchaser.
Notwithstanding the foregoing, if a Purchaser receives such notice of another
Purchaser's exercise of such other Purchaser's Put Option, the Purchaser
receiving such notice may elect to exercise its Put Option and designate a Put
Option Closing simultaneous and pari passu with that of such other Purchaser.
4.04 Certain Remedies. In the event that the Company defaults in its
obligation to purchase all or any portion of the Put Shares upon exercise of
the Put Option, in addition to any other rights or remedies of each Purchaser,
the unpaid portion of the Put Price will bear interest at the lesser of (a)
eighteen percent (18%) per annum, compounded monthly, or (b) the highest rate
permitted by applicable law. The Company will, upon the request of any
Purchaser, execute and deliver to such Purchaser a promissory note in form and
substance satisfactory to such Purchaser evidencing such obligation.
4.05 Put Option Closing. The closing for the purchase and sale of all
or such portion of the Put Shares as to which the Purchaser has notified the
Company of its intention to exercise the Put Option, will take place at the
office of the Company on the date specified in such notice of exercise (a "Put
Option Closing"). At any Put Option Closing, to the extent applicable, the
Purchaser of the Put Shares will deliver the certificate or certificates
evidencing the Put Shares being purchased, duly endorsed in blank. In
consideration therefor, the Company will deliver to the Purchaser the Put
Price, which will be payable in cash.
ARTICLE V
CALL OPTION
5.01 Grant of Option. Each Purchaser hereby severally grants to the
Company an option to require such Purchaser to sell to the Company, and each
Purchaser is obligated to sell to the Company under this option (the "Call
Option"), all (but not less than all) of the Warrants and Warrant Shares
issued to such Purchaser. The Call Option will be effective after the tenth
(10th) anniversary of the Original Closing Date (the "Call Option Period").
5.02 Call Price. In the event that the Company exercises the Call
Option, the exercise price to be paid in cash to each Purchaser will be equal
to the Put Price determined in accordance with Section 4.02, except that the
Call Option will be exercised with respect to all of the Warrants and all
Warrant Shares, and will be increased by an amount in cash equal to any Excess
Consideration received within one year following the exercise of the Call
Option.
5.03 Exercise of Call Option. The Call Option may be exercised during
the Call Option Period with respect to all of the Warrants and the Warrant
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Shares of the Purchasers, by the Company giving notice to each Purchaser
during the Call Option Period of the election of the Company to exercise the
Call Option, and the date of the Call Option Closing (as defined below), which
in all events will be within at least ten (10) days after the date of such
notice.
5.04 Call Option Closing. The closing for the purchase and sale of
all of the Warrants and Warrant Shares that the Company has elected to
purchase under this Agreement, will take place at the office of the Company,
on the date specified in such notice of exercise (the "Call Option Closing").
At the Call Option Closing, the Purchasers will deliver the Warrants and the
certificate or certificates representing the Warrant Shares, duly endorsed in
blank. In consideration therefor, the Company will deliver to each Purchaser
the purchase price, which will be payable in immediately available funds.
ARTICLE VI
FIRST REFUSAL AND CO-SALE RIGHTS
6.01 Rights of Co-Sale. In the event that any Initial Stockholder or
Subsequent Stockholder owning more than one percent (1%) of the Capital Stock
(including all Issued Warrant Shares) of the Company (a "Major Stockholder")
intends to sell or transfer, directly or indirectly, any shares of any class
of Capital Stock held by it to any Person other than a Related Party, each
Purchaser will have the right to participate in such sale or transfer on the
terms set forth in this Article VI; provided, however, none of the provisions
of this Agreement will apply to any sale by a Major Stockholder of shares of
Capital Stock (a) pursuant to Rule 144 promulgated under the Securities Act;
(b) in a bona fide underwritten public offering under the Securities Act, so
long as all Purchasers have had an opportunity to participate in such offering
pursuant to the registration rights under this Agreement or under the Loan
Warrant Agreement; or (c) pursuant to the exercise of the Company's repurchase
options under those Stock Repurchase Agreements dated May 30, 1997, between
the Company and each of Daniel F. Klein and Jamie Blech.
6.02 Method of Electing Sale: Allocation of Sales. No sale or
transfer by any Initial Stockholder or Subsequent Stockholder of any shares of
Capital Stock will be valid unless the transferee of such Capital Stock first
agrees in writing to be bound by the same terms and conditions that apply to
the Initial Stockholder or Subsequent Stockholder under this Agreement. In
addition, before any shares of Capital Stock held, directly or indirectly, by
any Major Stockholder may be sold or transferred to a Person other than a
Related Party, the Major Stockholder (as such, the "Selling Stockholder") will
comply with the following provisions:
(a) The Selling Stockholder will deliver or cause to be delivered a
written notice (the "Notice of Sale") to each Purchaser at least fifteen (15)
days prior to making any such sale or transfer. The Company agrees to provide
the Selling Stockholder with a list of the names and addresses of each such
Purchaser for such purpose. The Notice of Sale will include (i) a statement of
the Selling Stockholder's bona fide intention to sell or transfer; (ii) the
name and address of the prospective transferee (the "Buyer"); (iii) the number
of shares of Capital Stock of the Company to be sold or transferred; (iv) the
terms and conditions of the contemplated sale or transfer; (v) the purchase
price in cash that the Buyer will pay for such shares of Capital Stock; (vi)
the expected closing date of the transaction; and (vii) such other information
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<PAGE> as the Purchasers may reasonably request to facilitate their decision
as to whether or not to exercise the rights granted by this Article VI.
(b) Any Purchaser receiving the Notice of Sale may elect to
participate in the contemplated sale or transfer by exercising either (i) its
right of first refusal to purchase such Capital Stock pursuant to Section
6.02(c) or (ii), its right to co-sell its Capital Stock pursuant to Section
6.02(d). Either of such rights may be exercised in the sole discretion of the
Purchaser by delivering a written notice (an "Election Notice") to the Company
and the Selling Stockholder within fifteen (15) days after receipt of such
Notice of Sale stating the election of the Purchaser to exercise either its
right of first refusal pursuant to Section 6.02(c) or its right of co-sale
pursuant to Section 6.02(d).
(c) Each Purchaser may elect to treat the Notice of Sale as an
irrevocable offer to sell to the Purchaser up to its pro rata share
(determined in accordance with the following sentence, and including the pro
rata share of Capital Stock not purchased by other Purchasers) of the number
of shares of Capital Stock proposed to be sold to the Buyer on the same per
share terms and conditions as stated in the Notice of Sale. Each Purchaser's
pro rata share for purposes of Article VI is the ratio that the number of
shares of Common Stock issuable to such Purchaser upon exercise of its
Warrants and conversion of its shares of Series B Preferred Stock, plus the
number of shares of Common Stock that are Issued Warrant Shares or Conversion
Shares, owned by such Purchaser, bears to the sum of (x) the total number of
shares of Common Stock then outstanding, plus (y) the number of shares of
Common Stock issuable upon exercise of all Warrants and conversion of all
Series B Preferred Stock. Such offer will remain open for a period of fifteen
(15) days from delivery to the Purchaser of the Election Notice. Within such
fifteen (15) day period, the Purchaser may elect to accept such offer in whole
or in part by delivering to the Selling Stockholder written notice of its
irrevocable election to accept such offer. If the Purchaser irrevocably
accepts such offer, the closing of the purchase and sale will occur on or
before the twentieth (20th) business day following delivery of the notice of
acceptance. At such closing, the Purchaser will deliver the consideration
payable to the order of the Selling Stockholder, against delivery by the
Selling Stockholder of the Capital Stock being so purchased, free and clear of
all liens, claims, and encumbrances, other than this Agreement, endorsed in
good form for transfer to the Purchaser or its designees. If a Purchaser does
not accept such offer within the fifteen (15) day period specified above, the
offer to such Purchaser will be deemed to have been rejected, and the Selling
Stockholder, subject to Section 6.02(d), will be free to sell or transfer such
Capital Stock not purchased by the Purchasers to the Buyer on the same terms
set forth in the Notice of Sale within ninety (90) days of the expiration of
such fifteen (15) day period. If the sale to the Buyer is not so consummated,
the terms of this Article VI will again be applicable to any sale or transfer
of Capital Stock by the Selling Stockholder.
(d) Each Purchaser may elect to sell or transfer in the contemplated
transaction up to the total of the number of shares of Capital Stock then held
by it (including the Issuable Warrant Shares). Promptly after the receipt of
an Election Notice exercising such right, the Selling Stockholder will use its
best efforts to cause the Buyer to amend its offer so as to provide for the
Buyer's purchase, upon the same terms and conditions as those contained in the
Notice of Sale, of all of the shares of Capital Stock (including the Issuable
Warrant Shares) elected to be sold (the "Co-Sell Shares") in such Election
Notices. In the event that the Buyer is unwilling to amend its offer to
purchase all of the Co-Sell Shares in addition to the shares of Capital Stock
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<PAGE> described in the related Notice of Sale, if the Selling Stockholder
desires to proceed with the sale, the total number of shares that such Buyer
is willing to purchase will be allocated to the Selling Stockholder and each
Purchaser having given an Election Notice exercising its right pursuant to
this Section 6.02(d) (the "Co-Sellers") in proportion to the aggregate number
of shares of Capital Stock (including Issuable Warrant Shares) held by each
such Person; provided, however, that no such Person will be so allocated a
number of shares greater than the number of shares that it has sought to sell
to such Buyer in the related Notice of Sale or Election Notice. All Capital
Stock sold or transferred by the Selling Stockholder and the Co-Sellers with
respect to a single Notice of Sale under Section 6.02(b) will be sold or
transferred to the Buyer in a single closing on the terms described in such
Notice of Sale, and each such share will receive the same per share
consideration. In the event that the Buyer for whatever reason, declines to
purchase any shares from any Purchaser delivering an Election Notice, then (x)
the Selling Stockholder will not be permitted to sell or transfer any shares
of Capital Stock to such Buyer and (y) the shares of Capital Stock of the
Selling Stockholder that were to have been sold or transferred to the Buyer
will be subject to the Purchasers' right of first refusal pursuant to Section
6.02(c) for a period of fifteen (15) days thereafter on the terms and
conditions that the Buyer would have purchased such shares of Capital Stock
from the Selling Stockholder had it not declined to purchase shares from the
Co-Seller under this Section 6.02(d).
6.03 Sales to Related Parties. No sale or transfer of shares of
Capital Stock by the Stockholder to a Related Party will be subject to the
provisions of Section 6.02; provided. however that such Related Party first
agrees to assume the obligations of the Initial Stockholder or Subsequent
Stockholder (without relieving the Initial Stockholder or Subsequent
Stockholder of any obligations under this Agreement) under this Agreement with
respect to the shares of Capital Stock thereby acquired by it and to be bound
by the same terms and conditions that apply to the Initial Stockholder or
Subsequent Stockholder under this Agreement in a written joinder agreement in
a form and substance satisfactory to the Purchasers.
ARTICLE VII
LIQUIDITY
7.01 Required Registration. At any time after the earlier of May 1,
2002, and six (6) months after the effective date of the initial public
offering of the Company's Capital Stock, each Purchaser may, upon not more
than two (2) occasions, for each such Purchaser, make a written request to the
Company requesting that the Company effect the registration of a certain
number of Registrable Securities pro rata for the accounts of the Purchasers
based upon the number of Registrable Securities held by them. After receipt
of any such a request, the Company will, as soon as practicable, notify all
Purchasers of such request and use its best efforts to effect the registration
of all Registrable Securities that the Company has been so requested to
register for sale, all to the extent required to permit the disposition (in
accordance with the intended method or methods thereof) of the Registrable
Securities so registered. In no event, other than under Section 7.13, will any
Person other than a Purchaser and Persons having registration rights under the
Loan Warrant Agreement be entitled to include any shares of Capital Stock in
any registration statement filed pursuant to this Section 7.01. If the
managing underwriter or underwriters, if any, of the offering of the
Registrable Securities for which registration has been demanded advises the
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<PAGE> Purchasers that the success of the offering would be materially and
adversely affected by the inclusion of all the Registrable Securities for
which registration has been demanded, then the amount of securities to be
registered for the accounts of the Purchasers shall be reduced pro rata based
upon the Registrable Securities held by the Purchasers.
7.02 Incidental Registration. If the Company at any time proposes to
file on its behalf or on behalf of any of its security holders a registration
statement under the Securities Act on any form (other than a registration
statement on Form S-4 or S-8 or any successor form unless such forms are being
used in lieu of or as the functional equivalent of, registration rights) for
any class that is the same or similar to Registrable Securities, it will give
written notice setting forth the terms of the proposed offering and such other
information as the Purchasers may reasonably request to all holders of
Registrable Securities at least thirty (30) days before the initial filing
with the Commission of such registration statement, and offer to include in
such filing such Registrable Securities as any Purchaser may request. Each
Purchaser desiring to have Registrable Securities registered under this
Section 7.02 will advise the Company in writing within thirty (30) days after
the date of receipt of such notice from the Company, setting forth the amount
of such Registrable Securities for which registration is requested. The
Company will thereupon include in such filing the number of Registrable
Securities for which registration is so requested, and will use its best
efforts to effect registration under the Securities Act of such Registrable
Securities.
Notwithstanding the foregoing, if the managing underwriter or
underwriters, if any, of such offering deliver a written opinion to each
Purchaser that the success of the offering would be materially and adversely
affected by the inclusion of the Registrable Securities requested to be
included, then the amount of securities to be offered for the accounts of
Purchasers will be reduced first by reducing securities being offered for the
account of Persons other than the Purchasers, Persons having registration
rights under the Loan Warrant Agreement and the Company, and second by
reducing the Registrable Securities being offered pro rata (according to the
Registrable Securities held by each Purchaser and securities being registered
by Persons having registration rights under the Loan Warrant Agreement) to the
extent necessary to reduce the total amount of securities to be included in
such offering to the amount recommended by such managing underwriter or
underwriters.
7.03 Form S-3 Registrations. In addition to the registration rights
provided in Sections 7.01 and 7.02 above, if at any time the Company is
eligible to use Form S-3 (or any successor form) for registration of secondary
sales of Registrable Securities, any Purchaser may request in writing that the
Company register shares of Registrable Securities on such form. Upon receipt
of such request, the Company will promptly notify all Purchasers in writing of
the receipt of such request and each such Purchaser may elect (by written
notice sent to the Company within thirty (30) days of receipt of the Company's
notice) to have its Registrable Securities included in such registration
pursuant to this Section 7.03. Thereupon, the Company will, as soon as
practicable, use its best efforts to effect the registration on Form S-3 of
all Registrable Securities that the Company has so been requested to register
by such Purchaser for sale. The Company will use its best efforts to qualify
and maintain its qualification for eligibility to use Form S-3 for such
purposes. Notwithstanding this Section 7.03, the Company shall not be
obligated to effect any such registration if (a) the Purchasers, together with
the holders of any other securities of the Company entitled to inclusion in
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<PAGE>
<PAGE> such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than
$250,000, or (b) the Company already shall have made two registrations on Form
S-3 within the 12-month period immediately preceding the request.
Notwithstanding the foregoing, nothing herein shall restrict, prohibit, or
limit in any way a Purchaser's ability to exercise its registration rights
under Sections 7.01 or 7.02 hereof.
7.04 Rule 144 Availability. Notwithstanding the foregoing, the
Company will not be obligated to register the Registrable Securities of any
particular Purchaser as to which counsel acceptable to such Purchaser renders
an opinion in form and substance satisfactory to the Purchaser to the effect
that such Purchaser's Registrable Securities are freely saleable without
limitation as to volume, manner of sale, or otherwise within a single
three-month period under Rule 144 under the Securities Act.
7.05 Registration Procedures. In connection with any registration of
Registrable Securities under this Article VII, the Company will, as soon as
practicable:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective until the earlier
of such time as all Registrable Securities subject to such registration
statement have been disposed of or the expiration of one hundred eighty (180)
days;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all Registrable Securities covered by such
registration statement until the earlier of such time as all of such
Registrable Securities have been disposed of or the expiration of one hundred
eighty (180) days (except with respect to registrations effected on Form S-3
or any successor form, as to which no such period shall apply);
(c) furnish to each Purchaser such number of copies of the
registration statement and prospectus (including, without limitation, a
preliminary prospectus) in conformity with the requirements of the Securities
Act (in each case including all exhibits) and each amendment or supplement
thereto, together with such other documents as any Purchaser may reasonably
request;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions within the United States and Puerto
Rico as each Purchaser reasonably requests, and do such other acts and things
as may be reasonably required of it to enable such Purchaser to consummate the
disposition in such jurisdiction of the securities covered by such
registration statement;
(e) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its securities
holders, as soon as practicable, an earnings statement covering the period of
at least twelve months beginning with the first month after the effective date
of such registration statement, which earnings statement will satisfy the
provisions of Section 11(a) of the Securities Act;
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<PAGE>
(f) provide and cause to be maintained a transfer agent and
registrar for Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement;
(g) if requested by the underwriters for any underwritten offering
of Registrable Securities on behalf of a Purchaser pursuant to a registration
requested under Section 7.01, the Company will enter into an underwriting
agreement with such underwriters for such offering, such agreement to contain
such representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation, provisions
with respect to indemnities and contribution as are reasonably satisfactory to
such underwriters and the Purchasers; the Purchasers on whose behalf
Registrable Securities are to be distributed by such underwriters will be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters, will also be made to and for the benefit of
such Purchaser; and no Purchaser will be required by the Company to make any
representations or warranties to or agreements with the Company or the
underwriters other than reasonable and customary representations, warranties,
or agreements regarding such Purchaser, such Purchaser's Registrable
Securities, such Purchaser's intended method or methods of disposition, and
any other representation required by law;
(h) furnish, at the written request of any Purchaser, on the date
that such Registrable Securities are delivered to the underwriters for sale
pursuant to such registration, or, if such Registrable Securities are not
being sold through underwriters, on the date that the registration statement
with respect to such Registrable Securities becomes effective, (i) an opinion
in form and substance reasonably satisfactory to such Purchasers, and
addressing matters customarily addressed in underwritten public offerings, of
the counsel representing the Company for the purposes of such registration
(who will not be an employee of the Company and who will be satisfactory to
such Purchasers), addressed to the underwriters, if any, and to the selling
holders; and (ii) a letter (the "comfort letter") in form and substance
reasonably satisfactory to such Purchasers, from the independent public
accountants of the Company, addressed to the underwriters, if any, and to the
selling Purchasers making such request (and, if such accountants refuse to
deliver the comfort letter to such Purchasers, then the comfort letter will be
addressed to the Company and accompanied by a letter from such accountants
addressed to such Purchasers stating that they may rely on the comfort letter
addressed to the Company); and
(i) during the period when the registration statement is required to
be effective, notify each selling Purchaser of the happening of any event as a
result of which the prospectus included in the registration statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and 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 an 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 not misleading.
It will be a condition precedent to the obligation of the Company to take
any action pursuant to this Article VII in respect of the Registrable
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<PAGE>
<PAGE> Securities that are to be registered at the request of any Purchaser
that such Purchaser furnish to the Company such information regarding the
Registrable Securities held by such Purchaser and the intended method of
disposition thereof as is legally required in connection with the action taken
by the Company. The managing underwriter or underwriters, if any, for any
offering of Registrable Securities to be registered pursuant to Section 7.01
or 7.03 will be selected by the holders of a majority of the Registrable
Securities being so registered.
7.06 Allocation of Expenses. Except as provided in the following
sentence, the Company will bear all expenses arising or incurred in connection
with any of the transactions contemplated by this Article VII, including,
without limitation, (a) all expenses incident to filing with the National
Association of Securities Dealers, Inc.; (b) registration fees; (c) printing
expenses; (d) accounting and legal fees and expenses; (e) expenses of any
special audits or comfort letters incident to or required by any such
registration or qualification; and (f) expenses of complying with the
securities or blue sky laws of any jurisdictions in connection with such
registration or qualification. Each Purchaser will severally bear the expense
of its underwriting fees, discounts, or commissions relating to its sale of
Registrable Securities.
7.07 Listing on Securities Exchange. If the Company lists any shares
of Capital Stock on any securities exchange or on the National Association of
Securities Dealers, Inc. Automated Quotation System or similar system, it
will, at its expense, list thereon, maintain and, when necessary, increase
such listing of, all Registrable Securities.
7.08 Holdback Agreements.
(a) If any registration pursuant to Section 7.02 is in connection
with an underwritten public offering, each Purchaser agrees, if so required by
the managing underwriter, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public
offering) during the period beginning seven (7) days prior to the effective
date of such registration statement and ending on the one hundred eightieth
(180th) day after the effective date of such registration statement; provided,
that each Stockholder and each Person that is an officer, director, or
beneficial owner of five percent (5 %) or more of the outstanding shares of
any class of Capital Stock enters into such an agreement.
(b) The Company and the Stockholders agree (i) not to effect any
public sale or distribution during the period seven (7) days (or such longer
period as may be prescribed by Rule 10b-6 under the Exchange Act) prior to the
effective date of the registration statement employed in any underwritten
public offering and ending on the one hundred eightieth (180th) day after any
such registration statement contemplated by Sections 7.01 or 7.03 has become
effective, except as part of such underwritten public offering pursuant to
such registration statement, and (ii) use their best efforts to cause each
holder of its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each case purchased
from the Company at any time after the date of this Agreement (other than in a
public offering), to agree not to effect any such public sale or distribution
of such securities during such period.
7.09 Rule 144. At all times, the Company will take such action as any
Purchaser or Initial Stockholder may reasonably request, all to the extent
required from time to time to enable such Purchaser or Initial Stockholder to
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<PAGE>
<PAGE> sell shares of Registrable Securities or other common stock without
registration pursuant to and in accordance with (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation adopted by the Commission. Upon the request of any
Purchaser or Initial Stockholder, the Company will deliver to such Purchaser
or Initial Stockholder a written statement as to whether it has complied with
such requirements.
7.10 Rule 144A. The Company agrees that, upon the request of any
Purchaser or any prospective purchaser of a Warrant, Warrant Shares, Preferred
Shares or Conversion Shares designated by a Purchaser, the Company will
promptly provide (but in any case within fifteen (15) days of a request) to
such Purchaser or potential purchaser, the following information:
(a) a brief statement of the nature of the business of the Company
and any Subsidiaries and the products and services they offer;
(b) the most recent consolidated balance sheets and profit and
losses and retained earnings statements, and similar financial statements of
the Company for such part of the two preceding fiscal years prior to such
request as the Company has been in operation (such financial information will
be audited, to the extent reasonably available); and
(c) such other information about the Company, any Subsidiaries, and
their business, financial condition, and results of operations as the
requesting Purchaser or purchaser of such Warrants, Warrant Shares, Preferred
Shares or Conversion Shares requests in order to comply with Rule 144A, as
amended, and the antifraud provisions of the federal and state securities
laws.
The Company hereby represents and warrants to any such requesting Purchaser
and any prospective purchaser of Warrants, Warrant Shares, Preferred Shares or
Conversion Shares from such holder that the information provided by the
Company pursuant to this Section 7.10 will not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which they were made,
not misleading.
7.11 Limitations on Subsequent Registration Rights. Except for the
registration rights under the Loan Warrant Agreement, from and after the date
of this Agreement, the Company will not, without the prior written consent of
the Purchasers, enter into any agreement with any holder or prospective holder
of any securities of the Company that would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
7.01, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of its securities will not reduce the amount of the
Registrable Securities of the Holders that is included or (b) to make a demand
registration that could result in such registration statement being declared
effective prior to the effectiveness of the first registration statement
effected under Section 7.01 or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 7.01.
7.12 Exchange Rights. At the option of any Purchaser, any such
Purchaser may exchange its Warrant or Warrant Shares for fully paid and
nonassessable shares (calculated as to each exchange to the nearest
one-thousandth (1/1000) of a share and rounded upward) of common stock of any
Affiliate or Subsidiary of the Company that on the date of receipt of the
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<PAGE>
<PAGE> Exchange Notice has a class of capital stock registered under section
12 of the Exchange Act or within one year and 120 days will have a class of
capital stock so registered (such Affiliate or Subsidiary will be referred to
in this Agreement as the "Exchange Company" and the common stock of such
Affiliate or Subsidiary will be referred to in this Agreement as "Exchange
Common Stock"). Each $1,000 worth of Warrants or Warrant Shares (valued at
Fair Market Value on the date the Exchange Notice was sent), will be
exchangeable for $1,000 worth of Exchange Common Stock (valued at Fair Market
Value on the date that the Exchange Notice was sent). To exchange Warrants or
Warrant Shares into Exchange Common Stock, the Purchaser will surrender at the
principal office of the Exchange Company the Warrants or certificate or
certificates evidencing the Warrant Shares duly endorsed or assigned to the
Company, and give written notice to the Company at such office that it elects
to exchange such Warrants or Warrant Shares (the "Exchange Notice"). Warrants
or Warrant Shares will be deemed to have been exchanged immediately prior to
the close of business on the day of the surrender for exchange in accordance
with the foregoing provisions, and the Person or Persons entitled to receive
the Exchange Common Stock issuable upon any such exchange will thereupon be
treated for all purposes as the record holder or holders of the Exchange
Common Stock. As promptly as practicable on or after the exchange date, the
Exchange Company will issue and deliver a certificate or certificates for the
number of full shares of Exchange Common Stock issuable upon exchange to the
Person or Persons entitled to receive such shares. Upon exchange of any Issued
Warrant Shares, the Company will pay or make with respect to Issued Warrant
Shares any dividends or other distributions that have been declared on the
Warrant Shares in kind or cash, as the case may be. If any Purchaser exchanges
its Warrants or Warrant Shares for shares of Exchange Common Stock pursuant to
this Section 7.12, such Purchaser will have all of the rights set forth in
this Article VII, except that for the purposes of this Article VII the term
"Company" will refer instead to the Exchange Company and the term "Registrable
Securities" will refer to the shares of Exchange Common Stock held by such
Purchaser.
7.13 Inclusion of Stock Held by Initial Stockholders and Subsequent
Stockholders. In connection with any registration effected pursuant to this
Article VII, the Initial Stockholders and Subsequent Stockholders shall be
entitled to include in such registration (on the same terms and conditions as
Purchasers selling their Registrable Securities in such registration) shares
of Common Stock held by such Initial Stockholders and Subsequent Stockholders;
provided that any limitation by the underwriter on the number of shares to be
underwritten in connection with such registration shall first be applied to
the shares so included by such Subsequent Stockholders, and, if a further
limitation is required, then to the shares so included by the Initial
Stockholders, and provided further that each such right to include shares of
Common Stock in a registration pursuant to this Section 7.13 is contingent
upon the execution of an agreement to be bound by all other applicable
restrictions contained in this Article VII. As among the Initial
Stockholders, no Initial Stockholder shall have the opportunity to include in
such registration more shares of Common Stock than are included by any other
Initial Stockholder. In connection with the foregoing rights, the Initial
Stockholders and Subsequent Stockholders shall receive all notices provided
for in Section 7.02 and 7.09 hereof in accordance with the time periods set
forth therein.
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<PAGE>
<PAGE> ARTICLE VIII
DIRECTORS; VOTING AGREEMENTS
8.01 Voting Agreement. To ensure compliance with this Article VIII,
each of the Stockholders hereby irrevocably covenant and agree to vote, or
give or withhold consent with respect to, all shares of Capital Stock now
owned or later acquired by each of them, all in accordance with the terms of
this Article VIII. A counterpart of this Agreement will be deposited with the
Company at its principal place of business or registered office and will be
subject to the same right of examination by a stockholder of the Company, in
person or by agent or attorney, as are the books and records of the Company.
8.02 Board of Directors.
(a) So long as the provisions of this Article VIII remain in effect,
each (now or hereafter) party to this Agreement other than the Purchasers
will, at the request of FF-ITP or its designee, vote, or give or withhold
consent with respect to, all shares of Capital Stock now owned or later
acquired by such party so that at all times an individual designated by FF-ITP
or its designee will be a director of the Company; provided however, that
FF-ITP will not have any obligation to designate or cause any individual to
serve on the board of directors of the Company. No director designated by
FF-ITP or its designee may be removed without the prior written consent of
FF-ITP.
(b) So long as the provisions of this Article VIII remain in
effect, each (now or hereafter) party to this Agreement other than Klein and
the Purchasers will, at the request of Klein, vote, or give or withhold
consent with respect to, all shares of Capital Stock now owned or later
acquired by such party so that at all times an individual designated by Klein
will be a director of the Company; provided, however, that Klein will not have
any obligation to designate or cause any individual to serve on the board of
directors of the Company. No director designated by Klein may be removed
without Klein's prior written consent.
(c) So long as the provisions of this Article VIII remain in
effect, each (now or hereafter) party to this Agreement other than Blech and
the Purchasers will, at the request of Blech, vote, or give or withhold
consent with respect to, all shares of Capital Stock now owned or later
acquired by such party so that at all times an individual designated by Blech
will be a director of the Company; provided, however, that Blech will not have
any obligation to designate or cause any individual to serve on the board of
directors of the Company. No director designated by Blech may be removed
without Blech's prior written consent.
(d) So long as the provisions of this Article VIII remain in
effect, each (now or hereafter) party to this Agreement other than Kandl and
the Purchasers will, at the request of Kandl, vote, or give or withhold
consent with respect to, all shares of Capital Stock now owned or later
acquired by such party so that at all times Kandl will be a director of the
Company; provided, however, that Kandl will not have any obligation to
designate or cause himself to serve on the board of directors of the Company.
Kandl may not be removed as a director without his prior written consent.
(e) So long as the provisions of this Article VIII remain in
effect, each (now or hereafter) party to this Agreement other than Nice and
the Purchasers will, at the request of Nice, vote, or give or withhold consent
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<PAGE>
<PAGE> with respect to, all shares of Capital Stock now owned or later
acquired by such party so that at all times Nice will be a director of the
Company; provided, however, that Nice will not have any obligation to
designate or cause himself to serve on the board of directors of the Company.
Nice may not be removed as a director without his prior written consent.
(f) FF-ITP, Klein, Blech, Kandl, or Nice may, at any time, terminate
its right to designate a director under this Section 8.02 by providing written
notice of such termination to the Company.
(g) Notwithstanding anything to the contrary in this Section 8.02,
so long as the provisions of this Article VIII remain in effect, in the event
of any default by the Company in its covenants and obligations specified in
Sections 4.01, 4.05 and 4.06 of the Purchase Agreement, and the failure of the
Company to cure such default within thirty (30) days after written notice of
such default, FF-ITP shall have the right to call a special meeting of
stockholders of the Company, to increase the number of directors authorized by
the Company's certificate of incorporation and/or bylaws, and to designate
such number of nominees to serve as directors of the Company as is equal to a
majority of the total number of directors authorized in the Company's
certificate of incorporation and bylaws (but only by filling vacancies and not
by removing incumbent directors from the Board); each party to this Agreement
other than the Purchasers will vote the shares of the Company's Capital Stock
now owned or later acquired by such party to cause the increase in the
authorized number of directors as designated by FF-ITP and the election of
such designees of FF-ITP until the date two (2) years after the date of such
special meeting of stockholders. At any time that FF-ITP has nominated a
majority of the directors pursuant to this Section 8.02(g), the Company shall
use its reasonable efforts to assure that each individual named in Sections
8.02(a)-(e) continues to be elected to the Board, and FF-ITP shall not take,
nor will it allow its Board designees to take, any action to impair any
party's right to continue to be elected to the Board under Sections 8.02(a)-
(e). To ensure the prompt enforcement of the rights of FF-ITP under this
paragraph, each party to this Agreement other than the Purchasers hereby
grants FF-ITP an irrevocable proxy to vote such party's shares in the manner
and under the circumstances permitted by this paragraph. The parties to this
Agreement (other than the Purchasers) agree that this grant of a proxy is
coupled with an interest and is irrevocable.
8.03 Voting Agreement Relating to Board of Directors Matters.
(a) So long as the provisions of this Article VIII remain in
effect, each (now and hereafter) party to this Agreement other than the
Purchasers will vote, or give or withhold consent with respect to, all shares
of Capital Stock now owned or later acquired by such party so that at all
times the director designated by Klein will be elected to the Executive
Committee of the Board of Directors of the Company, which shall consist of
five directors, two of whom shall be employees or former employees of the
Company's operating divisions or Subsidiaries.
(b) So long as the provisions of this Article VIII remain in
effect, each (now and hereafter) party to this Agreement other than the
Purchasers will vote, or give or withhold consent with respect to, all shares
of Capital Stock now owned or later acquired by such party so that at all
times the director designated by Blech will be elected to the Executive
Committee of the Board of Directors of the Company, which shall consist of
five directors, two of whom shall be employees or former employees of the
Company's operating divisions or Subsidiaries.
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<PAGE>
<PAGE> (c) So long as the provisions of this Article VIII remain in
effect, each (now and hereafter) party to this Agreement other than the
Purchasers will vote, or give or withhold consent with respect to, all shares
of Capital Stock now owned or later acquired by such party so that at all
times the director designated by FF-ITP or its designee will be elected to the
Executive Committee of the Board of Directors of the Company, which shall
consist of five directors, two of whom shall be employees or former employees
of the Company's operating divisions or Subsidiaries.
(d) Notwithstanding the establishment of an executive committee,
the following decisions shall, at a minimum, always require approval of the
board (and not a committee thereof): (1) a consolidation of the Company with
one or more corporations having capital stock to form a new consolidation
corporation; (2) a merger of the Company into another corporation having
capital stock or a business trust having transferable units of beneficial
interest or a limited partnership or a limited liability company; (3) a merger
of one or more corporations having capital stock into the Company or a merger
of one or more business trusts having transferable units of beneficial
interest into the Company or a merger of one or more limited partnerships into
the Company or a merger of one or more limited liability companies into the
Companies; (4) an exchange or issuance of stock in connection with an
acquisition transaction by the Company in which the aggregate consideration
(including the Fair Market Value of the shares exchanged) exceeds $30 million;
(5) a transfer of all or substantially all of the assets of the Company; (6)
an attempt by the Company to redeem or buy back any of the Company's Capital
Stock; (7) the issuance by the Company of Capital Stock for a consideration
which is unreasonably disproportionate to its fair market value per share, or
less than $5.00 per share, except for Permitted Stock; (8) the actual or
constructive liquidation of the Company; (9) the dissolution of the Company;
(10) amendments to the certificate of incorporation or the bylaws of the
Company; (11) a transaction between the Company and any of its affiliates or
subsidiaries or between the Company and any person who is currently serving on
the Board of Directors of the Company or is currently serving as an officer or
employee of the Company or any of its affiliates or subsidiaries. During any
period in which the provisions of Section 8.02(g) have been implemented, the
Company shall not have an executive committee of the Board of Directors.
8.04 Termination. All rights under this Article VIII shall terminate
in their entirety on the closing of the Company's initial public offering of
shares of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended, involving net proceeds to the Company
of at least $30,000,000, after deducting applicable underwriters' commissions
and discounts.
8.05 No Revocation. The voting agreements contained herein are
coupled with an interest and may not be revoked, except by written consent of
all of the Stockholders.
8.06 Restrictive Legend. All certificates representing shares of
Capital Stock owned or hereafter acquired by the Stockholders or any
transferee of them shall have affixed thereto a legend substantially in the
following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN VOTING AGREEMENTS AS SET FORTH IN A STOCKHOLDERS' AGREEMENT BY AND
AMONG THE REGISTERED OWNER OF THIS CERTIFICATE, THE COMPANY AND CERTAIN OTHER
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT
THE OFFICES OF THE SECRETARY OF THE COMPANY."
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<PAGE>
8.07 Applicability of Article VIII to Regulated Holders. Anything
herein to the contrary notwithstanding, no provision of this Article VIII,
other than the provisions of Section 8.06, shall be enforceable by any
Regulated Holder or any Affiliate of any Regulated Holder.
ARTICLE IX
MISCELLANEOUS
9.01 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nonbreaching party. It
is, therefore, agreed that in the event of any breach or threatened breach by
a party to this Agreement of the terms and conditions set forth in this
Agreement, the nondefaulting party will be entitled, in addition to any and
all other rights and remedies that it may have in law or in equity, to apply
for and obtain injunctive relief requiring the defaulting party to be
restrained from any such breach, or threatened breach or to refrain from a
continuation of any actual breach.
9.02 Integration. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof supersedes all
previous written, and all previous or contemporaneous oral negotiations,
understandings, arrangements, and agreements. This Agreement may not be
amended or supplemented except by a writing signed by the Company and the
Stockholders in accordance with Section 9.15.
9.03 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement. References
in this Agreement to Sections and Certificate are references to the Sections
and Certificate of this Agreement unless otherwise specified.
9.04 Severability. The parties to this Agreement expressly agree that
it is not their intention to violate any public policy, statutory or common
law rules, regulations, or decisions of any governmental or regulatory body.
If any provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such policy, rule,
regulation, or decision, the provision, section, sentence, word, clause, or
combination thereof causing such violation will be inoperative (and in lieu
thereof there will be inserted such provision, sentence, word, clause, or
combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties to this Agreement, unless the inoperative
provision would cause enforcement of the remainder of this Agreement to be
inequitable under the circumstances.
9.05 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
will be deemed to have been validly served, given, or delivered (and "the date
of such notice" or words of similar effect will mean the date) five (5) days
after deposit in the United States mails, certified mail, return receipt
requested, with proper postage prepaid, or upon receipt thereof with written
acknowledgment of receipt (whether by non-certified mail, telecopy, telegram,
express or hand delivery, or otherwise), whichever is earlier, and addressed
to the party to be notified as follows:
-24-<PAGE>
<PAGE>
If to Creditanstalt, at: Address of Creditanstalt beneath the
name of Creditanstalt on the signature pages
of this Agreement
with courtesy copies to: Troutman Sanders LLP
600 Peachtree Street, N. E.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: Hazen H. Dempster, Esquire
Fax (404) 885-3900
If to the Company, at: IT Partners, Inc.
9881 Broken Land Parkway
Suite 102
Columbia, MD 21046
Attn: Daniel F. Klein, Chairman of the Board
Fax: (401) 309-9801
with courtesy copies to: Swidler & Berlin, Chartered
300 K Street
Washington, D.C. 20007
Attn: Kenneth I. Schaner, Esquire
Andrew M. Ray, Esquire
Fax: (202) 424-7643
If to FF-ITP, at: FF-ITP, L.P.
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Fax: (919) 743-2501
with courtesy copies to: Wyrick, Robbins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr., Esquire
Fax: (919)781-4865
If to Indosuez, at: Indosuez IT Partners
1211 6th Avenue
7th Floor
New York, New York 10036
Attn: Michael Arougheti
Fax: (212) 278-2254
-25-<PAGE>
<PAGE>
If to Wachovia, at Wachovia Capital Associates, Inc.
191 Peachtree St., N.E.
Mailcode GA423
Atlanta, Georgia 30303
Attn: Senior Vice President/ITP
Fax: (404) 332-1455
with courtesy copies to: Wachovia Capital Associates, Inc.
191 Peachtree St., N.E.
Mailcode GA715
Atlanta, Georgia 30303
Attn: Legal Department/WCA/ITP
Fax: (404) 332-1455
If to an Initial or Subsequent Stockholder, at: Address of such
stockholder beneath the name of such stockholder on the signature pages of
this Agreement or to such other address as each party may designate for itself
by like notice. Notice to any holder of Registrable Securities will be
delivered as set forth above to the address shown on the stock transfer books
of the Company or the Warrant Register unless such holder has advised the
Company in writing of a different address to which notices are to be sent
under this Agreement.
Failure or delay in delivering the courtesy copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies of the actual notice will in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration, or other
communication will be deemed to have been given or received unless and until
it sets forth all items of information required to be set forth therein
pursuant to the terms of this Agreement.
9.06 Successors. This Agreement will be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns; provided, however, that no sale, assignment or other transfer by any
party to this Agreement of any of its Capital Stock or rights hereunder to
another Person will be valid and effective unless and until the transferee or
assignee first executes a joinder agreement a form and substance reasonably
satisfactory to the Company agreeing to be bound by the terms and conditions
of this Agreement. Notwithstanding the foregoing, no party to this Agreement
except the shall have the ability to assign its rights under Article II,
Article III, Article IV, Article V and Article VI hereof.
9.07 Remedies. The failure of any party to enforce any right or
remedy under this agreement, or to enforce any such right or remedy promptly,
will not constitute a waiver thereof, nor give rise to any estoppel against
such party, nor excuse any other party from its obligations under this
Agreement. Any waiver of any such right or remedy by any party must be in
writing and signed by the party against which such waiver is sought to be
enforced.
9.08 Fees. Any and all fees, costs, and expenses, of whatever kind
and nature, including attorneys' fees and expenses, incurred by the Purchasers
in connection with the defense or prosecution of any actions or proceedings
arising out of or in connection with this Agreement will, to the extent
-26-
<PAGE>
<PAGE>provided in this Agreement, be borne and paid by the Company within ten
(10) days of demand by the Purchasers.
9.09 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one
agreement.
9.10 Other Business. It is understood and accepted that Purchaser
and its Affiliates have interests in other business ventures that may be in
conflict with the activities of the Company and that nothing in this Agreement
will limit the current or future business activities of such parties whether
or not such activities are competitive with those of the Company.
9.11 Choice of Law. THIS AGREEMENT WILL BE DEEMED TO HAVE BEEN MADE
IN DELAWARE, AND WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES APPLICABLE THERETO AND THE
INTERNAL LAWS OF THE STATE OF DELAWARE APPLICABLE TO AN AGREEMENT EXECUTED,
DELIVERED AND PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW
RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE
SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
9.12 Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner of such
Registrable Securities, the beneficial owner of Registrable Securities may, at
its election, be treated as the holder of such Registrable Securities for
purposes of any request or other action by any Purchaser or holder of
Registrable Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by any Purchaser
or holder of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities. In no event will a Purchaser be
required to exercise its Warrant as a condition to the registration of such
Warrant or Registrable Securities thereunder.
9.13 Fiduciary Duties. The Company acknowledges and agrees that, for
so long as any Warrant is outstanding and regardless of whether the holder has
exercised any portion of its Warrant, (a) the officers and directors of the
Company will owe the same duties (fiduciary and otherwise) to the holder as
are owed to a stockholder of the Company and (b) the holder will be entitled
to all rights and remedies with respect to such duties or that are otherwise
available to a stockholder of the Company under the Delaware General
Corporation Law, as amended from time to time.
9.14 Duties Among Purchasers. Each Purchaser agrees that no other
Purchaser will by virtue of this Agreement be under any fiduciary or other
duty to give or withhold any consent or approval under this Agreement or to
take any other action or omit to take any action under this Agreement, and
that each other Purchaser may act or refrain from acting under this Agreement
as such other Purchaser may, in its discretion, elect.
9.15 Amendment. This Agreement shall not be modified or amended, nor
shall the operation of any provision hereof be waived, except (a) by a writing
signed by the party against whom enforcement is sought, or (b) by a writing
signed by the Stockholders holding at least a majority of the Capital Stock
(on a fully diluted basis), including each Purchaser, which modification or
amendment shall be binding upon and is hereby consented to by all
Stockholders; provided, however, that the Corporation may add new holders of
-27-<PAGE>
<PAGE>
its shares as parties to this Agreement as provided herein, which additions
are hereby consented to by all Stockholders; and provided further that none of
Sections 7.09, 7.13 or Article VIII shall be modified, amended or waived
except by a writing signed by all parties to this Agreement or by the party
against whom enforcement is sought.
9.16 Confidentiality. Each Purchaser agrees to keep confidential any
information delivered by the Company to such Purchaser under this Agreement
that the Company clearly indicates in writing to be confidential information;
provided, however, that nothing in this Section 9.16 will prevent such
Purchaser from disclosing such information (a) to any Affiliate of such
Purchaser or any actual or potential purchaser, participant, assignee, or
transferee of such Purchaser's rights or obligations hereunder that agrees to
be bound by the terms of this Section 9.16, (b) upon order of any court or
administrative agency, (c) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Purchaser, (d) that is in the
public domain, (e) that has been obtained from any Person that is not a party
to this Agreement or an Affiliate of any such party without breach by such
Person of a confidentiality obligation known to such Purchaser, (f) in
connection with the exercise of any remedy under this Agreement, or (g) to the
certified public accountants for such Purchaser. The Company agrees that such
Purchaser will be presumed to have met its obligations under this Section 9.16
to the extent that it exercises the same degree of care with respect to
information provided by the Company as it exercises with respect to its own
information of similar character.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-28-<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
IT PARTNERS, INC.
BY:
----------------------------------------
NAME:____________________________________
TITLE:
9881 Broken Land Parkway
Suite 102
Columbia, MD 21046
Attn: Daniel F. Klein, Chief Executive Officer
Fax: (401) 309-9801
CREDITANSTALT:
CREDITANSTALT CORPORATE FINANCE, INC.
BY:
----------------------------------------
Robert M. Biringer
Executive Vice President
BY:
----------------------------------------
Carl Drake
Two Greenwich Plaza
4th Floor
Greenwich, Connecticut 06830
Attn: Lisa Bruno
Fax: (203) 861-6594
with copies to:
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Attn: Carl Drake
Fax: (770) 390-1851
-29-<PAGE>
<PAGE>
FF-ITP:
FF-ITP, L.P.
BY: Franklin Street/Fairview Capital, L.L.C.,
its general partner
BY: Franklin Capital, L.L.C.,
its manager
BY: ______________________________
--------------------------------------
James D. Lumsden,
Manager
702 Oberlin Road
Suite 150
Raleigh, North Carolina 27605
Attn: James D. Lumsden
Fax: (919) 743-2501
INDOSUEZ:
INDOSUEZ IT PARTNERS
BY: Indosuez CM II, Inc.
Managing General Partner
BY:
-------------------------------------
NAME:
TITLE:
BY:
--------------------------------------
NAME:
TITLE:
1211 6th Avenue
7th Floor
New York, New York 10036
Attn: Michael Arougheti
Fax: (212) 278-2254
WACHOVIA:
WACHOVIA CAPITAL ASSOCIATES, INC.
BY:
---------------------------------
NAME:
TITLE:
-30-<PAGE>
<PAGE>
Wachovia Capital Associates, Inc.
191 Peachtree St., N.E.
Mailcode GA423
Atlanta, Georgia 30303
Attn: Senior Vice President/ITP
Fax: (404) 332-1455
with copies to:
Wachovia Capital Associates, Inc.
191 Peachtree St., N.E.
Mailcode GA715
Atlanta, Georgia 30303
Attn: Legal Department/WCA/ITP
Fax: (404) 332-1455
-31-<PAGE>
<PAGE>
INITIAL STOCKHOLDERS:
Daniel J. Klein
----------------------------------
Jamie E. Blech
----------------------------------
Martin Kandl
----------------------------------
Haeyoung P. Kandl
----------------------------------
Stanley Nice
----------------------------------
John Clement
----------------------------------
-32-<PAGE>
<PAGE>
SUBSEQUENT STOCKHOLDERS:
Christopher Corbett
----------------------------------
Merrie Corbett
----------------------------------
Thomas Gardner
----------------------------------
Charles Schaeffer
----------------------------------
Mark Yanson
____________________________________________
----------------------------------
Robert Wentworth
----------------------------------
Jon DeFina
-----------------------------------__________
Philip Tomasi
_____________________________________________
-----------------------------------
-33- <PAGE>
<PAGE>
Charles Menzel
------------------------------------
Michael J. Baltosiewich, as Trustee U-A dated 10/20/72
--------------------------------------
John D. Bamberger, as Trustee U-A dated 11/9/95
---------------------------------------
William C. Church
----------------------------------------
William C. Fay
----------------------------------------
Deborah J. Foy
-----------------------------------------
William C. Finkenstaedt
_____________________________________________
------------------------------------------
Robert M. Fraser
------------------------------------------
-34- <PAGE>
<PAGE>
Raymond G. Green
----------------------------------------
Carl J. Griffin
-----------------------------------------_____
Sheree Haladik
------------------------------------------
Dirk Kjolhede
------------------------------------------
Grant Morisette
-----------------------------------------
William E. Murray
----------------------------------------
Robert M. Roy
---------------------------------------
Michael A. Ryan
---------------------------------------
-35- <PAGE>
<PAGE>
Arnold J. Townsend
--------------------------------------
Alan E. Wise, as Trustee U-A dated 12/13/95
--------------------------------------
_____________________________________________
-36-<PAGE>
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
STOCKHOLDER AGREEMENT
ISSUED AND OUTSTANDING CAPITAL STOCK
as of
March 31, 1998
Name of Initial Number of Number of
Stockholder Address Shares Options
- ---------------- ------- ---------- ---------
<S> <C> <C> <C>
Daniel J. Klein c/o IT Partners, Inc.
9881 Broken Land Pkwy.
Suite 102 10,900 Series A
Columbia, MD 21046 550,101 Common None
Jamie E. Blech c/o IT Partners, Inc.
9881 Broken Land Pkwy.
Suite 102 10,900 Series A
Columbia, MD 21046 550,101 Common None
Martin and
Haeyoung P. Kandl
(jointly) 10700 Harper Avenue
Silver Spring, MD 20901 365,435 Common None
Stanley Nice c/o CNS, Inc.
100 Ford Road
Denville, NJ 07834 159,431 Common None
John Clement 181 Statesville Quarry Rd.
Lafeyette, NJ 07848 151,550 Common None
</TABLE>
<TABLE>
<CAPTION>
Name of
Subsequent Number of Number of
Stockholder Address Shares Options
- --------------- -------- --------- --------
<S> <C> <C> <C>
Christopher and
Merrie Corbett
(jointly) c/o A-Com, Inc.
4315 Walney Road
Suite 100
Chantilly, VA 20151
<PAGE>
<PAGE>
Charles Schaeffer c/o Financial System Consulting, Inc.
One World Trade Center
Long Beach, CA 90831
Garrett Schaeffer c/o Financial System Consulting, Inc.
One World Trade Center
Long Beach, CA 90831
Mark Yanson c/o IT Partners, Inc.
9881 Broken Land Pkwy.
Suite 102
Columbia, MD 21046
Robert Wentworth c/o Incline Corp.
2192 Anchor Ct., Ste. B
Newbury Park, CA 91320
Jon DeFina c/o Incline Corp.
2192 Anchor Ct., Ste. B
Newbury Park, CA 91320
Philip Tomasi c/o Incline Corp.
2192 Anchor Ct., Ste. B
Newbury Park, CA 91320
Charles Menzel c/o Incline Corp.
2192 Anchor Ct., Ste. B
Newbury Park, CA 91320
Michael J. Baltosiewich,
as Trustee U-A dated
10/20/72 c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
John D. Bamberger,
as Trustee U-A
dated 11/9/95 c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
William C. Church c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
William C. Fay c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Deborah J. Foy c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
William C. Finkenstaedt c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
<PAGE>
<PAGE>
Robert M. Fraser c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Raymond G. Green c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Carl J. Griffin c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Sheree Haladik c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Dirk Kjolhede c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Grant Morisette c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
William E. Murray c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Robert M. Roy c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Michael A. Ryan c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Arnold J. Townsend c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
Alan E. Wise, as Trustee
U-A dated 12/13/95 c/o Sequoia Diversified Products, Inc.
107 South Squirrel Rd.
Auburn Hills, MI 48326
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Name of Number of Number of Shares
Purchaser Address Shares Subject to Warrants
- ----------- ------- ---------- --------------------
<S> <C> <C> <C>
Creditanstalt
Corporate
Finance, Inc. Two Ravinia Drive 412,579 Loan
Suite 1680 Warrant Shares
Atlanta, GA 30346
Attn: Carl Drake 222,222 Series B 645,587 Issuable
Fax: (770) 390-1851 200,000 Series A(1) Warrant Shares(2)
FF-ITP, L.P. 702 Oberlin Road
Suite 150 515,724
Raleigh, NC 27605 Issuable
Attn: James D. Lumsden Warrant
Fax: (919) 833-9018 110,000 Series A(1) Shares(2)
Indosuez IT Partners 1211 6th Avenue, 7th Floor
New York, NY 10036
Attn: Michael Arougheti
Fax: (212) 278-2254 431,965 Series B None
Wachovia Capital
Associates, Inc. 191 Peachtree St., N.E.
Mailcode GA423
Atlanta, GA 30303
Attn: Sr. Vice Pres./ITP
Fax: (404) 332-1455 647,948 Series B None
/TABLE
<PAGE>
<PAGE>
EXHIBIT B
JOINDER AGREEMENT
to
Stockholder Agreement
of
IT PARTNERS, INC.
This Joinder Agreement (the "Joinder") is made as of the day of
-----
- -------------------- between IT Partners, Inc., a Delaware corporation (the
"Company"), and (the "New Stockholder").
----------------------
WHEREAS, the Company and all its stockholders are parties to a certain
Amended and Restated Stockholder Agreement dated March , 1998 (as amended,
restated, supplemented, or modified from time to time, the "Agreement"), that
governs the orderly disposition of shares of the Company's stock, among other
matters; and
WHEREAS, the Agreement permits additional holders or transferees of the
Company's shares to become parties to the Agreement upon execution of a
joinder agreement in form and substance satisfactory to the Company; and
WHEREAS, the New Stockholder desires to become a party, and the Company
desires that the New Stockholder become a party, to the Agreement;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows.
1. The New Stockholder is hereby made a party to the Agreement with
respect to the ( ) shares of the Stock of
------------------- ----- ------------
the Company (the "Stock") owned by the New Stockholder and represented by the
Company's stock certificate no. , and the New Stockholder hereby consents to
---
be bound by all the terms and conditions of the Agreement.
2. [Complete if applicable] The New Stockholder has received the
Stock as a successor, assignee or transferee of , which
-----------------------
was a Purchaser under the Agreement.
3. The New Stockholder has reviewed this Joinder and the Agreement in
their entireties, and has had an opportunity to obtain the advice of counsel
prior to executing this Joinder and fully understands all provisions of the
Joinder and the Agreement.
4. This Joinder may be executed in any number of counterparts, each
of which shall be an original and all of which taken together shall constitute
one instrument.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Joinder under
seal as of the day and year first set forth above.
"Company" IT PARTNERS, INC.
[CORPORATE By:______________________________
SEAL] -----------------------------
Title:
"New Stockholder" ------------------------------
(Printed or typed name)
-------------------------------(SEAL)
(Signature)
Address of New Stockholder:
SECOND AMENDED AND RESTATED
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SECOND AMENDED AND RESTATED PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT (this "Agreement") is made as of March 31, 1998, by and
among IT PARTNERS, INC., a Delaware corporation (the "Company"), CREDITANSTALT
CORPORATE FINANCE, INC., having offices at Two Greenwich Plaza, Greenwich,
Connecticut 06830 (together with any successor, assignee or transferee,
"Creditanstalt"), FF-ITP, L.P., a Delaware limited partnership ("FF-ITP"),
INDOSUEZ IT PARTNERS, having offices at 1211 Avenue of the Americas, New York,
New York 10036-8701 (together with any successor, assignee or transferee,
"Indosuez"), WACHOVIA CAPITAL ASSOCIATES, INC., having offices at 191
Peachtree Street, N.E., 26th Floor, Atlanta, Georgia 30303 (together with any
successor, assignee or transferee, "Wachovia", which, together with
Creditanstalt, FF-ITP and Indosuez are individually and collectively, as the
context requires, referred to herein as the "Purchaser"), and each of the
STOCKHOLDERS named on the signature pages hereto (individually and
collectively, as the context requires, the "Stockholder").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Preferred Stock and Warrant Purchase
Agreement, dated as of May 30, 1997, as amended by the First Amendment to
Preferred Stock and Warrant Purchase Agreement dated July 11, 1997, as further
amended by the Second Amendment to Preferred Stock and Warrant Purchase
Agreement dated October 27, 1997, as further amended by the Third Amendment to
Preferred Stock and Warrant Purchase Agreement dated October 31, 1997, and as
further amended by the Fourth Amendment to Preferred Stock and Warrant
Purchase Agreement dated December 16, 1997 (as amended, the "Original Purchase
Agreement") by and among the parties thereto, (i) Creditanstalt purchased an
aggregate of 100,000 shares of the Company's Series A Preferred Stock and
warrants (the "Equity Warrants") for the purchase of up to 456,907 shares
(subject to adjustment as set forth in Section 2.08 of the Original Purchase
Agreement) of either the Company's common stock, $.01 par value per share
("Common Stock"), or the Company's Series B Preferred Stock, $.01 par value
per share; and (ii) FF-ITP purchased 110,000 shares of the Company's Series A
Preferred Stock, 29,516 shares of Common Stock, and Equity Warrants for the
purchase of up to 515,724 shares (subject to adjustment as set forth in
Section 2.08 of the Original Purchase Agreement) of the Company's Common
Stock; and
WHEREAS, the Company and the Stockholders amended and restated the
Original Purchase Agreement pursuant to that certain Amended and Restated
Preferred Stock and Warrant Purchase Agreement, dated as of January 8, 1998
(the "First Restated Purchase Agreement") pursuant to which Creditanstalt
acquired (a) 100,000 shares of Series A Preferred Stock with Equity Warrants
for the purchase of 188,680 shares of Common Stock or Series B Preferred
Stock, and (b) 222,222 shares of Series B Preferred Stock; and
WHEREAS, the Company desires that Indosuez and Wachovia make the
following equity investments as of the Second Restatement Closing Date (as
defined herein): (1) Indosuez will purchase 431,965 shares of Series B
Preferred Stock at an aggregate purchase price of $2,000,000 ($4.63 per
share), and (2) Wachovia will purchase 647,948 shares of Series B Preferred
Stock at an aggregate purchase price of $3,000,000 ($4.63 per share) ((1) and
(2) are collectively referred to as the "Additional Equity Investments"); and
WHEREAS, the parties hereto wish to amend and restate the First Restated
Purchase Agreement in order to provide for the Additional Equity Investments
and make certain other changes set forth herein;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Purchasers, the
Stockholders, and the Company, intending to be legally bound, agree as
follows:
Article I
Definitions
As used in this Agreement, the following terms have the meanings
indicated.
Acquisition Stock. This term shall mean Common Stock of the Company
issued subsequent to the Closing Date in consideration for the acquisition of
all or substantially all the assets (including the stock or other ownership
interests) of Persons that are identified by the Company as acquisition
targets, provided that the Fair Market Value of such Common Stock as well as
other consideration paid by the Company for such assets is not unreasonably
disproportionate to the fair market value of the assets being acquired, as
determined by the Company's Board of Directors or its executive committee.
<PAGE>
Additional Securities. This term is defined in Section 2.08(b)(iv)
Adjustment Event. Any event in which (a) the Company issues any shares
of Capital Stock in an Adjustment Public Offering for consideration per share
that exceeds the amount received per share by any Holder in connection with
the exercise of the Call Option with respect to such Holder; (b) any Person
acquires Capital Stock in connection with the acquisition of the beneficial
ownership of more than fifty percent (50%) of the voting securities of the
Company, or acquires Capital Stock and the right to elect a majority of the
members of the Company's board of directors for a consideration per share or
unit that exceeds the amount received per share by any such Holder in
connection with the exercise of such Call Option; (c) the Company sells all or
a majority of its assets or revenue or income generating capacity for such
amount of consideration that, if the Company were liquidated on the date that
such sale is consummated, the holders of any class of Capital Stock would
receive per share distributions exceeding the amount received per share by any
such Holder in connection with the exercise of such Call Option; or (d) the
Company participates in any merger, consolidation, reorganization, share
exchange, recapitalization, or similar transaction or series of related
transactions involving a change of control of the Company or disposition of
all or a majority of its assets or revenue or income generating capacity,
directly or indirectly, in which the holders of any class of Capital Stock
receive per share consideration for, or distributions with respect to, their
shares in an amount that exceeds the amount received per share by such Holder
in connection with the exercise of such Call Option.
Adjustment Public Offering. Each public offering of shares of any class
of Capital Stock pursuant to a registration statement filed with the
Commission.
Affiliate. With respect to any Person, (a) a Person that, directly or
indirectly or through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person; (b) any Person of which such
Person or such Person's spouse is an officer, director, security holder,
partner, or, in the case of a trust, the beneficiary or trustee, and (c) any
Person that is an officer, director, security holder, partner, or, in the case
of a trust, the beneficiary or trustee of such Person. The term "control" as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by contract,
or otherwise. In addition, as to any Purchaser, "Affiliate" shall include any
partnership a majority of the partners of which are officers, directors,
employees or Affiliates of such Purchaser, and as to the Company, "Affiliate"
shall not include any Purchaser or any Affiliate of any Purchaser.
Agreement. This term is defined in the preamble.
Appraised Value. The value determined in accordance with the following
procedures. For a period of thirty (30) days after the date of a Valuation
Event (the "Negotiation Period"), each party to this Agreement agrees to
negotiate in good faith to reach agreement upon the Appraised Value of the
securities or property at issue, as of the date of the Valuation Event, which
will be the fair market value of such securities or property, without premium
for control or discount for minority interests, illiquidity, or restrictions
on transfer. In the event that the parties are unable to agree upon the
Appraised Value of such securities or other property by the end of the
Negotiation Period, then the Appraised Value of such securities or property
will be determined for purposes of this Agreement by an Appraiser. An
"Appraiser" shall be a recognized appraisal or investment firm with experience
in making determinations of value of the type required to be made under this
definition. If the Holders and the Company cannot agree on an Appraiser
within thirty (30) days after the end of the Negotiation Period, the Company,
on the one hand, and the Holders, on the other hand, shall each select an
Appraiser within forty (40) days after the end of the Negotiation Period and
those two Appraisers shall select within fifty (50) days after the end of the
Negotiation Period an independent Appraiser to determine the fair market value
of such securities or property, without premium for control or discount for
minority interests. Such independent Appraiser shall be directed to determine
fair market value of such securities or property as soon as practicable, but
in no event later than thirty (30) days from the date of its selection. The
determination by an Appraiser of the fair market value will be conclusive and
binding on all parties to this Agreement. Appraised Value of each share of
Common Stock at a time when (i) the Company is not a reporting company under
the Exchange Act and (ii)
<PAGE>
the Common Stock is not traded in the organized securities markets, will, in
all cases, be calculated by determining the Appraised Value of the entire
Company taken as a whole (plus the exercise price of all options, warrants and
other rights to acquire Capital Stock of the Company having an exercise price
per share less than the Fair Market Value of such Capital Stock) and dividing
that value by the sum of (x) the number of shares of Common Stock then
outstanding plus (y) the number of shares of Common Stock Equivalents, without
premium for control or discount for minority interests, illiquidity, or
restrictions on transfer. The costs of the Appraiser or Appraisers will be
borne by the Company. In no event will the Appraised Value of the Common
Stock or Other Securities be less than the per share consideration received or
receivable with respect to the Common Stock or securities or property of the
same class as the Other Securities, as the case may be, in connection with a
pending transaction involving a sale, merger, recapitalization,
reorganization, consolidation, share exchange, dissolution of the Company,
sale or transfer of all or a majority of its assets or revenue or income
generating capacity, or similar transaction. The prevailing market prices for
any security or property will not be dispositive of the Appraised Value
thereof.
Appraiser. This term is defined in the definition of Appraised Value.
Average Market Value. The average of the Closing Prices for the
security in question for the thirty (30) trading days immediately preceding
the date of determination.
Book Value. With respect to shares of Common Stock an amount equal to
the quotient determined by dividing (a) the sum of (x) the total consolidated
assets of the Company shown on the most recent regularly prepared consolidated
balance sheet of the Company prior to the date of the Valuation Event in
question minus (y) the total consolidated liabilities of the Company as shown
on the most recent regularly prepared consolidated balance sheet of the
Company prior to the date of the Valuation Event by (b) the aggregate number
of shares of Common Stock and Common Stock Equivalents as of the date of the
Valuation Event. For the purposes of this Agreement, the Book Value of the
shares of Common Stock will be determined by the independent certified public
accountants then retained by the Company as described in Section 4.06.
Business Combination Options. This term shall mean options to purchase
Common Stock of the Company that (a) are issued to employees of the Company or
of Subsidiaries of the Company hired after the Original Closing Date; (b) in
the aggregate do not exceed 12% of the Acquisition Stock issued by the
Company; and (c) have an exercise price equal to the Fair Market Value on the
date such options are granted, giving effect to any such acquisition
consummated on such date.
Buyer. This term is defined in Section 6.02(a)(ii) of the Stockholder
Agreement.
Call Option. This term is defined in Section 5.01 of the Stockholder
Agreement.
Call Option Closing. This term is defined in Section 5.04 of the
Stockholder Agreement.
Call Option Period. This term is defined in Section 5.01 of the
Stockholder Agreement.
Capital Stock. As to any Person, its common stock and any other capital
stock of such Person authorized from time to time, and any other shares,
options, interests, participations, or other equivalents (however designated)
of or in such Person, whether voting or nonvoting, including, without
limitation, common stock, options, warrants, preferred stock (including the
Series A Preferred Stock and Series B Preferred Stock), phantom stock, stock
appreciation rights, convertible notes or debentures, stock purchase rights,
and all agreements, instruments, documents, and securities convertible,
exercisable, or exchangeable, in whole or in part, into any one or more of the
foregoing.
Certificate. The Certificate of Incorporation of the Company, as
amended.
Closing. This term refers to the purchase and sale of the Series B
Preferred Stock, effective as of the Second Restatement Closing Date.
<PAGE>
Closing Price.
(a) If the primary market for the security in question is a
national securities exchange registered under the Exchange Act, the National
Association of Securities Dealers Automated Quotation System -- National
Market System, or other market or quotation system in which last sale
transactions are reported on a contemporaneous basis, the last reported sales
price, regular way, of such security for such day, or, if there has not been a
sale on such trading day, the highest closing or last bid quotation therefor
on such trading day (excluding, in any case, any price that is not the result
of bona fide arm;s length trading); or
(b) If the primary market for such security is not an exchange
or quotation system in which last sale transactions are contemporaneously
reported, the highest closing or last bona fide bid or asked quotation by
disinterested Persons in the over-the-counter market on such trading day as
reported by the National Association of Securities Dealers through its
Automated Quotation System or its successor or such other generally accepted
source of publicly reported bid quotations as the Holders designate from time
to time.
Common Stock. The common stock, $.01 par value, of the Company.
Common Stock Equivalent. Any option, warrant, right, or similar
security exercisable into, exchangeable for, or convertible to Common Stock.
Commission. The Securities and Exchange Commission and any successor
federal agency having similar powers.
Company. IT Partners, Inc. and any successor or assign, and, unless the
context requires otherwise, the term Company includes any Subsidiary.
Conversion Shares. Shares of Common Stock issued or issuable upon
conversion of the Series B Preferred Stock.
Co-Sell Shares. This term is defined in Section 6.02(d) of the
Stockholder Agreement.
Co-Sellers. This term is defined in Section 6.02(d) of the Stockholder
Agreement.
Dilution Fee. This term is defined in Article III of the Stockholder
Agreement.
EBITDA. This term shall mean the Company's earnings before interest,
taxes, depreciation and amortization, all as determined in accordance with
generally accepted accounting principles, consistently applied.
Election Notice. This term is defined in Section 6.02(b) of the
Stockholder Agreement.
Employment Agreements. This term is defined in Section 4.04(g).
Equity of the Company. This term shall mean the total stockholders'
equity of the Company, determined in accordance with generally accepted
accounting principals. The amount of equity of the Company represented by any
Warrant Shares held by Creditanstalt and/or its Affiliates shall be determined
by subtracting from total Equity of the Company the aggregate amount
distributable as a preference upon dissolution of the Company to the holders
of any then outstanding shares of any class or series of preferred stock
(other than the Series B Preferred Stock), dividing the balance obtained by
the sum of the number of shares of Common Stock then outstanding, the number
of shares of Common Stock issuable upon conversion of any Series B Preferred
Stock then outstanding, and the number of shares of Common Stock that
Creditanstalt and/or its Affiliates could obtain upon exercise of any
Warrants, and multiplying that per share
<PAGE>
amount by the aggregate number of Warrant Shares held by Creditanstalt and/or
its Affiliates.
Excess Consideration. The amount that a Holder would have realized
following the Adjustment Event had the Call Option not been exercised by the
Company until such time, minus the amount that such Holder realized due to the
exercise of the Call Option; provided, however, that the amount of Excess
Consideration will in all events be deemed to be at least zero.
Exchange Act. The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Common Stock. This term is defined in Section 7.12 of the
Stockholder Agreement.
Exchange Company. This term is defined in Section 7.12 of the
Stockholder Agreement.
Exchange Notice. This term is defined in Section 7.12 of the
Stockholder Agreement.
Exercise Price. The price per share specified in Section 2.03 as
adjusted from time to time pursuant to the provisions of this Agreement.
Fair Market Value.
(a) As to securities regularly traded in the organized
securities markets, the Average Market Value; and
(b) As to all securities not regularly traded in the securities
markets and other property, the fair market value of such securities or
property as determined in good faith by disinterested members of the Board of
Directors of the Company at the time it authorizes the transaction (a
"Valuation Event") requiring a determination of Fair Market Value under this
Agreement; provided, however, that, at the election of the Holders or if there
are no disinterested members of the Board of Directors of the Company, the
Fair Market Value of such securities and other property will be the Appraised
Value.
Financial Statements. This term is defined in Section 3.01(i).
First Amendment Closing Date. July 11, 1997.
First Restated Purchase Agreement. This term is defined in the preamble
to this Agreement.
First Restatement Closing Date. January 8, 1998.
Holders. Each Purchaser, and all other Persons holding Registrable
Securities so long as such Purchasers or other Person holds Registrable
Securities, except that none of the Company, any Stockholder or any Affiliate
of the Company will at any time be a Holder.
Indebtedness. This term shall mean, collectively but without
duplication, (a) all indebtedness, obligations or other liabilities for
borrowed money or evidenced by debt securities, debentures, acceptances, notes
or other similar instruments, that would, in accordance with GAAP, be
classified as long-term debt, together with the current maturities thereof,
(b) all indebtedness outstanding under any revolving credit, line of credit or
similar agreement providing for borrowings (any extensions or renewals
thereof), notwithstanding that any
<PAGE>
such indebtedness is created within one year of the expiration of such
agreement, and (c) the principal component of Capital Lease Obligations (as
defined in the Loan Agreement), in each case calculated on a consolidated
basis for the Company and its Subsidiaries in accordance with GAAP.
Indemnified Party. This term is defined in Section 6.01 hereof and in
Section 11.01 of the Stockholder Agreement.
Initial Holders. Each Purchaser and any Affiliate of such Purchaser to
which any of the Warrants or any part of or interest in the Warrants is
assigned.
Intellectual Property. This term is defined in Section 3.01(q).
Issuable Warrant Shares. Shares of Common Stock or Other Securities
issuable on exercise of the Warrants.
Issued Warrant Shares. Shares of Common Stock or Other Securities
issued on exercise of the Warrants.
Loan Agreement. This term shall mean the Amended and Restated Loan and
Security Agreement dated as of date hereof (as such Agreement may be amended,
restated, supplemented or modified from time to time), between the Company the
Lenders named therein, Creditanstalt as the LC Issuer, Indosuez as the
Co-Agent, and Creditanstalt as the Administrative Agent and Collateral Agent.
Loan Warrants. This term shall mean the stock purchase warrants issued
and/or issuable pursuant to the Amended and Restated Warrant Agreement dated
as of December 16, 1997 (as such may be amended, restated, supplemented or
modified from time to time) by and between the Company and Creditanstalt
entitling the record holders thereof to purchase from the Company an aggregate
of 612,579 shares of Common Stock or Series B Preferred Stock (the "Loan
Warrants Shares") (in the percentages and to the extent, and subject to
adjustment, as provided in such Warrant Agreement), issued to Creditanstalt in
connection with certain loans made by Creditanstalt to the Company.
Material Agreements. This term is defined in Section 3.01(k).
Negotiation Period. This term is defined in the definition of Appraised
Value.
New Securities. Any Capital Stock other than Warrant Shares, Loan
Warrant Shares and the Permitted Stock.
Non-Attributable Stock. This term shall mean shares of Common Stock or
Series B Preferred Stock which have been previously sold by, or were issued
pursuant to the exercise of Warrants which were previously sold by, a
Regulated Holder or an Affiliate of a Regulated Holder, either (a) in a widely
dispersed public offering; (b) in a private placement in which no purchaser,
individually or in concert with others, acquired Warrants, Common Stock,
Series B Preferred Stock or any combination thereof, representing (upon
conversion, in the case of the Series B Preferred Stock, and upon exercise for
Common Stock, in the case of the Warrants) more than 2% of the outstanding
Common Stock; (c) in compliance with Rule 144 (or any rule which is a
successor thereto) of the Securities Act or (d) into the secondary market in a
transaction executed through a registered broker-dealer in blocks of no more
than 2.0% of the shares outstanding of the Company in any six-month period.
Note. All or any portion of any of the Note (as defined in the Loan
Agreement) and any and all documents evidencing the indebtedness under the
Note and any refinancing, refunding, or replacement of the Note.
Notice of Sale. This term is defined in Section 6.02(a) of the Stockholder
Agreement.
Operating Cash Flow. This term shall mean, for any period for which the same
is computed, the sum of (i) the Company's and its Subsidiaries' consolidated
net income (loss) for such period, plus (ii) the Company's and its
Subsidiaries' interest expense for such period, plus (iii) the Company's and
its Subsidiaries' depreciation and amortization for financial reporting
purposes for such period, plus (iv) the Company's and its Subsidiaries' income
tax expense for such period, computed in each case on a consolidated basis in
accordance with generally accepted accounting principles.
Original Closing Date. May 30, 1997.
Original Purchase Agreement. This term is defined in the preamble.
<PAGE>
Other Securities. Any stock, other securities, property, or other property or
rights (other than Common Stock) that the Holders become entitled to receive
upon exercise of the Warrants, including, but not limited to, the Series B
Preferred Stock.
Permitted Stock. This term shall mean (a) Warrant Shares, and shares of the
Company's Capital Stock issuable upon exercise thereof; (b) Capital Stock of
the Company issued as a dividend on shares of the Company's Capital Stock or
as a result of a stock split with respect thereto; (c) options and warrants
outstanding (or that the Company's Board of Directors has approved for
issuance to specific employees) as of the date hereof to purchase the
Company's Capital Stock, and shares of the Company's Capital Stock issuable
upon exercise thereof; (d) the Business Combination Options, and shares of the
Company's Capital Stock issuable upon exercise thereof; (e) options to be
granted after the Original Closing Date to employees of the Company and its
Subsidiaries to purchase up to 335,286 shares of Common Stock of the Company,
at an exercise price not less than the Fair Market Value at the time of
issuance of such options, and shares of the Company's Capital Stock issuable
upon exercise thereof; (f) shares of Series A Preferred Stock issuable
pursuant to the Original Purchase Agreement or the First Restated Purchase
Agreement; (g) shares of Series B Preferred Stock issuable pursuant to the
First Restated Purchase Agreement or this Agreement; (h) shares of Common
Stock issuable upon conversion of Series B Preferred Stock (i) 29,516 shares
of Common Stock issuable to FF-ITP on the Third Amendment Closing Date; (j)
103,093 shares of Common Stock issued to Christopher A. and Merrie Corbett
(jointly) at an aggregate purchase price of $200,000; (k) 29,516 shares of
Common Stock issuable to Christopher A. and Merrie Corbett (jointly) at an
aggregate purchase price of $100,000; (l) 14,758 shares of Common Stock
issuable to Martin and Haeyoung Kandl (jointly) at an aggregate purchase price
of $50,000; and (m) 1,001 shares of Common Stock issuable to Thomas Gardner at
an aggregate purchase price of $3,390. The limits in clauses (e), (i) (j),
(k), (l) and (m) shall be proportionately adjusted for dividends and other
distributions payable in and for subdivisions and combinations of shares of
Common Stock.
Person. This term will be interpreted broadly to include any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, company, institution, entity, party,
or government (whether national, federal, state, county, city, municipal, or
otherwise, including, without limitation, any instrumentality, division,
agency, body, or department of any of the foregoing).
Preferred Shares. This term is defined in Section 2.01.
Preferred Stock. This term means the Series A Preferred Stock and the Series
B Preferred Stock of the Company.
Purchaser. This term is defined in the preamble.
Put Option. This term is defined in Section 4.01 of the Stockholder
Agreement.
Put Option Closing. This term is defined in Section 4.05 of the Stockholder
Agreement.
Put Option Period. This term is defined in Section 4.01 of the Stockholder
Agreement.
Put Price. This term is defined in Section 4.02 of the Stockholder Agreement.
Put Shares. The Warrant Shares plus any other shares of Capital Stock owned
from time to time by a Holder which were issued in respect of the Warrant
Shares.
"Register," "registered," and "registration" refer to a registration effected
by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
<PAGE>
Registrable Securities. (a) The Issuable Warrant Shares, (b) the Issued
Warrant Shares (c) the Preferred Shares and (d) the Conversion Shares that, in
each case, have not been previously sold to the public.
Regulated Holder. Any Purchaser or any Affiliate of any Purchaser
subject to the provisions of (a) the Bank Holding Company Act of 1956, as
amended; (b) Regulation Y of the Board of Governors of the Federal Reserve
System (12 C.F.R. part 225), or (c) any law, rule or regulation that is a
successor to either of the foregoing; provided that a "Regulated Holder"
shall not include a Purchaser or an Affiliate of a Purchaser that is a small
business investment company licensed by the Small Business Administration.
Related Party. An entity wholly owned by a Selling Stockholder or one or more
Related Parties.
Schedule of Exceptions. This term is defined in Section 3.01.
Second Amendment Closing Date. October 27, 1997.
Second Restatement Closing Date. March 31, 1998.
Selling Stockholder. This term is defined in Section 6.02 of the Stockholder
Agreement.
Securities Act. The Securities Act of 1933, as amended, and the rules and
regulations thereunder.
Series A Preferred Stock. Series A Preferred Stock, $.01 par value, of the
Company having the rights, restrictions, privileges and preferences of the
series of preferred stock designated as "Series A Preferred Stock" set forth
in the Certificate.
Series B Preferred Stock. Series B Preferred Stock, $.01 par value, of the
Company having the rights, restrictions, privileges and preferences of the
series of preferred stock designated as "Series B Preferred Stock" set forth
in the Certificate.
Stockholder. This term is defined in the preamble.
Stockholder Agreement. This term shall mean the Amended and Restated
Stockholder Agreement dated as of the date hereof (as such may be amended,
restated, supplemented or otherwise modified from time to time) among the
Company and the stockholders set forth therein, the provisions of which are
incorporated in this Agreement by reference.
Subsidiary. Each Person of which or in which the Company or its other
Subsidiaries own directly or indirectly fifty percent (50%) or more of (i) the
combined voting power of all classes of stock having general voting power
under ordinary circumstances to elect a majority of the board of directors or
equivalent body of such Person, if it is a corporation or similar person; (ii)
the capital interest or profits interest of such Person, if it is a
partnership, joint venture, or similar entity; or (iii) the beneficial
interest of such Person, if it is a trust, association, or other
unincorporated organization.
Third Amendment Closing Date. October 31, 1997.
Valuation Amount. This term shall mean, as of any date, the greater of (x)
zero or (y) an amount equal to Operating Cash Flow for the most recently ended
twelve months preceding the date of determination multiplied by six (6), less
the principal amount of Indebtedness of the Company on such date of
determination, plus the aggregate amount of cash and/or cash equivalents held
by the Company on such date of determination.
Valuation Event. This term is defined in the definition of Fair Market Value.
Warrant A. Warrant A referred to in Section 2.01(a)(i), dated as of May 30,
1997, issued to Creditanstalt, and all Warrants issued upon the transfer or
division of, or in substitution for, such Warrant A.
Warrant B. Warrant B referred to in Section 2.01(b)(i), dated as of May 30,
1997, issued to FF-ITP, and all Warrants issued upon the transfer or division
of, or in substitution for, such Warrant B.
Warrant C. Warrant C referred to in Section 2.01(c)(i), dated as of July 11,
1997, issued to Creditanstalt, and all Warrants issued upon transfer or
division of, or in substitution for, such Warrant C.
Warrant D. Warrant D referred to in Section 2.01(d)(i), dated as of October
27, 1997, issued to Creditanstalt, and all Warrants issued upon transfer or
division of, or in substitution for, such Warrant D.
Warrant E. Warrant E referred to in Section 2.01(e)(i), dated as of January
8, 1998, issued to Creditanstalt, and all Warrants issued upon transfer or
division of, or in substitution for, such Warrant E.
Warrants. Collectively, Warrant A, Warrant B, Warrant C, Warrant D, Warrant
E, the Loan Warrants, and all Warrants issued upon the transfer or the
division of, or in substitution for, such Warrants.
Warrant Shares. The Issued Warrant Shares and the Issuable Warrant Shares.
Article II
The Warrants and the Preferred Shares
2.01 The Warrants and the Preferred Shares.
(a) On the Original Closing Date, Creditanstalt purchased from the Company
at the purchase price set forth below, and the Company issued to
Creditanstalt, all in accordance with the terms and conditions of the Original
Purchase Agreement:
<PAGE>
(i) a Warrant A (relating to the Series A Preferred Stock), in substantially
the form attached to the Original Purchase Agreement as Annex B and
incorporated in this Agreement by reference, to purchase, at a purchase price
of $.01 per share, the number of shares of Common Stock and/or Series B
Preferred Stock set forth beneath the name of Creditanstalt on the signature
page of this Agreement for such Warrant A; and
(ii) 50,000 shares of Series A Preferred Stock at a purchase price of
$500,000, or $10 per share, having the rights, restrictions, privileges, and
preferences set forth in the Company's Certificate.
(b) On the Original Closing Date, FF-ITP purchased from the Company, and the
Company issued to FF-ITP, all in accordance with the terms and conditions of
the Original Purchase Agreement;
(i) a Warrant B (relating to the Series A Preferred Stock), in substantially
the form attached to the Original Purchase Agreement as Annex C and
incorporated in this Agreement by reference, to purchase, at a purchase price
of $.01 per share, the number of shares of Common Stock set forth beneath the
name of FF-ITP on the signature page of this Agreement for such Warrant B;
(ii) 100,000 shares of Series A Preferred Stock, at a purchase price of
$1,000,000, or $10 per share, having the rights, restrictions, privileges, and
preferences set forth in the Certificate.
(c) On the First Amendment Closing Date, Creditanstalt purchased
from the Company at the purchase price set forth below, and the Company issued
to Creditanstalt, all in accordance with the terms and conditions of the
Original Purchase Agreement:
(i) a Warrant C (relating to the Series A Preferred Stock), in
substantially the form attached to the Original Purchase Agreement as Annex G
and incorporated in this Agreement by reference, to purchase, at a purchase
price of $.01 per share, 120,335 shares of Common Stock and/or Series B
Preferred Stock; and
(ii) 23,334 shares of Series A Preferred Stock at a purchase
price of $233,340, or $10 per share, having the rights, restrictions,
privileges, and preferences set forth in the Certificate.
(d) On the Second Amendment Closing Date, Creditanstalt
purchased from the Company at the purchase price set forth below, and the
Company issued to Creditanstalt, all in accordance with the terms and
conditions of the Original Purchase Agreement:
(i) a Warrant D (relating to the Series A Preferred Stock), in
substantially the form attached to the Original Purchase Agreement as Annex H
and incorporated in this Agreement by reference, to purchase, at a purchase
price of $.01 per share, 78,710 shares of Common Stock and/or Series B
Preferred Stock; and
(ii) 26,666 shares of Series A Preferred Stock at a purchase
price of $266,660, or $10 per share, having the rights, restrictions,
privileges, and preferences set forth in the Certificate.
(e) On the Third Amendment Closing Date, FF-ITP purchased from
the Company at the purchase price set forth below, and the Company issued to
FF-ITP, all in accordance with the terms and conditions of the Original
Purchase Agreement: 10,000 shares of Series A Preferred Stock and 29,516
shares of Common Stock at an aggregate purchase price of $100,000.
(f) On the First Restatement Closing Date, Creditanstalt
purchased from the Company at the purchase price set forth below, and the
Company issued to Creditanstalt, all in accordance with the terms and
conditions of the First Restated Purchase Agreement:
(i) a Warrant E (relating to the Series A Preferred Stock), in
substantially the form attached to the First Restated Purchase Agreement as
Annex I and incorporated in this Agreement by reference, to purchase, at a
purchase price of $.01 per share, 188,680 shares of Common Stock and/or Series
B Preferred Stock;
<PAGE>
(ii) 100,000 shares of Series A Preferred Stock at a purchase
price of $1,000,000, or $10 per share, having the rights, restrictions,
privileges, and preferences set forth in the Certificate; and
(iii) 222,222 shares of Series B Preferred Stock at a purchase
price of $1,000,000, or $4.50 per share, having the rights, restrictions,
privileges, and preferences set forth in the Certificate.
(g) On the Second Restatement Closing Date, Indosuez agrees to purchase from
the Company at the purchase price set forth below, and the Company agrees to
issue to Indosuez, all in accordance with the terms and conditions of this
Agreement:
(i) 431,965 shares of Series B Preferred Stock at a purchase
price of $2,000,000, or $4.63 per share, having the rights, restrictions,
privileges, and preferences set forth in the Certificate.
(h) On the Second Restatement Closing Date, Wachovia agrees to purchase from
the Company at the purchase price set forth below, and the Company agrees to
issue to Wachovia, all in accordance with the terms and conditions of this
Agreement.
(i) 647,948 shares of Series B preferred stock at a purchase
price of $3,000,000, or $4.63 per share, having the rights, restrictions,
privileges, and preferences set forth in the Certificate.
On the Second Restatement Closing Date, the Company will deliver to each of
Indosuez and Wachovia a certificate evidencing and representing the shares of
Series B Preferred Stock, issued to each such Purchaser. The Company has duly
authorized the Series A Preferred Stock and Series B Preferred Stock purchased
and sold pursuant to the terms of this Agreement by duly filing the
Certificate with the Secretary of State of the State of Delaware. The shares
of Series A Preferred Stock and the shares of Series B Preferred Stock subject
to the terms of this Agreement are sometimes referred to in this Agreement as
the "Preferred Shares."
2.02 Legend. The Company will deliver to the appropriate Purchaser on the
Second Restatement Closing Date, one or more certificates representing the
Series B Preferred Stock, purchased by such Purchaser, in such denominations
as such Purchaser requests. Such certificates will be issued in the
Purchaser's name or, subject to compliance with transfer and registration
requirements under applicable federal and state securities laws, in the name
or names of its designee or designees. It is understood and agreed that the
certificates evidencing any Warrants will bear the following legends:
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH
THE DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED
FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO
THE TERMS AND PROVISIONS OF A SECOND AMENDED AND RESTATED PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT AND AN AMENDED AND RESTATED STOCKHOLDER AGREEMENT,
EACH DATED AS OF MARCH 31, 1998, BY AND AMONG IT PARTNERS, INC. (THE
"COMPANY"), AND THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES TO SUCH
AGREEMENTS (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED, MODIFIED, AMENDED, OR
RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF THE AGREEMENTS ARE
AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
<PAGE>
It is further understood and agreed that the certificates evidencing the
Preferred Shares issued under this Agreement and any certificates evidencing
Conversion Shares will bear substantially the same as the following legends:
"THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR
SALE IN CONNECTION WITH THE DISTRIBUTION HEREOF. THESE SHARES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED,
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION
FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS."
"THESE SHARES ARE SUBJECT TO THE TERMS AND PROVISIONS OF A SECOND AMENDED AND
RESTATED PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT AND AN AMENDED AND
RESTATED STOCKHOLDER AGREEMENT, EACH DATED AS OF MARCH 31, 1998, BY AND AMONG
IT PARTNERS, INC. (THE "COMPANY"), AND THE OTHER PARTIES LISTED ON THE
SIGNATURE PAGES TO SUCH AGREEMENTS (AS SUCH AGREEMENTS MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE "AGREEMENTS"). COPIES OF
THE AGREEMENTS ARE AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
2.03 Exercise Price. The Exercise Price per share will be $.01 for each share
of Common Stock (and/or Series B Preferred Stock, if applicable) covered by
the Warrants.
2.04 Exercise of Warrants.
(a) Each of Warrant A and Warrant B may be exercised at any time or from
time to time until the tenth (10th) anniversary of the Original Closing Date,
Warrant C may be exercised at any time or from time to time until the tenth
(10th) anniversary of the First Amendment Closing Date, Warrant D may be
exercised at any time or from time to time until the tenth (10th) anniversary
of the Second Amendment Closing Date, and Warrant E may be exercised at any
time or from time to time until the tenth (10th) anniversary of the First
Restatement Closing Date; each of the foregoing may be exercised on any day
that is a Business Day, for all or any part of the number of Issuable Warrant
Shares purchasable upon its exercise. In order to exercise its Warrant, in
whole or in part, the Holder will deliver to the Company at the address
designated by the Company pursuant to Section 6.06, (i) a written notice of
such Holder's election to exercise its Warrant, which notice will specify the
number of Issuable Warrant Shares to be purchased pursuant to such exercise,
(ii) payment of the Exercise Price, in an amount equal to the aggregate
purchase price for all Issuable Warrant Shares to be purchased pursuant to
such exercise, and (iii) the Warrant. Such notice will be substantially in
the form of the Subscription Form appearing at the end of the Warrants. Upon
receipt of such notice, the Company will, as promptly as practicable, and in
any event within ten (10) business days, execute, or cause to be executed, and
deliver to such Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock and Other Securities issuable
upon such exercise, as provided in this Agreement. The stock certificate or
certificates so delivered will be in such denominations as may be specified in
such notice and will be registered in the name of such Holder, or, subject to
compliance with transfer and registration requirements under applicable
federal and state securities laws, such other name as designated in such
notice. A Warrant will be deemed to have been exercised, such certificate or
certificates will be deemed to have been issued, and such Holder or any other
Person so designated or named in such notice will be deemed to have become a
holder of record of such shares for all purposes, as of the date that such
notice, together with payment of the Exercise Price and the Warrant is
received by the Company. If the Warrant has been exercised in part, the
Company will, at the time of delivery of such certificate of certificates,
deliver to such Holder a new Warrant evidencing the rights of such Holder to
purchase the number of Issuable Warrant Shares with respect to which the
Warrant has not been exercised, which new Warrant will, in all other respects,
be identical with the Warrants, or, at the request of such Holder, appropriate
notation may be made on the original Warrant and the original Warrant returned
to such Holder.
(b) Payment of the Exercise Price will be made, at the option of the Holder,
by (i) company or individual check, certified or official bank check, (ii)
cancellation of any debt owed by the Company to the Holder, or (iii)
cancellation of Warrant Shares, valued at Fair Market Value. If the Holder
surrenders a combination of cash or cancellation of any debt owed by the
Company to the Holder or Warrants, the Holder will specify the respective
number of shares of Common Stock and/or Series B Preferred Stock, if
applicable, to be purchased with each form of consideration, and the foregoing
provisions will be applied to each form of consideration with the same effect
<PAGE>
as if the Warrant were being separately exercised with respect to each form of
consideration; provided, however, that a Holder may designate that any cash to
be remitted to a Holder in payment of debt be applied, together with other
monies, to the exercise of the portion of the Warrant being exercised for
cash.
(c) Creditanstalt and its Affiliates shall not have the right to have issued
to it upon exercise Common Stock which, when aggregated with all other shares
of Common Stock (other than shares of Non-Attributable Stock) currently or
previously held by or currently issuable without restriction to such Warrant
Holder, will exceed 4.99% of the then outstanding Common Stock unless such
Warrant Holder certifies that such Warrants have previously been transferred
either (i) in a widely dispersed public offering of the Warrants, or (ii) in a
private placement in which no purchaser, individually or in concert with
others, would have acquired more than 2% of the outstanding Common Stock if
the Warrants so transferred had been exercised for Common Stock, or (iii) in
compliance with Rule 144 (or any rule which is a successor thereto) of the
Securities Act, or (iv) into the secondary market in a market transaction
executed through a registered broker-dealer in blocks of no more than 2.0% of
the shares outstanding of the Company in any six month period. In the event
that Creditanstalt and/or one or more Affiliates attempt to exercise Warrants
for Common Stock simultaneously and, if permitted, such exercises would cause
the 4.99% limitation to be exceeded, then the Company shall notify such
Warrant Holders who had attempted to exercise Warrants for Common Stock and
each such Warrant Holder shall be entitled to exercise for Common Stock only
such number of Warrants as shall equal the product of (i) the number of
Warrants such Warrant Holder sought to exercise for Common Stock times (ii) a
fraction, the numerator of which is the maximum number of Warrants which may
be exercised for Common Stock without exceeding the 4.99% limitation and the
denominator of which is the maximum number of Warrants sought to be exercised
for Common Stock by such Warrant Holders.
(d) Notwithstanding the foregoing provisions of this Section 2.04, in no
event shall any Warrant be exercisable by Creditanstalt and/or an Affiliate
for shares of Common Stock or Series B Preferred Stock which, when aggregated
with all other Capital Stock of the Company (other than shares of
Non-Attributable Stock) currently held or previously held by or currently
issuable without restriction to Creditanstalt or its Affiliates, would, upon
issuance, represent in excess of 24.99% of the Equity of the Company unless
such shares, when issued, would constitute Non-Attributable Stock.
2.05 Taxes. The issuance of any Common Stock or Other Securities upon the
exercise of any of the Warrants will be made without charge to any Holder for
any tax, other than income taxes assessed on such Holder, in respect of such
issuance.
2.06 Register. The Company will, at all times while any of the Warrants or
Preferred Shares remain outstanding, keep and maintain at its principal office
a register in which the registration, transfer, and exchange of the Warrants
and Preferred Shares will be provided for. The Company will not at any time
except upon the dissolution, liquidation, or winding up of the Company, close
such register so as to result in preventing or delaying the exercise or
transfer, as the case may be, of any of the Warrants or Preferred Shares.
2.07 Transfer and Exchange. The Warrants, all options and rights under the
Warrants, and the Preferred Shares are transferable, in whole or in part, in
person or by duly authorized attorney, on the books of the Company upon
surrender of the Warrants or the Preferred Shares, as the case may be, at the
principal offices of the Company, together with the form of transfer
authorization attached to the Warrants duly executed or by endorsement of the
certificates representing the Preferred Shares; provided, however, that such
transfers of the Warrants and Preferred Shares will be made only to Persons
that the transferor in good faith believes to be an "accredited investor" as
such term is defined in Regulation D under the Securities Act. Absent any
such transfer and subject to the Stockholder Agreement, the Company may deem
and treat the registered Holders of the Warrants or the Preferred Shares, as
the case may be, at any time as the absolute owners of the Warrants or the
Preferred Shares, as the case may be, for all purposes and will not be
affected by any notice to the contrary. If any of the Warrants or Preferred
Shares are transferred in part the Company will, at the time of surrender of
such Warrant or Preferred Shares, as the case may be, issue to the transferee
a Warrant or a certificate for Preferred Shares, as the case may be, covering
the number of shares transferred and to the transferor a Warrant or a
certificate for Preferred Shares, as the case may be, covering the number of
shares not transferred.
2.08 Adjustments to Number of Shares Purchasable.
<PAGE>
(a) At 12:01 a.m. on the first day of each March, June, September and
December commencing September 1, 1997, for so long as shares of the Company's
Series A Preferred Stock shall remain outstanding, the number of shares
issuable upon exercise of each Warrant shall be increased by multiplying the
number of shares theretofore issuable thereunder by one hundred two percent
(102%), and the product derived thereby shall thereafter be the number of
shares issuable upon exercise of such Warrant, without any adjustment in the
exercise price of such Warrant.
(b) The Warrants will be exercisable for the number of shares of Common
Stock and/or Series B Preferred Stock, if applicable, in such manner that,
following the complete and full exercise of the Warrants of each Holder, the
amount of Common Stock and/or Series B Preferred Stock, if applicable, issued
to all Holders will equal the aggregate number of shares of Common Stock
and/or Series B Preferred Stock, if applicable, set forth beneath the name of
the Purchaser on the signature pages of this Agreement, as adjusted, to the
extent necessary, to give effect to the following events:
(i) In case at any time or from time to time, the holders of any class of
Common Stock or Common Stock Equivalent have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
have become entitled to receive, without payment therefor:
(A) consideration (other than cash) by way of dividend or distribution; or
(B) consideration (including cash) by way of spin-off, split-up,
reclas-sification (including any reclassification in connection with a
consolidation or merger in which the Company is the surviving corporation),
recapitalization, combination of shares into a smaller number of shares, or
similar corporate restructuring;
other than additional shares of Common Stock issued as a stock dividend or in
a stock-split (adjustments in respect of which are provided for in Sections
2.08(b)(ii) and (iii)), then, and in each such case, the Holders, on the
exercise of Warrants, will be entitled to receive for each share of Common
Stock or Series B Preferred Stock, if applicable, issuable under the Warrants
as of the record date fixed for such distribution, the greatest per share
amount of consideration received by any holder of any class of Common Stock or
Common Stock Equivalent or to which such Holder is entitled less the amount of
any Dilution Fee actually and irrevocably paid to such Holders. All such
consideration receivable upon exercise of such Warrant with respect to such a
distribution will be deemed to be outstanding and owned by such Holder for
purposes of determining the amount of consideration to which such Holder is
entitled upon exercise of the Warrant with respect to any subsequent
distribution.
(ii) If at any time there occurs any stock split, stock dividend or
distribution, reverse stock split, or other subdivision of the Common Stock,
then the number of shares of Common Stock or Series B Preferred Stock, if
applicable, to be received by the Holder of the Warrant and the Exercise
Price, subject to the limitations set forth in this Agreement, will be
proportionately adjusted.
(iii) In case of any reclassification or change of outstanding shares of
any
class of Common Stock or Common Stock Equivalent (other than adjustments to
the Series B Preferred Stock pursuant to the Certificate and other than a
change in par value, or from par value to no par value, or from no par value
to par value), or in the case of any consolidation of the Company with, or
merger or share exchange of the Company with or into, another Person, or in
case of any sale of all or a majority of the property, assets, business,
income or revenue generating capacity, or goodwill of the Company, the
Company, or such successor or other Person, as the case may be, will provide
that the Holder of this Warrant will thereafter be entitled to receive the
highest per share kind and amount of consideration received or receivable
(including cash) upon such reclassification, change, consolidation, merger,
share exchange, or sale by any holder of any class of Common Stock or Common
Stock Equivalent that this Warrant entitles the Holder to receive immediately
prior to such reclassification, change, consolidation, merger, share exchange,
or sale (as adjusted pursuant to Section 2.08(b)(i) and otherwise in this
Agreement). Any such successor Person, which thereafter will be deemed to be
the Company for purposes of the Warrants, will provide for adjustments that
are as nearly equivalent as may be possible to the adjustments provided for by
this Section 2.08.
<PAGE>
(iv) If at any time the Company issues or sells any shares of any Common
Stock or any Common Stock Equivalent (excluding any Permitted Stock) at a per
unit or share consideration (which consideration will include the price paid
upon issuance plus the minimum amount of any exercise, conversion, or similar
payment made upon exercise or conversion of any Common Stock Equivalent) less
than the Exercise Price or the then current Fair Market Value per share of
Common Stock immediately prior to the time such Common Stock or Common Stock
Equivalent is issued or sold (the "Additional Securities"), then:
(A) the Exercise Price will be reduced (but not increased) to the lower of
the prices calculated by:
(I) dividing (x) an amount equal to the sum of (1) the number of shares of
Common Stock outstanding on a fully diluted basis immediately prior to such
issuance or sale multiplied by the then existing Exercise Price plus (2) the
aggregate consideration, if any, received by the Company upon such issuance or
sale, by (y) the total number of shares of Common Stock outstanding
immediately after such issuance or sale on a fully diluted basis; and
(II) multiplying the then existing Exercise Price by a fraction, the
numerator of which is (x) the sum of (1) the number of shares of Common Stock
outstanding on a fully diluted basis immediately prior to such issuance or
sale, multiplied by the Fair Market Value per share of Common Stock
immediately prior to such issuance or sale, plus (2) the aggregate
consideration received by the Company upon such issuance or sale, (y) divided
by the total number of shares of Common Stock outstanding on a fully diluted
basis immediately after such issuance or sale, and the denominator of which is
the Fair Market Value per share of Common Stock immediately prior to such
issuance or sale (for purposes of this subsection (II), the date as of which
the Fair Market Value per share of Common Stock will be computed will be the
earlier of the date upon which the Company will (aa) enters into a firm
contract for the issuance of such shares, or (bb) issues such shares); and
(B) the number of shares of Common Stock or Series B Preferred Stock, if
applicable, for which any of the Warrants may be exercised at the Exercise
Price resulting from the adjustment described in subsection (A) above will be
equal to the product of the number of shares of Common Stock or Series B
Preferred Stock, if applicable, purchasable under such Warrants immediately
prior to such adjustment multiplied by a fraction, the numerator of which is
the Exercise Price in effect immediately prior to such adjustment and the
denominator of which is the Exercise Price resulting from such adjustment.
(v) In case any event occurs as to which the preceding Sections 2.08(b)(i)
through (iv) are not strictly applicable, but as to which the failure to make
any adjustment would not fairly protect the purchase rights represented by the
Warrants in accordance with the essential intent and principles of this
Agreement, then, in each such case, the Holders may appoint an independent
investment bank or firm of independent public accountants, which will give its
opinion as to the adjustment, if any, on a basis consistent with the essential
intent and principles established in this Agreement, necessary to preserve the
purchase rights represented by the Warrants. Upon receipt of such opinion,
the Company will promptly deliver a copy of such opinion to the Holders and
will make the adjustments described in such opinion. The fees and expenses of
such investment bank or independent public accountants will be borne equally
by the Holders and the Company.
<PAGE>
(c) The Company and the Stockholder will not by any action including,
without limitation, amending, or permitting the amendment of, the charter
documents, bylaws, or similar instruments of the Company or through any
reorganization, reclassification, transfer of assets, consolidation, merger,
share exchange, dissolution, issue or sale of securities, or any other similar
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Agreement or the Warrants, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Holders against impairment or dilution. Without limiting the generality of
the foregoing, each of the Company and the Stockholder will (i) take all such
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
and Other Securities, free and clear of all liens, encumbrances, equities, and
claims; (ii) use its best efforts to obtain all such authorizations,
exemptions, or consents from any public regulatory body having jurisdiction as
may be necessary to enable the Company to perform its obligations under the
Warrants; and (iii) will take any action necessary to cause the par value per
share of the Company's Common Stock and Series B Preferred Stock to be less
than or equal to the Exercise Price of the Warrants. Without limiting the
generality of the foregoing, the Company represents and warrants that the
board of directors of the Company has determined the Exercise Price to be
adequate and the issuance of the Warrants to be in the best interests of the
Company.
(d) Any calculation under this Section 2.08 will be made to the nearest one
ten-thousandth of a share and the number of Issuable Warrant Shares resulting
from such calculation will be rounded up to the next whole share of Common
Stock or Other Securities comprising Issuable Warrant Shares.
(e) The Company will not, and will not permit any Subsidiary to, issue any
Capital Stock other than Common Stock and Common Stock Equivalents.
2.09 Lost, Stolen, Mutilated, or Destroyed Instruments. If any of the
Warrants or certificates for Preferred Shares are lost, stolen, mutilated, or
destroyed and if the Company receives a lost security affidavit containing an
indemnification from the Holder of such Warrant or Preferred Shares and
containing such other terms and providing for such bonding as may be
reasonably requested by the Company, the Company will issue a new Warrant or
certificate for Preferred Shares, as the case may be, of like denomination,
tenor, and date as the Warrant or certificate for Preferred Shares, as the
case may be, so lost, stolen, mutilated, or destroyed. Any such new Warrant
or certificate for Preferred Shares, as the case may be, will constitute an
original obligation of the Company, whether or not the allegedly lost, stolen,
mutilated, or destroyed Warrant or certificate for Preferred Shares, as the
case may be, is at any time enforceable by any Person.
2.10 Mandatory Redemption and Mandatory Exchange.
(a) (i) Subject to the limitations hereinafter set forth, (A) if the Company
takes any action with respect to its Capital Stock (including without
limitation any purchase of its shares or any combination of shares or reverse
stock split and elimination of fractional shares) which would cause the
Capital Stock currently or previously held by or currently issuable without
restriction to a Regulated Holder and its Affiliates (not including
Non-Attributable Stock) to exceed 24.99 % of the Equity of the Company, then
prior to or simultaneously with such action, the Company shall purchase from
such Regulated Holder and/or its Affiliates such number of Warrants, Warrant
Shares or other shares of Capital Stock as will reduce the shares of Capital
Stock currently or previously held by or currently issuable without
restriction to such Regulated Holder and its Affiliates (not including
Non-Attributable Stock) to 24.99% of the Equity of the Company (any such
mandatory purchase being herein called a "Mandatory Redemption"). The price
to be paid to the Holder upon a Mandatory Redemption shall be an amount equal
to the Valuation Amount at the date of the event causing such Mandatory
Redemption occurs (the "Trigger Date"), multiplied by a fraction the
denominator of which is the number of issued and outstanding shares of Common
Stock of the Company at the Trigger Date, calculated on a fully diluted basis
in accordance with generally accepted accounting principles, and the numerator
of which is (Y) the aggregate number of shares of Common Stock of the Company
(i) comprising the Warrant Shares to be purchased by the Company, and/or (ii)
issuable upon exercise of the Warrants to be purchased by the Company, and/or
(iii) issuable upon conversion of the Series B Preferred Stock comprising the
Warrant Shares to be purchased by the Company, and/or (iv) issuable upon
conversion of the Series B Preferred Stock issuable upon exercise of the
Warrants to be purchased by the Company (assuming Series B Preferred Stock,
rather than Common Stock, is then issuable under such Warrants), and/or (v)
comprising any other shares of Capital Stock of the Company then held or
previously held by a Regulated Holder or its Affiliates (excluding
Non-Attributable Stock) (the "Redemption Price").
<PAGE>
(ii) The completion of all purchases and sales of Warrants and Warrant Shares
or other shares of Capital Stock pursuant to a Mandatory Redemption shall take
place on the thirtieth (30th) day following the Trigger Date, unless another
date is mutually agreed upon by the Company and the selling Holder (the
"Redemption Closing Date"). The Redemption Prices for all such purchases and
sales shall be paid by the Company issuing to the selling Holder in
immediately available funds against delivery of certificates representing the
Warrants, Warrant Shares and/or other shares of Capital Stock to be purchased,
duly endorsed for transfer to the Company.
(b) The Redemption Prices for all purchases and sales of Warrants, Warrant
Shares and other shares of Capital Stock pursuant to a Mandatory Redemption
shall be determined and calculated in accordance with subsection 2.10(a) by
the Company's regularly engaged independent accountants. The Company shall
cause such accountants to deliver to the Company and the selling Holder, not
later than 15 days prior to the completion of each purchase and sale under
subsection 2.10(a), a written statement, signed by such accountants, setting
forth in reasonable detail the respective purchase price and the calculation
thereof and stating that such calculation was based on the books and records
of the Company and was made and delivered pursuant to this Section 2.10.
(c) If the Company takes any action with respect to its capital stock
(including without limitation any purchase of its shares or any combination of
shares or reverse stock split and elimination of fractional shares) which
would cause the Common Stock currently or previously held by or currently
issuable without restriction to a Regulated Holder and its Affiliates (other
than shares of Non-Attributable Stock) to exceed 4.99% of the aggregate number
of issued and outstanding shares of Common Stock, prior to or simultaneously
with such action, the Company shall exchange such portion of Common Stock for
Series B Preferred Stock as will reduce the shares of Common Stock currently
or previously held by or currently issuable without restriction to such
Regulated Holder and its Affiliates (not including "Non-Attributable Stock")
to 4.99% of the aggregate number of issued and outstanding shares of Common
Stock (a "Mandatory Exchange").
Article III
Representations and Warranties
3.01 Representations and Warranties of the Company. Subject to and except as
disclosed in the Schedule of Exceptions attached hereto as Annex E (the
"Schedule of Exceptions"), the Company represents and warrants to each
Purchaser that:
(a) The Company is a corporation duly organized and existing and in good
standing under the laws of its state of incorporation and is qualified or
licensed to do business in all other countries, states, and jurisdictions the
laws of which require it to be so qualified or licensed. The Company has no
Subsidiaries or debt or equity investment in any Person. Giving effect to the
transactions contemplated herein, the Stockholder owns beneficially and of
record the number of shares in the aggregate of the issued and outstanding
capital stock or stock equivalents of the Company on a fully converted and
diluted basis as of the Second Restatement Closing Date set forth under the
signature of such Stockholder on this Agreement, all being free and clear of
all liens, claims and encumbrances. Other than Purchaser, and, except for any
other stock issuable under any employee or director stock plan which
constitutes Permitted Stock, no Person has any rights, whether granted by the
Company or any other Person, to acquire any portion of the equity interest of
the Company or the assets of the Company.
(b) Each of the Company and the Stockholder has, and at all times that this
Agreement is in force will have, the right and power, and is duly authorized,
to enter into, execute, deliver, and perform this Agreement, the Stockholder
Agreement, and, in the case of the Company, the Warrants and the Preferred
Shares, and the officers of Company executing and delivering this Agreement,
the Warrants and the Preferred Shares are duly authorized to do so. This
Agreement, the Warrants and the Preferred Shares have been duly and validly
executed, issued, and delivered and constitute the legal, valid, and binding
obligations of Company and the Stockholder, enforceable in accordance with
their respective terms.
(c) The execution, delivery, and performance of this Agreement, the
Stockholder Agreement, the Warrants and the Preferred Shares will not, by the
lapse of time, the giving of notice, or otherwise, constitute a violation of
any applicable provision contained in the charter, bylaws, or organizational
documents of the Company or contained in any agreement, instrument, or
document to which the Company or the Stockholder is a party or by which any of
them is bound.
<PAGE>
(d) As of the Second Restatement Closing Date and giving effect to all
issuances on such date of shares of Common Stock, Series A Preferred Stock,
and Series B Preferred Stock, the authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock of which 7,693,526 shares
will be issued and outstanding upon the Closing; and (ii) 6,000,000 shares of
Preferred Stock, of which 600,000 shares have been designated Series A
Preferred Stock, 331,800 of which will be issued and outstanding upon the
Closing; 5,000,000 shares have been designated Series B Preferred Stock,
1,302,135 of which will be issued and outstanding upon the Closing; and the
Company has (and will have as of the Closing) no other shares outstanding. An
aggregate of 4,000,000 shares of Common Stock are reserved for issuance on the
exercise of the Warrants and the Loan Warrants and conversion of the Series B
Preferred Stock, and 2,000,000 shares of Series B Preferred Stock are reserved
for issuance on exercise of the Warrants and the Loan Warrants. An aggregate
of 351,029 shares of Common Stock are reserved for issuance to employees of
the Company and of Subsidiaries of the Company. All of the issued and
outstanding shares of Common
Stock are, and upon issuance and payment therefor in accordance with the terms
of this Agreement, all of the outstanding Series A Preferred Stock and Series
B Preferred Stock will be, validly issued, fully paid and nonassessable. The
Common Stock, Series A Preferred Stock and Series B Preferred Stock have been
offered, issued, sold, and delivered by the Company free from preemptive
rights, rights of first refusal, antidilution rights, cumulative voting rights
or similar rights (except as otherwise provided in this Agreement or in the
powers, designations, rights and preferences of the Preferred Stock contained
in the Certificate) and in compliance with applicable federal and state
securities laws. Except pursuant to this Agreement and the Certificate and
except for the Permitted Stock the Company is not obligated to issue or sell
any Capital Stock and, except for this Agreement and the Stockholder
Agreement, neither the Company nor the Stockholder is party to, or otherwise
bound by, any agreement affecting the voting of any Capital Stock. Except for
the Stockholder Agreement and the Loan Warrant Agreement, the Company is not,
nor will it be, a party to, or otherwise bound by, any agreement obligating it
to register any of its Capital Stock.
(e) The Preferred Shares, the shares of Common Stock and Other Securities
issuable on exercise of the Warrants and the shares of Common Stock issuable
upon conversion of the Series B Preferred Stock have been duly and validly
authorized and reserved for issuance and, when issued in accordance with the
terms of this Agreement, the Warrants or the Certificate, as the case may be,
will be validly issued, fully paid, and nonassessable and free of preemptive
rights, rights of first refusal, or similar rights.
(f) The Company has good, indefeasible, merchantable, and marketable title
to, and ownership of, all of its assets necessary for the conduct of its
business free and clear of all liens, pledges, security interests, claims, or
other encumbrances except those of the Collateral Agent under the Loan
Agreement.
(g) There is no agreement, arrangement, or understanding involving the
Company or the Stockholder, other than this Agreement, the Stockholder
Agreement, and the documents contemplated hereby and thereby, modifying,
restricting, or in any way affecting the rights of any security holder to vote
securities of the Company.
(h) The Company has delivered to the Purchaser audited financial statements
of the Company at December 31, 1997 for the fiscal year then ended and its
unaudited financial statements at and for the one-month period ended January
31, 1998 (collectively, the "Financial Statements"). The Financial Statements
are complete and correct in all material respects, subject (in the case of the
unaudited statements) to normal year-end adjustments, and have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. The Financial Statements
accurately set out, describe and fairly present the financial condition and
operating results of the Company as of the dates, and for the periods,
indicated therein, subject (in the case of the unaudited statements) to normal
year-end audit adjustments.
<PAGE>
(i) Since January 31, 1998, there has not been:
(A) any change in the assets, liabilities, financial condition or operating
results of the Company from that reflected in the Financial Statements, except
changes in the ordinary course of business that have not been, in the
aggregate, materially adverse;
(B) any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is currently proposed to be
conducted);
(C) any amendments or changes in the certificate of incorporation or bylaws
of the Company; other than the Certificate of Amendment of the Certificate of
Incorporation of the Company, filed on March 31, 1998;
(D) any waiver or compromise by the Company of a valuable right or of a
material debt owed to the Company;
(E) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is currently proposed to be conducted);
(F) any change or amendment to a material contract or arrangement by which
the Company or any of its assets or properties is bound or subject;
(G) any declaration or payment of any dividend or other distribution of the
assets of the Company;
(H) any increase in or modification of the compensation or benefits payable
by the Company to any of their directors or employees, except in the ordinary
course of business consistent with past practice;
(I) any increase in or modification of any bonus, pension, insurance or
other employee benefit plan, payment or arrangement (including, but not
limited to, the granting of stock options, restricted stock awards or stock
appreciation rights) made to, for or with any employee of the Company, except
in the ordinary course of business consistent with past practice;
(J) any incurrence, assumption or guarantee by the Company of any debt for
borrowed money; issuance or sale of any securities convertible into or
exchangeable for debt securities of the Company; or issuance or sale of
options or other rights to acquire from the Company, directly or indirectly,
debt securities of the Company, or any securities convertible into or
exchangeable for any such debt securities;
(K) any making of any loan, advance or capital contribution to any person
other than travel loans or advances made in the ordinary course of business;
or
(L) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company.
(j) The Schedule of Exceptions contains a complete list of all of the
following agreements to which the Company is a party: (a) all contracts,
agreements and instruments that involve a commitment by the Company in excess
of $10,000; (b) all stock purchase agreements; (c) all loan,
<PAGE>
lease or debt agreements in excess of $10,000; (d) all employment agreements
with Stockholders; (e) all material licenses of any patent, trade secret or
other proprietary right to or from the Company; (f) any existing or currently
effective plan, contract or arrangement, whether written or oral, providing
for bonuses, pensions, deferred compensation, severance pay or benefits,
retirement payments, profit-sharing or the like; or (g) any other existing or
currently effective agreement, contract or commitment that is material to the
Company (collectively, the "Material Agreements"). All the Material
Agreements are valid and binding obligations of the Company, in full force and
effect in all material respects. The Company is not in material default under
any of the Material Agreements, and the Company is not aware of any material
default by another party, either pending or threatened, with respect to the
Material Agreements. The Company does not intend to cancel, withdraw, modify
or amend any such Material Agreement and neither has been notified that any
other party to any such Material Agreement intends to cancel, withdraw, modify
or amend such Material Agreement. The Company is not a party to or bound by
any material contract agreement or instrument, or subject to any restriction
under its certificate of incorporation or bylaws, that adversely affects its
business as presently conducted or as currently proposed to be conducted, its
properties or its financial condition.
(k) The Company has no material liability or obligation, absolute or
contingent (individually or in the aggregate), that is not disclosed in the
Financial Statements, except obligations and liabilities incurred after the
date of the Financial Statements in the ordinary course of business that are
not individually or in the aggregate material. The Company after reasonable
investigation has no knowledge of any basis for any other claim against or
liability or obligation of the Company.
(l) Set forth on the Schedule of Exceptions is a list of (a) all the
material obligations of the Company to its officers, directors, shareholders
and employees, including any member of their immediate families (other than
normal accrued wages and benefits and travel expense vouchers) and (b) all the
obligations of the officers, directors, shareholders and employees of the
Company, including any member of their immediate families (other than expense
advances made in the ordinary course of business) to the Company, which
schedule is complete and correct in all material respects as of the date of
this Agreement.
(m) To the best of the Company's knowledge, no employee of the Company is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency that would conflict with such employee's
obligation to use his best efforts to promote the interests of the Company or
that would conflict with the Company's business as conducted or as proposed to
be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as currently proposed, will, to the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. To
the best of the Company's knowledge, no employee or consultant of the Company
is in violation of any term of any employment contract, proprietary
information and inventions agreement, noncompetition agreement or any other
<PAGE>
contract or agreement relating to the relationship of any such employee or
consultant with the Company or any previous employer. To the best of the
Company's knowledge, no officer of the Company, the termination of whose
employment, either individually or in the aggregate, would have a materially
adverse effect on the Company, has any present intention of terminating his or
her employment with the Company. The Company has no collective bargaining
agreements with any of its employees and to the best of the Company's
knowledge there is no labor-union-organizing activity pending or threatened
with respect to the Company.
(n) The Company is not in violation of any provisions of its certificate of
incorporation or its bylaws as amended and in effect on and as of the Closing,
or of any provisions of any material instrument or contract to which it is a
party or any judgment, decree or order by which it is bound or any statute,
rule or regulation applicable to it. The execution, delivery and performance
of this Agreement, the Stockholder Agreement and the issuance and sale of the
Preferred Shares and Warrants pursuant hereto and the issuance of the
Conversion Shares upon conversion of the Series B Preferred Shares and the
Issuable Warrant Shares pursuant to the exercise of the Warrants, will not
result in any such violation or be in conflict with or constitute a default
under any such provisions or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any properties or assets of the Company.
(o) To the best of the Company's knowledge, there is no action, proceeding
or investigation pending or currently threatened against the Company before
any court or administrative agency (or any basis therefor known to the
Company). The foregoing includes, without limiting its generality, actions
pending or threatened (or any basis therefor known to the Company) involving
the prior employment of any of the Company's employees or their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former
employers. There is no action, proceeding or investigation by the Company
currently pending or that the Company intends to initiate.
(p) To the best of the Company's knowledge, the Company has sufficient title
and ownership of or is licensed under all patents, trademarks, service marks,
trade names, copyrights, and all registrations and applications for
registration of any of the foregoing, and all trade secrets, information,
inventions, computer programs owned or licensed by the Company, documentation,
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business as now conducted and as currently proposed to be
conducted without any conflict with or without infringement of the rights of
others. There are no outstanding material options, licenses or agreements
relating to the foregoing nor is the Company bound by or a party to any
material options, licenses or agreements with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that it has violated
or, by conducting its businesses as currently proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. The
Company does not believe it is or will be necessary to use any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
(q) To the best of the Company's knowledge, the Company has not done
anything to compromise the secrecy, confidentiality or value of any of its
trade secrets, know-how, inventions, prototypes, designs, processes or
technical data required to conduct its business as now conducted or as
proposed to be conducted. The Company has taken in the past and will take in
the future reasonable security measures to protect the secrecy,
confidentiality and value of all its trade secrets, know-how, inventions,
prototypes, designs, processes, and technical data important to the conduct of
its business.
(r) The Company has accurately prepared and timely filed all United States
income tax returns and all state and municipal tax returns that are required
to be filed by it and has paid or made provision for the payment of all taxes
that have become due pursuant to such returns. No deficiency assessment or
proposed adjustment of the Company's United States income tax or state or
municipal taxes is pending and the Company has no knowledge of any liability
as of the date hereof for any tax for which there is not an adequate reserve
reflected in the Financial Statements.
<PAGE>
(s) The Company has fire, casualty and liability insurance policies
customary for the type and scope of its properties and business.
(t) All consents, approvals, orders or authorizations of, or registrations,
qualifications, designations, declarations or filings with any federal or
state governmental authority on the part of the Company required in connection
with the valid execution and delivery of this Agreement and the Stockholder
Agreement, the offer, sale or issuance of the Preferred Shares, the Conversion
Shares, the Warrants, the Issuable Warrant Shares, or the consummation of any
other transaction contemplated hereby have been obtained, or will be obtained
prior to the Closing, except for notices required to be filed with certain
state and federal securities commissions after the Closing, which notices will
be filed on a timely basis.
(u) The Company (i) represents and warrants that it has retained no finder
or broker in connection with the transactions contemplated by this Agreement
and (ii) hereby agrees to indemnify and to hold the Purchaser harmless of and
from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company or any of its employees or representatives is responsible.
(v) Each of the representations and warranties made by the Company pursuant
to the Loan Agreement is true and correct in all material respects.
(w) None of the documents, instruments, or other information furnished to
the Purchaser by the Company or the Stockholder, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make any statements made therein not misleading. No representation, warranty,
or statement made (i) by the Company in this Agreement, the Loan
<PAGE>
Agreement, or the Stockholder Agreement, or (ii) by the Stockholder made in
this Agreement or the Stockholder Agreement, or in any applicable document,
certificate, exhibit or schedule attached hereto or thereto or delivered in
connection herewith or therewith, contains or, at the Second Restatement
Closing Date, will contain any untrue statement of a material fact, or, at the
Second Restatement Closing Date, omits or will omit to state a material fact
necessary to make any statements made herein or therein not misleading. There
is no fact that materially and adversely affects the condition (financial or
otherwise), results of operations, business, properties, or prospects of the
Company that has not been disclosed in the documents provided to the
Purchaser.
3.02 Representations and Warranties of the Purchaser. Each Purchaser
represents and warrants severally and not jointly to the Company:
(a) It is a corporation, limited partnership or limited liability company,
as the case may be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization.
(b) It has the right and power and is duly authorized to enter into,
execute, deliver, and perform this Agreement and the Stockholder Agreement,
and its officers, managers or agents executing and delivering this Agreement
and the Stockholder Agreement are duly authorized to do so. This Agreement
and the Stockholder Agreement has been duly and validly executed, issued, and
delivered and constitutes the legal, valid, and binding obligation of such
Purchaser, enforceable in accordance with their respective terms.
(c) It (i) is an "accredited investor," as that term is defined in
Regulation D under the Securities Act; (ii) has such knowledge, skill, and
experience in business and financial matters, based on actual participation,
that it is capable of evaluating the merits and risks of an investment in the
Company and the suitability thereof as an investment for each Purchaser; (iii)
has received and reviewed all such financial and other information and records
of the Company as it considered necessary or appropriate in deciding whether
to purchase the Preferred Shares and the Warrants and any securities issuable
upon exercise of the Warrants, and the Company and the Stockholder have made
available to it the opportunity to ask questions of, and to receive answers
and to obtain additional information from, representatives of the Company and
the Stockholder; (iv) all such additional information has been provided to and
reviewed by it; and (v) it has the ability to bear the economic risks of
losing its entire investment in the Preferred Shares and the Warrants and any
securities issuable upon exercise of the Warrants.
(d) Except as otherwise contemplated by this Agreement and the Stockholder
Agreement, each Purchaser is acquiring its Series A Preferred Stock, its
Series B Preferred Stock, and/or its Warrants and any securities issuable upon
exercise of the Warrants or upon conversion of the Series B Preferred Stock
for investment for its own account and not with a view to any distribution
thereof in violation of applicable securities laws.
(e) It agrees that the certificates representing its Preferred Shares, its
Warrants, any Issued Warrant Shares and any Conversion Shares will bear the
legends referenced in this Agreement, and such Preferred Shares, Warrants or
securities issuable upon exercise of the Warrants and pursuant to the
Stockholder Agreement, as the case may be, will not be offered, sold, or
transferred in the absence of registration or exemption under applicable
securities laws.
<PAGE>
(f) It has no current contract, undertaking, agreement, arrangement or
understanding with any Person to sell, transfer, grant any participation in,
or otherwise distribute any of the Preferred Shares, the Warrants or any
securities issuable upon exercise of the Warrants or upon conversion of the
Series B Preferred Shares to any Person.
Article IV
Covenants
4.01 Financial Statements. The Company will keep books of account and
prepare financial statements and will cause to be furnished to each Purchaser
and each other Holder (all of the foregoing and following to be kept and
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis):
(a) As soon as available, and in any event within one hundred twenty (120)
days after the end of each fiscal year of the Company, beginning with the
fiscal year ending December 31, 1997, (i) a copy of the financial statements
of the Company for such fiscal year containing a consolidated and
consolidating balance sheet, statement of income, statement of stockholders'
equity, and statement of cash flows, each as at the end of such fiscal year
and for the period then ended and
in each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and audited and certified by Arthur
Andersen LLP, or other independent certified public accountants of recognized
standing selected by the Company and consented to by the Holders and (ii) a
comparison of the actual results during such fiscal year to those originally
budgeted by the Company prior to the beginning of such fiscal year and a
narrative description and explanation of any budget variances. The annual
audit report required by this Agreement will not be qualified by or make
reference to any disclosure that the Company may not continue as a going
concern or otherwise be qualified or limited because of restricted or limited
examination by the accountant of any portion of any of the records of the
Company.
(b) As soon as available, and in any event within thirty (30) days after the
end of each calendar month, a copy of unaudited consolidated and consolidating
financial statements of the Company as of the end of such calendar month and
for the portion of the fiscal year then ended, containing a balance sheet, a
statement of retained earnings, statement of income, and statement of cash
flows, in each case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year and all in reasonable
detail, including, without limitation, a comparison of the actual results
during such period to those originally budgeted by the Company prior to the
beginning of such fiscal period and for the fiscal year to date.
(c) Within forty-five (45) days after the beginning of each fiscal year, an
annual budget or business plan for such fiscal year, including a projected
consolidated and consolidating balance sheet, income statement, and cash flow
statement for such year, and, promptly during each fiscal year, all revisions
thereto approved by the board of directors of the Company.
(d) Concurrently with the delivery of each of the financial statements
referred to in Section 4.01(a) and, on the request of any Purchaser, Section
4.01(b), a certificate of an authorized officer of the Company in form and
substance satisfactory to the Holders (i) certifying that the financial
statements attached to such certificates have been prepared in accordance with
generally accepted accounting principles consistently applied and fairly and
accurately present (subject to year-end audit adjustments) the consolidated
and consolidating financial condition and results of operations of the Company
at the date and for the period indicated therein, and (ii) containing a
narrative report of the business and affairs of the Company that includes, but
is not limited to, a discussion of the results of operations compared to those
originally budgeted for such period by the Company prior to the beginning of
such period.
<PAGE>
(e) As soon as available, a copy of each (i) financial statement, report,
notice, or proxy statement sent by the Company to its stockholders; (ii)
regular, periodic, or special report, registration statement, or prospectus
filed by the Company with any securities exchange, state securities regulator,
or the Commission; (iii) material order issued by any court, governmental
authority, or arbitrator in any material proceeding to which the Company is a
party or to which any of its assets is subject; (iv) press release or other
statement made available generally by the Company or the Stockholder to the
public generally concerning material developments in the business of the
Company; and (v) item of correspondence, report, or other information sent by
the Company to any holder of any indebtedness, including, without limitation
the lenders under the Loan Agreement.
(f) Promptly, such additional information concerning the Company as any
Holder may request, including, without limitation, auditor management reports
and audit "waive" lists.
4.02 Inspection. The Company will permit any representative designated by a
Holder to (a) visit and inspect any of the properties of the Company; (b)
examine the corporate and financial records of Company and make copies thereof
or extracts therefrom; and (c) discuss the affairs, finances, and accounts of
the Company with the directors, officers, key employees, and independent
accountants of the Company. The inspections, examinations and discussions
provided for in the preceding sentence shall be conducted during normal
business hours, shall be reasonable in scope and shall not disrupt or
adversely affect any aspect of the operations of the Company.
4.03 Existence. Except as otherwise expressly required or permitted by the
Loan Agreement or this Agreement, the Company will maintain in full force and
effect its corporate existence, rights, and franchises and all licenses and
other rights to use Intellectual Property.
4.04 Notice.
(a) In the event of (i) any setting by the Company of a record
date with respect to the holders of any class of Capital Stock for the purpose
of determining which of such holders are entitled to dividends, repurchases of
securities or other distributions, or any right to subscribe for, purchase or
otherwise acquire any shares of Capital Stock or other property or to receive
any other right; or (ii) any capital reorganization of the Company, or
reclassification or recapitalization of the Capital Stock or any transfer of
all or a majority of the assets, business, or revenue or income generating
capacity of the Company, or consolidation, merger, share exchange,
reorganization, or similar transaction involving the Company; or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of the
Company; or (iv) any proposed issue or grant by the Company of any Capital
Stock, or any right or option to subscribe for, purchase, or otherwise acquire
any Capital Stock (other than the issue of Issuable Warrant Shares upon
exercise of the Warrants or the issue of Conversion Shares upon conversion of
the Series B Preferred Stock), then, in each such event, the Company will
deliver or cause to be delivered to the Holders a notice specifying, as the
case may be, (A) the date on which any such record is to be set for the
purpose of such dividend, distribution, or right, and stating the amount and
character of such dividend, distribution, or right; (B) the date as of which
the holders of record will be entitled to vote on any reorganization,
reclassification, recapitalization, transfer, consolidation, merger, share
exchange, conveyance, dissolution, liquidation, or winding-up; (C) the date on
which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution, liquidation,
or winding-up is to take place and the time, if any is to be fixed, as of
which the holders of record of any class of Capital Stock will be entitled to
exchange their shares of Capital Stock for securities or other property
deliverable upon such event; and (D) the amount
<PAGE>
and character of any Capital Stock property, or rights proposed to be issued
or granted, the consideration to be received therefor, and, in the case of
rights or options, the exercise price thereof, and the date of such proposed
issue or grant and the Persons or class of Persons to whom such proposed issue
or grant will be offered or made. Any such notice will be deposited in the
United States mail, postage prepaid, at least thirty (30) days prior to the
date therein specified, and notwithstanding anything in this Agreement or the
Warrants to the contrary the Holders may exercise the Warrants within thirty
(30) days from the mailing of such notice. The Company shall, promptly on
request of a Holder, provide such other information as the Holders may
reasonably request.
(b) If there is any adjustment as provided above in Article II
(other than as provided in Section 2.08(a)), or if any Other Securities (other
than Series B Preferred Stock) become issuable in lieu of shares of such
Common Stock upon exercise of the Warrants, the Company will immediately cause
written notice thereof to be sent to each Holder, which notice will be
accompanied by a certificate of the independent public accountants of the
Company setting forth in reasonable detail the basis for the Holders' becoming
entitled to receive such Other Securities, the facts requiring any such
adjustment in the number of shares receivable after such adjustment, or the
kind and amount of any Other Securities so purchasable upon the exercise of
the Warrants, as the case may be. At the request of any Holder and upon
surrender of the Warrant of such Holder, the Company will reissue such Warrant
of such Holder in a form conforming to such adjustments.
4.05 Warrant Rights. The Company covenants and agrees that during the
term of this Agreement and so long as any of the Warrants are outstanding, (a)
the Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock and Other Securities, to provide for the exercise in
full of the rights represented by the Warrants and the exercise in full of the
rights of the Holders under the Stockholder Agreement; (b) the Company will
not increase or permit to be increased the par value per share or stated
capital of the Issuable Warrant Shares or the consideration receivable upon
issuance of its Issuable Warrant Shares; and (c) in the event that the
exercise of the Warrants would require the payment by the Holder of
consideration for the Common Stock or Other Securities receivable upon such
exercise of less than the par or stated value of such Issuable Warrant Shares,
the Company and the Stockholder will promptly take such action as may be
necessary to change the par or stated value of such Issuable Warrant Shares to
an amount less than or equal to such consideration.
4.06 Certain Actions. Without the prior written consent of each of
FF-ITP and, in the case of subparagraphs (a), (b), (d), (e), (f), (m), (n),
(o), and (p), the consent of the holders of a majority of the outstanding
shares of Series B Preferred Stock (other than shares held by a Regulated
Holder), which consent may be withheld for any reason, the Company will not,
and will not permit any Subsidiary to:
(a) permit to occur any amendment, alteration, or modification
of the bylaws of the Company, as constituted on the date of this Agreement,
the effect of which, in the judgment of FF-ITP and the holders of a majority
of the outstanding shares of Series B Preferred Stock (other than shares held
by a Regulated Holder), would be to alter, impair, or affect adversely, either
the rights and benefits of the Holders or the duties and obligations of the
Company under this Agreement, the Warrants, the Certificate or the Stockholder
Agreement or permit to occur any amendment, alteration, or modification of the
other charter or organizational documents of the Company, as constituted on
the date of this Agreement except to the extent necessary to comply with
Section 4.04(j) or 4.10;
(b) except as otherwise permitted in the Certificate or those
Stock Repurchase Agreements dated May 30, 1997, between the Company and each
of Daniel F. Klein and Jamie Blech, or as required by the Stockholder
Agreement or the Loan Warrant Agreement, (i) declare or make any dividends or
distributions of its cash, stock property, or assets or redeem, retire,
purchase, or otherwise acquire, directly or indirectly, any of the Capital
Stock or capital stock or securities of any Affiliate or any Subsidiary of the
Company, or any securities convertible or exchangeable into Capital Stock or
capital stock or securities of any Affiliate or any Subsidiary of the Company
or otherwise make any distribution on account of the purchase, repurchase,
redemption, put, call or other retirement of any shares of Capital Stock of
the Company or any Subsidiary thereof or of any warrant, option or other right
to acquire such shares, or (ii) pay any professional consulting or management
fees or any other payments to any shareholders of Parent or any Subsidiary;
provided, however, that the Company shall be permitted as exceptions to the
preceding provisions of this clause (b): to declare and make payments of (A)
dividends in cash from Subsidiaries of the Company to the Company to the
extent necessary to
<PAGE>
permit the Company or its Subsidiaries to pay amounts due and payable under
the Loan Agreement, and (B) dividends on the Preferred Stock as provided in
the Certificate;
(c) effect any sale, lease, assignment, transfer, or other
conveyance of any material portion of the assets or operations or the revenue
or income generating capacity of the Company (other than inventory in the
ordinary course of business and other assets reasonably and in good faith
determined by the Company to be obsolete or no longer necessary to the
business of the Company), or to take any such action that has the effect of
any of the foregoing;
(d) except for issuances of stock permitted by this Agreement,
the Permitted Stock, and the mergers permitted by the Loan Agreement or
pursuant to the express terms of this Agreement or the Stockholder Agreement,
issue or sell, or otherwise dispose of any Capital Stock (including the Series
A Preferred Stock) or Capital Stock of any Subsidiary, dissolve or liquidate,
or effect any consolidation or merger involving the Company or any Subsidiary
or any reclassification, corporate reorganization, stock split or reverse
stock split, or other change of any class of Capital Stock of the Company or
of any Subsidiary;
(e) issue any Capital Stock unless the holder of such Capital
Stock either (i) has become a party to the Stockholder Agreement, or (ii)
owns, after such issuance, less than three percent (3%) of the Company's
Common Stock, assuming full exercise or conversion of all outstanding
securities exercisable for or convertible into Common Stock.
(f) enter into any business that the Company or any Subsidiary
is not conducting on the date of this Agreement or acquire any substantial
business operation or assets (through a stock or asset purchase or otherwise
except for businesses and acquisitions permitted by the Loan Agreement);
(g) except for Permitted Stock, enter into any transaction or
transactions with any director, officer, employee, or stockholder of the
Company, or any Affiliate or relative of the foregoing except upon terms that,
in the opinion of the FF-ITP, are fair and reasonable and that are, in any
event, at least as favorable as would result in a comparable arm's-length
transaction with a Person not a director, officer, employee, shareholder, or
Affiliate of the Company or any Affiliate or related party of the foregoing,
or advance any monies to any such Persons, except for travel advances in the
ordinary course of business;
(h) increase the amount of remuneration paid to officers under
the employment agreements disclosed with respect to Section 3.01(k) of this
Agreement (the "Employment Agreements");
(i) modify, amend, terminate or waive any material provision of
the Employment Agreements;
(j) allow the aggregate par value of the Capital Stock subject
to the Warrants from time to time to exceed the price payable upon exercise of
the Warrants, as adjusted from time to time;
(k) fail to achieve $30,000,000 in net revenue and $1,500,000 in
EBITDA for the year ending one year after the Original Closing Date;
$60,000,000 in net revenue and $3,500,000 in EBITDA for the year ending two
years after the Original Closing Date; and $90,000,000 in net revenue and
$5,500,000 in EBITDA for the year ending three years after the Original
Closing Date;
(l) fail to comply, in all material respects, with all
applicable statutes, regulations, and orders of the United States, domestic
and foreign states, and municipalities, agencies, and instrumentalities of the
foregoing applicable to the Company;
(m) fail to file all required tax returns, reports, and requests
for refunds on a timely basis or pay on a timely basis all taxes imposed on
either it, or upon any of its assets, income or franchises; provided, however,
that neither the Company nor any Subsidiary shall be required to pay or
discharge any tax, levy, assessment, or governmental charge that is being
contested in good faith by appropriate proceedings diligently pursued, and for
which adequate reserves in accordance with generally accepted accounting
principles, consistently applied, have been establis-hed;
(n) authorize or issue stock to Jamie Blech or Daniel J. Klein,
or any Affiliate or Related Party of the foregoing;
(o) fail to keep books and records of account in which full,
true, and correct entries will be made of all dealings and transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis;
(p) create or authorize any class or series of capital stock
ranking prior to or pari passu with the Series A Preferred Stock with respect
of the payment of dividends or the distribution of assets upon a liquidation,
or create or authorize any rights, options or warrants exercisable for, or
securities convertible into or exchangeable for, shares of any such class or
series of capital stock;
<PAGE>
(q) except for Permitted Stock, authorize the issuance of the
Company's equity securities at a price per share of less than their Fair
Market Value; or
(r) obligate itself or otherwise agree to take, permit or enter
into any of the events described in subsections (a) through (q) above.
4.07 Accountants. The Company will retain independent public
accountants acceptable to FF-ITP who will certify the consolidated and, at
FF-ITP's request, consolidating financial statements of the Company and its
Subsidiaries at the end of each fiscal year, and in the event that the
services of the independent public accountants so selected, or any firm of
independent public accounts hereafter employed by Company or any Subsidiary,
are terminated, the Company will promptly thereafter notify FF-ITP and upon
FF-ITP's request, the Company will request the firm of independent public
accountants whose services are terminated to deliver (without liability for
such firm) to FF-ITP a letter of such firm setting forth the reasons for the
termination of their services and in its notice to FF-ITP the Company or such
Subsidiary will state whether the change of accountants was recommended or
approved by the board directors of the Company or any Subsidiaries or any
committee thereof.
4.08 Each of the Regulated Holders Not a Party to Covenants. The
Regulated Holders and the other parties hereto agree that (a) the covenants
set forth in Sections 4.06 and 4.07 hereof shall not inure to the benefit of
any Regulated Holder or its successors or assigns; (b) neither a Regulated
Holder nor its successors or assigns shall have the right to enforce such
covenants or the right to give consents or waivers in connection therewith;
and (c) the effectiveness of any and all amendments, consents, waivers or
other actions required or requested of the Holders under Section 4.06 hereof
shall be determined as if such Regulated Holder or its successors and assigns
were not Holders hereunder.
Article V
Conditions
The obligations of each Purchaser to effect the transactions
contemplated by this Agreement are subject to the following conditions
precedent:
5.01 Opinion. Each Purchaser will have received a favorable opinion,
dated the Second Restatement Closing Date, from counsel for the Company,
covering matters raised by this Agreement, the Stockholder Agreement, and such
other matters as any Purchaser or its counsel may request, and otherwise in
form and substance satisfactory to each Purchaser and its counsel.
5.02 Loan Agreement Conditions. All of the conditions precedent to the
obligations of Purchaser under the Loan Agreement will have been satisfied in
full.
5.03 Material Change. There will have occurred no material adverse
change in the business, prospects, results of operations, or condition,
financial or otherwise, of the Company.
5.04 Stockholder Agreement. The Company and the Stockholders will have
entered into the Stockholder Agreement with Purchaser.
5.05 Representations and Agreements. Each representation and warranty
of the Company and the Stockholders set forth in this Agreement will be true
and correct in all material respects when made and as of the Second
Restatement Closing Date, and the Company and the Stockholders will have fully
performed all their covenants and agreements set forth in this Agreement in
all material respects.
5.06 Proceedings; Consents. All proceedings taken in connection with
the transactions contemplated by this Agreement, and all documents necessary
to the consummation of this Agreement, will be satisfactory in form and
substance to the Purchaser and its counsel, and the Purchaser and its counsel
will have received certificates of compliance and copies (executed or
certified as may be appropriate) of all documents, instruments, and agreements
that the Purchaser or its counsel reasonably may request in connection with
the consummation of such transactions. All consents of any Person necessary to
the consummation of the transactions contemplated by this Agreement will have
been received, be in full force and effect, and not be subject to any onerous
condition.
<PAGE>
5.07 Reservation of Common Stock. The Purchaser will have received
evidence satisfactory to the Purchaser that the Company has reserved a
sufficient number of shares of Common Stock for the Purchaser to convert the
Series B Preferred Stock and/or exercise the Warrants.
5.08 Expenses. The Company shall pay the reasonable fees and expenses
of Purchasers incurred in connection with their review of the Company, the
preparation of this Agreement (including exhibits hereto), and the closing of
the transactions contemplated hereby.
5.09 Operating Plan. As of the Second Restatement Closing Date, the
Company shall have prepared a 5-year operating plan and projections in form
and substance satisfactory to the Purchasers.
5.10 Board of Directors. The Company's Board of Directors as of the
Second Restatement Closing Date shall consist of Jamie Blech, Martin Kandl,
Daniel F. Klein, James D. Lumsden, Stanley Nice, John Bamberger, Christopher
Corbett, Chuck Schaeffer and John DeFina..
5.11 Compliance Certificate. There shall have been delivered to the
Purchasers a certificate, dated as of the Closing, signed by the Company's
Chairman or President, certifying that the conditions specified in Sections
5.02, 5.03, 5.05, 5.06 (but only the last sentence thereof), 5.07 and 5.10
have been fulfilled.
5.12 Secretary's Certificate. There shall have been delivered to the
Purchasers a certificate, dated as of the Closing, signed by the Company's
Secretary or an Assistant Secretary and in form and substance satisfactory to
the Purchasers, that shall certify (i) the names of its officers authorized to
sign this Agreement, the certificates for purchased shares and warrants and
the other documents, instruments or certificates to be delivered pursuant to
this Agreement by the Company or any of its officers, together with true
signatures of such officers; (ii) that the copy of the certificate of
incorporation (including any amendments) attached thereto is true, correct and
complete; (iii) that the copy of the Bylaws attached thereto is true, correct
and complete; (iv) that the copy of Board of Directors' resolutions attached
thereto evidencing the approval of this Agreement, the issuance of the
Preferred Shares on the Second Restatement Closing Date and the other matters
contemplated hereby was duly adopted and is in full force and effect.
5.13 Certificates of Good Standing. There shall have been delivered to
the Purchasers Certificates of the Secretary of State of the States of
Delaware and New Jersey, and the Maryland State Department of Assessments &
Taxation, as to the good standing of the Company as of a recent date.
Article VI
Miscellaneous
6.01 Indemnification. In addition to any other rights or remedies to
which the Purchaser and the Holders may be entitled, the Company and each
Stockholder (solely with respect to the representations and warranties made by
him) severally and not jointly agree to and will indemnify and hold harmless
the Purchaser, the Holders, and their Affiliates and their successors,
assigns, officers, directors, managers, employees, attorneys, and agents
(individually and collectively, an "Indemnified Party") from and against any
and all losses, claims, obligations, liabilities, deficiencies, penalties,
causes of action, damages, costs, and expenses (including, without limitation,
costs of investigation and defense, attorneys' fees, and expenses), including,
without limitation, those arising out of the contributory negligence of any
Indemnified Party, that the Indemnified Party may suffer, incur, or be
responsible for, arising or resulting from, to the extent applicable, any
misrepresentation, breach of warranty, or nonfulfillment of any covenant or
agreement on the part of the Company or the Stockholder (solely with respect
to the representations and warranties made by him) under this Agreement, the
Stockholder Agreement, or under any other agreement to which the Company or
the Stockholder is a party in connection with this transaction, or from any
misrepresentation in or omission from any certificate or other instrument
furnished or to be furnished to the Purchaser or the Holders under this
Agreement.
6.02 Default. It is agreed that a violation by any party of the terms
of this Agreement cannot be adequately measured or compensated in money
damages, and that any breach or threatened breach of this Agreement by a party
to this Agreement would do irreparable injury to the nondefaulting party. It
is, therefore, agreed that in the event of any breach or threatened
<PAGE>
breach by a party to this Agreement of the terms and conditions set forth in
this Agreement, the nondefaulting party will be entitled, in addition to any
and all other rights and remedies that it may have in law or in equity, to
apply for and obtain injunctive relief requiring the defaulting party to be
restrained from any such breach or threatened breach or to refrain from a
continuation of any actual breach.
6.03 Integration. This Agreement, the Warrants, the Preferred Shares,
the Stockholder Agreement, and the Company's Certificate of Incorporation, as
amended, constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof and supersede all previous written, and
all previous or contemporaneous oral, negotiations, understandings,
arrangements, and agreements. This Agreement may not be amended or
supplemented except by a writing signed by Company, the Stockholder, and each
Holder.
6.04 Headings. The headings in this Agreement are for convenience and
reference only and are not part of the substance of this Agreement.
References in this Agreement to Sections and Articles are references to the
Sections and Articles of this Agreement unless otherwise specified.
6.05 Severability. The parties to this Agreement expressly agree that
it is not the intention of any of them to violate any public policy, statutory
or common law rules, regulations, or decisions of any governmental or
regulatory body. If any provision of this Agreement is judicially or
administratively interpreted or construed as being in violation of any such
policy, rule, regulation, or decision, the provision, section, sentence, word,
clause, or combination thereof causing such violation will be inoperative (and
in lieu thereof there will be inserted such provision, sentence, word, clause,
or combination thereof as may be valid and consistent with the intent of the
parties under this Agreement) and the remainder of this Agreement, as amended,
will remain binding upon the parties, unless the inoperative provision would
cause enforcement of the remainder of this Agreement to be inequitable under
the circumstances.
6.06 Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration, or other communication be given to or
served upon any of the parties by another, such notice, demand, request,
consent, approval, declaration, or other communication will be in writing and
addressed to the party to be notified as set forth below. Notices shall be
deemed to have been validly served, given or delivered (and "the date of such
notice" or words of similar effect shall mean the date) five (5) days after
deposit in the United States mails, certified mail, return receipt requested,
with proper postage prepaid, or upon actual receipt thereof with written
acknowledgment of receipt (whether by noncertified mail telecopy, telegram,
facsimile, express delivery, hand delivery or otherwise), whichever is
earlier.
<PAGE>
If to Creditanstalt, at: Address of Creditanstalt beneath the name of
Creditanstalt on the signature pages of this Agreement
with courtesy copies to: Troutman Sanders LLP
NationsBank Plaza, Suite 5200
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
Attn: Hazen H. Dempster
Facsimile: (404) 885-3995
If to FF-ITP, at: Address of FF-ITP beneath the name of FF-ITP on the
signature pages of this Agreement
with courtesy copies to: Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
Attn: James M. Yates, Jr., Esquire
Facsimile: (919) 781-4865
If to the Company, at: IT Partners, Inc.
9881 Broken Land Parkway, Suite 102
Columbia, Maryland 21046
Attn: President
Facsimile: (410) 309-9801
with courtesy copies to: Swidler & Berlin
3000 K Street
Washington, D.C. 20007
Attn: Kenneth I. Schoner, Esquire
Andrew M. Ray, Esquire
Facsimile: (202) 424-7643
If to Indosuez, at: Indosuez IT Partners
1211 6th Street, 7th Floor
New York, New York 10036
Attn: Michael Arougheti
Fax: (212) 278-2254
If to Wachovia, at: Wachovia Capital Associates, Inc.
191 Peachtree St., N.E.
Mailcode GA423
Atlanta, Georgia 30303
Attn: Senior Vice President/ITP
Fax: (404) 332-1455
with courtesy copies to: Wachovia Capital Associates, Inc.
191 Peachtree St., N.E.
Mailcode GA715
Atlanta, Georgia 30303
Attn: Legal Department/WCA/ITP
Fax: (404) 332-1455
If to the Stockholder: Address of such Stockholder beneath his/her name on
the signature pages of this Agreement
or to such other address as each party may designate for itself by like
notice. Notice to any Holder other than the Purchaser will be delivered as set
forth above to the address shown on the stock transfer books of the Company or
the Warrant Register unless such Holder has advised the Company in writing of
a different address to which notices are to be sent under this Agreement.
Failure or delay in delivering courtesy copies of any notice, demand,
request, consent, approval, declaration, or other communication to the persons
designated above to receive copies of the actual notice will in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration, or other communication.
No notice, demand, request, consent, approval, declaration or other
communication will be deemed to have been given or received unless and until
it sets forth all items of information required to be set forth therein
pursuant to the terms of this Agreement.
<PAGE>
6.07 Successors. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors and assigns; provided,
however, that no sale, assignment or other transfer by any party to this
Agreement of any of its Capital Stock or rights hereunder to another Person
will be valid and effective unless and until the transferee or assignee first
agrees in writing to be bound by the terms and conditions of this Agreement
and the Stockholders Agreement and the agreements and instruments related
hereto and thereto, in a form and substance reasonably satisfactory to the
Company.
6.08 Remedies. The failure of any party to enforce any right or remedy
under this Agreement, or promptly to enforce any such right or remedy, will
not constitute a waiver thereof, nor give rise to any estoppel against such
party, nor excuse any other party from its obligations under this Agreement.
Any waiver of any such right or remedy by any party must be in writing and
signed by the party against which such waiver is sought to be enforced.
6.09 Survival. All warranties, representations, and covenants made by
any party in this Agreement or in any certificate or other instrument
delivered by such party or on its behalf under this Agreement will be
considered to have been relied upon by the party to which it is delivered and
will survive the Original Closing Date, the First Amendment Closing Date, the
Second Amendment Closing Date, the Third Amendment Closing, the First
Restatement Closing Date, and the Second Restatement Closing Date, as the case
may be, regardless of any investigation made by such party or on its behalf.
All statements in any such certificate or other instrument will constitute
warranties and representations under this Agreement.
6.10 Fees. Any and all fees, costs, and expenses, of whatever kind and
nature, including attorneys' fees and expenses, incurred by the Holders in
connection with the defense or prosecution of any actions or proceedings
arising out of or in connection with this Agreement will be borne and paid by
the Company within ten (10) days of demand by the Holders.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one
agreement.
6.12 Other Business. It is understood and accepted that the Purchaser,
the Holders, and their Affiliates have interests in other business ventures
that may be in conflict with the activities of the Company and that nothing in
this Agreement will limit the current or future business activities of such
parties whether or not such activities are competitive with those of the
Company. The Company and the Stockholder agree that all business
opportunities that may be available to such parties in any field substantially
related to the business of the Company will be pursued exclusively through the
Company.
6.13 Choice of Law. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS
OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES
APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF DELAWARE APPLICABLE
TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT GIVING
EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD
REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
6.14 Duties Among Holders. Each Holder agrees that no other Holder
will by virtue of this Agreement be under any fiduciary or other duty to give
or withhold any consent or approval under this Agreement or to take any other
action or omit to take any action under this Agreement, and that each other
Holder may act or refrain from acting under this Agreement as such other
Holder may, in its discretion, elect.
<PAGE>
6.15 Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 6.15 WITH ITS
COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY, EACH
PURCHASER AND EACH STOCKHOLDER HEREBY KNOWINGLY, INTELLIGENTLY AND
INTENTIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY OR THE ACTIONS OF THE COMPANY, EACH PURCHASER AND EACH STOCKHOLDER IN
THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF OR THEREOF. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR EACH PURCHASER TO PURCHASE THE WARRANTS
AND PREFERRED SHARES FROM THE COMPANY.
6.16 Amendment. This Agreement shall not be modified or amended except
by a writing signed by (a) the Purchasers and/or Stockholders holding at least
a majority of the outstanding Series A Preferred Stock and (b) the Purchasers
holding at least a majority of the Series B Preferred Stock (or if converted,
Conversion Shares) issued or issuable under this Agreement. All of the
parties hereto agree that such modification or amendment shall be binding upon
and is hereby consented to by all parties to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
COMPANY:
IT PARTNERS, INC.
BY: /s/ Daniel J. Klein
Daniel J. Klein
Chairman of the Board
9881 Broken Land
Parkway, Suite 102
Columbia, Maryland
21046
Attn: President
Fax: (310) 589-5473
CREDITANSTALT:
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
Robert M. Biringer
Executive Vice President
By: /s/ Carl Drake
Carl Drake
Address: Two Greenwich Plaza
4th Floor
Greenwich, CT 06830
Attn: Lisa Bruno
Fax: (203) 861-6594
with a copy to:
Two Ravinia
Drive
Suite 1680
Atlanta, GA
30346
Attn: Carl
Drake
Fax: (770)
390-1851
<PAGE>
OWNED ON THE SECOND RESTATEMENT CLOSING DATE:
200,000 Shares of Series A Preferred Stock
222,222 Shares of Series B Preferred Stock
None Shares of Common Stock
257,862 Shares issuable under Warrant A*
120,335 Shares issuable under Warrant C*
78,710 Shares issuable under Warrant D*
188,680 Shares issuable under Warrant E*
* Prior to any adjustments to such number of shares as set forth in Section
2.08 of this Agreement.
<PAGE>
FF-ITP:
FF-ITP, L.P.
BY: FSFC Associates, L.P.,
its General Partner
BY: Franklin Capital, L.L.C.,
its General Partner
BY: /s/ James D. Lumsden
James D. Lumsden, Manager
OWNED ON THE SECOND RESTATEMENT CLOSING DATE:
110,000 Shares of Series A Preferred Stock
29,516 Shares of Common Stock
515,724 Shares issuable under Warrant B*
* Prior to any adjustments to such number of shares as set forth in Section
2.08 of this Agreement.
<PAGE>
INDOSUEZ:
INDOSUEZ IT PARTNERS
By: Indosuez CM II, Inc.
Managing General Partner
By: /s/Les Lieberman
TITLE: Executive Vice President
BY:Les Lieberman
TITLE: Executive Vice President
OWNED ON THE SECOND RESTATEMENT CLOSING DATE:
431,965 Shares of Series B Preferred Stock
<PAGE>
WACHOVIA:
WACHOVIA CAPITAL ASSOCIATES, INC.
BY:/s/
TITLE:
OWNED ON THE SECOND RESTATEMENT CLOSING DATE:
647,948 Shares of Series B Preferred Stock
<PAGE>
STOCKHOLDER
/s/ Daniel J. Klein
Daniel J. Klein
OWNED ON THE SECOND RESTATEMENT CLOSING DATE:
550,101 Shares of Common Stock
10,900 Shares of Series A Preferred Stock
None Common Stock Options
<PAGE>
Jamie E. Blech
/s/ Jamie E. Blech
OWNED ON THE SECOND RESTATEMENT CLOSING DATE:
550,101 Shares of Common Stock
10,900 Shares of Series A Preferred Stock
None Common Stock Options
<PAGE>
FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (this "First Amendment
to Second Restatement") is made and entered to as of , 1998, by
and among IT
PARTNERS, INC., a Delaware corporation (the "Company"), CREDITANSTALT
CORPORATE FINANCE, INC., having offices at Two Greenwich Plaza, Greenwich,
Connecticut
06830 (together with any successor, assignee or transferee, "Creditanstalt"),
FF-ITP, L.P., a
Delaware limited partnership ("FF-ITP"), INDOSUEZ IT PARTNERS, having offices
at 1211
Avenue of the Americas, New York, New York 10036-8701 (together with any
successor, assignee
or transferee, "Indosuez I"), INDOSUEZ IT PARTNERS II, having offices at 1211
Avenue of the
Americas, New York, New York 10036-8701 (together with any successor, assignee
or transferee,
"Indosuez II"), WACHOVIA CAPITAL ASSOCIATES, INC., having offices at 191
Peachtree
Street, N.E., 26th Floor, Atlanta, Georgia 30303 (together with any successor,
assignee or transferee,"Wachovia", which, together with Creditanstalt, FF-ITP
Indosuez I and Indosuez II are individually and collectively, as the context
requires, referred to herein as the "Purchaser"), and each of the STOCKHOLDERS
named on the signature pages hereto (individually and collectively, as the
context requires, the "Stockholder").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Preferred Stock and Warrant Purchase
Agreement, dated
as of May 30, 1997, as amended by the First Amendment to Preferred Stock and
Warrant Purchase
Agreement dated July 11, 1997, as further amended by the Second Amendment to
Preferred Stock
and Warrant Purchase Agreement dated October 27, 1997, as further amended by
the Third
Amendment to Preferred Stock and Warrant Purchase Agreement dated October 31,
1997, and as
further amended by the Fourth Amendment to Preferred Stock and Warrant
Purchase Agreement
dated December 16, 1997 (as amended, the "Original Purchase Agreement") by and
among the
parties thereto, (i) Creditanstalt purchased an aggregate of 100,000 shares of
the Company's
Series A Preferred Stock and warrants (the "Equity Warrants") for the purchase
of up to 456,907
shares (subject to adjustment as set forth in Section 2.08 of the Original
Purchase Agreement) of
either the Company's common stock, $.01 par value per share ("Common Stock"),
or the Company's
Series B Preferred Stock, $.01 par value per share; and (ii) FF-ITP purchased
110,000 shares of
the Company's Series A Preferred Stock, 29,516 shares of Common Stock, and
Equity Warrants for
the purchase of up to 515,724 shares (subject to adjustment as set forth in
Section 2.08 of the
Original Purchase Agreement) of the Company's Common Stock; and
<PAGE>
WHEREAS, the Company and the Stockholders amended and restated the
Original Purchase
Agreement pursuant to that certain Amended and Restated Preferred Stock and
Warrant Purchase
Agreement, dated as of January 8, 1998 (the "First Restated Purchase
Agreement") pursuant to
which Creditanstalt acquired (a) 100,000 shares of Series A Preferred Stock
with Equity Warrants
for the purchase of 188,680 shares of Common Stock or Series B Preferred
Stock, and (b) 222,222
shares of Series B Preferred Stock; and
WHEREAS, the Company and the Stockholders amended and restated the First
Restated
Purchase Agreement, pursuant to that certain Second Amended and Restated
Preferred Stock and
Warrant Purchase Agreement, dated as of March 31, 1998 (the "Second Restated
Purchase
Agreement") pursuant to which Indosuez I acquired (a) 431,965 shares of Series
B Preferred Stock,
and (b) Wachovia acquired 647,948 shares of Series B Preferred Stock; and
WHEREAS, the Company desires that Indosuez II make the following equity
investment
as of the First Amendment to Second Restatement Closing Date (as defined
herein): Indosuez II
will purchase 85,313 shares of Series B Preferred Stock at an aggregate
purchase price of
$395,000 ($4.63 per share), (the "Additional Equity Investment"); and
WHEREAS, in connection with such proposed purchase of shares of Series B
Preferred
Stock the parties hereto wish to amend the Second Restated Purchase Agreement
in order to
provide for the Additional Equity Investment and make certain other changes
set forth herein;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained
in this Agreement, and other good and valuable consideration, the receipt and
sufficiency of
which are hereby acknowledged, the Purchasers, the Stockholders, and the
Company, intending to be
legally bound, agree as follows:
Section 1. Definitions. As used in this First Amendment to Second
Restatement,
unless otherwise defined herein, terms defined in the Second Restated Purchase
Agreement shall
have the meaning set forth therein when used herein.
Section 2. Definition of "First Amendment to Second Restatement
Closing Date".
Article I of the Second Restated Purchase Agreement is hereby amended by
adding following the
definition of "First Amendment Closing Date" a new definition of "First
Amendment to Second
Restatement Closing Date" as follows:
First Amendment to Second Restatement Closing Date:
, 1998.
Section 3. Amendment of Definition of "Closing". The term "Closing"
as set forth in
Article I of the Second Restated Purchase Agreement, is hereby deleted in its
entirety and the
following definition is substituted in lieu thereof:
Closing. This term refers to the purchase and sale
of the Series B
Preferred Stock effective as of the Second Restated Purchase
Agreement or the
First Amendment to Second Restatement Closing Date, as the case may
be.
Section 4. Amendment of Definition of "Permitted Stock". The term
"Permitted
Stock," as set forth in Article I of the Second Restated Purchase Agreement,
is hereby deleted in
its entirety and the following definition is substituted in lieu thereof:
<PAGE>
Permitted Stock. This term shall mean (a) Warrant Shares,
and shares of the
Company's Capital Stock issuable upon exercise thereof; (b) Capital
Stock of the
Company issued as a dividend on shares of the Company's Capital Stock
or as a
result of a stock split with respect thereto; (c) options and
warrants outstanding (or
that the Company's Board of Directors has approved for issuance to
specific
employees) as of the Original Closing Date to purchase the Company's
Capital
Stock, and shares of the Company's Capital Stock issuable upon
exercise thereof;
(d) the Business Combination Options, and shares of the Company's
Capital Stock
issuable upon exercise thereof; (e) options to be granted after the
Original Closing
Date to employees of the Company and its Subsidiaries to purchase up
to 335,286
shares of Common Stock of the Company, at an exercise price not less
than the
Fair Market Value at the time of issuance of such options, and shares
of the
Company's Capital Stock issuable upon exercise thereof; (f) shares of
Series A
Preferred Stock issuable pursuant to the Original Purchase Agreement
or the First
Restated Purchase Agreement; (g) shares of Series B Preferred Stock
issuable
pursuant to the First Restated Purchase Agreement, the Second
Restated Purchase
Agreement or this First Amendment to Second Restatement; (h) shares
of
Common Stock issuable upon conversion of Series B Preferred Stock (i)
29,516
shares of Common Stock issuable to FF-ITP on the Third Amendment
Closing
Date; (j) 103,093 shares of Common Stock issued to Christopher A. and
Merrie
Corbett (jointly) at an aggregate purchase price of $200,000; (k)
29,516 shares of
Common Stock issuable to Christopher A. and Merrie Corbett (jointly)
at an
aggregate purchase price of $100,000; (l) 14,758 shares of Common
Stock issuable
to Martin and Haeyoung Kandl (jointly) at an aggregate purchase price
of $50,000;
(m) 1,001 shares of Common Stock issuable to Thomas Gardner at an
aggregate
purchase price of $3,390; (n) options to be granted to FBD
Consulting, Inc.
("FBD") to purchase up to 2400 shares of Common Stock of the Company,
at an
exercise price not less than $5.60 per share, and shares of the
Company's Capital
Stock issuable upon exercise thereof; and (o) options to be granted
to Doig, Elliott,
Schur, Inc. ("DES") to purchase up to 18,304 shares of Common Stock
of the
Company, at an exercise price not less than $5.60 per share, and
shares of the
Company's Capital Stock issuable upon exercise thereof. The limits
in clauses (e),
(i) (j), (k), (l) and (m) shall be proportionately adjusted for
dividends and other
distributions payable in and for subdivisions and combinations of
shares of
Common Stock.
Section 5. The Warrants and the Preferred Shares. Section 2.01 of
the Second
Restated Purchase Agreement is hereby amended by adding following section
(h)(i) the
following:
(i) On the First Amendment to Second Restatement Closing Date,
Indosuez II
agrees to purchase from the Company at the purchase price set forth below, and
the Company
agrees to issue to Indosuez II, all in accordance with the terms and
conditions of this Agreement:
(i) 85,313 shares of Series B Preferred Stock at a purchase
price of
$395,000, or $4.63 per share, having the rights,
restrictions, privileges,
and preferences set forth in the Certificate.
<PAGE>
Section 6. The Warrants and the Preferred Shares. Section 2.01 of
the Second
Restated Purchase Agreement is hereby further amended by deleting the first
sentence of the last
paragraph thereof and substituting in lieu thereof the following:
On the First Amendment to Second Restatement Closing Date,
the Company will
deliver to Indosuez II a certificate evidencing and representing the
shares of Series
B Preferred Stock, issued to such Purchaser. The Company has duly
authorized the
Series A Preferred Stock and Series B Preferred Stock purchased and
sold pursuant
to the terms of this Agreement by duly filing the Certificate with
the Secretary of
State of the State of Delaware. The shares of Series A Preferred
Stock and the shares
of Series B Preferred Stock subject to the terms of this Agreement
are sometimes
referred to in this Agreement as the "Preferred Shares."
Section 7. Legend. Section 2.02 of the Second Restated Purchase
Agreement is hereby
amended by deleting the first sentence thereof in its entirety and
substituting in lieu thereof the following:
The Company will deliver to the Purchaser on the First
Amendment to Second
Restatement Closing Date, one or more certificates representing the
Series B
Preferred Stock, purchased by such Purchaser, in such denominations
as such
Purchaser requests.
Section 8. Representations and Warranties of the Company. All of the
representations
and warranties of the Company found in Section 3.01 of the Second Restated
Purchase Agreement
are true and accurate as of the First Amendment to Second Restated Purchase
Agreement Closing
Date with the exception of subsection (d) which shall read as follows:
(d) As of the First Amendment to Second Restatement Closing
Date and giving
effect to all issuances on such date of shares of Common Stock, Series A
Preferred Stock,
and Series B Preferred Stock, the authorized capital stock of the Company
consists of (i)
20,000,000 shares of Common Stock of which 7,693,526 shares will be
issued and
outstanding upon the Closing; and (ii) 6,000,000 shares of Preferred
Stock, of which 600,000
shares have been designated Series A Preferred Stock, 347,230 of which
will be issued and
outstanding upon the Closing; 5,000,000 shares have been designated
Series B Preferred
Stock, 1,387,448 of which will be issued and outstanding upon the
Closing; and the
Company has (and will have as of the Closing) no other shares
outstanding. An aggregate
of 4,000,000 shares of Common Stock are reserved for issuance on the
exercise of the
Warrants and the Loan Warrants and conversion of the Series B Preferred
Stock, and
2,000,000 shares of Series B Preferred Stock are reserved for issuance on
exercise of the
Warrants and the Loan Warrants. An aggregate of 351,029 shares of Common
Stock are
reserved for issuance to employees of the Company and of Subsidiaries of
the Company. All
of the issued and outstanding shares of Common Stock are, and upon
issuance and payment
therefor in accordance with the terms of this Agreement, all of the
outstanding Series A
Preferred Stock and Series B Preferred Stock will be, validly issued,
fully paid and
nonassessable. The Common Stock, Series A Preferred Stock and Series B
Preferred Stock
have been offered, issued, sold, and delivered by the Company free from
preemptive rights,
rights of first refusal, antidilution rights, cumulative voting rights or
similar rights
<PAGE>
(except as otherwise provided in this Agreement or in the powers,
designations, rights and
preferences of the Preferred Stock contained in the Certificate) and in
compliance with
applicable federal and state securities laws. Except pursuant to this
Agreement and the
Certificate and except for the Permitted Stock the Company is not
obligated to issue or sell
any Capital Stock and, except for this Agreement and the Stockholder
Agreement, neither
the Company nor the Stockholder is party to, or otherwise bound by, any
agreement affecting
the voting of any Capital Stock. Except for the Stockholder Agreement
and the Loan
Warrant Agreement, the Company is not, nor will it be, a party to, or
otherwise bound by,
any agreement obligating it to register any of its Capital Stock.
Section 9. Representations and Warranties of the Purchaser. All of
the
representations and warranties of the Purchaser found in Section 3.02 of the
Second Restated
Purchase Agreement are true and accurate as of the First Amendment to Second
Restatement
Closing Date. In addition, the Purchaser represents and warrants to the
Company the following:
A majority of the partners of the general partnership are
officers, directors, employees or Affiliates of a Regulated Holder.
Section 10. Notices. Notice shall be provided in accordance with
Section 6.06 of the
Second Restated Purchase Agreement and if to Indosuez II, notice is to be
given according to the
name and address as set forth on the signature page to this First Amendment to
Second
Restatement.
Section 11. Survival. Section 6.09 of the Second Restated Purchase
Agreement is
hereby deleted in its entirety and substituting in lieu thereof the following:
6.09 Survival. All warranties, representations, and
covenants made by any
party in this Agreement or in any certificate or other instrument
delivered by such
party or on its behalf under this Agreement will be considered to
have been relied upon
by the party to which it is delivered and will survive the Original
Closing Date, the
First Amendment Closing Date, the Second Amendment Closing Date, the
Third
Amendment Closing, the First Restatement Closing Date, the Second
Restatement
Closing Date, the First Amendment to Second Restatement Closing
Date, as the case
may be, regardless of any investigation made by such party or on its
behalf. All
statements in any such certificate or other instrument will
constitute warranties and
representations under this Agreement.
Section 12. Expenses. The Company shall pay the reasonable fees and
expenses of
Purchasers incurred in connection with the negotiation, preparation, execution
and delivery of this First Amendment to Second Restatement.
Section 13. Limitation of Amendment. Except as expressly set forth
herein, this First
Amendment to Second Restatement shall not be deemed to waive, amend or modify
any term or
condition of the Second Restated Purchase Agreement, each of which is hereby
ratified and
reaffirmed and shall remain in full force and effect, nor to serve as a
consent to any matter
prohibited by the terms and conditions thereof.
<PAGE>
Section 14. Counterparts. This First Amendment to Second Restatement
may be
executed in any number of counterparts and any party hereto may execute any
counterpart, each
of which when executed and delivered will be deemed to be an original and all
of which, when
taken together, will be deemed but one and the same agreement.
Section 15. Choice of Law. THIS FIRST AMENDMENT TO SECOND
RESTATEMENT WILL BE INTERPRETED AND THE RIGHTS OF THE PARTIES
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES
APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF
DELAWARE APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND
PERFORMED THEREIN WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW
RULES THEREOF OR ANY OTHER PRINCIPLE THAT COULD REQUIRE THE
APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION.
Section 16. Waiver of Jury Trial. AFTER REVIEWING THIS SECTION 16
WITH ITS COUNSEL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, THE COMPANY, EACH PURCHASER AND EACH STOCKHOLDER HEREBY
KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY, IRREVOCABLY AND
EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT,
OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS FIRST AMENDMENT
TO SECOND RESTATEMENT OR ANY DOCUMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY OR THE ACTIONS OF THE COMPANY, EACH PURCHASER AND
EACH STOCKHOLDER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF OR THEREOF. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR EACH PURCHASER TO PURCHASE THE WARRANTS AND
PREFERRED SHARES FROM THE COMPANY.
Section 17. Amendment. This First Amendment to Second Restatement
shall not be
modified or amended except by a writing signed by (a) the Purchaser and/or
Stockholders holding
at least a majority of the outstanding Series A Preferred Stock and (b) the
Purchasers holding at
least a majority of the Series B Preferred Stock (or if converted, Conversion
Shares) issued or
issuable under this Agreement. All of the parties hereto agree that such
modification or
amendment shall be binding upon and is hereby consented to by all parties to
this Agreement.
[SIGNATURE PAGES FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the
date first above written.
COMPANY:
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
--------------------
Daniel J. Klein
Chairman of the Board
9881 Broken Land Parkway, Suite 102
Columbia, Maryland 21046
Attn: President
Fax: (410) 309-9801
<PAGE>
CREDITANSTALT:
CREDITANSTALT CORPORATE FINANCE, INC.
By:/s/ Robert M. Biringer
-------------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl Drake
----------------------------
Carl Drake
Address: Two Greenwich Plaza
4th Floor
Greenwich, CT 06830
Attn: Lisa Bruno
Fax: (203) 861-6594
with a copy to:
Two Ravinia Drive
Suite 1680
Atlanta, GA 30346
Attn: Carl Drake
Fax: (770) 390-1851
OWNED ON THE FIRST AMENDMENT TO
SECOND RESTATEMENT CLOSING DATE:
207,569 Shares of Series A Preferred Stock
222,222 Shares of Series B Preferred Stock
None Shares of Common Stock
273,647 Shares issuable under Warrant A
127,701 Shares issuable under Warrant C
81,891 Shares issuable under Warrant D
192,454 Shares issuable under Warrant E
<PAGE>
FF-ITP:
FF-ITP, L.P.
By: FSFC Associates, L.P.,
its General Partner
By: Franklin Capital, L.L.C.,
its General Partner
By: /s/ James D. Lumsden
------------------------
James D. Lumsden, Manager
OWNED ON THE FIRST AMENDMENT TO
SECOND RESTATEMENT CLOSING DATE:
116,525 Shares of Series A Preferred Stock
29,516 Shares of Common Stock
547,292 Shares issuable under Warrant B
<PAGE>
INDOSUEZ I:
INDOSUEZ IT PARTNERS
By: Indosuez CM II, Inc.
Managing General Partner
By:/s/ Les Lieberman
Title: Executive Vice President
By: Les Lieberman
Title: Executive Vice President
OWNED ON THE FIRST AMENDMENT TO
SECOND RESTATEMENT CLOSING DATE:
431,965 Shares of Series B Preferred Stock
<PAGE>
INDOSUEZ II:
INDOSUEZ IT PARTNERS II
By:/s/ Les Lieberman
------------------
Les Lieberman
Managing General Partner
OWNED ON THE FIRST AMENDMENT TO
SECOND RESTATEMENT CLOSING DATE:
85,313 Shares of Series B Preferred Stock
<PAGE>
WACHOVIA:
WACHOVIA CAPITAL ASSOCIATES, INC.
By: /s/
Title:
OWNED ON THE FIRST AMENDMENT TO
SECOND RESTATEMENT CLOSING DATE:
647,948 Shares of Series B Preferred Stock
<PAGE>
STOCKHOLDER:
/s/ Daniel J. Klein
Daniel J. Klein
OWNED ON THE FIRST AMENDMENT TO
SECOND RESTATEMENT CLOSING DATE:
550,101 Shares of Common Stock
11,568 Shares of Series A Preferred
Stock
None Common Stock Options
<PAGE>
/s/ Jamie E. Blech
Jamie E. Blech
OWNED ON THE FIRST AMENDMENT TO
SECOND RESTATEMENT CLOSING DATE:
550,101 Shares of Common Stock
11,568 Shares of Series A Preferred
Stock
None Common Stock Options
<PAGE>
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT (this "Second Amendment to Second Restatement") is
made and entered into as of this 27th day of July, 1998 by and among IT
PARTNERS, INC., a Delaware corporation (the "Company"), CREDITANSTALT
CORPORATE FINANCE, INC., having offices at Two Greenwich Plaza, Greenwich,
Connecticut 06830 ("Creditanstalt"), FF-ITP, L.P., a Delaware limited
partnership ("FF-ITP"), INDOSUEZ IT PARTNERS, having offices at 1211 Avenue of
the Americas, New York, New York 10036-8701 (together with any successor,
assignee or transferee, "Indosuez I"), INDOSUEZ IT PARNERS II, , having
offices at 1211 Avenue of the Americas, New York, New York 10036-8701
(together with any successor, assignee or transferee, "Indosuez II"), WACHOVIA
CAPITAL ASSOCIATES, INC., having offices at 191 Peachtree Street, N.E., 26th
Floor, Atlanta, Georgia 30303 (together with any successor, assignee or
transferee, "Wachovia"), and each of the STOCKHOLDERS named on the signature
pages hereto (individually and collectively, as the context requires, a
"Stockholder").
WHEREAS, pursuant to a certain Preferred Stock and Warrant Purchase
Agreement, dated as of May 30, 1997, as amended by the First Amendment to
Preferred Stock and Warrant Purchase Agreement dated July 11, 1997, as further
amended by the Second Amendment to Preferred Stock and Warrant Purchase
Agreement dated October 27, 1997, as further amended by the Third Amendment to
Preferred Stock and Warrant Purchase Agreement dated October 31, 1997, and as
further amended by the Fourth Amendment to Preferred Stock and Warrant
Purchase Agreement dated December 16, 1997 (as amended, the "Original Purchase
Agreement") by and among the parties thereto, (i) Creditanstalt purchased an
aggregate of 100,000 shares of the Company's Series A Preferred Stock and
warrants (the "Equity Warrants") for the purchase of up to 456,907 shares of
either the Company's common stock, $.01 par value per share ("Common Stock"),
or the Company's Series B Preferred Stock, $.01 par value per share; and (ii)
FF-ITP purchased 110,000 shares of the Company's Series A Preferred Stock,
29,516 shares of Common Stock, and Equity Warrants for the purchase of up to
515,724 shares of the Company's Common Stock; and
WHEREAS, the Company and certain of the Stockholders amended and retated
the Original Purchase Agreement pursuant to that certain Amended and Restated
Preferred Stock and Warrant Purchase Agreement, dated as of January 8, 1998
(the "First Restated Purchase Agreement") pursuant to which Creditanstalt
acquired (i) 100,000 shares of Series A Preferred Stock with Equity Warrants
for the purchase of 188,680 shares of Common Stock or Series B Preferred
Stock, and (ii) 222,222 shares of Series B Preferred Stock; and
<PAGE>
WHEREAS, the Company and the Stockholders amended and restated the First
Restated Purchase Agreement, pursuant to that certain Second Amended and
Restated Preferred Stock and Warrant Purchase Agreement, dated as of March 31,
1998, as amended by the First Amendment to the Second Amended and Restated
Preferred Stock and Warrant Purchase Agreement, dated as of May __, 1998 (as
amended, the "Second Restated Purchase Agreement") pursuant to which (i)
Indosuez acquired 431,965 shares of Series B Preferred Stock, (ii) Wachovia
acquired 647,948 shares of Series B Preferred Stock, and (c) Indosuez II
acquired 85,313 shares of Series B Preferred Stock; and
WHEREAS, the Company desires to enter into a certain 12% Series C Senior
Redeemable Preferred Stock Purchase Agreement, dated as of the date hereof
(the "Series C Purchase Agreement"), among the Company and FBR Business
Development Capital ("FBR"), pursuant to which FBR will purchase an aggregate
of 700 shares of the Company's 12% Series C Senior Redeemable Preferred Stock
(the "Series C Preferred Stock"); and
WHEREAS, the Company intends to enter into a stock purchase agreement
with Wachovia pursuant to which Wachovia may purchase up to 300 shares of
Series C Preferred Stock; and
WHEREAS, in connection with the execution, delivery and performance of
the Series C Purchase Agreement and the issuance of the Series C Preferred
Stock by the Company to FBR and Wachovia, the Company and the Stockholders
have agreed to amend the Second Restated Purchase Agreement and to waive
certain provisions thereunder in order to provide for the issuance of the
Series C Preferred Stock and the issuance of Common Stock as a dividend upon
redemption of the Series C Preferred Stock;
NOW, THEREFORE, in consideration of the premises, the terms and
conditions herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. As used in this Second Amendment to Second
Restatement, unless otherwise defined herein, terms defined in the Second
Restated Purchase Agreement shall have the meaning set forth therein when used
herein.
Section 2. Capital Stock. The term "Capital Stock," as set forth in
Section 1 of the Second Restated Purchase Agreement is hereby deleted in its
entirety and the following definition is substituted in lieu thereof:
Capital Stock. As to any Person, its common stock and any other
capital stock of such Person authorized from time to time, and any other
shares, options, interests, participations, or other equivalents (however
designated) of or in such Person, whether voting or nonvoting, including,
without limitation, common stock, options, warrants, preferred stock
(including the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock),
<PAGE>
phantom stock, stock appreciation rights, convertible notes or debentures,
stock purchase rights, and all agreements, instruments, documents, and
securities convertible, exercisable, or exchangeable, in whole or in part,
into any one or more of the foregoing.
Section 3. Permitted Stock. The term "Permitted Stock," as set forth
in Section 1 of the Second Restated Purchase Agreement is hereby deleted in
its entirety and the following definition is substituted in lieu thereof:
Permitted Stock. This term shall mean (a) Warrant Shares, and
shares of the Company's Capital Stock issuable upon exercise thereof; (b)
Capital Stock of the Company issued as a dividend on shares of the Company's
Capital Stock or as a result of a stock split with respect thereto; (c)
options and warrants outstanding (or that the Company's Board of Directors has
approved for issuance to specific employees) as of the date hereof to purchase
the Company's Capital Stock, and shares of the Company's Capital Stock
issuable upon exercise thereof; (d) the Business Combination Options, and
shares of the Company's Capital Stock issuable upon exercise thereof; (e)
options to be granted after the Original Closing Date to employees of the
Company and its Subsidiaries to purchase up to 335,286 shares of Common Stock
of the Company, at an exercise price not less than the Fair Market Value at
the time of issuance of such options, and shares of the Company's Capital
Stock issuable upon exercise thereof; (f) shares of Series A Preferred Stock
issued or issuable pursuant to the Original Purchase Agreement or the First
Restated Purchase Agreement; (g) shares of Series B Preferred Stock issued or
issuable pursuant to the First Restated Purchase Agreement or the Second
Restated Purchase Agreement; (h) shares of Common Stock issuable upon
conversion of Series B Preferred Stock (i) 29,516 shares of Common Stock
issued to FF-ITP on the Third Amendment Closing Date; (j) 103,093 shares of
Common Stock issued to Christopher A. and Merrie Corbett (jointly) at an
aggregate purchase price of $200,000; (k) 29,516 shares of Common Stock issued
to Christopher A. and Merrie Corbett (jointly) at an aggregate purchase price
of $100,000; (l) 14,758 shares of Common Stock issued to Martin and Haeyoung
Kandl (jointly) at an aggregate purchase price of $50,000; (m) 1,001 shares of
Common Stock issued to Thomas Gardner at an aggregate purchase price of
$3,390; (n) options granted to FBD Consulting, Inc. ("FBD") to purchase up to
2,400 shares of Common Stock of the Company, at an exercise price of not less
than $5.60 per share, and shares of the Company's Capital Stock issuable upon
exercise thereof; (o) options granted to Doig, Elliott, Schur, Inc. ("DES") to
purchase up to 18,304 shares of Common Stock of the Company, at an exercise
price of $5.60 per share, and shares of the Company's Capital Stock issuable
upon excercise thereof; (p) up to 700 shares of Series C Preferred Stock
issued to FBR Business Development Capital pursuant to the Series C Purchase
Agreement; (q) up to 300 shares of Series C Preferred Stock to be issued to
Wachovia; and (r) shares of the Company's Capital Stock issuable upon
redemption of the Series C Preferred Stock. The limits in clauses (e), (i)
(j), (k), (l) and (m) shall be proportionately
<PAGE>
adjusted for dividends and other distributions payable in and for subdivisions
and combinations of shares of Common Stock.
Section 4. Series C Preferred Stock. Section 1 of the Second Restated
Purchase Agreement is hereby amended by adding following the definition of
"Series B Preferred Stock" a new definition of "Series C Preferred Stock" as
follows:
Series C Preferred Stock. 12% Series C Senior Redeemable
Preferred Stock, $.01 par value, of the Company having the rights,
restrictions, privileges and preferences of the series of preferred stock
designated as "12% Series C Senior Redeemable Preferred Stock" set forth in
the Certificate.
Section 5. Series C Purchase Agreement. Section 1 of the Second
Restated Purchase Agreement is hereby amended by adding following the
definition of "Series C Preferred Stock" a new definition of "Series C
Purchase Agreement" as follows:
Series C Purchase Agreement. This term shall mean the 12% Series
C Senior Redeemable Preferred Stock Purchase Agreement, dated as of July 27,
1998, among Company and FBR Business Development Capital (as such may be
amended, restated, supplemented or otherwise modified from time to time).
Section 6. Waiver of Rights under Section 2.08(e). In connection
with
and solely with respect to the execution, delivery and performance of the
Series C Purchase Agreement, the issuance of the Series C Preferred Stock to
FBR and Wachovia and the issuance of Common Stock as a dividend upon
redemption of the Series C Preferred Stock, each of the Holders hereby waives
forever the restrictions under Section 2.08(e) on the Company's ability to
issue any Capital Stock other than Common Stock and Common Stock Equivalents.
Section 7. Waiver of Certain Notice Requirements. In connection with
the execution, delivery and performance of the Series C Purchase Agreement,
the issuance of the Series C Preferred Stock and the issuance of Common Stock
as a dividend upon redemption of the Series C Preferred Stock, each of the
Holders hereby (i) acknowledges that it has received satisfactory notice under
the provisions of Section 4.04(a) of the Second Restated Purchase Agreement
and (ii) waives forever any right to claim any insufficiency of such notice
under the provisions of Section 4.04(a).
Section 8. Consent to and Waiver of Certain Actions. Each of FF-ITP
and, in the case of subsections 4.06(a), (b), (d), (e), and (p) of the Second
Restatement to Purchase Agreement, the holders of the outstanding shares of
Series B Preferred Stock (other than a
<PAGE>
Regulated Holder), hereby (i) consents to the execution, delivery and
performance of the Series C Purchase Agreement and the Certificate of
Designation, and the transactions contemplated thereby, the issuance of the
Series C Preferred Stock to FBR and Wachovia and the issuance of Common Stock
as a dividend upon redemption of the Series C Preferred Stock; and (ii) solely
with respect to execution, delivery and performance of the Series C Purchase
Agreement, the issuance of the Series C Preferred Stock to FBR and Wachovia
and the issuance of Common Stock as a dividend upon redemption of the Series C
Preferred Stock, each of the Holders hereby waives forever the following
provisions of Section 4.06 of the Second Restated Purchase Agreement:
(a) The restrictions under Section 4.06(a) on the Company's
ability to amend its certificate of incorporation to provide for the Series C
Preferred Stock;
(b) The restrictions under Section 4.06(b)(i) on the Company's
ability to pay dividends on, or redeem, the Series C Preferred Stock, in each
case in accordance with the Certificate of Designation for the Series C
Preferred Stock;
(c) The restrictions under Section 4.06(b)(ii) (restrictions on
the Company's ability to pay any professional consulting or management fees to
any shareholder of the Company) with respect to the retention of Friedman,
Billings, Ramsey & Co., Inc. as lead underwriter for the initial public
offering of the Company;
(d) The prohibition under Section 4.06(d) on the issuance of the
Series C Preferred Stock or shares of Common Stock issuable as a dividend upon
redemption of the Series C Preferred Stock;
(e) The requirement under Section 4.06(e) that FBR become a
party to the Amended and Restated Stockholder Agreement dated March 31, 1998,
as amended, among the Company and the other parties thereto;
(f) The restrictions under Section 4.06(g) with respect to the
retention of Friedman, Billings, Ramsey & Co., Inc. as lead underwriter for
the initial public offering of the Company;
(g) The prohibitions under Section 4.06(p) on making the Series
C Preferred Stock senior to the Series A Preferred Stock;
<PAGE>
(h) The prohibitions under Section 4.06(q) on issuances of the
Company's equity securities at a price per share of less than Fair Market
Value, that may be applicable to the issuance of the Series C Preferred Stock,
and the Common Stock issuable as a dividend upon redemption of the Series C
Preferred Stock; and
(i) The prohibitions under Section 4.06(r) on the Company from
obligating itself to agree to take, permit or enter into any of the events
described in subsections 4.06(a) through (q).
Section 9 Representations and Warranties. The Company hereby
represents and warrants to the Stockholders as follows:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, has the
corporate power and authority to conduct its business as presently conducted
and as intended to be conducted, has the corporate power and authority to
execute and deliver this Second Amendment to Second Restatement, has the
corporate power and authority and legal right to own and lease its properties
and is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the conduct of its business requires such qualification,
except where failure to be so qualified could not be reasonably expected to
have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its Subsidiaries taken
as a whole.
(b) The execution, delivery and performance by the Company of this Second
Amendment to Second Restatement have been duly authorized by all necessary
corporate action and do not and will not violate, or result in a breach of, or
constitute a default under, or require any consent under, or result in the
creation of any lien, charge or encumbrance upon the assets of the Company
pursuant to, any law, statute, ordinance, rule, regulation, order or decree of
any court, governmental body or regulatory authority or administrative agency
having jurisdiction over the Company or its Subsidiaries or the Company's
Certificate of Incorporation or any contract, mortgage, loan agreement, note,
lease or other instrument binding upon the Company or its Subsidiaries or by
which their properties are bound.
(c) This Second Amendment to Second Restatement has been duly executed and
delivered by the Company and constitutes a legal, valid, binding and
enforceable obligation of the Company.
(d) As of the date hereof, and giving effect to all issuances on such date
of shares of Series C Preferred Stock and FBR Warrants, the authorized capital
stock of Company consists of (i) 20,000,000 shares of Common Stock of which
8,279,658 shares are issued and outstanding; and (ii) 6,000,000 shares of
Preferred Stock, of which 600,000 shares have been designated Series A
Preferred Stock, 347,230 of which are issued and outstanding; 5,000,000 shares
have been designated Series B Preferred Stock, 1,387,448 of which are issued
and outstanding; and _____
<PAGE>
shares have been designated Series C Preferred Stock, 700 of which will be
issued and outstanding upon the closing of the Series C Purchase Agreement.
An aggregate of 4,000,000 shares of Common Stock are reserved for issuance on
the exercise of the Warrants and the Loan Warrants and conversion of the
Series B Preferred Stock, and 2,000,000 shares of Series B Preferred Stock are
reserved for issuance on exercise of the Warrants and the Loan Warrants. As
of the date hereof, an aggregate of 1,000,000 shares of Common Stock are
reserved for issuance to employees of the Company and of Subsidiaries of the
Company. All of the issued and outstanding shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock are, and upon issuance and
payment therefor in accordance with the terms of the Series C Purchase
Agreement, all of the outstanding Series C Preferred Stock will be, validly
issued, fully paid and nonassessable. To the Company's best knowledge, other
than the Amended and Restated Stockholder Agreement dated March 31, 1998, as
amended (as further amended, restated, supplemented or otherwise modified from
time to time), there are no voting agreements, voting trusts, proxies or other
agreements or understandings with respect to the voting of any capital stock
of the Company or any Subsidiary.
Section 10. Expenses. The Company agrees to pay, immediately upon
demand by Creditanstalt, all costs, expenses, attorneys' fees, and other
charges and expenses incurred by Creditanstalt in connection with the
negotiation, preparation, execution and delivery of this Second Amendment to
Second Restatement and any other instrument, document, agreement or amendment
executed in connection with this Second Amendment.
Section 11. Limitation of Amendment. Except as expressly set forth
herein, this Second Amendment to Second Restatement shall not be deemed to
waive, amend or modify any term or condition of the Second Restated Purchase
Agreement, each of which is hereby ratified and reaffirmed and shall remain in
full force and effect, nor to serve as a consent to any matter prohibited by
the terms and conditions thereof.
Section 12. Counterparts. This Second Amendment to Second Restatement
may be executed in any number of counterparts and any party hereto may execute
any counterpart, each of which when executed and delivered will be deemed to
be an original and all of which, taken together, will be deemed but one and
the same agreement.
Section 13. Choice of Law. THIS AGREEMENT WILL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED
STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF DELAWARE
APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN WITHOUT
GIVING EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE THAT
COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER
JURISDICTION.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Second Restatement under seal as of the date and year first above
written.
COMPANY:
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
---------------------
Daniel J. Klein, Chief Executive Officer
<PAGE>
CREDITANSTALT:
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
Robert M. Biringer
Executive Vice President
By: /s/ John G. Taylor
Name: John G. Taylor
Title: Senior Associate
<PAGE>
FF-ITP:
FF-ITP, L.P.
By: FSFC Associates, L.P.,
its General Partner
By: Franklin Capital, L.L.C.,
its General Partner
By: /s/ James D. Lumsden
James D. Lumsden, Manager
<PAGE>
INDOSUEZ I:
INDOSUEZ IT PARTNERS
By: Indosuez CM II, Inc.
Managing General Partner
By:/s/
Title:
By:/s/
Title:
<PAGE>
INDOSUEZ II:
INDOSUEZ IT PARTNERS II
By:/s/ Les Liemberman
Title: Executive Vice President
<PAGE>
WACHOVIA:
WACHOVIA CAPITAL ASSOCIATES, INC.
By:
Title:
STOCKHOLDERS:
/s/ Daniel J. Klein
Daniel J. Klein
/s/ Jamie E. Blech
Jamie E. Blech
PROMISSORY NOTE
Stanton L. Call
$2,876,206.00 Columbia, Maryland
5/13, 1998
---------------
FOR VALUE RECEIVED, the undersigned, IT PARTNERS, INC., a Delaware
corporation (the "Maker") promises to pay to Stanton L. Call (the "Payee") the
principal sum of TWO MILLION EIGHT HUNDRED SEVENTY SIX THOUSAND TWO HUNDRED
SIX AND 00/100 DOLLARS ($2,876,206.00), together with interest at the rate of
eight Percent (8%) per annum accruing on the unpaid principal balance in the
following manner: Simple interest on the unpaid principal shall be paid to the
Payee quarterly commencing August 15, 1998, and payable thereafter on the
fifteenth of November, February and May, respectively, through the Maturity
Date. The principal and any remaining accrued interest shall be due in its
entirety, and this Note shall mature, upon the earlier of (1) five years from
the date of this Note, or (2) the closing date of (a) any sale of all or
substantially all of the Maker's stock or assets to an entity that is not an
Affiliate of the Maker, or (b) any transaction in which the Maker is merged
out of existence and into an entity that is not an Affiliate of the Maker.
"Affiliate" shall have the meaning set forth in that certain Asset Purchase
Agreement between the Maker and the Payee, dated 5/13,1998 (the "Asset
Purchase Agreement"), pursuant to which this Note has been issued.
The principal amount of this Note will be subject to cancellation and
amendment pursuant to Section 2.1(iii)(d) of the Asset Purchase Agreement. If
this Note is canceled or amended in accordance with the Asset Purchase
Agreement, the Payee, upon demand of Maker, shall within seven (7) days of
such demand return this Note to Maker for cancellation and return any excess
payment made on this Note to the Maker.
Upon determination of the NTM EBITDA, as such term is defined in the
Asset Purchase Agreement, this Note shall be convertible into Common Shares of
ITP at a conversion price of $5.70 per share.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc. by virtue of and pursuant to that certain Amended and Restated
Loan and Security Agreement by and between the Maker and the Lenders named
therein, dated March 31, 1998, as well as that certain Subordination Agreement
executed by the Payee on even date in favor of the Lenders described therein.
In the event Maker shall fail to make any payment within ten (10) days
after its due date, the Maker shall pay a late charge of Five Percent (5%) of
the amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment on
which it is imposed.
<PAGE>
<PAGE>
All payments required under the terms of the Note shall be paid in lawful
money of the United States of America at such place as the holder of this Note
shall designate to the Maker in writing at any time or from time to time.
The Maker may prepay the principal amount outstanding, in full or in
part, at any time. without premium or penalty. However, any such prepayment
shall be applied to installments (or portions thereof) in reverse order of
their due dates, so that any such prepayment shall not excuse the Maker from
paying any installment in full as it becomes due and payable until such time
as the principal is paid in full. All payments made pursuant to this Note
shall be applied, first, to any late fees and penalties hereunder, next, to
all accrued and outstanding interest on the principal amount hereof, and
lastly to the principal amount outstanding hereunder.
If this Note rightfully is forwarded to an attorney for collection, the
Maker shall pay on demand all costs and expenses of collection, including a
reasonable fee for attorneys not to exceed Fifteen Percent (15%) of the then
outstanding principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of the Maker to pay any
obligation hereunder within ten (10) days after the due date thereof, or (2) a
breach of any of the covenants, warranties or representations made by the
Maker and contained in the Asset Purchase Agreement or under any agreement
executed pursuant thereto.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
The rights and remedies set forth in this Note may be exercised by the
holder of this Note during any default by the Maker, regardless of any prior
forbearance, and are in addition to any other rights or remedies provided by
law or in equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by<PAGE>
<PAGE>
reference as though fully set forth herein verbatim.
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written
IT PARTNERS, INC.
By: /s/ Jamie E. Blech
----------------------------
Title: President
-------------------------
PROMISSORY NOTE
"FIRST NOTE"
$1,488,500.00 Columbia, Maryland
June 10, 1998
FOR VALUE RECEIVED, the undersigned, IT PARTNERS, INC., a Delaware
corporation (the "Maker") promises to pay to Servinet Consulting Group, Inc.,
a California corporation (the "Payee"), the principal sum of One Million Four
Hundred Eighty Eight Thousand Five Hundred and 00/100 Dollars ($1,488,500.00),
together with interest at the rate of eight Percent (8%) per annum accruing on
the unpaid principal balance in the following manner: Simple interest on the
unpaid principal shall be paid to the Payee quarterly commencing the fourth
quarter of 1998. The principal and any remaining accrued interest shall be due
in its entirety, and this Note shall mature, upon the earlier of (1) five
years from the date of this Note, or (2) the closing date of (a) any sale of
all or substantially all of the Maker's stock or assets to an entity that is
not an Affiliate of the Maker, or (b) any transaction in which the Maker is
merged out of existence and into an entity that is not an Affiliate of the
Maker. "Affiliate" shall have the meaning set forth in that certain Asset
Purchase Agreement between the Maker and the Payee, dated June 10, 1998 (the
"Asset Purchase Agreement"), pursuant to which this Note has been issued.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc. by virtue of and pursuant to that certain Amended and Restated
Loan and Security Agreement by and between the Maker and the Lenders named
therein, dated March 31, 1998, as well as that certain Subordination Agreement
executed by the Payee on even date in favor of the Lenders described therein.
In the event Maker shall fail to make any payment within ten (10) days
after its due date, the Maker shall pay a late charge of Five Percent (5%) of
the amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment on
which it is imposed.
All payments required under the terms of the Note shall be paid in lawful
money of the United States of America at such place as the holder of this Note
shall designate to the Maker in writing at any time or from time to time.
The Maker may prepay the principal amount outstanding, in full or in
part, at any time, without premium or penalty. However, any such prepayment
shall be applied to installments (or portions thereof) in reverse order of
their due dates, so that any such prepayment shall not excuse the Maker from
paying any installment in full as it becomes due and payable until such time
as the principal is paid in full. All payments made pursuant to this Note
shall be applied, first, to any late fees and penalties hereunder, next, to
all accrued and outstanding interest on the principal amount hereof, and<PAGE>
<PAGE>
lastly to the principal amount outstanding hereunder.
If this Note rightfully is forwarded to an attorney for collection, the
Maker shall pay on demand all costs and expenses of collection, including a
reasonable fee for attorneys not to exceed Fifteen Percent (15%) of the then
outstanding principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of the Maker to pay any
obligation hereunder within ten (10) days after the due date thereof, or (2) a
breach of any of the covenants, warranties or representations made by the
Maker and contained in the Asset Purchase Agreement or under any agreement
executed pursuant thereto.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
The rights and remedies set forth in this Note may be exercised by the
holder of this Note during any default by the Maker, regardless of any prior
forbearance, and are in addition to any other rights or remedies provided by
law or in equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law.
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by
reference as though fully set forth herein verbatim.
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written.
IT PARTNERS, INC.
By: /s/ Jamie Blech
-----------------
Title: President
EXECUTION COPY
----------------------------------------------------------------------------
12 % SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT
DATED AS OF JULY 27, 1998
BY AND BETWEEN
IT PARTNERS, INC.,
as the Company
AND
FBR BUSINESS DEVELOPMENT CAPITAL
as the Purchaser
----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 Definitions 1
1.1. Defined Terms 1
1.2. 3
SECTION 2 Authorization and Sale of the Company's Stock 4
2.1. Authorization of Series C Preferred and
Common Stock 4
2.2. Sale and Purchase of Series C Preferred 4
2.3. Use of Proceeds 4
SECTION 3 Closing Date; Delivery 4
3.1. Closing Date 4
3.2. Delivery 4
SECTION 4 Representations and Warranties of the Company 5
4.1. Organization, Good Standing and Qualification 5
4.2. Capitalization 5
4.3. Subsidiaries 6
4.4. Partnerships, Joint Ventures 7
4.5. Authorization 7
4.6. Governmental Consents 7
4.7. Conformity with Law; Absence of Litigation 7
4.8. Insurance 8
4.9. Adequacy of Intangible Assets 8
4.10. Compliance with Other Instruments and Legal
Requirements 8
4.11. Material Agreements; Action 9
4.12. Registration Rights 9
4.13. Corporate Documents 9
4.14. Real Property 9
4.15. Tangible Personal Property 10
4.16. Environmental Matters 11
4.17. Company SEC Reports and Financial Statements 12
4.18. Changes 13
4.19. Employee Benefit Plans 13
4.20. Taxes 14
4.21. Labor and Employment Matters 14
4.22. No Pending Transactions 15
4.23. Disclosure 15
4.24. Brokers' Fees 15
4.25. Not an Investment Company 15
4.26. Real Property Holding Company 15
SECTION 5 Representations and Warranties of the Purchaser 16
5.1. Accredited Investor; Experience; Risk 16
5.2. Authorization 16
5.3. Governmental Consents 17
5.4. Organization, Good Standing and Qualification 17
SECTION 6 Conditions to Closing of Purchaser 17
6.1. Representations and Warranties Correct 17
<PAGE>
<PAGE>
6.2. Covenants 17
6.4. No Material Adverse Change 18
6.5. Series C Certificate of Designation 18
6.6. State or Federal Securities Laws 18
6.7. Issuance of Shares 18
6.8. Officer's Certificate 18
6.10. Required Consents 18
6.11. Corporate Documents 18
6.12. Origination Fee 19
SECTION 7 Conditions to Closing of the Company 19
7.1. Representations 19
7.2. Purchase Price 19
7.3. Certificate 19
7.4. State or Federal Securities Laws 19
SECTION 8 Covenants of the Company 20
8.1. Information 20
8.2. Regulatory Matters 21
8.3. Access 21
8.4. Confidentiality 21
8.5 Publicity 22
8.6 IRC Section 1202 22
8.7 Reservation of Common Stock 22
8.8 Registration Rights 22
8.9 Loan Agreement Provisions 22
SECTION 9 Miscellaneous 23
9.1 Amendment; Waiver 23
9.2 Notices 23
9.3 Severability 24
9.4 Successors and Assigns 24
9.5 Survival of Representations, Warranties
and Covenants 24
9.6 Entire Agreement 24
9.7 Choice of Law 25
9.8 Counterparts 25
9.9 Costs and Expenses 25
9.10 No Third-Party Beneficiaries 25
9.11 Indemnification 25
9.12. Survival 25
9.13 Indemnification Procedure 26
9.14 Maximum Liability 26
SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT SIGNATURE PAGE 27
<PAGE>
<PAGE>
12 % SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT
This 12 % SERIES C SENIOR REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT,
dated as of July 27, 1998 (this "Agreement"), is entered into by and among IT
Partners, Inc., a Delaware corporation (the "Company") and FBR Business
Development Capital, a Delaware business trust (the "Purchaser").
W I T N E S S E T H
WHEREAS, the Company desires to issue and sell, and the Purchaser desires
to purchase from the Company, shares of the Company's 12% Series C Senior
Redeemable Preferred Stock, par value $.01 per share, as adjusted (the "Series
C Preferred"), in the amounts and on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as
follows:
SECTION 1
Definitions
1.1 Defined Terms. The following terms are defined as follows:
"Affiliate" means, with respect to any Person, (i) any Person that holds
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests representing at
least 5% of the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the outstanding equity
securities or equity interests in a Person, (ii) any brother, sister, parent,
child or spouse of such Person or any Person described in clause (i), and
(iii) any Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such entity.
"Applicable Laws" shall have the meaning set forth in the Loan Agreement
as in effect on the date hereof.
"Code" means the Internal Revenue Code of 1986 (or any successor
thereto), as amended from time to time.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Environmental Law" shall have the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"ERISA" shall have the meaning set forth in the Loan Agreement as in
effect on the date hereof.
"ERISA Affiliate" shall have the meaning set forth in the Loan Agreement
as in effect on the date hereof.
"Event of Default" shall have the meaning set forth in the Loan Agreement
as in effect on the date hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles.
"Hazardous Substances" shall have the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Knowledge" or derivations thereof shall mean the knowledge of the
executive officers of the Company and of the Presidents of each Subsidiary,
and, with respect to Sections 4.19 and 4.21, each person who conducts human
resource and employee benefits management functions for the Company or any
Subsidiary, whether or not an officer of the Company or such Subsidiary.
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Loan Agreement" means the Amended and Restated Loan and Security
Agreement dated as of March 31, 1998, by and among the Company, the Lenders
named therein, Creditanstalt Corporate Finance, Inc. (as the LC Issuer),
Credit Agricole Indosuez (as Co-Agent) and Creditanstalt Corporate Finance,
Inc. (as the Collateral Agent and Administrative Agent), as amended from time
to time.
"Multiemployer Plan" shall have the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Obligations" shall have the meaning set forth in the Loan Agreement as
in effect on the date hereof.
"Origination Fee" means an amount equal to one and one-half percent (1
1/2%) of the Purchase Price, or $105,000.
"Permits" means any approvals, authorizations, consents, licenses,
permits or certificates.
"Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or
agency thereof.
"Plan" shall have the meaning set forth in the Loan Agreement as in
effect on the date hereof.
<PAGE>
"Preferred Stock" means the Series A Preferred Stock of the Company, par
value $.01 per share, the Series B Preferred Stock of the Company, par value
$.01 per share, and the Series C Preferred.
"Qualified Initial Public Offering" means the first offer and sale to the
public by the Company of shares of any class of the Company's capital stock,
pursuant to a registration statement that has been declared effective by the
Securities and Exchange Commission; provided, however, that the proceeds (net
of underwriting discounts and commissions) of the shares issued and sold by
the Company are at least $40,000,000 in the aggregate.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal or leaching into the indoor
or outdoor environment, or into or out of any property;
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" means each corporation or other entity in which the
Company owns or controls, directly or indirectly, capital stock or other
equity interests representing at least 50% of the outstanding voting stock or
other equity interests of such corporation or entity.
"Trademark License" shall mean any written agreement granting any right
to use any Trademark or trademark registration.
"Trademarks" shall mean all trademarks (including service marks and trade
names, whether registered or at common law), registrations and applications
therefor, and all renewals thereof.
"Transaction Documents" shall mean this Agreement and each agreement,
document, certificate or instrument adopted, entered into or delivered as
contemplated herein, including without limitation the Series C Certificate of
Designation.
Any additional capitalized terms shall have the meanings assigned to
them in the text of this Agreement. Terms defined in the singular shall have a
comparable meaning when used in the plural and vice versa.
SECTION 2
Authorization and Sale of the Company's Stock
2.1 Authorization of Series C Preferred and Common Stock. At
Closing, the Company will have authorized the issuance and sale to the
Purchaser of 700 shares of Series C Preferred, having the stated value,
rights, preferences, privileges and restrictions set forth in the Certificate
<PAGE>
<PAGE>
of Designation attached to this Agreement as Exhibit A (the "Series C
Certificate of Designation").
2.2 Sale and Purchase of Series C Preferred. In reliance on the
representations and warranties of the Company contained herein and subject to
the terms and conditions hereof, at Closing, the Purchaser agrees to purchase
from the Company, and the Company agrees to sell to the Purchaser 700 shares
of Series C Preferred for an aggregate purchase price of SEVEN MILLION DOLLARS
($7,000,000) (the "Purchase Price").
2.3 Use of Proceeds. The Company agrees to use the full
proceeds from the sale of the Series C Preferred (i) to continue the Company's
acquisition program, (ii) to expand the Company's credit facilities, and (iii)
for general corporate purposes.
SECTION 3
Closing Date; Delivery
3.1 Closing Date. The closing of the purchase and sale of
the Series C Preferred (the "Closing") shall be held at the offices of Wilmer,
Cutler & Pickering, 2445 M Street N.W., Washington, D.C. on July 27, 1998, or
on such other date or at such other place as the Purchaser and the Company
shall mutually agree (the date of the Closing being referred to herein as the
"Closing Date").
3.2 Delivery. At the Closing, the Company shall deliver to
the Purchaser (i) certificates evidencing the shares of Series C Preferred
being purchased by it registered in the Purchaser's name, and (ii) the
Origination Fee (payable by wire transfer of immediately available funds),
against delivery to the Company of the Purchase Price (payable by wire
transfer of immediately available funds). The parties shall also deliver the
other documents and instruments required under this Agreement to be delivered
at or prior to Closing.
SECTION 4
Representations and Warranties of the Company
The Company hereby represents and warrants to the Purchaser as follows:
4.1 Organization, Good Standing and Qualification.
Each of the Company and its Subsidiaries (i) is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization, (ii) has all requisite power and authority to carry on its
business, (iii) is duly qualified to transact business and is in good standing
in all jurisdictions where its ownership, lease or operation of property or
the conduct of its business requires such qualification, except where the
failure to do so would not be material to the Company. Each of the Company and
its Subsidiaries has the corporate power and authority and is in possession of
<PAGE>
<PAGE>
all material franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders to own, lease and operate its
properties and to carry on its business as now being conducted.
4.2 Capitalization.
(a) The authorized capital stock of the Company consists of
26,000,000 shares, of which 20,000,000 shares are common stock, par value $.01
per share ("Common Stock"). As of the date hereof, there are 8,279,658 shares
of Common Stock issued and outstanding. No shares of Common Stock are held in
treasury. There are 6,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"), of which (i) 600,000 shares have been
designated as Series A Preferred Stock, (ii) 5,000,000 shares have been
designated as Series B Preferred Stock and (iii) 1,000 shares have been
designated as Series C Preferred. As of the date hereof, there are 347,230
shares of Series A Preferred Stock issued and outstanding and 1,387,448 shares
of Series B Preferred Stock issued and outstanding. No shares of Series C
Preferred are currently issued and outstanding. Except as set forth above,
there are no shares of capital stock of the Company authorized or, as of the
date hereof, issued or outstanding. The issued and outstanding shares of
capital stock of the Company are duly authorized, validly issued, fully paid
and non-assessable.
(b) Except as listed on Schedule 4.2, there are outstanding (a)
no shares of capital stock or other voting stock of the Company, (b) no
securities of the Company, any Subsidiary or any Person convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(c) no options, warrants or other rights to acquire from the Company or any
Subsidiary (including any rights issuable or issued under any shareholder
rights plan or similar arrangement), and no obligations, contingent or
otherwise, of the Company or any Subsidiary to issue any capital stock,
voting securities or securities convertible into or exchangeable for, capital
stock or voting securities of the Company or any Subsidiary, (d) no equity
equivalent in the earnings or ownership of the Company, any Subsidiary or any
Person or any similar rights to share earnings or ownership and (e) no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any of its securities or to make any investment (by loan, capital
contribution or otherwise) in any entity or Person. Except as set forth on
Schedule 4.2, the Company has no employee stock purchase plans, stock option
plans or other form of company benefit plan which provides for the issuance,
exchange or distribution of capital stock. All outstanding options, rights
and warrants have been duly and validly issued and are in full force and
effect. All shares of capital stock subject to issuance upon exercise of any
options, rights or warrants or otherwise, upon issuance pursuant to the
instruments under which they are issuable, shall be duly authorized, validly
issued, fully paid for and non-assessable and, except as set forth on Schedule
4.2, free of all preemptive rights. No outstanding options, warrants or other
securities exercisable for or convertible into shares of capital stock of the
Company require anti-dilution adjustments by reason of the consummation of the
transactions contemplated hereby.
<PAGE>
<PAGE>
(c) The Company has reserved for issuance 9,075,004 shares of
Common Stock upon exercise or conversion of currently outstanding shares of
Preferred Stock and rights, options, warrants and other convertible
securities. The shares of Series C Preferred to be issued pursuant to this
Agreement, upon delivery to the Purchaser of certificates therefor against
payment in accordance with the terms of this Agreement, and the shares of
Common Stock issuable upon redemption of the Series C Preferred, upon delivery
to the Purchaser of certificates therefor in accordance with the provisions of
the Series C Certificate of Designation, (i) will be validly issued, fully
paid and non-assessable, (ii) will be free and clear of all Liens other than
restrictions on transfers imposed by federal or state securities laws and by
this Agreement and the other Transaction Documents, and (iii) assuming that
the representations of the Purchaser in Section 5 hereof are true and correct,
will be issued in compliance with all applicable federal and state securities
laws. The Company has reserved for issuance 678,572 shares of Common Stock
upon redemption of the Series C Preferred.
4.3 Subsidiaries. Schedule 4.3 sets forth a complete and
accurate list of all Subsidiaries of the Company, showing (as to each such
Subsidiary) the date of its incorporation, the jurisdiction of its
incorporation, the number of shares of its authorized capital stock, the
number and class of shares thereof duly issued and outstanding, the names of
all stockholders of such Subsidiaries and the number and percentage of the
outstanding shares of each such class owned, directly or indirectly, by all
such stockholders, including the Company. Except as set forth on Schedule
4.3, at Closing, all of the outstanding capital stock of, or other ownership
interests in, each Subsidiary, is owned by the Company, directly or
indirectly, free and clear of any Lien or any other limitation or limitation
or restriction (including restrictions on the right to vote). All outstanding
shares of the capital stock of the Company and any Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable and are
free of any preemptive rights. There are no outstanding securities of any
Subsidiary convertible into or evidencing the right to purchase or subscribe
for any shares of capital stock of any Subsidiary, there are no outstanding or
authorized options, warrants, calls, subscriptions, rights, commitments or any
other agreements of any character obligating any Subsidiary to issue any
shares of its capital stock or any securities convertible into or evidencing
the right to purchase or subscribe for any shares of such stock, and, except
as set forth on Schedule 4.3, there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of capital
stock of any Subsidiary.
4.4 Partnerships, Joint Ventures. Schedule 4.4 sets forth a
complete and accurate list of all partnerships, limited partnerships, limited
liability companies or joint venture of any kind in which the Company or any
Subsidiary holds any interests, showing the date of its incorporation, the
jurisdiction of its incorporation, the number of shares of its authorized
capital stock, the number and class of shares thereof duly issued and
outstanding, the names of all stockholders (or other equity interest holders)
of such entity and the number and percentage of the outstanding shares of each
such class owned, directly or indirectly, by all such stockholders, including
the Company or any Subsidiary. Except as set forth on Schedule 4.4, at<PAGE>
<PAGE>
Closing, such capital stock of, or other ownership interests in, each entity
as set forth in Schedule 4.4 is owned by the Company, directly or indirectly,
free and clear of any Lien or any other limitation or restriction (including
restrictions on the right to vote). All outstanding shares of the capital
stock held by the Company and any Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable and are free of any
preemptive rights. Except as set forth on Schedule 4.4, the Company is not a
party to, and does not hold, any equity interests in any partnership, limited
partnership, limited liability company or other joint venture of any kind.
4.5 Authorization. The Company has all requisite corporate
power and authority to execute and deliver the Transaction Documents and to
perform its obligations hereunder and thereunder. The execution, delivery and
performance of the Transaction Documents and the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate,
including shareholder (if required), action on the part of the Company. Each
Transaction Document to which the Company is a party has been duly and validly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part
of the Company is required in connection with the valid execution and delivery
by the Company of the Transaction Documents to which it is a party, or the
consummation by the Company of the transactions contemplated by the
Transaction Documents to which it is a party, except for filings pursuant to
federal or state securities laws and the filing of the Certificate of
Designation with the Secretary of State of Delaware.
4.7 Conformity with Law; Absence of Litigation. None of the
Company or any of its Subsidiaries has violated any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it which would have a material adverse effect on the Company
and the Subsidiaries taken as a whole. Except as set forth on Schedule 4.7,
there are no claims, actions, suits, proceedings or investigations pending or,
to the Knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which would reasonably be
expected to have a material adverse effect on the Company and the Subsidiaries
taken as a whole.<PAGE>
<PAGE>
4.8 Insurance. Schedule 4.8 sets forth a complete and
accurate list of all policies of insurance of any kind or nature covering the
Company, its Subsidiaries and any of their respective employees, properties or
assets, including, without limitation, policies of life, disability, fire,
theft, workers compensation, employee fidelity and other casualty and
liability insurance. All such policies are in full force and effect. None of
the Company or any of its Subsidiaries is in material default of any policies
of insurance.
4.9 Adequacy of Intangible Assets. The Company and each of
its Subsidiaries possess all intellectual property licenses, patents, patent
applications, copyrights, Trademarks, Trademark Licenses, trademark
applications, and trade names, and all governmental registrations and licenses
(collectively, "Intellectual Property") reasonably necessary to conduct the
businesses of the Company and each of the Subsidiaries, and all such
intellectual property licenses, patents, patent applications, copyrights,
Trademarks, Trademark Licenses, trademark applications, trade names, licenses
and registrations which have been registered with any governmental authority
are listed on Schedule 4.9. Since May 1, 1997, neither the Company nor any of
the Subsidiaries has received any written communications alleging that the
Company or any of its Subsidiaries has violated or, by conducting its business
as proposed, would violate any of the Intellectual Property of any other
Person, nor does the Company have Knowledge of any such violations.
4.10 Compliance with Other Instruments and Legal Requirements.
(a) None of the Company or any of its Subsidiaries is
in violation or default of any provisions of its certificate of incorporation,
by-laws, or comparable organizational documents. None of the Company or any
of its Subsidiaries is in violation or default in any respect under any
provision, instrument, judgment, order, writ, decree, contract or agreement to
which it is a party or by which it is bound or of any provision of any
federal, state or local statute, rule or regulation applicable to the Company
or any of its Subsidiaries (including, without limitation, any law, rule or
regulation relating to protection of the environment and the maintenance of
safe and sanitary premises). The execution, delivery and performance of each
Transaction Document and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in conflict
with or constitute, with or without the passage of time or giving of notice,
either a default under or give rise to any obligations under, the certificate
of incorporation or by-laws of the Company or any of the Subsidiaries, or any
note, bond, mortgage, indenture, lease, license, permit, contract, agreement
or other instrument or obligation, decree or order to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or its
properties or assets is or may be bound, or violate any law, order, rule or
regulation applicable to the Company or any Subsidiary. Except as set forth
on Schedule 4.10 (the "Required Consents"), the execution, delivery and
performance of each Transaction Document and the consummation of the
transactions contemplated hereby and thereby will not and does not require any
consent, waiver or approval by any Person, or constitute an event that will
result in the creation of any Lien upon any assets of the Company or any of
its Subsidiaries.<PAGE>
<PAGE>
(b) The Company and its Subsidiaries have all Permits of all
Persons required to conduct their respective businesses as currently
conducted.
(c) The transactions contemplated by this Agreement and the
Transaction Documents will not constitute a change of control under any
Employee Benefit Plan, rights plan, contract or agreement to which it is a
party, or under any law, rule or regulation to which it is subject.
4.11 Material Agreements; Action. Except as set forth on
Schedule 4.11, there are no material contracts, agreements, commitments,
understandings or proposed transactions, whether written or oral, to which the
Company or any of its Subsidiaries is a party or by which any of them or their
respective properties or assets are bound that involve or relate to: (i) any
of their respective officers, directors, stockholders (or other equity
interest holder) or partners or any Affiliate thereof; (ii) the sale of any of
the assets of the Company or any of its Subsidiaries other than in the
ordinary course of business; (iii) covenants of the Company or any of its
Subsidiaries not to compete in any line of business or with any Person in any
geographical area or covenants of any other Person not to compete with the
Company or any of its Subsidiaries in any line of business or in any
geographical area; (iv) the acquisition by the Company or any of its
Subsidiaries of any operating business or the capital stock of any other
Person; (v) the borrowing of money; (vi) the expenditure of more than $50,000
in the aggregate or the performance by the Company or any Subsidiary extending
for a period more than one year from the date hereof, other than in the
ordinary course of business, or (vii) the license of any Intellectual Property
or other material proprietary right to or from the Company or any of its
Subsidiaries. There have been made available to the Purchaser and its
representatives true and complete copies of all such agreements. All such
agreements are in full force and effect and are the legal, valid and binding
obligation of the Company or its Subsidiaries. None of the Company or any of
its Subsidiaries is in default under any such agreements nor, to the Knowledge
of the Company, is any other party to any such agreements in default
thereunder in any respect.
4.12 Registration Rights. Except as set forth on Schedule
4.12, the Company has not granted or agreed to grant any registration rights,
including without limitation piggyback registration rights, to any Person.
4.13 Corporate Documents. True and correct copies of the
certificate of incorporation and the by-laws of the Company and each of the
Subsidiaries, as amended and as are currently in effect, have been delivered
to the Purchaser.
4.14 Real Property.
(a) Schedule 4.14(a) sets forth a complete list of all
real property and interests in real property owned (the "Owned Properties") or
leased (as lessee or lessor) (the "Leased Properties") by the Company or any
of its Subsidiaries (the Leased Properties together with the Owned Properties,
being referred to herein individually as a "Company Property" and collectively
<PAGE>
<PAGE>
as the "Company Properties"). The Company Property constitutes all interests
in real property currently used or currently held for use in connection with
the businesses of the Company and its Subsidiaries and which are necessary for
the continued operation of the businesses of the Company and its Subsidiaries
as such businesses are currently conducted. The Company and its Subsidiaries
have a valid and enforceable leasehold interest under each of the leases for
Leased Property (the "Real Property Leases"), and none of the Company or any
of its Subsidiaries has received any written notice of any default or event
which, with notice or lapse of time, or both, would constitute a default by
the Company or any of its Subsidiaries under any of the Real Property Leases.
The Company has delivered or otherwise made available to the Purchaser true,
correct and complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) The Company and its Subsidiaries have all certificates of
occupancy and Permits of any Person necessary or useful for the current use
and operation of each Company Property, and the Company and its Subsidiaries
have fully complied with all conditions of the Permits applicable to them. No
default or violation, or event which, with the lapse of time or giving of
notice or both would become a default or violation, has occurred in the due
observance of any such Permit, which could reasonably be expected to have a
material adverse effect on the Company and the Subsidiaries taken as a whole.
(c) There does not exist any actual or threatened or
contemplated condemnation or eminent domain proceedings that affect any
Company Property or any part thereof, and none of the Company or any of its
Subsidiaries has received any notice, oral or written, of the intention of any
governmental body or other Person to take or use all or any part thereof.
(d) None of the Company or any of its Subsidiaries has
received any written notice from any insurance company that has issued a
policy with respect to any Company Property requiring performance of any
structural or other repairs or alterations to such Company Property.
(e) None of the Company or any of its Subsidiaries owns or
holds, or is obligated under or a party to, any option, right of first refusal
or other contractual right to purchase, acquire, sell, assign or dispose of
any real estate or any portion thereof or interest therein.
4.15 Tangible Personal Property.
(a) Schedule 4.15(a) sets forth all leases of personal
property ("Personal Property Leases") involving annual payments in excess of
$15,000 relating to personal property used in the business of the Company and
its Subsidiaries or to which the Company or any of its Subsidiaries is a party
or by which the properties or assets of the Company or any of its Subsidiaries
is bound. The Company has delivered or otherwise made available to the
Purchaser true, correct and complete copies of the Personal Property Leases,
together with all amendments, modifications or supplements, if any, thereto.
<PAGE>
<PAGE>
(b) Each of the Company and its Subsidiaries has a valid
leasehold interest under each of the Personal Property Leases under which it
is a lessee, and there is no default under any Personal Property Lease by the
Company or any of its Subsidiaries, or to the Knowledge of the Company, by any
other party thereto, and no event has occurred which, with the lapse of time
or the giving of notice or both would constitute a default thereunder by the
Company or any of its Subsidiaries or, to the Knowledge of the Company, by any
other party thereto.
(c) Except as set forth on Schedule 4.15(b), each of the
Company and its Subsidiaries has good and marketable title to all of the items
of tangible personal property reflected in the Company Financial Statements
referred to in Section 4.17 (except as sold or disposed of subsequent to the
date thereof in the ordinary course of business consistent with past
practice), free and clear of any and all Liens. All such items of tangible
personal property that, individually or in the aggregate, are material to the
operation of the business of the Company and its Subsidiaries are in good
condition and are currently usable in the ordinary course.
(d) All of the items of tangible personal property used by
the Company and its Subsidiaries under the Personal Property Leases are in
good condition and are currently usable in the ordinary course.
Environmental Matters.
Except as set forth on Schedule 4.16:
(a) The Company and each of its Subsidiaries have obtained all
permits, licenses and other authorizations, if any, which are required under
Environmental Laws for the operation of the Company's or such Subsidiary's
business and the Company and each of its Subsidiaries are in compliance with
all terms and conditions of required permits, licenses and authorizations, and
is also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, notifications, schedules
and timetables contained in the Environmental Laws;
(b) Neither the Company nor any of its Subsidiaries has Knowledge of
or has received notice of, the disposal or release or presence of Hazardous
Substances on any of its properties, or of any past, present or future events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent compliance or continued compliance on the
part of the Company or any such Subsidiary with Environmental Laws, or may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, demand, suit, Lien, proceeding, hearing, study or
investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or
the emission, discharge, release or threatened release into the environment,
of any Hazardous Substance;
(c) All assets of the Company and its Subsidiaries are free from
Hazardous Substances except for Hazardous Substances used, maintained or
handled by the Company or such Subsidiary in the ordinary course of business
<PAGE>
and the use and disposal of any and all such Hazardous Substances is effected
by the Company or such Subsidiary in compliance with all applicable
Environmental Laws; and
(d) There is not pending or threatened against the Company or any of
its Subsidiaries and neither the Company nor any of its Subsidiaries Knows of
any facts or circumstances that might give rise to, any civil, criminal or
administrative action, suit, demand, claim, hearing, notice or demand letter,
notice of violation, environmental Lien, investigation, or proceeding relating
in any way to Environmental Laws.
4.17 Company SEC Reports and Financial Statements.
(a) Neither the Company nor any of the Subsidiaries is required
to file any forms, reports or other documents with the SEC.
(b) The Company has furnished to the Purchaser (a) true,
complete and correct copies of the Company's unaudited, consolidated balance
sheet (the "Interim Balance Sheet") as of June 30, 1998 (the "Balance Sheet
Date"), and statements of income and cash flow for the periods ended June 30,
1998 (collectively, the "Interim Financials") compiled by the Company, and (b)
true, complete and correct copies of the Company's audited balance sheet as of
December 31, 1997 and consolidated statements of income, cash flow and
stockholders' equity for the fiscal year ended December 31, 1997
(collectively, the "Audited Financials") (collectively, the "Interim
Financials" and the "Audited Financials" are referred to as the "Company
Financial Statements"). The Company Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved (except that the Interim
Financial Statements do not contain footnotes required by GAAP and are subject
to normal year-end adjustments). The Company Financial Statements present
fairly the financial condition and results of operations of the Company, as at
the dates and for the periods indicated. Since the Balance Sheet Date there
have been no material changes in the Company's accounting policies.
(c) Except to the extent set forth on the Interim Balance Sheet
or on Schedule 4.17, the Company has not incurred any liability or obligation
of any nature whatsoever (whether due or to become due, accrued, fixed,
contingent, liquidated, unliquidated or otherwise) that would be required by
GAAP to be accrued on, reflected on, or reserved against it, on a consolidated
balance sheet (or in the applicable notes thereto) of the Company prepared in
accordance with GAAP consistently applied, other than liabilities or
obligations which arose in the ordinary course of business and consistent with
past practices since such date and which do not exceed $2.5 million in the
aggregate.
4.18 Changes. Except as set forth on Schedule 4.18, since the
Balance Sheet Date, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company or any of its Subsidiaries,
except changes in the ordinary course of business;<PAGE>
<PAGE>
(b) any damage, destruction or loss to any property or
assets of the Company or any of the Subsidiaries, whether or not covered by
insurance;
(c) any waiver by the Company or any of its
Subsidiaries of a material right or of a debt owed to it outside of the
ordinary course of business;
(d) any satisfaction or discharge of any Lien or
payment of any obligation by the Company or any of its Subsidiaries;
(e) any change or amendment to a contract or
arrangement by which the Company or any of its Subsidiaries or any of their
respective assets or properties is bound or subject;
(f) any events or circumstances that otherwise could
reasonably be expected, individually or in the aggregate, to have a material
adverse effect on the Company or any of its Subsidiaries; and
(g) none of the Company or any of its Subsidiaries has
(i) declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock or equity
interests, (ii) incurred any indebtedness for money borrowed in excess of
$50,000, (iii) made any loans or advances to any Person, other than ordinary
advances for travel expenses not exceeding $50,000, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights for consideration in excess
of $50,000 in any one transaction or series of related transactions.
4.19 Employee Benefit Plans.
Except as set forth on Schedule 4.19:
(a) Identification of Plans. Neither the Company nor any ERISA
Affiliate maintains or contributes to, or has maintained or contributed to,
any Plan or Multiemployer Plan that is subject to regulation by Title IV of
ERISA;
(b) Compliance. Each Plan has at all times been maintained, by
its terms and in operation, in accordance with all Applicable Laws.
(c) Liabilities. Neither the Company nor any ERISA Affiliate is
currently or, to the best knowledge of the Company or any ERISA Affiliate,
will become subject to any liability (including withdrawal liability), tax or
penalty whatsoever to any person whomsoever with respect to any Plan,
including, but not limited to, any tax, penalty or liability arising under
Title I or title IV of ERISA or Chapter 43 of the Code, except such
liabilities which will not have a material adverse effect on the Company and
the Subsidiaries taken as a whole.
(d) Funding. The Company and each ERISA Affiliate has made full
and timely payment of (i) all amounts required to be contributed under the
<PAGE>
<PAGE>
terms of each Plan and Applicable Law and (ii) all material amounts required
to be paid as expenses of each Plan. No Plan has any "amount of unfunded
benefit liabilities" (as defined in Section 4001(a)(18) of ERISA); and
(e) Insolvency; Reorganization. No Plan is insolvent (within
the meaning of Section 4245 of ERISA) or in reorganization (within the meaning
of Section 4241 of ERISA).
4.20 Taxes. All federal, state and local and foreign tax
returns, reports and statements required to be filed by the Company or any of
its Subsidiaries have been filed or have been caused to be filed with the
appropriate governmental agencies in all jurisdictions in which such returns,
reports and statements are required to be filed and all such returns, reports
and statements are true, complete and correct in all respects. All taxes,
charges and other impositions due and payable by the Company or any of its
Subsidiaries have been paid in full on a timely basis except where contested
in good faith and by appropriate proceedings if adequate reserves therefor
have been established on the books and records of the Company or Subsidiary in
accordance with GAAP. The provision for taxes of each of the Company and its
Subsidiaries is sufficient for all unpaid taxes, charges and other impositions
of any nature due or accrued as of the date thereof, whether or not assessed
or disputed. Proper and accurate amounts have been withheld by the Company
and its Subsidiaries from their respective employees for all periods in full
and complete compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective governmental
agencies. The Company has not received notice of any audit or of any proposed
deficiencies from any governmental authority, and no controversy with respect
to taxes of any type is pending or to its Knowledge threatened. Except for
routine filing extensions granted as a matter of right under applicable law,
none of the Company or any of its Subsidiaries has executed or filed with the
IRS or any other governmental authority any agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any taxes, charges or other impositions. Except as set forth on
Schedule 4.20, none of the Company or any of its Subsidiaries has agreed or is
required to make any adjustment under Section 481(a) of the Code by reason of
a change in accounting method or otherwise. Further, none of the Company or
any of its Subsidiaries has any obligation under any tax-sharing agreement.
4.21 Labor and Employment Matters. With respect to employees of
and service providers to the Company and the Subsidiaries: (a) the Company
and the Subsidiaries are and have been in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and have not and are not engaged
in any unfair labor practice; (b) there is not now, nor within the past three
years has there been, any unfair labor practice complaint against the Company
or any Subsidiary pending or, to the Company's or any Subsidiary's Knowledge,
threatened before the National Labor Relations Board or any other comparable
authority; (c) there is not now, nor within the past three years has there
<PAGE>
<PAGE>
been, any labor strike, slowdown or stoppage actually pending or, to the
Company's or any Subsidiary's Knowledge, threatened against or directly
affecting the Company or any Subsidiary; (d) to the Company's or any
Subsidiary's Knowledge, no labor representation organization effort exists nor
has there been any such activity within the past three years; (e) no grievance
or arbitration proceeding arising out of or under collective bargaining
agreements is pending and, to the Company's or any Subsidiary's Knowledge, no
claims therefor exist or have been threatened; (f) the employees of the
Company and the Subsidiaries are not and have never been represented by any
labor union, and no collective bargaining agreement is binding and in force
against the Company or any Subsidiary or currently being negotiated by the
Company or any Subsidiary; and (g) all Persons classified by the Company or
its Subsidiaries as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and the Company and its Subsidiaries
have fully and accurately reported their compensation on IRS Forms 1099 when
required to do so.
4.22 No Pending Transactions. Except as set forth on Schedule
4.22 and except for the transactions contemplated by this Agreement, neither
the Company nor any Subsidiary is a party to or bound by or the subject of any
agreement, undertaking or commitment with any Person that could result in (i)
the sale, merger, consolidation or recapitalization of the Company or any
Subsidiary, (ii) the sale of all or substantially all of the assets of the
Company or any Subsidiary, or (iii) a change of control of more than five
percent (5%) of the outstanding capital stock of the Company or any
Subsidiary.
4.23 Disclosure. No representation or warranty by the Company
contained in any of the Transaction Documents, in the schedules attached
hereto or in any certificate furnished or to be furnished by the Company to
the Purchaser in connection herewith or pursuant hereto contains or will
contain any untrue statement or a material fact or omits or will omit to state
any material fact necessary in order to make any statement contained herein or
therein not misleading.
4.24 Brokers' Fees. Except as set forth on Schedule 4.24, no
broker, finder, investment banker or other Person is entitled to any brokerage
fee, finder's fee or other commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by the Company.
4.25 Not an Investment Company. The Company is not an Investment
Company within the meaning of the Investment Company Act of 1940, as amended.
4.26 Real Property Holding Company. The Company is not a United
States Real Property Holding Corporation within the meaning of Section
897(c)(2) of the Code.
4.26 Total Shares Outstanding. Schedule 4.27 sets forth the
capitalization of the Company as of the date hereof (including without
limitation all options, warrants and other instruments convertible into or
exchangeable for equity securities of the Company).
<PAGE>
<PAGE>
SECTION 5
Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company, as follows:
5.1 Accredited Investor; Experience; Risk.
(a) The Purchaser is an accredited investor and has been advised
and understands that the Series C Preferred and the Common Stock issuable upon
redemption of the Series C Preferred have not been registered under the
Securities Act, on the basis that no public offering of the Series C Preferred
or the Common Stock issuable upon redemption of the Series C Preferred has
been effected, except in compliance with the applicable securities laws and
regulations or pursuant to an exemption therefrom; provided, however, that
nothing in this Section 5.1 shall limit the Purchaser's right to redeem the
Series C Preferred for Common Stock as set forth in this Agreement or the
Series C Certificate of Designation.
(b) Such Purchaser is purchasing the Series C Preferred for
investment purposes, for its own account and not with a view to, or for sale
in violation of federal or state securities laws.
(c) Such Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the purchase of the Series C Preferred pursuant to this Agreement.
(d) The certificates representing the Series C Preferred and the
shares of Common Stock issuable upon redemption of the Series C Preferred
shall bear a legend evidencing such restriction on transfer substantially in
the following form:
"The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended (the "Act") or the securities laws of any state and
may not be sold or transferred except pursuant to registration under
the Act or an exemption therefrom."
5.2 Authorization. The Purchaser has all requisite power and
authority to execute and deliver each of the Transaction Documents and to
perform its obligations hereunder and thereunder. The execution, delivery and
performance of the Transaction Documents and the transactions contemplated
hereby and thereby have been duly authorized by all necessary, action on the
part of the Purchaser. Each Transaction Document to which it is a party has
been duly and validly executed and delivered by the Purchaser and constitutes
the legal, valid and binding obligation of the Purchaser, enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability,
to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in a proceeding at law or in equity).<PAGE>
<PAGE>
5.3 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part
of the Purchaser is required in connection with the valid execution and
delivery by the Purchaser of the Transaction Documents to which it is a party,
or the consummation by the Purchaser of the transactions contemplated by the
Transaction Documents to which it is a party, except for such filings as have
been made prior to the Closing.
5.4 Organization, Good Standing and Qualification. The Purchaser
(i) is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (ii) has all requisite power
and authority to carry on its business, (iii) is duly qualified to transact
business and is in good standing in all jurisdictions where its ownership,
lease or operation of property or the conduct of its business requires such
qualification, except where the failure to do so would not be material to the
Purchaser. The Purchaser has the power and authority and is in possession of
all material franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders to (i) own, lease and operate its
properties and to carry on its business as now being conducted and (ii)
execute and deliver the Transaction Documents and the documents and
instruments contemplated hereby and thereby and to consummate the transactions
contemplated hereby.
SECTION 6
Conditions to Closing of Purchaser
The Purchaser's obligation to purchase the Series C Preferred at the
Closing is, at the option of such Purchaser, subject to the fulfillment on or
prior to the Closing Date of the following conditions:
6.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same
force and effect as if they had been made on and as of such date.
6.2 Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all respects.
6.3 Opinion of Company's Counsel. The Purchaser shall have received
from Swidler & Berlin, counsel to the Company, an opinion addressed to the
Purchaser, dated the Closing Date, that is customary for a transaction of this
type.
6.4 No Material Adverse Change. Since the Balance Sheet Date,
there shall not have occurred any events or circumstances that could
reasonably be expected, individually or in the aggregate, to have a material
effect on the Company or any of the Subsidiaries.
<PAGE>
<PAGE>
6.5 Series C Certificate of Designation. The Series C Certificate
of Designation shall have been duly adopted and executed by the Company and
filed with the Secretary of State of the State of Delaware.
6.6 State or Federal Securities Laws. All registrations,
qualifications and Permits required under applicable state or federal
securities laws, if any, shall have been obtained for the lawful execution,
delivery and performance of this Agreement.
6.7 Issuance of Shares. The Company shall have issued pursuant to
this Agreement 700 shares of Series C Preferred, par value $.01 per share, as
adjusted, and shall have delivered to the Purchaser a stock certificate or
certificates representing such shares of Series C Preferred.
6.8 Officer's Certificate. The Purchaser shall have received a
certificate of the President or a Vice President of the Company to the effect
that the conditions set forth in Sections 6.1, 6.2, 6.4, 6.5 and 6.6 have been
met.
6.9 CFO Certificate. The Purchaser shall have received a
certificate of the Chief Financial Officer of the Company substantially in the
form attached hereto as Exhibit 6.9.
6.10 Required Consents. At or prior to the Closing, the Company
shall have delivered or caused to be delivered to the Purchaser all of the
Required Consents
6.11 Corporate Documents. At or prior to the Closing, the Company
shall have delivered or caused to be delivered to the Purchaser:
(a) a certificate of the Secretary of State of the Company's
state of incorporation dated not earlier than the tenth (10th) day preceding
the Closing Date, to the effect that the Company is a corporation validly
existing and in good standing under the laws of such state as of such date;
(b) a certificate of the Secretary of State of each state where
the Company is required to qualify to do business dated not earlier than the
tenth (10th) day preceding the Closing Date, to the effect that the Company is
a corporation duly licensed or qualified to do business in such state and is
in good standing as a foreign corporation under the laws of such state as of
such date; and
(c) certificates of the Secretary or Assistant Secretary of the
Company certifying (A) copies of the certificate of incorporation, bylaws and
other governing documents of the Company as then in effect or a certification
that there has been no change in such instruments since the last such
certification delivered to the Purchaser pursuant to this Agreement, (B) duly
enacted resolutions of the Company's board of directors in form and substance
satisfactory to the Purchaser approving the Transaction Documents and
authorizing officers of the Company to execute and deliver instruments
required to be delivered hereunder or thereunder as a condition precedent to
the Closing, and (C) specimen signatures of the officers of the Company
authorized to sign such instruments.<PAGE>
<PAGE>
6.12 Origination Fee. The Company shall have tendered to
the Purchaser the Origination Fee as set forth in Section 3.2.
SECTION 7
Conditions to Closing of the Company
The Company's obligation to issue and sell the Series C Preferred at the
Closing is, at the option of the Company, subject to the fulfillment of the
following conditions:
7.1 Representations. The representations and warranties made by
the Purchaser in Section 5 hereof shall be true and correct when made, and
shall be true and correct on the Closing Date with the same force and effect
as if they had been made on and as of such date.
7.2 Purchase Price. The Purchaser shall have tendered to the
Company the Purchase Price, as set forth in Section 3.2.
7.3 Certificate. The Company shall have received a certificate
from the Purchaser to the effect that the conditions set forth in Section 7.1
have been met.
7.4 State or Federal Securities Laws. All registrations,
qualifications and Permits required under applicable state or federal
securities laws, if any, shall have been obtained for the lawful execution,
delivery and performance of this Agreement.
SECTION 8
Covenants of the Company
8.1 Information.
(a) Commencing on the Closing Date, the Company shall deliver to
the Purchaser the information specified in this Section8.1(a) unless the
Purchaser at any time specifically requests in writing that such information
not be delivered to it:
(i) Loan Agreement Reports and Information.
Commencing on the Closing Date, the Company shall deliver to the Purchaser the
same reports and other information provided to the Lender pursuant to Section
6.2(a) - (g) of the Loan Agreement; provided, however, that in the event such
provisions of the Loan Agreement are from time to time amended, modified or
changed after the Closing Date, Purchaser shall have the right at its option
to either (i) continue to receive such reports and information as such
sections of the Loan Agreement provide for as of the Closing Date, or (ii)
receive such reports and information as such sections of the Loan Agreement
provide for following such amendment, modification or change.
(ii) Other Information. From time to time, and
promptly, such additional information regarding results of operations,
financial condition or business of the Company and its Subsidiaries, including
without limitation, cash flow analysis, stockholder equity, projections,
minutes of any meetings of the Board of Directors and any information that may
be distributed or made available to the Board of Directors, as the Purchaser
may reasonably request.
(b) Commencing on October 1, 1998, the Company shall deliver to
the Purchaser the information specified in this Section 8.1(b) unless the
Purchaser at any time specifically requests in writing that such information
not be delivered to it:
(i) Material Litigation. Within ten (10) days after
the Company learns of the commencement or written threat of commencement of
any litigation or proceeding against the Company, any of its Subsidiaries or
any of their respective assets that could reasonably be expected to have a
material effect on the Company or any of the Subsidiaries, written notice of
the nature and extent of such litigation or proceeding.
(ii) Material Agreements. Within five (5) days after
the expiration of the applicable cure period, if any, or if no such cure
period exists within ten (10) days after the receipt by the Company of written
notice of a default by the Company or any of its Subsidiaries under any
material contract, agreement or document to which any of them are a party or
by which any of them are bound, written notice of the nature and extent of
such default.
8.2 Regulatory Matters. Each of the Company and Purchaser will
(i) make on a prompt and timely basis all governmental or regulatory
notifications, filings or submissions, as necessary for the consummation of
the transactions contemplated hereby, including any filings required pursuant
to the Hart-Scott-Rodino Antitrust Act, if required, (ii) use all reasonable
efforts to cooperate with the other and its representatives in (A) determining
which notifications, filings and submissions are required to be made prior to
the Closing Date with, and which consents, approvals, permits or
authorizations are required to he obtained prior to the Closing Date from, any
governmental authority in connection with the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, and
(B) timely making of all such notifications, filings or submissions and timely
seeking all such consents, approvals, permits or authorizations, and (iii) use
all reasonable efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other reasonable things necessary or appropriate to
consummate the transactions contemplated by this Agreement. The Purchaser
shall have no obligation to expend any funds in connection with the action to
be taken by the Company pursuant to this section.
8.3 Access. From time to time and upon the written request of
the Purchaser, the Company shall promptly afford the Purchaser and its
accountants, counsel and other representatives, full access during normal
business hours to all of its properties, books, contracts, commitments and
records, permit them to copy or make extracts therefrom, and the Company shall
<PAGE>
<PAGE>
furnish promptly to Purchaser all information concerning its business,
properties and personnel as Purchaser may reasonably request; provided,
however, that no investigation pursuant to this Section 8.3 shall affect any
representations or warranties of either party hereunder.
8.4 Confidentiality. From and after the date of this Agreement,
each of the Company and Purchaser agree to hold, and will cause its
Subsidiaries, employees, agents and representatives to hold, in confidence,
unless compelled to disclose by judicial or administrative process or, in the
written opinion of their counsel, by other requirements of law, information
furnished by the Company, on the one hand, to Purchaser and information
furnished by Purchaser, on the other hand, to the Company in connection with
the transactions contemplated by this Agreement, and each of such persons
agree that they shall not release or disclose such information to any other
person, except their respective officers, directors, partners, employees,
auditors, attorneys, financial advisors and other consultants, advisors and
representatives who need to know such information and who have been informed
of the confidential nature of such information and have been directed to treat
such information as confidential, and except that Purchaser shall have the
right to disclose such information to any of its investors or other equity
holders, or to any of its potential investors or equity holders as long as the
same have been informed of the confidential nature of such information and
have been directed to treat such information as confidential. The foregoing
provisions of this Section 8.4 shall not apply to any such information which
(i) becomes generally available to the public other than as a result of a
disclosure by any person bound hereunder, (ii) was available to a person bound
hereunder on a non-confidential basis prior to its disclosure hereunder, or
(iii) becomes available to any person bound hereunder on a non-confidential
basis by virtue of the disclosure thereof by a source other than the party
providing such information in reliance upon the protection of confidentiality
reposed hereby.
8.5 Publicity. Except as may be required by law, the Company
shall not use the name of, or make reference to, the Purchaser or any of its
Affiliates in any press release or in any public manner without the
Purchaser's prior written consent.
8.6 IRC Section 1202. The Company shall use reasonable efforts
to comply with Section 1202(c) of the Code and shall make all filings required
under Section 1202(D)(1)(c) of the Code and any related treasury regulations.
8.7 Reservation of Common Stock. The Company will at all times
have authorized, and reserve and keep available, free from preemptive rights,
for the purpose of enabling it to satisfy any obligation to issue Common Stock
upon a redemption of the Series C Preferred, the number of shares of Common
Stock deliverable upon redemption of all outstanding shares of Series C
Preferred.
8.8 Registration Rights. Prior to consummating an initial public
offering of capital stock of the Company, the Company will use its best
efforts to terminate the existing registration rights agreements relating to
the Company's securities and to enter into a new registration rights agreement
which grants to the Purchaser (i) at least one demand registration right which
is at least as favorable as the most favorable demand registration right
granted to any other holder of securities of the Corporation, and (ii)
piggyback, cutback and other registration rights at least as favorable as, and
ranking at least pari passu in priority with, the most favorable piggyback,
cutback and other registration rights granted to any other holder of
securities of the Corporation; provided, however, that in the event the
Company has not entered into such new registration rights agreement within one
year following the filing of the Series C Certificate of Designation and the
Series C Preferred has not been redeemed in full within such period, the
events of noncompliance provisions set forth in the Series C Certificate of
Designation shall apply.
8.9 Loan Agreement Provisions. The Company shall not, without
the prior written consent of the Purchaser, which consent may be withheld at
the Purchaser's sole discretion:
(i) amend, modify, add to or otherwise change any of the
provisions in Section 8.5 of the Loan Agreement relating to the redemption of,
or payment of dividends on, the Series C Preferred; or
(ii) agree to any full or partial refinancing or replacement of
the Loan Agreement unless such refinancing or replacement permits the
redemption of, and payment of dividends on, the Series C Preferred in
accordance with Section 8.5 of the Loan Agreement as in effect on the date
hereof.
SECTION 9
Miscellaneous
9.1 Amendment; Waiver. Neither this Agreement nor any provision
hereof may be amended, modified, supplemented or waived, except by a written
instrument executed by (i) the Company and (ii) the Purchaser.
9.2 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and delivered in
Person, transmitted by facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such other address has
such party may notify to the other parties in writing:
if to the Company:
IT Partners, Inc.
9881 Broken Land Parkway
Columbia, Maryland
Attn: President
Telephone No.: (410) 309-9800
Facsimile No.: (410) 309-9801
<PAGE>
<PAGE>
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007-5116
Attn: Andrew M. Ray, Esq.
Telephone No.: (202) 424-7585
Facsimile No.: (202) 424-7645
if to the Purchaser:
c/o FBR Business Development Capital
Potomac Tower
1001 Nineteenth Street North
18th Floor
Arlington, Virginia 22209
Attn: Ronald G. Hodge II
Telephone No.: (703) 469-1314
Facsimile No.: (703) 469-1012
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attn: George P. Stamas, Esq.
Telephone No.: 410-986-2800
Facsimile No.: 410-986-2828
A notice or communication will be effective (i) if delivered in Person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three (3) business
days after dispatch.
9.3 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
9.4 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. No party
hereto may assign its rights or delegate its obligations under this Agreement
without the prior written consent of the other parties hereto; provided,
however, that all or any part of the shares of the Series C Preferred may be
transferred, sold, assigned or otherwise disposed at the sole discretion of
Purchaser and without the consent of the Company.
9.5 Survival of Representations, Warranties and Covenants. All
representations and warranties made in, pursuant to or in connection with any
<PAGE>
<PAGE>
of the Transaction Documents shall survive the execution and delivery of the
Transaction Documents, any investigation at any time made by or on behalf of
the Purchaser, and the sale and purchase of the Series C Preferred and payment
therefor for a period of three (3) years; provided, however, that the
representations and warranties made in Sections 4.16 (Environmental), 4.19
(Benefits) and 4.20 (Taxes) shall survive the applicable statutory period of
limitations with respect to any liabilities covered thereby; provided further,
that notwithstanding the foregoing, all representations and warranties made
in, pursuant to or in connection with any of the Transaction Documents shall
terminate upon the closing of a Qualified Initial Public Offering. Unless
otherwise provided in this Agreement, the covenants made pursuant to the
Transaction Documents shall survive and remain in force until no shares of
Series C Preferred remain issued and outstanding.
9.6 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto, including without limitation the Transaction
Documents, constitute the full and entire understanding and agreement between
the parties with regard to the subject matter hereof and thereof and supersede
and cancel all prior representations, alleged warranties, statements,
negotiations, undertakings, letters, acceptances, understandings, contracts
and communications, whether verbal or written, among the parties hereto and
thereto or their respective agents with respect to or in connection with the
subject matter hereof.
9.7 Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
regard to principles of conflict of laws.
9.8 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, with
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and
shall constitute one and the same instrument.
9.9 Costs and Expenses. Promptly after the Closing, the Company
shall pay the reasonable fees and disbursements incurred by the Purchaser
(including without limitation reasonable attorneys' and consultants' fees) in
connection with this Agreement and the transactions contemplated hereunder;
provided, however, that the Company's aggregate payment obligations under
this Section 9.9 shall not exceed $15,000; provided further, that the parties
shall bear their own costs and expenses if the Closing hereunder fails to take
place.
9.10 No Third-Party Beneficiaries. Nothing in this Agreement
will confer any third party beneficiary or other rights upon any Person
(specifically including any employees of the Company and its Subsidiaries) or
entity that is not a party to this Agreement.
9.11 Indemnification. From and after the Closing Date,
the Company shall indemnify, defend and hold Purchaser, its directors,
officers and Affiliates (each an "Indemnified Party" and collectively, the
"Indemnified Parties") harmless from and against any and all claims, losses,
<PAGE>
<PAGE>
liabilities, damages, costs and expenses (including reasonable attorney's
fees) (collectively, "Losses") that may be suffered or incurred by, or
asserted against, the Indemnified Parties, arising from or related to,
directly or indirectly:
(a) any breach of any representation or warranty of the Company
or any Subsidiary set forth in any of the Transaction Documents (including
without limitation any schedule or certificate delivered by or on behalf of
the Company or any Subsidiary pursuant hereto or thereto); or
(b) any nonfulfillment of any covenant or agreement on the part
of the Company or any Subsidiary in any of the Transaction Documents; and
(c) any and all Losses incident to any of the foregoing.
9.12. Survival. The rights to indemnification under Section
9.11 shall apply only to those claims for indemnification which are delivered
pursuant hereto on or before the expiration of the relevant representation,
warranty, or covenant to which such claim relates, as set forth in Section
9.5.
9.13 Indemnification Procedure.
(a) An Indemnified Party shall give written notice to the
Company of any claim with respect to which it seeks indemnification within ten
(10) days after the discovery by such parties of any matters giving arise to a
claim for indemnification pursuant to Section 9.11; provided that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Company of its obligations under this Section 9.13, except to the extent
that the Company is actually prejudiced by such failure to give notice. In
case any such action or claim is brought against any Indemnified Party, the
Company shall be entitled to participate in and, unless in the reasonable good
faith judgment of the Indemnified Party a conflict of interest between such
Indemnified Party and the Company may exist in respect of such action or
claim, to assume the defense thereof, with counsel satisfactory to the
Indemnified Party and after notice from the Company to the Indemnified Party
of its election so to assume the defense thereof, the Company shall not be
liable to such Indemnified Party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. In any event, unless and until the Company
elects in writing to assume and does so assume the defense of any such action
or claim the Indemnified Party's costs and expenses arising out of the
defense, settlement or compromise of any such action or claim shall be Losses
subject to indemnification hereunder. If the Company elects to defend any
such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The Company shall not be liable for any settlement of any action or
claim effected without its written consent. Anything in this Section 9.13 to
the contrary notwithstanding, the Company shall not, without the Indemnified
Party's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof that imposes any future obligation on
the Indemnified Party or that does not include, as an unconditional term<PAGE>
<PAGE>
thereof, the giving by the claimant or the plaintiff to the Indemnified Party,
a release from all liability in respect of such claim.
9.14 Maximum Liability. The maximum liability of each of the
Company and the Purchaser, respectively, under this Section 9 shall be equal
to the Purchase Price.
[Remainder of Page Intentionally Left Blank]<PAGE>
<PAGE>
12% SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed effective as of the date first above written.
THE COMPANY:
IT PARTNERS, INC.
By: /s/ Jamie E. Blech
--------------------
Name: Jamie Blech
Title: President and Secretary
PURCHASER:
FBR BUSINESS DEVELOPMENT CAPITAL
By: /s/ Ronald G. Hodge II
-----------------------
Name: Ronald G. Hodge II
Title: President and Chief Executive Officer
EXECUTION COPY
- -----------------------------------------------------------------------------
CERTIFICATE OF DESIGNATION OF
PREFERENCES AND RIGHTS OF 12% SERIES C
SENIOR REDEEMABLE PREFERRED STOCK OF
IT PARTNERS, INC,
- ----------------------------------------------------------------------------
<PAGE>
<PAGE>
CERTIFICATE OF DESIGNATION OF
PREFERENCES AND RIGHTS OF 12% SERIES C
SENIOR REDEEMABLE PREFERRED STOCK OF
IT PARTNERS, INC.
Pursuant to Section 151 of the
General Corporation law of the State of Delaware
We, the undersigned, Daniel J. Klein, Chairman of the Board, and Jamie
Blech, Secretary, respectively, of IT Partners, Inc., a Delaware corporation
(the "Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, do hereby make this Certificate of
Designation and do hereby state and certify that, pursuant to the authority
expressly vested in the Board of Directors of the Corporation by the
Certificate of Incorporation of the Corporation, the Board of Directors at a
meeting held on July 20, 1998, unanimously adopted the following resolutions
providing for the issuance of a series of Preferred Stock designated as the
12% Series C Senior Redeemable Preferred Stock:
RESOLVED, that the Board of Directors of the Corporation, pursuant to the
authority expressly vested in it by the Certificate of Incorporation, does
hereby provide for the issue of a series of the Corporation's Preferred Stock,
par value of $.01 per share, and does hereby fix and herein state the
preferences and relative and other special rights and the qualifications,
limitations and restrictions thereof, as follows (all terms used herein that
are defined in the Certificate of Incorporation shall have the meanings
provided therein):
1. Designation and Amount. There shall be a series of Preferred
Stock designated as "12% Series C Senior Redeemable Preferred Stock" ("Series
C Preferred") with a stated value of $10,000 per share (as compounded pursuant
to Section 2, the "Stated Value"), and the number of shares constituting such
series shall initially be 1,000.
2. Dividends.
(a) The holders of shares of Series C Preferred shall be entitled to
receive quarterly, cumulative dividends (the "Dividends") at an annual rate
per share equal to 12% of the Stated Value of each such share (as adjusted
pursuant to Section 6, the "Dividend Rate") on September 30, December 31,
March 31 and June 30 of each fiscal year of the Corporation (each, a "Payment
Date"), payable beginning on September 30, 1998. From the date of the filing
of this Certificate until the date 18 months thereafter (the "Accrual
Period"), the Corporation shall have the option to either pay the Dividends as
they become payable or permit them to accrue; provided, however, that
following the Accrual Period the Corporation shall pay the Dividends that
accrue after the Accrual Period, as such Dividends accrue. Any Dividends
which accrue during the Accrual Period and are not paid during the Accrual
Period shall continue to be accrued Dividends and shall be paid by the<PAGE>
<PAGE>
Corporation upon redemption of the Series C Preferred.
(b) During any period in which an Event of Default exists under the
Loan Agreement (or any refinancing or full or partial replacement thereof )
(the "Senior Lending Facilities") or would exist under the Senior Lending
Facilities after giving effect to the payment of any Dividends (a "Default
Period"), the Corporation shall have the option of permitting any Dividends
which become payable during such Default Period to accrue; provided, however,
that any Dividends which are permitted to accrue during such Default Period
shall be paid by the Corporation on the earliest to occur of (i) the first
Payment Date following the termination of such Default Period, or (ii)
redemption of the Series C Preferred.
(c) All Dividends which accrue during the Accrual Period and are not
paid during the Accrual Period, or which are permitted to accrue and are not
paid during any Default Period, shall, until such Dividends are paid, be
compounded with and included as part of the Stated Value of the respective
shares of Series C Preferred as to which such Dividends were unpaid, and
Dividends shall be paid thereon in accordance with this Section 2.
3. Preference on Liquidation or Sale.
(a) In the event of any sale, liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts of the Corporation, the holders
of Series C Preferred shall be entitled to receive, in preference to all
shares of any class, series or issue of capital stock of the Corporation
whether already issued or issued after the date of filing of this Certificate
(the "Subordinated Stock"), an amount in cash for each share of Series C
Preferred equal to (i) the Stated Value of such share of Series C Preferred,
plus (ii) all accrued and unpaid Dividends with respect to such share which
have not already been included in the Stated Value of such share pursuant to
Section 2 of this Certificate (collectively, and with respect to a share of
Series C Preferred, the "Liquidation Preference"), before any distribution
shall be made in respect of the Subordinated Stock. If upon any sale,
liquidation, dissolution or winding up of the affairs of the Corporation, the
assets distributable among the holders of Series C Preferred shall be
insufficient to permit the payment in full of the Liquidation Preference to
all the holders of the then outstanding shares of Series C Preferred, then the
entire assets of the Corporation thus distributable shall be distributed
ratably among the holders of the Series C Preferred in proportion to the
respective aggregate amounts otherwise payable with respect thereto. For
purposes of this Certificate, a "sale, liquidation, dissolution or winding up
of the affairs of the Corporation" shall include without limitation a Change
of Control (as defined below).
(b) For purposes of this Certificate, "Change of Control" means (A)
any event or series of events by which any person, entity or group obtains a
majority of the voting securities or equity interest of the Corporation; (B)
the merger, consolidation, reorganization, recapitalization, dissolution,
liquidation or winding up of the Corporation if as a result the then-current
stockholders no longer own more than 50% of the voting securities or other
<PAGE>
<PAGE>
equity interest of the Corporation; (C) any sale, lease, exchange or other
transfer of all, or substantially all, of the assets of the Corporation; or
(D) the adoption of a plan leading to the sale, liquidation, dissolution or
winding up of the affairs of the Corporation.
4. Redemption.
(a) The Corporation shall redeem, at the redemption price set forth
in Section 4(b), (c), (d) or (e), as applicable, all of the outstanding shares
of Series C Preferred at the earliest to occur of (i) the closing of a
Qualified Initial Public Offering (as defined below), (ii) the sale,
liquidation, dissolution or winding up of the affairs of the Corporation
(including without limitation a Change of Control), and (iii) the third
anniversary of the date of the filing of this Certificate. In addition, at
the option of holders of a majority of the outstanding Series C Preferred, the
Corporation shall redeem shares of Series C Preferred in accordance with the
provisions of Section 6 hereof. For purposes of this Certificate, "Qualified
Initial Public Offering" means the first offer and sale to the public by the
Corporation of shares of any class of the Corporation's capital stock,
pursuant to a registration statement that has been declared effective by the
Securities and Exchange Commission; provided, however, that the proceeds of
the shares issued and sold by the Corporation (net of underwriting commissions
and discounts) are at least $40,000,000 in the aggregate.
(b) Upon redemption of the Series C Preferred pursuant to Section
4(a)(i), the Corporation shall pay to the holders of the Series C Preferred as
a group an aggregate redemption price equal to:
(i) the product of (1) the Liquidation Preference, times (2)
the number of shares of Series C Preferred to be redeemed, plus
(ii) a redemption dividend equal to the product of (1) the
public offering price per share of capital stock of the
Corporation in the Qualified Initial Public Offering (the
"Qualified IPO Price"), minus the Deduction Price, times (2) the
Multiplier.
The redemption dividend payable pursuant to Section 4(b)(ii) may be paid, at
the Corporation's option, in either (A) cash, or (B) Common Stock valued at
the Qualified IPO Price.
(c) Upon a redemption of the Series C Preferred pursuant to Section
4(a)(ii) in connection with a distribution of all or substantially all of the
remaining assets and other proceeds of the Corporation among the stockholders
of the Corporation, the Corporation shall pay to the holders of the Series C
Preferred as a group an aggregate redemption price equal to:
(i) the product of (1) the Liquidation Preference, times (2)
the number of shares of Series C Preferred to be redeemed, plus
(ii) a redemption dividend equal to the product of (1) all
assets and other proceeds distributed in respect of each share
<PAGE>
of Common Stock following such sale, liquidation, dissolution
or winding up of the affairs of the Corporation, minus the
Deduction Price, times (2) the Multiplier.
The redemption dividend payable pursuant to Section 4(b)(ii) shall be paid in
whatever assets or other proceeds of the Corporation are distributed generally
to the other holders of Common Stock of the Corporation in such sale,
liquidation, dissolution or winding up.
(d) Upon redemption of the Series C Preferred pursuant to Section
4(a)(iii), Section 6 or a redemption pursuant to Section 4(a)(ii) which is not
in connection with a distribution of all or substantially all of the remaining
assets and other proceeds of the Corporation among the stockholders of the
Corporation, the Corporation shall pay to the holders of the Series C
Preferred as a group an aggregate redemption price equal to:
(i) the product of (1) the Liquidation Preference, times (2)
the number of shares of Series C Preferred to be redeemed, plus
(ii) a redemption dividend equal to the product of (1) the
Fair Market Value per share of Common Stock, minus the Deduction
Price, times (2) the Multiplier.
The redemption dividend payable pursuant to Section 4(d)(ii) may be paid, at
the Corporation's option, in either (A) cash, or (B) Common Stock (valued at
Fair Market Value).
(e) In the event the Corporation has not redeemed all of the
outstanding shares of Series C Preferred by the close of business on the third
anniversary of the date of the filing of this Certificate, the Corporation
shall immediately redeem all outstanding shares of Series C Preferred and
shall pay to the holders of the Series C Preferred as a group an aggregate
redemption price equal to:
(i) the product of (1) the Liquidation Preference, times
(2) the number of shares of Series C Preferred to be redeemed,
plus
(ii) a redemption dividend equal to the product of (1) the
Fair Market Value per share of Common Stock, minus the
product of (x) the Deduction Price, times (y) .10; times (2)
the Multiplier.
The redemption dividend payable pursuant to Section 4(e)(ii) may be paid, at
the Corporation's option, in either (A) cash, or (B) Common Stock (valued at
Fair Market Value).
(f) Notice of any redemption of shares of Series C Preferred shall be
made by means of certified mail return receipt requested, addressed to the
holders identified in the records of the Corporation (the "Registered
Holders") of the Series C Preferred to be redeemed, at their respective
addresses then appearing on the books of the Corporation, not less than
<PAGE>
fifteen (15) nor more than sixty (60) days prior to the date fixed for such
redemption (herein referred to as the "Redemption Date"); provided, however,
that notwithstanding the foregoing, upon a redemption pursuant to Section
4(a)(ii), the Corporation shall deliver such notice as soon as possible after
the Corporation has knowledge of the approximate date of such sale,
liquidation, dissolution or winding up of the affairs of the Corporation.
Each such notice shall specify (i) the Redemption Date, (ii) the applicable
redemption price, (iii) the place for payment and for delivering the stock
certificate(s) and transfer instrument(s) in order to collect the applicable
redemption price, and (iv) the shares of Series C Preferred to be redeemed.
(g) From and after the Redemption Date, each Registered Holder of any
shares of Series C Preferred to be redeemed pursuant to this Section 4 shall
be entitled to receive payment of the applicable redemption price as soon as
such holder shall cause to be delivered to the Corporation (i) the
certificate(s) representing such Series C Preferred and (ii) transfer
instrument(s) sufficient to transfer such Series C Preferred to the
Corporation free of any adverse interest.
(h) At the close of business on the Redemption Date for any Series C
Preferred, such stock shall be deemed to cease to be outstanding and all
rights of any person other than the Corporation in such stock shall be
extinguished on the Redemption Date for such stock except for the right to
receive the applicable redemption price, without interest, for such stock in
accordance with the provisions of this Section 4, subject to applicable
escheat laws.
(i) Any redemption dividend to be paid in respect of any shares of
Series C Preferred pursuant to this Section 4 shall be paid to each Registered
Holder pro rata based on the number of shares of Series C Preferred of such
Registered Holder to be redeemed. Any Liquidation Preference to be paid
pursuant to this Section 4 shall be paid to each Registered Holder based on
the Liquidation Preferences of the shares of Series C Preferred of such
Registered Holder to be redeemed.
5. Financial Covenants
(a) Net Worth. The Corporation shall not, and shall cause each of
its Subsidiaries not to, incur any Indebtedness if, immediately prior to such
incurrence or immediately after giving effect to such incurrence, the Net
Worth of the Corporation and all of its Subsidiaries on a consolidated basis
is or would be less than the sum of (x) $26,125,000, plus (y) effective upon
the closing of any issuance of equity securities of the Corporation, seventy
five percent (75%) of the amount by which the Corporation's shareholders'
equity is increased as a result of such issuance of equity securities, plus
(z) effective January 1 of each year, an amount equal to the greater of (A)
zero, and (B) seventy percent (70%) of Net Income of the Corporation and all
of its Subsidiaries on a consolidated basis for the immediately preceding
fiscal year.
<PAGE>
<PAGE>
(b) Leverage Ratio.
(i) During each applicable period, the Corporation shall not,
and shall cause each of its Subsidiaries not to incur any Indebtedness if,
immediately prior to such incurrence or immediately after giving effect to
such incurrence, the Leverage Ratio of the Corporation and all of its
Subsidiaries on a consolidated basis is or would be greater than the ratio set
forth below opposite the applicable period:
Applicable Period Ratio
----------------- -----
Date of filing of this Certificate - 12/31/98 6.25:1.0
01/01/99 - 06/30/99 6.00:1.0
At all times thereafter 5.75:1.0
(ii) Notwithstanding the foregoing, the Company may (A) incur
aggregate Indebtedness under the Loan Agreement of up to, but not exceeding,
$100 million, and (B) in the event that, other than as a result of violating
any of the provisions set forth in Section 5(b)(i), the Leverage Ratio of the
Corporation and all of its Subsidiaries on a consolidated basis exceeds the
maximum ratio set forth for the applicable period in Section 5(b)(i), the
Corporation or any of its Subsidiaries may incur Indebtedness ("Additional
Indebtedness") in addition to the Indebtedness permitted under Section
5(b)(ii)(A), if and only if the incurrence of such Additional Indebtedness
combined with the application of the proceeds of such Additional Indebtedness
reduces the Leverage Ratio of the Corporation and all of its Subsidiaries on a
consolidated basis.
(c) Interest Coverage Ratio. During each applicable period, the
Corporation shall not, and shall cause each of its Subsidiaries not to incur
any Indebtedness if, immediately prior to such incurrence or immediately after
giving effect to such incurrence, the Interest Coverage Ratio of the
Corporation and all of its Subsidiaries on a consolidated basis is or would be
less than the ratio set forth below opposite the applicable period.
Applicable Period Ratio
----------------- ------
Date of filing of this Certificate - 12/31/98 1.75:1.0
01/01/99 - 06/30/99 2.00:1.0
07/01/99 - 12/31/00 2.25:1.0
At all times thereafter 2.50:1.0
6. Events of Noncompliance.
(a) An Event of Noncompliance shall be deemed to have occurred if:
(i) the Corporation or any Subsidiary defaults in the payment of
principal of or interest on any obligation for money borrowed having a
principal amount outstanding in excess of $5 million (a "Material
Obligation"), beyond any period of grace provided with respect thereto, or
<PAGE>
<PAGE>
defaults in the performance of any other agreement, term or condition
contained in any agreement under which any Material Obligation is created (or
if any other default under any such agreement shall occur and be continuing)
and as a result of such default such Material Obligation has become, or the
holder or holders of such Material Obligation have caused such Material
Obligation to become due prior to its stated maturity;
(ii) the Corporation or any Subsidiary breaches any of the
provisions set forth in Section 5(b) hereof;
(iii) the Corporation (i) discontinues the conduct of its
business; (ii) applies for or consents to the imposition of any Insolvency
Relief; (iii) voluntarily commences or consents to the commencement of an
Insolvency Proceeding; (iv) files an answer admitting the material allegations
of any involuntary commencement of an Insolvency Proceeding; (v) makes a
general assignment for the benefit of its creditors; or (vi) is unable or
admits in writing its inability to pay its debts as they become due;
(iv) any Insolvency Order is entered against the Corporation and
such Insolvency Order is not dismissed within 30 calendar days of its entry;
or
(v) within one year following the date of filing of this
Certificate, the Corporation has not entered into a registration rights
agreement granting to each of the Registered Holders of Series C Preferred (i)
at least one demand registration right which is at least as favorable as the
most favorable demand registration right granted to any other holder of
securities of the Corporation, and (ii) piggyback, cutback and other
registration rights at least as favorable as, and ranking at least pari passu
in priority with, the most favorable piggyback, cutback and other registration
rights granted to any other holder of securities of the Corporation.
(b) If and whenever an Event of Noncompliance shall occur and be
continuing, the holders of a majority of the outstanding Series C Preferred
shall have the right, at their sole discretion, to cause the Corporation to
redeem all or any part of the shares of Series C Preferred then outstanding at
a price per share equal to the redemption price set forth in Section 4(d).
The holders of a majority of the outstanding Series C Preferred shall exercise
this right to redemption under this Section 5(b) by delivering to the
Corporation written notice of the election of such right, specifying the
number of shares to be redeemed. The redemption of any shares of Series C
Preferred pursuant to this Section shall occur in accordance with the
redemption procedures set forth in Section 4 hereof. Unless otherwise
determined by the holders of a majority of the outstanding Series C Preferred,
any redemption of less than all outstanding shares of Series C Preferred shall
be pro rata in proportion to each Registered Holder's ownership percentage of
all outstanding Series C Preferred.
7. Penalty Events. Upon the occurrence of any of the following
events (each, a "Penalty Event") and until the first date on which such
Penalty Event has been remedied or waived in writing by the holders of a
majority of the outstanding Series C Preferred and no other Penalty Event is
<PAGE>
<PAGE>
continuing unremedied or unwaived, the Dividend Rate shall be equal to an
annual rate of 15% of the Stated Value of each share of Series C Preferred:
(a) the Corporation fails for any reason to pay when due the full
amount of Dividends then calculated as payable on the shares of Series C
Preferred;
(b) the Corporation or any Subsidiary defaults in the payment of
principal of or interest on any Material Obligation, beyond any period of
grace provided with respect thereto, or defaults in the performance of any
other agreement, term or condition contained in any agreement under which any
such Material Obligation is created (or if any other default under any such
agreement shall occur and be continuing) if the effect of such default is to
cause, or to permit the holder or holders of such Material Obligation (or a
trustee on behalf of such holder or holders) to cause such Material Obligation
to become due prior to its stated maturity;
(c) the Corporation or any Subsidiary breaches any of the provisions
set forth in Sections 5(a) or 5(c) hereof; or
(d) the Corporation fails to redeem the Series C Preferred as
required pursuant to Section 4(a)(i), 4(a)(ii) or Section 6 hereof.
8. Reissuance of Shares. Any shares of the Series C Preferred which
are redeemed or otherwise acquired by the Corporation shall assume the status
of authorized but unissued Preferred Stock undesignated as to series, subject
to later issuance, and shall not be reissued as shares of Series C Preferred.
9. Preemptive Rights. No holder of shares of Series C Preferred
solely by reason of holding such shares shall have any preemptive or
preferential right to purchase or subscribe to any securities of the
Corporation, now or hereafter to be authorized.
10. Voting Rights.
Except as specified herein, the holders of the Series C Preferred shall
be entitled to vote as a separate class only when required by applicable law
to do so. So long as any shares of Series C Preferred remain outstanding, the
Corporation shall not, without the affirmative vote or consent of the holders
of at least a majority of the outstanding shares of Series C Preferred voting
separately as class:
(a) issue any equity securities of a class or series senior to or on
parity with the Series C Preferred as to payment of dividends or as to
payments on the sale, dissolution, liquidation or winding-up of the affairs of
the Corporation, or authorize or issue equity securities of any class or
series or any bonds, debentures, notes or other obligations convertible into
or exchangeable for, or having option rights to purchase, any shares of equity
securities of the Corporation senior to or on parity with the Series C
Preferred as to payment of dividends or as to payments on the sale,
dissolution, liquidation or winding-up of the affairs of the Corporation;<PAGE>
<PAGE>
(b) amend the certificate of incorporation of the Corporation;
(c) alter, impair, reduce or affect in any manner the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series C Preferred; or
(d) enter into or engage in any business activities or operations
other than those directly related to the Corporation's present business.
11. Board of Director Rights.
(a) For as long as any shares of Series C Preferred remain
outstanding, the holders of a majority of the outstanding Series C Preferred
shall have the right, at their option, to exercise both of the following
rights:
(i) the right to have a designated representative (x) receive
notice of all meetings of the Corporation's Board of Directors, (y) attend all
meetings of the Board of Directors in a non-voting, non-participating observer
capacity, and (z) receive copies of all notices, minutes, consents, and all
other materials provided by the Corporation to the Board of Directors; and
(ii) the right to elect one member of the Board of Directors of
the Corporation.
(b) Only holders of the Series C Preferred (to the extent they are
entitled to vote thereon) shall be entitled to vote on the removal of any
director elected by the holders of Series C Preferred, and exercise of such
right of removal shall be determined by vote of the holders of a majority of
the outstanding Series C Preferred. Any vacancy in the office of a director
created by the death, resignation or removal of a director elected by the
holders of the Series C Preferred may be filled only by a vote of holders of a
majority of the outstanding Series C Preferred (to the extent they are
entitled to vote thereon). Any director elected by the holders of the Series
C Preferred shall serve until the annual meeting at which time such director's
term expires and until his or her successor has been elected and has
qualified, unless removed and replaced pursuant to this subsection 11(b).
12. Subordination of Right of Redemption. The redemption rights in
respect of the Series C Preferred set forth hereunder shall be subordinate to
any rights, privileges and entitlements held by the Lenders under the Loan
Agreement and redemption of the Series C Preferred may not be made if there
exists, or if such redemption would result in, a Default or Event of Default;
provided, however, that notwithstanding the foregoing, as long as (i) no
Default or Event of Default has occurred and is continuing under the Loan
Agreement or would occur after giving effect to such redemption, and (ii) no
Obligations have been accelerated as a result of an Event of Default and
remain due and payable under the Loan Agreement, the Corporation shall enforce
the redemption provisions set forth hereunder; provided further, that nothing
set forth herein shall prohibit the holders of the Series C Preferred from
seeking appropriate remedies from the Company in the event the Series C
Preferred is not redeemed or dividends are not paid in the respect of the<PAGE>
<PAGE>
Series C Preferred in accordance with this Certificate.
13. Certain Definitions. When used herein, the following capitalized
terms shall have the following respective meanings:
(a) "Deduction Price" means $4.63, as adjusted pursuant to Section
14.
(b) "Default" has the meaning set forth in the Loan Agreement as in
effect on the date hereof, without giving effect to any subsequent amendments
or modifications of Article 8 or 9 of the Loan Agreement after the date of
filing of this Certificate.
(c) "Event of Default" has the meaning set forth in the Loan
Agreement as in effect on the date hereof, without giving effect to any
subsequent amendments or modifications of Article 8 or 9 of the Loan Agreement
after the date of filing of this Certificate.
(d) "Fair Market Value" as of a particular date, shall be determined
by a recognized appraisal or investment firm with experience in making
determinations of value of the type required to be made under this
Certificate, selected jointly by the Corporation and the holders of a majority
of the outstanding Series C Preferred.
(e) "Indebtedness" has the meaning set forth in the Loan Agreement as
in effect on the date of filing of this Certificate; provided, however, that
for purposes of this Certificate the term "Indebtedness" shall not include
purchase money Indebtedness or unsecured Indebtedness, in an aggregate
principal amount which, when aggregated with the aggregate outstanding
events (each, a "Penalty Event") and until the first date on which such
Penalty Event has been remedied or waived in writing by the holders of a
majority of the outstanding Series C Preferred and no other Penalty Event is
<PAGE>
<PAGE>
continuing unremedied or unwaived, the Dividend Rate shall be equal to an
annual rate of 15% of the Stated Value of each share of Series C Preferred:
(a) the Corporation fails for any reason to pay when due the full
r bankruptcy,
insolvency, conservatorship, receivership or other similar debtor's relief.
(h) "Insolvency Relief" means discharge of indebtedness, liquidation,
reorganization or arrangement, appointment of a receiver, trustee,
conservator, custodian or liquidator or the granting of any stay or
restraining order against creditors under any Insolvency Law or other similar
debtor's relief under any Insolvency Law.
(i) "Insolvency Order" means any order, judgment or decree entered in
any Insolvency Proceeding granting any Insolvency Relief.
(j) "Interest Coverage Ratio" has the meaning set forth in the Loan
Agreement as of the date of filing of this Certificate.
<PAGE>
<PAGE>
(k) "Lenders" has the meaning set forth in the Loan Agreement as of
the date of filing of this Certificate.
(l) "Leverage Ratio" has the meaning set forth in the Loan Agreement
as of the date of filing of this Certificate.
(m) "Loan Agreement" means the Amended and Restated Loan and Security
Agreement dated as of March 31, 1998, by and among the Corporation, the
Lenders named therein, Creditanstalt Corporate Finance, Inc. (as the LC
Issuer), Credit Agricole Indosuez (as Co-Agent) and Creditanstalt Corporate
Finance, Inc. (as the Collateral Agent and Administrative Agent), as amended
from time to time.
(n) "Multiplier" means 678,572, as adjusted pursuant to Section 14.
(o) "Net Income" has the meaning set forth in the Loan Agreement as
of the date of filing of this Certificate.
(p) "Net Worth" has the meaning set forth in the Loan Agreement as of
the date of filing of this Certificate.
(q) "Obligations" has the meaning set forth in the Loan Agreement.
(r) "Series B Agreement" means the Second Amended and Restated
Preferred Stock and Warrant Purchase Agreement dated as of March 31, 1998, as
amended, among the Corporation, Creditanstalt, FF-ITP, L.P., Indosuez IT
Partners, Wachovia Capital Associates, Inc. and the other signatories thereto.
(s) "Subordinated Debt" has the meaning set forth in the Loan
Agreement.
(t) "Subsidiaries" means each corporation or other entity in which
the Corporation owns or controls, directly or indirectly, capital stock or
other equity interests representing at least 50% of the outstanding voting
stock or other equity interests of such corporation or entity.
14. Anti-dilution Provisions. The Corporation hereby agrees to apply
to the Deduction Price and the Multiplier the most favorable anti-dilution
provisions (including without limitation adjustments related to stock splits,
stock consolidations and similar events) heretofore granted to any holder of
Series B Preferred Stock of the Corporation with respect to the Series B
Preferred (including without limitation the anti-dilution provisions set forth
in Article 4(B)(5) of the Certificate of Incorporation of the Corporation, as
amended and in effect as of the date of filing of this Certificate), and to
adjust the Deduction Price and the Multiplier as necessary to give effect to
any such anti-dilution provision.
RESOLVED FURTHER, that, before the Corporation shall issue any
shares of the Series C Preferred, a certificate pursuant to Section 151 of the
General Corporation Law of the State of Delaware shall be made, executed,
acknowledged, filed and recorded in accordance with the provisions of said
<PAGE>
<PAGE>
Section 151; and that the proper officers of the Corporation are hereby
authorized and directed to do all acts and things which may be necessary or
proper in their opinion to carry into effect the purposes and intent of this
and the foregoing resolutions.
IN WITNESS WHEREOF, this Certificate of Designation has been made
under the seal of the Corporation and the hands of the undersigned, said
Daniel F. Klein, Chairman of the Board, and Jamie Blech, Secretary,
respectively, of the Corporation, this 27th day of July, 1998.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
--------------------
Daniel J. Klein
Chairman of the Board
ATTEST:
/s/ Jamie E. Blech
- --------------------
Jamie E. Blech
Secretary
EXECUTION COPY
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12 % SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT
DATED AS OF JULY 31, 1998
BY AND BETWEEN
IT PARTNERS, INC.,
as the Company
AND
WACHOVIA CAPITAL ASSOCIATES, INC.
as the Purchaser
----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 Definitions 1
1.1. Defined Terms 1
1.2. 3
SECTION 2 Authorization and Sale of the Company's Stock 4
2.1. Authorization of Series C Preferred and
Common Stock 4
2.2. Sale and Purchase of Series C Preferred 4
2.3. Use of Proceeds 4
SECTION 3 Closing Date; Delivery 4
3.1. Closing Date 4
3.2. Delivery 4
SECTION 4 Representations and Warranties of the Company 5
4.1. Organization, Good Standing and Qualification 5
4.2. Capitalization 5
4.3. Subsidiaries 6
4.4. Partnerships, Joint Ventures 7
4.5. Authorization 7
4.6. Governmental Consents 7
4.7. Conformity with Law; Absence of Litigation 7
4.8. Insurance 8
4.9. Adequacy of Intangible Assets 8
4.10. Compliance with Other Instruments and Legal
Requirements 8
4.11. Material Agreements; Action 9
4.12. Registration Rights 9
4.13. Corporate Documents 9
4.14. Real Property 9
4.15. Tangible Personal Property 10
4.16. Environmental Matters 11
4.17. Company SEC Reports and Financial Statements 12
4.18. Changes 13
4.19. Employee Benefit Plans 13
4.20. Taxes 14
4.21. Labor and Employment Matters 14
4.22. No Pending Transactions 15
4.23. Disclosure 15
4.24. Brokers' Fees 15
4.25. Not an Investment Company 15
4.26. Real Property Holding Company 15
SECTION 5 Representations and Warranties of the Purchaser 16
5.1. Accredited Investor; Experience; Risk 16
5.2. Authorization 16
5.3. Governmental Consents 17
5.4. Organization, Good Standing and Qualification 17
SECTION 6 Conditions to Closing of Purchaser 17
6.1. Representations and Warranties Correct 17
<PAGE>
<PAGE>
6.2. Covenants 17
6.4. No Material Adverse Change 18
6.5. Series C Certificate of Designation 18
6.6. State or Federal Securities Laws 18
6.7. Issuance of Shares 18
6.8. Officer's Certificate 18
6.10. Required Consents 18
6.11. Corporate Documents 18
6.12. Origination Fee 19
SECTION 7 Conditions to Closing of the Company 19
7.1. Representations 19
7.2. Purchase Price 19
7.3. Certificate 19
7.4. State or Federal Securities Laws 19
SECTION 8 Covenants of the Company 20
8.1. Information 20
8.2. Regulatory Matters 21
8.3. Access 21
8.4. Confidentiality 21
8.5 Publicity 22
8.6 IRC Section 1202 22
8.7 Reservation of Common Stock 22
8.8 Registration Rights 22
8.9 Loan Agreement Provisions 22
SECTION 9 Miscellaneous 23
9.1 Amendment; Waiver 23
9.2 Notices 23
9.3 Severability 24
9.4 Successors and Assigns 24
9.5 Survival of Representations, Warranties
and Covenants 24
9.6 Entire Agreement 24
9.7 Choice of Law 25
9.8 Counterparts 25
9.9 Costs and Expenses 25
9.10 No Third-Party Beneficiaries 25
9.11 Indemnification 25
9.12. Survival 25
9.13 Indemnification Procedure 26
9.14 Maximum Liability 26
SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT SIGNATURE PAGE 27
<PAGE>
12 % SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT
This 12 % SERIES C SENIOR REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT,
dated as of July 31,1998 (this "Agreement"), is entered into by and between IT
Partners, Inc., a Delaware corporation (the "Company") and WACHOVIA CAPITAL
ASSOCIATES, INC., a Georgia corporation (the "Purchaser").
W I T N E S S E T H
WHEREAS, the Company desires to issue and sell, and the Purchaser
desires to purchase from the Company, shares of the Company's 12% Series C
Senior Redeemable Preferred Stock, par value $.01 per share, as adjusted (the
"Series C Preferred"), in the amounts and on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as
follows:
SECTION 1
Definitions
1.1 Defined Terms. The following terms are defined as follows:
"Affiliate" means, with respect to any Person, (i) any Person that holds
direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests representing at
least 5% of the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the outstanding equity
securities or equity interests in a Person, (ii) any brother, sister, parent,
child or spouse of such Person or any Person described in clause (i), and
(iii) any Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such entity.
"Applicable Laws" shall have the meaning set forth in the Loan Agreement
as in effect on the date hereof.
"Code" means the Internal Revenue Code of 1986 (or any successor
thereto), as amended from time to time.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Environmental Law" shall have the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"ERISA" shall have the meaning set forth in the Loan Agreement as in
effect on the date hereof.
<PAGE>
<PAGE>
"ERISA Affiliate" shall have the meaning set forth in the Loan Agreement
as in effect on the date hereof.
"Event of Default" shall have the meaning set forth in the Loan Agreement
as in effect on the date hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles.
"Hazardous Substances" shall have the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Knowledge" or derivations thereof shall mean the knowledge of the
executive officers of the Company and of the Presidents of each Subsidiary,
and, with respect to Sections 4.19 and 4.21, each person who conducts human
resource and employee benefits management functions for the Company or any
Subsidiary, whether or not an officer of the Company or such Subsidiary.
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Loan Agreement" means the Amended and Restated Loan and Security
Agreement dated as of March 31, 1998, by and among the Company, the Lenders
named therein, Creditanstalt Corporate Finance, Inc. (as the LC Issuer),
Credit Agricole Indosuez (as Co-Agent) and Creditanstalt Corporate Finance,
Inc. (as the Collateral Agent and Administrative Agent), as amended from time
to time.
"Multiemployer Plan" shall have the meaning set forth in the Loan
Agreement as in effect on the date hereof.
"Obligations" shall have the meaning set forth in the Loan Agreement as
in effect on the date hereof.
"Origination Fee" means an amount equal to one and one-half percent (1
1/2%) of the Purchase Price, or $45,000.
"Permits" means any approvals, authorizations, consents, licenses,
permits or certificates.
"Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or
agency thereof.
"Plan" shall have the meaning set forth in the Loan Agreement as in
effect on the date hereof.
<PAGE>
<PAGE>
"Preferred Stock" means the Series A Preferred Stock of the Company, par
value $.01 per share, the Series B Preferred Stock of the Company, par value
$.01 per share, and the Series C Preferred.
"Qualified Initial Public Offering" means the first offer and sale to the
public by the Company of shares of any class of the Company's capital stock,
pursuant to a registration statement that has been declared effective by the
Securities and Exchange Commission; provided, however, that the proceeds (net
of underwriting discounts and commissions) of the shares issued and sold by
the Company are at least $40,000,000 in the aggregate.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal or leaching into the indoor
or outdoor environment, or into or out of any property;
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" means each corporation or other entity in which the
Company owns or controls, directly or indirectly, capital stock or other
equity interests representing at least 50% of the outstanding voting stock or
other equity interests of such corporation or entity.
"Trademark License" shall mean any written agreement granting any right
to use any Trademark or trademark registration.
"Trademarks" shall mean all trademarks (including service marks and trade
names, whether registered or at common law), registrations and applications
therefor, and all renewals thereof.
"Transaction Documents" shall mean this Agreement and each agreement,
document, certificate or instrument adopted, entered into or delivered as
contemplated herein, including without limitation the Series C Certificate of
Designation.
1.2 Any additional capitalized terms shall have the meanings
assigned to them in the text of this Agreement. Terms defined in the singular
shall have a comparable meaning when used in the plural and vice versa.
SECTION 2
Authorization and Sale of the Company's Stock
2.1 Authorization of Series C Preferred and Common Stock. At
Closing, the Company will have authorized the issuance and sale to the
Purchaser of 300 shares of Series C Preferred, having the stated value,
rights, preferences, privileges and restrictions set forth in the Certificate
of Designation attached to this Agreement as Exhibit A (the "Series C
Certificate of Designation").
<PAGE>
2.2 Sale and Purchase of Series C Preferred. In reliance on the
representations and warranties of the Company contained herein and subject to
the terms and conditions hereof, at Closing, the Purchaser agrees to purchase
from the Company, and the Company agrees to sell to the Purchaser 300 shares
of Series C Preferred for an aggregate purchase price of THREE MILLION DOLLARS
($3,000,000) (the "Purchase Price").
2.3 Use of Proceeds. The Company agrees to use the full proceeds
from the sale of the Series C Preferred (i) to continue the Company's
acquisition program, (ii) to expand the Company's credit facilities, and (iii)
for general corporate purposes.
SECTION 3
Closing Date; Delivery
3.1 Closing Date. The closing of the purchase and sale of the
Series C Preferred (the "Closing") shall be held at the offices of Swidler &
Berlin, Chartered, 3000 K Street. N.W., Washington, D.C. on July 31, 1998, or
on such other date or at such other place as the Purchaser and the Company
shall mutually agree (the date of the Closing being referred to herein as the
"Closing Date").
3.2 Delivery. At the Closing, the Company shall deliver to the
Purchaser (i) certificates evidencing the shares of Series C Preferred being
purchased by it registered in the Purchaser's name, and (ii) the Origination
Fee (payable by wire transfer of immediately available funds), against
delivery to the Company of the Purchase Price (payable by wire transfer of
immediately available funds). The parties shall also deliver the other
documents and instruments required under this Agreement to be delivered at or
prior to Closing.
SECTION 4
Representations and Warranties of the Company
The Company hereby represents and warrants to the Purchaser as follows:
4.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries (i) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) has all requisite power and authority to carry on its business, (iii) is
duly qualified to transact business and is in good standing in all
jurisdictions where its ownership, lease or operation of property or the
conduct of its business requires such qualification, except where the failure
to do so would not be material to the Company. Each of the Company and its
Subsidiaries has the corporate power and authority and is in possession of all
material franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, approvals and orders to own, lease and operate its
properties and to carry on its business as now being conducted.<PAGE>
<PAGE>
4.2 Capitalization.
(a) The authorized capital stock of the Company consists of
26,000,000 shares, of which 20,000,000 shares are common stock, par value $.01
per share ("Common Stock"). As of the date hereof, there are 8,279,658 shares
of Common Stock issued and outstanding. No shares of Common Stock are held in
treasury. There are 6,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"), of which (i) 600,000 shares have been
designated as Series A Preferred Stock, (ii) 5,000,000 shares have been
designated as Series B Preferred Stock and (iii) 1,000 shares have been
designated as Series C Preferred. As of the date hereof, there are 347,230
shares of Series A Preferred Stock issued and outstanding, 1,387,448 shares of
Series B Preferred Stock issued and outstanding, and 700 shares of Series C
Preferred issued and outstanding. Except as set forth above, there are no
shares of capital stock of the Company authorized or, as of the date hereof,
issued or outstanding. The issued and outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid and non-
assessable.
(b) Except as listed on Schedule 4.2, there are outstanding
(a) no shares of capital stock or other voting stock of the Company, (b) no
securities of the Company, any Subsidiary or any Person convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(c) no options, warrants or other rights to acquire from the Company or any
Subsidiary (including any rights issuable or issued under any shareholder
rights plan or similar arrangement), and no obligations, contingent or
otherwise, of the Company or any Subsidiary to issue any capital stock,
voting securities or securities convertible into or exchangeable for, capital
stock or voting securities of the Company or any Subsidiary, (d) no equity
equivalent in the earnings or ownership of the Company, any Subsidiary or any
Person or any similar rights to share earnings or ownership and (e) no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any of its securities or to make any investment (by loan, capital
contribution or otherwise) in any entity or Person. Except as set forth on
Schedule 4.2, the Company has no employee stock purchase plans, stock option
plans or other form of company benefit plan which provides for the issuance,
exchange or distribution of capital stock. All outstanding options, rights
and warrants have been duly and validly issued and are in full force and
effect. All shares of capital stock subject to issuance upon exercise of any
options, rights or warrants or otherwise, upon issuance pursuant to the
instruments under which they are issuable, shall be duly authorized, validly
issued, fully paid for and non-assessable and, except as set forth on Schedule
4.2, free of all preemptive rights. No outstanding options, warrants or other
securities exercisable for or convertible into shares of capital stock of the
Company require anti-dilution adjustments by reason of the consummation of the
transactions contemplated hereby.
(c) The Company has reserved for issuance 9,075,004 shares of
Common Stock upon exercise or conversion of currently outstanding shares of
Preferred Stock and rights, options, warrants and other convertible<PAGE>
<PAGE>
securities. The shares of Series C Preferred to be issued pursuant to this
Agreement, upon delivery to the Purchaser of certificates therefor against
payment in accordance with the terms of this Agreement, and the shares of
Common Stock issuable upon redemption of the Series C Preferred, upon delivery
to the Purchaser of certificates therefor in accordance with the provisions of
the Series C Certificate of Designation, (i) will be validly issued, fully
paid and non-assessable, (ii) will be free and clear of all Liens other than
restrictions on transfers imposed by federal or state securities laws and by
this Agreement and the other Transaction Documents, and (iii) assuming that
the representations of the Purchaser in Section 5 hereof are true and correct,
will be issued in compliance with all applicable federal and state securities
laws. The Company has reserved for issuance 678,572 shares of Common Stock
upon redemption of the Series C Preferred.
4.3 Subsidiaries. Schedule 4.3 sets forth a complete and accurate
list of all Subsidiaries of the Company, showing (as to each such Subsidiary)
the date of its incorporation, the jurisdiction of its incorporation, the
number of shares of its authorized capital stock, the number and class of
shares thereof duly issued and outstanding, the names of all stockholders of
such Subsidiaries and the number and percentage of the outstanding shares of
each such class owned, directly or indirectly, by all such stockholders,
including the Company. Except as set forth on Schedule 4.3, at Closing, all
of the outstanding capital stock of, or other ownership interests in, each
Subsidiary, is owned by the Company, directly or indirectly, free and clear of
any Lien or any other limitation or limitation or restriction (including
restrictions on the right to vote). All outstanding shares of the capital
stock of the Company and any Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable and are free of any preemptive
rights. There are no outstanding securities of any Subsidiary convertible
into or evidencing the right to purchase or subscribe for any shares of
capital stock of any Subsidiary, there are no outstanding or authorized
options, warrants, calls, subscriptions, rights, commitments or any other
agreements of any character obligating any Subsidiary to issue any shares of
its capital stock or any securities convertible into or evidencing the right
to purchase or subscribe for any shares of such stock, and, except as set
forth on Schedule 4.3, there are no agreements or understandings with respect
to the voting, sale, transfer or registration of any shares of capital stock
of any Subsidiary.
4.4 Partnerships, Joint Ventures. Schedule 4.4 sets forth a
complete and accurate list of all partnerships, limited partnerships, limited
liability companies or joint venture of any kind in which the Company or any
Subsidiary holds any interests, showing the date of its incorporation, the
jurisdiction of its incorporation, the number of shares of its authorized
capital stock, the number and class of shares thereof duly issued and
outstanding, the names of all stockholders (or other equity interest holders)
of such entity and the number and percentage of the outstanding shares of each
such class owned, directly or indirectly, by all such stockholders, including
the Company or any Subsidiary. Except as set forth on Schedule 4.4, at
Closing, such capital stock of, or other ownership interests in, each entity
as set forth in Schedule 4.4 is owned by the Company, directly or indirectly,
free and clear of any Lien or any other limitation or restriction (including
<PAGE>
<PAGE>
restrictions on the right to vote). All outstanding shares of the capital
stock held by the Company and any Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable and are free of any
preemptive rights. Except as set forth on Schedule 4.4, the Company is not a
party to, and does not hold, any equity interests in any partnership, limited
partnership, limited liability company or other joint venture of any kind.
4.5 Authorization. The Company has all requisite corporate power and
authority to execute and deliver the Transaction Documents and to perform its
obligations hereunder and thereunder. The execution, delivery and performance
of the Transaction Documents and the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate, including
shareholder (if required), action on the part of the Company. Each
Transaction Document to which the Company is a party has been duly and validly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part
of the Company is required in connection with the valid execution and delivery
by the Company of the Transaction Documents to which it is a party, or the
consummation by the Company of the transactions contemplated by the
Transaction Documents to which it is a party, except for filings pursuant to
federal or state securities laws and the filing of the Certificate of
Designation with the Secretary of State of Delaware.
4.7 Conformity with Law; Absence of Litigation. None of the
Company or any of its Subsidiaries has violated any law or regulation or any
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it which would have a material adverse effect on the Company
and the Subsidiaries taken as a whole. Except as set forth on Schedule 4.7,
there are no claims, actions, suits, proceedings or investigations pending or,
to the Knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which would reasonably be
expected to have a material adverse effect on the Company and the Subsidiaries
taken as a whole.
4.8 Insurance. Schedule 4.8 sets forth a complete and
accurate list of all policies of insurance of any kind or nature covering the
Company, its Subsidiaries and any of their respective employees, properties or
assets, including, without limitation, policies of life, disability, fire,
theft, workers compensation, employee fidelity and other casualty and<PAGE>
<PAGE>
liability insurance. All such policies are in full force and effect. None of
the Company or any of its Subsidiaries is in material default of any policies
of insurance.
4.9 Adequacy of Intangible Assets. The Company and each of its
Subsidiaries possess all intellectual property licenses, patents, patent
applications, copyrights, Trademarks, Trademark Licenses, trademark
applications, and trade names, and all governmental registrations and licenses
(collectively, "Intellectual Property") reasonably necessary to conduct the
businesses of the Company and each of the Subsidiaries, and all such
intellectual property licenses, patents, patent applications, copyrights,
Trademarks, Trademark Licenses, trademark applications, trade names, licenses
and registrations which have been registered with any governmental authority
are listed on Schedule 4.9. Since May 1, 1997, neither the Company nor any of
the Subsidiaries has received any written communications alleging that the
Company or any of its Subsidiaries has violated or, by conducting its business
as proposed, would violate any of the Intellectual Property of any other
Person, nor does the Company have Knowledge of any such violations.
4.10 Compliance with Other Instruments and Legal Requirements.
(a) None of the Company or any of its Subsidiaries is in
violation or default of any provisions of its certificate of incorporation,
by-laws, or comparable organizational documents. None of the Company or any
of its Subsidiaries is in violation or default in any respect under any
provision, instrument, judgment, order, writ, decree, contract or agreement to
which it is a party or by which it is bound or of any provision of any
federal, state or local statute, rule or regulation applicable to the Company
or any of its Subsidiaries (including, without limitation, any law, rule or
regulation relating to protection of the environment and the maintenance of
safe and sanitary premises). The execution, delivery and performance of each
Transaction Document and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in conflict
with or constitute, with or without the passage of time or giving of notice,
either a default under or give rise to any obligations under, the certificate
of incorporation or by-laws of the Company or any of the Subsidiaries, or any
note, bond, mortgage, indenture, lease, license, permit, contract, agreement
or other instrument or obligation, decree or order to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or its
properties or assets is or may be bound, or violate any law, order, rule or
regulation applicable to the Company or any Subsidiary. Except as set forth
on Schedule 4.10 (the "Required Consents"), the execution, delivery and
performance of each Transaction Document and the consummation of the
transactions contemplated hereby and thereby will not and does not require any
consent, waiver or approval by any Person, or constitute an event that will
result in the creation of any Lien upon any assets of the Company or any of
its Subsidiaries.
(b) The Company and its Subsidiaries have all Permits of all
Persons required to conduct their respective businesses as currently
conducted.
<PAGE>
<PAGE>
(c) The transactions contemplated by this Agreement and the
Transaction Documents will not constitute a change of control under any
Employee Benefit Plan, rights plan, contract or agreement to which it is a
party, or under any law, rule or regulation to which it is subject.
4.11 Material Agreements; Action. Except as set forth on Schedule
4.11, there are no material contracts, agreements, commitments, understandings
or proposed transactions, whether written or oral, to which the Company or any
of its Subsidiaries is a party or by which any of them or their respective
properties or assets are bound that involve or relate to: (i) any of their
respective officers, directors, stockholders (or other equity interest holder)
or partners or any Affiliate thereof; (ii) the sale of any of the assets of
the Company or any of its Subsidiaries other than in the ordinary course of
business; (iii) covenants of the Company or any of its Subsidiaries not to
compete in any line of business or with any Person in any geographical area or
covenants of any other Person not to compete with the Company or any of its
Subsidiaries in any line of business or in any geographical area; (iv) the
acquisition by the Company or any of its Subsidiaries of any operating
business or the capital stock of any other Person; (v) the borrowing of money;
(vi) the expenditure of more than $50,000 in the aggregate or the performance
by the Company or any Subsidiary extending for a period more than one year
from the date hereof, other than in the ordinary course of business, or (vii)
the license of any Intellectual Property or other material proprietary right
to or from the Company or any of its Subsidiaries. There have been made
available to the Purchaser and its representatives true and complete copies of
all such agreements. All such agreements are in full force and effect and are
the legal, valid and binding obligation of the Company or its Subsidiaries.
None of the Company or any of its Subsidiaries is in default under any such
agreements nor, to the Knowledge of the Company, is any other party to any
such agreements in default thereunder in any respect.
4.12 Registration Rights. Except as set forth on Schedule 4.12, the
Company has not granted or agreed to grant any registration rights, including
without limitation piggyback registration rights, to any Person.
4.13 Corporate Documents. True and correct copies of the certificate of
incorporation and the by-laws of the Company and each of the Subsidiaries, as
amended and as are currently in effect, have been delivered to the Purchaser.
4.14 Real Property.
(a) Schedule 4.14(a) sets forth a complete list of all real
property and interests in real property owned (the "Owned Properties") or
leased (as lessee or lessor) (the "Leased Properties") by the Company or any
of its Subsidiaries (the Leased Properties together with the Owned Properties,
being referred to herein individually as a "Company Property" and collectively
as the "Company Properties"). The Company Property constitutes all interests
in real property currently used or currently held for use in connection with
the businesses of the Company and its Subsidiaries and which are necessary for
the continued operation of the businesses of the Company and its Subsidiaries
as such businesses are currently conducted. The Company and its Subsidiaries
have a valid and enforceable leasehold interest under each of the leases for
Leased Property (the "Real Property Leases"), and none of the Company or any
of its Subsidiaries has received any written notice of any default or event
which, with notice or lapse of time, or both, would constitute a default by
the Company or any of its Subsidiaries under any of the Real Property Leases.
The Company has delivered or otherwise made available to the Purchaser true,
correct and complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) The Company and its Subsidiaries have all certificates of
occupancy and Permits of any Person necessary or useful for the current use
and operation of each Company Property, and the Company and its Subsidiaries
have fully complied with all conditions of the Permits applicable to them. No
default or violation, or event which, with the lapse of time or giving of
notice or both would become a default or violation, has occurred in the due
observance of any such Permit, which could reasonably be expected to have a
material adverse effect on the Company and the Subsidiaries taken as a whole.
(c) There does not exist any actual or threatened or contemplated
condemnation or eminent domain proceedings that affect any Company Property or
any part thereof, and none of the Company or any of its Subsidiaries has
received any notice, oral or written, of the intention of any governmental
body or other Person to take or use all or any part thereof.
(d) None of the Company or any of its Subsidiaries has received
any written notice from any insurance company that has issued a policy with
respect to any Company Property requiring performance of any structural or
other repairs or alterations to such Company Property.
(e) None of the Company or any of its Subsidiaries owns or holds,
or is obligated under or a party to, any option, right of first refusal or
other contractual right to purchase, acquire, sell, assign or dispose of any
real estate or any portion thereof or interest therein.
4.15 Tangible Personal Property.
(a) Schedule 4.15(a) sets forth all leases of personal
property ("Personal Property Leases") involving annual payments in excess of
$15,000 relating to personal property used in the business of the Company and
its Subsidiaries or to which the Company or any of its Subsidiaries is a party
or by which the properties or assets of the Company or any of its Subsidiaries
is bound. The Company has delivered or otherwise made available to the
Purchaser true, correct and complete copies of the Personal Property Leases,
together with all amendments, modifications or supplements, if any, thereto.
(b) Each of the Company and its Subsidiaries has a valid
leasehold interest under each of the Personal Property Leases under which it
is a lessee, and there is no default under any Personal Property Lease by the
Company or any of its Subsidiaries, or to the Knowledge of the Company, by any
other party thereto, and no event has occurred which, with the lapse of time
or the giving of notice or both would constitute a default thereunder by the
Company or any of its Subsidiaries or, to the Knowledge of the Company, by any
other party thereto.<PAGE>
<PAGE>
(c) Except as set forth on Schedule 4.15(b), each of
the Company and its Subsidiaries has good and marketable title to all of the
items of tangible personal property reflected in the Company Financial
Statements referred to in Section 4.17 (except as sold or disposed of
subsequent to the date thereof in the ordinary course of business consistent
with past practice), free and clear of any and all Liens. All such items of
tangible personal property that, individually or in the aggregate, are
material to the operation of the business of the Company and its Subsidiaries
are in good condition and are currently usable in the ordinary course.
(d) All of the items of tangible personal property used
by the Company and its Subsidiaries under the Personal Property Leases are in
good condition and are currently usable in the ordinary course.
4.16 Environmental Matters.
Except as set forth on Schedule 4.16:
(a) The Company and each of its Subsidiaries have obtained all
permits, licenses and other authorizations, if any, which are required under
Environmental Laws for the operation of the Company's or such Subsidiary's
business and the Company and each of its Subsidiaries are in compliance with
all terms and conditions of required permits, licenses and authorizations, and
is also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, notifications, schedules
and timetables contained in the Environmental Laws;
(b) Neither the Company nor any of its Subsidiaries has Knowledge of
or has received notice of, the disposal or release or presence of Hazardous
Substances on any of its properties, or of any past, present or future events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent compliance or continued compliance on the
part of the Company or any such Subsidiary with Environmental Laws, or may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, demand, suit, Lien, proceeding, hearing, study or
investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or
the emission, discharge, release or threatened release into the environment,
of any Hazardous Substance;
(c) All assets of the Company and its Subsidiaries are free from
Hazardous Substances except for Hazardous Substances used, maintained or
handled by the Company or such Subsidiary in the ordinary course of business
and the use and disposal of any and all such Hazardous Substances is effected
by the Company or such Subsidiary in compliance with all applicable
Environmental Laws; and
(d) There is not pending or threatened against the Company or any of
its Subsidiaries and neither the Company nor any of its Subsidiaries Knows of
any facts or circumstances that might give rise to, any civil, criminal or
administrative action, suit, demand, claim, hearing, notice or demand letter,
<PAGE>
<PAGE>
notice of violation, environmental Lien, investigation, or proceeding relating
in any way to Environmental Laws.
4.17 Company SEC Reports and Financial Statements.
(a) Neither the Company nor any of the Subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) The Company has furnished to the Purchaser (a) true,
complete and correct copies of the Company's unaudited, consolidated balance
sheet (the "Interim Balance Sheet") as of June 30, 1998 (the "Balance Sheet
Date"), and statements of income and cash flow for the periods ended June 30,
1998 (collectively, the "Interim Financials") compiled by the Company, and (b)
true, complete and correct copies of the Company's audited balance sheet as of
December 31, 1997 and consolidated statements of income, cash flow and
stockholders' equity for the fiscal year ended December 31, 1997
(collectively, the "Audited Financials") (collectively, the "Interim
Financials" and the "Audited Financials" are referred to as the "Company
Financial Statements"). The Company Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved (except that the Interim
Financial Statements do not contain footnotes required by GAAP and are subject
to normal year-end adjustments). The Company Financial Statements present
fairly the financial condition and results of operations of the Company, as at
the dates and for the periods indicated. Since the Balance Sheet Date there
have been no material changes in the Company's accounting policies.
(c) Except to the extent set forth on the Interim Balance Sheet
or on Schedule 4.17, the Company has not incurred any liability or obligation
of any nature whatsoever (whether due or to become due, accrued, fixed,
contingent, liquidated, unliquidated or otherwise) that would be required by
GAAP to be accrued on, reflected on, or reserved against it, on a consolidated
balance sheet (or in the applicable notes thereto) of the Company prepared in
accordance with GAAP consistently applied, other than liabilities or
obligations which arose in the ordinary course of business and consistent with
past practices since such date and which do not exceed $2.5 million in the
aggregate.
4.18 Changes. Except as set forth on Schedule 4.18, since the
Balance Sheet Date, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company or any of its Subsidiaries,
except changes in the ordinary course of business;
(b) any damage, destruction or loss to any property or assets
of the Company or any of the Subsidiaries, whether or not covered by
insurance;
(c) any waiver by the Company or any of its Subsidiaries of a
material right or of a debt owed to it outside of the ordinary course of
business;<PAGE>
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(d) any satisfaction or discharge of any Lien or payment of
any obligation by the Company or any of its Subsidiaries;
(e) any change or amendment to a contract or arrangement by
which the Company or any of its Subsidiaries or any of their respective assets
or properties is bound or subject;
(f) any events or circumstances that otherwise could
reasonably be expected, individually or in the aggregate, to have a material
adverse effect on the Company or any of its Subsidiaries; and
(g) none of the Company or any of its Subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock or equity interests,
(ii) incurred any indebtedness for money borrowed in excess of $50,000, (iii)
made any loans or advances to any Person, other than ordinary advances for
travel expenses not exceeding $50,000, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights for consideration in excess of $50,000
in any one transaction or series of related transactions.
4.19 Employee Benefit Plans.
Except as set forth on Schedule 4.19:
(a) Identification of Plans. Neither the Company nor any ERISA
Affiliate maintains or contributes to, or has maintained or contributed to,
any Plan or Multiemployer Plan that is subject to regulation by Title IV of
ERISA;
(b) Compliance. Each Plan has at all times been maintained, by its
terms and in operation, in accordance with all Applicable Laws.
(c) Liabilities. Neither the Company nor any ERISA Affiliate is
currently or, to the best knowledge of the Company or any ERISA Affiliate,
will become subject to any liability (including withdrawal liability), tax or
penalty whatsoever to any person whomsoever with respect to any Plan,
including, but not limited to, any tax, penalty or liability arising under
Title I or title IV of ERISA or Chapter 43 of the Code, except such
liabilities which will not have a material adverse effect on the Company and
the Subsidiaries taken as a whole.
(d) Funding. The Company and each ERISA Affiliate has made full and
timely payment of (i) all amounts required to be contributed under the terms
of each Plan and Applicable Law and (ii) all material amounts required to be
paid as expenses of each Plan. No Plan has any "amount of unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of ERISA); and
(e) Insolvency; Reorganization. No Plan is insolvent (within the
meaning of Section 4245 of ERISA) or in reorganization (within the meaning of
Section 4241 of ERISA).
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4.20 Taxes. All federal, state and local and foreign tax returns,
reports and statements required to be filed by the Company or any of its
Subsidiaries have been filed or have been caused to be filed with the
appropriate governmental agencies in all jurisdictions in which such returns,
reports and statements are required to be filed and all such returns, reports
and statements are true, complete and correct in all respects. All taxes,
charges and other impositions due and payable by the Company or any of its
Subsidiaries have been paid in full on a timely basis except where contested
in good faith and by appropriate proceedings if adequate reserves therefor
have been established on the books and records of the Company or Subsidiary in
accordance with GAAP. The provision for taxes of each of the Company and its
Subsidiaries is sufficient for all unpaid taxes, charges and other impositions
of any nature due or accrued as of the date thereof, whether or not assessed
or disputed. Proper and accurate amounts have been withheld by the Company
and its Subsidiaries from their respective employees for all periods in full
and complete compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective governmental
agencies. The Company has not received notice of any audit or of any proposed
deficiencies from any governmental authority, and no controversy with respect
to taxes of any type is pending or to its Knowledge threatened. Except for
routine filing extensions granted as a matter of right under applicable law,
none of the Company or any of its Subsidiaries has executed or filed with the
IRS or any other governmental authority any agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any taxes, charges or other impositions. Except as set forth on
Schedule 4.20, none of the Company or any of its Subsidiaries has agreed or is
required to make any adjustment under Section 481(a) of the Code by reason of
a change in accounting method or otherwise. Further, none of the Company or
any of its Subsidiaries has any obligation under any tax-sharing agreement.
4.21 Labor and Employment Matters. With respect to employees of
and service providers to the Company and the Subsidiaries: (a) the Company
and the Subsidiaries are and have been in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and have not and are not engaged
in any unfair labor practice; (b) there is not now, nor within the past three
years has there been, any unfair labor practice complaint against the Company
or any Subsidiary pending or, to the Company's or any Subsidiary's Knowledge,
threatened before the National Labor Relations Board or any other comparable
authority; (c) there is not now, nor within the past three years has there
been, any labor strike, slowdown or stoppage actually pending or, to the
Company's or any Subsidiary's Knowledge, threatened against or directly
affecting the Company or any Subsidiary; (d) to the Company's or any
Subsidiary's Knowledge, no labor representation organization effort exists nor
has there been any such activity within the past three years; (e) no grievance
or arbitration proceeding arising out of or under collective bargaining
agreements is pending and, to the Company's or any Subsidiary's Knowledge, no
claims therefor exist or have been threatened; (f) the employees of the
Company and the Subsidiaries are not and have never been represented by any
<PAGE>
<PAGE>
labor union, and no collective bargaining agreement is binding and in force
against the Company or any Subsidiary or currently being negotiated by the
Company or any Subsidiary; and (g) all Persons classified by the Company or
its Subsidiaries as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and the Company and its Subsidiaries
have fully and accurately reported their compensation on IRS Forms 1099 when
required to do so.
4.22 No Pending Transactions. Except as set forth on Schedule 4.22
and except for the transactions contemplated by this Agreement, neither the
Company nor any Subsidiary is a party to or bound by or the subject of any
agreement, undertaking or commitment with any Person that could result in (i)
the sale, merger, consolidation or recapitalization of the Company or any
Subsidiary, (ii) the sale of all or substantially all of the assets of the
Company or any Subsidiary, or (iii) a change of control of more than five
percent (5%) of the outstanding capital stock of the Company or any
Subsidiary.
4.23 Disclosure. No representation or warranty by the Company
contained in any of the Transaction Documents, in the schedules attached
hereto or in any certificate furnished or to be furnished by the Company to
the Purchaser in connection herewith or pursuant hereto contains or will
contain any untrue statement or a material fact or omits or will omit to state
any material fact necessary in order to make any statement contained herein or
therein not misleading.
4.24 Brokers' Fees. Except as set forth on Schedule 4.24, no
broker, finder, investment banker or other Person is entitled to any brokerage
fee, finder's fee or other commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by the Company.
4.25 Not an Investment Company. The Company is not an Investment
Company within the meaning of the Investment Company Act of 1940, as amended.
4.26 Real Property Holding Company. The Company is not a United
States Real Property Holding Corporation within the meaning of Section
897(c)(2) of the Code.
4.27 Total Shares Outstanding. Schedule 4.27 sets forth the
capitalization of the Company as of the date hereof (including without
limitation all options, warrants and other instruments convertible into or
exchangeable for equity securities of the Company).
SECTION 5
Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company, as follows:
5.1 Accredited Investor; Experience; Risk.
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<PAGE>
(a) The Purchaser is an accredited investor and has been advised
and understands that the Series C Preferred and the Common Stock issuable upon
redemption of the Series C Preferred have not been registered under the
Securities Act, on the basis that no public offering of the Series C Preferred
or the Common Stock issuable upon redemption of the Series C Preferred has
been effected, except in compliance with the applicable securities laws and
regulations or pursuant to an exemption therefrom; provided, however, that
nothing in this Section 5.1 shall limit the Purchaser's right to redeem the
Series C Preferred for Common Stock as set forth in this Agreement or the
Series C Certificate of Designation.
(b) Such Purchaser is purchasing the Series C Preferred for
investment purposes, for its own account and not with a view to, or for sale
in violation of federal or state securities laws.
(c) Such Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the purchase of the Series C Preferred pursuant to this Agreement.
(d) The certificates representing the Series C Preferred and the
shares of Common Stock issuable upon redemption of the Series C Preferred
shall bear a legend evidencing such restriction on transfer substantially in
the following form:
"The securities represented by this certificate have been acquired
for investment and have not been registered under the Securities Act
of 1933, as amended (the "Act") or the securities laws of any state
and may not be sold or transferred except pursuant to registration
under the Act or an exemption therefrom."
5.2 Authorization. The Purchaser has all requisite power and
authority to execute and deliver each of the Transaction Documents and to
perform its obligations hereunder and thereunder. The execution, delivery and
performance of the Transaction Documents and the transactions contemplated
hereby and thereby have been duly authorized by all necessary, action on the
part of the Purchaser. Each Transaction Document to which it is a party has
been duly and validly executed and delivered by the Purchaser and constitutes
the legal, valid and binding obligation of the Purchaser, enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability,
to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in a proceeding at law or in equity).
5.3 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority on the part
of the Purchaser is required in connection with the valid execution and
delivery by the Purchaser of the Transaction Documents to which it is a party,
or the consummation by the Purchaser of the transactions contemplated by the
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Transaction Documents to which it is a party, except for such filings as have
been made prior to the Closing.
5.4 Organization, Good Standing and Qualification. The
Purchaser (i) is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) has all
requisite power and authority to carry on its business, (iii) is duly
qualified to transact business and is in good standing in all jurisdictions
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to do so would
not be material to the Purchaser. The Purchaser has the power and authority
and is in possession of all material franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders to
(i) own, lease and operate its properties and to carry on its business as now
being conducted and (ii) execute and deliver the Transaction Documents and the
documents and instruments contemplated hereby and thereby and to consummate
the transactions contemplated hereby.
SECTION 6
Conditions to Closing of Purchaser
The Purchaser's obligation to purchase the Series C Preferred at the
Closing is, at the option of such Purchaser, subject to the fulfillment on or
prior to the Closing Date of the following conditions:
6.1 Representations and Warranties Correct. The
representations and warranties made by the Company in Section 4 hereof shall
be true and correct when made, and shall be true and correct on the Closing
Date with the same force and effect as if they had been made on and as of such
date.
6.2 Covenants. All covenants, agreements and conditions
contained in this Agreement to be performed by the Company on or prior to the
Closing Date shall have been performed or complied with in all respects.
6.3 Opinion of Company's Counsel. The Purchaser shall have
received from Swidler & Berlin, counsel to the Company, an opinion addressed
to the Purchaser, dated the Closing Date, that is customary for a transaction
of this type.
6.4 No Material Adverse Change. Since the Balance Sheet Date,
there shall not have occurred any events or circumstances that could
reasonably be expected, individually or in the aggregate, to have a material
effect on the Company or any of the Subsidiaries.
6.5 Series C Certificate of Designation. The Series C
Certificate of Designation shall have been duly adopted and executed by the
Company and filed with the Secretary of State of the State of Delaware.
6.6 State or Federal Securities Laws. All registrations,
qualifications and Permits required under applicable state or federal<PAGE>
<PAGE>
securities laws, if any, shall have been obtained for the lawful execution,
delivery and performance of this Agreement.
6.7 Issuance of Shares. The Company shall have issued
pursuant to this Agreement 300 shares of Series C Preferred, par value $.01
per share, as adjusted, and shall have delivered to the Purchaser a stock
certificate or certificates representing such shares of Series C Preferred.
6.8 Officer's Certificate. The Purchaser shall have received
a certificate of the President or a Vice President of the Company to the
effect that the conditions set forth in Sections 6.1, 6.2, 6.4, 6.5 and 6.6
have been met.
6.9 CFO Certificate. The Purchaser shall have received a
certificate of the Chief Financial Officer of the Company substantially in the
form attached hereto as Exhibit 6.9.
6.10 Required Consents. At or prior to the Closing, the
Company shall have delivered or caused to be delivered to the Purchaser all of
the Required Consents.
6.11 Corporate Documents. At or prior to the Closing, the
Company shall have delivered or caused to be delivered to the Purchaser:
(a) a certificate of the Secretary of State of the Company's
state of incorporation dated not earlier than the fifteenth (15th) day
preceding the Closing Date, to the effect that the Company is a corporation
validly existing and in good standing under the laws of such state as of such
date;
(b) a certificate of the Secretary of State of each state where
the Company is required to qualify to do business dated not earlier than the
fifteenth (15th) day preceding the Closing Date, to the effect that the
Company is a corporation duly licensed or qualified to do business in such
state and is in good standing as a foreign corporation under the laws of such
state as of such date; and
(c) certificates of the Secretary or Assistant Secretary of the
Company certifying (A) copies of the certificate of incorporation, bylaws and
other governing documents of the Company as then in effect or a certification
that there has been no change in such instruments since the last such
certification delivered to the Purchaser pursuant to this Agreement, (B) duly
enacted resolutions of the Company's board of directors in form and substance
satisfactory to the Purchaser approving the Transaction Documents and
authorizing officers of the Company to execute and deliver instruments
required to be delivered hereunder or thereunder as a condition precedent to
the Closing, and (C) specimen signatures of the officers of the Company
authorized to sign such instruments.
6.12 Origination Fee. The Company shall have tendered to the
Purchaser the Origination Fee as set forth in Section 3.2.
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SECTION 7
Conditions to Closing of the Company
The Company's obligation to issue and sell the Series C Preferred at the
Closing is, at the option of the Company, subject to the fulfillment of the
following conditions:
7.1 Representations. The representations and warranties made by the
Purchaser in Section 5 hereof shall be true and correct when made, and shall
be true and correct on the Closing Date with the same force and effect as if
they had been made on and as of such date.
7.2 Purchase Price. The Purchaser shall have tendered to the Company
the Purchase Price, as set forth in Section 3.2.
7.3 Certificate. The Company shall have received a certificate from the
Purchaser to the effect that the conditions set forth in Section 7.1 have been
met.
7.4 State or Federal Securities Laws. All registrations, qualifications
and Permits required under applicable state or federal securities laws, if
any, shall have been obtained for the lawful execution, delivery and
performance of this Agreement.
SECTION 8
Covenants of the Company
8.1 Information.
(a) Commencing on the Closing Date, the Company shall deliver to
the Purchaser the information specified in this Section 8.1(a) unless the
Purchaser at any time specifically requests in writing that such information
not be delivered to it:
(i) Loan Agreement Reports and Information. Commencing on
the Closing Date, the Company shall deliver to the Purchaser the same reports
and other information provided to the Lender pursuant to Section 6.2(a) - (g)
of the Loan Agreement; provided, however, that in the event such provisions of
the Loan Agreement are from time to time amended, modified or changed after
the Closing Date, Purchaser shall have the right at its option to either (i)
continue to receive such reports and information as such sections of the Loan
Agreement provide for as of the Closing Date, or (ii) receive such reports and
information as such sections of the Loan Agreement provide for following such
amendment, modification or change.
(ii) Other Information. From time to time, and promptly,
such additional information regarding results of operations, financial
condition or business of the Company and its Subsidiaries, including without
limitation, cash flow analysis, stockholder equity, projections, minutes of
any meetings of the Board of Directors and any information that may be<PAGE>
<PAGE>
distributed or made available to the Board of Directors, as the Purchaser may
reasonably request.
(b) Commencing on October 1, 1998, the Company shall deliver to
the Purchaser the information specified in this Section8.1(b) unless the
Purchaser at any time specifically requests in writing that such information
not be delivered to it:
(i) Material Litigation. Within ten (10) days after the
Company learns of the commencement or written threat of commencement of any
litigation or proceeding against the Company, any of its Subsidiaries or any
of their respective assets that could reasonably be expected to have a
material effect on the Company or any of the Subsidiaries, written notice of
the nature and extent of such litigation or proceeding.
(ii) Material Agreements. Within five (5) days after the
expiration of the applicable cure period, if any, or if no such cure period
exists within ten (10) days after the receipt by the Company of written notice
of a default by the Company or any of its Subsidiaries under any material
contract, agreement or document to which any of them are a party or by which
any of them are bound, written notice of the nature and extent of such
default.
8.2 Regulatory Matters. Each of the Company and Purchaser will (i)
make on a prompt and timely basis all governmental or regulatory
notifications, filings or submissions, as necessary for the consummation of
the transactions contemplated hereby, including any filings required pursuant
to the Hart-Scott-Rodino Antitrust Act, if required, (ii) use all reasonable
efforts to cooperate with the other and its representatives in (A) determining
which notifications, filings and submissions are required to be made prior to
the Closing Date with, and which consents, approvals, permits or
authorizations are required to he obtained prior to the Closing Date from, any
governmental authority in connection with the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, and
(B) timely making of all such notifications, filings or submissions and timely
seeking all such consents, approvals, permits or authorizations, and (iii) use
all reasonable efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other reasonable things necessary or appropriate to
consummate the transactions contemplated by this Agreement. The Purchaser
shall have no obligation to expend any funds in connection with the action to
be taken by the Company pursuant to this section.
8.3 Access. From time to time and upon the written request of
the Purchaser, the Company shall promptly afford the Purchaser and its
accountants, counsel and other representatives, full access during normal
business hours to all of its properties, books, contracts, commitments and
records, permit them to copy or make extracts therefrom, and the Company shall
furnish promptly to Purchaser all information concerning its business,
properties and personnel as Purchaser may reasonably request; provided,
however, that no investigation pursuant to this Section 8.3 shall affect any
representations or warranties of either party hereunder.
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8.4 Confidentiality. From and after the date of this Agreement,
each of the Company and Purchaser agree to hold, and will cause its
Subsidiaries, employees, agents and representatives to hold, in confidence,
unless compelled to disclose by judicial or administrative process or, in the
written opinion of their counsel, by other requirements of law, information
furnished by the Company, on the one hand, to Purchaser and information
furnished by Purchaser, on the other hand, to the Company in connection with
the transactions contemplated by this Agreement, and each of such persons
agree that they shall not release or disclose such information to any other
person, except their respective officers, directors, partners, employees,
auditors, attorneys, financial advisors and other consultants, advisors and
representatives who need to know such information and who have been informed
of the confidential nature of such information and have been directed to treat
such information as confidential, and except that Purchaser shall have the
right to disclose such information to any of its investors or other equity
holders, or to any of its potential investors or equity holders as long as the
same have been informed of the confidential nature of such information and
have been directed to treat such information as confidential. The foregoing
provisions of this Section 8.4 shall not apply to any such information which
(i) becomes generally available to the public other than as a result of a
disclosure by any person bound hereunder, (ii) was available to a person bound
hereunder on a non-confidential basis prior to its disclosure hereunder, or
(iii) becomes available to any person bound hereunder on a non-confidential
basis by virtue of the disclosure thereof by a source other than the party
providing such information in reliance upon the protection of confidentiality
reposed hereby.
8.5 Publicity. Except as may be required by law, the Company shall
not use the name of, or make reference to, the Purchaser or any of its
Affiliates in any press release or in any public manner without the
Purchaser's prior written consent.
8.6 IRC Section 1202. The Company shall use reasonable efforts to
comply with Section 1202(c) of the Code and shall make all filings required
under Section 1202(D)(1)(c) of the Code and any related treasury regulations.
8.7 Reservation of Common Stock. The Company will at all times have
authorized, and reserve and keep available, free from preemptive rights, for
the purpose of enabling it to satisfy any obligation to issue Common Stock
upon a redemption of the Series C Preferred, the number of shares of Common
Stock deliverable upon redemption of all outstanding shares of Series C
Preferred.
8.8 Registration Rights. Prior to consummating an initial public
offering of capital stock of the Company, the Company will use its best
efforts to terminate the existing registration rights agreements relating to
the Company's securities and to enter into a new registration rights agreement
which grants to the Purchaser (i) at least one demand registration right which
is at least as favorable as the most favorable demand registration right
granted to any other holder of securities of the Corporation, and (ii)
piggyback, cutback and other registration rights at least as favorable as, and
ranking at least pari passu in priority with, the most favorable piggyback,
<PAGE>
<PAGE>
cutback and other registration rights granted to any other holder of
securities of the Corporation, provided, however, that in the event the
Company has not entered into such new registration rights agreement within one
year following the filing of the Series C Certificate of Designation and the
Series C Preferred has not been redeemed in full within such period, the
events of noncompliance provisions set forth in the Series C Certificate of
Designation shall apply; provided, however, that all demand registration
rights granted to Purchaser hereunder shall be initiated by the holders of a
majority of the shares of Common Stock issued or issuable upon redemption of
the Series C Preferred collectively held by the Purchaser and FBR Business
Development Capital ("FBR"); and upon exercise of such registration rights by
such initiating holders, each holder of Series C Preferred shall have the
right to participate in such registration pro rata in proportion to the
number of shares requested to be registered by the Purchaser and FBR upon
exercise of any such demand registration rights.
8.9 Loan Agreement Provisions. The Company shall not, without the
prior written consent of the holder or holders of a majority of the shares of
Series C Preferred, collectively held by the Purchaser and FBR, which consent
may be withheld in such holder or holders' sole discretion:
(i) amend, modify, add to or otherwise change any of the
provisions in Section 8.5 of the Loan Agreement relating to the redemption of,
or payment of dividends on, the Series C Preferred; or
(ii) agree to any full or partial refinancing or replacement of
the Loan Agreement unless such refinancing or replacement permits the
redemption of, and payment of dividends on, the Series C Preferred in
accordance with Section 8.5 of the Loan Agreement as in effect on the date
hereof.
SECTION 9
Miscellaneous
9.1 Amendment; Waiver. Neither this Agreement nor any provision
hereof may be amended, modified, supplemented or waived, except by a written
instrument executed by (i) the Company and (ii) the Purchaser.
9.2 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and delivered in
Person, transmitted by facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such other address has
such party may notify to the other parties in writing:
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<PAGE>
if to the Company:
IT Partners, Inc.
9881 Broken Land Parkway
Columbia, Maryland
Attn: President
Telephone No.: (410) 309-9800
Facsimile No.: (410) 309-9801
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007-5116
Attn: Andrew M. Ray, Esq.
Telephone No.: (202) 424-7585
Facsimile No.: (202) 424-7645
if to the Purchaser:
Wachovia Capital Associates, Inc.
191 Peachtree Street, N.E.
26th Floor
Atlanta, Georgia 30303
Attn: Donna Harris, Esq., Vice President
Telephone No.: (404) 332-1176
Facsimile No.: (404) 332-1455
A notice or communication will be effective (i) if delivered in Person or
by overnight courier, on the business day it is delivered, (ii) if transmitted
by telecopier, on the business day of actual confirmed receipt by the
addressee thereof, and (iii) if sent by registered or certified mail, three
(3) business days after dispatch.
9.3 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
9.4 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and permitted assigns of the parties hereto. No party hereto may
assign its rights or delegate its obligations under this Agreement without the
prior written consent of the other parties hereto; provided, however, that all
or any part of the shares of the Series C Preferred may be transferred, sold,
assigned or otherwise disposed at the sole discretion of Purchaser and without
the consent of the Company.
9.5 Survival of Representations, Warranties and Covenants. All
representations and warranties made in, pursuant to or in connection with any
of the Transaction Documents shall survive the execution and delivery of the
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Transaction Documents, any investigation at any time made by or on behalf of
the Purchaser, and the sale and purchase of the Series C Preferred and payment
therefor for a period of three (3) years; provided, however, that the
representations and warranties made in Sections 4.16 (Environmental), 4.19
(Benefits) and 4.20 (Taxes) shall survive the applicable statutory period of
limitations with respect to any liabilities covered thereby; provided further,
that notwithstanding the foregoing, all representations and warranties made
in, pursuant to or in connection with any of the Transaction Documents shall
terminate upon the closing of a Qualified Initial Public Offering. Unless
otherwise provided in this Agreement, the covenants made pursuant to the
Transaction Documents shall survive and remain in force until no shares of
Series C Preferred are held by the Purchaser.
9.6 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto, including without limitation the Transaction
Documents, constitute the full and entire understanding and agreement between
the parties with regard to the subject matter hereof and thereof and supersede
and cancel all prior representations, alleged warranties, statements,
negotiations, undertakings, letters, acceptances, understandings, contracts
and communications, whether verbal or written, among the parties hereto and
thereto or their respective agents with respect to or in connection with the
subject matter hereof.
9.7 Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
regard to principles of conflict of laws.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and
shall constitute one and the same instrument.
9.9 Costs and Expenses. Promptly after the Closing, the Company
shall pay the reasonable fees and disbursements incurred by the Purchaser
(including without limitation reasonable attorneys' and consultants' fees) in
connection with this Agreement and the transactions contemplated hereunder;
provided, however, that the Company's aggregate payment obligations under this
Section 9.9 shall not exceed $15,000; provided further, that the parties shall
bear their own costs and expenses if the Closing hereunder fails to take
place.
9.10 No Third-Party Beneficiaries. Nothing in this Agreement will
confer any third party beneficiary or other rights upon any Person
(specifically including any employees of the Company and its Subsidiaries) or
entity that is not a party to this Agreement.
9.11 Indemnification. From and after the Closing Date, the
Company shall indemnify, defend and hold Purchaser, its directors, officers
and Affiliates (each an "Indemnified Party" and collectively, the "Indemnified
Parties") harmless from and against any and all claims, losses, liabilities,
damages, costs and expenses (including reasonable attorney's fees)<PAGE>
<PAGE>
(collectively, "Losses") that may be suffered or incurred by, or asserted
against, the Indemnified Parties, arising from or related to, directly or
indirectly:
(a) any breach of any representation or warranty of the Company
or any Subsidiary set forth in any of the Transaction Documents (including
without limitation any schedule or certificate delivered by or on behalf of
the Company or any Subsidiary pursuant hereto or thereto); or
(b) any nonfulfillment of any covenant or agreement on the part
of the Company or any Subsidiary in any of the Transaction Documents; and
(c) any and all Losses incident to any of the foregoing.
9.12. Survival. The rights to indemnification under Section 9.11
shall apply only to those claims for indemnification which are delivered
pursuant hereto on or before the expiration of the relevant representation,
warranty, or covenant to which such claim relates, as set forth in Section
9.5.
9.13 Indemnification Procedure.
(a) An Indemnified Party shall give written notice to the
Company of any claim with respect to which it seeks indemnification within ten
(10) days after the discovery by such parties of any matters giving arise to a
claim for indemnification pursuant to Section 9.11; provided that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Company of its obligations under this Section 9.13, except to the extent
that the Company is actually prejudiced by such failure to give notice. In
case any such action or claim is brought against any Indemnified Party, the
Company shall be entitled to participate in and, unless in the reasonable good
faith judgment of the Indemnified Party a conflict of interest between such
Indemnified Party and the Company may exist in respect of such action or
claim, to assume the defense thereof, with counsel satisfactory to the
Indemnified Party and after notice from the Company to the Indemnified Party
of its election so to assume the defense thereof, the Company shall not be
liable to such Indemnified Party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. In any event, unless and until the Company
elects in writing to assume and does so assume the defense of any such action
or claim the Indemnified Party's costs and expenses arising out of the
defense, settlement or compromise of any such action or claim shall be Losses
subject to indemnification hereunder. If the Company elects to defend any
such action or claim, then the Indemnified Party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The Company shall not be liable for any settlement of any action or
claim effected without its written consent. Anything in this Section 9.13 to
the contrary notwithstanding, the Company shall not, without the Indemnified
Party's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof that imposes any future obligation on
the Indemnified Party or that does not include, as an unconditional term<PAGE>
<PAGE>
thereof, the giving by the claimant or the plaintiff to the Indemnified Party,
a release from all liability in respect of such claim.
9.14 Maximum Liability. The maximum liability of each of the Company
and the Purchaser, respectively, under this Section 9 shall be equal to the
Purchase Price.
[Remainder of Page Intentionally Left Blank]<PAGE>
<PAGE>
12% SERIES C SENIOR REDEEMABLE PREFERRED STOCK
PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed effective as of the date first above written.
COMPANY:
IT PARTNERS, INC.
By:/s/ Jamie Blech
----------------------
Jamie Blech
President and Secretary
PURCHASER:
WACHOVIA CAPITAL ASSOCIATES, INC.
By: /s/ Matthew J. Sullivan
-----------------------
Name: Matthew J. Sullivan
Title: Managing Director
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of theday of June, 1998, by and among
SERVINET CONSULTING GROUP, INC., a California corporation
("Seller"), Mahesh Khatwani, Gary Prioste, Gray Drohan and Keith
Matsunaga (collectively referred to herein as the "STOCKHOLDER")
and IT PARTNERS, INC. a Delaware corporation ("ITP" or
"Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is, among other things, engaged in the
business of selling and installing technology software
and providing related consulting services (the "Business");
and
WHEREAS, Seller desires to sell and Purchaser desires to
purchase certain assets of Seller, upon the terms and
subject to the conditions set forth herein;
WHEREAS, immediately following the Closing, the Purchaser
shall sell, assign, transfer, convey and deliver and ITP
No. 8, Inc., a Delaware corporation and wholly owned
subsidiary of Purchaser ("NEWCO"), shall purchase and
acquire all of Purchaser's right title and interest in
the Assets and Assumed Liabilities (as such terms are
defined herein) (the "Drop Down"); and
WHEREAS, the parties hereto desire to enter into certain
other covenants among themselves as an inducement to and
in connection with the execution, delivery and performance
of this Agreement;
WHEREAS, unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached
hereto and not otherwise defined herein shall have the
following meanings for all purposes of this Agreement:
"Balance Sheet" means the Seller's audited February 28, 1998
Balance Sheet prepared in accordance with GAAP at Purchaser's
expense by Purchaser's independent accountants, Arthur Andersen,
L.L.P. and previously delivered to the Seller. Purchaser has
reviewed the Balance Sheet and, after such review, the Purchaser
and Seller have agreed upon the LTM EBITDA calculation as such
term is defined herein below and which calculation may be
adjusted in accordance with the preparation of the Final Closing
Balance Sheet as such term is defined herein below.
"Balance Sheet Date" means February 28, 1998.
"Benefit Plan" means any Plan existing at the Closing Date
or prior thereto, established or to which contributions have at
any time been made by the Seller, any ERISA Affiliate, or any
predecessor of any of the foregoing, under which any employee or
former employee of the Seller, or any beneficiary thereof, is
covered, is eligible for coverage or has benefit rights.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Debt" means all liabilities of the Seller as determined
under GAAP except ordinary course trade payables.
"EBITDA" means earnings before interest, taxes, depreciation
and amortization prepared in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means generally accepted accounting principles of the
United States applied in a manner consistent with the past
practices of the Seller.
"Governmental Authority" means any governmental, regulatory
or administrative body, agency, subdivision or authority, any
court or judicial authority, or any public, private or industry
regulatory authority, whether national, Federal, state, local or
otherwise.
"Intellectual Property" means trademarks, service marks,
trade dress, trade names, patents and copyrights and any
registration or application for any of the foregoing, and any
trade secret, invention, discovery, method of doing business,
process, know-how, including but not limited to, training
<PAGE>
techniques, training materials, computer software (including
source and object code), databases, technology systems and
integration techniques, product design and product packaging.
"ITP Stock" means the common stock, par value $.01 per
share, of ITP.
"Knowledge," "best of knowledge," "aware" or similar
expressions mean the following with respect to (i) an individual
and (ii) a Person (other than an individual):
(i) an individual will be deemed to have
"knowledge" of a particular fact or other matter
if a prudent individual knew or should have known
if an inquiry were called for under the
circumstances.
(ii) a Person (other than an individual) will be
deemed to have "knowledge" of a particular fact or
other matter if any individual who is serving, or
who has at any time served, as a director,
officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any
time had, knowledge of such fact or other matter.
"Leases" means all real and personal property leased by
Seller and used, useful or held for use in connection with
Seller's business.
"LTM EBITDA" means EBITDA for the twelve month period
commencing on March 1, 1997 and ending on February 28, 1998.
Based on the Balance Sheet, the LTM EBITDA is $1,772,024.00.
"Material Contract" means any lease, instrument, agreement,
license or permit set forth on Schedule 3.28 of this Agreement or
any other material agreement to which the Seller is a party or by
which its properties are bound.
"NTM EBITDA" means EBITDA for the twelve month period
commencing on June 1, 1998 and ending on May 31, 1999.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union,
association or Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock
purchase, stock option, stock ownership, stock appreciation
rights, phantom stock, leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice,
policy or arrangement of any kind, whether written or oral, or
whether for the benefit of a single individual or more than one
individual including, but not limited to, any "employee benefit
plan" within the meaning of Section 3(3) of ERISA..
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which
parties hereto disclose information as part of their respective
representations, warranties and covenants.
"Working Capital" means $1,200,000, which shall be the
minimum amount of cash on-hand as of the Closing Date for the
working capital cash requirements of NEWCO ("Working Capital").
At Closing, Purchaser shall deposit $1,200,000 of the Cash
Portion (as such term is defined in Section 2.1(i) herein below)
into a bank account established prior to the Closing Date (the
"Working Capital Account"). If Working Capital requirements
shall be in excess of $1,200,000 during the period between
Closing and one hundred twenty (120) days thereafter (the
"Working Capital Adjustment Period"), then STOCKHOLDER shall
contribute excess Working Capital requirements to the Working
<PAGE>
Capital Account, or to Purchaser; provided, however, that to the
extent any additional Working Capital requirements are due to the
unavailability of a floating line of credit or alternative
financing to purchase products or services during the Working
Capital Adjustment Period, then Working Capital requirements
shall be funded by Purchaser.
During the Working Capital Adjustment Period, STOCKHOLDER
covenants and agrees to operate NEWCO's business in accordance
with Seller's past business practices. For purposes of this
Agreement, "past business practices" shall mean business
practices consistent with Seller's business practices during the
LTM period with respect, but not limited to, the payment of (i)
trade payables, (ii) payroll, (iii) Deuche Bank credit lines and
(iv) accrued expenses and (v) the billing and collection of
accounts receivable consistent with reasonable payment and
collection lag times ("Past Business Practices").
Within sixty (60) days after the conclusion of the Working
Capital Adjustment Period, Purchaser shall perform a limited
review (the "Working Capital Review") for the period ending on
the last day of the Working Capital Adjustment Period to verify
that NEWCO was operated in accordance with Seller's Past Business
Practices. If, in Purchaser's sole discretion, it determines
that NEWCO was not operated in accordance with Seller's Past
Business Practices, or if, for any other reason not specifically
excepted herein, Working Capital requirements are in excess of
$1,200,000, then STOCKHOLDER shall contribute such excess Working
Capital requirements, in Purchaser's sole discretion, to the
Working Capital Account or to Purchaser (the "Working Capital
Adjustment Shortfall"). The Working Capital Adjustment Shortfall
shall be paid by STOCKHOLDER, as determined by Purchaser, either
in cash, or by reduction of the Second Note or the Second
Convertible Note; provided, however, that if NEWCO has a business
opportunity requiring Working Capital in excess of $1,200,000,
and NEWCO receives prior written approval from Purchaser before
committing any Working Capital or entering into such business
opportunity, then such excess Working Capital requirements may be
provided by Purchaser.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, agreements, representations and warranties set
forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as
follows:
<PAGE>
Section 1.
Sale and Purchase of the Assets
Section 1.1 Sale and Purchase. At the Closing (as defined
below), upon the terms and subject to the conditions set forth in
this Agreement, Seller shall sell, assign, transfer, convey and
deliver to Purchaser, and Purchaser shall purchase and acquire from
Seller, all of Seller's right, title and interest in and to all the
assets of Seller of every kind, character and description, whether
now owned or hereafter acquired by Seller prior to the Closing Date,
whether tangible or intangible, and whether real, personal or
mixed, and wherever located, which are owned, used or held for
use in connection with, generated by, derived from or
attributable to, or otherwise related to, the Business (excluding
the Excluded Assets (as defined in Section 1.2 hereof) (all of
which are collectively referred to herein as the "Assets"),
including, but not limited to, all of the following:
(a) all equipment, machinery, vehicles, office
furniture, fixtures, tools, dies, spare parts, appliances,
computer hardware, equipment and supplies, and other similar
tangible personal property, including, without limitation, the
personal property and equipment set forth on Schedule 1.1(a)
hereto;
(b) all inventories, including, without limitation,
raw materials, work in process, finished goods, inventories held
by customers on a consignment basis, stores, supplies, materials
and manufactured and purchased parts, but excluding all items of
inventory rejected by Purchaser because of Purchaser's
determination that they are either not related to the Business,
or are obsolete or inappropriately valued;
(c) all patents, trademarks, trade names, service
marks and copyrights, and all applications, registrations,
extensions, reissues and continuations thereof, all licenses and
sublicenses with respect thereto, all rights thereunder, and all
remedies against infringement thereof, including without
limitation those items set forth on Schedule 1.1(c) hereto;
(d) all technologies, materials, formulations, data
bases, trade secrets, secret processes, know how, inventions and
other intellectual property and intangible property of every kind
and nature;
(e) all computer software (including documentation and
related object and source codes);
(f) all rights and interests under orders, bids,
quotations and similar arrangements relating to the purchase or
sale of Seller's goods and services, to the extent not fulfilled
prior to the Closing Date;
(g) all rights and interests under licenses,
contracts, agreements, leases or commitments, including without
limitation, contracts providing for the lease of equipment,
machinery, office equipment, furniture and vehicles, sales
representative agreements, distributor agreements, consignment
agreements and other similar agreements, whether as principal or
agent or distribution, to the extent (i) transferable to
Purchaser and (ii) set forth on Schedule 1.1(g) hereof ("Assigned
Contracts");
<PAGE>
(h) all franchises, approvals, permits, licenses,
qualifications, authorizations, orders, registrations,
certificates, variances, and similar rights obtained from or
issued by any Governmental Authority (as defined in Section 3.5
below), and all pending applications therefor;
(i) all rights and interests of Seller under all
warranties, guarantees and covenants not to compete for the
benefit of the Business or the Assets;
(j) all books, records, accounts, ledgers, files,
data, documents, forms, correspondence, lists, plats,
architectural plans, drawings, specifications, creative
materials, advertising and promotional literature and materials,
studies, reports, and other printed, written, machine readable,
electronic or computer-generated materials to the extent they
relate to the Assets or the Business;
(k) the name "Servinet Consulting Group, Inc." and all
variations and derivations thereof; and
(l) the Business as a going concern and all goodwill
associated therewith.
Section 1.2 Excluded Assets. Notwithstanding any provision
in Section 1.1 or elsewhere herein to the contrary, the Assets shall
not include any of the following:
(a) those Assets disposed of in the ordinary course of
business as permitted by this Agreement;
(b) all matters pertaining to Seller's corporate
existence including minute books, stock transfer books, tax
returns, and tax identifications, books of account and other
records pertaining to Seller's corporate organization; provided,
however, that Seller agrees that Purchaser, upon reasonable
notice, shall have a the right at all times to inspect all
matters pertaining to Seller's corporate existence;
(c) the consideration and all other rights accruing
to Seller under this Agreement;
(d) $1,200,000 in Working Capital;
(e) the Accounts Receivable of Seller;
(f) any Accounts Payable in excess of $500,000;
(g) the rights to all of Seller's claims for any
federal, state, local or foreign tax refunds or adjustments;
(h) any rights and interests of Seller under
contracts, agreements and commitments that are not set forth on
Schedule 1.1(g); and
<PAGE>
(i) items of personal property, including furniture in
the office of Stockholder.
Section 1.3 Liabilities.
(a) Notwithstanding any other provision herein to the
contrary, Purchaser is not assuming and shall have no obligation
to pay, perform or discharge any liabilities, debts, accounts
payable or other obligations of Seller of any kind or nature
whatsoever, whether known or unknown, fixed or contingent,
whenever arising or accruing, other than the Assumed Liabilities
(as such term is defined in this Section 1.3).
(b) From and after the Closing Date, Purchaser shall
assume and perform the Assumed Liabilities and shall hold Seller
and Stockholder harmless therefrom. As used herein, the term
"Assumed Liabilities" means only the following:
(i) the Assigned Contracts set forth on Schedule
1.1(g) hereto; and
(ii) any trade or accounts payable in an amount
less than or equal to $500,000 of Seller
accrued prior to the Closing Date (Seller
shall provide Purchaser with a list of such
trade or accounts payable prior to the
Closing Date).
(c) Notwithstanding the foregoing, except for Assumed
Liabilities expressly and specifically set forth above, for
purposes of amplification and not of limitation Purchaser shall
not assume and shall have no obligation to pay or perform any of
the following debts, liabilities or obligations of Seller:
(i) any tax, fee or charge pertaining to the
Assets accruing on or prior to the Closing Date, including but
not limited to income, sales, use, transfer or other tax, whether
imposed on Seller or Purchaser, accruing due to the transactions
contemplated hereby;
(ii) any contract, agreement, lease or commitment
not specifically set forth on Schedule 1.1(g) hereto;
(iii)any environmental liability;
(iv) any debts, liabilities or obligations arising
under any guarantee, bond, debt, loan or credit agreement,
promissory note, mortgage, security agreement, pledge or other
similar agreement or instrument;
(v) any obligation or liability to indemnify any
person or entity (including but not limited to any officer,
director or stockholder) for any expense, loss, damage, judgment,
fine, cost, amount paid in settlement, legal fees or otherwise,
whether such indemnity is pursuant to any statute, charter
document, bylaws, agreement or otherwise;
(vi) any liability or obligation relating to any
financial indebtedness of Seller;
(vii) any debt, liability or obligation
incurred by Seller under this Agreement, or any cost or expense
incurred in connection herewith or the transactions contemplated
hereby, including, but not limited to attorney's fees and
broker's fees; or
<PAGE>
(viii) any other debt, liability or obligation
of Seller or of the Business, fixed, contingent or otherwise,
whenever accrued, whether or not arising in the ordinary course
of business.
Section 2.
Purchase Price and Payment.
Section 2.1 Purchase Price. Purchaser has audited the
books and financial records of Seller through February 28, 1998,
and, based on such audit, Purchaser has determined the amount of
initial consideration to be paid to the Seller in payment and
consideration for the sale and transfer of the Assets by Seller to
Purchaser. Upon the terms and subject to the conditions set forth
herein, Purchaser shall assume and thereafter perform the Assumed
Liabilities of Seller set forth in Section 1.3(b) hereof and
Purchaser shall pay to Seller as consideration (the "Initial
Consideration") the amounts set forth below. The Initial
Consideration shall be paid as follows:
(i) On the Closing Date the Seller shall receive
$5,528,715.00 in cash, of which $1,200,000 shall be deposited
into the Working Capital Account (the "Cash Portion"), to be
paid by certified or bank cashier's check or by wire transfer of
immediately available funds to an account designated by Seller
and the Working Capital Account;
(ii) On the Closing Date, Purchaser shall issue
and deliver to Seller an unsecured, subordinated, convertible
promissory note in the amount of $1,488,500 (the "Convertible
Note"), substantially in the form attached hereto as Annex VI.
The Convertible Note shall be interest free and shall be payable
in full on the Maturity Date if not converted. During the term
of the Convertible Note, the principal amount of the Convertible
Note shall be convertible, at Seller's option, into common stock,
par value $ .01 per share, of Purchaser (the "Common Stock"),
which shares shall be valued at the time of conversion, if any,
at the fair market value determined in accordance with
Purchaser's common practices, or, if Purchaser has consummated an
initial public offering ("IPO"), the price of Purchaser's Common
Stock shares as traded on the public markets (the "Fair Market
Value"). If Seller exercises its conversion rights hereunder,
then Seller shall, prior to the issuance by Purchaser of any
Common Stock pursuant to this subparagraph, return the
<PAGE>
Convertible Note to Purchaser for cancellation and execute a
Joinder Agreement substantially in the form attached hereto as
Annex IV binding it and all its shares of Purchaser Stock to the
provisions of the Stockholders' Agreements of Purchaser dated May
29, 1997, as amended form time to time (the "Stockholders'
Agreement"). Upon conversion of the Convertible Note, Seller
shall have waived any preemptive rights accorded to Stockholders
(as such term is defined in the Stockholders' Agreement) under
the Stockholders' Agreement;
(iii) On the Closing Date, Purchaser shall issue
and deliver to Seller an unsecured, subordinated promissory note
in the aggregate principal amount of $1,488,500 (the "First
Note") substantially in the form attached hereto as Annex V.
(iv) On the Closing Date, Purchaser shall assume the
Assumed Liabilities as defined herein; and
Section 2.2 Post-Closing Adjustments to Consideration.
(a) As promptly as practicable, and in any event not
more than ninety (90) days following the Closing Date, Purchaser,
together with its accountants, shall prepare and deliver to
Seller's accountants a proposed final closing balance sheet (the
"Proposed Final Closing Balance Sheet") for the period ended on
the Closing Date, prepared on a basis consistent with the
Purchaser's balance sheet. The Seller and Seller's accountants
shall have the right to consult during reasonable business hours
with appropriate personnel of Purchaser and Purchaser's
accountants and have access to, and review and make copies of,
the work papers of Purchaser and Purchaser's accountants with
respect to the preparation of the Proposed Final Closing Balance
Sheet.
(b) (i) The Seller may dispute the Proposed Final
Closing Balance Sheet prepared by Purchaser and Purchaser's
accountants by notice to Purchaser setting forth in reasonable
detail the amounts in dispute and the basis for such dispute
within forty-five (45) days of its receipt of the Proposed Final
Closing Balance Sheet. If the Seller fails to deliver a notice
of objections within such 45-day period, the Seller shall be
deemed to have accepted the Proposed Final Closing Balance Sheet
which shall then constitute the final Closing Balance Sheet (the
"Final Closing Balance Sheet").
(ii) If the balance in the Working Capital on the
Proposed Final Closing Balance is in dispute, Purchaser's
accountants and the Seller's accountants shall attempt in good
faith to resolve such dispute, and any resolution as to any
disputed amounts shall be final, binding and conclusive. If
there is no resolution of any such dispute within fifteen (15)
days of the date of receipt by Purchaser of a written notice of
dispute, Purchaser and the Seller shall, within five (5)
additional days, retain Coopers & Lybrand, L.L.P., which firm
shall, within thirty (30) days of such submission, resolve such
remaining dispute, and provide written notice of such resolution
by facsimile, confirmed by mail, and such resolution shall be
binding and conclusive. The fees and disbursements of Coopers
<PAGE>
& Lybrand, L.L.P. shall be borne by Purchaser in the proportion
that the aggregate amount of disputed items submitted to Coopers
& Lybrand, L.L.P. are in Seller's favor, and any of the remaining
amount shall be borne by Seller. After resolving the items in
dispute, Coopers & Lybrand, L.L.P. shall prepare and deliver a
Final Closing Balance Sheet and a certification of the
conclusions thereon.
(iii) If there is any Debt on the Final
Closing Balance Sheet, then Seller shall pay to Purchaser, in
cash, the Debt amount within seven (7) days after receiving a
copy of the Final Closing Balance Sheet.
Section 2.3 Additional Consideration Based on Performance.
STOCKHOLDERS Khatwani and Prioste will, pursuant to Section 5.9 of
this Agreement, be employed by Purchaser in the management of NEWCO.
Purchaser understands that STOCKHOLDERS Khatwani and Prioste will
utilize their best efforts in managing NEWCO. The best efforts
of STOCKHOLDERS Khatwani and Prioste notwithstanding, Purchaser
expressly agrees that neither Seller or STOCKHOLDER can guarantee
the future performance of NEWCO and that the Initial
Consideration paid to Seller pursuant to Section 2.1 of this
Agreement shall not be reduced, except as expressly provided for
in this Agreement, in any manner in relation to the future
performance of NEWCO. However, according to the following terms
and conditions, within ninety (90) days after May 31, 1999, upon
presentation of financial statements accompanied by a report of
Purchaser@s accountants demonstrating that NEWCO's NTM EBITDA
(the "NTM EBITDA Calculation") exceeds $2,126,429 (120% of LTM
EBITDA), the Seller shall receive additional consideration (the
"Additional Consideration"). In no event shall such Additional
Consideration exceed (20% of the total amount of Initial
Consideration or $2,126,429). Purchaser shall pay to Seller any
Additional Consideration as follows:
(i) The amount of the Additional Consideration
shall be determined as follows:
(a) If the NTM EBITDA does not exceed
$1,772,024.00 (LTM EBITDA), then Seller shall not receive any
Additional Consideration;
(b) If the NTM EBITDA is equal to or
greater than $2,126,429.00 (120% of LTM EBITDA), then Seller
shall receive, and Purchaser shall issue and deliver to Seller:
(1) An unsecured, subordinated,
convertible promissory note in the amount of $1,063,214.50 (the
"Second Convertible Note"). The Second Convertible Note shall be
interest free and shall be payable in full on the Maturity Date
if not converted. During the term of the Second Convertible Note,
the principal amount shall be convertible, at Seller's option,
into Common Stock of Purchaser, which shares shall be valued at
the time of conversion, if any, at the Fair Market Value. If
Seller exercises its conversion rights hereunder, then Seller
shall, prior to the issuance by Purchaser of any Common Stock
pursuant to this subparagraph, return the Second Convertible Note
to Purchaser for cancellation and execute a Joinder Agreement
substantially in the form attached hereto as Annex IV binding it
and all its shares of Purchaser Stock to the provisions of the
Stockholders' Agreements of ITP dated March 30, 1998, as amended
<PAGE>
from time to time (the "Stockholders' Agreement"). Upon
conversion of the Convertible Note, Seller shall have waived any
preemptive rights accorded to Stockholders (as such term is
defined in the Stockholders' Agreement) under the Stockholders'
Agreement; and
(2) An unsecured, subordinated
promissory note in the principal amount of $1,063,214 (the
"Second Note").
(c) If the NTM EBITDA is between
$1,772,024.00 and $2,126,429.00, then the principal amount of
the Second Convertible Note and the principal amount of the
Second Note shall be calculated as follows:
(1) by subtracting the amount of NTM
EBITDA from the LTM EBITDA;
(2) by dividing the result of
subparagraph (1) above by $354,405.00 (the difference between
NTM EBITDA and 120% of NTM EBITDA);
(3) by multiplying the result of
subparagraph (2) above by the maximum amount of the Additional
Consideration (20% of the total amount of the Initial
Consideration or $2,126,429.00); and
(4) by taking the result in
subparagraph (3) above and allocating one-half of such amount to
the Second Convertible Note and one-half the amount to the Second
Note.
(ii) If Seller is eligible to receive Additional
Consideration pursuant to Section 2.1(i)(c), then, within ninety
(90) days after May 31, 1999, Seller shall receive:
(a) The Second Convertible Note in the principal
amount to be determined in accordance with the NTM EBITDA
Calculation in Section 2.1(i)(c) above;
(b) a Second Note in the principal amount to be
determined in accordance with the NTM EBITDA Calculation in
Section 2.1(i)(c) above.
Section 2.4 NTM EBITDA Calculation Determination. The
STOCKHOLDER may dispute the NTM EBITDA calculation set forth in the
financial statements prepared by Purchaser and Purchaser's
accountants
by notice to Purchaser setting forth in reasonable detail the
amounts in dispute and the basis for such dispute within forty-
five (45) days of its receipt of such financial statements. If
the STOCKHOLDER fails to deliver a notice of objections within
such respective 45-day period, the STOCKHOLDER shall be deemed to
have accepted the NTM EBITDA. If the NTM EBITDA amount is in
dispute, Purchaser's and STOCKHOLDER's accountants shall attempt
in good faith to resolve such dispute, and any resolution as to
any disputed amounts shall be final, binding and conclusive. If
there is no resolution of any such dispute within fifteen (15)
days of the date of receipt by Purchaser of a written notice of
dispute, Purchaser and the STOCKHOLDER shall, within five (5)
additional days, retain Coopers & Lybrand, L.L.P., which firm
shall, within thirty (30) days of such submission, resolve such
<PAGE>
remaining dispute, and provide written notice of such resolution
by facsimile, confirmed by mail, and such resolution shall be
binding and conclusive. The fees and disbursements of Coopers &
Lybrand, L.L.P. shall be borne by Purchaser in the proportion
that the aggregate amount of disputed items submitted to Coopers
& Lybrand, L.L.P. are in STOCKHOLDER's favor, and any of the
remaining amount shall be borne by STOCKHOLDER. After resolving
the items in dispute, Coopers & Lybrand, L.L.P. shall prepare and
deliver financial statements for the period beginning June 1,
1998 and ending May 31, 1999, and a certification of the NTM
EBITDA set forth therein.
Section 2.5 Issued Shares. The Issued Shares shall be
issued by Purchaser in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws and shall
constitute "restricted securities" as such term is defined in
Section 144 promulgated under the Securities Act.
Section 2.6 Convertible Note and Second Convertible Note.
The Convertible Note and the Second Convertible Note, if any, shall
each be interest free. During the term of the Convertible Note or
the Second Convertible Note, unpaid principal, respectively, may be
converted into Common Stock shares of Purchaser at the Fair
Market Value of such shares at the time of conversion.
Section 2.7 First Note and Second Note. The First Note and
the Second Note, if any, shall bear interest, respectively, on the
unpaid principal balance at a fixed rate per annum equal to 8.0%
pursuant to the terms specified on Annex V attached hereto.
Section 2.8 Allocation of Purchase Price. The Consideration
set forth in Section 2.1, and any Additional Consideration paid in
accordance with Section 2.3 hereof shall be allocated among the
Assets
for all purposes (including financial reporting and tax purposes) as
set forth and contemplated herein. STOCKHOLDER and Purchaser each
hereby covenants and agrees that it will not take a position on any
income tax return, before any governmental agency charged with
the collection of any income tax, or in any judicial proceeding
that is in any way inconsistent with this Agreement.
Section 3.
Representations and Warranties of Seller and STOCKHOLDER.
Seller and STOCKHOLDER hereby jointly and severally
represents and warrants to and for the benefit of Purchaser as
follows:
Section 3.1 Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of
the
State of California. Seller is duly qualified or licensed to do
business and is in good standing as a foreign corporation in each
state and other jurisdiction in which the ownership, lease or
operation of the assets and properties or the conduct of its
business
requires such qualification or licensing, as set forth on Schedule
3.l
hereto, except where the failure to be so qualified would not
have a material adverse effect upon the Seller or the Business.
Except for the jurisdictions in which Seller is incorporated or
is qualified or licensed as a foreign corporation, (i) no other
jurisdiction has claimed, orally or in writing, that Seller is
required to be licensed or qualified as a foreign corporation
<PAGE>
therein, (ii) Seller has never filed any franchise, income or
other tax return in any other jurisdiction, based upon the
ownership, lease or operation of property or assets therein or
the derivation of income therefrom, and (iii) Seller does not
own, lease or operate any property in any other jurisdiction, and
the Assets are not located in any other jurisdiction.
Section 3.2 Subsidiaries. Seller has no direct or indirect
subsidiaries and does not own, hold or control, directly or
indirectly, any shares of capital stock or any equity, ownership,
management or voting interest in any corporation, general or limited
partnership, limited liability Seller, joint venture, business trust
or other business entity or association except as set forth on
Schedule 3.2.
Section 3.3 Power and Authority. Seller has all requisite
right, power and authority, corporate or otherwise, to conduct its
business and affairs (including the Business) as presently conducted
and as proposed to be conducted, to own, lease and operate its
assets
and properties (including the Assets), and to execute, deliver and
perform its obligations under, this Agreement and the other
agreements and instruments to be executed and delivered by Seller
hereunder (the "Related Seller Agreements"). The execution and
delivery by Seller of this Agreement and the Related Seller
Agreements and the performance by Seller of its obligations
hereunder and thereunder have been duly and validly authorized by
all requisite action, corporate or otherwise, of Seller.
Section 3.4 Enforceability. This Agreement and the Related
Seller Agreements have been, or at Closing will have been duly and
validly executed and delivered on behalf of Seller and constitute or
will constitute legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective
terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, receivership, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or affecting
creditors' rights and remedies generally, and by general
principles of equity, whether applied by a court of law or in
equity.
Section 3.5 No Conflicts. The execution and delivery by
Seller of this Agreement and the Related Seller Agreements and the
performance by Seller of the transactions and obligations
contemplated
hereby and thereby do not and will not, directly or indirectly, (a)
violate, conflict with, or constitute a breach of or a default (or
an
event that, after the giving of notice or the lapse or time or
both, would constitute a default) under, any provision of (i) its
articles of incorporation, bylaws or other charter or
organizational documents, (ii) any agreement among its
shareholders or between Seller and its shareholders, (iii) any
contract, obligation, note, security agreement, mortgage, bond,
indenture, lease, loan agreement, debt instrument or other
instrument, commitment or agreement to which Seller is a party or
by which Seller or any of its assets (including the Assets) is or
may be bound, or (iv) any license, franchise, approval,
certificate, permit or authorization held by Seller or applicable
to its assets (including the Assets), which violation, conflict,
<PAGE>
breach or default would have a material adverse effect upon the
Seller or the Business; (b) violate any applicable federal,
state, local or foreign law, statute, rule, regulation or
ordinance, or any order, injunction, writ, judgment, decree or
ruling of any court, arbitrator or governmental, quasi-
governmental, administrative or regulatory body, agency or
authority ("Governmental Authority"), which violation would have
a material adverse effect upon the Seller or the Business; (c)
result in the creation or imposition of any mortgage, lien,
pledge, security interest, conditional sales rights under any
applicable bulk sales or bulk transfer law or other title
retention agreement, or any other restriction, encumbrance or
claim of any kind or description on or against any of Sellers'
assets (including the Assets); or (d) constitute an event which
would permit any individual, Entity or Governmental Authority
(collectively, "Person") to terminate or modify any agreement,
instrument or commitment or to accelerate the maturity of any
debt, liability or obligation of Seller.
Section 3.6 Defaults. It is not presently in material
breach or violation of or material default under or conflict with
any item set forth in Section 3.5(a) or (b); and no event or
condition has occurred which, after the giving of notice or the
lapse of time or both, could be reasonably expected to result in any
such material breach, violation, default or conflict.
Section 3.7 Consents. Except as set forth on Schedule 3.7,
no consent, authorization, permit or approval of, notice or report
to,
or filing or registration with, or waiver (collectively, "Consents")
by, any Person is necessary for Seller to execute and deliver this
Agreement and the Related Seller Agreements and to perform its
obligations hereunder and thereunder. Prior to the Closing Date,
Seller shall obtain all Consents listed on Schedule 3.7 unless
failure to obtain such would not have a material adverse effect
on the Seller or the Business.
Section 3.8 Litigation. There are no actions, suits,
claims, investigations, arbitrations, hearings or other proceedings
(whether civil, criminal, administrative, investigative or informal)
(collectively, "Proceedings") pending or, to Seller's best
knowledge,
threatened by, before or involving any court, arbitrator or
governmental Authority (i) against or affecting Seller, the Business
or the Assets, (ii) in which any Person has sought or is reasonably
likely to seek to restrain or prohibit, or to obtain damages or
other relief in connection with, this Agreement or the Related
Seller Agreements or the transactions contemplated hereby or
thereby, (iii) which, if determined adversely to Seller, would be
reasonably likely to have a material adverse effect on Seller,
the Business or the Assets or Seller's ability to perform its
obligations hereunder or to consummate the transactions
contemplated hereby, or (iv) involving in whole or in part the
issue of criminal liability by Seller or any of its officers,
directors, employees or agents, or pertaining to the Assets or
the Business. Neither Seller nor any of the Assets are subject
to any outstanding judgment, order, writ, injunction or
governmental or regulatory order or authority. Seller is not
presently engaged in any legal action to recover moneys due from
<PAGE>
damages caused by or to enforce its rights against any third
party.
Section 3.9 Ability to Dispose of the Assets. Seller is
the sole legal owner of the Assets and has the sole dispositive
power with respect to the Assets.
Section 3.10 Brokers' Fees. Except as set forth on
Schedule 3.10, no broker, finder, investment broker or similar agent
is or shall be entitled to receive any fee, commission or other
remuneration or compensation relating to the transactions
contemplated by this Agreement based on any action taken by or on
behalf of Seller.
Section 3.11 Capitalization. The authorized capital stock
of Seller consists of ------ shares of common stock, par value
$----- per share, of which ----- shares are issued and
outstanding all of which are owned beneficially and of record by
STOCKHOLDER.
Section 3.12 Dividends. Seller has no liability or
indebtedness for dividends or other distributions declared or
accumulated but unpaid with respect to any of its outstanding
capital stock. Since February 28, 1998, Seller has not declared or
paid any dividends or other distributions to its shareholders.
Section 3.13 Corporate Documents. Seller has furnished to
Purchaser true and complete copies or originals, as the case may be,
of the following documents: (i) the articles of incorporation and
bylaws of Seller; (ii) the minute books of Seller containing all
records required to be set forth of all proceedings, consents,
actions
and meetings of the shareholders and board of directors (and all
committees thereof) of Seller; and (iii) the stock transfer books
of Seller setting forth all issuances and transfers of capital
stock of Seller.
Section 3.14 Financial Statements. Seller has furnished
(or, with respect to the 1997 financial statement prior to the
Closing
will forward,) to Purchaser true and complete copies of Seller's
audited balance sheets as of December 31, 1996 and 1997, and the
related statements of operations and cash flows for the fiscal years
then ended (together with the report thereon of an independent
certified public accountants, as to the 1997 financial statements
and to the 1996 financial statements, and in each case together
with the notes thereto). All such Financial Statements (together
with all related schedules and notes) (i) present fairly the
financial condition, results of operations and cash flows of
Seller as of the respective dates thereof and for the respective
periods covered thereby; (ii) have been prepared in accordance
with generally accepted accounting principles consistently
applied throughout the periods indicated and with prior periods
<PAGE>
(except for changes specifically noted therein); (iii) have been
prepared in accordance and consistent with the books and records
of Seller which have been maintained in accordance with sound
business practices, including the maintenance of an adequate
system of internal controls; and (iv) reflect reserves which are
reasonably adequate for all known or reasonably contemplated
liabilities or obligations of any nature, whether accrued,
absolute, fixed, contingent or otherwise and whether due or to
become due, and all reasonably anticipated losses.
Section 3.15 Absence of Undisclosed Liabilities. As of the
date hereof, except as set forth in the balance sheet of Seller as
of
February 28, 1998 and the related notes thereto ("1998 Balance
Sheet"), Seller does not have any debt, liability, guarantee, demand
or obligation of any kind or nature whatsoever, whether known or
unknown, whether accrued, absolute, contingent or otherwise, and
whether due or to become due, except for those that (i) are not
required by generally accepted accounting principles to be included
in the 1997 Balance Sheet, and (ii) have been incurred after the
date of
the 1997 Balance Sheet in the ordinary course of business and are
usual and normal in amount, both individually and in the
aggregate. To the best of Seller's knowledge, there has been no
circumstance, condition, event or arrangement that could be
reasonably expected to give rise to any additional debts,
liabilities or obligations of Seller.
Section 3.16 No Material Adverse Change.
(a) Since February 28, 1998, (i) the business of
Seller has been conducted only in its historic, ordinary course,
(ii) there has been no material adverse change in the Assets,
liabilities, Business, operations, affairs, condition (financial
or otherwise) or prospects of Seller; and (iii) there has been no
damage, destruction, loss, occurrence or event (whether or not
insured against) which, either singly or in the aggregate, has
had, or might reasonably be expected to have, a material adverse
effect on the Assets, liabilities, Business, operations, affairs,
condition or prospects (financial or otherwise) of Seller.
(b) Without limiting the generality of the foregoing,
since February 28, 1998, there has not been any:
(i) Sale, assignment, transfer, lease or other
disposition of any Assets, except of inventory and equipment to
customers in the ordinary course of business for fair
consideration;
(ii) Mortgage, pledge, lien, claim or other
encumbrance, created or imposed on or against any Asset;
(iii) Capital expenditure (or series of
related capital expenditures) by Seller exceeding $25,000;
(iv) Material destruction, damage to or loss
(whether or not insured against) of any Assets;
(v) Labor trouble, dispute, strike, work
stoppage, or other event or condition of any character, actual or
threatened;
<PAGE>
(vi) Declaration, setting aside, or payment of any
dividend or other distribution in respect of the capital stock of
Seller, or any direct or indirect redemption, purchase, or other
acquisition by Seller of any of its shares of capital stock;
(vii) Entering into any agreement, contract,
lease or license (or series of related instruments), either
involving more than $25,000, or outside the ordinary course of
business;
(viii) Modification, amendment, cancellation or
termination of any contract, agreement, lease or license to which
Seller is a party, except in the ordinary course of business;
(ix) Commencement or notice or threat of
commencement of any Proceeding against or affecting Seller, the
Business or the Assets;
(x) Incurrence of indebtedness for borrowed money
or increase in the long-term indebtedness of Seller;
(xi) Amendment to Seller's articles of
incorporation or bylaws;
(xii) Capital investment in, loan to or
acquisition of the securities or assets, or any other Person
(other than in the ordinary course of business);
(xiii) Grant of any license or sublicense of
any Assets or any rights under or with respect to any
Intellectual Property;
(xiv) Any transaction between Seller and any
of its officers, directors or employees, or involving any of the
Assets and involving any officers, directors or employees of
Seller;
(xv) Waiver, cancellation, compromise or release
of any material right or claim of Seller, or forgiveness or
cancellation of any material debt or claim;
(xvi) Loan by Seller to any Person, or
guaranty by Seller of any loan, debt or other obligation of any
other Person;
(xvii) Increase in the salary, benefits or
other compensation payable or to become payable by Seller to any
of its officers, directors, employees or consultants other than
normal merit increases, or the declaration, payment, or
commitment or obligation of any kind for the payment by Seller of
a bonus or other additional salary or compensation to any such
person;
(xviii) Agreement, contract, plan, policy or
arrangement binding upon Seller either created or modified as to
severance or termination benefits of any employee, officer,
director or agent;
(xix) Failure to maintain levels of inventory
proportionate to Seller's existing business, or alteration of the
inventory practices maintained by Seller during the previous
twelve months;
(xx) Other events or conditions of any
character that, individually or in the aggregate, (A) have or
<PAGE>
might reasonably have a material adverse effect on the Assets,
Business, operations, financial condition, liabilities or
prospects of Seller, or (B) cause or might reasonably be expected
to cause Seller to be in breach of any of its representations,
warranties or covenants hereunder; or
(xxi) Any agreement, commitment, arrangement
or understanding by Seller to do any of the actions described in
the preceding clauses (i) through (xvi).
Section 3.17 Taxes.
(a) Within the times (or if later all penalties and
interest related thereto having been paid in full) and in the
manner prescribed, Seller has accurately prepared in good faith
and properly filed all federal, state, local and foreign tax
returns, reports and forms required by law, rule, regulation or
otherwise to be filed and has paid all taxes, assessments and
penalties due and payable, and Seller has furnished to Purchaser
true and complete copies of all such tax returns, reports and
forms so filed since December 31, 1994. All tax returns, reports
and forms filed by Seller accurately set forth all items (to the
extent required to be included or reflected in such returns)
relevant to its future tax liabilities, including the tax bases
of the Assets. Seller has fully paid or has made adequate
provision in the 1997 Balance Sheet for all federal, state, local
and foreign taxes for the period ending on the date of the 1997
Balance Sheet. Seller has timely collected, withheld and paid
over all taxes required to be withheld by any federal, state,
local or foreign taxing authority and complied with all
information reporting requirements related thereto.
(b) There are no disputes pending or overtly
threatened by any taxing authority as to taxes of any nature
payable by Seller. No examinations or audits of the federal,
state, local or foreign tax returns of Seller are currently in
progress or, to the best knowledge of Seller, threatened or
proposed. No deficiency or adjustment for any tax has been
claimed, proposed or assessed against Seller by any taxing
authority. Seller has not waived or extended any applicable
statute of limitations relating to the assessment of federal,
state, local or foreign taxes. Seller is not a party to any tax
indemnity, tax sharing, or tax allocation agreement. There are
no tax liens upon any property or assets of Seller except for
taxes not yet due and payable.
(c) Seller has not filed and will not file any consent
agreement under Section 341(f) of the Code or agreed to have
Section 341(f) of the Code apply to any disposition of subsection
(f) assets (as such term is defined in Section 341(f)(4) of the
Code) owned by Seller. The acquisition of the Assets by
Purchaser will not result in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code, and
Seller is not a party to any agreement, plan or arrangement that
could give rise to any payment that would not be deductible
pursuant to Section 280G or Section 162 of the Code. No
outstanding debt obligations of Seller are "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
Seller is not a "United States real property holding company" as
defined in Section 897(c)(2) of the Code. Seller has not filed
an election under Section 338(g) or Section 338(h)(10) of the
Code or caused or been the subject of a deemed election under
Section 338(e) of the Code. Seller has not made any payments,
<PAGE>
and is not obligated to make any payment, and is not a party to
any agreement, plan or arrangement that under any circumstances
could obligate it to make any payments that will not be
deductible under Section 162(m) of the Code.
(d) As used in this Section 3.16, the term "tax"
includes all federal, state, local or foreign income, franchise,
profits, gross receipts, value added, net worth, real property,
personal property, sales, transfer, use, service, ad valorem,
stamp, environmental, windfall profits, employment, social
security, Medicare, disability, workers' compensation,
unemployment compensation, occupation severance, purchaser
premiums, excise, withholding, payroll and other taxes, charges,
fees, levies, tariffs, duties and other assessments of any kind
or nature, imposed by the laws and regulations of any
governmental jurisdiction (federal, state, local or foreign) or
by any taxing authority (federal, state, local or foreign) and
all interest, fines and penalties related thereto.
Section 3.18 Title to and Condition of Assets. The Assets
constitute all of the assets, rights and interests of every kind and
description that are used by Seller in the Business or necessary for
the Business and will permit Purchaser to operate the Business in
compliance with all legal requirements substantially as conducted by
Seller. All tangible Assets are physically located at 393 East
Grand Avenue, South San Francisco, California, 345 Spear Street, San
Francisco, California, 276 Main Street, San Francisco, California
or 5320 Pacific Concourse Drive, Los Angeles, California. Seller
has and will transfer to Purchaser at Closing good, valid,
marketable and exclusive title to and rightful and peaceful
possession of all of the Assets, free and clear of any and all
mortgages, liens, security interests, pledges, charges,
encumbrances, equities, rights of first refusal, options to
purchase, equitable interest, deeds of trust, claims, easements,
rights-of-way, covenants, conditions or restrictions of any kind
or nature whatsoever ("Liens"), except for (i) those disclosed in
the 1997 Balance Sheet; (ii) liens for current taxes not yet due
and payable; and (iii) liens disclosed on Schedule 3.18 hereto
which will be removed and released at or prior to the Closing.
Seller is in rightful possession of all premises and personal
property leased to it from others. All tangible personal
property of Seller is generally in good operating condition and
repair (ordinary wear and tear excepted), has been utilized or
serviced only in a manner that would not void or limit the
coverage of any warranty thereon, has been properly maintained
and are adequate and suitable for its intended purposes.
Section 3.19 Real Property. Seller does not, directly or
indirectly, own any real property. Schedule 3.19 hereto contains a
true and complete list of all leases and subleases pursuant to which
Seller is the lessee or lessor of any real property, complete and
accurate copies of which leases have been previously furnished to
Purchaser. Seller has a valid leasehold in and enjoys peaceful
and quiet possession of all property leased under such leases.
Section 3.20 Personal Property Leases. Schedule 3.20
hereto sets forth each lease of personal property under which Seller
is either a lessee or lessor of certain of the Assets. Each such
lease is in full force and effect and is a valid and binding
obligation of Seller and of each of the parties thereto. Seller is
not, and Seller does not have any knowledge that any other party is,
in default with respect to any material term or condition of any
such lease, and no event has occurred which through the passage of
time or
the giving of notice, or both, would constitute a material default
thereunder or would cause the acceleration of any obligation of
any party thereto or the creation of a lien or encumbrance upon
any Asset.
<PAGE>
Section 3.21 Inventory. All of Seller's inventory of raw
materials, work in process and finished goods, parts and supplies
(including inventory on consignment) consists of items of a quantity
and quality usable and saleable in the ordinary course of business
by
Seller (net of any reserve reflected in the 1997 Balance Sheet),
except for obsolete, defective, damaged and slow-moving items and
items below standard quality, all of which have been written down on
the books of Seller to net realizable market value or have been
provided for by adequate reserves in the 1997 Balance Sheet. All
inventories of finished goods consist of items that have been
manufactured in accordance with, and which meet, applicable
industry standards. All inventories are correctly marked. The
inventories shown on the 1997 Balance Sheet are based on
quantities determined by physical count or measurement and are
valued at the lesser of cost (determined on a first-in, first-out
basis) or market value and on a basis consistent with that of
prior years and are adjusted for excess and obsolescence in
compliance with Seller's accounting policies which have been
delivered in writing to Purchaser.
Section 3.22 Intellectual Property.
(a) Schedule 3.22 sets forth a complete and accurate
list and brief description of all patents, trademarks, logos,
service marks, trade names, corporate names, fictitious names and
copyrights, and each application therefor, which are either owned
by Seller or which are used by Seller in the Business and, in
each case where Seller is not the owner thereof, the name of the
owner thereof. Except as set forth in Section 3.21, Seller is
the exclusive owner of or possesses adequate and valid licenses
and other rights to use all of the items set forth in Schedule
3.21 hereto and all trade secrets, licenses, inventions,
processes, discoveries, developments, designs, formulas, know-
how, drawings, customer and supplier lists, software,
confidential information and other proprietary information and
all other proprietary rights, intangible assets and intellectual
property, and all copies and tangible embodiments thereof in
whatever form or medium (collectively, "Intellectual Property")
necessary for the operation of the Business as presently
conducted and as proposed to be conducted.
(b) All rights of Seller in and to its Intellectual
Property will be transferred to Purchaser at the Closing.
(c) Seller has taken all necessary and desirable
action to maintain and protect each item of Intellectual Property
that it owns or uses. To Seller's best knowledge, Seller has not
interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of any
<PAGE>
third parties, and Seller has never received any charge,
complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or conflict
(including any claim that Seller must license or refrain from
using any Intellectual Property rights of any third party). To
Seller's best knowledge, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of Seller. No claim,
demand, assertion, action, suit, arbitration, hearing,
investigation or proceeding is pending or, to the best knowledge
of Seller, threatened, which pertains to or challenges the
validity, ownership or enforceability of any right of Seller in
respect to of Intellectual Property. To Seller's best knowledge,
the continued operation of the Business as currently conducted
will not interfere with, infringe upon, misappropriate or
otherwise come into conflict with any Intellectual Property
rights of any third parties.
(d) Seller is not a party to any agreement, document,
arrangement or understanding pursuant to which Seller has
licensed or granted any right or interest in, to or under any of
its Intellectual Property. Seller is not obligated or under any
liability whatsoever to make any payment, by way of fees,
royalties or otherwise, to any owner or licensor of, or other
claimant to, any of the Intellectual Property. Seller has not
disclosed any of its trade secrets or other proprietary or
confidential information to any Person, except pursuant to a loan
or other agreement obligating the recipient to maintain the
confidentiality thereof. To the best of Seller's knowledge, no
employee of Seller is subject to any agreement, arrangement or
commitment with any former employer or other person, or is
subject to any judgments, order, decree or ruling of any court,
arbitrator or Governmental Authority regarding confidential
information, or rights or restrictions on competition, that would
otherwise affect such employee's ability to perform his duties to
Seller. Seller has never agreed to indemnify any person for or
against any interference, infringement, misappropriation or other
conflict with respect to any item of its Intellectual Property.
Section 3.23 Name. Seller has the exclusive right in
perpetuity to use the name "Servinet Consulting Group, Inc." in the
State of California and any derivations and variations thereof, for
and in connection with the Business, and has not granted and will
not
grant to any other Entity the right to use, and will not after the
Closing use, such names as either corporate names, trade names or
fictitious names.
Section 3.24 Relationships with Suppliers and Customers.
Schedule 3.24 contains a complete and accurate list of (i) the
names,
addresses and dollar amounts of business of each of the 20 largest
customers of the Seller, in terms of sales during 1997, and (ii) the
name, address and dollar amounts of business of each of the Seller's
10 largest suppliers during the 1997 fiscal year. Since December
31,
1997, no supplier or customer of Seller has canceled any contract or
order or has indicated any intention to terminate or materially
alter its existing business relationship with Seller, whether as
a result of the transactions contemplated hereby or otherwise
which cancellation or termination would have a material advance
effect on the business of Seller. Seller is not involved, and
Seller has no knowledge of any facts or circumstances which is
<PAGE>
reasonably expected could result, in any material claim, dispute
or controversy, with any of its material suppliers or customers.
Section 3.25 Labor and Employment Matters.
(a) Schedule 3.25(a) contains a true list of all
persons employed full time by Seller as of May 31, 1998 or as of
the Closing Date, whichever date is later.
(b) Seller is not a party to any contract, collective
bargaining agreement or other agreement with any labor union
including any collective bargaining agreement. There has never
been an actual or threatened labor dispute, strike, picket, work
slowdown, work stoppage or any other job action at any business
location of Seller. There is no unfair labor practice complaint
against Seller pending before the National Labor Relations Board
or any state or local agency, no pending or threatened labor
strike or other material labor trouble affecting Seller, no
material labor grievance pending or threatened against Seller, no
pending representation question respecting the employees of
Seller, no pending or threatened arbitration proceedings arising
out of or under any collective bargaining agreement to which
Seller is a party, and no basis for which a claim may be made
under any collective bargaining agreement to which Seller is a
party or under which Seller is alleged to be obligated. No union
organizing attempts have been made or threatened. Seller has not
received a demand for recognition from any labor union with
respect to, and, to Seller's knowledge, no attempt has been made
or is being made to organize, any of the persons employed by
Seller.
(c) Seller is in compliance in all material respects
with all applicable laws, rules and regulations respecting the
employment of, including but not limited to, fair employment
practices, terms and conditions of employment, and wages and
hours. Seller has not engaged in any unfair or illegal labor
practice, and there are no charges or claims of employment
discrimination or unfair labor practices pending, or, to the best
knowledge of Seller after due inquiry, threatened against,
Seller.
(d) No proceedings or claims are pending or, to the
best knowledge of Seller, threatened against Seller with respect
to any violation or alleged violation of any applicable federal,
state or local laws, rules and regulations relating to the
employment of labor, including, without limitation, those related
to wages and hours, collective bargaining, discrimination on any
basis, including without limitation, on the basis of race, color,
religion, sex, national origin or age, and Seller has complied in
all material respects with all applicable laws and regulations
relating to employment of labor.
(e) Seller has made, or will have made, payment in
full to all of its employees through the end of the payment
period ending immediately prior to the Closing Date of all wages,
salaries, commissions, bonuses, benefits and other compensation
due to such employees or otherwise arising under any policy,
practice, agreements, plan, program, statute or law.
(f) Seller, STOCKHOLDER and their affiliates are in
compliance with their obligations, if any, pursuant to the
Workers Adjustment and Retraining Notification Act of 1988, as
amended ("WARN"), and all other notification obligations arising
<PAGE>
under any federal, state or local, or foreign statute, rule or
regulation.
Section 3.26 Employee Benefit Plans.
(a) List of Plans. Except for the plans set forth on
Schedule 3.26 hereto, Seller does not now nor has it ever
established, maintained, sponsored or contributed to any "employee
benefit plan. as such term is defined in Section 3(3) of the
Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any other welfare,
bonus, deferred compensation, retirement, incentive, pension,
profit sharing, stock purchase, stock option, stock appreciation
right, severance, or other similar employee benefit plan,
program, policy, arrangement or practice, whether formal or
informal, written or oral (collectively, "Employee Plans"),
covering any current or former employee, officer or director of
Seller.
(b) Claims. No Proceeding with respect to any
Employee Plan (other than routine claims for benefits) is pending
or,
to the best knowledge of Seller, threatened, and the Seller (and
employees with responsibility for employee benefits matters) has no
knowledge of any facts that it is reasonably expected could form the
basis for any such action, suit, proceeding, hearing or
investigation.
(c) ERISA Liabilities. To the best of Seller's
knowledge, neither Seller, nor any of the Employee Plans, nor any
trust created thereunder, nor, to the knowledge of Seller, any
fiduciary (as defined in Section 3(21) of ERISA) thereof, is or has
been in violation of, or has incurred any liability, directly or
indirectly, under any provision of ERISA or the Code or to its
Pension
Benefit Guaranty Corporation ("PBCC"), other than liability for
premiums due to the PBCC which, to the extent they are due and
payable, have been paid.
(d) Severance Obligations. Seller has not entered
into any severance or similar arrangement in respect to any present
or
former employee that would result in the obligation, absolute or
contingent, of the Purchaser to make any payment to any present or
former employee following termination of employment.
(e) Liabilities Due to Agreement. The consummation of
the transactions contemplated hereby will not (i) modify or
accelerate any benefits or the vesting of benefits under any
Employee Plan or constitute an event entitling any Person to any
additional or other benefits, or (ii) result in any liability to
Purchaser for taxes, penalties, interests or other claims resulting
from any Employee Plan.
<PAGE>
Section 3.27 Insurance. Schedule 3.27 hereto sets forth a
complete and accurate list of all of the insurance policies (showing
the insurer, types of coverage, policy expiration dates, policy
numbers, deductibles and policy limits as to each such policy)
currently in force under which the Assets are insured or which
provide for bonding and surety arrangements in connection with the
Business. All such policies are in full force and effect and have
been issued
under valid policies for the benefit of Seller by properly
licensed insurance companies. The premiums on such policies have
been paid as they became due and payable, and Seller is not in
default with respect to payment of premiums on any such policy.
All of the Assets of a type customarily insured are covered by
effective insurance in amounts at least equal to their fair
market value, and such insurance provides protection against
losses and risks that are customarily insured against by
comparable businesses.
Section 3.28 Contracts.
(a) Except as set forth on Schedule 3.28, each lease,
contract, agreement, license, understanding, indenture, mortgage,
deed of trust, sales order, obligation and commitment
("Contract") to which Seller is a party, or by which it or any of
the Assets are bound, (i) is in full force and effect and is a
valid and binding obligation of Seller and of the other parties
thereto, enforceable by Seller in accordance with its terms, and
(ii) if an Assigned Contract, may be transferred by Seller to
Purchaser without penalty and will be enforceable by Purchaser.
Neither Seller nor, to the best knowledge of Seller, any other
party to such Contract is in any material respect in breach of or
in default under any Contract, nor has any event or circumstance
occurred which, with notice or lapse of time or both, would
constitute a material breach or default of the Contract. Seller
has not received notice and has no reason to believe that any
party to any Contract intends to cancel or terminate any Assigned
Contract or to exercise or not exercise any option thereunder.
(b) Schedule 3.28 hereto sets forth a complete and
accurate list of each of the following Contracts to which Seller
is a party or by which the Assets are bound: (i) any
distributor's or manufacturer's representative or agency
agreement; (ii) any output or requirements agreements; (iii) any
agreement not entered into in the ordinary course of business;
(iv) any indenture, mortgage, deed of trust, lease or any
agreement that is unusual in nature, duration, or amount
(including, without limitation, any agreement requiring the
performance by the Seller of any obligation for a period of time
extending beyond one year from the Closing Date involving total
consideration of more than $10,000); (v) any contract with any
Government Authority, (vi) any Contract that is materially
adverse to the business, properties, assets, liabilities,
financial condition or results of operations of Seller; (vii) any
Contract for the lease of personal property to or from any
Person; (viii) any Contract for the purchase or sale of raw
materials, commodities, supplies, products or other personal
property, or for the furnishing or receipt of services, the
performance of which would extend over a period of more than one
(1) year or that involves consideration in excess of $10,000;
(ix) any Contract concerning a partnership or joint venture; (x)
any Contract under which it has created, incurred, assumed,
guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, or under which it has imposed a
lien on any of the assets; (xi) any Contract concerning
confidentiality or non-competition; (xii) any Contract involving
<PAGE>
any director, officer, stockholder or other affiliate of Seller;
(xiii) any Contract for the employment of any individual on a
full-time, part-time, consulting, independent contractor or other
basis or providing severance benefits; (xiv) any profit sharing,
deferred compensation, severance, termination or other plan or
arrangement for the benefit of current or former directors,
officers, or employees; (xv) any Contract under which it has
advanced or loaned any amount to any of its directors, officers
or employees; or (xvi) any Contract material to the Assets or the
Business.
Section 3.29 Licenses. All licenses, rights, privileges,
franchises, permits, approvals, consents and other authorizations
related to the Assets reasonably necessary for the lawful conduct of
the Business as it is presently conducted and reasonably necessary
to own, operate, maintain and use the Assets in the manner in which
they are now being operated, maintained and used, including all
applicable zoning, environmental, health, safety and other permits,
have been timely obtained and are currently in effect, and Seller
has not violated, and is not in violation of, any such licenses,
rights, privileges, permits, franchises, consents or other
authorizations.
Section 3.30 Product Liability Claims. No Proceeding is
pending or, to the best knowledge of Seller, threatened against or
affecting Seller, arising out of any injury to individuals or to
property as a result of the ownership, possession or use of any
product manufactured, sold, leased or delivered by Seller, and
Seller knows of no facts, circumstances, actions or omission that
could reasonably create the basis for any such Proceeding.
Section 3.31 Product Warranties. Schedule 3.31 sets forth
a complete and accurate description of all warranties and pending
warranty and service obligations of Seller to its customers with
respect to the products manufactured or sold by Seller within the
two year period prior to the date of this Agreement, including the
beginning and ending dates of such warranty obligations, and a
summary of the warranty charges incurred by Seller during 1996,
1997 and to date in 1998. Schedule 3.31 also contains a copy of
all such written warranties, and a list and amount of all
products manufactured or sold by Seller. Each product
manufactured, sold, leased or delivered by Seller to any of its
customers has been in conformity with all applicable contractual
commitments and all express and implied warranties. Seller has
no current liability, and knows of no reasonable basis for any
present or future Proceeding against it giving rise to any
<PAGE>
liability, for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product
warranty claims set forth on the 1997 Balance Sheet. There is no
pending or, to the best knowledge of Seller, threatened
Proceeding under such warranties.
Section 3.32 Compliance with Laws. Seller, the Business
and the Assets are and have been in material compliance with all
applicable federal, state, local and foreign laws, statutes,
ordinances, rules, regulations, codes, licenses, permits, orders,
judgments, decrees and other legal requirements (including, without
limitation, those applicable to building, health, employment, labor,
product liability, zoning, occupational safety, conservation, unfair
competition, labor practices or corrupt practices) which affect
or are applicable to the Assets and the Business.
Section 3.33 Environmental Laws.
(a) Seller is, and at all times has been, in
compliance in all material respects with all federal, state,
local and foreign laws (whether common or statutory), statutes,
codes, rules, regulations, orders, injunctions, decrees,
judgments, compacts, treaties, conventions, legal doctrines,
plans, demand letters, agreements with any governmental or
regulatory authorities and all other requirements relating to
pollution or the protection of health, safety or the environment
("Environmental Laws"), including without limitation the release,
discharge or emission of any Hazardous Substances (as defined
below) into the environment (including, without limitation
ambient air, surface water, ground water, land surface, or
subsurface strata) and the manufacture, generation, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances, resulting from the operation of
the Business or the ownership, lease or use of the Assets, or
relating to any real estate currently or previously owned but
leased by Seller.
(b) Seller has not received any notices, demand
letters, citations, summons, complaints or requests for
information from, and no action, suit, hearing, investigation,
order or other proceeding is pending or, to the best knowledge of
Seller, threatened by or before any court, Governmental Authority
or other Person regarding any actual or threatened violation of
or liability under any Environmental Law.
(c) Seller is not subject to any judicial, executive,
legislative, regulatory or administrative ruling, order or decree
arising under or relating to any Environmental Law.
(d) Seller has timely obtained, currently holds and is
in compliance in all material respects with the provisions of all
permits, licenses, certificates, consents and other
authorizations and approvals required in connection with the
operation of its business and the ownership, leasing or use of
its assets and properties under all Environmental Laws.
(e) Seller is not aware of any event, condition,
circumstance, activity, practice, action or plan which is
reasonably likely to (i) prevent continued compliance with the
foregoing, (ii) give rise to any liability under any
Environmental Law, including but not limited to liability based
on or resulting from Seller's manufacturing, processing,
distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge or release into the
environment of any Hazardous Substance, (iii) give rise to any
liability for remedial actions (including removal, clean-up,
response and monitoring), or (iv) otherwise have a material
adverse effect on Seller or cause Seller to incur substantial
costs. No Hazardous Substance has been used, stored, placed,
treated, transported, manufactured, generated, processed,
deposited, distributed, handled, released, deposited, spilled,
discharged or disposed of on or under any property currently or
<PAGE>
previously owned or leased by Seller except for common household
and office products in de-minimis quantities.
(f) There is no above-ground or underground storage
tank located on or under, or to Seller's best knowledge any
asbestos located on, any real property or structure owned or
leased by Seller.
(g) As used herein, the term "Hazardous Substance"
means (i) any substance or material heretofore or hereafter
designated as "hazardous" or "toxic" under the Resource
Conservation and Recovery Act, 42 U.S.C. sec 9601 et seq., the
Federal Water Pollution Control
Act, 33 U.S.C. sec 1251 et seq., the Clean Air Act, 42 U.S.C. sec
7401 et seq., the Comprehensive
Environmental Response Compensation and Liability Act of 1980, 42
U.S.C. sec9601 et seq., or
the Hazardous Materials Transportation Act, 49 U.S.C. sec 1801 et
seq., all as amended and in the
regulations promulgated thereunder pursuant thereto; (ii) any
"solid waste," "hazardous waste," "contaminant," "pollutant" or
"infectious waste," as such terms are defined in any other
Environmental Law at any time; (iii) asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), methylene chloride,
trichlorethylene, 1,2-transdichloreoethyline, dioxins,
dibenzofurans, nuclear fuel or material, chemical waste,
radioactive material, explosives, known carcinogens, petroleum
products and byproducts, and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances
listed or identified in, or regulated by, any Environmental Law;
(iv) any substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.17d.101 and amendments
thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 C.F.R. Part 302 and
amendments thereto); and (v) any additional substances, materials
and wastes which at any time become classified or considered to
be hazardous or toxic under any Environmental Law.
Section 3.34 No Loss of Rights or Legal Obstacles. The
execution and delivery of this Agreement and the Related Seller
Agreements by Seller and its
performance of the transactions and its obligations contemplated
hereby and thereby do not and will not: (a) result in any loss of
any material legal right of Seller being transferred to
Purchaser; (b) result in any termination, modification or
cancellation of any Assigned Contract; (c) result in the
termination, modification, or cancellation of, give rise to any
right of termination, modification, or cancellation with respect
to, give rise to the acceleration of any performance required
under, result in any increase in any payment due or other
liability under, change the performance required under, or
otherwise adversely affect any material contract, or modify any
material contract, or result in, or require, the creation or
imposition of any material lien, charge, or encumbrance upon the
Assets, or result in the termination or impairment of any
<PAGE>
material permit, license, franchise, or authorization pertaining
to the Assets; or (d) to the best of Seller's knowledge,
adversely affect the Assets or the Business in any material
respect.
Section 3.35 Bank Debt. Schedule 3.35 hereto sets forth a
complete and accurate list of all loans and credit agreements, line
of credit, promissory
notes, loan agreements and other arrangements between Seller and
any bank, financial institution, lender or creditor of any sort.
Section 3.36 Transactions with Shareholders and Employees.
Seller has no outstanding loans or other advances to, and is not a
party to any
lease, license or other agreement, understanding or arrangement
with, any shareholder, officer, director or employee of Seller,
other than out-of-pocket expenses incurred in the ordinary course
of business. No shareholder, officer, director or employee of
Seller owns or has any interest in any of the Assets.
Section 3.37 Absence of Certain Commercial Practices. To
the best of Seller's knowledge, neither Seller nor any officer,
director, employee or
agent of Seller (or any Person acting on behalf of any of the
foregoing), has directly or indirectly (i) given or agreed to
give any gift or similar benefit of more than nominal value on
behalf of Seller to any customer, supplier, employee or official
of any Governmental Authority (domestic or foreign), to induce
the recipient or his employer to do business, grant favorable
treatment or compromise or forego any claim, (ii) made any
significant payment which might be improper under prevailing law
(regardless of the jurisdiction in which such payment was made)
to promote or retain sales or to help, procure or maintain good
relations with suppliers, (iii) engaged in any activity which
constitutes a violation of the Foreign Corrupt Practices Act of
1977, as amended, and the rules and regulations promulgated
thereunder, (iv) engaged in any practice violating any law
prohibiting compliance with an unsanctioned foreign boycott, (v)
established or maintained any unrecorded or illegal corporate
fund or account or assets, (vi) made false or fictitious entries
on the books or records of Seller, or (vii) failed to perform its
obligations in any material respect under any Contract with, or
violated in any material respect any federal law known to Seller
in its dealings with, the Federal government or any agency or
department thereof, including, but not limited to, any law with
respect to conspiracy to defraud, false claims, conspiracy to
defraud the United States, embezzlement or theft of public money,
fraud and false statements, false demands against the United
States, mail fraud, wire fraud, RICO, and truth in negotiations.
To the best of Seller's knowledge, no such gift or benefit is
required in connection with the operations of Seller or its
business to avoid any fine, penalty, cost, expense or adverse
change in the assets, properties, liabilities, financial
condition, results of operations or business of Seller.
Section 3.38 Non-Foreign Status. Seller is not a "non-
resident alien", "foreign corporation", "foreign partnership",
"foreign trust" or "foreign estate" within the meaning of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
Section 3.39 Full Disclosure. No representation, warranty
or other statement by Seller in this Agreement, or in any schedule,
exhibit, certificate, financial statement or other instrument or
document furnished or to be furnished to Purchaser, contains
or will contain any untrue statement of a material fact or omits
or will omit any material fact necessary in order to make any
of the statements contained herein or therein, when taken as
a whole, not false or misleading in any material respect in
light of the circumstances in which
they were made. There is no fact or circumstance known to Seller
that materially adversely affects, or in the future may be
reasonably expected to (insofar as Seller can now reasonably
foresee) materially adversely affect, the Assets or the
properties, liabilities, business, affairs, operations, condition
(financial or otherwise) or prospects of Seller that has not been
set forth herein or otherwise described to Purchaser.
Section 4.
Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to and for the
benefit of Seller and STOCKHOLDER as follows:
Section 4.1 Organization. Purchaser is a corporation duly
organized, validly existing
and in good standing under the laws of the State of Delaware.
Purchaser is duly qualified or licensed to do business and is in
good standing as a foreign corporation in each state and other
jurisdiction in which the ownership, lease or operation of the
assets and properties or the conduct of its business requires
such qualification or licensing, as set forth on Schedule 4. l
hereto. Except for the jurisdictions in which Purchaser is
incorporated or is qualified or licensed as a foreign
corporation, (i) no other jurisdiction has claimed, orally or in
writing, that Purchaser is required to be licensed or qualified
as a foreign corporation therein, (ii) Purchaser has never filed
any franchise, income or other tax return in any other
jurisdiction, based upon the ownership, lease or operation of
property or assets therein or the derivation of income therefrom,
and (iii) Purchaser does not own, lease or operate any property
in any other jurisdiction, and the Assets are not located in any
other jurisdiction.
Section 4.2 Power and Authority Purchaser has, or will as
of the Closing Date have all
requisite right, power and authority, corporate or otherwise, to
conduct its business and affairs as presently conducted and as
proposed to be conducted, to own, to lease and operate its assets
and properties, and to execute all requisite right, power and
authority, corporate or otherwise, to execute, deliver and
perform its obligations under this Agreement and the other
agreements and instruments to be executed and delivered by
Purchaser hereunder (the "Related Purchaser Agreements"). The
execution and delivery by Purchaser of this Agreement and the
Related Purchaser Agreements and performance of Purchaser's
obligations hereunder and thereunder has been, or as of the
<PAGE>
Closing Date will have been duly and validly authorized by all
requisite action, corporate or otherwise, of Purchaser.
Section 4.3 Enforceability. This Agreement and the Related
Purchaser Agreements
have been, or as of Closing will have been duly and validly
executed and delivered on behalf of Purchaser and constitute, or
will constitute as of the Closing Date the legal, valid and
binding obligations of Purchaser, enforceable against Purchaser
in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, receivership,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights and remedies generally,
and by general principles of equity.
Section 4.4 No Conflicts. The execution and delivery by
Purchaser of this Agreement
and the Related Purchaser Agreements and the performance by
Purchaser of the transactions and obligations contemplated hereby
and thereby do not and will not (a) violate, conflict with,
contravene or constitute a breach or a default (or an event that,
after the giving of notice or the lapse or time or both, would
constitute a default) under any provision of (i) its certificate
of incorporation, bylaws or other charter or organizational
documents; (ii) any agreement among its shareholders or between
Purchaser and its shareholders; (iii) any contract, agreement,
obligation, understanding, commitment, note, security agreement,
lease, loan agreement, debt instrument or other instrument or
agreement to which Purchaser is a party or by which Purchaser or
any of its assets is or may become bound; (iii) any license,
approval, certificate, permit or authorization held by Purchaser;
or (b) violate any applicable federal, state or local law,
statute, rule, regulation or ordinance, or any order, injunction,
writ, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority.
Section 4.5 Consents. No Consent by any Person is
necessary for Purchaser to execute and deliver this Agreement and
the Related Purchaser Agreements,
and to perform its obligations hereunder and thereunder.
Section 4.6 Litigation. There are no Proceedings pending
or, to the best of its
knowledge, threatened by or before any court, arbitrator or
Governmental Authority against Purchaser (i) in which any Person
is seeking or is reasonably likely to seek to restrain or
prohibit, or to obtain damages or other relief in connection
with, this Agreement or the Related Purchaser Agreements or the
transactions contemplated hereby or thereby, (ii) which if
determined adversely to Purchaser would be reasonably likely to
have a material adverse effect on Purchaser's ability to perform
its obligations hereunder or to consummate the transactions
contemplated hereby, (iii) which, if determined adversely to it,
would be reasonably likely to have a material adverse effect on
the assets, business, affairs, financial condition or operations
of Purchaser or (iv) involving in whole or in part the issue of
criminal liability by Purchaser or any of its officers,
directors, employees or agents, or pertaining to its assets or
business. Neither Purchaser nor any of its assets are subject to
any outstanding judgment, order, writ, injunction or governmental
<PAGE>
or regulatory order or authority which would have a material
adverse effect on this Agreement or any of the Related Purchaser
Agreements. Purchaser is not presently engaged in any legal
action to recover moneys due from damages caused by or to enforce
its rights against any third party which would have a material
adverse effect on this Agreement or any of the Related Purchaser
Agreements.
Section 4.7 Shares. The Shares have been validly
authorized and, when issued as
contemplated by this Agreement, will be validly issued, fully
paid and non-assessable.
Section 4.8 Capitalization of Purchaser. As of the date
hereof, the authorized capital
stock of Purchaser consists of 20,000,000 shares of Common Stock,
par value $.01 per share, of which
shares are issued and outstanding, and 6,000,000 of Preferred
Stock, par value $.01 per share, of which
shares are issued and outstanding.
Section 4.9 Capitalization of NEWCO. As of the date
hereof, the authorized capital
stock of NEWCO consists of 1,000 shares of Common Stock, par
value $.01 per share, of which 100 shares are issued and
outstanding.
Section 4.10 Financial Statements. In all material
respects, the February 28, 1998
financial statements of Purchaser (including any notes thereto)
were prepared in accordance with generally accepted accounting
principles applied on a consistent basis through the periods
covered thereby (except as disclosed in such financial
statements), and fairly present in all material respects the
consolidated financial condition of Purchaser as of the dates
thereof and the consolidated results of Purchaser's operations
and consolidated cash flow for the periods then ended, subject,
in the case of any unaudited interim financial statements, to the
omission of certain notes not ordinarily accompanying such
unaudited financial statements, and to normal year-end
adjustments.
Section 4.11 Absence of Adverse Change. Since February 28,
1998, there has not been
any material adverse change in the assets, business, affairs,
operations, financial condition or operations of Purchaser.
Section 4.12 No Brokers. No broker, finder, investment
broker or similar agent is or
shall be entitled to receive any fee, commission or other
remuneration or compensation relating to the transactions
contemplated by this Agreement based on any action taken by or on
behalf of Purchaser.
<PAGE>
Section 4.13 Corporate Documents. Purchaser has furnished,
or will furnish to Seller
true and complete copies or originals, as the case may be, of the
following documents: (i) the articles of incorporation and bylaws
of Purchaser; and (ii), if requested, the minute books of
Purchaser containing all records required to be set forth of all
proceedings, consents, actions and meetings of the shareholders
and board of directors (and all committees thereof) of Purchaser.
Section 4.14 Compliance with Laws. To Purchaser's
knowledge and belief it is and
has been in material compliance with all applicable federal,
state, local and foreign laws, statutes, ordinances, rules,
regulations, codes, licenses, permits, orders, judgments, decrees
and other legal requirements (including, without limitation,
those applicable to building, health, employment, labor, product
liability, zoning, occupational safety, conservation, unfair
competition, labor practices or corrupt practices) which affect
or are applicable to its assets and business.
Section 4.15 Full Disclosure. No representation, warranty
or other statement by
Purchaser in this Agreement, or in any schedule, exhibit,
certificate, financial statement or other instrument or document
furnished or to be furnished to Seller, contains or will contain
any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make any of the statements
contained herein or therein, when taken as a whole, not false or
misleading in any material respect in light of the circumstances
in which they were made. There is no fact or circumstance known
to Purchaser that materially adversely affects, or in the future
may be reasonably expected to (insofar as Purchaser can now
reasonably foresee) materially adversely affect, the assets or
the properties, liabilities, business, affairs, operations,
condition (financial or otherwise) or prospects of Purchaser that
has not been set forth herein or otherwise described to Seller.
Section 5. Pre-Closing Covenants.
Section 5.1 Conduct of Business of Seller.
(a) From the date of this Agreement until the Closing,
Seller shall conduct its business only in the ordinary course
consistent with past practices, including but not limited to (i)
using its best efforts to (i) preserve intact its business
organization and its good will, including its relationships with
its suppliers, customers, lenders and others having business
relationships with it, (ii) perform all its obligations in
accordance with their terms, (iii) maintain the Assets in good
operating condition, (iv) keep available the services of its
present lessors, lessees, licensors, licensees, suppliers,
customers, employees and agents, and (v) comply with all
applicable laws, rules, regulations and orders.
(b) Without limiting the generality of the foregoing,
from the date of this Agreement until the Closing, Seller shall
not, without the prior written consent of Purchaser:
<PAGE>
(i) Take any action referred to in Section
3.15(b) hereof;
(ii) Take any action or omit to take any action
which would breach any covenant or agreement of Seller herein; or
(iii) Take any action which would cause any
representation or warranty of Seller herein to be inaccurate in
any material respect.
Section 5.2 Access.
(a) From the date of this Agreement through the
Closing Date, Seller shall provide Purchaser and its officers,
directors, employees and agents and representatives full access
during normal business hours to the Assets and to the employees,
agents, properties, books, contracts, accounts, commitments,
records, tax returns and documents of Seller and shall furnish to
Purchaser and its agents and representatives books, records,
contracts, data and information concerning the Assets and the
business and affairs of Seller as Purchaser and its agents and
representatives may reasonably request. In the event that the
transactions contemplated by this Agreement fail to be
consummated, then Purchaser shall promptly return to Seller all
data and information furnished to it and shall keep all such data
and information confidential. No investigation pursuant to this
Section 5.2(a) shall affect any representation or warranty of
Seller or any condition to the closing obligations of Purchaser.
(b) From the date of this Agreement through the
Closing Date, Purchaser shall provide Seller and its officers,
directors, employees and agents and representatives full access
during normal business hours to the assets and to the employees,
agents, properties, books, contracts, accounts, commitments,
records, tax returns and documents of Purchaser and shall furnish
to Seller and its agents and representatives data and information
concerning the assets and the business and affairs of Purchaser
as Seller and its agents and representatives may reasonably
request. In the event that the transactions contemplated by this
Agreement fail to be consummated, then Seller shall promptly
return to Purchaser all data and information furnished to Seller
and shall keep all such data and information confidential. No
investigation pursuant to this Section 5.2(b) shall affect any
representation or warranty of Purchaser or any condition to the
closing obligations of Seller.
Section 5.3 Risk of Loss. Until the Closing, Seller
assumes all risk of loss, whether by
reason of theft, fire, act of God, or other casualty, and
Purchaser shall not be obligated to consummate the transactions
contemplated hereby if there is any material loss of the Assets
caused by any casualty, whether through the fault or negligence
of Seller or otherwise.
Section 5.4 Consummation of Transactions. Upon the terms
and subject to the
conditions of this Agreement, each of the parties hereto shall
use its reasonable best efforts, and will cooperate with each
other, to take, or cause to be taken, as promptly as practicable,
all such actions and to do, or cause to be done, all other things
necessary to carry out its obligations under this Agreement and
<PAGE>
under all other agreements contemplated by this Agreement and to
consummate and make effective the transactions contemplated
hereby and thereby, including obtaining all Consents which are
necessary in connection with the transactions contemplated hereby
and thereby, provided that Purchaser shall not be obligated to
assume any additional liability of Seller or pertaining to the
Assets other than the Assumed Liabilities.
Section 5.5 Public Announcements. Until the Closing Date
or the earlier termination
of this Agreement for any reason, Purchaser and Seller shall
consult with each other before issuing any press releases or
otherwise making any public statements or disclosures with
respect to this Agreement or the transactions contemplated hereby
(directly or through affiliates) and shall not issue any such
press release or make any such public statement without the prior
consent of the other party, which consent shall not be
unreasonably withheld, except that a party hereto may make a
public statement without such consent to the extent the same
shall be required by applicable law, in which case such party
should use its reasonable best efforts to advise the other party
of such statement in a timely manner.
Section 5.6 Notification of Certain Matters. From the date
of this Agreement to the
Closing Date, Purchaser and Seller each shall give prompt notice
to the other of (a) the occurrence, or failure to occur, of any
event, fact or circumstance the occurrence or failure of which
would be reasonable likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate
in any material respect, or that breaches or is reasonably likely
to breach any covenant or agreement set forth in this Agreement,
and (b) any material failure on its part to comply with or
satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder.
Section 5.7 Taxes.
(a) Pre-Closing. Seller shall be responsible for the
timely preparation of, all
federal, state, local or foreign income, excise, withholding,
property, sales, use, franchise and other tax returns, reports
and forms of Seller pertaining to the Assets for all taxable
periods ending on or before the Closing Date, and the payment of
all amounts due thereunder.
(b) Due to Transactions. Seller shall pay all
federal, state and local sales, use,
income, franchise, worker's compensation, unemployment
documentary and other transfer taxes and fees arising out of the
transfer of the Assets in accordance herewith, whether imposed by
law on Seller or Purchaser, and shall pay its portion, prorated
as of the Closing Date, of all federal, state, local and foreign
personal property taxes relating to the Assets. Purchaser shall
not be responsible for any business, occupation, withholding, or
similar tax, or any taxes of any kind related to the Assets or
the business being purchased for any period before the Closing
Date. Seller shall indemnify, reimburse and hold Purchaser
harmless in respect of any liability for payment of or failure to
<PAGE>
pay any such taxes or any filing of or failure to file any
reports required in connection therewith.
Section 5.8 No Shopping. From the date of this Agreement
to the Closing Date, neither Seller, STOCKHOLDER nor any affiliates
thereof shall, directly or indirectly, through any officer, director
employee, agent or otherwise, solicit, initiate, or encourage the
initiation or submission of inquiries, proposals or offers from,
provide any information to, enter into any agreement with, or
participate in any discussions or negotiations concerning any direct
or indirect acquisition of any interest in Seller or any of the
Assets (other than the sale of inventory and equipment in the
ordinary course
of business) by, any Person other than Purchaser. Seller shall
immediately notify Purchaser of, and communicate to Purchaser the
terms of any such inquiry, proposal or offer that Seller may
receive.
Section 5.9 Employee Matters.
(a) Seller will pay, and remain responsible after the
Closing, to all its employees for all compensation and benefits,
including wages, salaries, commissions, bonuses, deferred
compensation, severance, termination, insurance, pensions,
profit-sharing, vacation, sick pay and other compensation or
benefits ("Seller Employees Compensation") to which they are
entitled for periods prior to the Closing Date. Until the Closing
Date, Seller will not, without the prior written consent of
Purchaser, change the compensation or benefits of any of its
employees.
(b) Purchaser is not assuming and shall have no
obligation to pay any Seller Employees Compensation, whether
accruing before, as a result of, or after the Closing. Seller
shall perform, and Purchaser is not assuming and shall have no
obligation to perform, any severance or termination obligations,
liabilities and commitments accruing or arising by agreement,
plan or policy of Seller as a result of the transactions
contemplated hereby.
(c) At Closing, the Purchaser shall enter into
employment agreements with Mahesh Khatwani and Gary Prioste. The
Purchaser shall have no obligation to, offer employment to any
other current employees of Seller. Any employee of Seller
considered for employment by Purchaser, other than Mahesh
Khatwani or Gary Prioste, shall be subject to Purchaser's normal
application and screening procedure and, if hired, shall be
eligible for Purchaser's compensation and benefits policies. No
provisions of this Agreement, express or implied, shall confer on
any employee or former employee of Seller, other than Mahesh
Khatwani or Gary Prioste, any right to employment or any
continued right to employment for any extended period.
(d) All claims and obligations under, pursuant to or
in connection with any Employee Plans of Seller or arising under
any legal requirement affecting employees of Seller incurred on
or before the Closing Date resulting in or arising from events or
occurrences occurring or commencing on or prior to the Closing
Date shall remain the responsibility of Seller, whether or not
such employees are hired by Purchaser after the Closing.
Purchaser will have and assume no obligation or liability under
or in connection with any such plan and will assume no obligation
<PAGE>
with respect to any pre-existing condition of any employee of
Seller who is hired as an employee of Purchaser, except as
required by applicable law.
(f) Subject to the terms of the Amended and Restated
Stockholder's Agreement, Purchaser covenants and agrees that it
will reserve shares of Purchaser's Common Stock valued at up to
five percent (5%) of the total amount of Initial Consideration
for issuance upon exercise of options (the "ITP Options") granted
from time to time to employees of NEWCO on and after the Closing
Date as deemed appropriate by the management of NEWCO. The
parties hereto agree that all of the ITP Options issued to
employees of NEWCO within thirty (30) days of the Closing Date
will have an exercise price equal to $5.90 per share and that any
ITP Options issued after that date will have an exercise price
equal to the Fair Market Value at the time of exercise.
Section 5.10 Assumed Warranty Obligations. A complete and
accurate list of certain warranty obligations of Seller for all
equipment and products sold by Seller within two years prior to the
Closing Date with respect to the Business (by customer, amount, sale
and type of equipment or services) is set forth on Schedule 5.10
hereto.
Section 5.11 Release of Liens. Contemporaneously with or
prior to the Closing, Seller shall take all action necessary to
cause any Liens on or against the Assets to be released and
terminated as of the Closing date.
Section 6.
Conditions Precedent to Purchaser's Closing Obligations.
The obligations of Purchaser to purchase the Assets and
to assume the Assumed Liabilities and to take the other actions
contemplated hereby to be taken by Purchaser at or prior to the
Closing are subject to the satisfaction (unless waived in writing
by Purchaser), at or prior to the Closing, of each of the
following conditions.
Section 6.1 Business Conduct. Except as set forth on
Schedule 6.1, since February 28, 1998, there has not been a Material
adverse change in the Seller's operations, condition (financial or
otherwise), operating results, assets, liabilities, employee,
customer or supplier relations or business prospects.
Section 6.2 Accuracy of Representations and Warranties.
Each and every representation and warranty made by Seller in this
Agreement shall be true and correct as of the date of this Agreement
and as of the Closing Date with the same effect as if made or given
on the Closing Date.
<PAGE>
Section 6.3 Performance of Covenants. Seller shall have
performed, satisfied and complied with all covenants, agreements,
obligations and conditions under this Agreement which are to be
performed, satisfied or complied with by Seller at or prior to the
Closing.
Section 6.4 No Litigation. No Proceeding shall be pending
or overtly threatened by or before any court, arbitrator or
Governmental Authority (a) which seeks the restraint, prohibition or
the obtaining of damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated
hereby, (b) which questions the legitimacy, validity or
enforceability of this
Agreement or the transactions contemplated hereby or (c) which,
if successful, would have a Material Adverse Effect on the Assets
or the Business or would materially and adversely affect the
ability of Purchaser to consummate the transactions contemplated
hereby or to operate the Business substantially as currently
operated.
Section 6.5 Deliveries at Closing. Seller shall have
delivered to Purchaser at the Closing the Assets and each of the
certificates, instruments, documents and agreements required to be
delivered to Purchaser hereunder or reasonably necessary to
consummate the transactions contemplated hereby.
Section 6.6 Consents. All Consents of any Person necessary
to permit the consummation of the transactions hereby shall have
been duly obtained, made or taken prior to the Closing.
Section 6.7 Condition of Assets. No event or change in
circumstances, including but not limited to fire, accident, storm,
or
other casualty or labor or civil disputes or act of God or public
enemy, shall have occurred (whether or not insured against) that in
the reasonable judgment of Purchaser has or is reasonably likely to
have a material adverse effect on the Assets or the value thereof or
on the Business.
Section 6.8 Employment Agreements. Purchaser shall have
entered into a Senior Executive Employment Agreement with Mahesh
Khatwani and Gary Prioste pursuant to the terms and conditions of
such agreement attached hereto as Annex III.
Section 7.
Conditions Precedent to Seller's Closing Obligations.
The obligations of Seller to sell and deliver the Assets to
Purchaser and to perform its other obligations contemplated
hereby to be taken at or prior to the Closing are subject to the
satisfaction (unless waived in writing by Seller), at or prior to
the Closing, of each of the following conditions:
<PAGE>
Section 7.1 Business Conduct. Except as set forth on
Schedule 7.1, since February 28, 1998, there has not been a Material
adverse change in the Purchaser's operations, condition (financial or
otherwise),operating results, assets, liabilities, employee, customer
or supplier relations or business prospects.
Section 7.2 Accuracy of Representations and Warranties.
Each of the representations and warranties made by Purchaser in this
Agreement shall be true and correct as of the date of this Agreement
and as of the Closing Date with the same effect as if made or given
on the Closing Date.
Section 7.3 Performance of Covenants. Purchaser shall have
performed, satisfied and complied with all of the covenants,
agreements, obligations and conditions under this Agreement which
are to be performed, satisfied or complied with by Purchaser at or
prior to the Closing.
Section 7.4 No Litigation. No proceeding shall be pending
or overtly threatened before any court, arbitrator or Governmental
Authority which seeks the restraint, prohibition or the obtaining of
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby, which
questions
the legitimacy, validity or enforceability of this Agreement or the
transactions contemplated hereby or which, if successful, would
have a material adverse effect on the Purchaser's assets or
business or would materially and adversely affect the ability of
Purchaser to consummate the transactions contemplated hereby or
for Purchaser to operate its business substantially as currently
operated.
Section 7.5 Deliveries at Closing. Purchaser shall have
delivered to Seller at the Closing the Consideration pursuant to
Section 2.1 herein and each of the other certificates, instruments,
documents and agreement required to be delivered to Seller
hereunder.
Section 7.6 Employment Agreements. Purchaser shall have
entered into a Senior Executive Employment Agreements with Mahesh
Khatwani and Gary Prioste pursuant to the terms and conditions of
such agreement attached hereto as Annex III.
Section 8. The Closing.
Section 8.1 Date and Place. The consummation of the sale
and purchase of the Assets contemplated hereby (the "Closing") shall
take place at the offices of Swidler & Berlin, Chartered at 3000 K
Street, N.W., Washington, D.C. at ten a.m. local time, on June 12,
1998, or at such other time, date or place as the parties shall
mutually agree (the "Closing Date"). For accounting purposes, this
Agreement shall be treated as if it closed on June 1, 1998.
<PAGE>
Section 8.2 Deliveries by Seller. At the Closing, Seller
and STOCKHOLDER shall deliver or cause to be delivered to Purchaser,
in form reasonably acceptable to Purchaser's counsel:
(a) Full, actual and unimpeded possession and
enjoyment of the Assets;
(b) Assignments and assumptions of all Assigned
Contracts being assumed by and assigned to Purchaser, duly
executed by Seller, along with all consents required to permit
such assignment and assumption;
(c) One or more duly executed bills of sale warranting
good and marketable title in and to the Assets, and such other
instruments of sale, conveyance, assignment and transfer as may
be reasonably requested by Purchaser, in order to vest in
Purchaser all of Seller's right, title and interest in and to all
of the other Assets, free and clear of all Liens, Consents,
restrictions or obligations to any third party, of any kind
whatsoever;
(d) All assignments required to transfer any
Intellectual Property to Purchaser;
(e) All Consents necessary to permit the consummation
of the transactions contemplated by this Agreement;
(f) All releases of all Liens encumbering any of the
Assets;
(g) True and complete copies of corporate resolutions,
certified as of the Closing Date by the Secretary of Seller as
having been duly adopted by the Board of Directors and, if
necessary, shareholders of Seller authorizing Seller's and
STOCKHOLDER'S execution and delivery of this Agreement and the
Related Seller Agreements and their consummation of the
transactions contemplated hereby and thereby;
(h) Certificates duly executed by the President or
Chief Executive Officer of Seller and by STOCKHOLDER, dated as of
the Closing Date, certifying that, to the best of their knowledge
and belief after due inquiry, (i) each of Seller and STOCKHOLDER,
respectively, has fully performed, satisfied and complied with
all agreements, obligations, covenants and conditions required by
this Agreement to be performed, satisfied or complied with at or
prior to the Closing, and (ii) all of the representations and
warranties of Seller and STOCKHOLDER, respectively, set forth in
Section 3 of this Agreement are true and correct as of the
Closing Date;
(i) An opinion of counsel for Seller and STOCKHOLDER,
dated as of the Closing Date, substantially in the form attached
hereto as Annex I;
(j) Senior Executive Employment Agreements, duly
executed by the respective STOCKHOLDER;
(k) STOCKHOLDER shall have delivered to Purchaser an
instrument dated the Closing Date releasing Purchaser and NEWCO
from any and all obligations to the STOCKHOLDER, except for (x)
continuing obligations to the STOCKHOLDER relating to his
employment by NEWCO and (y) obligations arising under this
Agreement or the transactions contemplated hereby;
<PAGE>
(l) Seller shall have executed a Subordination
Agreement substantially in the form attached hereto as Annex VII
and Annex VIII relating to the First Note, and the Convertible
Note, respectively, and will execute a Subordination Agreement
for the Second Note and the Second Convertible Note, if any; and
(m) All other items required to be delivered by Seller
or STOCKHOLDER pursuant to any provision of this Agreement.
Section 8.3 Deliveries by Purchaser. At the Closing,
Purchaser shall deliver to Seller, in form reasonably acceptable to
Seller's counsel:
(a) The Cash Portion of the Purchase Price as set
forth in Section 2.1(a)(i) hereof, by cashier's or certified bank
check or wire transfer of immediately available funds to an
account designated by Seller;
(b) The Convertible Note, duly executed by Purchaser;
(c) The First Note, duly executed by Purchaser;
(d) True and complete copies of corporate resolutions,
certified as of the Closing Date by the Secretary of Purchaser as
having been duly adopted by the Board of Directors of Purchaser,
respectively, authorizing Purchaser's execution and delivery of
this Agreement and the Related Purchaser Agreements and their
consummation of the transactions contemplated hereby and thereby;
(e) Certificates duly executed by the Chairman of the
Board, President or Chief Executive Officer of Purchaser, dated
as of the Closing Date, certifying that, to the best of their
knowledge and belief after due inquiry, (i) Purchaser has fully
performed, satisfied and complied with all agreements,
obligations, covenants and conditions required by this Agreement
to be performed, satisfied or complied with by Purchaser at or
prior to the Closing, and (ii) all of the representations and
warranties of Purchaser set forth in Section 4 of this Agreement
are true and correct as of the Closing Date;
(f) An opinion of counsel for the Purchaser, dated as
of the Closing Date, substantially in the form attached hereto as
Annex II; and
(g) All other items required to be delivered by
Purchaser pursuant to any provision of this Agreement.
Section 8.4 Effectiveness of Closing. No action to be
taken or delivery to be made at the Closing shall be effective until
all of the actions to be
taken and deliveries to be made at the Closing are complete.
<PAGE>
Section 9.
Survival and Indemnification.
Section 9.1 Survival. The indemnification obligations and
the representations, warranties, covenants and agreements set forth
in
this Agreement shall survive the Closing and shall continue in full
force and effect until they expire on the second anniversary of the
Closing Date (or such later date as expressly provided herein),
regardless of any investigation made by any party hereto, except
as to any Claims relating to fraud, environmental, intellectual
or tax matters, which claims shall expire only upon expiration of
the applicable statute of limitations. No Claim pursuant to this
Section 9 shall be asserted by any party hereto after the
expiration of the applicable survival period or statute of
limitations, as the case may be, except for Claims made in
writing prior to such expiration or actions (whether instituted
before or after such expiration) based on any Claim made in
writing prior to such expiration.
Section 9.2 Indemnification by the Seller and STOCKHOLDER.
Seller and STOCKHOLDER shall jointly and severally indemnify,
defend
And hold harmless Purchaser, NEWCO, their affiliates, successors and
assigns, and the officers, directors, shareholders, partners,
employees, agents and representatives of any of them, harmless
from and against, any and all claims, actions, suits, proceedings
demands, losses, expenses, obligations, taxes, liabilities,
damages, recoveries and deficiencies (including, without
limitation, interest, fines, penalties, costs of investigation,
reasonable attorneys', accountants' and other professionals' fees
and expenses and amounts paid in settlement) (collectively,
"Damages") arising out of, based upon or resulting from (i) any
breach or violation of, inaccuracy or misrepresentation in, or
failure by the Seller or STOCKHOLDER to perform, any
representations, warranties, covenants, agreements or other
obligations of Seller or STOCKHOLDER made in this Agreement or in
any schedule, certificate, exhibit, annex or other document or
instrument furnished or to be furnished by Seller or STOCKHOLDER
to Purchaser pursuant to this Agreement, (ii) any debt, liability
or obligation of Seller or STOCKHOLDER not included in the
Assumed Liabilities, (iii) any failure by Seller or STOCKHOLDER
to completely and timely comply with all applicable provisions of
(A) any WARN or similar state or local laws or (B) the
fraudulent transfer or fraudulent conveyance laws of any
jurisdiction, (iv) any statute or common law doctrine of de facto
merger or successor liability or (v) any product liability claims
relating to products made or sold or services performed by Seller
or STOCKHOLDER prior to the Closing Date. In the event of a
Claim for Damages pursuant to this Section 9.2, STOCKHOLDER and
Seller's liability for such Claim for Damages shall be limited to
an amount not to exceed the maximum amount of the Initial
Consideration received by the STOCKHOLDER or Seller as of the
date such Claim for Damages is made. Notwithstanding the
foregoing, any adjustment to the Working Capital balance as of
the Closing Date pursuant to Section 2.2 above shall not
constitute a basis for a further Claim for Damages hereunder.
<PAGE>
Section 9.3 Indemnification by Purchaser. Purchaser shall
indemnify, defend and hold harmless Seller and STOCKHOLDER, their
affiliates, successors and assigns, and the officers, directors,
shareholders, partners, employees, agents and representatives of
any of them, from and against, any and all Damages arising out
of, based upon or resulting from any breach or violation of,
inaccuracy or misrepresentation in, or failure by Purchaser to
perform, any of the representations, warranties, covenants,
agreements or other obligations of Purchaser made in this
Agreement or in any schedule, certificate, exhibit, Annex or
other document or instrument furnished or to be furnished by
Purchaser to Seller or STOCKHOLDER pursuant to this Agreement.
Section 9.4 Claims for Indemnification.
(a) Whenever any party hereunder believes it has
suffered or incurred or is likely to suffer or incur any Damages,
or any action or proceeding is commenced or threatened or claim
is made that could result in Damages, which is reasonably likely
to give rise to a claim ("Claim") for indemnification under this
Agreement, the party seeking indemnification ("Indemnified
Party") shall, upon obtaining knowledge thereof, promptly notify
in writing the party against whom indemnification is sought
("Indemnifying Party") of the Claim and, when known, the facts
constituting the basis for such Claim and the amount and nature
of the Damages or an estimate thereof. The Indemnified Party's
failure to timely notify Indemnifying Party of any Claim or
potential Claim shall not relieve the Indemnifying Party of any
liability hereunder unless and only to the extent that such
failure causes Indemnifying Party to lose the right to assert any
substantive rights or defenses or to the extent that the
Indemnifying Party is actually prejudiced in its rights or
obligations.
(b) The Indemnified Party shall give the Indemnifying
Party a reasonable opportunity to participate in and to assume
the defense of any such Claim at the Indemnifying Party's own
expense and with counsel of the Indemnifying Party's own
selection reasonably satisfactory to the Indemnified Party
provided, however, that Indemnified Party shall at all times also
have the right but not the obligation, to fully participate in
the defense of the Claim and to employ its own counsel at its own
expense. Notwithstanding the foregoing, if the Indemnified Party
reasonably determines that: (i) legal defenses may be available
to the Indemnified Party that are different from or in addition
to those available to the Indemnifying Party, (ii) a conflict or
potential conflict of interest exists between the Indemnified
Party and the Indemnifying Party (in which case the Indemnifying
Party shall not have the right to direct the defense of such
Claim on behalf of the Indemnified Party), or (iii) the
Indemnifying Party has not in fact employed legal counsel to
assume the defense of such Claim within a reasonable time after
receiving notice of the Claim, then the reasonable fees,
disbursements and other charges of counsel from one separate firm
selected by the Indemnified Party (and reasonably acceptable to
<PAGE>
the Indemnifying Party) shall be reimbursed by the Indemnifying
Party promptly as they are incurred.
(c) No party hereto shall compromise, settle or
consent to the entry of any judgment with respect to any Claim
without the prior written consent of the other interested party
or parties (which consent shall not be unreasonably withheld or
delayed) unless such compromise, settlement or consent includes
an unconditional release of all other interested parties hereto
from any and all liabilities on any Claims that are the subject
matter thereof.
(d) Each party hereto shall cooperate in every
reasonable way with the party assuming responsibility for the
defense and disposition of any such Claim, including making
available to the defending party all books, records, and other
material reasonably required by the defending party for its use
in defending the Claim.
Section 9.5 Limitation on Liability.
(a) Notwithstanding the foregoing, the Indemnifying
Party shall not be required to indemnify the Indemnified Party
hereunder unless and until the aggregate amount of all Damages
exceeds $75,000.00.
(b) Neither party shall seek or be entitled to
consequential damages or damages for lost profits in any Claim
for indemnification under this Section 9 nor shall it accept
payment of any award or judgment against the other party to the
extent that such award or judgment includes consequential damages
or damages for lost profits.
Section 9.6 Non-Exclusive Indemnification. The foregoing
indemnification provisions are in addition to, and not in derogation
of, or statutory, equitable or common law remedies any party hereto
may have for any breach of representation, warranty, covenant or
agreement.
Section 9.7 Effect of Knowledge. No disclosure to and no
investigation by or on behalf of any party hereto, other than
disclosures made in the Schedules hereto, shall be deemed to affect
its reliance on the representations, warranties, covenants and
agreements contained herein or to waive its rights to
indemnification
as provided herein for the breach or violation of or inaccuracy or
failure to perform or comply with any representation, warranty,
covenant or agreement of any other party hereto.
Section 9.8 Contribution. If the indemnification provided
for in this Section 9 is for any reason unavailable or insufficient
to
indemnify the Indemnified Party in respect of any Damages, then the
Indemnifying Party shall in lieu of indemnifying the Indemnified
Party contribute to the total damages to which the Indemnified
Party may be subject in such proportion that shall be appropriate
to reflect the relative fault of the Indemnifying Party, on the
one hand, and the Indemnified Party, on the other hand, in
connection with any actions or omissions which resulted in such
Damages as well as any other relevant equitable considerations;
provided, however, that the amount of any such contribution
obligation shall not exceed what would otherwise be the amount of
the Indemnifying Party's indemnification obligation hereunder.
<PAGE>
Section 10.
Post-Closing and Other Covenants.
Section 10.1 Further Assurances. At the Closing,
Seller, through its officers directors, employees and agents, shall
put Purchaser into full, actual and unimpaired ownership,
possession,
enjoyment and control of the Assets. At any time and from time to
time after the Closing, Seller shall, at the sole expense of
purchaser, execute, acknowledge and deliver any further deeds,
assignments, conveyances, consents, permits and other assurances,
documents and instruments of transfer reasonably requested by
Purchaser, and take any and all further actions consistent with the
terms of this Agreement, that may be reasonably requested by
Purchaser
for the purpose of more effectively and fully assigning,
transferring, granting and conveying to and vesting in Purchaser
all of Seller's right, title and interest in and to, or reducing
to possession, any or all of the Assets. If requested by
Purchaser, Seller shall, solely at Purchaser's expense (unless
required due to a breach of any representation, warranty, or
covenant hereof by Seller), prosecute or otherwise enforce in its
own name for the benefit of Purchaser any claims, rights or
benefits that are transferred to Purchaser by this Agreement and
require prosecution and enforcement in Seller's name.
Section 10.2 Preservation of Files and Records.
(a) By Purchaser. For a period of 3 years after the
Closing Date, Purchaser shall preserve all files and records
relating
to the Business and the Assets that are in existence as of the
Closing
Date and that are less than 5 years old as of the Closing Date, and
shall allow Seller access to such files and records and the right to
make copies and extracts therefrom at any time during normal
business hours, and shall not dispose of any thereof, provided
that at any time after the Closing, Purchaser may give Seller
written notice of its intention to dispose of any part thereof,
specifying the items to be disposed of in reasonable detail.
Seller may, within a period of sixty (60) days after receipt of
any such notice, notify Purchaser of Seller's desire to retain
one or more of such items to be disposed of. Purchaser shall,
upon receipt of such notice from Seller, deliver to Seller at
Seller's expense, the items specified in Purchaser's notice to
Seller which Seller has elected to retain.
(b) By Seller. For a period of three (3) years after
the Closing Date, Seller shall preserve all files and records
relating
to the Business and the Assets that are in existence as of the
Closing
Date not otherwise delivered to Purchaser and that are less than
five
(5) years old as of the Closing Date, and shall allow Purchaser
access to such files and records and the right to make copies and
extracts therefrom at any time during normal business hours, and
shall not dispose of any thereof, provided that at any time after
the Closing, Purchaser may give Seller written notice of its
intention to dispose of any part thereof, specifying the items to
be disposed of in reasonable detail. Purchaser may, within a
period of sixty (60) days after receipt of any such notice,
notify Seller of Purchaser's desire to retain one or more of such
items to be disposed of. Purchaser shall, upon receipt of such
notice from Seller, deliver to Purchaser at Purchaser's expense,
the items specified in Purchaser's notice to Seller which
Purchaser has elected to retain.
<PAGE>
Section 10.3 Mutual Cooperation.
(a) Preparation of Reports, Etc. Each of Purchaser
and Seller shall cooperate and cause its respective employees and
agents to cooperate with each other in the preparation of financial
and other reports and statements relating to the Business and the
Assets for periods ending on or prior to the Closing.
(b) Taxes and Other Matters. In connection with the
preparation of any tax returns, any audit or other examination by
any
taxing or other Governmental Authority, or any Proceeding or other
matters including but not limited to, environmental and other
matters
relating to the transactions contemplated by this Agreement, each
party will provide the other with the opportunity to make copies
of any records or information which may be relevant to such
return, audit or examination, Proceeding or determination. Each
party shall make its employees available on a mutually convenient
and reasonable basis to provide additional information and
explanation of any material provided hereunder.
(c) Cooperation in Litigation. In the event that,
after the Closing Date, Seller or Purchaser shall reasonably require
the participation of officers and employees by each other to aid in
the defense or prosecution of litigation or claims, and so long as
there exists no unwaived conflict of interest between the parties,
each of Seller and Purchaser shall make such officers and employees
reasonably available to participate in such defense or
prosecution provided that, except as required pursuant to the
provisions herein, the party requiring the participation of such
officers and employees shall pay all reasonable out-of-pocket
costs, charges and expenses arising from such participation.
Section 10.4 Solicitation and Hiring.
(a) STOCKHOLDER's Covenant. For a period of two (2)
years after the Closing Date, STOCKHOLDER, shall not, directly or
indirectly, as a stockholder, investor, partner, director, officer,
employee or otherwise (i) solicit or attempt to induce any employee
to
terminate his or her employment with NEWCO or Purchaser, or (ii)
hire or attempt to hire any employee of Purchaser.
<PAGE>
Section 11.
Termination and Confidentiality.
Section 11.1 Events of Termination. This Agreement may be
terminated at any time prior to the Closing as follows:
(a) By mutual written agreement of Seller and
Purchaser;
(b) By Seller or Purchaser if (i) the non-terminating
party shall have failed to perform, satisfy or comply with any of
its, obligations, agreements, or covenants to be performed,
satisfied, or complied with hereunder prior to the Closing, or
(ii) the non-terminating party materially breaches any of its
representations, warranties or covenants hereunder;
(c) By any party hereto by giving written notice to
the other parties hereto if the Closing Date has not occurred on
or before July 15, 1998, unless such party's intentional failure
to fulfill any obligation hereunder has been the cause of, or has
resulted in, the failure of the Closing to occur on or before
such date; or
(d) By Purchaser or Seller if any court or
Governmental Authority of competent jurisdiction shall have
issued an order, judgment, decree, ruling or taken other action
restraining, enjoining or otherwise prohibiting the transaction
contemplated hereby.
Section 11.2 Effect of Termination. If any party
terminates this Agreement in accordance with Section 11.1, then all
rights and obligations of the parties shall cease, except for the
obligations set forth in Sections 11.3 and 12.2 which shall survive
such termination; provided, however, that any termination of this
Agreement shall not affect the rights or either Seller or Purchaser
against the other for breach of any representation, warranty,
covenant
or agreement set forth in this Agreement.
Section 11.3 Confidentiality. Notwithstanding the provisions
of this Section 11, if for any reason the transactions contemplated
by
this Agreement are not consummated, each of the parties hereto shall
keep confidential any information obtained from any other party to
this Agreement (except information publicly available or in such
party's domain prior to the date hereof, and except as required
by court order) and shall not use any such information to the
detriment of the other party and shall promptly return to the
other party all schedules, documents, instruments, work papers or
other written information, without retaining copies thereof,
previously furnished by it as a result of this Agreement or in
connection herewith.
Section 12.
General Provisions.
Section 12.1 Governing Law. This Agreement shall in all
respects be governed by and
<PAGE>
-----------
construed and enforced in accordance with the internal
substantive laws of the State of Maryland, without giving effect
to any principle or rule of conflict or choice of laws. Any
action suit, or other proceeding seeking to enforce any right,
remedy, obligation, duty, covenant or provision of, or arising
out of, this Agreement shall be brought and entered against any
party hereto exclusively in any federal or state court of the
State of California or of the United States located in the State
of California. Each party hereto irrevocably submits to the
personal jurisdiction of any such court and irrevocably waives,
to the fullest extent of the law, any objection that it may now
or hereafter have to the laying of venue in any such court and
any claim that such action, suit or proceeding has been brought
in an inconvenient form.
Section 12.2 Expenses. Except as expressly provided
herein, each of the parties to this Agreement agrees to pay its own
costs and expenses incurred in connection with this Agreement and
the
transactions contemplated hereby, including the fees and expenses of
its counsel, accounting and other advisers and agents.
Section 12.3 Assignment. Neither this Agreement nor any of
the rights or obligations hereunder may be assigned or transferred
by
any party hereto without either party giving at least ninety (90)
days
prior written notice to all other parties hereto, provided, however,
that Purchaser may, without providing notice to Seller, sell,
assign, transfer or delegate its rights or obligation, under this
Agreement to NEWCO or any of its affiliates, in which case such
assignee or transferee shall be substituted for Purchaser
hereunder as though it was the original party to this Agreement,
and Purchaser shall be released from all its obligations under
this Agreement.
Section 12.4 Amendments. This Agreement may not be
supplemented, amended or modified in any manner in whole or in part
except by a writing signed by all parties to this Agreement that
specifically states that it amends this Agreement.
Section 12.5 Notices. Any and all notices, requests,
demands and other communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly
given hereunder if delivered personally, or if sent by facsimile
transmission (upon receipt of confirmation of delivery), on the next
business day if sent by overnight courier service, or three business
days after being sent by first class (registered/certified) mail,
postage prepaid, return receipt requested, to the parties at the
following addresses:
If to Purchaser: 9881 Broken Land Parkway
Suite 102
Columbia, Maryland 21046
Attn: Daniel J. Klein
Telephone: (410) 309-9800
Facsimile: (410) 309-9801
<PAGE>
With a copy to:Swidler & Berlin, Chartered
3000 K Street, N.W.
Suite 300
Washington, D.C. 20007
Attn: Andrew M. Ray
Douglas C. Boggs
Telephone: (202) 424-7782
Facsimile: (202) 424-7645
If to STOCKHOLDER: Mahesh Khatwani
393 Grand Avenue
South San Francisco, California 94080
With a copy to: Orton E. Snyder, Esquire
19925 Stevens Creek Blvd.
Cupertino, California 95014
Telephone: (408) 725-7542
Facsimile: (408) 244-8017
Any party may change its designated address by giving
written notice thereof to all other parties hereto in the manner
provided in this Section 12.5. Any party hereto may send any
notice, request, demand, or other communication to the intended
recipient at the address above by using any other means (such as
telecopy, telex, expedited courier, messenger, ordinary mail or
electronic mail), but no such notice, demand, request or other
communication shall be deemed to have been given until it is
actually received by the recipient.
Section 12.6 Waiver. The obligations of any party hereto
may be waived only with the written consent of the party giving the
waiver. Any waiver by any party of a breach of any provision of
this
Agreement shall not operate or be construed to be a waiver of any
other breach of that provision or of any breach of any other
provision
of this Agreement. The failure of a party to insist upon strict
adherence to any provision of this Agreement on one or more
occasions shall not be considered a continuing waiver or deprive
that party of the right thereafter to insist upon strict
adherence to that provision or any other provision of this
Agreement.
Section 12.7 Severability. If any provision of this
Agreement is invalid, illegal or unenforceable in any situation, the
balance of this Agreement shall remain in effect, and such
illegality,
invalidity or unenforceability shall not affect the legality,
validity
or enforceability of that provision in any other situation or
legality, validity or enforceability of any other provision of
this Agreement.
Section 12.8 Headings. The headings used in this Agreement
are solely for convenience of reference and shall be given no effect
in the construction or interpretation of this Agreement.
Section 12.9 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and
<PAGE>
-----------------
their respective successors and permitted assigns.
Section 12.10 Pronouns, etc. The number and gender of each
pronoun used in this Agreement and the term "person" or "persons" or
the like shall be construed to mean both the number and gender of
the
individual, corporation, limited liability company, partnership,
firm,
trust, agency and other entity as the context, circumstance or its
antecedent may require. The terms "herein," "hereof," "hereby,"
"hereto" and the like refer to this Agreement as a whole.
Section 12.11 No Third Party Beneficiaries. Except as
expressly provided in this Agreement, this Agreement does not confer
or create, is not intended by the parties hereto to confer or
create,
and shall not be construed as conferring or creating, upon any
person
or entity other than the parties hereto and their successors and
permitted assigns any rights, remedies or causes of action under or
by
reason of this Agreement.
Section 12.12 Schedules, Exhibits and Annexes. The schedules,
exhibits and annexes attached to this Agreement are incorporated
into
and made a part of this Agreement as if they were fully set forth
herein.
Section 12.13 Specific Performance; Cumulative Remedies.
The parties hereto acknowledge and agree that the transactions
contemplated by this Agreement are unique in that remedies at law
for
any breach or threatened breach of this Agreement would be an
inadequate remedy for any loss, and that any defense in any action
for
specific performance that a remedy at law would be adequate is
hereby
specifically waived. Accordingly, in the event of any actual or
threatened breach to any of the terms of this Agreement, the non-
breaching party shall have the right of specific performance and
injunctive relief giving effect to its rights under this
Agreement, in addition to any and all other rights and remedies,
at law or in equity, and all such rights and remedies are
cumulative.
Section 12.14 Counterparts. This Agreement may be executed
in one or more counterparts, including counterparts executed by less
than all parties hereto, by facsimile or otherwise, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 12.15 Entire Agreement. This Agreement constitutes
the entire agreement and understanding between the parties hereto
with
respect to the subject matter hereof and supersedes all prior and
contemporaneous arrangements, agreements and understandings,
whether oral or written, among the parties hereto in connection
with the subject matter of this Agreement.
(Next page is the Signature Page).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Asset Purchase Agreement to be executed and delivered by their
duly authorized officers as of the date first above written.
PURCHASER:
IT PARTNERS, INC.
By:/s/ Daniel J. Klein
----------------------------
Daniel J. Klein
SELLER:
SERVINET CONSULTING GROUP, INC.
By: /s/Mahesh Katwani
-----------------------------
Title: President
STOCKHOLDER:
By: /s/Mahesh Katwani
-----------------------------
Mahesh Khatwani
By:/s/ Gray Drohan
-----------------------------
Gary Prioste
By:/s/ Gray Drohan
------------------------------
Gray Drohan
By:/s/ Keith Matsunaga
-----------------------------
Keith Matsunaga
ASSET PURCHASE AGREEMENT
- ------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of
the day of , 1998, by and among CALL BUSINESS SYSTEMS,INC., a
----- -------
Utah corporation ("Seller"), STANTON L. CALL ("STOCKHOLDER") and IT PARTNERS,
INC. a
Delaware corporation ("ITP" or "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is, among other things, engaged in the business of
selling and
installing technology software and providing related consulting services
(the
"Business"); and
WHEREAS, Seller desires to sell and Purchaser desires to purchase certain
assets
of Seller, upon the terms and subject to the conditions set forth herein;
WHEREAS, immediately following the Closing, the Purchaser shall sell,
assign,
transfer, convey and deliver and ITP No. 7, Inc., a Delaware corporation
and
wholly owned subsidiary of Purchaser ("NEWCO"), shall purchase and
acquire all
of Purchaser's right title and interest in the Assets and Assumed
Liabilities
(as such terms are defined herein) (the "Drop Down"); and
WHEREAS, the parties hereto desire to enter into certain other covenants
among
themselves as an inducement to and in connection with the execution,
delivery
and performance of this Agreement;
<PAGE>
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants,
agreements, representations and warranties set forth herein, and other good
and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged,
the parties hereto, intending to be legally bound hereby, agree as follows:
Section 1.
Sale and Purchase of the Assets
-------------------------------
Section 1.1 Sale and Purchase. At the Closing (as defined below), upon
the
terms and subject to the conditions set forth in this Agreement, Seller shall
sell, assign, transfer,
convey and deliver to Purchaser, and Purchaser shall purchase and acquire from
Seller, all of
Seller's right, title and interest in and to all the assets of Seller of every
kind, character and
description, whether now owned or hereafter
acquired by Seller prior to the Closing Date, whether tangible or intangible,
and
whether real, personal or mixed, and wherever located, which are owned, used
or held
for use in connection with, generated by, derived from or attributable to, or
otherwise related to, the Business (excluding the Excluded Assets (as defined
in
Section 1.2 hereof) (all of which are collectively referred to herein as the
"Assets"), including, but not limited to, all of the following:
(a) all equipment, machinery, vehicles, office furniture, fixtures,
tools,
dies, spare parts, appliances, computer hardware, equipment and supplies, and
other
similar tangible personal property, including, without limitation, the
personal
property and equipment set forth on Schedule 1.1(a) hereto;
<PAGE>
(b) all inventories, including, without limitation, raw materials,
work in
process, finished goods, inventories held by customers on a consignment basis,
stores, supplies, materials and manufactured and purchased parts, but
excluding all
items of inventory rejected by Purchaser because of Purchaser's determination
that
they are either not related to the Business, or are obsolete or
inappropriately
valued;
(c) all patents, trademarks, trade names, service marks and
copyrights,
and all applications, registrations, extensions, reissues and continuations
thereof,
all licenses and sublicenses with respect thereto, all rights thereunder, and
all
remedies against infringement thereof, including without limitation those
items set
forth on Schedule 1.1(c) hereto;
(d) all technologies, materials, formulations, data bases, trade
secrets,
secret processes, know how, inventions and other intellectual property and
intangible
property of every kind and nature;
(e) all computer software (including documentation and related
object and
source codes);
(f) all rights and interests under orders, bids, quotations and
similar
arrangements relating to the purchase or sale of Seller's goods and services,
to the
extent not fulfilled prior to the Closing Date;
(g) all rights and interests under licenses, contracts, agreements,
leases
or commitments, including without limitation, contracts providing for the
lease of
equipment, machinery, office equipment, furniture and vehicles, sales
representative
agreements, distributor agreements, consignment agreements and other similar
agreements, whether as principal or agent or distribution, to the extent (i)
<PAGE>
transferable to Purchaser and (ii) set forth on Schedule 1.1(g) hereof
("Assigned
Contracts");
(h) all franchises, approvals, permits, licenses, qualifications,
authorizations, orders, registrations, certificates, variances, and similar
rights
obtained from or issued by any Governmental Authority (as defined in Section
3.5
below), and all pending applications therefor;
(i) all rights and interests of Seller under all warranties,
guarantees
and covenants not to compete for the benefit of the Business or the Assets;
(j) all books, records, accounts, ledgers, files, data, documents,
forms,
correspondence, lists, plats, architectural plans, drawings, specifications,
creative
materials, advertising and promotional literature and materials, studies,
reports,
and other printed, written, machine readable, electronic or computer-generated
materials to the extent they relate to the Assets or the Business;
(k) the Accounts Receivable of Seller;
(l) the name "Call Business Systems, Inc" and all variations and
derivations thereof; and
(m) the Business as a going concern and all goodwill associated
therewith.
Section 1.2 Excluded Assets. Notwithstanding any provision in Section
1.1 or
- ------------
elsewhere herein to the contrary, the Assets shall not include any of the
following:
(a) those Assets disposed of in the ordinary course of business as
permitted by this Agreement;
<PAGE>
(b) all matters pertaining to Seller's corporate existence
including
minute books, stock transfer books, tax returns, and tax identifications,
books of
account and other records pertaining to Seller's corporate organization;
(c) the consideration and all other rights accruing to Seller
under this
Agreement;
(d) the amount of cash in excess of $140,000.00 in working capital,
which
shall be the minimum amount of cash on hand as of the Closing Date (the
"Working
Capital"). If the Working Capital cash requirements shall be in excess of
$140,000.00
during the period between Closing and ninety (90) days thereafter (the
"Working
Capital Adjustment Period"), then Stockholder shall contribute such excess
funds to
Working Capital. If the Purchaser determines that the Working Capital
shortfall is
due to a delay in the timely payment of accounts receivable or the prepayment
of an
expense not in the ordinary course of business, then Purchaser shall reimburse
Stockholder the amount paid to cover such shortfall. During the Working
Capital
Adjustment Period, Stockholder covenants and agrees to operate NEWCO's
business in
accordance with Seller's past practices and to collect or expense accounts
payable,
accounts receivable and payroll in accordance therewith. At the conclusion of
the
Working Capital Adjustment Period, Purchaser shall perform a limited review
(the
"Working Capital Review") of NEWCO's accounts payable, accounts receivable and
payroll practices for the period ending on the last day of the Working Capital
Adjustment Period to verify that NEWCO operated in accordance with Seller's
past
practices and in accordance with its vendor contract terms and payroll
policies. If
Purchaser determines that the Stockholder operated NEWCO in a manner that has
not
been authorized by Purchaser, or if Purchaser determines that the Stockholder
operated NEWCO in violation of the covenants hereinabove in a manner
calculated to
avoid a Working Capital shortfall during the Working Capital Adjustment
Period, then
Stockholder shall remit to Purchaser the amount of income improperly
accelerated, or
<PAGE>
expense improperly deferred, as determined in accordance with Purchaser's
Working
Capital Review; and
(e) the rights to all of Seller's claims for any federal, state,
local or
foreign tax refunds or adjustments;
(f) any rights and interests of Seller under contracts, agreements
and
commitments that are not set forth on Schedule 1.1(g); and
(g) items of personal property, including furniture in the office
of
Stockholder.
Section 1.3 Liabilities.
(a) Notwithstanding any other provision herein to the contrary,
Purchaser
is not assuming and shall have no obligation to pay, perform or discharge any
liabilities, debts, accounts payable or other obligations of Seller of any
kind or
nature whatsoever, whether known or unknown, fixed or contingent, whenever
arising or
accruing, other than the Assumed Liabilities (as such term is defined in this
Section
1.3).
(b) From and after the Closing Date, Purchaser shall assume and
perform
the Assumed Liabilities and shall hold Seller and Stockholder harmless
therefrom. As
used herein, the term "Assumed Liabilities" means only the following:
(i) the Assigned Contracts set forth on Schedule 1.1(g)
hereto;
(ii) any trade or accounts payable of Seller accrued prior to
the
Closing Date; and
<PAGE>
(iii) the Assumed Warranty Obligations as such term is
defined in
Section 5.10 herein.
(c) Notwithstanding the foregoing, except for Assumed Liabilities
expressly and specifically set forth above, for purposes of amplification and
not of
limitation Purchaser shall not assume and shall have no obligation to pay or
perform
any of the following debts, liabilities or obligations of Seller:
(i) any tax, fee or charge pertaining to the Assets accruing
on or
prior to the Closing Date, including but not limited to income, sales, use,
transfer
or other tax, whether imposed on Seller or Purchaser, accruing due to the
transactions contemplated hereby;
(ii) any contract, agreement, lease or commitment not
specifically set
forth on Schedule 1.1(g) hereto;
(iii) any environmental liability;
(iv) any debts, liabilities or obligations arising under any
guarantee, bond, debt, loan or credit agreement, promissory note, mortgage,
security
agreement, pledge or other similar agreement or instrument;
(v) any obligation or liability to indemnify any person or
entity
(including but not limited to any officer, director or stockholder) for any
expense,
loss, damage, judgment, fine, cost, amount paid in settlement, legal fees or
otherwise, whether such indemnity is pursuant to any statute, charter
document,
bylaws, agreement or otherwise;
(vi) any liability or obligation relating to any financial
indebtedness of Seller;
<PAGE>
(vii) any debt, liability or obligation incurred by Seller
under
this Agreement, or any cost or expense incurred in connection herewith or the
transactions contemplated hereby, including, but not limited to attorney's
fees and
broker's fees; or
(viii) any other debt, liability or obligation of Seller or
of the
Business, fixed, contingent or otherwise, whenever accrued, whether or not
arising in
the ordinary course of business.
Section 2.
Purchase Price and Payment.
--------------------------
Section 2.1 Purchase Price. In payment and consideration for the sale
and
transfer of the Assets by Seller to Purchaser, upon the terms and subject to
the conditions set
forth herein, Purchaser shall assume and thereafter perform the Assumed
Liabilities of Seller set
forth in Section 1.3(b) hereof and Purchaser shall pay to Seller as
consideration (the
"Consideration") the amounts set forth below. The Consideration shall be paid
as follows:
(i) (a) On the Closing Date, Seller shall receive $3,516,785.00 in
cash
(the "Cash Portion") subject to 2.1(i)(b) below, which shall be paid by
certified or
bank cashier's check or by wire transfer of immediately available funds to an
account
designated by Seller.
(b) On the Closing Date, Purchaser, with the assistance of
Seller,
will deliver to Seller a Closing Date balance sheet (the "Estimated Closing
Date
<PAGE>
Balance Sheet"), for the period ended on the Closing Date, prepared on a basis
consistent with Seller's December 31, 1997 balance sheet (the "Balance
Sheet"). The
Cash Portion payable pursuant to Section 2.1(i)(a) shall be reduced by any
debt
reflected on the Estimated Closing Balance Sheet ("Debt") and any shortfall in
Working Capital reflected on the Estimated Closing Balance Sheet.
(ii) (a) On the Closing Date, Purchaser shall issue and
deliver
to Seller 586,131 shares (the "Issued Shares") of Common Stock, par value $
.01 per
share, of Purchaser (the "Common Stock"), which will be valued for purposes of
the
Consideration at $5.70 per share;
(b) On the Closing Date, Purchaser shall grant and deliver to
Seller
a fully assignable option to purchase 47,524 shares of Common Stock at an
exercise
price of $.01 per share, in the form attached hereto as Annex VIII.
(iii) (a) On the Closing Date, Purchaser shall issue and
deliver to
Seller an interest bearing, unsecured, subordinated, convertible promissory
note (the
"First Note") in the principal amount of $2,876,206.00 (the "Initial
Principal")
substantially in the form attached hereto as Annex V.
(b) Seller may not convert the First Note until after the
final
determination of the principal amount of the First Note (the "Amended
Principal")
determined in accordance with the NTM EBITDA calculation (discussed below).
After
the determination of the NTM EBITDA, the First Note shall be convertible into
Common
Shares of ITP which will be valued at the time of conversion at $5.70 per
share.
(c) The Initial Principal amount of the First Note will be
subject to
adjustment within ninety (90) days after February 28, 1999, upon presentation
of
financial statements accompanied by a report of Purchaser@s accountants
establishing
NEWCO's earnings before interest, taxes, depreciation and amortization for the
period
<PAGE>
beginning March 1, 1998, and ending February 28, 1999 ("NTM EBITDA"). The
Amended
Principal amount of the First Note shall be determined as follows:
(1) If the NTM EBITDA does not exceed $1,188,103.00 (the
"LTM
EBITDA"), the Amended Principal amount of the First Note will be the Initial
Principal amount less $2,851,447.20 (derived by multiplying (LTM
EBITDA)(8)(.3) and
referred to herein as the "First Holdback").
(2) If the NTM EBITDA is equal to or greater than
$1,485,128.80
(125% of LTM EBITDA), then the Amended Principal amount of the First Note
shall be
maintained in the amount of $2,876,206.00;
(3) If the NTM EBITDA is between $1,188,103.00 and
$1,485,128.80, then the Amended Principal amount of the First Note shall be an
amount
reduced by a percentage of the First Holdback such percentage being determined
as
follows:
(A) by subtracting NTM EBITDA from $1,485,128.80;
(B) by dividing the result in subparagraph (1) above
by
$297,025.80 (the difference between NTM EBITDA and LTM EBITDA); and
(C) by multiplying the result of subparagraph (2)
above by
the First Holdback;
For example, if the NTM EBITDA was determined to be
$1,346,329.00
then the calculation would be as follows: (A) $1,485,128.80 - $1,346,329.00 =
$138,799.00; (B) $138,799.00/$297,025.80 = $0.47; and (C)
($0.47)($2,851,447.20) =
$1,340,180.20. In this example, the Amended Principal amount of the First
Note would
be $1,536,025.80 (Initial Principal less the result in subparagraph (C)
above).
<PAGE>
(d) If the Amended Principal amount of the First Note is less
than
the Initial Principal amount, then Seller shall transfer the First Note to
Purchaser
for cancellation and Purchaser shall issue and deliver to Seller an amended
and
restated First Note (the "Amended First Note"), reflecting the Amended
Principal
amount. Within seven (7) days after the issuance of the Amended First Note,
Seller
shall pay to Purchaser in cash or in Common Stock the amount representing the
excess
interest payment paid to Seller on the First Note or by further reducing the
principal amount of the Amended First Note.
(iv) On the Closing Date, the Purchaser shall execute and deliver an
interest bearing, unsecured tax promissory Note in the principal amount of
$500,000.00 (the "Tax Note") substantially in the form attached hereto as
Annex VI;
(v) On the Closing Date, Purchaser shall assume the Assumed
Liabilities as
defined herein; and
Section 2.2 Post-Closing Adjustments to Consideration.
- -----------------------------------------
(a) As promptly as practicable, and in any event not more than
ninety (90)
days following the Closing Date, Purchaser, together with its accountants,
shall
prepare and deliver to Seller's accountants a proposed final closing balance
sheet
(the "Proposed Final Closing Balance Sheet") for the period ended on the
Closing
Date, prepared on a basis consistent with the Purchaser's 1997 balance sheet.
The
Proposed Final Closing Balance Sheet shall be accompanied by a report of
Purchaser's
accountants. The Seller and Seller's accountants shall have the right to
consult
during reasonable business hours with appropriate personnel of Purchaser and
Purchaser's accountants and have access to, and review and make copies of,
the work
papers of Purchaser and Purchaser's accountants with respect to the
preparation of
the Proposed Final Closing Balance Sheet.
<PAGE>
(b) (i) The Seller may dispute the Proposed Final Closing Balance
Sheet
prepared by Purchaser and Purchaser's accountants by notice to Purchaser
setting
forth in reasonable detail the amounts in dispute and the basis for such
dispute
within forty-five (45) days of its receipt of the Proposed Final Closing
Balance
Sheet. If the Seller fails to deliver a notice of objections within such
45-day
period, the Seller shall be deemed to have accepted the Proposed Final Closing
Balance Sheet which shall then constitute the final Closing Balance Sheet (the
"Final
Closing Balance Sheet").
(ii) If the amount of Debt or the balance in the Working
Capital on
the Proposed Final Closing Balance is in dispute, Purchaser's accountants and
the
Seller's accountants shall attempt in good faith to resolve such dispute, and
any
resolution as to any disputed amounts shall be final, binding and conclusive.
If
there is no resolution of any such dispute within fifteen (15) days of the
date of
receipt by Purchaser of a written notice of dispute, Purchaser and the Seller
shall,
within five (5) additional days, retain Coopers & Lybrand, L.L.P., which firm
shall,
within thirty (30) days of such submission, resolve such remaining dispute,
and
provide written notice of such resolution by facsimile, confirmed by mail, and
such
resolution shall be binding and conclusive. The fees and disbursements of
Coopers &
Lybrand, L.L.P. shall be borne by Purchaser in the proportion that the
aggregate
amount of disputed items submitted to Coopers & Lybrand, L.L.P. are in
Seller's
favor, and any of the remaining amount shall be borne by Seller. After
resolving the
items in dispute, Coopers & Lybrand, L.L.P. shall prepare and deliver a Final
Closing
Balance Sheet and a certification of the conclusions thereon.
(iii) If the amount of cash in Working Capital on the
Final
Closing Balance Sheet is less than $140,000.00, or if there is any Debt, then
Seller
shall pay to Purchaser, in cash, the difference between such amount and
$140,000.00,
<PAGE>
plus the Debt amount within seven (7) days after receiving a copy of the
Final
Closing Balance Sheet.
Section 2.3 Additional Consideration. Within ninety (90) days after
February
28,1999 upon presentation of financial statements accompanied by a report of
Purchaser's
accountants demonstrating that NEWCO's NTM EBITDA exceeds $1,485,128.80, the
Seller
shall receive additional consideration (the "Additional Consideration"). The
amount
of Additional Consideration shall be eight (8) times the amount by which the
NTM
EBITDA exceeds $1,485,128.80. Purchaser shall pay to Seller any Additional
Consideration as follows:
(i) Within ninety (90) days after February 28, 1999, Seller shall
receive
thirty seven percent (37%) of the Additional Consideration in cash (the
"Additional
Cash Portion");
(ii) Within ninety (90) days after February 28, 1999, Seller
shall
receive thirty eight percent (38%) of any Additional Consideration in Issued
Shares
of Common Stock of Purchaser (the "Additional Common Stock"), which will be
valued
for purposes of the Additional Consideration at its current fair market value
determined in a manner consistent with Purchaser's common practices and taking
into
consideration the value of the common shares of Purchaser issued pursuant to
Purchaser's most recent acquisition occurring prior to the time of such
issuance (the
"Additional Common Stock Market Value");
(iii) Within ninety (90) days after February 28, 1999, Purchaser
shall
issue and deliver to Seller an interest bearing, unsecured, subordinated,
convertible
promissory note (the "Second Note") in the principal amount equal to
twenty-five
percent (25%) of the Additional Consideration (the "Second Note Initial
Principal").
<PAGE>
(a) Seller shall not convert the Second Note until after the
final
determination of the principal amount of the Second Note (the "Second Note
Amended
Principal") determined in accordance with the FTM EBITDA calculation
(discussed
below). After the determination of the FTM EBITDA, the Second Note will be
convertible into Common Shares of Purchaser which will be valued at the time
of
conversion at the Additional Common Stock Market Value.
(b) The Second Note Initial Principal amount will be subject
to
adjustment within ninety (90) days after February 29, 2000, upon presentation
of
financial statements accompanied by a report of Purchaser's accountants
establishing
NEWCO's earnings before interest, taxes, depreciation and amortization for the
period
beginning March 1, 1999, and ending February 29, 2000 (the "Following Twelve
Month's
or (FTM) EBITDA"). The Second Note Amended Principal amount shall be
determined as
follows:
(1) If the FTM EBITDA does not exceed the NTM EBITDA,
then the
Second Note Amended Principal amount will be $0.00 and the Seller shall
return the
Second Note to Purchaser for cancellation.
(2) If the FTM EBITDA is equal to or greater than 125% of
NTM
EBITDA, then the Second Note Amended Principal will be maintained at the
amount of
the Second Note Initial Principal;
(3) If the FTM EBITDA is between 100% and 125% of the NTM
EBITDA, then the principal amount of the Second Note shall be reduced by a
percentage
of the Second Note Initial Principal (the "Second Holdback") determined as
follows:
(A) by subtracting the amount of the FTM EBITDA from
125%
of the NTM EBITDA;
<PAGE>
(B) by dividing the result of subparagraph (A) above
by the
difference between FTM EBITDA and NTM EBITDA; and
(C) by multiplying the result of subparagraph (B)
above by
the Second Note Initial Principal.
(D) by subtracting the result of subparagraph (C)
above
from the Second Note Initial Principal.
(c) If the Second Note Amended Principal is less than the
Second Note
Initial Principal amount, then Seller shall transfer the Second Note to
Purchaser for
cancellation and Purchaser shall issue and deliver to Seller an amended and
restated
Second Note (the "Amended Second Note"), reflecting the Second Note Amended
Principal amount. Within seven (7) days after the issuance of the Amended
Second
Note, Seller shall pay to Purchaser in cash or in Common Stock the amount
representing the excess interest payment paid to Seller on the Second Note or
by
further reducing the principal amount of the Amended Second Note.
Section 2.4 NTM/FTM EBITDA Calculation Determination. The Seller may
dispute
- ----------------------------------
the NTM EBITDA or the FTM EBITDA calculation set forth in the financial
statements
prepared by Purchaser and Purchaser's accountants by notice to Purchaser
setting
forth in reasonable detail the amounts in dispute and the basis for such
dispute
within forty-five (45) days of its receipt of such financial statements. If
the
Seller fails to deliver a notice of objections within such respective 45-day
period,
the Seller shall be deemed to have accepted the NTM EBITDA or FTM EBITDA. If
the NTM
EBITDA or FTM EBITDA amount is in dispute, Purchaser's and Seller's
accountants shall
attempt in good faith to resolve such dispute, and any resolution as to any
disputed
amounts shall be final, binding and conclusive. If there is no resolution of
any
<PAGE>
such dispute within fifteen (15) days of the date of receipt by Purchaser of a
written notice of dispute, Purchaser and the Seller shall, within five (5)
additional
days, retain Coopers & Lybrand, L.L.P., which firm shall, within thirty (30)
days of
such submission, resolve such remaining dispute, and provide written notice of
such
resolution by facsimile, confirmed by mail, and such resolution shall be
binding and
conclusive. The fees and disbursements of Coopers & Lybrand, L.L.P. shall be
borne
by Purchaser in the proportion that the aggregate amount of disputed items
submitted
to Coopers & Lybrand, L.L.P. are in Seller's favor, and any of the remaining
amount
shall be borne by Seller. After resolving the items in dispute, Coopers &
Lybrand,
L.L.P. shall prepare and deliver financial statements for the period beginning
March
1, 1998 and ending February 28, 1999, or beginning March 1, 1999 and ending
February
29, 2000, as the case may be, and a certification of the NTM EBITDA or FTM
EBITDA set
forth therein.
Section 2.5 Issued Shares. The Issued Shares shall be issued by
Purchaser in a
transaction exempt from the registration requirements of the Securities Act of
1933,
as amended (the "Securities Act"), and applicable state securities laws and
shall
constitute "restricted securities" as such term is defined in Section 144
promulgated
under the Securities Act.
Section 2.6 Interest on First and Second Note. The First Note and the
Second
Note, if any, shall bear interest, respectively, on the unpaid principal
balance at a fixed rate per
annum equal to 8.0% in the amounts and pursuant to the terms specified in
the respective Note. The First and Second Note will be payable in full in
five (5)
years from the time of issuance, with interest paid quarterly to Seller.
<PAGE>
Section 2.7 Tax Note. The Tax Note shall be payable in full in two
years and
Shall bear interest on the unpaid principal amount at a fixed rate per annum
equal to ten
percent (10%) in the amount and pursuant to the terms specified on Annex VI
attached
hereto. The Tax Note will not be convertible into Common Shares of Purchaser.
Interest and principal on the Tax Note will be paid yearly.
Section 2.8 Allocation of Purchase Price. The Consideration set forth in
Section 2.1, and any Additional Consideration paid in accordance with Section
2.3 hereof shall
be allocated among the Assets for all purposes (including financial reporting
and tax purposes) as
set forth in this Section 2.8. Seller and Purchaser each hereby
covenants and agrees that it will not take a position on any income tax
return,
before any governmental agency charged with the collection of any income tax,
or in
any judicial proceeding that is in any way inconsistent with the allocation
set forth
herein.
Section 3.
Representations and Warranties of Seller and STOCKHOLDER.
--------------------------------------------------------
Seller and STOCKHOLDER hereby jointly and severally represents and
warrants to
and for the benefit of Purchaser as follows:
<PAGE>
Section 3.1 Organization. Seller is a corporation duly organized,
validly
existing and in good standing under the laws of the State of Utah. Seller is
duly qualified or
licensed to do business and is in good standing as a foreign corporation in
each state and other
jurisdiction in which the ownership, lease or operation of the assets and
properties or the conduct
of its business requires such qualification or
licensing, as set forth on Schedule 3. l hereto, except where the failure to
be so
qualified would not have a material adverse effect upon the Seller or the
Business.
Except for the jurisdictions in which Seller is incorporated or is qualified
or
licensed as a foreign corporation, (i) no other jurisdiction has claimed,
orally or
in writing, that Seller is required to be licensed or qualified as a foreign
corporation therein, (ii) Seller has never filed any franchise, income or
other tax
return in any other jurisdiction, based upon the ownership, lease or operation
of
property or assets therein or the derivation of income therefrom, and (iii)
Seller
does not own, lease or operate any property in any other jurisdiction, and the
Assets
are not located in any other jurisdiction.
Section 3.2 Subsidiaries. Seller has no direct or indirect subsidiaries
and
does not own, hold or control, directly or indirectly, any shares of capital
stock or any equity,
ownership, management or voting interest in any corporation, general or
limited
partnership, limited liability company, joint venture, business trust or other
business entity or association except as set forth on Schedule 3.2.
Section 3.3 Power and Authority. Seller has all requisite right, power
and
authority, corporate or otherwise, to conduct its business and affairs
(including the Business) as
presently conducted and as proposed to be conducted, to own, lease and operate
its assets and
properties (including the Assets), and to execute, deliver and perform its
obligations under, this
Agreement and the other agreements and instruments to be executed and
delivered by Seller
hereunder (the "Related Seller Agreements"). The
execution and delivery by Seller of this Agreement and the Related Seller
Agreements
and the performance by Seller of its obligations hereunder and thereunder have
been
duly and validly authorized by all requisite action, corporate or otherwise,
of
Seller.
Section 3.4 Enforceability. This Agreement and the Related Seller
Agreements
Have been, or at Closing will have been duly and validly executed and
delivered on behalf
of Seller and constitute or will constitute legal, valid and binding
obligations of
Seller, enforceable against Seller in accordance with their respective terms,
except
as such enforcement may be limited by applicable bankruptcy, insolvency,
receivership, reorganization, moratorium and other similar laws now or
hereafter in
effect relating to or affecting creditors' rights and remedies generally, and
by
general principles of equity, whether applied by a court of law or in equity.
<PAGE>
Section 3.5 No Conflicts. The execution and delivery by Seller of this
Agreement and the Related Seller Agreements and the performance by Seller of
the transactions
and obligations contemplated hereby and thereby do not and will not, directly
or indirectly, (a)
violate, conflict with, or constitute a breach of or a default (or an event
that, after the giving of
notice or the lapse or time or both, would constitute a default) under, any
provision of (i) its
articles of incorporation, bylaws or other charter or organizational
documents, (ii) any agreement
among its shareholders or between Seller and its shareholders, (iii) any
contract, obligation, note,
security
agreement, mortgage, bond, indenture, lease, loan agreement, debt instrument
or other
instrument, commitment or agreement to which Seller is a party or by which
Seller or
any of its assets (including the Assets) is or may be bound, or (iv) any
license,
franchise, approval, certificate, permit or authorization held by Seller or
applicable to its assets (including the Assets), which violation, conflict,
breach or
default would have a material adverse effect upon the Seller or the Business;
(b)
violate any applicable federal, state, local or foreign law, statute, rule,
regulation or ordinance, or any order, injunction, writ, judgment, decree or
ruling
of any court, arbitrator or governmental, quasi-governmental, administrative
or
regulatory body, agency or authority ("Governmental Authority"), which
violation
would have a material adverse effect upon the Company or the Business; (c)
result in
the creation or imposition of any mortgage, lien, pledge, security interest,
conditional sales rights under any applicable bulk sales or bulk transfer law
or
other title retention agreement, or any other restriction, encumbrance or
claim of
any kind or description on or against any of Sellers' assets (including the
Assets);
or (d) constitute an event which would permit any individual, Entity or
Governmental
Authority (collectively, "Person") to terminate or modify any agreement,
instrument
or commitment or to accelerate the maturity of any debt, liability or
obligation of
Seller.
Section 3.6 Defaults. It is not presently in material breach or
violation of
or material default under or conflict with any item set forth in Section
3.5(a) or (b); and no event
or condition has occurred which, after the giving of notice or the lapse of
time or both, could be reasonably expected to result in any such material
breach,
violation, default or conflict.
Section 3.7 Consents. Except as set forth on Schedule 3.7, no consent,
authorization, permit or approval of, notice or report to, or filing or
registration with, or waiver
(collectively, "Consents") by, any Person is necessary for Seller to execute
and deliver this
Agreement and the Related Seller Agreements and to perform its
obligations hereunder and thereunder. Prior to the Closing Date, Seller shall
obtain
all Consents listed on Schedule 3.7 unless failure to obtain such would not
have a
material adverse effect on the Seller or the Business.
<PAGE>
Section 3.8 Litigation. There are no actions, suits, claims,
investigations,
arbitrations, hearings or other proceedings (whether civil, criminal,
administrative, investigative
or informal) (collectively, "Proceedings") pending or, to Seller's best
knowledge, threatened by,
before or involving any court, arbitrator or Governmental Authority (i)
against or affecting
Seller, the Business or the Assets, (ii) in which any Person has sought or is
reasonably likely to
seek to restrain or prohibit, or to obtain
damages or other relief in connection with, this Agreement or the Related
Seller
Agreements or the transactions contemplated hereby or thereby, (iii) which, if
determined adversely to Seller, would be reasonably likely to have a material
adverse
effect on Seller, the Business or the Assets or Seller's ability to perform
its
obligations hereunder or to consummate the transactions contemplated hereby,
or (iv)
involving in whole or in part the issue of criminal liability by Seller or any
of its
officers, directors, employees or agents, or pertaining to the Assets or the
Business. Neither Seller nor any of the Assets are subject to any outstanding
judgment, order, writ, injunction or governmental or regulatory order or
authority.
Seller is not presently engaged in any legal action to recover moneys due from
damages caused by or to enforce its rights against any third party.
Section 3.9 Ability to Dispose of the Assets. Seller is the sole legal
owner
of the Assets and has the sole dispositive power with respect to the Assets.
<PAGE>
Section 3.10 Brokers' Fees. Except as set forth on Schedule 3.10, no
broker,
finder, investment broker or similar agent is or shall be entitled to receive
any fee,
commission or other remuneration or compensation relating to the transactions
contemplated by this Agreement based on any action taken by or on behalf of
Seller.
Section 3.11 Capitalization. The authorized capital stock of Seller
consists
of 50,000 shares of common stock, par value $1.00 per share, of which 1,000
shares are issued
and outstanding all of which are owned beneficially and of record by
STOCKHOLDER.
Section 3.12 Dividends. Seller has no liability or indebtedness for
dividends
or other distributions declared or accumulated but unpaid with respect to any
of its
outstanding capital stock. Since December 31, 1997, Seller has not declared
or paid
any dividends or other distributions to its shareholders.
Section 3.13 Corporate Documents. Seller has furnished to Purchaser
true and
complete copies or originals, as the case may be, of the following documents:
(i) the
articles of incorporation and bylaws of Seller; (ii) the minute books of
Seller
containing all records required to be set forth of all proceedings, consents,
actions
and meetings of the shareholders and board of directors (and all committees
thereof)
of Seller; and (iii) the stock transfer books of Seller setting forth all
issuances
and transfers of capital stock of Seller.
<PAGE>
Section 3.14 Financial Statements. Seller has furnished (or, with
respect to
the 1997 financial statement prior to the Closing will forward,) to Purchaser
true and
complete copies of Seller's audited balance sheets as of December 31, 1996 and
1997,
and the related statements of operations and cash flows for the fiscal years
then
ended (together with the report thereon of an independent certified public
accountants, as to the 1997 financial statements and to the 1996 financial
statements, and in each case together with the notes thereto). All such
Financial
Statements (together with all related schedules and notes) (i) present fairly
the
financial condition, results of operations and cash flows of Seller as of the
respective dates thereof and for the respective periods covered thereby; (ii)
have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated and with prior periods
(except
for changes specifically noted therein); (iii) have been prepared in
accordance and
consistent with the books and records of Seller which have been maintained in
accordance with sound business practices, including the maintenance of an
adequate
system of internal controls; and (iv) reflect reserves which are reasonably
adequate
for all known or reasonably contemplated liabilities or obligations of any
nature,
whether accrued, absolute, fixed, contingent or otherwise and whether due or
to
become due, and all reasonably anticipated losses.
Section 3.15 Absence of Undisclosed Liabilities. As of the date hereof,
except
as set forth in the balance sheet of Seller as of December 31, 1997 and the
related notes
thereto ("1997 Balance Sheet"), Seller does not have any debt, liability,
guarantee,
demand or obligation of any kind or nature whatsoever, whether known or
unknown,
whether accrued, absolute, contingent or otherwise, and whether due or to
become due,
except for those that (i) are not required by generally accepted accounting
<PAGE>
principles to be included in the 1997 Balance Sheet, and (ii) have been
incurred
after the date of the 1997 Balance Sheet in the ordinary course of business
and are
usual and normal in amount, both individually and in the aggregate. To the
best of
Seller's knowledge, there has been no circumstance, condition, event or
arrangement
that could be reasonably expected to give rise to any additional debts,
liabilities
or obligations of Seller.
Section 3.16 No Material Adverse Change.
(a) Since December 31, 1997, (i) the business of Seller has been
conducted
only in its historic, ordinary course, (ii) there has been no material adverse
change
in the Assets, liabilities, Business, operations, affairs, condition
(financial or
otherwise) or prospects of Seller; and (iii) there has been no damage,
destruction,
loss, occurrence or event (whether or not insured against) which, either
singly or in
the aggregate, has had, or might reasonably be expected to have, a material
adverse
effect on the Assets, liabilities, Business, operations, affairs, condition or
prospects (financial or otherwise) of Seller.
(b) Without limiting the generality of the foregoing, since
December 31,
1997, there has not been any:
(i) Sale, assignment, transfer, lease or other disposition of
any
Assets, except of inventory and equipment to customers in the ordinary course
of
business for fair consideration;
(ii) Mortgage, pledge, lien, claim or other encumbrance,
created or
imposed on or against any Asset;
<PAGE>
(iii) Capital expenditure (or series of related capital
expenditures) by Seller exceeding $25,000.00;
(iv) Material destruction, damage to or loss (whether or not
insured
against) of any Assets;
(v) Labor trouble, dispute, strike, work stoppage, or other
event or
condition of any character, actual or threatened;
(vi) Declaration, setting aside, or payment of any dividend or
other
distribution in respect of the capital stock of Seller, or any direct or
indirect
redemption, purchase, or other acquisition by Seller of any of its shares of
capital
stock;
(vii) Entering into any agreement, contract, lease or
license (or
series of related instruments), either involving more than $25,000.00, or
outside the
ordinary course of business;
(viii) Modification, amendment, cancellation or termination
of any
contract, agreement, lease or license to which Seller is a party, except in
the
ordinary course of business;
(ix) Commencement or notice or threat of commencement of any
Proceeding against or affecting Seller, the Business or the Assets;
(x) Incurrence of indebtedness for borrowed money or increase
in the
long-term indebtedness of Seller;
(xi) Amendment to Seller's articles of incorporation or bylaws;
<PAGE>
(xii) Capital investment in, loan to or acquisition of the
securities or assets, or any other Person (other than in the ordinary course
of
business);
(xiii) Grant of any license or sublicense of any Assets or
any
rights under or with respect to any Intellectual Property;
(xiv) Any transaction between Seller and any of its
officers,
directors or employees, or involving any of the Assets and involving any
officers,
directors or employees of Seller;
(xv) Waiver, cancellation, compromise or release of any
material right
or claim of Seller, or forgiveness or cancellation of any material debt or
claim;
(xvi) Loan by Seller to any Person, or guaranty by Seller
of any
loan, debt or other obligation of any other Person;
(xvii) Increase in the salary, benefits or other
compensation
payable or to become payable by Seller to any of its officers, directors,
employees
or consultants other than normal merit increases, or the declaration, payment,
or
commitment or obligation of any kind for the payment by Seller of a bonus or
other
additional salary or compensation to any such person;
(xviii) Agreement, contract, plan, policy or arrangement
binding
upon Seller either created or modified as to severance or termination benefits
of any
employee, officer, director or agent;
(xix) Failure to maintain levels of inventory proportionate
to
Seller's existing business, or alteration of the inventory practices
maintained by
Seller during the previous twelve months;
<PAGE>
(xx) Other events or conditions of any character that,
individually or in the aggregate, (A) have or might reasonably have a material
adverse effect on the Assets, Business, operations, financial condition,
liabilities
or prospects of Seller, or (B) cause or might reasonably be expected to cause
Seller
to be in breach of any of its representations, warranties or covenants
hereunder; or
(xxi) Any agreement, commitment, arrangement or
understanding by
Seller to do any of the actions described in the preceding clauses (i) through
(xvi).
Section 3.17 Taxes.
(a) Within the times (or if later all penalties and interest
related
thereto having been paid in full) and in the manner prescribed, Seller has
accurately
prepared in good faith and properly filed all federal, state, local and
foreign tax
returns, reports and forms required by law, rule, regulation or otherwise to
be filed
and has paid all taxes, assessments and penalties due and payable, and Seller
has
furnished to Purchaser true and complete copies of all such tax returns,
reports and
forms so filed since December 31, 1994. All tax returns, reports and forms
filed by
Seller accurately set forth all items (to the extent required to be included
or
reflected in such returns) relevant to its future tax liabilities, including
the tax
bases of the Assets. Seller has fully paid or has made adequate provision in
the
1997 Balance Sheet for all federal, state, local and foreign taxes for the
period
ending on the date of the 1997 Balance Sheet. Seller has timely collected,
withheld
and paid over all taxes required to be withheld by any federal, state, local
or
foreign taxing authority and complied with all information reporting
requirements
related thereto.
<PAGE>
(b) There are no disputes pending or overtly threatened by any
taxing
authority as to taxes of any nature payable by Seller. No examinations or
audits of
the federal, state, local or foreign tax returns of Seller are currently in
progress
or, to the best knowledge of Seller, threatened or proposed. No deficiency or
adjustment for any tax has been claimed, proposed or assessed against Seller
by any
taxing authority. Seller has not waived or extended any applicable statute of
limitations relating to the assessment of federal, state, local or foreign
taxes.
Seller is not a party to any tax indemnity, tax sharing, or tax allocation
agreement.
There are no tax liens upon any property or assets of Seller except for taxes
not yet
due and payable.
(c) Seller has not filed and will not file any consent agreement
under
Section 341(f) of the Code or agreed to have Section 341(f) of the Code apply
to any
disposition of subsection (f) assets (as such term is defined in Section
341(f)(4) of
the Code) owned by Seller. The acquisition of the Assets by Purchaser will
not
result in the payment of any "excess parachute payment" within the meaning of
Section
280G of the Code, and Seller is not a party to any agreement, plan or
arrangement
that could give rise to any payment that would not be deductible pursuant to
Section
280G or Section 162 of the Code. No outstanding debt obligations of Seller
are
"corporate acquisition indebtedness" within the meaning of Section 279(b) of
the
Code. Seller is not a "United States real property holding company" as
defined in
Section 897(c)(2) of the Code. Seller has not filed an election under Section
338(g)
or Section 338(h)(10) of the Code or caused or been the subject of a deemed
election
under Section 338(e) of the Code. Seller has not made any payments, and is
not
obligated to make any payment, and is not a party to any agreement, plan or
arrangement that under any circumstances could obligate it to make any
payments that
will not be deductible under Section 162(m) of the Code.
(d) As used in this Section 3.17, the term "tax" includes all
federal,
state, local or foreign income, franchise, profits, gross receipts, value
added, net
worth, real property, personal property, sales, transfer, use, service, ad
valorem,
<PAGE>
stamp, environmental, windfall profits, employment, social security, Medicare,
disability, workers' compensation, unemployment compensation, occupation
severance,
purchaser premiums, excise, withholding, payroll and other taxes, charges,
fees,
levies, tariffs, duties and other assessments of any kind or nature, imposed
by the
laws and regulations of any governmental jurisdiction (federal, state, local
or
foreign) or by any taxing authority (federal, state, local or foreign) and all
interest, fines and penalties related thereto.
Section 3.18 Title to and Condition of Assets. The Assets constitute
all of
the assets, rights and interests of every kind and description that are used
by Seller in the
Business or necessary for the Business and will permit Purchaser to operate
the
Business in compliance with all legal requirements substantially as conducted
by
Seller. All tangible Assets are physically located at 857 South Jordan
Parkway,
Suite 200, Salt Lake City, Utah 84095 and 6155 East Indian School Road, Suite
100A,
Scottsdale, Arizona. Seller has and will transfer to Purchaser at Closing
good,
valid, marketable and exclusive title to and rightful and peaceful possession
of all
of the Assets, free and clear of any and all mortgages, liens, security
interests,
pledges, charges, encumbrances, equities, rights of first refusal, options to
purchase, equitable interest, deeds of trust, claims, easements,
rights-of-way,
covenants, conditions or restrictions of any kind or nature whatsoever
("Liens"),
except for (i) those disclosed in the 1997 Balance Sheet; (ii) liens for
current
taxes not yet due and payable; and (iii) liens disclosed on Schedule 3.18
hereto
which will be removed and released at or prior to the Closing. Seller is in
rightful
possession of all premises and personal property leased to it from others.
All
tangible personal property of Seller is generally in good operating condition
and
repair (ordinary wear and tear excepted), has been utilized or serviced only
in a
manner that would not void or limit the coverage of any warranty thereon, has
been
properly maintained and are adequate and suitable for its intended purposes.
<PAGE>
Section 3.19 Real Property. Seller does not, directly or indirectly,
own any
Real property. Schedule 3.19 hereto contains a true and complete list of all
leases and
subleases pursuant to which Seller is the lessee or lessor of any real
property,
complete and accurate copies of which leases have been previously furnished to
Purchaser. Seller has a valid leasehold in and enjoys peaceful and quiet
possession
of all property leased under such leases.
Section 3.20 Personal Property Leases. Schedule 3.20 hereto sets forth
each
lease of
------------------
personal property under which Seller is either a lessee or lessor of certain
of the
Assets. Each such lease is in full force and effect and is a valid and
binding
obligation of Seller and of each of the parties thereto. Seller is not, and
Seller
does not have any knowledge that any other party is, in default with respect
to any
material term or condition of any such lease, and no event has occurred which
through
the passage of time or the giving of notice, or both, would constitute a
material
default thereunder or would cause the acceleration of any obligation of any
party
thereto or the creation of a lien or encumbrance upon any Asset.
Section 3.21 Inventory. All of Seller's inventory of raw materials,
work in
process and finished goods, parts and supplies (including inventory on
consignment) consists of
items of a quantity and quality usable and saleable in the ordinary course of
business by Seller (net of any reserve reflected in the 1997 Balance Sheet),
except
for obsolete, defective, damaged and slow-moving items and items below
standard
quality, all of which have been written down on the books of Seller to net
realizable
<PAGE>
market value or have been provided for by adequate reserves in the 1997
Balance
Sheet. All inventories of finished goods consist of items that have been
manufactured in accordance with, and which meet, applicable industry
standards. All
inventories are correctly marked. The inventories shown on the 1997 Balance
Sheet
are based on quantities determined by physical count or measurement and are
valued at
the lesser of cost (determined on a first-in, first-out basis) or market value
and on
a basis consistent with that of prior years and are adjusted for excess and
obsolescence in compliance with Seller's accounting policies which have been
delivered in writing to Purchaser.
Section 3.22 Intellectual Property.
- ---------------
(a) Schedule 3.22 sets forth a complete and accurate list and brief
description of all patents, trademarks, logos, service marks, trade names,
corporate
names, fictitious names and copyrights, and each application therefor, which
are
either owned by Seller or which are used by Seller in the Business and, in
each case
where Seller is not the owner thereof, the name of the owner thereof. Except
as set
forth in Section 3.22, Seller is the exclusive owner of or possesses adequate
and
valid licenses and other rights to use all of the items set forth in Schedule
3.22
hereto and all trade secrets, licenses, inventions, processes, discoveries,
developments, designs, formulas, know-how, drawings, customer and supplier
lists,
software, confidential information and other proprietary information and all
other
proprietary rights, intangible assets and intellectual property, and all
copies and
tangible embodiments thereof in whatever form or medium (collectively,
"Intellectual
Property") necessary for the operation of the Business as presently conducted
and as
proposed to be conducted.
(b) All rights of Seller in and to its Intellectual Property will
be
transferred to Purchaser at the Closing.
<PAGE>
(c) Seller has taken all necessary and desirable action to maintain
and
protect each item of Intellectual Property that it owns or uses. To Seller's
best
knowledge, Seller has not interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Intellectual Property rights of any
third
parties, and Seller has never received any charge, complaint, claim, demand or
notice
alleging any such interference, infringement, misappropriation or conflict
(including
any claim that Seller must license or refrain from using any Intellectual
Property
rights of any third party). To Seller's best knowledge, no third party has
interfered with, infringed upon, misappropriated or otherwise come into
conflict with
any Intellectual Property rights of Seller. No claim, demand, assertion,
action,
suit, arbitration, hearing, investigation or proceeding is pending or, to the
best
knowledge of Seller, threatened, which pertains to or challenges the validity,
ownership or enforceability of any right of Seller in respect to of
Intellectual
Property. To Seller's best knowledge, the continued operation of the Business
as
currently conducted will not interfere with, infringe upon, misappropriate or
otherwise come into conflict with any Intellectual Property rights of any
third
parties.
(d) Seller is not a party to any agreement, document, arrangement
or
understanding pursuant to which Seller has licensed or granted any right or
interest
in, to or under any of its Intellectual Property. Seller is not obligated or
under
any liability whatsoever to make any payment, by way of fees, royalties or
otherwise,
to any owner or licensor of, or other claimant to, any of the Intellectual
Property.
Seller has not disclosed any of its trade secrets or other proprietary or
confidential information to any Person, except pursuant to a loan or other
agreement
obligating the recipient to maintain the confidentiality thereof. To the best
of
Seller's knowledge, no employee of Seller is subject to any agreement,
arrangement or
commitment with any former employer or other person, or is subject to any
judgments,
order, decree or ruling of any court, arbitrator or Governmental Authority
regarding
<PAGE>
confidential information, or rights or restrictions on competition, that would
otherwise affect such employee's ability to perform his duties to Seller.
Seller has
never agreed to indemnify any person for or against any interference,
infringement,
misappropriation or other conflict with respect to any item of its
Intellectual
Property.
Section 3.23 Name. Seller has the exclusive right in perpetuity to use
the
name "Call Business Systems, Inc." in the State of Utah and Arizona and any
derivations and
variations thereof, for and in connection with the Business, and has not
granted and
will not grant to any other Entity the right to use, and will not after the
Closing
use, such name as either corporate names, trade names or fictitious names.
Section 3.24 Relationships with Suppliers and Customers. Schedule 3.24
contains a complete and accurate list of (i) the names, addresses and dollar
amounts of business
of each of the 20 largest customers of the Seller, in terms of sales during
1997, and (ii) the name,
address and dollar amounts of business of each of the Company's 10 largest
suppliers during the
1997 fiscal year. Since December 31, 1997, no supplier
or customer of Seller has canceled any contract or order or has indicated any
intention to terminate or materially alter its existing business relationship
with
Seller, whether as a result of the transactions contemplated hereby or
otherwise
which cancellation or termination would have a material advance effect on the
business of Seller. Seller is not involved, and Seller has no knowledge of
any facts
or circumstances which is reasonably expected could result, in any material
claim,
dispute or controversy, with any of its material suppliers or customers.
<PAGE>
Section 3.25 Labor and Employment Matters.
- -----------------------
(a) Schedule 3.25(a) contains a true list of all persons employed
full
time by Seller as of March 31, 1998 or as of the Closing Date, whichever date
is
later.
(b) Seller is not a party to any contract, collective bargaining
agreement
or other agreement with any labor union including any collective bargaining
agreement. There has never been an actual or threatened labor dispute,
strike,
picket, work slowdown, work stoppage or any other job action at any business
location
of Seller. There is no unfair labor practice complaint against Seller pending
before
the National Labor Relations Board or any state or local agency, no pending or
threatened labor strike or other material labor trouble affecting Seller, no
material
labor grievance pending or threatened against Seller, no pending
representation
question respecting the employees of Seller, no pending or threatened
arbitration
proceedings arising out of or under any collective bargaining agreement to
which
Seller is a party, and no basis for which a claim may be made under any
collective
bargaining agreement to which Seller is a party or under which Seller is
alleged to
be obligated. No union organizing attempts have been made or threatened.
Seller has
not received a demand for recognition from any labor union with respect to,
and, to
Seller's knowledge, no attempt has been made or is being made to organize, any
of the
persons employed by Seller.
(c) Seller is in compliance in all material respects with all
applicable
laws, rules and regulations respecting the employment of, including but not
limited
to, fair employment practices, terms and conditions of employment, and wages
and
hours. Seller has not engaged in any unfair or illegal labor practice, and
there are
no charges or claims of employment discrimination or unfair labor practices
pending,
or, to the best knowledge of Seller after due inquiry, threatened against,
Seller.
<PAGE>
(d) No proceedings or claims are pending or, to the best knowledge
of
Seller, threatened against Seller with respect to any violation or alleged
violation
of any applicable federal, state or local laws, rules and regulations relating
to the
employment of labor, including, without limitation, those related to wages and
hours,
collective bargaining, discrimination on any basis, including without
limitation, on
the basis of race, color, religion, sex, national origin or age, and Seller
has
complied in all material respects with all applicable laws and regulations
relating
to employment of labor.
(e) Seller has made, or will have made, payment in full to all of
its
employees through the end of the payment period ending immediately prior to
the
Closing Date of all wages, salaries, commissions, bonuses, benefits and other
compensation due to such employees or otherwise arising under any policy,
practice,
agreements, plan, program, statute or law.
(f) Seller, STOCKHOLDER and their affiliates are in compliance with
their
obligations, if any, pursuant to the Workers Adjustment and Retraining
Notification
Act of 1988, as amended ("WARN"), and all other notification obligations
arising
under any federal, state or local, or foreign statute, rule or regulation.
Section 3.26 Employee Benefit Plans.
-----------------
(a) List of Plans. Except for the plans set forth on Schedule 3.26
hereto,
<PAGE>
Seller does not now nor has it ever established, maintained, sponsored or
contributed to any "employee benefit plan. as such term is defined in Section
3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
any
other welfare, bonus, deferred compensation, retirement, incentive, pension,
profit
sharing, stock purchase, stock option, stock appreciation right, severance, or
other
similar employee benefit plan, program, policy, arrangement or practice,
whether
formal or informal, written or oral (collectively, "Employee Plans"), covering
any
current or former employee, officer or director of Seller.
(b) Claims. No Proceeding with respect to any Employee Plan (other
than
routine claims for benefits) is pending or, to the best knowledge of Seller,
threatened, and the Company (and employees with responsibility for employee
benefits
matters) has no knowledge of any facts that it is reasonably expected could
form the
basis for any such action, suit, proceeding, hearing or investigation.
(c) ERISA Liabilities. Neither Seller, nor any of the Employee
Plans, nor
any trust created thereunder, nor, to the knowledge of Seller, any fiduciary
(as defined
in Section 3(21) of ERISA) thereof, is or has been in violation of, or has
incurred
any liability, directly or indirectly, under any provision of ERISA or the
Code or to
its Pension Benefit Guaranty Corporation ("PBCC"), other than liability for
premiums
due to the PBCC which, to the extent they are due and payable, have been paid.
(d) Severance Obligations. Seller has not entered into any
severance or
Similar arrangement in respect to any present or former employee that would
result in
the obligation, absolute or contingent, of the Purchaser to make any payment
to any
present or former employee following termination of employment.
<PAGE>
(e) Liabilities Due to Agreement. The consummation of the
transactions
contemplated hereby will not (i) modify or accelerate any benefits or the
vesting of
benefits under any Employee Plan or constitute an event entitling any Person
to any
additional or other benefits, or (ii) result in any liability to Purchaser for
taxes,
penalties, interests or other claims resulting from any Employee Plan.
Section 3.27 Insurance. Schedule 3.27 hereto sets forth a complete and
accurate list of all of the insurance policies (showing the insurer, types of
coverage, policy
expiration dates, policy numbers, deductibles and policy limits as to each
such
policy) currently in force under which the Assets are insured or which provide
for
bonding and surety arrangements in connection with the Business. All such
policies
are in full force and effect and have been issued under valid policies for the
benefit of Seller by properly licensed insurance companies. The premiums on
such
policies have been paid as they became due and payable, and Seller is not in
default
with respect to payment of premiums on any such policy. All of the Assets of
a type
customarily insured are covered by effective insurance in amounts at least
equal to
their fair market value, and such insurance provides protection against losses
and
risks that are customarily insured against by comparable businesses.
Section 3.28 Contracts.
Except as set forth on Schedule 3.28, each lease, contract,
agreement,
license, understanding, indenture, mortgage, deed of trust, sales order,
obligation
and commitment ("Contract") to which Seller is a party, or by which it or any
of the
Assets are bound, (i) is in full force and effect and is a valid and binding
<PAGE>
obligation of Seller and of the other parties thereto, enforceable by Seller
in
accordance with its terms, and (ii) if an Assigned Contract, may be
transferred by
Seller to Purchaser without penalty and will be enforceable by Purchaser.
Neither
Seller nor, to the best knowledge of Seller, any other party to such Contract
is in
any material respect in breach of or in default under any Contract, nor has
any event
or circumstance occurred which, with notice or lapse of time or both, would
constitute a material breach or default of the Contract. Seller has not
received
notice and has no reason to believe that any party to any Contract intends to
cancel
or terminate any Assigned Contract or to exercise or not exercise any option
thereunder.
(b) Schedule 3.28 hereto sets forth a complete and accurate list of
each
of the following Contracts to which Seller is a party or by which the Assets
are
bound: (i) any distributor's or manufacturer's representative or agency
agreement;
(ii) any output or requirements agreements; (iii) any agreement not entered
into in
the ordinary course of business; (iv) any indenture, mortgage, deed of trust,
lease
or any agreement that is unusual in nature, duration, or amount (including,
without
limitation, any agreement requiring the performance by the Seller of any
obligation
for a period of time extending beyond one year from the Closing Date involving
total
consideration of more than $10,000.00); (v) any contract with any Government
Authority, (vi) any Contract that is materially adverse to the business,
properties,
assets, liabilities, financial condition or results of operations of Seller;
(vii)
any Contract for the lease of personal property to or from any Person; (viii)
any
Contract for the purchase or sale of raw materials, commodities, supplies,
products
or other personal property, or for the furnishing or receipt of services, the
performance of which would extend over a period of more than one (1) year or
that
involves consideration in excess of $10,000.00; (ix) any Contract concerning a
partnership or joint venture; (x) any Contract under which it has created,
incurred,
assumed, guaranteed any indebtedness for borrowed money, or any capitalized
lease
obligation, or under which it has imposed a lien on any of the assets; (xi)
any
<PAGE>
Contract concerning confidentiality or non-competition; (xii) any Contract
involving
any director, officer, stockholder or other affiliate of Seller; (xiii) any
Contract
for the employment of any individual on a full-time, part-time, consulting,
independent contractor or other basis or providing severance benefits; (xiv)
any
profit sharing, deferred compensation, severance, termination or other plan or
arrangement for the benefit of current or former directors, officers, or
employees;
(xv) any Contract under which it has advanced or loaned any amount to any of
its
directors, officers or employees; or (xvi) any Contract material to the Assets
or the
Business.
Section 3.29 Licenses. All licenses, rights, privileges, franchises,
permits,
approvals, consents and other authorizations related to the Assets reasonably
necessary for the
lawful conduct of the Business as it is presently conducted and reasonably
necessary to own,
operate, maintain and use the Assets in the manner in which they are now being
operated,
maintained and used, including all applicable zoning, environmental,
health, safety and other permits, have been timely obtained and are currently
in
effect, and Seller has not violated, and is not in violation of, any such
licenses,
rights, privileges, permits, franchises, consents or other authorizations.
Section 3.30 Product Liability Claims. No Proceeding is pending or, to
the
best knowledge of Seller, threatened against or affecting Seller, arising out
of any
injury to individuals or to property as a result of the ownership, possession
or use
of any product manufactured, sold, leased or delivered by Seller, and Seller
knows of
no facts, circumstances, actions or omission that could reasonably create the
basis
for any such Proceeding.
<PAGE>
Section 3.31 Product Warranties. Schedule 3.31 sets forth a complete
and
Accurate description of all warranties and pending warranty and service
obligations of Seller to
its customers with respect to the products manufactured or sold by Seller
within the two year
period prior to the date of this Agreement, including the beginning and ending
dates of such
warranty obligations, and a summary of the warranty charges
incurred by Seller during 1996, 1997 and to date in 1998. Schedule 3.31 also
contains a copy of all such written warranties, and a list and amount of all
products
manufactured or sold by Seller. Each product manufactured, sold, leased or
delivered
by Seller to any of its customers has been in conformity with all applicable
contractual commitments and all express and implied warranties. Seller has no
current liability, and knows of no reasonable basis for any present or future
Proceeding against it giving rise to any liability, for replacement or repair
thereof
or other damages in connection therewith, subject only to the reserve for
product
warranty claims set forth on the 1997 Balance Sheet. There is no pending or,
to the
best knowledge of Seller, threatened Proceeding under such warranties.
Section 3.32 Compliance with Laws. Seller, the Business and the Assets
are and
have been in material compliance with all applicable federal, state, local and
foreign
laws, statutes, ordinances, rules, regulations, codes, licenses, permits,
orders,
judgments, decrees and other legal requirements (including, without
limitation, those
applicable to building, health, employment, labor, product liability, zoning,
occupational safety, conservation, unfair competition, labor practices or
corrupt
practices) which affect or are applicable to the Assets and the Business.
<PAGE>
Section 3.33 Environmental Laws.
---------------
(a) Seller is, and at all times has been, in compliance in all
material
respects with all federal, state, local and foreign laws (whether common or
statutory), statutes, codes, rules, regulations, orders, injunctions, decrees,
judgments, compacts, treaties, conventions, legal doctrines, plans, demand
letters,
agreements with any governmental or regulatory authorities and all other
requirements
relating to pollution or the protection of health, safety or the environment
("Environmental Laws"), including without limitation the release, discharge or
emission of any Hazardous Substances (as defined below) into the environment
(including, without limitation ambient air, surface water, ground water, land
surface, or subsurface strata) and the manufacture, generation, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous
Substances, resulting from the operation of the Business or the ownership,
lease or
use of the Assets, or relating to any real estate currently or previously
owned but
leased by Seller.
(b) Seller has not received any notices, demand letters, citations,
summons, complaints or requests for information from, and no action, suit,
hearing,
investigation, order or other proceeding is pending or, to the best knowledge
of
Seller, threatened by or before any court, Governmental Authority or other
Person
regarding any actual or threatened violation of or liability under any
Environmental
Law.
(c) Seller is not subject to any judicial, executive, legislative,
regulatory or administrative ruling, order or decree arising under or relating
to any
Environmental Law.
<PAGE>
(d) Seller has timely obtained, currently holds and is in
compliance in
all material respects with the provisions of all permits, licenses,
certificates,
consents and other authorizations and approvals required in connection with
the
operation of its business and the ownership, leasing or use of its assets and
properties under all Environmental Laws.
(e) Seller is not aware of any event, condition, circumstance,
activity,
practice, action or plan which is reasonably likely to (i) prevent continued
compliance with the foregoing, (ii) give rise to any liability under any
Environmental Law, including but not limited to liability based on or
resulting from
Seller's manufacturing, processing, distribution, use, treatment, storage,
disposal,
transport or handling, or the emission, discharge or release into the
environment of
any Hazardous Substance, (iii) give rise to any liability for remedial actions
(including removal, clean-up, response and monitoring), or (iv) otherwise have
a
material adverse effect on Seller or cause Seller to incur substantial costs.
No
Hazardous Substance has been used, stored, placed, treated, transported,
manufactured, generated, processed, deposited, distributed, handled, released,
deposited, spilled, discharged or disposed of on or under any property
currently or
previously owned or leased by Seller except for common household and office
products
in de-minimis quantities.
(f) There is no above-ground or underground storage tank located on
or
under, or to Seller's best knowledge any asbestos located on, any real
property or
structure owned or leased by Seller.
(g) As used herein, the term "Hazardous Substance" means (i) any
substance
or material heretofore or hereafter designated as "hazardous" or "toxic" under
the
Resource Conservation and Recovery Act, 42 U.S.C. Section 9601 et seq., the
Federal Water Pollution Control
- -- --
<PAGE>
Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42 U.S.C. Section 7401
et seq., the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
42 U.S.C. Section
9601 et seq., or the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq., all as
amended and in the regulations promulgated thereunder pursuant thereto; (ii)
any "solid waste,"
"hazardous waste," "contaminant," "pollutant" or "infectious waste," as such
terms are defined in
any other Environmental Law at any time; (iii) asbestos, urea-
formaldehyde, polychlorinated biphenyls ("PCBs"), methylene chloride,
trichlorethylene, 1,2-transdichloreoethyline, dioxins, dibenzofurans, nuclear
fuel or
material, chemical waste, radioactive material, explosives, known carcinogens,
petroleum products and byproducts, and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified in,
or regulated by, any Environmental Law; (iv) any substances listed in the
United
States Department of Transportation Table (49 C.F.R. 172.17d.101 and
amendments
thereto) or by the Environmental Protection Agency (or any successor agency)
as
hazardous substances (40 C.F.R. Part 302 and amendments thereto); and (v) any
additional substances, materials and wastes which at any time become
classified or
considered to be hazardous or toxic under any Environmental Law.
<PAGE>
Section 3.34 No Loss of Rights or Legal Obstacles. The execution and
delivery
of this Agreement and the Related Seller Agreements by Seller and its
performance of the
transactions and its obligations contemplated hereby and thereby do not and
will not:
(a) result in any loss of any material legal right of Seller being transferred
to
Purchaser; (b) result in any termination, modification or cancellation of any
Assigned Contract; (c) result in the termination, modification, or
cancellation of,
give rise to any right of termination, modification, or cancellation with
respect to,
give rise to the acceleration of any performance required under, result in any
increase in any payment due or other liability under, change the performance
required
under, or otherwise adversely affect any material contract, or modify any
material
contract, or result in, or require, the creation or imposition of any material
lien,
charge, or encumbrance upon the Assets, or result in the termination or
impairment of
any material permit, license, franchise, or authorization pertaining to the
Assets;
or (d) to the best of Seller's knowledge, adversely affect the Assets or the
Business
in any material respect.
Section 3.35 Bank Debt. Schedule 3.35 hereto sets forth a complete and
accurate list of all loans and credit agreements, line of credit, promissory
notes, loan agreements
and other arrangements between Seller and any bank, financial institution,
lender or creditor of
any sort.
Section 3.36 Transactions with Shareholders and Employees. Seller has
no
outstanding loans or other advances to, and is not a party to any lease,
license or
other agreement, understanding or arrangement with, any shareholder, officer,
director or employee of Seller, other than out-of-pocket expenses incurred in
the
ordinary course of business. No shareholder, officer, director or employee of
Seller
owns or has any interest in any of the Assets.
<PAGE>
Section 3.37 Absence of Certain Commercial Practices. To the best of
Seller's
knowledge, neither Seller nor any officer, director, employee or agent of
Seller (or
any Person acting on behalf of any of the foregoing), has directly or
indirectly (i)
given or agreed to give any gift or similar benefit of more than nominal value
on
behalf of Seller to any customer, supplier, employee or official of any
Governmental
Authority (domestic or foreign), to induce the recipient or his employer to do
business, grant favorable treatment or compromise or forego any claim, (ii)
made any
significant payment which might be improper under prevailing law (regardless
of the
jurisdiction in which such payment was made) to promote or retain sales or to
help,
procure or maintain good relations with suppliers, (iii) engaged in any
activity
which constitutes a violation of the Foreign Corrupt Practices Act of 1977, as
amended, and the rules and regulations promulgated thereunder, (iv) engaged in
any
practice violating any law prohibiting compliance with an unsanctioned foreign
boycott, (v) established or maintained any unrecorded or illegal corporate
fund or
account or assets, (vi) made false or fictitious entries on the books or
records of
Seller, or (vii) failed to perform its obligations in any material respect
under any
Contract with, or violated in any material respect any federal law known to
Seller in
its dealings with, the Federal government or any agency or department thereof,
including, but not limited to, any law with respect to conspiracy to defraud,
false
claims, conspiracy to defraud the United States, embezzlement or theft of
public
money, fraud and false statements, false demands against the United States,
mail
fraud, wire fraud, RICO, and truth in negotiations. To the best of Seller's
knowledge, no such gift or benefit is required in connection with the
operations of
Seller or its business to avoid any fine, penalty, cost, expense or adverse
change in
the assets, properties, liabilities, financial condition, results of
operations or
business of Seller.
Section 3.38 Non-Foreign Status. Seller is not a "non-resident alien",
"foreign corporation", "foreign partnership", "foreign trust" or "foreign
estate" within the
meaning of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
<PAGE>
Section 3.39 Full Disclosure. No representation, warranty or other
statement
by Seller in this Agreement, or in any schedule, exhibit, certificate,
financial statement or other
instrument or document furnished or to be furnished to Purchaser, contains or
will contain any
untrue statement of a material fact or omits or will omit any material fact
necessary in order to
make any of the statements contained herein or
therein, when taken as a whole, not false or misleading in any material
respect in
light of the circumstances in which they were made. There is no fact or
circumstance
known to Seller that materially adversely affects, or in the future may be
reasonably
expected to (insofar as Seller can now reasonably foresee) materially
adversely
affect, the Assets or the properties, liabilities, business, affairs,
operations,
condition (financial or otherwise) or prospects of Seller that has not been
set forth
herein or otherwise described to Purchaser.
Section 4.
Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to and for the benefit of
Seller and
STOCKHOLDER as follows:
Section 4.1 Organization. Purchaser is a corporation duly organized,
validly
Existing and in good standing under the laws of the State of Delaware.
Purchaser is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each state
and other jurisdiction in which the ownership, lease or operation of the
assets and properties or
the conduct of its business requires such
<PAGE>
qualification or licensing, as set forth on Schedule 4. l hereto. Except for
the jurisdictions in
which Purchaser is incorporated or is qualified or licensed as a foreign
corporation, (i) no other
jurisdiction has claimed, orally or in writing, that Purchaser is required to
be licensed or qualified
as a foreign corporation therein, (ii) Purchaser
has never filed any franchise, income or other tax return in any other
jurisdiction,
based upon the ownership, lease or operation of property or assets therein or
the
derivation of income therefrom, and (iii) Purchaser does not own, lease or
operate
any property in any other jurisdiction, and the Assets are not located in any
other
jurisdiction.
Section 4.2 Power and Authority Purchaser has, or will as of the
Closing Date
have all requisite right, power and authority, corporate or otherwise, to
conduct its business and
affairs as presently conducted and as proposed to be conducted, to own, to
lease and operate its
assets and properties, and to execute all requisite right, power and
authority, corporate or
otherwise, to execute, deliver and perform its obligations
under this Agreement and the other agreements and instruments to be executed
and
delivered by Purchaser hereunder (the "Related Purchaser Agreements"). The
execution
and delivery by Purchaser of this Agreement and the Related Purchaser
Agreements and
performance of Purchaser's obligations hereunder and thereunder has been, or
as of
the Closing Date will have been duly and validly authorized by all requisite
action,
corporate or otherwise, of Purchaser.
<PAGE>
Section 4.3 Enforceability. This Agreement and the Related Purchaser
Agreements have been, or as of Closing will have been duly and validly
executed and delivered
on behalf of Purchaser and constitute, or will constitute as of the Closing
Date the legal, valid
and binding obligations of Purchaser, enforceable against Purchaser in
accordance with its terms,
except as such enforcement may be limited by applicable
bankruptcy, insolvency, receivership, reorganization, moratorium or other
similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally,
and by general principles of equity.
Section 4.4 No Conflicts. The execution and delivery by Purchaser of
this
Agreement and the Related Purchaser Agreements and the performance by
Purchaser of the
transactions and obligations contemplated hereby and thereby do not and will
not (a)
violate, conflict with, contravene or constitute a breach or a default (or an
event
that, after the giving of notice or the lapse or time or both, would
constitute a
default) under any provision of (i) its certificate of incorporation, bylaws
or other
charter or organizational documents; (ii) any agreement among its shareholders
or
between Purchaser and its shareholders; (iii) any contract, agreement,
obligation,
understanding, commitment, note, security agreement, lease, loan agreement,
debt
instrument or other instrument or agreement to which Purchaser is a party or
by which
Purchaser or any of its assets is or may become bound; (iii) any license,
approval,
certificate, permit or authorization held by Purchaser; or (b) violate any
applicable
federal, state or local law, statute, rule, regulation or ordinance, or any
order,
injunction, writ, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority.
<PAGE>
Section 4.5 Consents. No Consent by any Person is necessary for
Purchaser to
Execute and deliver this Agreement and the Related Purchaser Agreements, and
to perform its
obligations hereunder and thereunder.
Section 4.6 Litigation. There are no Proceedings pending or, to the
best of
Its knowledge, threatened by or before any court, arbitrator or Governmental
Authority
against Purchaser (i) in which any Person is seeking or is reasonably likely
to seek
to restrain or prohibit, or to obtain damages or other relief in connection
with,
this Agreement or the Related Purchaser Agreements or the transactions
contemplated
hereby or thereby, (ii) which if determined adversely to Purchaser would be
reasonably likely to have a material adverse effect on Purchaser's ability to
perform
its obligations hereunder or to consummate the transactions contemplated
hereby,
(iii) which, if determined adversely to it, would be reasonably likely to have
a
material adverse effect on the assets, business, affairs, financial condition
or
operations of Purchaser or (iv) involving in whole or in part the issue of
criminal
liability by Purchaser or any of its officers, directors, employees or agents,
or
pertaining to its assets or business. Neither Purchaser nor any of its assets
are
subject to any outstanding judgment, order, writ, injunction or governmental
or
regulatory order or authority which would have a material adverse effect on
this
Agreement or any of the Related Purchaser Agreements. Purchaser is not
presently
engaged in any legal action to recover moneys due from damages caused by or to
enforce its rights against any third party which would have a material adverse
effect
on this Agreement or any of the Related Purchaser Agreements.
Section 4.7 Shares. The Shares have been validly authorized and, when
issued
<PAGE>
as contemplated by this Agreement, will be validly issued, fully paid and
non-assessable.
Section 4.8 Capitalization of Purchaser. As of the date hereof, the
authorized Capital stock of Purchaser consists of 20,000,000 shares of Common
Stock, par value $.01 per share, of which 7,693,524 shares are issued and
outstanding, and 6,000,000 of Preferred Stock, par value $.01 per share, of
which 1,633,935 shares are issued and outstanding.
Section 4.9 Capitalization of NEWCO. As of the date hereof, the
authorized Capital stock of NEWCO consists of 1,000 shares of Common Stock,
par
alue $.01 per share, of which 100 shares are issued and outstanding.
Section 4.10 Financial Statements. In all material respects, the
December
31, 1997 financial statements of Purchaser (including any notes thereto) were
prepared in
accordance with generally accepted accounting principles applied on a
consistent
basis through the periods covered thereby (except as disclosed in such
financial
statements), and fairly present in all material respects the consolidated
financial
condition of Purchaser as of the dates thereof and the consolidated results of
Purchaser's operations and consolidated cash flow for the periods then ended,
subject, in the case of any unaudited interim financial statements, to the
omission
of certain notes not ordinarily accompanying such unaudited financial
statements, and
to normal year-end adjustments.
<PAGE>
Section 4.11 Absence of Adverse Change. Since December 31, 1997, there
has not
been any material adverse change in the assets, business, affairs, operations,
financial condition or operations of Purchaser.
Section 4.12 No Brokers. No broker, finder, investment broker or
similar
agent
is or shall be entitled to receive any fee, commission or other remuneration
or
compensation relating to the transactions contemplated by this Agreement based
on any action taken by or on behalf of Purchaser.
Section 4.13 Corporate Documents. Purchaser has furnished, or will
furnish to
Seller true and complete copies or originals, as the case may be, of the
following
documents: (i) the articles of incorporation and bylaws of Purchaser; and
(ii),
if
requested, the minute books of Purchaser containing all records required to be
set
forth of all proceedings, consents, actions and meetings of the shareholders
and
board of directors (and all committees thereof) of Purchaser.
<PAGE>
Section 4.14 Compliance with Laws. To Purchaser's knowledge and belief
it
is
and has been in material compliance with all applicable federal, state, local
and
foreign laws, statutes, ordinances, rules, regulations, codes, licenses,
permits,
orders, judgments, decrees and other legal requirements (including, without
limitation, those applicable to building, health, employment, labor, product
liability, zoning, occupational safety, conservation, unfair competition,
labor
practices or corrupt practices) which affect or are applicable to its assets
and
business.
Section 4.15 Full Disclosure. No representation, warranty or other
statement
by Purchaser in this Agreement, or in any schedule, exhibit, certificate,
financial
statement or other instrument or document furnished or to be furnished to
Seller,
contains or will contain any untrue statement of a material fact or omits or
will
omit any material fact necessary in order to make any of the statements
contained
herein or therein, when taken as a whole, not false or misleading in any
material
respect in light of the circumstances in which they were made. There is no
fact
or
circumstance known to Purchaser that materially adversely affects, or in the
future
may be reasonably expected to (insofar as Purchaser can now reasonably
foresee)
materially adversely affect, the assets or the properties, liabilities,
business,
affairs, operations, condition (financial or otherwise) or prospects of
Purchaser
that has not been set forth herein or otherwise described to Seller.
Section 5.
Pre-Closing Covenants.
--------------------
<PAGE>
Section 5.1 Conduct of Business of Seller.
(a) From the date of this Agreement until the Closing, Seller shall
conduct its business only in the ordinary course consistent with past
practices,
including but not limited to (i) using its best efforts to (i) preserve intact
its
business organization and its good will, including its relationships with its
suppliers, customers, lenders and others having business relationships with
it,
(ii)
perform all its obligations in accordance with their terms, (iii) maintain the
Assets
in good operating condition, (iv) keep available the services of its present
lessors,
lessees, licensors, licensees, suppliers, customers, employees and agents, and
(v)
comply with all applicable laws, rules, regulations and orders.
(b) Without limiting the generality of the foregoing, from the date
of
this Agreement until the Closing, Seller shall not, without the prior written
consent
of Purchaser:
(i) Take any action referred to in Section 3.15(b) hereof;
(ii) Take any action or omit to take any action which would
breach any covenant or agreement of Seller herein; or
(iii) Take any action which would cause any representation or
warranty of Seller herein to be inaccurate in any material respect.
Section 5.2 Access.
(a) From the date of this Agreement through the Closing Date, Seller
shall provide Purchaser and its officers, directors, employees and agents and
representatives full access during normal business hours to the Assets and to
the
<PAGE>
employees, agents, properties, books, contracts, accounts, commitments,
records,
tax
returns and documents of Seller and shall furnish to Purchaser and its agents
and
representatives books, records, contracts, data and information concerning the
Assets
and the business and affairs of Seller as Purchaser and its agents and
representatives may reasonably request. In the event that the transactions
contemplated by this Agreement fail to be consummated, then Purchaser shall
promptly
return to Seller all data and information furnished to it and shall keep all
such
data and information confidential. No investigation pursuant to this Section
5.2(a)
shall affect any representation or warranty of Seller or any condition to the
closing
obligations of Purchaser.
(b) From the date of this Agreement through the Closing Date,
Purchaser
shall provide Seller and its officers, directors, employees and agents and
representatives full access during normal business hours to the assets and to
the
employees, agents, properties, books, contracts, accounts, commitments,
records,
tax
returns and documents of Purchaser and shall furnish to Seller and its agents
and
representatives data and information concerning the assets and the business
and
affairs of Purchaser as Seller and its agents and representatives may
reasonably
request. In the event that the transactions contemplated by this Agreement
fail
to be
consummated, then Seller shall promptly return to Purchaser all data and
information
furnished to Seller and shall keep all such data and information confidential.
No
investigation pursuant to this Section 5.2(b) shall affect any representation
or
warranty of Purchaser or any condition to the closing obligations of Seller.
Section 5.3 Risk of Loss. Until the Closing, Seller assumes all risk of
loss,
whether by reason of theft, fire, act of God, or other casualty, and Purchaser
shall not be obligated to consummate the transactions contemplated hereby if
here is any material
<PAGE>
loss of the Assets caused by any casualty, whether through the fault or
negligence of
Seller or otherwise.
Section 5.4 Consummation of Transactions. Upon the terms and subject to
the
conditions of this Agreement, each of the parties hereto shall use its
reasonable
best efforts, and will cooperate with each other, to take, or cause to be
taken,
as
promptly as practicable, all such actions and to do, or cause to be done, all
other
things necessary to carry out its obligations under this Agreement and under
all
other agreements contemplated by this Agreement and to consummate and make
effective
the transactions contemplated hereby and thereby, including obtaining all
Consents
which are necessary in connection with the transactions contemplated hereby
and
thereby, provided that Purchaser shall not be obligated to assume any
additional
liability of Seller or pertaining to the Assets other than the Assumed
Liabilities.
Section 5.5 Public Announcements. Until the Closing Date or the earlier
Termination of this Agreement for any reason, Purchaser and Seller shall
consult
with each other before issuing any press releases or otherwise making any
public
statements or disclosures with respect to this Agreement or the transactions
contemplated hereby (directly or through affiliates) and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which consent shall not be unreasonably withheld, except
that a party hereto may make a public statement without such consent to the
xtent the same shall be required by applicable law, in which case such party
should use its reasonable best efforts to advise the other party of such
statement in a timely manner.
<PAGE>
Section 5.6 Notification of Certain Matters. From the date of this
Agreement to the Closing Date, Purchaser and Seller each shall give prompt
notice to the other of (a) the
occurrence, or failure to occur, of any event, fact or circumstance the
occurrence or failure of which would be reasonable likely to cause any
representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material
respect, or that breaches or is reasonably likely to breach any covenant or
agreement
set forth in this Agreement, and (b) any material failure on its part to
comply
with
or satisfy any material covenant, condition or agreement to be complied with
or
satisfied by it hereunder.
Section 5.7 Taxes.
(a) Pre-Closing. Seller shall be responsible for the timely preparation
of, all federal, state, local or foreign income, excise, withholding,
property,
sales, use, franchise and other tax returns, reports and forms of Seller
pertaining to the Assets for all taxable periods ending on or before the
Closing
Date, and the payment of all amounts due thereunder.
(b) Due to Transactions. Seller shall pay all federal, state and local
sales, use, income, franchise, worker's compensation, unemployment documentary
and other transfer taxes and fees arising out of the transfer of the Assets in
accordance herewith,whether imposed by law on Seller or Purchaser, and shall
pay
its portion, prorated as of the Closing Date, of all federal, state, local and
foreign personal property taxes relating to the Assets. Purchaser shall not
be
responsible for any business,occupation, withholding, or similar tax, or any
taxes of any kind related to the
<PAGE>
Assets or the business being purchased for any period before the Closing Date.
Seller shall indemnify, reimburse and hold Purchaser harmless in respect of
any
liability for payment of or failure to pay any such taxes or any filing of or
failure to file any reports required in connection therewith.
Section 5.8 No Shopping. From the date of this Agreement to the Closing
Date, Neither Seller, STOCKHOLDER nor any affiliates thereof shall, directly
or
indirectly, through any officer, director, employee, agent or otherwise,
solicit, initiate, or encourage the initiation orsubmission of inquiries,
proposals or offers from, provide any information to, enter into any
agreement with, or participate in any discussions or
negotiations concerning any direct or indirect acquisition of any interest in
Seller or any of the Assets (other than the sale of inventory and equipment in
the ordinary course of business) by, any Person other than Purchaser. Seller
shall immediately notify Purchaser of, and communicate to Purchaser the terms
of
any such inquiry, proposal or offer that Seller may receive.
Section 5.9 Employee Matters.
(a) Seller will pay, and remain responsible after the Closing, to all
its
employees for all compensation and benefits, including wages, salaries,
commissions,bonuses, deferred compensation, severance, termination, insurance,
pensions, profit-sharing, vacation, sick pay and other compensation or
benefits
("Seller Employees Compensation") to which they are entitled for periods prior
to the Closing Date. Until the Closing Date, Seller will not, without the
prior
written consent of Purchaser, change the compensation or benefits of any of
its
employees.
<PAGE>
(b) Purchaser is not assuming and shall have no obligation to pay any
Seller Employees Compensation, whether accruing before, as a result of, or
after
the Closing. Seller shall perform, and Purchaser is not assuming and shall
have
no obligation to perform, any severance or termination obligations,
liabilities
and commitments accruing or arising by agreement, plan or policy of Seller as
a
result of the transactions contemplated hereby.
(c) Purchaser may, but shall have no obligation to, offer employment to
any of the current employees of Seller. Any employee of Seller considered for
employment by Purchaser shall be subject to Purchaser's normal application and
screening procedure and, if hired, shall be eligible for Purchaser's
compensation and benefits policies. No provisions of this Agreement, express
or
implied, shall confer on any employee or former employee of Seller any right
to
employment or any continued right to employment for any extended period.
(d) All claims and obligations under, pursuant to or in connection with
any Employee Plans of Seller or arising under any legal requirement affecting
employees of Seller incurred on or before the Closing Date resulting in or
arising from events or occurrences occurring or commencing on or prior to the
Closing Date shall remain the responsibility of Seller, whether or not such
employees are hired by Purchaser after the Closing. Purchaser will have and
assume no obligation or liability under or in connection with any such plan
and
will assume no obligation with respect to any pre-existing condition of any
employee of Seller who is hired as an employee of Purchaser, except as
required
by applicable law.
(e) Prior to Closing, Seller shall have entered into an agreement to
amend
that certain Client Services Agreement by and between Seller and PMSI, such
agreement
ensuring that PMSI and its agents and any employee of Seller under contract
with
PMSI, will agree that at all times, that any confidential information obtained
or
learned during the course of employment with NEWCO will remain confidential
and
will
<PAGE>
not be divulged to any person, firm or corporation without Purchaser's express
written consent.
(f) Subject to the terms of the Stockholder Agreement, Purchaser
covenants
and agrees that it will reserve shares of Purchaser's Common Stock valued at
up
to
five percent (5%) of the Initial Consideration for issuance upon exercise of
options
(the "Options") granted from time to time to employees of NEWCO on and after
the
Closing Date as deemed appropriate by the management of NEWCO. The parties
hereto
agree that all of the Options issued to employees of NEWCO within thirty (30)
days of
the Closing Date will have an exercise price equal to $5.70 per share and that
any
Options issued after that date will have an exercise price equal to the Fair
Market Value.
Section 5.10 Assumed Warranty Obligations. At the Closing, Purchaser
shall
Assume at Purchaser's discretion certain warranty obligations of Seller (the
"Assumed Warranty Obligations") for all equipment and products sold by Seller
within two years
prior to the Closing Date with respect to the Business. A complete and
accurate
list
of all such sales (by customer, amount, sale and type of equipment or
services)
is set forth on Schedule 5.10 hereto.
Section 5.11 Release of Liens. Contemporaneously with or prior to the
Closing, Seller shall take all action necessary to cause any Liens on or
against
the Assets to be released and terminated as of the Closing date.
<PAGE>
Section 6.
Conditions Precedent to Purchaser's Closing Obligations.
The obligations of Purchaser to purchase the Assets and to assume the
Assumed Liabilities and to take the other actions contemplated hereby to be
taken by Purchaser at or prior to the Closing are subject to the satisfaction
(unless waived in writing by Purchaser), at or prior to the Closing, of each
of
the following conditions.
Section 6.1 Accuracy of Representations and Warranties. Each and every
- --------------------------------
representation and warranty made by Seller in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date with the
same
effect as if made or given on the Closing Date.
Section 6.2 Performance of Covenants. Seller shall have performed,
satisfied
And complied with all covenants, agreements, obligations and conditions under
this
Agreement which are to be performed, satisfied or complied with by Seller at
or prior
to the Closing.
Section 6.3 No Litigation. No Proceeding shall be pending or overtly
threatened by or before any court, arbitrator or Governmental Authority (a)
which
seeks the
restraint, prohibition or the obtaining of damages or other relief in
connection with
this
Agreement or the consummation of the transactions contemplated hereby, (b)
which
questions the legitimacy, validity or enforceability of this Agreement or the
transactions contemplated hereby or (c) which, if successful, would have a
Material
<PAGE>
Adverse Effect on the Assets or the Business or would materially and adversely
affect
the ability of Purchaser to consummate the transactions contemplated hereby or
to
operate the Business substantially as currently operated.
Section 6.4 Deliveries at Closing. Seller shall have delivered to
Purchaser at
The Closing the Assets and each of the certificates, instruments, documents
and
agreements required to be delivered to Purchaser hereunder or reasonably
necessary to
consummate the transactions contemplated hereby.
Section 6.5 Consents. All Consents of any Person necessary to permit
the
consummation of the transactions hereby shall have been duly obtained, made or
taken
prior to the Closing.
Section 6.6 Condition of Assets. No event or change in circumstances,
including but not limited to fire, accident, storm, or other casualty or labor
or
civil disputes or act
of God or public enemy, shall have occurred (whether or not insured against)
that in
the
reasonable judgment of Purchaser has or is reasonably likely to have a
material
adverse effect on
the Assets or the value thereof or on the Business.
Section 6.7 Employment Agreement. Purchaser and STOCKHOLDER shall have
entered into a Senior Executive Employment Agreement pursuant to the terms and
conditions of such agreement attached hereto as Annex III.
<PAGE>
Section 7.
Conditions Precedent to Seller's Closing Obligations.
The obligations of Seller to sell and deliver the Assets to Purchaser and
to
perform its other obligations contemplated hereby to be taken at or prior to
the
Closing are subject to the satisfaction (unless waived in writing by Seller),
at or
prior to the Closing, of each of the following conditions:
Section 7.1 Accuracy of Representations and Warranties. Each of the
Representations and warranties made by Purchaser in this Agreement shall be
true and
correct as
of the date of this Agreement and as of the Closing Date with the same effect
as if
made or given
on the Closing Date.
Section 7.2 Performance of Covenants. Purchaser shall have performed,
satisfied and complied with all of the covenants, agreements, obligations and
conditions under
this Agreement which are to be performed, satisfied or complied with by
Purchaser at
or prior to
the Closing.
Section 7.3 No Litigation. No proceeding shall be pending or overtly
threatened before any court, arbitrator or Governmental Authority which seeks
the
restraint,
prohibition or the obtaining of damages or other relief in connection with
this
Agreement or the
consummation of the transactions contemplated hereby, which
questions the legitimacy, validity or enforceability of this Agreement or the
<PAGE>
transactions contemplated hereby or which, if successful, would have a
material
adverse effect on the Purchaser's assets or business or would materially and
adversely affect the ability of Purchaser to consummate the transactions
contemplated
hereby or for Purchaser to operate its business substantially as currently
operated.
Section 7.4 Deliveries at Closing. Purchaser shall have delivered to
Seller a
the Closing the
Consideration pursuant to Section 2.1 herein and each of the other
certificates, instruments, documents and agreement required to be delivered to
Seller
hereunder.
Section 7.5 Employment Agreement. Purchaser and STOCKHOLDER shall have
entered into a Senior Executive Employment Agreement pursuant to the terms and
conditions of such agreement attached hereto as Annex III.
Section 8. The Closing.
Section 8.1 Date and Place. The consummation of the sale and purchase
of the
Assets contemplated hereby (the "Closing") shall take place at the offices of
Swidler
&
Berlin, Chartered at 3000 K Street, N.W., Washington, D.C. at ten a.m. local
time,
on, 1998, or at such other time, date or place as the parties shall mutually
agree (the
"Closing Date").
<PAGE>
Section 8.2 Deliveries by Seller. At the Closing, Seller and
STOCKHOLDER shall
deliver or cause to be delivered to Purchaser, in form reasonably acceptable
to
Purchaser's counsel:
(a) Full, actual and unimpeded possession and enjoyment of the Assets;
(b) Assignments and assumptions of all Assigned Contracts being assumed by
and assigned to Purchaser, duly executed by Seller, along with all consents
required
to permit such assignment and assumption;
(c) One or more duly executed bills of sale warranting good and marketable
title in and to the Assets, and such other instruments of sale, conveyance,
assignment and transfer as may be reasonably requested by Purchaser, in order
to vest
in Purchaser all of Seller's right, title and interest in and to all of the
other
Assets, free and clear of all Liens, Consents, restrictions or obligations to
any
third party, of any kind whatsoever;
(d) All assignments required to transfer any Intellectual Property to
Purchaser;
(e) All Consents necessary to permit the consummation of the transactions
contemplated by this Agreement;
(f) All releases of all Liens encumbering any of the Assets;
(g) True and complete copies of corporate resolutions, certified as of the
Closing Date by the Secretary of Seller as having been duly adopted by the
Board of
Directors and, if necessary, shareholders of Seller authorizing Seller's and
STOCKHOLDER'S execution and delivery of this Agreement and the Related Seller
<PAGE>
Agreements and their consummation of the transactions contemplated hereby and
thereby;
(h) Certificates duly executed by the President or Chief Executive Officer
of Seller and by STOCKHOLDER, dated as of the Closing Date, certifying that,
to the
best of their knowledge and belief after due inquiry, (i) each of Seller and
STOCKHOLDER, respectively, has fully performed, satisfied and complied with
all
agreements, obligations, covenants and conditions required by this Agreement
to be
performed, satisfied or complied with at or prior to the Closing, and (ii) all
of the
representations and warranties of Seller and STOCKHOLDER, respectively, set
forth in
Section 3 of this Agreement are true and correct as of the Closing Date;
(i) An opinion of counsel for Seller, dated as of the Closing Date,
substantially in the form attached hereto as Annex I;
(j) The Senior Executive Employment Agreement, duly executed by
STOCKHOLDER;
(k) STOCKHOLDER shall have delivered to Purchaser an instrument dated the
Closing Date releasing Purchaser and NEWCO from any and all obligations to the
STOCKHOLDER, except for (x) continuing obligations to the STOCKHOLDER relating
to his
employment by NEWCO and (y) obligations arising under this Agreement or the
transactions contemplated hereby;
(l) STOCKHOLDER shall have executed a Joinder Agreement substantially in
the form attached hereto as Annex IV binding him and all his shares of
Purchaser
Stock to the provisions of the Amended and Restated Stockholders' Agreements
of ITP
dated March 31, 1998 (the "Stockholders' Agreement");
<PAGE>
(m) Seller shall have executed a Subordination Agreement substantially in
the form attached hereto as Annex VII relating to the First Note and the Tax
Note,
and will execute a Subordination Agreement for any and all subsequent notes;
and
(n) All other items required to be delivered by Seller or STOCKHOLDER
pursuant to any provision of this Agreement.
Section 8.3 Deliveries by Purchaser. At the Closing, Purchaser shall
deliver
to Seller, in form reasonably acceptable to Seller's counsel:
(a) The Cash Portion of the Purchase Price as set forth in Section
2.1(a)(i) hereof, by cashier's or certified bank check or wire transfer of
immediately available funds to an account designated by Seller;
(b) One or more certificates representing the Initial Shares, duly
registered on the books of ITP in the name of Seller;
(c) The First Note, duly executed by Purchaser;
(d) The Tax Note duly executed by Purchaser;
(e) True and complete copies of corporate resolutions, certified as of the
Closing Date by the Secretary of Purchaser as having been duly adopted by the
Board
of Directors of Purchaser, respectively, authorizing Purchaser's execution and
delivery of this Agreement and the Related Purchaser Agreements and their
consummation of the transactions contemplated hereby and thereby;
(f) Certificates duly executed by the Chairman of the Board, President or
Chief Executive Officer of Purchaser, dated as of the Closing Date, certifying
that,
to the best of their knowledge and belief after due inquiry, (i) Purchaser
has fully
<PAGE>
performed, satisfied and complied with all agreements, obligations, covenants
and
conditions required by this Agreement to be performed, satisfied or complied
with by
Purchaser at or prior to the Closing, and (ii) all of the representations and
warranties of Purchaser set forth in Section 4 of this Agreement are true and
correct
as of the Closing Date;
(g) An opinion of counsel for the Purchaser, dated as of the Closing Date,
substantially in the form attached hereto as Annex II; and
(h) All other items required to be delivered by Purchaser pursuant to any
provision of this Agreement.
Section 8.4 Effectiveness of Closing. No action to be taken or delivery
to be
made at the Closing shall be effective until all of the actions to be taken
and
deliveries to be made at the Closing are complete.
<PAGE>
Section 9.
Survival and Indemnification.
Section 9.1 Survival. The indemnification obligations and the
representations,
warranties, covenants and agreements set forth in this Agreement shall survive
the
Closing and shall continue in full force and effect until they expire on the
second
anniversary of the Closing Date (or such later date as expressly provided
herein),
regardless of any investigation made by any party hereto, except as to any
Claims
relating to fraud, environmental, intellectual or tax matters, which claims
shall
expire only upon expiration of the applicable statute of limitations. No
Claim
pursuant to this Section 9 shall be asserted by any party hereto after the
expiration
of the applicable survival period or statute of limitations, as the case may
be,
except for Claims made in writing prior to such expiration or actions (whether
instituted before or after such expiration) based on any Claim made in writing
prior
to such expiration.
Section 9.2 Indemnification by the Seller and STOCKHOLDER. Seller and
STOCKHOLDER shall jointly and severally indemnify, defend and hold harmless
Purchaser, NEWCO, their affiliates, successors and assigns, and the officers,
directors, shareholders, partners, employees, agents and representatives of
any of
them, harmless from and against, any and all claims, actions, suits,
proceedings
demands, losses, expenses, obligations, taxes, liabilities, damages,
recoveries and
deficiencies (including, without limitation, interest, fines, penalties, costs
of
investigation, reasonable attorneys', accountants' and other professionals'
fees and
expenses and amounts paid in settlement) (collectively, "Damages") arising out
of,
based upon or resulting from (i) any breach or violation of, inaccuracy or
misrepresentation in, or failure by the Seller or STOCKHOLDER to perform, any
representations, warranties, covenants, agreements or other obligations of
Seller or
STOCKHOLDER made in this Agreement or in any schedule, certificate, exhibit,
annex or
other document or instrument furnished or to be furnished by Seller or
STOCKHOLDER to
<PAGE>
Purchaser pursuant to this Agreement, (ii) any debt, liability or obligation
of
Seller or STOCKHOLDER not included in the Assumed Liabilities, (iii) any
failure by
Seller or STOCKHOLDER to completely and timely comply with all applicable
provisions
of (A) any WARN or similar state or local laws or (B) the fraudulent transfer
or
fraudulent conveyance laws of any jurisdiction, (iv) any statute or common law
doctrine of de facto merger or successor liability or (v) any product
liability
claims relating to products made or sold or services performed by Seller or
STOCKHOLDER prior to the Closing Date. Notwithstanding the foregoing, any
adjustment
to the Working Capital balance as of the Closing Date pursuant to Section 2.2
above
shall not constitute a basis for a further Claim for Damages hereunder.
Section 9.3 Indemnification by Purchaser and ITP. Purchaser shall
indemnify,
defend and hold harmless Seller and STOCKHOLDER, their affiliates, successors
and
assigns, and the officers, directors, shareholders, partners, employees,
agents and
representatives of any of them, from and against, any and all Damages arising
out of,
based upon or resulting from any breach or violation of, inaccuracy or
misrepresentation in, or failure by Purchaser to perform, any of the
representations,
warranties, covenants, agreements or other obligations of Purchaser made in
this
Agreement or in any schedule, certificate, exhibit, Annex or other document or
instrument furnished or to be furnished by Purchaser to Seller or STOCKHOLDER
pursuant to this Agreement.
<PAGE>
Section 9.4 Claims for Indemnification.
(a) Whenever any party hereunder believes it has suffered or incurred or
is likely to suffer or incur any Damages, or any action or proceeding is
commenced or
threatened or claim is made that could result in Damages, which is reasonably
likely
to give rise to a claim ("Claim") for indemnification under this Agreement,
the party
seeking indemnification ("Indemnified Party") shall, upon obtaining knowledge
thereof, promptly notify in writing the party against whom indemnification is
sought
("Indemnifying Party") of the Claim and, when known, the facts constituting
the basis
for such Claim and the amount and nature of the Damages or an estimate
thereof. The
Indemnified Party's failure to timely notify Indemnifying Party of any Claim
or
potential Claim shall not relieve the Indemnifying Party of any liability
hereunder
unless and only to the extent that such failure causes Indemnifying Party to
lose the
right to assert any substantive rights or defenses or to the extent that the
Indemnifying Party is actually prejudiced in its rights or obligations.
(b) The Indemnified Party shall give the Indemnifying Party a reasonable
opportunity to participate in and to assume the defense of any such Claim at
the
Indemnifying Party's own expense and with counsel of the Indemnifying Party's
own
selection reasonably satisfactory to the Indemnified Party provided, however,
that
Indemnified Party shall at all times also have the right but not the
obligation, to
fully participate in the defense of the Claim and to employ its own counsel at
its
own expense. Notwithstanding the foregoing, if the Indemnified Party
reasonably
determines that: (i) legal defenses may be available to the Indemnified Party
that
are different from or in addition to those available to the Indemnifying
Party, (ii)
a conflict or potential conflict of interest exists between the Indemnified
Party and
the Indemnifying Party (in which case the Indemnifying Party shall not have
the right
to direct the defense of such Claim on behalf of the Indemnified Party), or
(iii) the
Indemnifying Party has not in fact employed legal counsel to assume the
defense of
such Claim within a reasonable time after receiving notice of the Claim, then
the
<PAGE>
reasonable fees, disbursements and other charges of counsel from one separate
firm
selected by the Indemnified Party (and reasonably acceptable to the
Indemnifying
Party) shall be reimbursed by the Indemnifying Party promptly as they are
incurred.
(c) No party hereto shall compromise, settle or consent to the entry of
any judgment with respect to any Claim without the prior written consent of
the other
interested party or parties (which consent shall not be unreasonably withheld
or
delayed) unless such compromise, settlement or consent includes an
unconditional
release of all other interested parties hereto from any and all liabilities on
any
Claims that are the subject matter thereof.
(d) Each party hereto shall cooperate in every reasonable way with the
party assuming responsibility for the defense and disposition of any such
Claim,
including making available to the defending party all books, records, and
other
material reasonably required by the defending party for its use in defending
the
Claim.
Section 9.5 Limitation on Liability.
(a) Notwithstanding the foregoing, the Indemnifying Party shall not be
required to indemnify the Indemnified Party hereunder unless and until and
only to
the extent that the aggregate amount of all Damages exceeds $100,000.00.
(b) Neither party shall seek or be entitled to consequential damages or
damages for lost profits in any Claim for indemnification under this Section 9
nor
shall it accept payment of any award or judgment against the other party to
the
extent that such award or judgment includes consequential damages or damages
for lost
profits.
<PAGE>
Section 9.6 Non-Exclusive Indemnification. The foregoing
indemnification
provisions are in addition to, and not in derogation of, or statutory,
equitable or
common law remedies any party hereto may have for any breach of
representation,
warranty, covenant or agreement.
Section 9.7 Effect of Knowledge. No disclosure to and no investigation
by or
on behalf of any party hereto, other than disclosures made in the Schedules
hereto,
shall be deemed to affect its reliance on the representations, warranties,
covenants
and agreements contained herein or to waive its rights to indemnification as
provided
herein for the breach or violation of or inaccuracy or failure to perform or
comply
with any representation, warranty, covenant or agreement of any other party
hereto.
Section 9.8 Contribution. If the indemnification provided for in this
Section
9 is for any reason unavailable or insufficient to indemnify the Indemnified
Party in
respect of any Damages, then the Indemnifying Party shall in lieu of
indemnifying the
Indemnified Party contribute to the total damages to which the Indemnified
Party may
be subject in such proportion that shall be appropriate to reflect the
relative fault
of the Indemnifying Party, on the one hand, and the Indemnified Party, on the
other
hand, in connection with any actions or omissions which resulted in such
Damages as
well as any other relevant equitable considerations; provided, however, that
the
amount of any such contribution obligation shall not exceed what would
otherwise be
the amount of the Indemnifying Party's indemnification obligation hereunder.
<PAGE>
Section 10.
Post-Closing and Other Covenants.
Section 10.1 Further Assurances. At the Closing, Seller, through its
officers, directors, employees and agents, shall put Purchaser into full,
actual and
unimpaired ownership, possession, enjoyment and control of the Assets. At any
time
and from time to time after the Closing, Seller shall, at the sole expense of
Purchaser, execute, acknowledge and deliver any further deeds, assignments,
conveyances, consents, permits and other assurances, documents and instruments
of
transfer reasonably requested by Purchaser, and take any and all further
actions
consistent with the terms of this Agreement, that may be reasonably requested
by
Purchaser for the purpose of more effectively and fully assigning,
transferring,
granting and conveying to and vesting in Purchaser all of Seller's right,
title and
interest in and to, or reducing to possession, any or all of the Assets. If
requested by Purchaser, Seller shall, solely at Purchaser's expense (unless
required
due to a breach of any representation, warranty, or covenant hereof by
Seller),
prosecute or otherwise enforce in its own name for the benefit of Purchaser
any
claims, rights or benefits that are transferred to Purchaser by this Agreement
and
require prosecution and enforcement in Seller's name.
<PAGE>
Section 10.2 Preservation of Files and Records.
(a) By Purchaser. For a period of 3 years after the Closing Date,
Purchaser shall preserve all files and records relating to the Business and
the
Assets that are in existence as of the Closing Date and that are less than 5
years
old as of the Closing Date, and shall allow Seller access to such files and
records
and the right to make copies and extracts therefrom at any time during normal
business hours, and shall not dispose of any thereof, provided that at any
time after
the Closing, Purchaser may give Seller written notice of its intention to
dispose of
any part thereof, specifying the items to be disposed of in reasonable detail.
Seller
may, within a period of sixty (60) days after receipt of any such notice,
notify
Purchaser of Seller's desire to retain one or more of such items to be
disposed of.
Purchaser shall, upon receipt of such notice from Seller, deliver to Seller at
Seller's expense, the items specified in Purchaser's notice to Seller which
Seller
has elected to retain.
(b) By Seller. For a period of three (3) years after the Closing Date,
Seller shall preserve all files and records relating to the Business and the
Assets
that are in existence as of the Closing Date not otherwise delivered to
Purchaser and
that are less than five (5) years old as of the Closing Date, and shall allow
Purchaser access to such files and records and the right to make copies and
extracts
therefrom at any time during normal business hours, and shall not dispose of
any
thereof, provided that at any time after the Closing, Purchaser may give
Seller
written notice of its intention to dispose of any part thereof, specifying the
items
to be disposed of in reasonable detail. Purchaser may, within a period of
sixty (60)
days after receipt of any such notice, notify Seller of Purchaser's desire to
retain
one or more of such items to be disposed of. Purchaser shall, upon receipt of
such
notice from Seller, deliver to Purchaser at Purchaser's expense, the items
specified
in Purchaser's notice to Seller which Purchaser has elected to retain.
<PAGE>
Section 10.3 Mutual Cooperation.
(a) Preparation of Reports, Etc. Each of Purchaser and Seller shall
cooperate and cause its respective employees and agents to cooperate with each
other
in the preparation of financial and other reports and statements relating to
the
Business and the Assets for periods ending on or prior to the Closing.
(b) Taxes and Other Matters. In connection with the preparation of any
tax returns, any audit or other examination by any taxing or other
Governmental
Authority, or any Proceeding or other matters including but not limited to,
environmental and other matters relating to the transactions contemplated by
this
Agreement, each party will provide the other with the opportunity to make
copies of
any records or information which may be relevant to such return, audit or
examination, Proceeding or determination. Each party shall make its employees
available on a mutually convenient and reasonable basis to provide additional
information and explanation of any material provided hereunder.
(c) Cooperation in Litigation. In the event that, after the Closing Date,
Seller or Purchaser shall reasonably require the participation of officers and
employees by each other to aid in the defense or prosecution of litigation or
claims,
and so long as there exists no unwaived conflict of interest between the
parties,
each of Seller and Purchaser shall make such officers and employees reasonably
available to participate in such defense or prosecution provided that, except
as
required pursuant to the provisions herein, the party requiring the
participation of
such officers and employees shall pay all reasonable out-of-pocket costs,
charges and
expenses arising from such participation.
<PAGE>
Section 10.4 Solicitation and Hiring.
(a) STOCKHOLDER's Covenant. For a period of five (5) years after the
Closing Date, STOCKHOLDER, shall not, directly or indirectly, as a
stockholder,
investor, partner, director, officer, employee or otherwise (i) solicit or
attempt to
induce any employee to terminate his or her employment with NEWCO or
Purchaser, or
(ii) hire or attempt to hire any employee of Purchaser.
Section 10.5 Seller's and STOCKHOLDER's Right of First Refusal to
Acquire
NEWCO.
(a) Proposed Transaction. From and after the Drop Down, if Purchaser
intends or proposes to sell all or substantially all of the assets and capital
stock
of NEWCO to a Person other than an affiliate or subsidiary of Purchaser
("Proposed
Purchaser"), or to consummate the merger, consolidation or combination into a
Proposed Purchaser in which transaction NEWCO is not the survivor (a "Proposed
Transaction"), unless the Proposed Transaction is with a strategic purchaser,
as
reasonably determined by Purchaser, Purchaser shall first deliver to Seller a
notice
of such Proposed Transaction ("Notice of Proposed Sale") which shall include a
copy
or summary of the Proposed Transaction and the terms and conditions thereof in
reasonable detail, including, without limitation, the proposed purchase price
(or the
basis of determining the purchase price) ("Proposed Purchase Price") and the
terms
and conditions of payment.
(b) Exercise. Seller shall have the prior right and option ("Right of
First Refusal"), unless the Proposed Transaction is with an affiliate,
subsidiary or
strategic purchaser, to consummate the Proposed Transaction in the place of
the
Proposed Purchaser upon the terms set forth in the Notice of Proposed Sale, or
on
such other terms and conditions, no less favorable to Purchaser and NEWCO,
from
Purchaser's and NEWCO's perspective and as determined in their sole
discretion, as
<PAGE>
the terms in the Notice of Proposed Sale. Seller shall exercise its Right of
First
Refusal by giving written notice of such exercise ("Notice of Exercise") to
Purchaser
on or before the thirtieth (30) day after Seller shall have received the
Notice of
Proposed Sale. Seller, with the consent of Purchaser, may assign this Right
of First
Refusal to STOCKHOLDER, such consent not to be unreasonably withheld.
(c) Non-Exercise of Rights of First Refusal. If Seller does not exercise
its Right of First Refusal, then ITP or Purchaser shall have the right, for a
period
ending on the 150th day after the delivery of Notice of Proposed Sale, to
consummate
the Proposed Transaction with the Proposed Purchaser, at substantially the
same
Proposed Purchase Price and otherwise upon substantially the same terms and
conditions described in the Notice of Proposed Sale.
Section 11.
Termination and Confidentiality.
Section 11.1 Events of Termination. This Agreement may be terminated at
any
time prior to the Closing as follows:
(a) By mutual written agreement of Seller and Purchaser;
(b) By Seller or Purchaser if (i) the non-terminating party shall have
failed to perform, satisfy or comply with any of its, obligations, agreements,
or
covenants to be performed, satisfied, or complied with hereunder prior to the
Closing, or (ii) the non-terminating party materially breaches any of its
representations, warranties or covenants hereunder;
(c) By any party hereto by giving written notice to the other parties
hereto if the Closing Date has not occurred on or before May 15, 1998, unless
such
party's intentional failure to fulfill any obligation hereunder has been the
cause
<PAGE>
of, or has resulted in, the failure of the Closing to occur on or before such
date;
or
(d) By Purchaser or Seller if any court or Governmental Authority of
competent jurisdiction shall have issued an order, judgment, decree, ruling or
taken
other action restraining, enjoining or otherwise prohibiting the transaction
contemplated hereby.
Section 11.2 Effect of Termination. If any party terminates this
Agreement in
accordance with Section 11.1, then all rights and obligations of the parties
shall
cease, except for the obligations set forth in Sections 11.3 and 12.2 which
shall
survive such termination; provided, however, that any termination of this
Agreement
shall not affect the rights or either Seller or Purchaser against the other
for
breach of any representation, warranty, covenant or agreement set forth in
this
Agreement.
Section 11.3 Confidentiality. Notwithstanding the provisions of this
Section
11, if for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep confidential any
information
obtained from any other party (except information publicly available or in
such
party's domain prior to the date hereof, and except as required by court
order) and
shall not use any such information to the detriment of the other party and
shall
promptly return to the other party all schedules, documents, instruments, work
papers
or other written information, without retaining copies thereof, previously
furnished
by it as a result of this Agreement or in connection herewith.
<PAGE>
Section 12.
General Provisions.
Section 12.1 Governing Law. This Agreement shall in all respects be
governed
by and construed and enforced in accordance with the internal substantive laws
of the
State of Maryland, without giving effect to any principle or rule of conflict
or
choice of laws. Any action suit, or other proceeding seeking to enforce any
right,
remedy, obligation, duty, covenant or provision of, or arising out of, this
Agreement
shall be brought and entered against any party hereto exclusively in any
federal or
state court of the State of Utah or of the United States located in the State
of
Utah. Each party hereto irrevocably submits to the personal jurisdiction of
any such
court and irrevocably waives, to the fullest extent of the law, any objection
that it
may now or hereafter have to the laying of venue in any such court and any
claim that
such action, suit or proceeding has been brought in an inconvenient form.
Section 12.2 Expenses. Except as expressly provided herein, each of the
parties to this Agreement agrees to pay its own costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
including
the fees and expenses of its counsel, accounting and other advisers and
agents.
Section 12.3 Assignment. Neither this Agreement nor any of the rights
or
obligations hereunder may be assigned or transferred by any party hereto
without
either party giving at least ninety (90) days prior written notice to all
other
parties hereto, provided, however, that Purchaser may, without providing
notice to
Seller, sell, assign, transfer or delegate its rights or obligation, under
this
Agreement to NEWCO or any of its affiliates, in which case such assignee or
transferee shall be substituted for Purchaser hereunder as though it was the
original
party to this Agreement, and Purchaser shall be released from all its
obligations
under this Agreement.
<PAGE>
Section 12.4 Amendments. This Agreement may not be supplemented,
amended or
modified in any manner in whole or in part except by a writing signed by all
parties
to this Agreement that specifically states that it amends this Agreement.
Section 12.5 Notices. Any and all notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and
shall be deemed to have been duly given hereunder if delivered personally, or
if sent
by facsimile transmission (upon receipt of confirmation of delivery), on the
next
business day if sent by overnight courier service, or three business days
after being
sent by first class (registered/certified) mail, postage prepaid, return
receipt
requested, to the parties at the following addresses:
If to Purchaser: 9881 Broken Land Parkway
Suite 102
Columbia, Maryland 21046
Attn: Daniel J. Klein
Telephone: (410) 309-9800
Facsimile: (410) 309-9801
With a copy to:Swidler & Berlin, Chartered
3000 K Street, N.W.
Suite 300
Washington, D.C. 20007
Attn: Andrew M. Ray
Douglas C. Boggs
Telephone: (202) 424-7782
Facsimile: (202) 424-7645
<PAGE>
If to STOCKHOLDER: 1141 East Lost Eden Drive
Sandy, Utah 84094
Attn: Stanton L. Call
Telephone: (801) 571-7087
With a copy to: Ray, Quinney & Nebeker
400 Deseret Building
79 South Main Street
Salt Lake City, Utah 84145-0385
Attn: Gerald T. Snow
Telephone: (801) 532-1500
Facsimile: (801) 532-7543
Any party may change its designated address by giving written notice
thereof to
all other parties hereto in the manner provided in this Section 12.5. Any
party
hereto may send any notice, request, demand, or other communication to the
intended
recipient at the address above by using any other means (such as telecopy,
telex,
expedited courier, messenger, ordinary mail or electronic mail), but no such
notice,
demand, request or other communication shall be deemed to have been given
until it is
actually received by the recipient.
Section 12.6 Waiver. The obligations of any party hereto may be waived
only
with the written consent of the party giving the waiver. Any waiver by any
party of
a breach of any provision of this Agreement shall not operate or be construed
to be a
waiver of any other breach of that provision or of any breach of any other
provision
of this Agreement. The failure of a party to insist upon strict adherence to
any
provision of this Agreement on one or more occasions shall not be considered a
continuing waiver or deprive that party of the right thereafter to insist upon
strict
adherence to that provision or any other provision of this Agreement.
<PAGE>
Section 12.7 Severability. If any provision of this Agreement is
invalid,
illegal or unenforceable in any situation, the balance of this Agreement shall
remain
in effect, and such illegality, invalidity or unenforceability shall not
affect the
legality, validity or enforceability of that provision in any other situation
or
legality, validity or enforceability of any other provision of this Agreement.
Section 12.8 Headings. The headings used in this Agreement are solely
for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
Section 12.9 Successors and Assigns. This Agreement shall be binding
upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
Section 12.10 Pronouns, etc. The number and gender of each pronoun used
in
this Agreement and the term "person" or "persons" or the like shall be
construed to
mean both the number and gender of the individual, corporation, limited
liability
company, partnership, firm, trust, agency and other entity as the context,
circumstance or its antecedent may require. The terms "herein," "hereof,"
"hereby,"
"hereto" and the like refer to this Agreement as a whole.
Section 12.11 No Third Party Beneficiaries. Except as expressly
provided in
this Agreement, this Agreement does not confer or create, is not intended by
the
parties hereto to confer or create, and shall not be construed as conferring
or
creating, upon any person or entity other than the parties hereto and their
successors and permitted assigns any rights, remedies or causes of action
under or by
reason of this Agreement.
<PAGE>
Section 12.12 Schedules, Exhibits and Annexes. The schedules, exhibits
and
annexes attached to this Agreement are incorporated into and made a part of
this
Agreement as if they were fully set forth herein.
Section 12.13 Specific Performance; Cumulative Remedies. The parties
hereto
acknowledge and agree that the transactions contemplated by this Agreement are
unique
in that remedies at law for any breach or threatened breach of this Agreement
would
be an inadequate remedy for any loss, and that any defense in any action for
specific
performance that a remedy at law would be adequate is hereby specifically
waived.
Accordingly, in the event of any actual or threatened breach to any of the
terms of
this Agreement, the non-breaching party shall have the right of specific
performance
and injunctive relief giving effect to its rights under this Agreement, in
addition
to any and all other rights and remedies, at law or in equity, and all such
rights
and remedies are cumulative.
Section 12.14 Counterparts. This Agreement may be executed in one or
more
counterparts, including counterparts executed by less than all parties hereto,
by
facsimile or otherwise, each of which shall be deemed an original, but all of
which
together shall constitute one and the same instrument.
Section 12.15 Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to the
subject
matter hereof and supersedes all prior and contemporaneous arrangements,
agreements
and understandings, whether oral or written, among the parties hereto in
connection
with the subject matter of this Agreement.
( Next page is the Signature Page).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement
to be executed and delivered by their duly authorized officers as of the date
first
above written.
PURCHASER:
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
-----------------------
Daniel J. Klein
Title: President
SELLER:
CALL BUSINESS SYSTEMS, INC.
By: /s/Stanton L. Klein
---------------------
Title:
<PAGE>
STOCKHOLDER:
STANTON L. CALL
By: Stanton L. Call
(Print Name)
/s/ Stanton L. Call
--------------------
(Signature)
BUSINESS COMBINATION AGREEMENT
Dated as of June 30, 1997
By and Among
ITP ACQUISITION CORP.
and
IT PARTNERS, INC.
and
A-COM, INC.
and
CHRISTOPHER CORBETT
and
MERRIE CORBETT
<PAGE>
<PAGE>
TABLE OF CONTENTS
DEFINITIONS PAGE
Section 1.1. Affiliate. . . . . . . . . . . . . . . . . .1
Section 1.2. Balance Sheet. . . . . . . . . . . . . . . .1
Section 1.3. Benefit Arrangements . . . . . . . . . . . .1
Section 1.4. Buyer. . . . . . . . . . . . . . . . . . . .2
Section 1.5. Buyer's Accountants. . . . . . . . . . . . .2
Section 1.6. Capital Liabilities. . . . . . . . . . . . .2
Section 1.7. Citibank Rate. . . . . . . . . . . . . . . .2
Section 1.8. Closing. . . . . . . . . . . . . . . . . . .2
Section 1.9. Closing Balance Sheet. . . . . . . . . . . .2
Section 1.10. Closing Date . . . . . . . . . . . . . . . .2
Section 1.11. Code . . . . . . . . . . . . . . . . . . . .2
Section 1.12. Confidentiality Agreement. . . . . . . . . .2
Section 1.13. Corporation. . . . . . . . . . . . . . . . .2
Section 1.14. Dispute Resolution Firm. . . . . . . . . . .2
Section 1.15. Employee . . . . . . . . . . . . . . . . . .2
Section 1.16. Employee Benefit Plan. . . . . . . . . . . .2
Section 1.17. ERISA. . . . . . . . . . . . . . . . . . . .3
Section 1.18. Excluded Assets. . . . . . . . . . . . . . .3
Section 1.19. Excluded Liabilities . . . . . . . . . . . .3
Section 1.20. Exhibit. . . . . . . . . . . . . . . . . . .3
Section 1.21. Final Closing Balance Sheet. . . . . . . . .3
Section 1.22. Final Net Asset Value. . . . . . . . . . . .3
Section 1.23. Financials Date. . . . . . . . . . . . . . .3
Section 1.24. Guarantees . . . . . . . . . . . . . . . . .3
Section 1.25. H-S-R Act. . . . . . . . . . . . . . . . . .3
Section 1.26. Individual Returns . . . . . . . . . . . . .3
Section 1.27. Individual Taxes . . . . . . . . . . . . . .3
Section 1.28. Intellectual Property. . . . . . . . . . . .3
Section 1.29. IRS. . . . . . . . . . . . . . . . . . . . .4
Section 1.30. Material . . . . . . . . . . . . . . . . . .4
Section 1.31. Material Adverse Effect. . . . . . . . . . .4
Section 1.32. Material Contracts . . . . . . . . . . . . .4
Section 1.33. MGAAP. . . . . . . . . . . . . . . . . . . .4
Section 1.34. Net Asset Value. . . . . . . . . . . . . . .4
Section 1.35. Offering Memorandum. . . . . . . . . . . . .4
Section 1.36. PBGC . . . . . . . . . . . . . . . . . . . .4
Section 1.37. Person . . . . . . . . . . . . . . . . . . .4
Section 1.38. Proposed Closing Balance Sheet . . . . . . .4
Section 1.39. Purchase Price . . . . . . . . . . . . . . .4
Section 1.40. Retirement Plan. . . . . . . . . . . . . . .4<PAGE>
<PAGE>
DEFINITIONS PAGE
Section 1.41. Schedule . . . . . . . . . . . . . . . . . .5
Section 1.42 Securities Act . . . . . . . . . . . . . . .5
Section 1.43. Seller . . . . . . . . . . . . . . . . . . .5
Section 1.44. Seller's Accountants . . . . . . . . . . . .5
Section 1.45. Senior Debt. . . . . . . . . . . . . . . . .5
Section 1.46. Shares . . . . . . . . . . . . . . . . . . .5
Section 1.47. Subordinated Debt. . . . . . . . . . . . . .5
Section 1.48. Subsidiary . . . . . . . . . . . . . . . . .5
Section 1.49. Transaction Document . . . . . . . . . . . .5
ARTICLE II. PURCHASE AND SALE OF SHARES
Section 2.1. Sale . . . . . . . . . . . . . . . . . . . .5
Section 2.2. Excluded Liabilities . . . . . . . . . . . .5
Section 2.3. Purchase Price and Allocation. . . . . . . .6
Section 2.4. Adjustment of Purchase Price . . . . . . . .6
Section 2.5. Board of Directors Membership;
Amendments to Buyer's By-Laws . . .. . . . .7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1. Organization and Good Standing . . . . . . .7
Section 3.2. Capitalization . . . . . . . . . . . . . . .8
Section 3.3. Ownership of the Shares. . . . . . . . . . .8
Section 3.4. Execution and Effect of Agreement. . . . . .8
Section 3.5. Consents . . . . . . . . . . . . . . . . . .8
Section 3.6. Balance Sheet. . . . . . . . . . . . . . . .9
Section 3.7. Absence of Certain Changes . . . . . . . . .9
Section 3.8. Litigation . . . . . . . . . . . . . . . . 10
Section 3.9. Properties; Absence of Encumbrances. . . . 10
Section 3.10. Intellectual Property. . . . . . . . . . . 10
Section 3.11. Contracts. . . . . . . . . . . . . . . . . 11
Section 3.12. Employees; Employee Benefit Matters. . . . 11
Section 3.13. Guarantees by Others . . . . . . . . . . . 12
Section 3.14. Tax Matters. . . . . . . . . . . . . . . . 12
Section 3.15. Compliance with Law And Other Instruments;
Regulatory Matters . . . . . . . . . . . 13
Section 3.16. Permits . . . . . . . . . . . . . . . . . 13
Section 3.17. Environmental Matters . . . . . . . . . . 13
Section 3.18. Insurance . . . . . . . . . . . . . . . . 14
Section 3.19. Banks; Powers of Attorney. . . . . . . . . 14
Section 3.20. Brokerage Fees . . . . . . . . . . . . . . 14
Section 3.21. Limitation of Representations and Warranties14<PAGE>
<PAGE>
DEFINITIONS PAGE
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1. Organization and Good Standing . . . . . . 14
Section 4.2. Investment Representation. . . . . . . . . 14
Section 4.3. Execution and Effect of Agreement. . . . . 15
Section 4.4. Restrictions . . . . . . . . . . . . . . . 15
Section 4.5. No Lawsuits; Consents. . . . . . . . . . . 15
Section 4.6. Limitation of Representations and Warranties15
ARTICLE V. COVENANTS AND AGREEMENTS QF SELLER
Section 5.1. Corporate Action . . . . . . . . . . . . . 16
Section 5.2. Conduct of Business to Closing . . . . . . 16
Section 5.3. Consents . . . . . . . . . . . . . . . . . 17
Section 5.4. Covenant Against Competition . . . . . . . 17
Section 5.5. Capital Liabilities. . . . . . . . . . . . 18
Section 5.6. Access to Information and Cooperation After Closing18
Section 5.7. Public Statements. . . . . . . . . . . . . 18
ARTICLE VI. COVENANTS AND AGREEMENTS OF BUYER
Section 6.1. Corporate Action . . . . . . . . . . . . . 19
Section 6.2. Public Statements. . . . . . . . . . . . . 19
Section 6.3. Consents . . . . . . . . . . . . . . . . . 19
Section 6.4. Certain Employee Benefit Matters . . . . . 19
Section 6.5. Preservation of and Access to Certain Information
and Cooperation After Closing . . . . . . 20
Section 6.6. Nondisposition of Shares . . . . . . . . . 20
ARTICLE VII. CONDITIONS OF OBLIGATIONS OF BUYER
Section 7.1. Representations and Warranties True. . . . 21
Section 7.2. Covenants and Agreements--No Default . . . 21
Section 7.3. Officer's Certificates . . . . . . . . . . 21
Section 7.4. No Material Adverse Change . . . . . . . . 21
Section 7.5. Consents . . . . . . . . . . . . . . . . . 21
Section 7.6. Transaction Documents. . . . . . . . . . . 22
Section 7.7. Adverse Proceedings. . . . . . . . . . . . 22
<PAGE>
<PAGE>
PAGE
ARTICLE VIII. CONDITIONS OF OBLIGATIONS OF SELLER
Section 8.1. Representations and Warranties True. . . . 22
Section 8.2. Covenants and Agreements--No Default . . . 22
Section 8.3. Officer's Certificates . . . . . . . . . . 23
Section 8.4. Consents . . . . . . . . . . . . . . . . . 23
Section 8.5. Transaction Documents. . . . . . . . . . . 23
Section 8.6. Adverse Proceedings. . . . . . . . . . . . 23
ARTICLE IX. INTENTIONALLY OMITTED
ARTICLE X. CLOSING
Section 10.1. Closing. . . . . . . . . . . . . . . . . . 23
Section 10.2. Documents to be Delivered by Seller. . . . 24
Section 10.3. Documents to be Delivered by Buyer . . . . 24
ARTICLE XI. MISCELLANEOUS
Section 11.1. Survival of Representations, Warranties,
Covenants and Agreements. . . . .. . . . . 25
Section 11.2. Indemnification. . . . . . . . . . . . . . 25
Section 11.3. Disclaimer of Other Representations and
Warranties by Seller . . . . . . . . . . . 26
Section 11.4. Disclosure . . . . . . . . . . . . . . . . 27
Section 11.5. Expenses and Taxes . . . . . . . . . . . . 27
Section 11.6. Entire Agreement . . . . . . . . . . . . . 27
Section 11.7. Amendment and Waiver . . . . . . . . . . . 27
Section 11.8. Binding Agreement and Successors . . . . . 27
Section 11.9. No Third Party Beneficiaries . . . . . . . 28
Section 11.10. Notices. . . . . . . . . . . . . . . . . . 28
Section 11.11. Further Assurances . . . . . . . . . . . . 29
Section 11.12. Article and Section Headings . . . . . . . 29
Section 11.13. Governing Law. . . . . . . . . . . . . . . 29
Section 11.14. Courts . . . . . . . . . . . . . . . . . . 29
Section 11.15. Construction . . . . . . . . . . . . . . . 29
Section 11.16. Counterparts . . . . . . . . . . . . . . . 29
Section 11.17. Attorney's Fees. . . . . . . . . . . . . . 29
<PAGE>
<PAGE>
SCHEDULES
Schedule 1.18. Excluded Assets
Schedule 1.19. Excluded Liabilities
Schedule 3.1. Organization and Good Standing
Schedule 3.5. Consents
Schedule 3.6. Balance Sheet
Schedule 3.7. Absence of Certain Changes
Schedule 3.8. Litigation
Schedule 3.9. Properties
Schedule 3.10. Intellectual Property
Schedule 3.11. Contracts
Schedule 3.12. Employee Benefit Matters
Schedule 3.13. Guarantees by Others
Schedule 3.14. Tax Matters
Schedule 3.15. Noncompliance
Schedule 3.16. Permits
Schedule 3.17. Environmental Matters
Schedule 3.18. Insurance
Schedule 3.19. Banks; Powers of Attorney
Schedule 3.20. Brokerage Fees
Schedule 5.2 Conduct of Business
Exhibit A Balance Sheet
Exhibit B Note to Seller
Exhibit C Opinion of Bernard Corbett, Esq.
Exhibit D Opinion of Semmes Bowen & Semmes
<PAGE>
<PAGE>
BUSINESS COMBINATION AGREEMENT
This BUSINESS COMBINATION AGREEMENT (the "Agreement") is made as of
June 30, 1997, by and among A-COM, INC., a Virginia corporation with its
principal office at 14720-K Flint Lee Road, Chantilly, Virginia 20151 (the
"Corporation") and CHRISTOPHER CORBETT and MERRIE CORBETT, individuals, with a
place of business at the same location (collectively hereinafter referred to
as "Seller"), and ITP ACQUISITION CORP., and IT Partners, Inc., both Delaware
corporations with their principal offices at 1006 Highland Drive, Silver
Spring, Maryland 20910 ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding capital stock of
the Corporation;
WHEREAS, the Corporation is engaged in the design, manufacture and sale
of products and services to the information technology industry;
WHEREAS, Seller desires to convey to Buyer, and Buyer desires to acquire
from Seller, in accordance with the terms and conditions of this Agreement as
well as the terms and conditions of a certain Agreement and Plan of Merger to
be executed at the Closing, all of the issued and outstanding shares of
capital stock of the Corporation;
NOW THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
Section 1.1. Affiliate. "Affiliate" shall mean any Person that
directly or indirectly controls, is controlled by, or is under common control
with the Person in question. For purposes of determining whether a Person is
an Affiliate, the term "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of securities, contract or
otherwise.
Section 1.2. Balance Sheet. "Balance Sheet" shall mean the audited
statement of net assets and liabilities of the Corporation as of March 31,
1997.
Section 1.3. Benefit Arrangements. "Benefit Arrangements" shall mean all
profit sharing, life, health, hospitalization, savings, bonus, deferred
compensation, incentive compensation, severance pay, disability, vacation,
sick pay, holiday and fringe benefit plans, individual employment and
severance contracts and other policies and practices of the Corporation, or
any Affiliate thereof, providing employee or executive compensation or
benefits to Employees or beneficiaries of Employees, other than Retirement
Plans.
<PAGE>
<PAGE>
Section 1.4. Buyer. "Buyer" shall have the meaning set forth above.
Section 1.5. Buyer's Accountants. "Buyer's Accountants" shall mean the
independent accounting firm of Ernst & Young, LLP.
Section 1.6. Capital Liabilities. "Capital Liabilities" shall mean all
outstanding debt of the Corporation in excess of the amount owed on loans
collateralized by equipment and vehicles and accounts payable in the ordinary
course of business.
Section 1.7. Citibank Rate. "Citibank Rate" shall mean the rate
announced from time to time by Citibank, N.A. as its prime commercial lending
rate in New York City, New York (U.S.A.).
Section 1.8. Closing. "Closing" shall mean the consummation of the
events described in ARTICLE IX.
Section 1.9. Closing Balance Sheet. "Closing Balance Sheet" shall mean
the audited statement of net assets and liabilities of the Corporation as at
the Closing Date as prepared and delivered in accordance with Section 2.4.
Section 1.10. Closing Date. "Closing Date" shall mean the date on
which the Closing shall occur.
Section 1.11. Code. "Code" shall mean the Internal Revenue Code of
1986, as amended.
Section 1.12. Confidentiality Agreement. "Confidentiality Agreement"
shall mean the Confidentiality Agreement between the Buyer and the Seller.
Section 1.13. Corporation. "Corporation" shall have the meaning set
forth above.
Section 1.14. Dispute Resolution Firm. "Dispute Resolution Firm" shall
mean the independent accounting firm of Coopers & Lybrand LLP.
Section 1.15. Employee. "Employee" shall mean each person who is a
current employee, former employee, or retired employee of the Corporation or
its predecessors.
Section 1.16. Employee Benefit Plan. "Employee Benefit Plan" shall mean
each employee benefit plan, as defined in Section 3(3) of ERISA, maintained or
contributed to by the Corporation or any Affiliate thereof, which provides
benefits to Employees, but excluding Multiemployer Plans.
Section 1.17. ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974. as amended.
Section 1.18. Excluded Assets. "Excluded Assets" shall mean the assets
listed in Schedule 1.18, any consideration or proceeds received by the
Corporation upon the disposition thereof, and any reserves established by
Seller or the Corporation for any Excluded Liabilities.
Section 1.19. Excluded Liabilities. "Excluded Liabilities" shall mean
the liabilities listed in Schedule 1.19.
Section 1.20. Exhibit. "Exhibit" shall mean an exhibit to this
Agreement.
<PAGE>
<PAGE>
Section 1.21. Final Closing Balance Sheet. "Final Closing Balance
Sheet" shall have the meaning set forth in Section 2.4.
Section 1.22. Final Net Asset Value. "Final Net Asset Value" shall mean
the Net Asset Value as finally determined pursuant to Section 2.4(a), whether
by failure of Seller to deliver notice of objection, by agreement of the
parties, or by final determination of the Dispute Resolution Firm.
Section 1.23. Financials Date. "Financials Date" shall mean March 31,
1997.
Section 1.24. Guarantees. "Guarantees" shall mean any obligations,
contingent or otherwise, of a Person in respect of any indebtedness,
obligation or liability of another Person, including but not limited to direct
or indirect guarantees, endorsements (except for collection or deposit in the
ordinary course of business), notes co-made or discounted, recourse
agreements, take-or-pay agreements, keep-well agreements, agreements to
purchase or repurchase such indebtedness, obligation or liability or any
security therefor or to provide funds for the payment or discharge thereof,
agreements to maintain solvency, assets, level of income, or other financial
condition, and agreements to make payment other than for value received.
Section 1.25. H-S-R Act. "H-S-R Act" shall mean the Hart Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Section 1.26. Individual Returns. "Individual Returns" shall have the
meaning set forth in Section 3.14.
Section 1.27. Individual Taxes. "Individual Taxes" shall have the
meaning set forth in Section 3.14.
Section 1.28. Intellectual Property. "Intellectual Property" shall
mean patents, patent applications, trademark registrations and applications
therefor, service mark registrations and applications therefor, copyright
registrations and applications therefor and trade names.
Section 1.29. IRS. "IRS" shall mean the Internal Revenue Service.
Section 1.30. Material. "Material" (or "Materiality") when used with
reference to information, a fact or circumstance, a course of action, a
decision- making process, or other matter shall be limited to information,
facts and circumstances, courses of action, decision-making process or other
matters as to which there is a substantial likelihood that a reasonable
purchaser of the Shares would attach importance in determining whether to
purchase the Shares.
Section 1.31. Material Adverse Effect. "Material Adverse Effect" when
used with reference to a Person shall mean a material adverse effect on the
business, properties (taken as a whole) or financial condition of the Person
or Persons.
Section 1.32. Material Contracts. "Material Contract" shall mean the
contracts, agreements, commitments or other arrangements listed in Schedule
3.11.
Section 1.33. MGAAP. "MGAAP" shall mean Generally Accepted Accounting
Principles as in effect in the United States on the date of this Agreement,
modified as provided in the notes to the Balance Sheet.
<PAGE>
<PAGE>
Section 1.34. Net Asset Value. "Net Asset Value" shall mean total
assets (not including any Excluded Assets) minus total liabilities (not
including any Excluded Liabilities) as shown on the Proposed Closing Balance
Sheet or the Final Closing Balance Sheet, as the case may be, each of which
shall be prepared on a basis consistent with the Balance Sheet.
Section 1.35. Offering Memorandum. "Offering Memorandum" shall mean the
Confidential Memorandum prepared by Ernst & Young, LLP dated 1997.
Section 1.36. PBGC. "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
Section 1.37. Person. "Person" shall mean any individual, corporation,
unincorporated association, business trust, estate, partnership, trust, State,
the United States or any other entity.
Section 1.38. Proposed Closing Balance Sheet. "Proposed Closing Balance
Sheet" shall have the meaning set forth in Section 2.4.
Section 1.39. Purchase Price. "Purchase Price" shall have the meaning
set forth in Section 2.3.
Section 1.40. Retirement Plan. "Retirement Plan" shall mean any plan,
fund, program or policy which provides retirement income to an Employee or
results in a deferral of income by an Employee for periods extending to or
beyond the termination of employment of the Employee by Seller and all
Affiliates thereof, and pursuant to which the Corporation or an Affiliate
thereof has paid benefits or contributed funds or has an obligation to pay
benefits or contribute funds in respect of such Employee.
Section 1.41. Schedule. "Schedule" shall mean a schedule to this
Agreement.
Section 1.42. Securities Act. "Securities Act" shall mean the
Securities Act of 1933, as amended.
Section 1.43. Seller. "Seller" shall have the meaning set forth above.
Section 1.44. Seller's Accountants. "Seller's Accountants" shall mean
the independent accounting firm of Richard P. Willis, P.C., 7661 Dowdy Drive,
Richmond, Virginia 23231.
Section 1.45. Senior Debt. "Senior Debt" shall mean the loan from
Creditanstalt Bankverein in the principal amount of $10 million or such larger
amount as the Buyer and Creditanstalt shall agree.
Section 1.46. Shares. "Shares" shall mean all of the issued and
outstanding shares of stock of the Corporation.
Section 1.47 Subordinated Debt. "Subordinated Debt" shall mean the
amount which the Buyer is obligated to the Seller as set forth Section 2.3
hereof.
Section 1.48. Subsidiary. "Subsidiary," as it relates to any Person,
shall mean a corporation more than 50% of whose outstanding securities the
Person has the right, other than as affected by events of default, directly or
indirectly, to vote for the election of directors.
<PAGE>
<PAGE>
Section 1.49. Transaction Documents. "Transaction Documents" shall
mean all other agreements, documents or instruments to be executed by a party
hereto in connection with this Agreement.
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1. Sale. On the terms and subject to the conditions set
forth in this Agreement, Seller hereby agrees to sell, transfer, assign and
deliver to Buyer or one or more of its designated subsidiaries, free and clear
of any lien, security interest, charge, encumbrance or claim, and Buyer hereby
agrees to purchase from Seller the Shares on the Closing Date.
Section 2.2. Excluded Liabilities. Notwithstanding whether Buyer has
acquired any responsibility for Excluded Liabilities by virtue of Buyer's
purchase of the Shares, Seller shall retain, and Buyer shall not acquire
responsibility for, the Excluded Liabilities.
Section 2.3. Purchase Price and Allocation. The entire consideration
to be paid by Buyer to Seller in exchange for the sale, transfer, assignment
and delivery to Buyer of the Shares shall be $10,048,093 (the "Purchase
Price"), which shall be paid by Buyer to Seller at the time of Closing in the
following manner: As to cash in the amount of $2,992,093.33 by wire transfer
of immediately available funds into an account or accounts designated by
Seller; as to Subordinated Debt, a promissory note in the amount of
$2,226,000; and as to equity, a certificate evidencing ownership by the Seller
of 929,603 shares of the common stock of IT Partners. Inc.
Section 2.4. Adjustment of Purchase Price.
(a) As promptly as practicable, and in any event not more than 90
days following the Closing Date, Buyer together with Buyer's Accountants shall
prepare and deliver to Seller and Seller's Accountants the Proposed Closing
Balance Sheet. The Proposed Closing Balance Sheet shall be prepared on a basis
consistent with, and as provided in, the Balance Sheet (except that it shall
include the net book value at Closing of all work-in-process and finished
products), and shall be audited and accompanied by the report of Buyer's
Accountants. Seller and Seller's Accountants shall have the right to observe
the physical inventories to be conducted by, and to consult during reasonable
business hours with appropriate personnel of, Buyer and Buyer's Accountants
and to have access to, and to review and make copies of, the work papers of
Buyer's Accountants with respect to such inventories and the preparation of
the Proposed Closing Balance Sheet.
(b) (i) Seller may dispute the Proposed Closing Balance Sheet
prepared by Buyer and Buyer's Accountants by notifying Buyer and Buyer's
Accountants in writing, setting forth in reasonable detail the amount(s) in
dispute and the basis for such dispute, within 45 days of Seller's receipt of
the Proposed Closing Balance Sheet. If Seller fails to deliver a notice of
objections within such 45-day period, Seller shall be deemed to have accepted
the Proposed Closing Date Balance Sheet and the Net Asset Value thereon. In
the event the aggregate amounts in dispute are less than $100,000, the Closing
Net Asset Value proposed by Buyer and Buyer's Accountants shall be adjusted by
one-half of the dispute amount, and such resolution shall be final, binding
and conclusive on Seller and Buyer.
<PAGE>
<PAGE>
(ii) In the event the amounts in dispute exceed $100,000,
Buyer's Accountants and Seller's Accountants shall attempt in good faith to
resolve such dispute, and any resolution by them as to any disputed amount(s)
shall be final, binding and conclusive on Seller and Buyer. If Buyer's
Accountants and Seller's Accountants do not resolve any such dispute within 15
days of the date of receipt by Buyer or Seller's written notice of dispute,
Buyer and Seller shall, within five additional days, retain the Dispute
Resolution Firm, which firm shall, within 30 days of each submission, resolve
such remaining dispute, and provide written notice of such resolution by
facsimile, confirmed by mail, and such resolution shall be binding and
conclusive on Seller and Buyer. Such resolution shall be within the range of
amounts defined by the amount proposed by Buyer's Accountants and the amount
proposed by Seller's Accountants as to each disputed item. The fees and
disbursements of the Dispute Resolution Firm shall be borne by Buyer and
Seller in the proportion that the aggregate amount of disputed items submitted
to the Dispute Resolution Firm that is unsuccessfully disputed by each party
(as finally determined by the Dispute Resolution Firm) bears to the total
amount of the disputed items as submitted to the Independent Accounting Firm.
After resolving the items in dispute, the Dispute Resolution Firm shall
prepare and deliver to each of Seller and Buyer the Final Closing Balance
Sheet and a certification of the Net Asset Value thereon.
(c) In the event that the Final Net Asset Value is less than the
Net Asset Value stated on the Balance Sheet, Seller shall pay to Buyer the
difference plus interest thereon from the Closing Date through the date of
payment at a rate per annum, which may fluctuate from time to time, equal to
the Citibank Rate. In the event that the Final Net Asset Value is greater than
the Net Asset Value sated on the Balance Sheet, Buyer shall pay to Seller the
difference, plus interest on such amount from the Closing Date through the
date of payment at a rate per annum, which may fluctuate from time to time,
equal to the Citibank Rate. Such payment shall be made in immediately
available funds not later than two business days after the determination of
the Final Net Asset Value by wire transfer to a bank account designated by the
party entitled to receive the payment.
(d) To the extent that the Final Net Asset Value is different from
the Net Asset Value reflected on the Balance Sheet, the allocation of the
Purchase Price shall be increased or decreased, as the case may be, by such
difference.
Section 2.5 Board of Directors Membership. Immediately following
Closing, Buyer shall take such corporate action as may be necessary to cause a
designee of Seller to become a member of Buyer's Board of Directors (the
"Board"), and, if necessary, to re-elect such designee, or another designee of
Seller, to continue to serve on the Board until the later of twelve months
from the date of Closing or the commencement of a public offering of Buyer's
stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1. Organization and Good Standing. The Corporation is duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia. The Corporation has full corporate power and
authority to carry on its business as it is now being conducted. The <PAGE>
<PAGE>
Corporation is qualified as a foreign corporation in, and is in good standing
under the laws of, each state set forth in Schedule 3.1, which are the only
jurisdictions in which the failure of the Corporation to be so qualified would
have a Material Adverse Effect on the Corporation.
Section 3 .2. Capitalization. The authorized capital stock of the
Corporation consists of 10,000 shares of common Stock, par value $10.00 per
share, 500 shares of which are outstanding. Each of the outstanding Shares has
been duly authorized and validly issued and is fully paid and nonassessable.
No shares of capital stock of the Corporation are held in treasury, and there
are no other issued or outstanding equity securities of the Corporation and no
other issued or outstanding equity securities of the Corporation convertible
at any time into equity securities of the Corporation. Neither Seller nor the
Corporation is subject to any commitment or obligation that would require the
issuance or sale of additional shares of capital stock of the Corporation at
any time under options, subscriptions, warrants, rights or any other
obligations. Neither the execution and delivery of this Agreement and the
Transaction Documents nor the consummation of the transactions contemplated
hereby or thereby will (a) violate any of the provisions of the charter or
by-laws of the Corporation, Seller, or (b) conflict with or result in a breach
of, or give rise to a right of termination of, or accelerate the performance
required by the terms of any judgment, court order or consent decree, permit
or license or any statute, rule or regulation of any governmental body, or any
agreement, indenture, mortgage or instrument to which Seller, or the
Corporation is a party or to which it or its property is subject, or
constitute a default thereunder, except, in the case of clause (b), where such
conflict, breach, right of termination or default would not have a Material
Adverse Effect on Seller.
Section 3.3. Ownership of the Shares. Seller is the record and
beneficial owner of the Shares, which are free and clear of any lien, security
interest, charge, encumbrance or claim, and Seller has, or will have on the
Closing Date, the right to transfer to Buyer complete and encumbered legal and
equitable title to the Shares.
Section 3.4. Execution and Effect of Agreement. Seller has the
ability and authority to enter into and consummate this Agreement and the
Transaction Documents, and the execution and delivery of such agreements and
the consummation of the transactions completed hereby have, if and to the
extent necessary, been duly authorized. This Agreement has been duly executed
and delivered by the Seller, and constitutes a legal, valid and binding
obligation of each such Person executing such Agreement subject to such
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
affecting the rights of creditors generally and to the exercise of judicial
discretion in accordance with general principals of equity (whether applied by
a court of law or of equity).
Section 3.5. Consents. Except (a) for filings, consents, approvals
and authorizations that the failure to obtain or make would not have a
Material Adverse Effect on the Corporation, (b) as set forth in Schedule 3.7,
or (c) for filings, consents, waivers, approvals or authorizations pursuant to
the H-S-R Act, no consent, waiver, approval or authorization of any
governmental authority or of any third party or notice to or filing with any
governmental authority or any third party, on the part of Seller, or the
Corporation is required in connection with the execution and delivery by
Seller of this Agreement or any instrument contemplated hereby or the
consummation of any of the transactions contemplated hereby.
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Section 3.6. Balance Sheet. Except as set forth in Schedule 3.6, the
Balance Sheet was prepared in accordance with MGAAP and fairly presents the
Corporation's financial condition as at the Financials Date. To Seller's
knowledge, the Corporation has no Material liabilities or obligations, whether
contingent or absolute, direct or indirect, matured or unmatured, which are
not shown or provided for on the Balance Sheet or the notes thereto or set
forth on Schedule 3.6, or any other Schedule to this Agreement, and Seller
knows of no reasonable basis (as determined in Seller's reasonable judgment)
for the assertion of any such liabilities or obligation.
Section 3.7. Absence of Certain Changes. Since March 31, 1997, except
as disclosed on Schedule 3.7 or as otherwise contemplated by this Agreement,
there has not been:
(a) any change in the assets, liabilities, business, properties or
operations of the Corporation, other than changes (i) described in the
Schedules or (ii) made or incurred in the ordinary course of business, which
taken in the aggregate have had a Material Adverse Effect on the Corporation;
(b) any dividend or other distribution declared, paid or made on
or in respect of the capital stock of the Corporation;
(c) any employment or other contract or commitment entered into by
the Corporation, except in the ordinary course of business;
(d) a cancellation of any claim of or debts owed to the
Corporation, except in the ordinary course of business;
(e) excluding any inventory or obsolete assets disposed of in the
ordinary course of business, any sale, assignment, transfer or other
disposition of (i) any Intellectual Property, the latest cost of which on the
accounting records of the Corporation exceeds $2,500 or (ii) any other assets,
the latest cost of which on the accounting records of the Corporation exceeds
$2,500;
(f) any capital expenditure, capital addition or capital
improvement by the Corporation involving an amount in excess of $100,000;
(g) any mortgage, lien, pledge, encumbrance or security interest
created on any assets, tangible or intangible, except purchase money security
interests created in the ordinary course of business;
(h) any damage, destruction or loss (whether or not covered by
insurance) which would have a Material Adverse Effect on the Corporation;
(i) any labor disturbances which would have a Material Adverse
Effect on the Corporation; or
(j) to Seller's knowledge, any other event or condition which has
had or, in the reasonable judgment of Seller, would likely have a Material
Adverse Effect on the Corporation.
Section 3.8. Litigation. Except as set forth in Schedule 3.8,
Schedule 3.15 or Schedule 3.17, there is no action at law or in equity,
arbitration proceeding or governmental investigation pending or, to the
knowledge of Seller, threatened by or before any court, any governmental or
administrative agency or commission, or arbitrator, against Seller or the
Corporation, in respect of this Agreement or any of the transactions <PAGE>
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contemplated hereby that would prevent a consummation of any of the
transactions contemplated hereby. Except as set forth in Schedule 3.8,
Schedule 3.15, or Schedule 3.17, there is no action at law or in equity,
arbitration proceeding or governmental investigation pending, or to the
knowledge of Seller threatened, by or before any court, any governmental or
administrative agency or commission, or arbitrator against or involving any of
the businesses, properties, rights or assets of the Corporation or its
Affiliates, employees or agents, which reasonably could be expected to have a
Material Adverse Effect on the Corporation
Section 3.9. Properties: Absence of Encumbrances. Schedule 3.9 sets
forth a complete list of all real property leased, or used by the Corporation.
With respect to leasehold interests: (a) the leases are in full force and
effect and constitute valid and enforceable leasehold interests of the
Corporation, free and clear of all liens, claims, security interests,
encumbrances or mortgages created by Seller that would have a Material Adverse
Effect on the Corporation, (b) the Corporation is not in default and has not
received any written notice of default under any lease where there reasonably
could be expected to be a Material Adverse Effect on the Corporation, and (c)
to the knowledge of Seller there is no event which with notice or lapse of
time or both would constitute such a default by the Corporation or by a
lessor.
Section 3.10. Intellectual Property. Schedule 3.10 sets forth a
complete list of all Intellectual Property of the Corporation and all
Affiliates on the date hereof and of all license agreements pursuant to which
any such Intellectual Property is licensed (a) by or to the Corporation. The
Corporation does not own, license or, to Seller's knowledge, use Intellectual
Property Material to the continued operation of its business that is not
listed on Schedule 3.10. Except as otherwise indicated in Schedule 3.10, the
Corporation owns the Intellectual Property listed in Schedule 3.10 free and
clear of any royalty, lien, encumbrance or charge. Notwithstanding anything to
the contrary contained herein, Seller make no representation or warranty, and
no such representation or warranty shall be implied, that any of the
Intellectual Property is valid or enforceable. To the knowledge of Seller,
except as set forth in Schedule 3.8 or Schedule 3.10, the Corporation has not
received within the two year period immediately preceding the date of this
Agreement any notice or claim that any such Intellectual Property is not valid
or enforceable, or of any infringement upon or conflict with any patent,
trademark, service mark, copyright or trade name of any third party by the
Corporation or of any claim by any third party alleging any such infringement
or conflict. To the knowledge of Seller, except as set forth in Schedule 3.8
or Schedule 3.10, during the two-year period immediately preceding the date of
this Agreement the Corporation has not given any notice of infringement to any
third party with respect to any of the Intellectual Property listed in
Schedule 3.10.
Section 3.11. Contracts. Schedule 3.11 sets forth a list of all
contracts, agreements, commitments or other arrangements to which the
Corporation is a party or by which the Corporation is obligated. Except for
contracts, agreements, commitments or other arrangements set forth on Schedule
3.11 or other Schedules, as of the date of this Agreement the Corporation is
not a party to or obligated by any: (a) Benefit Arrangements providing for
aggregate payments of $2,500 or more in any 12 month period or any contract
with employees, consultants or agents not terminable at will without cost or
other liability by reason of such termination; (b) collective bargaining
agreement; (c) guarantees by the Corporation of any obligation for the
borrowing of $2,500 in the aggregate; (d) indentures, notes, mortgages, <PAGE>
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installment obligations, capital leases or other instruments relating to the
borrowing of money in excess of $2,500 in the aggregate; (e) agreements,
contracts or leases not listed on Schedule 3.11 (excluding open purchase
orders and supply agreements entered into in the ordinary course of business)
that involve the receipt or payment by the Corporation within one year of more
than $100,000; and (f) executory contracts involving the acquisition or
disposition of Material tangible or intangible assets other than in the
ordinary course of business. Except as disclosed on Schedule 3.8 or as would
not have a Material Adverse Effect on the Corporation, the Corporation is not
in default under any Material Contract, has not waived any Material rights
under any Material Contract and (to the knowledge of Seller) has no knowledge
or notice that any party with whom it has a Material Contract is in default
under any Material Contract.
Section 3.12. Employees: Employee Benefit Matters.
(a) Schedule 3.12 to this Agreement contains a true and complete
list of all sales agents, consultants and employees of the Corporation
(whether employed or engaged by written or oral agreement), their respective
rates of compensation and any general or Material individual wage increase
scheduled to take effect prior to Closing other than in the ordinary course of
business. The Corporation has paid in full such employees, agents and
consultants, or adequately reserved for, all wages, salaries, commissions,
bonuses and other compensation for all services performed by them, except for
such payments as are not yet due; and the Corporation is in compliance in all
material respects with all laws and regulations respecting employment and
employment practices, terms and conditions or employment, wages and hours,
employee benefit plans and taxes (including withholding taxes) relating to
employment.
(b) Schedule 3.12 sets forth a list of all Employee Benefit Plans,
all Material Benefit Arrangements, all Multiemployer Plans, and all Retirement
Plans. Except as set forth in Schedule 3.12, with respect to each of such
Employee Benefit Plans, Benefit Arrangements and Retirement Plans, Seller has
delivered or made available to Buyer, as and if applicable, copies of (i) the
text or formal plan document, including amendments and the summary plan
description, (ii) the most recent IRS determination letter relating to the
qualification of Retirement Plans under Section 401 of the Code and the
related trust's qualification under Section 501 of the Code, (iii) the trust
agreements, insurance contracts or other documents that constitute all or a
part of the funding vehicle, (iv) in the case of all Employee Benefit Plans,
the most recent annual reports (IRS Form 5500s), including the schedules
thereto, and (v) the most recent actuarial reports or other financial reports.
(c) Except as set forth in Schedule 3.12, (i) all Employee Benefit
Plans comply in all Material respects with ERISA and the Code; (ii) the
Corporation and its Affiliates have paid all contributions due under any of
the Employee Benefit Plans and Multiemployer Plans to which they are required
to contribute; and (iii) the Corporation and its Affiliates do not have
minimum funding deficiencies or Multiemployer Plan withdrawa1 liabilities
(including without limitation liabilities imposed by virtue of any other
member of a controlled group having such liabilities imposed on it).
(d) Except as set forth in Schedule 3.12, there are no Material
actions, suits or claims pending or, to the knowledge of Seller, threatened
against any Employee Benefit Plan, any Retirement Plan, any Benefit <PAGE>
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Arrangement, or any administrator or fiduciary thereof, other than benefit
claims arisin inthe normal course of operation of such Employee Benefit Plans,
Benefit Arrangements, or Retirement Plans.
(e) To the knowledge of Seller, the Corporation has not engaged in
any non-exempt "Prohibited Transaction, " as defined in Section 406 of ERISA
or Section 4975 of the Code, with respect to any Employee Benefit Plan or with
respect to any other parties-in-interest.
Section 3.13. Guarantees by Others. Schedule 3.13 sets forth a complete
list as of the date hereof of all Guarantees of Seller and its Affiliates for
the benefit of Persons doing business with the Corporation.
Section 3.14. Tax Matters.
(a) Except as otherwise provided for herein, the Corporation has
filed (including extensions) all federal, state, local, and other tax returns
(the "Individual Returns") required to be filed by it under applicable law,
including estimated tax returns and reports, and the Corporation has paid all
required Material federal, state and local income and other applicable taxes,
additions to such taxes, penalties and interest with respect thereto (the
"Individual Taxes") due and payable on or before the date hereof (and will
duly and timely pay all such amounts required to be paid between the date
hereof and the Closing Date). The Corporation has not filed or paid federa1 or
quarterly income tax estimates for its 1996 tax year, in reasonable
anticipation that its tax liability as of the date of Closing will not exceed
$20,000.00. The Corporation has paid, withheld or adequately provided for (or
will adequately provide for) any and all Individual Taxes in respect of the
conduct of its business or the ownership of its property and in respect of any
transaction for which such taxes are due or would be due if the current tax
period ended at the close of business on the Closing Date.
(b) The Corporation has delivered or made available (or will make
available prior to Closing) to Buyer copies of all tax returns filed by the
Corporation for all tax years beginning with the year ended December 31, 1994,
together with all tax basis fixed asset schedules and any information
necessary to document differences between tax basis accounting and MGAAP
accounting reflected on the Proposed Closing Balance Sheet and related income
statements.
(c) No Material proposed taxes, addition to tax, interest, or
penalties have been asserted against the Corporation except those that have
been paid in full, those that would not have a Material Adverse Effect on the
Corporation, and those as set forth in Schedule 3.14. There are no agreements,
waivers, or other arrangements providing for extensions of time in respect of
the assessment or collection of any unpaid tax against the Corporation, except
as set forth in Schedule 14.
(d) No election or consent under Section 341(f) of the Code has
been made or shall be made on or prior to the Closing Date by or on behalf of
the Corporation.
Section 3.15. Compliance with Law and Other Instruments; Regulatory
Matters. Except as set forth on Schedule 3.15 or Schedule 3.16, (a) the
business of the Corporation has been and is being conducted in accordance with
all applicable laws, ordinances, rules and regulations of all authorities
(exclusive of Environmental Laws as defined in and covered by Section 3.17
below), violation of which, individually or in the aggregate, could reasonably
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be expected to have a Material Adverse Effect on the Corporation; and (b) the
Corporation is not in violation of, or in default under, any term or provision
of its charter documents or of any lien, indenture, mortgage, lease,
agreement, instrument, commitment or other arrangement, or subject to any
restriction of any kind or character, which reasonably could be expected to
have a Material Adverse Effect on the Corporation. Seller has received no
notice of any proposed public improvement which may involve any charge being
levied or assessed against the real property of the Corporation that
reasonably could be expected to have a Material Adverse Effect on the
Corporation.
Section 3.16. Permits. Schedule 3.16 sets forth a list of all
governmental approvals, authorizations, licenses and permits of all
governmental agencies necessary to the conduct of the business of the
Corporation on the date hereof. Except as set forth in Schedule 3.16, all such
approvals, authorizations, licenses and permits are in full force and effect
and, to the knowledge of Seller, no proceedings to revoke them are pending or
threatened and the Corporation is in compliance with the terms and conditions
under which they were issued or granted.
Section 3.17. Environmental Matters. Except as set forth on Schedule
3.17, the property leased by the Corporation and described in Section 3.9
("Property") and its existing and, to the knowledge of Seller, prior uses
comply and have at all times complied with, and the Corporation is not in
violation of and has not violated, in connection with the ownership, use,
maintenance or operation of its business, any applicable federal, state,
county or local statutes, laws, regulations, rules, ordinances, codes,
licenses or permits relating to the handling, manufacturing, treatment,
storage, disposal, discharge, use or transportation of hazardous or toxic
substances, materials or wastes, including without limitation the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and the Toxic Substances Control Act
(collectively, "Environmental Laws"). To Seller's knowledge, except as set
forth on Schedule 3.17, the Corporation has received no notice that any
Environmental Laws or other federal, state or local statutes, orders, rules or
regulations, ordinances or governmental policies require any work, repairs,
construction or capital expenditures with respect to the Property.
Section 3.18. Insurance. The Corporation is named as an insured with
insurance carriers not related to or affiliated with Seller in amounts and
against all risks normally insured against by Persons operating similar
businesses in similar locations. Schedule 3.18 sets forth a list of the
insurance coverage in effect as of the date of this Agreement.
Section 3.19. Banks; Powers of Attorney. Schedule 3.19 sets forth as
of the date of this Agreement: (a) the names and locations of all banks, trust
companies, savings and loan associations and other financial institutions at
which the Corporation maintains safe deposit boxes or accounts of any nature
to which it has access, and the names of all Persons authorized to draw
thereon, make withdrawals therefrom or have access thereto; and (b) the names
of all Persons to whom the Corporation has granted a power of attorney.
Section 3.20. Brokerage Fees. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in
connection with this Agreement or the transactions contemplated hereby based
upon any agreements, written or oral, made by or on behalf of Seller or by or
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on behalf of any director, officer, employee, agent or Affiliate of Seller. In
the event any claim is made for such fee or commission, the Seller agrees to
indemnify Buyer and hold it harmless against all such claims.
Section 3.21. Limitation of Representations and Warranties. Except as
expressly set forth herein, neither Seller nor any of its Affiliates makes any
representation or warranty, express or implied, in connection with the
transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1. Organization and Good Standing. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and has full corporate power and authority to carry on its businesses
as they are now being conducted.
Section 4.2. Investment Representation. Buyer is aware that the
Shares are not registered under the Securities Act. Buyer possesses such
knowledge and experience in business matters that it is capable of evaluating
the merits and risks of its investments hereunder. Buyer is acquiring the
Shares for its own account, for investment purposes only and not with a view
to the distribution thereof.
Section 4.3. Execution and Effect of Agreement. Buyer has the
corporate power and authority to enter into this Agreement and the Transaction
Documents, and the execution and delivery of such agreements and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Buyer. This Agreement has been duly
executed and delivered by Buyer and constitutes a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws affecting the rights of creditors generally and to the exercise of
judicial discretion in accordance with general principles of equity (whether
applied by a court of law or of equity). Each of the Transaction Documents,
upon its execution and delivery by Buyer, will constitute a legal, valid and
binding obligation of each such Person executing such Agreement, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws affecting the rights of creditors
generally and to the exercise of judicial discretion in accordance with
general principles of equity (whether applied by a court of law or of equity).
Section 4.4. Restrictions. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(a) violate any of the provisions of the charter or by-laws of Buyer, or (b)
conflict with or result in a breach of, or give rise to a right of termination
of, or accelerate the performance required by the terms of any judgment, court
order or consent decree, or any agreement, indenture, mortgage or instrument
to which Buyer is a party or to which it or its property is subject, or
constitute a default thereunder, except, in the case of the foregoing clause
(b), where such conflict, breach, right of termination or default would not
have a Material Adverse Effect on Buyer.
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Section 4.5. No Lawsuits; Consents. There is no lawsuit, proceeding
or investigation pending or, to the knowledge of Buyer threatened, against
Buyer the effect of which would prevent the consummation of any of the
transactions contemplated hereby. Except (a) for filings, consents, waivers,
approvals and authorizations as to which the failure to obtain or make would
not have a Material Adverse Effect on the Buyer, and (b) for filings,
consents, waivers, approvals and authorizations pursuant to the H-S-R Act, no
filing, consent, approval or authorization of any governmental authority or of
any third party on the part of the Buyer is required in connection with the
execution and delivery of this Agreement or any instrument contemplated hereby
or the consummation of any of the transactions contemplated hereby.
Section 4.6. Tax Consequences. The income tax consequences, to the
Seller, if any, of the transactions contemplated by this Agreement will be no
less favorable than the income tax consequences of any alternative method of
completing the transactions contemplated by this Agreement previously
considered by A-COM and IT Partners.
Section 4.7. Limitation of Representations and Warranties. Except as
expressly set forth herein, Buyer makes no representation or warranty, express
or implied, in connection with the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS AND AGREEMENTS OF THE SELLER
Seller covenants and agrees for the benefit of Buyer as follows:
Section 5.1. Corporate Action. Seller shall take, and shall cause the
Corporation to take, all action, corporate or otherwise, necessary or
appropriate for the consummation of the transactions contemplated hereby.
Seller shall execute such additional documents, instruments, memoranda and
other writings as shall be necessary or appropriate to carry out and
effectuate the terms and conditions of this Agreement.
Section 5.2. Conduct of Business to Closing. Except as contemplated
by this Agreement, Seller shall not cause the business of the Corporation to
be conducted other than in the ordinary course. Except as contemplated by or
set forth in this Agreement or the Schedules, including without limitation
Schedule 5.2, or as consented to in writing by Buyer (which consent shall not
be unreasonably withheld), Seller shall act, or cause the Corporation to act,
as follows:
(a) The Corporation will not adopt any Material change in any
method of accounting or accounting practice, except as contemplated or
required by MGAAP or Schedule 3.6;
(b) The Corporation will not amend its charter or by laws (or other
similar organizational documents) or the charter or by-laws of any Subsidiary;
(c) Except (i) in the ordinary course of business, (ii) as required
by law, (iii) as required or appropriate to maintain the qualification of any
Employee Benefit Plan or Benefit Arrangement under applicable tax laws or
under ERISA, (iv) as required by existing Employee Benefit Plans, Retirement
Plans, or Benefit Arrangements, or (v) as otherwise contemplated by this
Agreement, the Schedules, or the Exhibits, neither the Corporation nor any
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Affiliate will enter into or amend any Employee Benefit Plan or Benefit
Arrangement covering Employees, or give any general or Material individual
wage or salary increase to its Employees;
(d) The Corporation shall not enter into any collective bargaining
agreement covering Employees;
(e) Except (i) in the ordinary course of business, (ii) as
otherwise contemplated by this Agreement or the Schedules, or (iii) in
connection with the transfer of any of the Excluded Assets, the Corporation
will not sell, mortgage, pledge, or otherwise dispose of any substantial
assets or properties;
(f) Except as contemplated by this Agreement or the Schedules, the
Corporation will not merge or consolidate with, or agree to merge or
consolidate with, or purchase or agree to purchase all or substantially all of
the assets of, or otherwise acquire, any other business entity;
(g) Except as contemplated by this Agreement or the Schedules, the
Corporation will not (i) authorize for issuance, issue or sell any additional
shares of its or its Subsidiaries' capital stock or any securities or
obligations convertible into shares of its Subsdiaries' capital stock or issue
or grant any option, warrant or other right to purchase any shares of its
capital stock, or (ii) declare or pay any dividend or other distribution on or
in respect of its capita1 stock:
(h) The Corporation will maintain its existing insurance policies,
or comparable coverage, in full force and effect;
(i) Except in the ordinary course of business or as contemplated
by this Agreement or the Schedules, the Corporation will not incur or agree to
incur long-term debt for borrowed money; and
(j) The Corporation shall not make any capital expenditure, capital
addition, or capital improvement exceeding $25,000.
Section 5.3. Consents.
(a) Seller shall use reasonable efforts to (i) obtain all consents,
waivers and authorizations and make all filings with and give all notices that
may be necessary or reasonably required to consummate the transactions
contemplated hereby, it being understood that neither Seller nor any of its
Affiliates shall be under any obligation to pay money to any third party
(other than fees imposed by statute or regulation to obtain governmental
consents or approvals) as a condition to receiving any such consents, waivers
or authorizations and (ii) cause each of the conditions precedent to the
obligations of Buyer hereunder to be satisfied.
Section 5.4. Covenant Against Competition.
(a) Neither the Seller nor any Affiliate, for so long as it is an
Affiliate, shall, directly or indirectly, for a period of twelve months after
the Closing (the "Period"), engage in the Information Services Business within
a 500-mile radius of the principal place of business of Buyer.
(b) Except as may be required by law or in the bona fide
prosecution of its Rights under this Agreement or any Transaction Document,
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after Closing neither Seller now its Affiliate shall use or disclose any
confidential information principally concerning the Information Services
Business.
(c) Seller acknowledges and agree that it would be difficult to
fully compensate Buyer for damages resulting from the breach or threatened
breach of the foregoing provisions of this Section 5.4 and, accordingly that
Buyer shall be entitled to temporary and injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent
injunctions, to enforce such provisions upon proving that it has suffered or
that there is a substantial probability that it will suffer irreparable harm
and without the necessity of posting any bond or other understanding in
connection therewith. This provision with respect to injunctive relief shall
not, however, diminish Buyer's right to claim and recover damages.
(d) The provisions of this Section 5.4 are severable and if any one
or more of them may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions, and any partially unenforceable
provisions to the extent enforceable, shall nevertheless be binding and
enforceable. For purposes of Section 5.4(a), each of clauses (a) through (d)
shall be considered a separate covenant such that if the geographic scope of
any such clause shall be determined by a court to be invalid, that clause
shall be severed and the remaining clauses shall remain in full force and
effect.
Section 5.5. Capital Liabilities. No later than Closing, Seller shall
cause such Capital Liabilities, as may exist prior to or at Closing, including
all interest accrued thereon, to be fully-satisfied or to be specifically
provided for on Schedule 2.22.
Section 5.6. Access to Information and Cooperation.
(a) Subsequent to the date of this Agreement, Seller shall give
Buyer, its counsel, and its consultants full and complete access, upon
reasonable notice during normal business hours, to all records and affairs of
the Corporation within their possession and will provide copies of such
information concerning the Corporation as Buyer may reasonably request for any
proper purpose, including without limitation in connection with the
preparation of any tax returns or financial statements or in connection with
any judicial, quasijudicial. administrative, tax audit or arbitration
proceeding.
(b) Seller shall at its expense cooperate fully with the Buyer in
the defense or pursuit of any claim or action which relates to occurrences
involving the business of the Corporation prior to the Closing Date that does
not relate to an Excluded Asset.
Section 5.7. Public Statements. Except for the limited disclosure by
Buyer and Seller to certain third parties of certain aspects of the
transaction contemplated by this Agreement, Seller shall not release any
information concerning this Agreement or the transactions contemplated hereby
that is intended for or may result in public dissemination thereof without the
prior written consent of Buyer (which shall not be unreasonably withheld or
delayed), unless (a) in the opinion of counsel to Seller, the release of such
information is required by law and (b) prior to the release of such
information and as soon as possible after Seller has received such counsel's
opinion, (i) Seller shall advise Buyer of the opinion and (ii) at Buyer's
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request, Seller shall provide a copy to Buyer, and further provided that
Seller shall be permitted to discloseto Employees, and upon Buyer's request to
give Buyer the opportunity to make a joint statement with Seller to Employees,
concerning the terms of Benefit Arrangements and Employee Benefit Plans
available to Employees following Closing.
ARTICLE VI
COVENANTS AND AGREEMENTS OF BUYER
Buyer covenants and agrees for the benefit of Seller as follows
Section 6.1. Corporate Action. Buyer shall take all action, corporate
or otherwise, necessary or appropriate for the consummation of the
transactions contemplated hereby. Buyer shall execute such additional
documents, instruments, memoranda and other writings as shall be necessary or
appropriate to carry out and effectuate the terms and conditions of this
Agreement.
Section 6.2. Public Statements. Buyer shall not release any
information concerning this Agreement or the transactions contemplated hereby
that is intended for or may result in public dissemination thereof without the
prior written consent of Seller (which shall not be unreasonably withheld or
delayed), unless (a) in the opinion of counsel to Buyer, the release of such
information is required by law and (b) prior to the release of such
information and as soon as possible after Buyer has received such counsel's
opinion, (i) Buyer shall advise Seller of the opinion and (ii) at Seller's
request, Buyer shall provide a copy to Seller.
Section 6.3. Consents.
(a) Buyer shall promptly make any and all filings that are or may
be required under the H-S-R Act and shall cooperate with Seller in connection
with similar filings by Seller. Buyer shall cooperate and use reasonable
efforts to ensure that any pre-acquisition waiting period required by the
H-S-R Act expires or is otherwise terminated, and shall comply promptly with
any requests made pursuant to the H-S-R Act or the regulations thereunder.
(b) Buyer shall use reasonable efforts to (i) obtain all consents,
waivers and authorizations and make all filings with and give all notices that
may be necessary or reasonably required to consummate the transactions
contemplated hereby, provided that Buyer shall not be under any obligation to
pay money to any third party as a condition to receiving any such consents,
waivers or authorizations, and (ii) cause each of the conditions precedent to
the obligations of Seller hereunder to be satisfied.
Section 6.4. Certain Employee Benefit Matters.
(a) Commencing upon the Closing Date, Buyer shall cause the
Corporation to continue to employ each Employee who is an Employee on the
Closing Date upon the same terms and conditions of employment as pertained to
each Employee on the day immediately preceding the Closing Date and as are
specifically described in the Schedules to this Agreement, provided that this
undertaking shall in no way diminish the Corporation's existing Rights to lay
off employees or to terminate employees on account of unacceptable performance
or otherwise in accordance with the terms of any contracts of employment. If
any Employee is laid off or on leave on the Closing Date, Buyer shall cause
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the Corporation to recall or reinstate such Employee in accordance with the
layoff or leave of absence policy of the Corporation that is in effect on the
date of this Agreement and is specifically described in the Schedules. Buyer
shall take all reasonable action required or appropriate to cause the
Corporation to fulfill all obligations of the employer under all Benefit
Arrangements, Employee Benefit Plans, Multiemployer Plans, and Retirement
Plans as of the Closing Date (including without limitation severance payments
or benefits that have accrued, or that accrue or inure, on or after the
Closing Date or that inure after the date of this Agreement and prior to the
Closing Date as a result of action taken by Seller with consent of Buyer)
which are specifically described on the Schedules, except as may be required
otherwise by law.
(b) On or prior to the Closing, the Buyer shall have adopted the
ITP 1997 long-term incentive plan (see "Incentive Plan"), a copy of which has
been provided to Seller. The Buyer has reserved a total of 240,000 shares of
common stock of the Buyer for issuance to the Corporation's employees pursuant
to the exercise of options that are to be granted pursuant to the Incentive
Plan.
Section 6.5. Preservation of and Access to Certain Information and
Cooperation After Closing.
(a) Buyer shall, and from and after the Closing Date shall cause
the Corporation and its Affiliates, to preserve all books and records of the
Corporation until Seller notifies Buyer that all statutes of limitations
relating to tax periods to which such records relate have expired, and
thereafter not to destroy or dispose of such records without notice to Seller
offering it the Agt. to copy such records. Except as prohibited or limited by
law or regulation, Buyer shall, and shall cause the Corporation from and after
the Closing Date to, give Seller and Seller's employees, accountants, counsel,
and advisors, reasonable access upon reasonable notice and for proper business
purposes during normal business hours, to all officers, employees, offices,
properties, agreements, books, records and affairs of the Corporation, in a
manner that does not unreasonably interfere with the normal conduct of its
business. Buyer shall, and shall cause the Corporation to, prepare and
transmit such financial reports in accordance with past practices and
procedures and on a timely basis as may be necessary for Seller or its
Affiliates to prepare any Consolidated Tax Return, and ensure that Seller and
its authorized representatives shall be free, during the period referred to in
the first sentence of this Section, to make copies of such books, records,
files and data concerning the Corporation for the following purposes: (i) the
review of the Proposed Closing Balance Sheet and the resolution of any
disputes with respect to the Proposed Closing Balance Sheet, (ii) the
preparation of any tax returns for the Affiliated Group, (iii) or in
anticipation of any judicial, quasijudicial, administrative, tax audit, or
arbitration proceeding initiated by or against third parties and relating to
the Corporation, and (iv) in connection with any claim relating to Excluded
Assets or Excluded Liabilities. Except as may be required by law or in the
bona fide prosecution of its rights under this Agreement or any Transaction
Document and except as specifically provided above, Seller shall not use or
disclose any such information.
(b) Buyer shall after Closing the Corporation, at Seller's expense
to, cooperate fully and to such extent as is reasonable under the
circumstances with Seller in the defense of pursuit of any claim or action
that relates to an Excluded Liability or an Excluded Asset.
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Section 6.6. Nondisposition of Shares. Buyer shall not, and shall not
permit any of their Affiliates to, sell, transfer, offer for sale, pledge,
hypothecate, or otherwise dispose of the Shares except pursuant to a valid
registration under the Securities Act, unless an exemption from registration
under the Securities Act is available.
ARTICLE VII
CONDITIONS OF OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the purchase of the Shares on the
Closing Date and to perform their other covenants and agreements in accordance
with-the terms and conditions of this Agreement are subject to each of the
following conditions which, if not satisfied, may be waived in writing by
Buyer, provided however, that any such waiver, if made knowingly, shall also
be deemed a waiver of any claim for damages, losses or other remedies
otherwise available to Buyer as the result of the failure to satisfy such
condition:
Section 7.1. Representations and Warranties True. Except as otherwise
permitted, contemplated, or limited by this Agreement and except for
representations and warranties that by their terms speak only as of a
specified date, (a) each of the representations and warranties of Seller
contained in ARTICLE III that is limited by Materiality shall be true and
correct on and as of the Closing Date as though made on and as of the Closing
Date, and (b) each of the representations and warranties that is not so
limited shall be true and correct in all Material respects on and as of the
Closing Date as though made on and as of the Closing Date.
Section 7.2. Covenants and Agreements--No Default. Seller shall not
be in default in respect of any obligation under this Agreement and Seller
shall have performed or complied in all Material respects with all covenants
and agreements required by this Agreement to be performed or complied with by
them prior to or as of the Closing Date.
Section 7.3. Officer's Certificates. Seller shall have furnished Buyer
with a certificate signed by a corporate officer confirming the satisfaction
of the conditions set forth in Section 7.1 and Section 7.2.
Section 7.4. No Material Adverse Change. Except as permitted or
contemplated by this Agreement or any Schedule, or disclosed in the Balance
Sheet, since the Financials Date the Corporation shall not have suffered an
adverse change in its business or financial condition that could reasonably be
expected to have a Material Adverse Effect on the Corporation.
Section 7.5. Consents. Seller shall have obtained all third-party and
governmental consents, waivers, authorizations and approvals and shall have
made all filings and given all notices required in connection with the
consummation of the transactions contemplated by this Agreement other than
those that are not Material or set forth in Schedule 3.5, and all applicable
waiting periods in respect of the transactions contemplated by this Agreement
under the H-S-R Act shall have expired or otherwise terminated, it being
understood that (a) the Seller shall not be under any obligation to pay money
to any third party (other than fees imposed by statute or regulation) as a
condition to receiving such consents, waivers, and authorizations, and (b)
Seller shall use reasonable efforts to cause each of the conditions precedent
to the obligations of Buyer hereunder to be satisfied. In the event Seller is
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unable to obtain any such consents, the condition contained in this Section
7.5 shall be deemed satisfied if Seller provides to Buyer and, other than as
to matters identified on Schedule 3.11, in a manner and form satisfactory to
Buyer in its sole discretion, at the Closing the economic equivalent of any
rights that would have inured to the Buyer had such consents been obtained.
Buyer shall have obtained all third-party consents, waivers, authorizations
and approvals and shall have made all filings and given all notices required
in connection with the consummation of the transactions contemplated by this
Agreement that are referenced in Section 4.5.
Section 7.6. Transaction Documents. Seller shall have provided Buyer
with all of the documents required by Section 10.2 to be delivered at Closing
by Seller.
Section 7.7. Adverse Proceedings. No Material action, proceeding or
governmental investigation shall have been instituted or threatened against
the consummation of the transactions contemplated in this Agreement or any
Material Transaction Document or against or involving the Corporation where
the outcome might reasonably be expected to have a Material Adverse Effect on
the Corporation.
ARTICLE VIII
CONDITIONS OF OBLIGATIONS OF SELLER
The obligation of Seller to consummate the sale of the Shares on the
Closing Date and to perform their other covenants and agreements in accordance
with the terms and conditions of this Agreement are subject to each of the
following conditions which, if not satisfied, may be waived in writing by
Seller, provided however, that any such waiver, if made knowingly, shall also
be deemed a waiver of any claim for damages, losses or other remedies
otherwise available to Seller or its Affiliates as the result of the failure
to satisfy such condition:
Section 8.1 Representations and Warranties True. Except as otherwise
permitted or contemplated by this Agreement and except for representations and
warranties that by their terms speak only as of a specified date, (a) each of
the representations and warranties of Buyer contained in ARTICLE IV that is
limited by Materiality shall be true and correct on and as of the Closing Date
as though made on and as of the Closing Date and (b) each of the
representations and warranties that is not so limited shall be true and
correct in all Material respects on and as of the Closing Date as though made
on and as of the Closing Date.
Section 8.2. Covenants and Agreements--No Default. Buyer shall not be
in default in respect of any obligation under this Agreement and Buyer shall
have performed or complied in all Material respects with all covenants and
agreements required by this Agreement to be performed or complied with by
Buyer prior to or as of the Closing Date.
Section 8.3. Officer's Certificates. Buyer shall have furnished Seller
with a certificate signed by a corporate officer confirming the satisfaction
of the conditions set forth in Sections 8.1 and 8.2.
Section 8.4 Consents. Buyer shall have obtained all third-party and
governmental consents, waivers, authorizations and approvals and shall have
made all filings and given all notices required in connection with the <PAGE>
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consummation of the transactions contemplated by this Agreement that are
referenced in Section 4.5, and all applicable waiting periods in respect of
the transactions contemplated by this Agreement under the H-S-R Act shall have
expired or otherwise terminated, it being understood that (a) Buyer shall not
be under any obligation to pay money to any third-party (other than fees
imposed by statute or regulation) as a condition to receiving such consents,
waivers, and authorizations and (b) Buyer shall use reasonable efforts to
cause each of the conditions precedent to the obligations of Seller hereunder
to be satisfied. Seller shall have obtained all third-party and governmental
consents, waivers, authorizations, and approvals and shall have made all
filings and given all notices required in connection with the consummation of
the transactions contemplated by this Agreement that are referenced in Section
3.5 or are set forth in Schedule 3.5.
Section 8.5. Transaction Documents. Buyer shall have provided Seller
with all of the documents required by Section 10.3 to be delivered at Closing
by Buyer.
Section 8.6. Adverse Proceedings. No Material action, proceeding or
governmental investigation shall have been instituted or threatened against
the consummation of the transactions contemplated in this Agreement or the
Transaction Documents.
ARTICLE IX (INTENTIONALLY OMITTED)
ARTICLE X
CLOSING
Section 10.1. Closing. The Closing shall take place at the offices of
Semmes, Bowen & Semmes, 250 West Pratt Street, Baltimore, Maryland 21201, on
June 30, 1997 at 2:00 p.m., or at such other place and at such other time and
date as may be mutually agreed upon in writing by Buyer and Seller, only upon
fulfillment of (a) all the conditions set forth in ARTICLE VII that have not
been waived by Buyer, and (b) all the conditions set forth in ARTICLE VIII
that have not been waived by Seller. If such conditions have not been
fulfilled or waived by such date, the Closing shall take place within five
business days after fulfillment or waiver of all such conditions but in no
event later than June 30, 1997 unless otherwise mutually agreed to in writing
by the Buyer and the Seller. All proceedings to be taken and all documents to
be executed and delivered by Seller in connection with the consummation of the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to Buyer and its counsel. All proceedings to be taken and all
documents to be executed and delivered by Buyer in connection with the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Seller and its counsel. All proceedings
to be taken and all documents to be executed and delivered at the Closing
shall be deemed to have been taken and executed simultaneously, and no
proceedings shall be deemed taken nor any documents executed or delivered
until all have been taken, executed or delivered. Notwithstanding the
foregoing, this Agreement may be terminated by a party not in default
hereunder at any time after June 30, 1997 (or such later date as may have been
agreed to by the parties) by written notice to the other Party.
Section 10.2. Documents to be Delivered by Seller. At the Closing,
Seller shall deliver, or shall cause to be delivered, to Buyer the following:
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(a) Certificates representing the Shares, which certificates shall
be duly endorsed in blank or, in lieu thereof, shall have affixed thereto
stock powers executed in blank and in proper form for transfer;
(b) Employment Contracts for certain employees of the Corporation.
(c) An opinion of Bernard Corbett, Esq. counsel for the Seller,
dated the Closing Date, substantially in the form attached hereto as Exhibit
B;
(d) Certificates of a Vice President, the Secretary or an Assistant
Secretary of Seller, dated the Closing Date, setting forth the resolutions of
the Board of Directors of Seller authorizing the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
and certifying that such resolutions have not been amended or rescinded and
are in full force and effect;
(e) A good standing certificate and a copy of the Corporation's
charter, certified as of a date reasonably close to the Closing Date;
(f) The certificates contemplated by Section 7.3; and
(g) Such other documents, instruments or agreements as may be
reasonably requested by Buyer to effectuate the transactions contemplated by
this Agreement.
Section 10.3. Documents to be Delivered by Buyer. At the closing,
Buyer shall deliver, or cause to be delivered, to Seller the following:
(a) A wire transfer of funds to the account designated by Seller
in an amount equal to the total cash portion of the Purchase Price, as
provided in Section 2.3;
(b) A note in favor of the Seller as provided for in Section 2.3.
(c) A certificate representing 929,603 shares of the common stock
of IT Partners, Inc.
(d) An opinion of Semmes Bowen & Semmes, counsel for Buyer, dated
the Closing Date, substantially in the form attached hereto as Exhibit F;
(e) Certificates of the Secretary or an Assistant Secretary of
Buyer, dated the Closing Date, setting forth copies of the resolutions of the
Board of Directors of Buyer, authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and
certifying that such resolutions have not been amended or rescinded and are in
full force and effect;
(f) The certificates contemplated by Section 8.3; and
(g) Such other documents, instruments or agreements as may be
reasonably requested by Seller to effectuate the transactions contemplated by
this Agreement.
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ARTICLE XI
MISCELLANEOUS
Section 11.1. Survival of Representations, Warranties, Covenants and
Agreements. Except as otherwise expressly provided in this Agreement, all
covenants and all representations and warranties made by the parties in this
Agreement (including statements contained in any Schedule or certificate or
other instrument delivered by or on behalf of a party to this Agreement) shall
survive the execution of this Agreement and the Closing and any
investigations, examinations or audits made by or on behalf of the parties,
provided that representations and warranties shall survive only until the
applicable "Expiration Date" as follows:
(a) The Expiration Date for the representations and warranties made
in Section 3.16 shall be the date on which all applicable tax statutes of
limitation have expired; and
(b) The Expiration Date for all other representations and
warranties made in this Agreement shall be the third anniversary of the
Closing Date.
On the applicable Expiration Date, the associated representations and
warranties shall have no further force or effect and all liabilities of the
parties thereunder shall be extinguished, provided that if prior to the
Expiration Date a party has delivered to the other party a notice asserting a
good faith claim for breach of representation and warranty, that specific
claim shall survive and be actionable after the Expiration Date.
Section 11.2. Indemnification.
(a) Seller shall hold harmless and indemnify Buyer from and against
all claims, actions, damages, liabilities or losses (including court costs and
attorneys fees) (collectively, "Losses") arising out of: (i) the breach by
Seller of any of its representations, warranties, covenants or agreements made
under or pursuant to this Agreement; (ii) discharge, or resistance to payment
or discharge, of any Excluded Liabilities; and (iii) products liability claims
asserted against or paid by the Corporation (after having used reasonable and
appropriate efforts to avoid or reduce such payments) in respect of the work
performed by and the products of the Company, but only where such claims are
asserted within 18 months after the Closing Date, provided, however, that such
indemnification shall be limited to and shall not exceed the coverage provided
by Seller's existing insurance policies covering product liability.
(b) Buyer shall hold harmless and indemnify Seller from and against
all Losses arising out of: (i) the breach by Buyer of any of its
representations, warranties, covenants or agreements made under or pursuant to
this Agreement; (ii) the breach by Buyer or, after Closing, the Corporation of
any agreements with any third parties; (iii) actions wrongfully taken with
respect to the Corporation by Buyer or its Affiliates, or by the Corporation
after Closing; and (iv) actions taken with respect to the Corporation by
Seller prior to Closing, including, but not necessarily being limited to,
certain personal obligations of the Seller as to motor vehicle loans, letters
of credit and performance and payment bonds with USF&G and others, including
any and all costs or expenses related in any way to such guarantees or
obligations, the intent of the parties being to take all steps as may be
reasonably necessary to relieve the Seller of these obligations in as timely a
manner as possible after the Closing as amended by the Joinder Agreement
executed by the shareholders of even date.<PAGE>
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(c) For purposes of this Section 11.2, any Losses incurred by the
Corporation shall be deemed to have been incurred by Buyer.
(d) After the Closing, Seller shall not be entitled to contribution
from, or recovery against, the Corporation with respect to any liability of
Seller which may arise under this Section 11.2.
(e) Consummation of the transactions contemplated by this Agreement
and the Transaction Documents shall not be deemed to be a waiver of any right
or remedy of a party, nor shall this Section 11.2 or any other provision of
this Agreement be deemed to be a waiver of any ground of defense by a party.
Section 11.3. Disclaimer of Other Representations and Warranties by
Seller. The parties hereto acknowledge and agree that Seller does not make;
and has not made, any representations or warranties relating to Seller, the
Corporation, or any of Seller's Affiliates or any of the transactions
contemplated by this Agreement other than the representations and warranties
expressly set forth in this Agreement. Without limiting the generality of the
disclaimer set forth in the preceding sentence, Seller does not make, has not
made and shall not be deemed to have made any representations or warranties in
the Offering Memorandum, in any presentation relating to the businesses of the
Corporation given in connection with the transactions contemplated by this
Agreement, in any filing made by or on behalf of the Corporation or its
Affiliates with any governmental agency, or in any other information provided
to or made available to Buyer and not included in the Schedules to this
Agreement, and no statement contained in the Offering Memorandum or made or
contained in any such presentation, filing, or information shall be deemed a
representation or warranty hereunder or otherwise. No person has been
authorized by Seller, its Affiliates or the Corporation to make any
representation or warranty in respect of Seller, its Affiliates or the
Corporation in connection with the transactions contemplated by this
Agreement.
Section 11.4. Disclosure. Notwithstanding any provision to the
contrary contained in this Agreement, the Exhibits or the Schedules, any
information disclosed in one Schedule shall be deemed to be disclosed in all
Schedules. Certain information set forth in the Schedules has been included
and disclosed solely for informational purposes and may not be required to be
disclosed pursuant to the terms and conditions of the Agreement. The
disclosure of any information shall not be deemed to constitute an
acknowledgment or agreement that the information is required to be disclosed
in connection with the representations and warranties made in this Agreement
or that the information is Material, nor shall any information so included and
disclosed be deemed to establish a standard of materiality or otherwise used
to determine whether any other information is Material.
Section 11.5. Expenses and Taxes. All legal, accounting and other
costs and fees incurred by the Corporation, Seller in connection with the
transactions contemplated by this Agreement shall be borne and paid for by
Seller. All legal, accounting and other costs and fees incurred by Buyer in
connection with the transactions contemplated by this Agreement and all taxes
(other than value added taxes or taxes on, relating to or measured by income
or gains), stamp duty, notarial, registration and recording fees and similar
taxes resulting from or relating to the transfer of any of the Shares to Buyer
or any party designated by Buyer shall be borne by Buyer.
Section 11.6. Entire Agreement. This Agreement, the Schedules, and the
Exhibits constitute the entire agreement and understanding between the parties
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hereto in respect of the matters set forth herein, and all prior negotiations,
writings and understandings relating to the subject matter of this Agreement
(including without limitation the Offering Memorandum), other than the
Confidentiality Agreement, are merged herein and are superseded and can celled
by this Agreement. Other than as expressly set forth in this Agreement and the
Schedules and Exhibits, no representations, warranties, covenants, agreements
or conditions, express or implied, whether by statute or other wise, have been
made by the parties hereto.
Section 11.7. Amendment and Waiver. This Agreement may be amended,
modified, supplemented or changed in whole or in part only by an agreement in
writing making specific reference to this Agreement and executed by each of
the parties hereto. Any of the terms and conditions of this Agreement may be
waived in whole or in part, but only by an agreement in writing making
specific reference to this Agreement and executed by the party that is
entitled to the benefit thereof.
Section 11.8. Binding Agreement and Successors. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that prior to
the consummation of this Agreement the Rights of the parties hereunder may not
be assigned, and provided that the obligations of the parties hereunder may
not be delegated, in whole or in part, without the prior written consent of
the other party hereto.
Section 11.9. No Third Party Beneficiaries. Nothing in this Agreement
is intended to confer upon any Person other than the parties hereto any rights
or remedies.
Section 11.10. Notices. Any notice, request, instruction or other
document or communication required or permitted to be given under this
Agreement shall be in writing and shall be deemed to be given upon (i)
delivery in person,(ii) five days after being deposited in the mail, postage
prepaid, for mailing by certified or registered mail, (iii) one day after
being deposited with an overnight courier, charges prepaid, or (iv) when
transmitted by facsimile, with a copy simultaneously sent as provided in
clauses (ii) and (iii), in every case as follows:
If to Buyer, delivered or mailed to:
IT Partners, Inc.
1006 Highland Drive
Silver Spring, Maryland 20910
Attention: Daniel J. Klein
with a copy delivered or mailed by the same method to:
Kevin M. O'Connell, Esquire
Semmes, Bowen & Semmes
250 West Pratt Street
Baltimore, Maryland 21201
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If to Seller, delivered or mailed to:
Christopher Corbett, President
A-COM, INC.
14720-K Flint Lee Road
Chantilly, VA 20151
Attention: Christopher Corbett
with a copy delivered or mailed by the same method to:
Bernard Corbett, Esq.
123 South Royal Street
Alexandria, VA 22314
or to such other address or addresses as may be specified in writing at any
time or from time to time by either party to the other party hereto.
Section 11.11. Further Assurances. The parties hereto each agree to
execute, make, acknowledge, and deliver such instruments, agreements and other
documents as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
Section 11.12. Article and Section Headings. The Article, Exhibit and
Section headings contained in this Agreement, the Exhibits and the Schedules
are for convenience of reference only and shall not limit or otherwise affect
the meaning or interpretation of this Agreement, the Exhibits, or the
Schedules or any of their terms and conditions.
Section 11.13. Governing Law. This Agreement shall be construed and
enforced in accordance with and shall be governed by the laws of the State of
Maryland, without regard to its conflict of law provisions and principles.
Section 11.14. Courts. Any dispute arising from the interpretation or
operation of this Agreement shall be resolved in the courts of the State of
Maryland, and the parties hereby consent to and elect, and waive any objection
to, such jurisdiction in the event of litigation hereunder.
Section 11.15. Construction. As used in this Agreement, any reference
to the masculine, feminine or neuter gender shall-include all genders, the
plural shall include the singular, and the singular shall include the plural.
With regard to each and every term and condition of this Agreement and any and
all agreements and instruments subject to the terms hereof, the parties hereto
understand and agree that the same have or has been mutually negotiated,
prepared and drafted, and that if at any time the parties hereto desire or are
required to interpret or construe any such term or condition or any agreement
or instrument subject hereto, no consideration shall be given to the issue of
which party hereto actually prepared, drafted or requested any term or
condition of this Agreement or any agreement or instrument subject hereto.
Section 11.16. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
Section 11.17. Attorneys' Fees. Should legal proceedings be instituted
to enforce the provisions of this Agreement or any Transaction Document, the
prevailing party shall be entitled to costs of suit, including attorneys' fees
actually incurred, from the unsuccessful party.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement
as of the day
IT PARTNERS, INC.
By: ______________________________
----------------------------
Daniel J. Klein
ITP ACQUISITION CORP.
By:____________________________
------------------------------
Daniel J. Klein
------------------------------
Christopher Corbett
-------------------------------
Merrie Corbett
BUSINESS COMBINATION AGREEMENT
Dated as of May 27, 1997
By and Among
IT PARTNERS INC.
and
C.N.S., INC.
and
STANLEY NICE and JOHN CLEMENT<PAGE>
<PAGE>
TABLE OF CONTENTS
DEFINITIONS PAGE
Section 1.1. Affiliate . . . . . . . . . . . . . . . . . . . 10
Section 1.2. Balance Sheet . . . . . . . . . . . . . . . . . 10
Section 1.3. Benefit Arrangements. . . . . . . . . . . . . . 11
Section 1.4. Buyer . . . . . . . . . . . . . . . . . . . . . 11
Section 1.5. Buyer's Accountants . . . . . . . . . . . . . . 11
Section 1.6. Capital Liabilities . . . . . . . . . . . . . . 11
Section 1.7. Citibank Rate . . . . . . . . . . . . . . . . . 11
Section 1.8. Closing . . . . . . . . . . . . . . . . . . . . 11
Section 1.9. Closing Balance Sheet . . . . . . . . . . . . . 11
Section 1.10. Closing Date. . . . . . . . . . . . . . . . . . 11
Section 1.11. Code. . . . . . . . . . . . . . . . . . . . . . 11
Section 1.12. Confidentiality Agreement . . . . . . . . . . . 11
Section 1.13. Corporation . . . . . . . . . . . . . . . . . . 11
Section 1.14. Dispute Resolution Firm . . . . . . . . . . . . 11
Section 1.15. Employee. . . . . . . . . . . . . . . . . . . . 11
Section 1.16. Employee Benefit Plan . . . . . . . . . . . . . 12
Section 1.17. ERISA . . . . . . . . . . . . . . . . . . . . . 12
Section 1.18. Excluded Assets . . . . . . . . . . . . . . . . 12
Section 1.19. Excluded Liabilities. . . . . . . . . . . . . . 12
Section 1.20. Exhibit . . . . . . . . . . . . . . . . . . . . 12
Section 1.21. Final Closing Balance Sheet . . . . . . . . . . 12
Section 1.22. Final Net Asset Value . . . . . . . . . . . . . 12
Section 1.23. Financials Date . . . . . . . . . . . . . . . . 12
Section 1.24. Guarantees. . . . . . . . . . . . . . . . . . . 12
Section 1.25. H-S-R Act . . . . . . . . . . . . . . . . . . . 12
Section 1.26. Individual Returns. . . . . . . . . . . . . . . 12
Section 1.27. Individual Taxes. . . . . . . . . . . . . . . . 13
Section 1.28. Intellectual Property . . . . . . . . . . . . . 13
Section 1.29. IRS . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.30. Material. . . . . . . . . . . . . . . . . . . . 13
Section 1.31. Material Adverse Effect . . . . . . . . . . . . 13
Section 1.32. Material Contracts. . . . . . . . . . . . . . . 13
Section 1.33. MGAAP . . . . . . . . . . . . . . . . . . . . . 13
Section 1.34. Net Asset Value . . . . . . . . . . . . . . . . 13
Section 1.35. Offering Memorandum . . . . . . . . . . . . . . 13
Section 1.36. PBGC. . . . . . . . . . . . . . . . . . . . . . 13
Section 1.37. Person. . . . . . . . . . . . . . . . . . . . . 13
Section 1.38. Proposed Closing Balance Sheet. . . . . . . . . 14
Section 1.39. Purchase Price. . . . . . . . . . . . . . . . . 14
Section 1.40. Retirement Plan . . . . . . . . . . . . . . . . 14
Section 1 41. Schedule. . . . . . . . . . . . . . . . . . . . 14
Section 1.42. Securities Act. . . . . . . . . . . . . . . . . 14
Section 1.43. Seller. . . . . . . . . . . . . . . . . . . . . 14
Section 1.44. Seller's Accountants. . . . . . . . . . . . . . 14
Section 1.45. Senior Debt . . . . . . . . . . . . . . . . . . 14
Section 1.46. Shares. . . . . . . . . . . . . . . . . . . . . 14
Section 1.47. Subordinated Debt . . . . . . . . . . . . . . . 14
Section 1.48. Subsidiary. . . . . . . . . . . . . . . . . . . 14
Section 1.49. Transaction Documents . . . . . . . . . . . . 14
ARTICLE II. PURCHASE AND SALE OF SHARES
Section 2.1 Sale. . . . . . . . . . . . . . . . . . . . . . 15
Section 2.2. Purchase Price and Allocation . . . . . . . . . 15<PAGE>
<PAGE>
DEFINITIONS PAGE
Section 2.3. Adjustment of Purchase Price. . . . . . . . . . 15
Section 2.5 Board of Directors Membership;
Amendments to Buyer's By-laws. . . . . . . . . .17
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1. Organization and Good Standing. . . . . . . . . 17
Section 3.2. Capitalization. . . . . . . . . . . . . . . . . 17
Section 3.3 Ownership of the Shares . . . . . . . . . . . . 18
Section 3.4 Execution and Effect of Agreement . . . . . . . 18
Section 3.5. Consents. . . . . . . . . . . . . . . . . . . . 18
Section 3.6. Balance Sheet . . . . . . . . . . . . . . . . . 18
Section 3.7. Absence of Certain Changes. . . . . . . . . . . 19
Section 3.8. Litigation. . . . . . . . . . . . . . . . . . . 19
Section 3.9. Properties: Absence of Encumbrances . . . . . . 20
Section 3.10. Intellectual Property . . . . . . . . . . . . . 20
Section 3.11. Contracts . . . . . . . . . . . . . . . . . . . 20
Section 3.12. Employees: Employee Benefit Matters . . . . . . 21
Section 3.13. Guarantees by Others. . . . . . . . . . . . . . 22
Section 3.14. Tax Matters . . . . . . . . . . . . . . . . . . 22
Section 3.15. Compliance with Law and Other
Instruments: Regulatory Matters. . . . . . . .. 23
Section 3.16. Permits . . . . . . . . . . . . . . . . . . . . 23
Section 3.17. Environmental Matters . . . . . . . . . . . . . 23
Section 3.18. Insurance . . . . . . . . . . . . . . . . . . . 24
Section 3.19. Banks; Powers of Attorney . . . . . . . . . . . 24
Section 3.20. Brokerage Fees. . . . . . . . . . . . . . . . . 24
Section 3.21. Limitation of Representations
and Warranties . . . . . . . . . . . . . . . . 24
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OE BUYER
Section 4.1. Organization and Good Standing . . . . . . . . 24
Section 4.2. Investment Representation . . . . . . . . . . . 24
Section 4.3. Execution and Effect of Agreement . . . . . . . 24
Section 4.4. Restrictions. . . . . . . . . . . . . . . . . . 25
Section 4.5. No Lawsuits: Consents . . . . . . . . . . . . . 25
Section 4.6. Limitation of Representations
and Warranties . . . . . . . . . . . . . . . .. 25
ARTICLE V. COVENANTS AND AGREEMENTS OF THE SELLER
Section 5.1. Corporate Action. . . . . . . . . . . . . . . . 25
Section 5.2. Conduct of Business to Closing. . . . . . . . . 26
Section 5.3. Consents. . . . . . . . . . . . . . . . . . . . 27
Section 5.4. Covenant Against Competition. . . . . . . . . . 27
Section 5.5. Capital Liabilities . . . . . . . . . . . . . . 28
Section 5.6. Purchase Price Allocation . . . . . . . . . . . 28
Section 5.7. Access to Information and Cooperation . . . . . 28
Section 5.8. Public Statements . . . . . . . . . . . . . . . 28
ARTICLE VI. COVENANTS AND AGREEMENTS OF BUYER
Section 6.1. Corporate Action. . . . . . . . . . . . . . . . 29
Section 6.2. Public Statements . . . . . . . . . . . . . . . 29
<PAGE>
<PAGE>
DEFINITIONS PAGE
Section 6.3 Consents. . . . . . . . . . . . . . . . . . . . 29
Section 6.4. Certain Employee Benefit Matters. . . . . . . . 29
Section 6.5. Preservation of and Access to Certain
Information and Cooperation After Closing. . . 30
Section 6.6. Nondisposition of Shares. . . . . . . . . . . . 31
ARTICLE VII. CONDITIONS OF OBLIGATIONS OF BUYER
Section 7.1. Representations and Warranties True . . . . . . 31
Section 7.2. Covenants and Agreements-No Default . . . . . . 31
Section 7.3. Officer's Certificates. . . . . . . . . . . . . 31
Section 7.4. No Material Adverse Change. . . . . . . . . . . 31
Section 7.5. Consents. . . . . . . . . . . . . . . . . . . . 32
Section 7.6. Transaction Documents . . . . . . . . . . . . . 32
Section 7.7. Adverse Proceedings . . . . . . . . . . . . . . 32
ARTICLE VIII. CONDITIONS OF OBLIGATIONS OF SELLER
Section 8.1. Representations and Warranties True . . . . . . 32
Section 8.2. Covenants and Agreements-No Default . . . . . . 33
Section 8.3. Officer's Certificates. . . . . . . . . . . . . 33
Section 8.4. Consents. . . . . . . . . . . . . . . . . . . . 33
Section 8 5. Transaction Documents . . . . . . . . . . . . . 33
Section 8.6. Adverse Proceedings . . . . . . . . . . . . . . 33
ARTICLE IX. INTENTIONALLY DELETED
ARTICLE X. CLOSING
Section 10.1. Closing . . . . . . . . . . . . . . . . . . . . 33
Section 10.2. Documents to be Delivered by Seller . . . . . . 34
Section 10.3. Documents to be Delivered by Buyer. . . . . . . 35
ARTICLE XI. MISCELLANEOUS
Section 11.1. Survival of Representations, Warranties,
Covenants and Agreements . . . . . . . . . . . 35
Section 11.2. Indemnification . . . . . . . . . . . . . . . . 36
Section 11.3. Disclaimer of Other Representations and
Warranties by Seller . . . . . . . . . . . . .. 37
Section 11.4. Disclosure. . . . . . . . . . . . . . . . . . . 37
Section 11.5. Expenses and Taxes. . . . . . . . . . . . . . . 37
Section 11.6. Entire Agreement. . . . . . . . . . . . . . . . 37
Section 11.7. Amendment and Waiver. . . . . . . . . . . . . . 38
Section 11.8. Binding Agreement and Successors. . . . . . . . 38
Section 11.9. No Third Party Beneficiaries. . . . . . . . . . 38
Section 11.10. Notices. . . . . . . . . . . . . . . . . . . . 38
Section 11.11. Further Assurances. . . . . . . . . . . . . . . 39
Section 11.12. Article and Section Headings. . . . . . . . . . 39
Section 11.13. Governing Law. . . . . . . . . . . . . . .. . . 39
Section 11.14. Courts . . . . . . . . . . . . . . . . . . . . .39
Section 11.15. Construction . . . . . . . . . . . . . . . . . .39
Section 11.16. Counterparts. . . . . . . . . . . . . . . . . . 40
Section 11.17. Attorneys' Fees . . . . . . . . . . . . . . . . 40
<PAGE>
<PAGE>
BUSINESS COMBINATION AGREEMENT
This BUSINESS COMBINATION AGREEMENT ("Agreement") is made as of May
22, i997, by and among C.N.S., INC., a New Jersey corporation (the
"Corporation"), STANLEY NICE and JOHN CLEMENT, individuals, with a place of
business at c/o C.N.S., INC., 100 Ford Road, Denville, New Jersey 07834
(collectively hereinafter referred to as the "Seller"), and IT PARTNERS INC.,
a Delaware corporation with its principal office at 1006 Highland Drive,
Silver Spring, Maryland 20910 ("Buyer").
WITNESSETH:
WHEREAS. Seller owns all of the issued and outstanding capital stock of the
Corporation;
WHEREAS, the Corporation is engaged in (i) refurbishing, upgrading,
cleaning and repairing computers, audio-visual equipment and consumer
products, as well as products used in connection with computers, audio-visual
equipment and consumer products, and performing depot work on such
computers,audio-visual equipment and consumer products and products related
respectively thereto and (ii) performing computer network system integration,
maintenance and support and selling, repairing and coordinating the use of the
equipment related thereto;
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, in accordance with the terms and conditions of this Agreement,
all of the issued and outstanding shares of capital stock of the Corporation:
NOW THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
Section 1.1. Affiliate. "Affiliate" shall mean any Person that directly
or indirectly controls, is controlled by, or is under common control with the
Person in question. For purposes of determining whether a Person is an
Affiliate, the term "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of securities, contract
or otherwise.
Section 1.2. Balance Sheet. "Balance Sheet" shall mean the unaudited
statement of net assets and liabilities of the Corporation as at February 28,
1997, a copy of which is attached hereto as Exhibit A.
Section 1.3. Benefit Arrangements. "Benefit Arrangements" shall mean
all profit sharing, life, health, hospitalization, savings, bonus, deferred
compensation, incentive compensation, severance pay, disability, vacation,
sick pay, holiday and fringe benefit plans, individual employment and
severance contracts and other policies and practices of the Corporation, or
any Affiliate thereof, providing employee or executive compensation or
benefits to Employees or beneficiaries of Employees. other than Retirement
Plans.
<PAGE>
<PAGE>
Section 1.4. Buyer. "Buyer" shall have the meaning set forth above.
Section 1.5. Buyer's Accountants. "Buyer's Accountants" shall mean the
independent accounting firm of Ernst & Young.
Section 1.6. Capital Liabilities. "Capital Liabilities" shall mean all
outstanding debt of the Corporation in excess of $466,013.84 bank debt.
Section 1.7. Citibank Rate. "Citibank Rate" shall mean the rate
announced from time to time by Citibank, N.A. as its prime commercial lending
rate in New York City, New York (U.S.A.).
Section 1.8. Closing. "Closing" shall mean the consummation of the
events described in ARTICLE IX.
Section 1.9. Closing Balance Sheet. "Closing Balance Sheet" shall mean
the audited statement of net assets and liabilities of the Corporation as at
the Closing Date as prepared and delivered in accordance with Section 2.4.
Section 1.10. Closing Date. "Closing Date" shall mean the date on which
the Closing shall occur.
Section 1.11. Code. "Code" shall mean the Internal Revenue Code of 1988
as amended.
Section 1.12. Confidentiality Agreement. "Confidentiality Agreement"
shall mean the Confidentiality Agreement dated as of December 31, 1996 between
the Buyer and the Seller.
Section 1.13. Corporation. "Corporation" shall have the meaning set
forth above.
Section 1.14. Dispute Resolution Firm. "Dispute Resolution Firm" shall
mean the independent accounting firm of Arthur Andersen.
Section 1.15. Employee. "Employee" shall mean each person who is a
current employee, former employee, or retired employee of the Corporation or
its predecessors.
Section 1.16. Employee Benefit Plan. "Employee Benefit Plan" shall mean
each "employee benefit plan," as defined in Section 3(3) of ERISA, maintained
or contributed to by the Corporation or any Affiliate thereof, which provides
benefits to Employees, but excluding Multiemployer Plans.
Section 1.17. ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
Section 1.18. Excluded Assets. "Excluded Assets" shall mean the assets
listed in Schedule 1.25, any consideration or proceeds received by the
Corporation upon the disposition thereof, and any reserves established by
Seller or the Corporation for any Excluded Liabilities.
Section 1.19. Excluded Liabilities. "Excluded Liabilities" shall mean
the liabilities listed in Schedule 1.19.
Section 1.20. Exhibit. "Exhibit" shall mean an exhibit to this
Agreement.
<PAGE>
<PAGE>
Section 1.21. Final Closing Balance Sheet. "Final Closing Balance Sheet"
shall have the meaning set forth in Section 2.4.
Section 1.22. Final Net Asset Value. "Final Net Asset Value" shall mean
the Net Asset Value as finally determined pursuant to Section 2.4(a), whether
by failure of Seller to deliver notice of objection, by agreement of the
parties, or by final determination of the Dispute Resolution Firm.
Section 1.23. Financials Date. "Financials Dates shall mean February 28,
1997.
Section 1.24. Guarantees. "Guarantees" shall mean any obligations,
contingent or otherwise, of a Person in respect of any indebtedness,
obligation or liability of another Person, including but not limited to direct
or indirect guarantees, endorsements (except for collection or deposit in the
ordinary course of business), notes co-made or discounted, recourse
agreements, take-or-pay agreements, keep-well agreements, agreements to
purchase or repurchase such indebtedness, obligation or liability or any
security therefor or to provide funds for the payment or discharge thereof,
agreements to maintain solvency, assets, level of income. or other financial
condition, and agreements to make payment other than for value received.
Section 1.25. H-S-R Act. "H-S-R Act" shall mean the Hart Scott-Rodino
Antitrust Improvements Act of 1976. as amended.
Section 1.26. Individual Returns. "Individual Returns" shall have the
meaning set forth in Section 3.16.
Section 1.27. Individual Taxes. "Individual Taxes" shall have the
meaning set forth in Section 3.16.
Section 1.28. Intellectual Property. "Intellectual Property" shall mean
patents, patent applications, trademark registrations and applications
therefor, service mark registrations and applications therefor, copyright
registrations and applications therefor and trade names.
Section 1.29. IRS. "IRS" shall mean the Internal Revenue Service.
Section 1.30. Material. "Material" (or "Materiality") when used with
reference to information, a fact or circumstance, a course of action, a
decision-making process, or other matter shall be limited to information,
facts and circumstances, courses of action, decision- making process or other
matters as to which there is a substantial likelihood that a reasonable
purchaser of the Shares would attach importance in determining whether to
purchase the Shares.
Section 1.31. Material Adverse Effect. "Material Adverse Effect" when
used with reference to a Person shall mean a material adverse effect on the
business, properties (taken as a whole) or financial condition of the Person
or Persons.
Section 1.32. Material Contracts. "Material Contract" shall mean the
contracts, agreements, commitments or other arrangements listed in Schedule
3.13.
Section 1.33. MGAAP. "MGAAP" shall mean Generally Accepted Accounting
Principles as in effect in the United States on the date of this Agreement,
modified as provided in the notes to the Balance Sheet.
<PAGE>
<PAGE>
Section 1.34. Net Asset Value. "Net Asset Value" shall mean total assets
(not including any Excluded Assets) minus total liabilities (not including any
Excluded Liabilities) as shown on the Proposed Closing Balance Sheet or the
Final Closing Balance Sheet, as the case may be, each of which shall be
prepared on a basis consistent with the Balance Sheet.
Section 1.35. Offering Memorandum. "Offering Memorandum" shall mean a
Confidential Memorandum prepared by Ernst 8 Young, LLP dated 1997.
Section 1.36. PBGC. "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
Section 1.37. Person. "Person" shall mean any individual, corporation,
unincorporated association, business trust, estate, partnership, trust, State,
the United States or any other entity.
Section 1.38. Proposed Closing Balance Sheet. "Proposed Closing Balance
Sheet" shall have the meaning set forth in Section 2.4.
Section 1.39. Purchase Price. "Purchase Price" shall have the meaning
set forth in Section 2.3.
Section 1.40. Retirement Plan. "Retirement Plan" shall mean any plan,
fund, program or policy which provides retirement income to an Employee or
results in a deferral of income by an Employee for periods extending to or
beyond the termination of employment of the Employee by Seller and al;
Affiliates thereof, and pursuant to which the Corporation or an Affiliate
thereof has paid benefits or contributed funds or has an obligation to pay
benefits or contribute funds in respect of such Employee.
Section 1 41. Schedule. "Schedule" shall mean a schedule to this
Agreement.
Section 1.42. Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended.
Section 1.43. Seller. "Seller" shall have the meaning set forth above.
Section 1.44. Seller's Accountants. "Seller's Accountants" shall mean
the independent accounting firm of Nimensky & Gallinson, P. A.
Section 1.45. Senior Debt. "Senior Debt" shall mean such obligations to
a third party or parties other than the Sellers that the Buyer shall have
incurred prior to or at the Closing.
Section 1.46. Shares. "Shares" shall mean all of the issued and
outstanding shares of stock of the Corporation.
Section 1.47. Subordinated Debt. "Subordinated Debt" shall mean the
amount which the Buyer is obligated to the Seller as set forth Section 2.3
hereof.
Section 1.48. Subsidiary. "Subsidiary," as it relates to any Person,
shall mean a corporation more than 50% of whose outstanding securities the
Person has the right, other than as affected by events of default, directly or
indirectly, to vote for the election of directors.
<PAGE>
<PAGE>
Section 1.49. Transaction Documents. "Transaction Documents" shall mean
all other agreements. documents or instruments to be executed by a party
hereto in connection with this Agreement.
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1 Sale. On the terms and subject to the conditions set forth
in this Agreement, Seller hereby agrees to sell, transfer, assign and deliver
to Buyer or one or more of its designated Subsidiaries, free and dear of any
lien, security interest, charge, encumbrance or claim, and Buyer hereby agrees
to purchase from Seller the Shares on the Closing Date.
Section 2.2. Purchase Price and Allocation. The entire consideration to
be paid by Buyer to Seller in exchange for the sale, transfer, assignment and
delivery to Buyer of the Shares shall be $4,329,004.70 (the "Purchase Price),
which shall be paid by Buyer to Seller at the time of Closing in the following
manner As to cash, in the amount of $1,785,864..20 by wire transfer of
immediately available funds into the trust account of Poe & Freireich P.A.; as
to Subordinated Debt in the form of two promissory notes, one in the amount of
$472,363.10 payable to Stanley Nice, and- a second in the amount of
$432,900.47 payable to John Clement; and as to equity, stock certificates
representing ownership of 305,585 shares of the common stock of Buyer,
allocated 159,406 shares to Stanley Nice, and 151,116 shares to John Clement.
At Closing, Buyer shall receive an original of the Company's note to its
officers in the amount of $77,507.00, marked "Paid and Canceled."
Section 2.3. Adjustment of Purchase Price.
(a) As promptly as practicable, and in any event not more than 60
days following the Closing Date, Buyer together with Buyer's Accountants shall
prepare and deliver to Seller and Seller's Accountants the Proposed Closing
Balance Sheet. The Proposed Closing Balance Sheet shall be prepared on a basis
consistent with, and as provided in, the Balance Sheet, and shall be audited
and accompanied by the report of Buyer's Accountants. Seller and Seller's
Accountants shall have the right to observe the physical inventories to be
conducted by, and to consult during reasonable business hours with appropriate
personnel of, Buyer and Buyer's Accountants and to have access to, and to
review and make copies of, the work papers of Buyer's Accountants with respect
to such inventories and the preparation of the Proposed Closing Balance Sheet.
(b) (i) Seller may dispute the Proposed Closing Balance Sheet
prepared by Buyer and Buyer's Accountants by notifying Buyer and Buyer's
Accountants in writing, setting forth in reasonable detail the amount(s) in
dispute and the basis for such dispute, within 45 days of Seller's receipt of
the Proposed Closing Balance Sheet. If Seller fails to deliver a notice of
objections within such 45-day period, Seller shall be deemed to have accepted
the Proposed Closing Date Balance Sheet and the Net Asset Value thereon. In
the event the aggregate amounts in dispute are less than $100,000, the Closing
Net Asset Value proposed by Buyer and Buyer's Accountants shall be adjusted by
one-half of the dispute amount, and such resolution shall be final, binding
and conclusive on Seller and Buyer.
(ii) In the event the amounts in dispute exceed $100,000,
Buyer's Accountants and Seller's Accountants shall attempt in good faith to
resolve such dispute, and any resolution by them as to any disputed amount(s)
shall be final, binding and conclusive on Seller and Buyer. If Buyer's <PAGE>
<PAGE>
Accountants and Seller's Accountants do not resolve any such dispute within 15
days of the date of receipt by Buyer or Seller's written notice of dispute,
Buyer and Seller shall, within five additional days, retain the Dispute
Resolution Firm, which firm shall, within 30 days of each submission, resolve
such remaining dispute, and provide written notice of such resolution by
facsimile, confirmed by mail, and such resolution shall be binding and
conclusive on Seller and Buyer. Such resolution shall be within the range of
amounts defined by the amount proposed by Buyer's Accountants and the amount
proposed by Seller's Accountants as to each disputed item. The fees and
disbursements of the Dispute Resolution Firm shall be borne by Buyer and
Seller in the proportion that the aggregate amount of disputed items submitted
to the Dispute Resolution Firm that is unsuccessfully disputed by each party
(as finally determined by the Dispute Resolution Firm) bears to the total
amount of the disputed items as submitted to the Independent Accounting Firm.
After resolving the items in dispute, the Dispute Resolution Firm shall
prepare and deliver to each of Seller and Buyer the Final Closing Balance
Sheet and a certification of the Net Asset Value thereon.
(c) As promptly as possible and in any event not more than 60 day
following the Closing Date, in the event that the Final Net Asset Value is
less than the Net Asset Value stated on the Balance Sheet, Seller shall pay to
Buyer the difference plus interest thereon from the Closing Date through the
date of payment at a rate per annum, which may fluctuate from time to time,
equal to the Citibank Rate. In the event that the Final Net Asset Value is
greater than the Net Asset Value stated on the Balance Sheet, Buyer shall pay
to Seller, the difference, plus interest on such amount from the Closing Date
through the date of payment at a rate per annum, which may fluctuate from time
to time, equal lo the Citibank Rate. Such payment shall be made in immediately
available funds not later than two business days after the determination of
the Final Net Asset Value by wire transfer to a bank account designated by the
party entitled to receive the payment;
(d) To the extent that the Final Net Asset Value is different
from the Net Asset Value reflected on the Balance Sheet, the allocation of the
Purchase Price shall be increased or decreased. as the case may be, by such
difference;
(e) the Purchase Price shall be adjusted subsequent to Closing by
recalculating the EBITDA upon which the Purchase Price is based. EBITDA for
this purpose will be calculated for the year ended as of the Date of Closing.
To the extent this recalculated EBITDA times 6 exceeds the Purchase Price, the
excess will be paid to the Seller not later than two business days after the
recalculation and apportioned among cash (45%) common stock of the Buyer (35%)
and debt (20%);
(f) As promptly as possible and in any event not more than 60
days following the first anniversary of Closing, the Purchase Price shall be
further adjusted based upon EBITDA for the year ended on the first anniversary
of Closing. EBITDA will include any inventory write-up required by Buyer's
Accountants as the result of a physical inventory count taken in connection
with a certified audit conducted during this year. To the extent this
recalculated EBITDA times 6 exceeds the post Closing adjusted Purchase Price,
the excess will be paid to the Sellers not later than two business days after
the recalculation and apportioned among cash (45%), common stock of the Buyer
(35%) and a note (20%).
Section 2.5 Board of Directors Membership: Amendments to Buyer's
By-laws. Prior to Closing. Buyer will take such corporate action as is <PAGE>
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necessary to amend its by-laws or charter, in order to conform to the
Shareholders' Agreement which Buyer and others become parties. Immediately
following Closing, Buyer shall take such corporate action as may be necessary
to cause Stanley Nice to become a member of Buyer's Board of Directors, and,
if necessary, to reelect Stanley Nice to continue to serve on the Board until
the negotiation of all of the shares of the common stock of Buyer acquired by
Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1. Organization and Good Standing. The Corporation is duly
organized, validly existing and in good standing under the laws of the State
of New Jersey. The Corporation has full corporate power and authority to carry
on its business as it is now being conducted. The Corporation is qualified as
a foreign corporation in, and is in good standing under the laws of, each
state set forth in Schedule 3.1, which are the only jurisdictions in which the
failure of the Corporation to be so qualified would have a Material Adverse
Effect on the Corporation.
Section 3.2. Capitalization. The authorized capital stock of the
Corporation consists of 1000 snares of common Stock, without par value, 1000
shares of which are outstanding. Each of the outstanding Shares has been duly
authorized and validly issued and is fully paid and nonassessable. No shares
of capital stock of the Corporation are held in treasury, and there are no
other issued or outstanding equity securities of the Corporation and no other
issued or outstanding equity securities of the Corporation convertible at any
time into equity securities of the Corporation. Neither Seller nor the
Corporation is subject to any commitment or obligation that would require the
issuance or sale of additional shares of capital stock of the Corporation at
any time under options, subscriptions, warrants, rights or any other
obligations. Neither the execution and delivery of this Agreement and the
Transaction Documents nor the consummation of the transactions contemplated
hereby or thereby will (a) violate any of the provisions of the charter or
by-laws of the Corporation, or (b) conflict with or result in a breach of, or
give rise to a right of termination of, or accelerate the performance required
by the terms of any judgment, court order or consent decree, permit or license
or any statute, rule or regulation of any governmental body, or any agreement,
indenture, mortgage or instrument to which Seller, or the Corporation is a
party or to which it or its property is subject, or constitute a default
thereunder, except, in the case of clause (b), where such conflict, breach,
right of termination or default would not have a Material Adverse Effect on
Corporation.
Section 3.3 Ownership of the Shares. Seller is the record and
beneficial owner of the Shares, which are free and clear of any lien, security
interest, charge, encumbrance or claim, and Seller has, or will have on the
Closing Date, the right to transfer to Buyer complete and encumbered legal and
equitable title to the shares.
Section 3.4 Execution and Effect of Agreement. Seller has the ability
and authority to enter into and consummate this Agreement and the Transaction
Documents, and the execution and delivery of such agreements and the
consummation of the transactions completed hereby have, if and to the extent
necessary, been duly authorized. This Agreement has been duly executed and
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delivered by the Seller, and constitutes a legal, valid and binding obligation
of each such Person executing such Agreement subject to such applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws affecting
the rights of creditors generally and to the exercise of judicial discretion
in accordance with general principals of equity (whether applied by a court of
law or of equity).
Section 3.5. Consents. Except (a) for filings, consents, approvals and
authorizations that the failure to obtain or make would not have a Material
Adverse Effect on the Corporation, (b) as set forth in Schedule 3.5, or (c)
for filings, consents, waivers, approvals or authorizations pursuant to the
H-S-R Act, no consent, waiver, approval or authorization of any governmental
authority or of any third party or notice to or filing with any governmental
authority or any third party, on the part of Seller, or the Corporation is
required in connection with the execution and delivery by Seller of this
Agreement or any instrument contemplated hereby or the consummation of any of
the transactions contemplated hereby.
Section 3.6. Balance Sheet. Except as set forth in Schedule 3.6, the
Balance Sheet was prepared in accordance with MGAAP and fairly presents the
Corporation's financial condition as of the date thereof. To Seller's
knowledge, the Corporation has no Material liabilities or obligations, whether
contingent or absolute, direct or indirect, matured or unmatured, which are
not shown or provided for on the Balance Sheet or the notes thereto or set
forth on Schedule 3.6, or any other Schedule to this Agreement, and Seller
knows of no reasonable basis (as determined in Seller's reasonable judgment)
for the assertion of any such liabilities or obligation.
Section 3.7. Absence of Certain Changes. Since Febnuary28, 1997, except
as disclosed on Schedule 3.7 or as otherwise contemplated by this Agreement,
there has not been:
(a) any change in the assets, liabilities, business, properties
or operations of the Corporation, other than changes (i) described in the
Schedules or (ii) made or incurred in the ordinary course of business, which
taken in the aggregate have had a Material Adverse Effect on the Corporation:
(b) any dividend or other distribution declared, paid or made on
or in respect of the capital stock of the Corporation;
(c) any employment or other contract or commitment entered into
by the Corporation, except in the ordinary course of business;
(d) a cancellation of any claim of or debts owed to the
Corporation, except in the ordinary course of business;
(e) excluding any inventory or obsolete assets disposed of in the
ordinary course of business of the Corporation, any sale, assignment, transfer
or other disposition of (i) any Intellectual Property of the Corporation, the
cost of which on the accounting records of the Corporation exceeds $2,500.00
or (ii) any other assets of the Corporation, the cost of which on the
accounting records of the Corporation exceeds $2,500.00;
(f ) any capital expenditure capital addition or capital
improvement by the Corporation involving an amount in excess of $100,000;
(g) any mortgage, lien, pledge, encumbrance or security interest
created on any assets, tangible or intangible of the Corporation, except <PAGE>
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purchase money security interests created in the ordinary course of business
of the Corporation;
(h) any damage, destruction or loss (whether or not covered by
insurance incurred by the Corporation) which would have a Material Adverse
Effect on the Corporation;
(i) any labor disturbances of the Corporation which would have a
Material Adverse Effect on the Corporation; or
(j) to Seller's knowledge, any other event or condition which has
had or, in the reasonable judgment of Seller, would likely have a Material
Adverse Effect on the Corporation.
Section 3.8. Litigation. Except as set forth in Schedule 3.8, Schedule
3.15 or Schedule 3.17, there is no action at law or in equity, arbitration
proceeding or governmental investigation pending or, to the knowledge of
Seller, threatened by or before any court, any governmental or administrative
agency or commission, or arbitrator, against Seller or the Corporation, in
respect of this Agreement or any of the transactions contemplated hereby that
would prevent a consummation of any of the transactions contemplated hereby.
Except as set forth in Schedule 3.8, Schedule 3.15, or Schedule 3.17, there is
no action at law or in equity, arbitration proceeding or governmental
investigation pending, or to the knowledge of Seller threatened, by or before
any court, any governmental or administrative agency or commission, or
arbitrator against or involving any of the businesses, properties, rights or
assets of the Corporation, employees or agents, which reasonably could be
expected to have a Material Adverse Effect on the Corporation.
Section 3.9. Properties: Absence of Encumbrances. Schedule 3.9 sets
forth a complete list of all real property leased, by the Corporation. With
respect thereto: (a) the leases are in full force and effect and constitute
valid and enforceable leasehold interests of the Corporation, free and dear of
all liens, claims, security interests, encumbrances created by Seller that
would have a Material Adverse Effect on the Corporation, (b) the Corporation
is not in default and has not received any written notice of default under any
lease where there reasonably could be expected to be a Material Adverse Effect
on the Corporation, and (c) to the knowledge of Seller there is no event which
with notice or lapse of time or both would constitute such a default by the
Corporation or by a lessor.
Section 3.10. Intellectual Property. Schedule 3.10 sets forth a complete
list of all Intellectual Property of the Corporation on the date hereof and of
all license agreements pursuant to which any such Intellectual Property is
licensed (a) by or to the Corporation. The Corporation does not own, license
or, to Seller's knowledge, use Intellectual Property Material in the continued
operation of the Corporation's business that is not listed on Schedule 3.10.
Except as otherwise indicated in Schedule 3.10, the Corporation uses the
Intellectual Property listed in Schedule 3.10 free and clear of any royalty,
lien, encumbrance or charge. Notwithstanding anything to the contrary
contained herein, Seller make no representation or warranty, and no such
representation or warranty shall be implied, that any of the Intellectual
Property is valid or enforceable. To the knowledge of Seller, except as set
forth in Schedule 3.08 or Schedule 3.10, the Corporation has not received,
within the two year period immediately preceding the date of this Agreement,
any notice or claim that any such Intellectual Property is not valid or
enforceable, or of any infringement upon or conflict with any patent,
trademark, service mark, copyright or trade name of any third party by the
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Corporation or of any claim by any third party alleging any such infringement
or conflict. To the knowledge of Seller, except as set forth in Schedule 3.08
or Schedule 3.10, during the two-year period immediately preceding the date of
this Agreement, the Corporation has not given any notice of infringement to
any third party with respect to any of the Intellectual Property listed in
Schedule 3.10.
Section 3.11. Contracts. Schedule 3.1 1 sets forth a list of all
contracts, agreements, commitments or other arrangements to which the
Corporation is a party or by which the Corporation is obligated. Except for
contracts, agreements, commitments or other arrangements set forth on Schedule
3.11 or other Schedules, as of the date of this Agreement the Corporation is
not a party to or obligated by any: (a) Benefit Arrangements providing for
aggregate payments of $50,000 or more in any 12 month period or any contract
with employees, consultants or agents not terminable at will without cost or
other liability by reason of such termination; (b) collective bargaining
agreement; (c) guarantees by the Corporation of any obligation for the
borrowing of $50,000 in the aggregate; (d) indentures, notes, mortgages,
installment obligations, capital leases or other instruments relating to the
borrowing of money in excess of $50,000 in the aggregate; (e) agreements,
contracts or leases not listed on Schedule 3.09 (excluding open purchase
orders and supply agreements entered into in the ordinary course of business)
that involve the receipt or payment by the Corporation within one year of more
than $100,000; and (f) executory contracts involving the acquisition or
disposition of Material tangible or intangible assets other than in the
ordinary course of business. Except as disclosed on Schedule 3.10 or as would
not have a Material Adverse Effect on the Corporation, the Corporation is not
in default under any Material Contract, has not waived any Material rights
under any Material Contract and (to the knowledge of Seller) has no knowledge
or notice that any party with whom it has a Material Contract is in default
under any Material Contract.
Section 3.12. Employees: Employee Benefit Matters.
(a) Schedule 3.12 to this Agreement contains a true and complete
list of all sales agents, consultants and employees of the Corporation
(whether employed or engaged by written or oral agreement), their respective
rates of compensation and any general or Material individual wage increase
scheduled to take effect prior to Closing other than in the ordinary course of
business. The Corporation has paid in full such employees, agents and
consultants, or adequately reserved for, all wages, salaries, commissions,
bonuses and other compensation for all services performed by them, except for
such payments as are not yet due; and the Corporation is in compliance in all
material respects with all laws and regulations respecting employment and
employment practices, terms and conditions or employment, wages and hours.
employee benefit plans and taxes (including withholding taxes) relating to
employment;
(b) Schedule 3.12 sets forth a list of all Employee Benefit
Plans, all Material Benefit Arrangements, all Multiemployer Plans, and all
Retirement Plans. Except as set forth in Schedule 3. 14, with respect to each
of such Employee Benefit Plans, Benefit Arrangements and Retirement Plans,
Seller has delivered or made available to Buyer, as and if applicable, copies
of (i) the text or formal plan document, including amendments and the summary
plan description, (ii) the most recent IRS determination letter relating to
the qualification of Retirement Plans under Section 401 of the Code and the
related trust's qualification under Section 501 of the Code, (iii) the trust
agreements, insurance contracts or other documents that constitute all or a
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part of the funding vehicle, (iv) in the case of all Employee Benefit Plans,
the most recent annual reports (IRS Form 5500s), including the schedules
thereto, and (v) the most recent actuarial reports or other financial reports;
(c) Except as set forth in Schedule 3.12, (i) all Employee
Benefit Plans comply in all Material respects with ERISA and the Code; (ii)
the Corporation have paid all contributions due under any of the Employee
Benefit Plans and Multiemployer Plans to which they are required to
contribute; and (iii) the Corporation do not have minimum funding deficiencies
or Multiemployer Plan withdrawal liabilities (including without limitation
liabilities imposed by virtue of any other member of a controlled group having
such liabilities imposed on it);
(d) Except as set forth in Schedule 3.12, there are no Material
actions, suits or claims pending or, to the knowledge of Seller, threatened
against any Employee Benefit Plan, any Retirement Plan, any Benefit
Arrangement, or any administrator or fiduciary thereof, other than benefit
claims arising in the normal course of operation of such Employee Benefit
Plans, Benefit Arrangements, or Retirement Plans; and
(e) To the knowledge of Seller, the Corporation has not engaged
in any non-exempt "Prohibited Transaction," as defined in Section 406 of ERISA
or Section 4975 of the Code, with respect to any Employee Benefit Plan or with
respect to any other parties-in-interest.
Section 3.13. Guarantees by Others. Schedule 3.13 sets forth a complete
list of the date hereof of all Guarantees of the Corporation for the benefit
of Persons doing business with the Corporation.
Section 3.14. Tax Matters.
(a) The Corporation has filed (including extensions) all federal,
state, local, and other tax returns (the "Individual Returns") required to be
filed by it under applicable law, including estimated tax returns and reports,
and the Corporation has paid all required Material federal, state and local
income and other applicable taxes, additions to such taxes, penalties and
interest with respect thereto (the "Individual Taxes") due and payable on or
before the date hereof (and will duly and timely pay all such amounts required
to be paid between the date hereof and the Closing Date). The Corporation has
paid, withheld or adequately provided for (or will adequately provide for) any
and all Individual Taxes in respect of the conduct of its business or the
ownership of its property and in respect of any transaction for which such
taxes are due or would be due if the current tax period ended at the close of
business on the Closing Date;
(b) Seller has delivered or made available (or will make
available prior to Closing) to Buyer copies of all tax returns filed by the
Corporation for all tax years beginning with the year ended December 31, 1996,
together with all tax basis fixed asset schedules and any information
necessary to document differences between tax basis accounting and MGAPP
accounting reflected on the Proposed Closing Balance Sheet and related income
statements;
(c) No Material proposed taxes, addition to tax, interest, or
penalties have been asserted against the Corporation except those that have
been paid in full, those that would not have a Material Adverse Effect on the
Corporation, and those as set forth in Schedule 3.16. There are no agreements,
waivers, or other arrangements providing for extensions of time in respect of
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the assessment or collection of any unpaid tax against the Corporation, except
as set forth in Schedule 3.14; and
(d) No election or consent under Section 341(f) of the Code has
been made or shall be made on or prior to the Closing Date by or on behalf of
the Corporation.
Section 3.15. Compliance with Law and Other Instruments: Regulatory
Matters. Except as set forth on Schedule 3.15 or Schedule 3.16, (a) the
business of the Corporation has been and is being conducted in accordance with
all applicable laws, ordinances, rules and regulations of all authorities
(exclusive of Environmental Laws as defined in and covered by Section 3.17
below), violation of which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on the Corporation; and (b) the
Corporation is not in violation of, or in default under, any term or provision
of its charter documents or of any lien, indenture, lease, agreement,
instrument, commitment or other arrangement, or subject to any restriction of
any kind or character, which reasonably could be expected to have a Material
Adverse Effect on the Corporation.
Section 3.16. Permits. Schedule 3.16 sets forth a list of all
governmental approvals, authorizations, licenses and permits of all
governmental agencies necessary to the conduct of the business of the
Corporation on the date hereof. Except as set forth in Schedule 3.16, all such
approvals, authorizations, licenses and permits are in full force and effect
and, to the knowledge of Seller, no proceedings to revoke them are pending or
threatened and the Corporation is in compliance with the terms and conditions
under which they were issued or granted.
Section 3.17. Environmental Matters. Except as set forth on Schedule
3.17, the property leased by the Corporation and described in Section 3.09
("Property") and its existing and, to the knowledge of Seller, prior uses
comply and have at all times complied with, and the Corporation is not in
violation of and has not voided, in connection with the use, maintenance or
operation of its business, any applicable federal, state, county or local
statutes, laws, regulations, rules, ordinances, codes, licenses or permits
rating to the handling, manufacturing, treatment, storage, disposal,
discharge, use or transportation of hazardous or toxic substances, materials
or wastes, including without limitation the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
and the Toxic Substances Control Act (collectively, "Environmental Laws"). To
Seller's knowledge, except as set forth on Schedule 3.17, the Corporation has
received no notice that any Environmental Laws or other federal, state or
local statutes, orders, rules or regulations, ordinances or governmental
policies require any work, repairs, construction or capital expenditures with
respect to the Property.
Section 3.18. Insurance. The Corporation is named as an insured with
insurance carriers not related to or affiliated with the Seller in amounts and
against all risks nominally insured against by Persons operating similar
businesses in similar locations. Schedule 3.18 sets forth a list of the
insurance coverage in effect as of the date of this Agreement.
Section 3.19. Banks; Powers of Attorney. Schedule 3.19 sets forth as of
the date of this Agreement: (a) the names and locations of all banks. trust
companies, savings and loan associations and other financial institutions at
which the Corporation maintains safe deposit boxes or accounts of any nature
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to which it has access, and the names of all Persons authorized to draw
thereon, make withdrawals therefrom or have access thereto; and (b) the names
of all Persons to whom the Corporation has granted a power of attorney.
Section 3.20. Brokerage Fees. Except for Equinox Financial Limited,
whose fees Seller shall pay, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement or the transactions contemplated hereby based upon any
agreements, written or oral, made by or on behalf of Seller or by or on behalf
of any director, officer, employee, agent or Affiliate of Seller.
Section 3.21. Limitation of Representations and Warranties. Except as
expressly set forth herein, neither Seller makes any representation or
warranty, express or implied, in connection with the transactions contemplated
by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OE BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1. Organization and Good Standing. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware and has full corporate power and authority to carry on its businesses
as they are now being conducted.
Section 4.2. Investment Representation. Buyer is aware that the Shares
are not registered under the Securities Act. Buyer possesses such knowledge
and experience in business matters that it is capable of evaluating the merits
and risks of its investments hereunder. Buyer is acquiring the Shares for its
own account, for investment purposes only and not with a view to the
distribution thereof.
Section 4.3. Execution and Effect of Agreement. Buyer has the corporate
power and authority to enter into this Agreement and the Transaction
Documents, and the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Buyer. This Agreement has been duly
executed and delivered by Buyer and constitutes a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws affecting the rights of creditors generally and to the exercise of
judicial discretion in accordance with general principles of equity (whether
applied by a court of law or of equity). Each of the Transaction Documents,
upon its execution and delivery by Buyer, will constitute a legal, valid and
binding obligation of each such Person executing such Agreement, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws affecting the rights of creditors
generally and to the exercise of judicial discretion in accordance with
general principles of equity (whether applied by a court of law or of equity).
Section 4.4. Restrictions. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(a) violate any of the provisions of the charter or by-laws of Buyer, or (b)
conflict with or result in a breach of, or give rise to a right of termination
of, or accelerate the performance required by the terms of any judgment, court
order or consent decree, or any agreement, indenture, mortgage or instrument
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to which Buyer is a party or to which it or its property is subject, or
constitute a default thereunder, except, in the case of the foregoing clause
(b), where such conflict, breach, right of termination or default would not
have a Material Adverse Effect on Buyer.
Section 4.5. No Lawsuits; Consents. There is no lawsuit, proceeding or
investigation pending or, to the knowledge of Buyer threatened, against Buyer
the effect of which would prevent the consummation of any of the transactions
contemplated hereby. Except (a) for filings, consents, waivers, approvals and
authorizations as to which the failure to obtain or make would not have a
Material Adverse Effect on the Buyer, and (b) for filings, consents, waivers,
approvals and authorizations pursuant to the H-S-R Act, no filing, consent,
approval or authorization of any governmental authority or of any third party
on the part of the Buyer is required in connection with the execution and
delivery of this Agreement or any instrument contemplated hereby or the
consummation of any of the transactions contemplated hereby.
Section 4.6. Limitation of Representations and Warranties. Except as
expressly set forth herein, Buyer makes no representation or warranty, express
or implied, in connection with the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS AND AGREEMENTS OF THE SELLER
Seller covenants and agrees for the benefit of Buyer as follows:
Section 5.1. Corporate Action. Seller shall take, and shall cause the
Corporation to take, all action, corporate or otherwise, necessary or
appropriate for the consummation of the transactions contemplated hereby.
Seller shall execute such additional documents, instruments, memoranda and
other writings as shall be necessary or appropriate to carry out and
effectuate the terms and conditions of this Agreement.
Section 5.2. Conduct of Business to Closing. Except as contemplated by
this Agreement, Seller shall not cause the business of the Corporation to be
conducted other than in the ordinary course. Except as contemplated by or set
forth in this Agreement or the Schedules, annexed hereto, or as consented to
in writing by Buyer (which consent shall not be unreasonably withheld), Seller
shall act, or cause the Corporation to act, as follows:
(a) The Corporation will not adopt any Material change in any
method of accounting or accounting practice, except as contemplated or
required by MGAPP or Schedule 3.6;
(b) The Corporation will not amend its charter or by laws (or
other similar organizational documents);
(c) Except (i) in the ordinary course of business, (ii) as
required by law, (iii) as required or appropriate to maintain the
qualification of any Employee Benefit Plan or Benefit Arrangement under
applicable tax laws or under ERISA, (iv) as required by existing Employee
Benefit Plans, Retirement Plans, or Benefit Arrangements, or (v) as otherwise
contemplated by this Agreement, the Schedules, or the Exhibits, neither the
Corporation nor any Affiliate will enter into or amend any Employee Benefit
Plan or Benefit Arrangement covering Employees, or give any general or
Material individual wage or salary increase to its Employees;
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(d) The Corporation shall not enter into any collective
bargaining agreement covering Employees;
(e) Except (i) in the ordinary course of business, (ii) as
otherwise contemplated by this Agreement or the Schedules, or (iii) in
connection with the transfer of any of the Excluded Assets, the Corporation
will not sell, mortgage, pledge, or otherwise dispose of any substantial
assets or properties;
(f) Except as contemplated by this Agreement or the Schedules,
the Corporation will not merge or consolidate with, or agree to merge or
consolidate with, or purchase or agree to purchase all or substantially all of
the assets of, or otherwise acquire, any other business entity;
(g) Except as contemplated by this Agreement or the Schedules,
the Corporation will not (i) authorize for issuance issue or sell any
additional shares of its or its Subsidiaries' capital stock or any securities
or obligations convertible into shares of its Subsidiaries' capital stock or
issue or grant any option. warrant or other right to purchase any shares of
its capital stock, or (ii) declare or pay any dividend or other distribution
on or in respect of its capital stock:
(h) The Corporation will maintain its existing insurance
policies, or comparable coverage, in full force and effect;
(i) Except in the ordinary course of business or as contemplated
by this Agreement or the Schedules, the Corporation will not incur or agree to
incur long-term debt for borrowed money; and
(j) The Corporation shall not make any capital expenditure,
capital addition, or capital improvement exceeding $25,000.
Section 5.3. Consents.
Seller shall use reasonable efforts to (i) obtain all consents, waivers
and authorizations and make all filings with and give all notices that may be
necessary or reasonably required to consummate the transactions contemplated
hereby, it being understood that neither Seller shall be under any obligation
to pay money to any third party (other than fees imposed by statute or
regulation to obtain governmental consents or approvals) as a condition to
receiving any such consents, waivers or authorizations and (ii) cause each of
the conditions precedent to the obligations of Buyer hereunder to be
satisfied.
Section 5.4. Covenant Against Competition.
(a) Except as modified by the Employment Agreement between Buyer
and Stanley Nice and the Consulting Agreement between Buyer and John Clement,
the Seller shall not, directly or indirectly, during the term of and for a
period of twelve months after the expiration of such Employment Agreement or
Consulting Agreement, as the case may be, engage in the Corporation's business
within a 500-mile radius of the place of such employment or the principal
place of business of Buyer;
(b) Except as may be required by law or in the bona fide
prosecution of its rights under this Agreement or any Transaction Document,
after Closing the Seller shall not use or disclose any confidential
information principally concerning the Corporation's business;
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(c) Seller acknowledges and agree that it would be difficult to
fully compensate Buyer for damages resulting from the breach or threatened
breach of the foregoing provisions of this Section 5.5 and, accordingly that
Buyer shall be entitled to temporary and injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent
injunctions, to enforce such provisions upon proving that it has suffered or
that there is a substantial probability that it will suffer irreparable harm
and without the necessity of posting any bond or other understanding in
connection therewith. This provision with respect to injunctive relief shall
not, however, diminish Buyer's right to claim and recover damages; and
(d) The provisions of this Section 5.5 are severable and if any
one or more of them may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall
nevertheless be binding and enforceable. For purposes of this Section, each of
clauses (a) through (c) except for leases and time payments shall be
considered a separate covenant such that if the geographic scope of any such
clause shall be determined by a court to be invalid, that clause shall be
severed and the remaining clauses shall remain in full force and effect.
Section 5.5. Capital Liabilities. No later than Closing, Seller shall
cause such Capital Liabilities, as may exist at Closing, including all
interest accrued thereon, to be fully satisfied or to specifically provided
for on Schedule 1.19, except for leases and time payments thereafter.
Section 5.6. Purchase Price Allocation. Seller acknowledges that the
allocation of the Purchase Price as set forth in Section 2.3 has been
negotiated among the parties and is consistent with the value of the Shares
and the covenants of Seller under Section 5.4. Seller and Buyer shall each use
such allocation of the Purchase Price in any tax returns or other reports
filed with taxing authorities which deal with the transactions contemplated in
this Agreement.
Section 5.7. Access to Information and Cooperation.
(a) Subsequent to the date of this Agreement, Seller shall give
Buyer, its counsel, and its consultants full and complete access, upon
reasonable notice during normal business hours, to all records and affairs of
the Corporation within their possession and will provide copies of such
information concerning the Corporation as Buyer may reasonably request for any
proper purpose, including without limitation in connection with the
preparation of any tax returns or financial statements or in connection with
any judicial, quasi judicial, administrative, tax audit or arbitration
proceeding: and
(b) Seller shall at its expense cooperate fully with the Buyer in
the defense or pursuit of any claim or action which relates to occurrences
involving the business of the Corporation prior to the Closing Date that does
not relate to an Excluded Asset.
Section 5.8. Public Statements. Seller shall not release any
information concerning this Agreement or the transactions contemplated hereby
that is intended for or may result in public dissemination thereof without the
prior written consent of Buyer (which shall not be unreasonably withheld or
delayed), unless (a) in the opinion of counsel to Seller, the release of such
information is required by law and (b) prior to the release of such
information and as soon as possible after Seller has received such counsel's
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opinion, (i) Seller shall advise Buyer of the opinion and (ii) at Buyer's
request, Seller shall provide a copy to Buyer, and further provided that
Seller shall be permitted to disclose to Employees, and upon Buyer's request
to give Buyer the opportunity to make a joint statement with Seller to
Employees, concerning the terms of Benefit Arrangements and Employee Benefit
Plans available to Employees following Closing.
ARTICLE VI
COVENANTS AND AGREEMENTS OF BUYER
Buyer covenants and agrees for the benefit of Seller as follows
Section 6.1. Corporate Action. Buyer shall take all action, corporate
or otherwise, necessary or appropriate for the consummation of the
transactions contemplated hereby. Buyer shall execute such additional
documents, instruments, memoranda and other writings as shall be necessary or
appropriate to carry out and effectuate the terms and conditions of this
Agreement.
Section 6.2. Public Statements. Buyer shall not release any information
concerning this Agreement or the transactions contemplated hereby that is
intended for or may result in public dissemination thereof without the prior
written consent of Seller (which shall not be unreasonably withheld or
delayed), unless (a) in the opinion of counsel to Buyer, the release of such
information is required by law and (b) prior to the release of such
information and as soon as possible after Buyer has received such counsel's
opinion, (i) Buyer shall advise Seller of the opinion and (ii) at Seller's
request, Buyer shall provide a copy to Seller.
Section 6.3 Consents.
(a) Buyer shall promptly make any and all filings that are or may
be required under the H-S-R Act and shall cooperate with Seller in connection
with similar filings by Seller. Buyer shall cooperate and use reasonable
efforts to ensure that any pre-acquisition waiting period required by the
H-S-R Act expires or is otherwise terminated, and shall comply promptly with
any requests made pursuant to the FI-S-R Act or the regulations thereunder;
and
(b) Buyer shall use reasonable efforts to (i) obtain all
consents, waivers and authorizations and make all filings with and give all
notices that may be necessary or reasonably required to consummate the
transactions contemplated hereby, provided that Buyer shall not be under any
obligation to pay money to any third party as a condition to receiving any
such consents, waivers or authorizations, and (ii) cause each of the
conditions precedent to the obligations of Seller hereunder to be satisfied.
Section 6.4. Certain Employee Benefit Matters.
(a) Commencing upon the Closing Date, Buyer shall cause the
Corporation to continue to employ each Employee who is an employee on the
Closing Date upon the same terms and conditions of employment as pertained to
each Employee on the day immediately preceding the Closing Date and as are
specifically described in the Schedules to this Agreement, provided that this
undertaking shall in no way diminish the Corporation's existing rights to lay
off employees or to terminate employees on account of unacceptable performance
or otherwise in accordance with the terms of any contracts of employment. If
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any Employee is laid off or on leave on the Closing Date, Buyer shall cause
the Corporation to recall or reinstate such Employee in accordance with the
layoff or leave of absence policy of the Corporation that is in effect on the
date of this Agreement and is specifically described in the Schedules. Buyer
shall take all reasonable action required or appropriate to cause the
Corporation to fulfill all obligations of the employer under all Benefit
Arrangements, Employee Benefit Plans, Multiemployer Plans, and Retirement
Plans as of the Closing Date (including without 1imitation severance payments
or benefits that have accrued, or that accrue or inure, on or after the
Closing Date or that inure after the date of this Agreement and prior to the
Closing Date as a result of action taken by Seller with consent of Buyer)
which are specifically described on the Schedules, except as may be required
otherwise by law; and
(b) The Buyer shall maintain and keep available a pool of options
for the acquisition of the common stock of Buyer, which option shall, from
time-to-time and at the sole discretion of Buyer, be made available to the
employees of the Company.
Section 6.5. Preservation of and Access to Certain Information and
Cooperation After Closing.
(a) Buyer shall, and from and after the Closing Date shall cause
the Corporation and its Affiliates, to preserve all books and records of the
Corporation until Seller notifies Buyer that all statutes of limitations
relating to ta periods to which such records relate have expired, and
thereafter not to destroy or dispose of such records without notice to Seller
offering it the right to copy such records. Except as prohibited or limited by
law or regulation, Buyer shall, and shall cause the Corporation from and after
the Closing Date to, give Seller and Seller's employees, accountants, counsel,
and advisors, reasonable access upon reasonable notice and for proper business
purposes during normal business hours, to all officers, employees, offices,
properties, agreements, books, records and affairs of the Corporation, in a
manner that does not unreasonably interfere with the normal conduct of its
business. Buyer shall, and shall cause the Corporation to, prepare and
transmit such financial reports in accordance with past practices and
procedures and on a timely basis as may be necessary for Seller or its
Affiliates to prepare any Consolidated Tax Return, and ensure that Seller and
its authorized representatives shall be free, during the period referred to in
the first sentence of this Section, to make copies of such books, records,
files and data concerning the Corporation for the following purposes: (i) the
review of the Proposed Closing Balance Sheet and the resolution of any
disputes with respect to the Proposed Closing Balance Sheet, (ii) the
preparation of any tax returns for the Affiliated Group, (iii) or in
anticipation of any judicial, quasi judicial, administrative, tax audit, or
arbitration proceeding initiated by or against third parties and relating to
the Corporation, and (iv) in connection with any claim relating to Excluded
Assets or Excluded Liabilities. Except as may be required by law or in the
bona fide prosecution of its rights under this Agreement or any Transaction
Document and except as specifically provided above, Seller shall not use or
disclose any such information; and
(b) Buyer shall after Closing cause the Corporation, at Seller's
expense to, cooperate fully and to such extent as is reasonable under the
circumstances with Seller in the defense of pursuit of any claim or action
that relates to an Excluded Liability or an Excluded Asset.
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Section 6.6. Nondisposition of Shares. Buyer shall not, and shall not
permit any of their Affiliates to, sell, transfer, offer for sale, pledge,
hypothecate, or otherwise dispose of the Shares except pursuant to a valid
registration under the Securities Act, unless an exemption from registration
under the Securities Act is available.
ARTICLE VII
CONDITIONS OF OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the purchase of the Shares on the
Closing Date and to perform its other covenants and agreements in accordance
with the terms and conditions of this Agreement are subject to each of the
following conditions which, if not satisfied, may be waived in writing by
Buyer, provided however, that any such waiver, if made knowingly, shall also
be deemed a waiver of any claim for damages, losses or other remedies
otherwise available to Buyer as the result of the failure to satisfy such
condition.
Section 7.1. Representations and Warranties True. Except as otherwise
permitted, contemplated, or limited by this Agreement and except for
representations and warranties that by their terms speak only as of a
specified date, (a) each of the representations and warranties of Seller
contained in ARTICLE III that is limited by Materiality shall be true and
correct on and as of the Closing Date as though made on and as of the Closing
Date, and (b) each of the representations and warranties that is not so
limited shall be true and correct in all Material respects on and as of the
Closing Date as though made on and as of the Closing Date.
Section 7.2. Covenants and Agreements-No Default. Seller shall not be
in default in respect of any obligation under this Agreement and Seller shall
have performed or complied in all Material respects with all covenants and
agreements required by this Agreement to be performed or complied with by them
prior to or as of the Closing Date.
Section 7.3. Officer's Certificates. Seller shall have furnished Buyer
with a certificate signed by a corporate officer confirming the satisfaction
of the conditions set forth in Section 7.1 and Section 7.2.
Section 7.4. No Material Adverse Change. Except as permitted or
contemplated by this Agreement or any Schedule, or disclosed in the Balance
Sheet, since the Financials Date the Corporation shall not have suffered an
adverse change in its business or financial condition that could reasonably be
expected to have a Material Adverse Effect on the Corporation.
Section 7.5. Consents. Seller shall have obtained all third-party and
governmental consents, waivers, authorizations and approvals and shall have
made all filings and given all notices required in connection with the
consummation of the transactions contemplated by this Agreement other than
those that are not Material or set forth in Schedule 3.7, and all applicable
waiting periods in respect of the transactions contemplated by this Agreement
under the H-S-R Act shall have expired or otherwise terminated, it being
understood that (a) the Seller shall not be under any obligation to pay money
to any third party (other than fees imposed by statute or regulation) as a
condition to receiving such consents, waivers, and authorizations, and (b)
Seller shall use reasonable efforts to cause each of the conditions precedent
to the obligations of Buyer hereunder to be satisfied. In the event Seller is
unable to obtain any such consents, the condition contained in this Section
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7.5 shall be deemed satisfied if Seller provides to Buyer and, other than as
to matters identified on Schedule 3.13, in a manner and form satisfactory to
Buyer in its sole discretion, at the Closing the economic equivalent of any
rights that would have inured to the Buyer had such consents been obtained.
Buyer shall have obtained all third-party consents, waivers, authorizations
and approvals and shall have made all filings and given all notices required
in connection with the consummation of the transactions contemplated by this
Agreement that are referenced in Section 4.5.
Section 7.6. Transaction Documents. Seller shall have provided Buyer
with all of the documents required by Section 10.2 to be delivered at Closing
by Seller.
Section 7.7. Adverse Proceedings. No Material action, proceeding or
governmental investigation shall have been instituted or threatened against
the consummation of the transactions contemplated in this Agreement or any
Material Transaction Document or against or involving the Corporation where
the outcome might reasonably be expected to have a Material Adverse Effect on
the Corporation.
ARTICLE VIII
CONDITIONS OF OBLIGATIONS OF SELLER
The obligation of Seller to consummate the sale of the Shares on the
Closing Date and to perform their other covenants and agreements in accordance
with the terms and conditions of this Agreement are subject to each of the
following conditions which, if not satisfied, may be waived in writing by
Seller, provided however, that any such waiver, if made knowingly, shall also
be deemed a waiver of any claim for damages, losses or other remedies
otherwise available to Seller or its Affiliates as the result of the failure
to satisfy such condition.
Section 8.1. Representations and Warranties True. Except as otherwise
permitted or contemplated by this Agreement and except for representations and
warranties that by their terms speak only as of a specified date, (a) each of
the representations and warranties of Buyer contained in ARTICLE IV that is
limited by Materiality shall be true and correct on and as of the Closing Date
as though made on and as of the Closing Date and (b) each of the
representations and warranties that is not so limited shall be true and
correct in all Material respects on and as of the Closing Date as though made
on and as of the Closing Date.
Section 8.2. Covenants and Agreements-No Default. Buyer shall not be in
default in respect of any obligation under this Agreement and Buyer shall have
performed or complied in all Material respects with all covenants and
agreements required by this Agreement to be performed or complied with by
Buyer prior to or as of the Closing Date.
Section 8.3. Officer's Certificates. Buyer shall have furnished Seller
with a certificate signed by a corporate officer confirming the satisfaction
of the conditions set forth in Sections 8.1 and 8.2.
Section 8.4. Consents. Buyer shall have obtained all third-party and
governmental consents, waivers, authorizations and approvals and shall have
made all filings and given all notices required in connection with the
consummation of the transactions contemplated by this Agreement that are
referenced in Section 4.5, and all applicable waiting periods in respect of
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the transactions contemplated by this Agreement under the H-S-R Act shall have
expired or otherwise terminated, it being understood that (a) Buyer shall not
be under any obligation to pay money to any third-party (other than fees
imposed by statute or regulation) as a condition to receiving such consents,
waivers, and authorizations and (b) Buyer shall use reasonable efforts to
cause each of the conditions precedent to the obligations of Seller hereunder
to be satisfied. Seller shall have obtained all third-party and governmental
consents, waivers, authorizations, and approvals and shall have made all
filings and given all notices required in connection with the consummation of
the transactions contemplated by this Agreement that are referenced in Section
3.7 or are set forth in Schedule 3.7.
Section 8 5. Transaction Documents. Buyer shall have provided Seller
with all of the documents required by Section 10.3 to be delivered at Closing
by Buyer.
Section 8.6. Adverse Proceedings. No Material action, proceeding or
governmental investigation shall have been instituted or threatened against
the consummation of the transactions contemplated in this Agreement or the
Transaction Documents.
ARTICLE IX INTENTIONALLY DELETED
ARTICLE X
CLOSING
Section 10.1. Closing. The Closing shall take place at the offices of
Semmes, Bowen 8 Semmes, 250 West Pratt Street, Baltimore, Maryland 21201, on
May 21, 1997 at 1C:00 a.m., or at such other place and at such other time and
date as may be mutually agreed upon in writing by Buyer and Seller, only upon
fulfillment of (a) all the conditions set forth in ARTICLE VII that have not
been waived by Buyer, and (b) all the conditions set forth in ARTICLE VIII
that have not been waived by Seller. If such conditions have not been
fulfilled or waived by such date, the Closing shall take place within five
business days after fulfillment or waiver of all such conditions but in no
event later than June 1, 1997 unless otherwise mutually agreed to in writing
by the Buyer and the Seller. All proceedings to be taken and all documents to
be executed and delivered by Seller in connection with the consummation of the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to Buyer and its counsel. All proceedings to be taken and all
documents to be executed and delivered by Buyer in connection with the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Seller and its counsel. All proceedings
to be taken and all documents to be executed and delivered at the Closing
shall be deemed to have been taken and executed simultaneously, and no
proceedings shall be deemed taken nor any documents executed or delivered
until all have been taken, executed or delivered.
Section 10.2. Documents to be Delivered by Seller. At the Closing,
Seller shall deliver, or shall cause to be delivered. to Buyer the following:
(a) Certificates representing the Shares, which certificates
shall be duly endorsed in blank or, in lieu thereof, shall have affixed
thereto stock powers executed in blank and in proper form for transfer;
(b) Employment Contracts for certain employees of the
Corporation.
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(c) An opinion of counsel for Seller, dated the Closing Date,
substantially in the form attached hereto as Exhibit C;
(d) Certificates of a Vice President, the Secretary or an
Assistant Secretary of Seller, dated the Closing Date, setting forth the
resolutions of the Board of Directors of Seller authorizing the execution and
deli-very of this Agreement and the consummation of the transactions
contemplated hereby, and certifying that such resolutions have not been
amended or rescinded and are in full force and effect;
(e) A good standing certificate and a copy of the Corporation's
charter, certified as of a date reasonably close to the Closing Date;
(f) The certificate contemplated by Section 7.3;
(g) Such other documents, instruments or agreements as may be
reasonably requested by Buyer to effectuate the transactions contemplated by
this Agreement; and
(i) The "Paid and Canceled" note provided for in Section 2.2.
Section 10.3. Documents to be Delivered by Buyer. At the closing, Buyer
shall deliver, or cause to be delivered, to Seller the following:
(a) A wire transfer of funds to the account designated by Seller
in an amount equal to the cash portion of the Purchase Price, as provided in
Section 2.2;
(b) A note in favor of the Seller as provided for in Section 2.2
(c) Certificates representing 305,585 shares of the common stock
of the Buyer.
(d) An opinion of Semmes Bowen 8 Semmes, counsel for Buyer, dated
the Closing Date, substantially in the form attached hereto as Exhibit D;
(e) Certificates of the Secretary or an Assistant Secretary of
Buyer, dated the Closing Date, setting forth copies of the resolutions of the
Board of Directors of Buyer, authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and
certifying that such resolutions have not been amended or rescinded and are in
full force and effect:
(f) The certificate contemplated by Section 8.3;
(g) Subordination Agreement in connection with Section 10.3 (b)
(h) Such other documents, instruments or agreements as may be
reasonably requested by Seller to effectuate the transactions contemplated by
this Agreement; and
(i) The Employment Agreement and Consulting Agreement referred
to in Section 5.4.
(j) The Subordination Agreement in respect to the notes referred
to in Section 2.3.
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<PAGE> ARTICLE XI
MISCELLANEOUS
Section 11.1. Survival of Representations, Warranties, Covenants and
Agreements. Except as otherwise expressly provided in this Agreement, all
covenants and all representations and warranties made by the parties in this
Agreement (including statements contained in any Schedule or certificate or
other instrument delivered by or on behalf of a party to this Agreement) shall
survive the execution of this Agreement and the Closing and any
investigations, examinations or audits made by or on behalf of the parties,
provided that representations and warranties shall survive only until the
applicable "Expiration Date" as follows:
(a) The Expiration Date for the representations and warranties
made in Section 3.16 shall be the date on which all applicable tax statutes of
limitation have expired; and
(b) The Expiration Date for all other representations and
warranties made in this Agreement shall be the date of the payment of the
Subordinated Debt to Seller.
On the applicable Expiration Date, the associated representations and
warranties shall have no further force or effect and all liabilities of the
parties thereunder shall be extinguished, provided that if prior to the
Expiration Date a party has delivered to the other party a notice asserting a
good faith claim for breach of representation and warranty, that specific
claim shall survive and be actionable after the Expiration Date.
Section 11.2. Indemnification.
(a) Seller shall hold harmless and indemnity Buyer from and
against all claims, actions, damages, liabilities or losses (including court
costs and attorneys fees) (collectively, "Losses") arising out of: (i) the
breach by Seller of any of its representations, warranties, covenants or
agreements made under or pursuant to this Agreement; and (ii) products
liability claims asserted against or paid by the Corporation (after having
used reasonable and appropriate efforts to avoid or reduce such payments), but
only where such claims are asserted within 18 months after the Closing Date
and in respect of products shipped prior to the Closing Date;
(b) Buyer shall hold harmless and indemnify Seller from and
against all Losses arising out of: (i) the breach by Buyer of any of its
representations, warranties, covenants or agreements made under or pursuant to
this Agreement; (ii) the breach by Buyer or, after Closing, the Corporation of
any agreements with any third parties; (iii) actions wrongfully taken with
respect to the Corporation by Buyer or its Affiliates, or by the Corporation
after Closing; and (iv) actions taken with respect to the corporation by
Seller prior to Closing at the request of Buyer;
(c) For purposes of this Section 11.2, any Losses incurred by the
Corporation shall be deemed to have been incurred by Buyer;
(d) After the Closing, Seller shall not be entitled to
contribution from, or recovery against, the Corporation with respect to any
liability of Seller which may arise under this Section 11.2, and
(e) Consummation of the transactions contemplated by this
Agreement and the Transaction Documents shall not be deemed to be a waiver of.
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any right or remedy of a party, nor shall this Section 11.2 or any other
provision of this Agreement be deemed to be a waiver of any ground of defense
by a Party
Section 11.3. Disclaimer of Other Representations and Warranties by
Seller. The parties hereto acknowledge and agree that Seller does not make,
and has not made, any representations or warranties relating to the
Corporation, or any of the transactions contemplated by this Agreement other
than the representations and warranties expressly set forth in this Agreement.
Without limiting the generality of the disclaimer set forth in the preceding
sentence, Seller does not make, has not made and shall not be deemed to have
made any representations or warranties in the Offering Memorandum, in any
presentation relating to the businesses of the Corporation given in connection
with the transactions contemplated by this Agreement, in any filing made by or
on behalf of the Corporation with any governmental agency, or in any other
information provided to or made available to Buyer and not included in the
Schedules to this Agreement, and no statement contained in the Offering
Memorandum or made or contained in any such presentation, filing, or
information shall be deemed a representation or warranty hereunder or
otherwise. No person has been authorized by Seller, or the Corporation to make
any representation or warranty in respect of Seller, or the Corporation in
connection with the transactions contemplated by this Agreement.
Section 11.4. Disclosure. Notwithstanding any provision to the contrary
contained in this Agreement, the Exhibits or the Schedules, any information
disclosed in one Schedule shall be deemed to be disclosed in all Schedules.
Certain information set forth in the Schedules has been included and disclosed
solely for informational purposes and may not be required to be disclosed
pursuant to the terms and conditions of the Agreement. The disclosure of any
information shall not be deemed to constitute an acknowledgment or agreement
that the information is required to be discussed in connection with the
representations and warranties made in this Agreement or that the information
is Material, nor shall any information so included and disclosed be deemed to
establish a standard of materiality or otherwise used to determine whether any
other information is Material.
Section 11.5. Expenses and Taxes. All legal, accounting and other costs
and fees incurred by the Corporation and the Seller in connection with the
transactions contemplated by this Agreement shall be borne and paid for by the
Corporation prior to Closing. All legal, accounting and other costs and fees
incurred by Buyer in connection with the transactions contemplated by this
Agreement and all taxes (other than value added taxes or taxes on, relating to
or measured by income or gains), stamp duty, notarial, registration and
recording fees and similar taxes resulting from or relating to the transfer of
any of the Shares to Buyer or any party designated by Buyer shall be borne by
Buyer.
Section 11.6. Entire Agreement. This Agreement, the Schedules, and the
Exhibits constitute the entire agreement and understanding between the parties
hereto in respect of the matters set forth herein, and all prior negotiations,
writings and understandings relating to the subject matter of this Agreement
(including without limitation the Offering Memorandum), other than the
Confidentiality Agreement, are merged herein and are superseded and canceled
by this Agreement. Other than as expressly set forth in this Agreement and the
Schedules and Exhibits, no representations, warranties, covenants, agreements
or conditions, express or implied, whether by statute or other wise, have been
made by the parties hereto.
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Section 11.7. Amendment and Waiver. This Agreement may be amended,
modified, supplemented or changed in whole or in part only by an agreement in
writing making specific reference to this Agreement and executed by each of
the parties hereto. Any of the terms and conditions of this Agreement may be
waived in whole or in part, but only by an agreement in writing making
specific reference to this Agreement and executed by the party that is
entitled to the benefit thereof.
Section 11.8. Binding Agreement and Successors. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that prior to
the consummation of this Agreement the rights of the parties hereunder may not
be assigned, and provided that the obligations of the parties hereunder may
not be delegated, in whole or in part, without the prior written consent of
the other party hereto.
Section 11.9. No Third Party Beneficiaries. Nothing in this Agreement
is intended to confer upon any Person other than the parties hereto any rights
or remedies.
Section 11.10. Notices. Any notice, request, instruction or other
document or communication required or permitted to be given under this
Agreement shall be in writing and shall be deemed to be given upon (i)
delivery in person, (ii) five days after being deposited in the mail, postage
prepaid, for mailing by certified or registered mail, (iii) one day after
being deposited with an overnight courier, charges prepaid, or (iv) when
transmitted by facsimile, with a copy simultaneously sent as provided in
clauses (ii) and (iii), in every case as follows:
If to Buyer, delivered or mailed to:
IT Partners Inc.
1006 Highland Drive
Silver Spring, Maryland 20910
Attention: Daniel J. Klein
with a copy delivered or mailed by the same method to:
Kevin M. O'Connell, Esquire
Semmes, Bowen & Semmes
250 West Pratt Street
Baltimore, Maryland 21201
If to Seller, delivered or mailed to:
Stanley Nice
John Clement
C.N.S., Inc.
100 Ford Road
Denville, New Jersey 07834
with a copy delivered or mailed by the same method to:
Harvey R. Poe, Esq.
Poe & Freireich, P.A.
256 Columbia Turnpike
Columbia Commons, Suite 202
Florham Park, New Jersey 07932
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or to such other address or addresses as may be specified in writing at any
time or from time to time by either party to the other party hereto.
Section 11.11. Further Assurances. The parties hereto each agree to
execute, make, acknowledge, and deliver such instruments, agreements and other
documents as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
Section 11.12. Article and Section Headings. The Article, Exhibit and
Section headings contained in this Agreement, the Exhibits and the Schedules
are for convenience of reference only and shall not limit or otherwise affect
the meaning or interpretation of this Agreement, the Exhibits, or the
Schedules or any of their terms and conditions.
Section 11.13. Governing Law. This Agreement shall be construed and
enforced in accordance with and shall be governed by the laws of the State of
Maryland, without regard to its conflict of law provisions and principles.
Section 11.14. Courts. Any dispute arising from the interpretation
or operation of this Agreement shall be resolved in the courts of the State of
Maryland, and the parties hereby consent to and elect, and waive any objection
to, such jurisdiction in the event of litigation hereunder.
Section 11.15. Construction. As used in this Agreement, any
reference to the masculine, feminine or neuter gender shall include all
genders, the plural shall include the singular, and the singular shall include
the plural. With regard to each and every term and condition of this Agreement
and any and all agreements and instruments subject to the terms hereof, the
parties hereto understand and agree that the same have or has been mutually
negotiated, prepared and drafted, and that if at any time the parties hereto
desire or are required to interpret or construe any such term or condition or
any agreement or instrument subject hereto, no consideration shall be given to
the issue of which party hereto actually prepared, drafted or requested any
term or condition of this Agreement or any agreement or instrument subject
hereto.
Section 11.16. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
Section 11.17. Attorneys' Fees. Should legal proceedings be instituted to
enforce the provisions of this Agreement or any Transaction Document, the
prevailing party shall be entitled to costs of suit, including attorneys' fees
actually incurred, from the unsuccessful party.
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IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the day and year first above written.
ATTEST: C.N.S., Inc.
- --------------------------- By:
John Clement, Secretary -------------------------------
Stanley Nice, President
--------------------------------
Stanley Nice, Individually
--------------------------------
John Clement, Individually
ATTEST: IT PARTNERS INC.
/s/ Jamie Blech By: /s/ Daniel J. Klein
- -------------------------- ---------------------------------
Jamie Blech, Secretary Daniel J. Klein
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the day and year first above written.
ATTEST: C.N.S., Inc.
/s/ John Clement
- --------------------------- By: /s/ Stanley Nice
John Clement, Secretary -------------------------------
Stanley Nice, President
/s/ Stanley Nice
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Stanley Nice, Individually
/s/ John Clement
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John Clement, Individually
ATTEST: IT PARTNERS INC.
/s/ Jamie Blech By: /s/ Daniel J. Klein
- -------------------------- ---------------------------------
Jamie Blech, Secretary Daniel J. Klein
TABLE OF CONTENTS
1. THE MERGER 5
1.1 Delivery and Filing of Articles of Merger 5
1.2 Effective Time of the Merger 5
1.3 Certificate of Incorporation 6
2. CONVERSION OF STOCK 7
2.1 Manner of Conversion 7
3. DELIVERY OF MERGER CONSIDERATION;
CLOSING AND POST-CLOSING ADJUSTMENTS 8
3.1 Delivery of Initial Merger Consideration 8
3.2 Delivery of Subsequent Merger Consideration 8
3.3 Closing Date Adjustments to Merger Consideration 9
3.4 Post-Closing Adjustments to Merger Consideration 9
4. CLOSING 10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS 11
5.1 Due Organization 11
5.2 Authorization 12
5.3 Capital Stock of the COMPANY 12
5.4 Subsidiaries 12
5.5 Financial Statements 12
5.6 Liabilities and Obligations 13
5.7 Accounts and Notes Receivable 13
5.8 Intellectual Property; Permits and Intangibles 14
5.9 Environmental Matters 15
5.10 Personal Property 17
5.11 Significant Customers: Material Contracts
and Commitments 17
5.12 Real Property 19
5.13 Insurance 19
5.14 Compensation: Employment Agreements:
Organized Labor Matters 19
5.15 Employee Plans 20
5.16 Compliance with ERISA 20
5.17 Conformity with Law; Litigation 22
5.18 Taxes 22
5.19 No Violations 25
5.20 Business Conduct 25
5.21 Prohibited Activities 27
5.22 Misrepresentation 27
5.23 Authority; Ownership 27
5.24 No Intention to Dispose of ITP Stock 27
6. REPRESENTATIONS OF ITP AND NEWCO 28
6.1 Due Organization 28
6.2 Authorization 28
6.3 Transaction Not a Breach 28
6.4 Misrepresentation 29
6.5 Capital Stock 29
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6.6 Subsidiaries 29
6.7 Conformity with Law; Litigation 29
6.8 Financial Statements 30
6.9 Compensation; Employment Agreements: Organized
Labor Matters 30
7. COVENANTS PRIOR TO CLOSING 31
7.1 Access and Cooperation: Due Diligence 31
7.2 Conduct of Business Pending Closing 31
7.3 Prohibited Activities 32
7.4 No Shop 33
7.5 Termination of Related Party Agreements 34
7.6 Notification of Certain Matters 34
7.7 Amendment of Schedules 34
7.8 Further Assurances 35
7.9 Approval of Merger Agreement 35
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY 35
8.1 Representations and Warranties 36
8.2 Performance of Obligations 36
8.3 No Litigation 36
8.4 Opinion of Counsel 36
8.5 Consents and Approvals 36
8.6 Good Standing Certificates 36
8.7 Secretary's Certificate 37
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ITP AND NEWCO 37
9.1 Representations and Warranties 37
9.2 Performance of Obligations 37
9.3 No Litigation 37
9.4 Secretary's Certificate 37
9.5 No Material Adverse Change 38
9.6 STOCKHOLDERS' Release 38
9.7 Termination of Related Party Agreements 38
9.8 Opinion of Counsel 38
9.9 Consents and Approvals 38
9.10 Good Standing Certificates 38
9.11 Employment Agreements 39
9.12 Stockholders' Agreement 39
9.13 Subordination Agreement 39
9.14 Financing 39
10. COVENANTS AFTER CLOSING 39
10.1 Preparation and Filing of Tax Returns 39
10.2 Subsequent Acquisitions 40
10.3 Stock Options 40
11. INDEMNIFICATION 40
11.1 General Indemnification by the STOCKHOLDERS 40
11.2 Indemnification by ITP 41
11.3 Third Person Claims 41
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11.4 Exclusive Remedy 42
11.5 Limitations on Indemnification 42
12. TERMINATION OF AGREEMENT 43
12.1 Termination 43
12.2 Liabilities in Event of Termination 43
13. NONCOMPETITION 43
13.1 Prohibited Activities 43
13.2 Damages 44
13.3 Reasonable Restraint 45
13.4 Severability, Reformation 45
13.5 Independent Covenant 45
13.6 Materiality 45
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ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF ITP AND NEWCO
ANNEX III MERGER CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF ITP
ANNEX VI FORM OF OPINION OF COUNSEL TO ITP
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDERS
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT
ANNEX IX FORM OF JOINDER AGREEMENT
ANNEX X FORM OF PROMISSORY NOTE
ANNEX XI FORM OF SUBORDINATION AGREEMENT
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made, as of
October 20, 1997, by and among (i) IT PARTNERS, INC., a Delaware corporation
("ITP"), (ii) ITP NO. 4, INC., a Delaware corporation ("NEWCO"), (iii)
FINANCIAL SYSTEMS CONSULTING, INC., a California corporation (the "COMPANY"),
and (iv) CHARLES SCHAEFFER and GARRETT SCHAEFFER (collectively, the
"STOCKHOLDERS").
WHEREAS, NEWCO is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on July 23, 1997,
solely for the purpose of completing the transactions set forth herein, and is
a wholly-owned subsidiary of ITP;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that the COMPANY merge with and
into NEWCO pursuant to this Agreement and the applicable provisions of the
laws of the States of Delaware and California (the "Merger"), and in
furtherance thereof have approved the Merger;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by ITP prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliate" means any other person or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with a person.
"Agent" has the meaning set forth in Section 9.14.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the forms attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet" means the COMPANY's audited August 31, 1997 Balance Sheet
prepared by ITP's independent accountants, Arthur Andersen, L.L.P. and
delivered to the COMPANY.
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"Balance Sheet Date" means August 31, 1997.
"Benefit Plan" means any Plan existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by
the COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing,
under which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Debt" means all liabilities of the COMPANY as determined under GAAP
except (i) ordinary course trade payables and (ii) ordinary course accrued
liabilities.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization prepared in accordance with GAAP.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate will occur on the
Closing Date.
"Environmental Requirements" has the meaning set forth in Section 5.9(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who is, or at any time was, a member
of a controlled group (within the meaning of Section 412(n)(6) of the Code)
that includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Estimated Closing Date Balance Sheet" means a Closing Date balance sheet
for the COMPANY prepared by ITP in accordance with Section 3.3.
"Expiration Date" has the meaning set forth in Section 5(A).
"Final Closing Balance Sheet" means the Closing Date Balance Sheet as
finally determined under "Section 3.3.
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"Final Net Asset Value" means Net Asset Value as finally determined under
Section 3.4.
"GAAP" means generally accepted accounting principles of the United
States applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.9(a).
"Intellectual Property" means trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for
any of the foregoing, and any trade secret, invention, discovery, method of
doing business, process, know-how, including but not limited to, training
techniques, training materials, computer software (including source and object
code), databases, technology systems and integration techniques, product
design and product packaging.
"ITP" has the meaning set forth in the first paragraph of this Agreement.
"ITP Charter Documents" has the meaning set forth in Section 6.1.
"ITP Expiration Date" has the meaning set forth in Section 6.
"ITP Stock" means the common stock, par value $.01 per share, of ITP.
"Knowledge," "best of knowledge," "aware', or similar expressions mean
only the actual knowledge of the individual to which the expression is
applicable. When such terms are used in connection with the knowledge of a
corporate entity, such knowledge shall include only the actual knowledge of
the officers or directors of that corporate entity.
"Lien" has the meaning set forth in Section 5.6.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.8, 5.9, 5.10, 5.11, 5.12, 5.14 or 5.15 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of the COMPANY with and into NEWCO pursuant to
this Agreement and the applicable provisions of the laws of the States of
Delaware and California.
"Net Asset Value" means the COMPANY's net worth shown in the Estimated
Closing Date Balance Sheet and the Proposed Final Balance Sheet.
"NEWCO" has the meaning set forth in the first paragraph of this<PAGE>
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Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of NEWCO.
"Note" has the meaning set forth in Section 2.1 (a).
"NTM EBITDA" means EBITDA for the twelve months following the Closing
Date.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Proposed Final Closing Balance Sheet" means a Closing Date Balance Sheet
for the COMPANY prepared by ITP in accordance with Section 3.4.
"Relevant Group" has the meaning set forth in Section 5.18(a).
"Returns" has the meaning set forth at the end of Section 5.18.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean NEWCO as the surviving party in the
Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.18.
"Taxing Authority" has the meaning set forth at the end of Section 5.18.
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"Transfer Taxes" has the meaning set forth in Section 1 7.6(c).
"Working Capital Cash Needs" means that amount of cash and cash
equivalents equal to $94,690.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
filed with the Secretary of State of the State of Delaware and the Secretary
of State of the State of California and stamped receipt copies of each such
filing to be delivered to ITP on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the
Merger and subject to the terms and conditions of this Merger and the
applicable provisions of the Delaware General Corporation Law (the "Delaware
Law"), the COMPANY shall be merged with and into NEWCO in accordance with the
Articles of Merger, the separate existence of the COMPANY shall cease and
NEWCO shall be the Surviving Corporation in the Merger. At the Effective Time
of the Merger, the effect of the Merger otherwise shall be as provided in the
applicable provisions of Delaware Law and the law of the State of California.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time of the Merger, all the property, rights, privileges, powers and
franchises of the COMPANY and NEWCO shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the COMPANY and NEWCO shall become
the debts, liabilities and duties of the Surviving Corporation. The Merger
will be effected in a single transaction.
1.3 Certificate of Incorporation. By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate of Incorporation of NEWCO then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
amended as provided by law;
(b) the By-Laws of NEWCO then in effect shall be the By-Laws of
the Surviving Corporation until amended as provided by law;
(c) Charles Schaeffer, Daniel J. Klein and Jamie E. Blech shall
be the directors of the Surviving Corporation until their respective
successors are elected or appointed and qualified in accordance with the terms
the By-Laws of the Surviving Corporation: the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the laws
of the State of Delaware and of the Certificate of Incorporation and By-Laws
of the Surviving Corporation; and
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(d) the officers of the COMPANY immediately prior to the
Effective Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger. In addition, Daniel J. Klein shall be appointed
Chairman of the Board of the Surviving Corporation and Jamie E. Blech shall be
appointed vice president and assistant secretary of the Surviving Corporation,
each such officer to serve, subject to the provisions of the Certificate of
Incorporation and By-Laws of the Surviving Corporation, until his or her
successor is duly elected and qualified.
(e) Subject to the provisions of the Stockholders' Agreement
referred to in Section 9.12 hereof and subject to the provisions of the laws
of the State of Delaware, the Company shall use its best efforts to have
Charles Schaeffer nominated and appointed as a director of ITP to serve until
his successor is elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, ITP and NEWCO. The respective designations and numbers of outstanding
shares and voting rights of each class of outstanding capital stock of the
COMPANY, ITP and NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized capital
stock of the COMPANY is as set forth on. Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized
capital stock of ITP will consist of ten million shares of ITP Stock and two
million shares of preferred stock, par value $.01 per share ("Preferred
Stock"); and
(c) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 1,000 shares of NEWCO Stock, of which 100 shares
are issued and outstanding and beneficially owned by ITP.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) ITP Stock and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled
and extinguished and, by virtue of the Merger and without any action on
the part of the holder thereof, automatically shall be deemed to
represent, with respect to each STOCKHOLDER, (1) the right to receive the
number of shares of ITP Stock set forth on Annex III hereto with respect
to such STOCKHOLDER; (2) the right to receive the amount of cash set
forth on Annex III hereto with respect to such STOCKHOLDER; and (3) the
right to receive a subordinated promissory note (the "Note") issued by
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ITP in an amount specified on Annex III hereto with respect to such
STOCKHOLDER and with the terms specified in Annex X hereto and subject to
a Subordination Agreement in the form attached hereto as Annex XI;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of ITP Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(c) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of ITP, automatically be
converted into one fully paid and non-assessable share of common stock of
the Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All ITP Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding ITP
Stock by reason of the provisions of the Certificate of Incorporation of ITP
or as otherwise provided by the Delaware Law.
3. DELIVERY OF MERGER CONSIDERATION; CLOSING AND POST-CLOSING ADJUSTMENTS
3.1 (a) Delivery of Initial Merger Consideration. At the
Effective Time of the Merger and on the Closing Date the STOCKHOLDERS, who are
the holders of all outstanding certificates representing shares of COMPANY
Stock, upon surrender of such certificates and subject to the Merger
Consideration Adjustments specified under Sections 3.3 and 3.4 below shall
receive (i) the respective number of shares of ITP Stock set forth on Annex
III-A hereto; (ii) the amount of cash set forth on Annex III-A hereto with
respect to such STOCKHOLDER; and (iii) a Note issued by ITP in an amount
specified on Annex III-A hereto with respect to such STOCKHOLDER and with the
terms specified in Annex X hereto and subject to a Subordination Agreement in
the form attached hereto as Annex XI. The cash payable pursuant to clause (ii)
shall be paid by wire transfer or certified or cashier's check to the
STOCKHOLDERS.
(b) Certificate Delivery. The STOCKHOLDERS shall deliver in
trust to Piper & Marbury L.L.P., counsel to ITP, at the Pre-Closing (as
defined below) the certificates, representing all of the COMPANY Stock, duly
endorsed in blank by the STOCKHOLDERS, or accompanied by stock powers duly
endorsed in blank. The STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents
of conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. Upon consummation of the transactions
contemplated to occur on the Closing Date, all of such certificates shall be
deemed released by such counsel to ITP without any further action on the part
of such counsel.
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3.2 Delivery of Subsequent Merger Consideration. Within 15 months
after the Closing Date the STOCKHOLDERS, upon presentation of financial
statements accompanied by a report of ITP's accountants demonstrating that the
NTM EBITDA exceeds $1,437,500 and subject to the Merger Consideration
Adjustments specified under Sections 3.3 and 3.4 below shall receive (i) the
respective number of shares of ITP Stock set forth on Annex III-B hereto; (ii)
the amount of cash set forth on Annex III-B hereto with respect to such
STOCKHOLDER; and (iii) a Note issued by ITP in an amount specified on Annex
III-B hereto with respect to such STOCKHOLDER and with the terms specified in
Annex X hereto and subject to a Subordination Agreement in the form attached
hereto as Annex XI. The cash payable pursuant to clause (ii) shall be paid by
wire transfer or certified or cashier's check to the STOCKHOLDERS.
3.3 Closing Date Adjustments to Merger Consideration. On the Closing
Date, ITP, with the assistance of the STOCKHOLDERS, will deliver to the
STOCKHOLDERS an Estimated Closing Date Balance Sheet showing (i) estimated
Debt, (ii) Net Asset Value, and (iii) estimated cash and cash equivalents on
hand at the COMPANY, in each case as of the Closing Date. The amount of cash
payable shown on Annex III shall be (x) reduced by an amount equal to any Debt
and (y) increased, or decreased, as the case may be, by the positive or
negative difference between (i) (aa) cash and cash equivalents and (bb)
Working Capital Cash Needs; and (ii) (aa) Net Asset Value and (bb) $354,000
(the "Estimated Net Asset Value at December 31, 1996"). If the net amount of
the adjustment specified in this Section 3.3 results in a reduction in the
Merger Consideration in excess of the cash shown on Annex III, such excess
shall reduce the principal amount of the Notes described under Annex III. Any
increase or decrease in Merger Consideration under this Section 3.3 shall
apply ratably to the STOCKHOLDERS in proportion to their ownership of COMPANY
Stock as shown on Annex IV.
3.4 Post-Closing Adjustments to Merger Consideration.
(a) As promptly as practicable, and in any event not more than
90 days following the Closing Date, ITP, together with its accountants, shall
prepare and deliver to STOCKHOLDERS' accountants a Proposed Final Closing
Balance Sheet prepared on a basis consistent with the Balance Sheet. The
Proposed Final Closing Balance Sheet shall include an evaluation of the actual
amount of the Net Asset Value at December 31, 1996. The Proposed Final Closing
Balance Sheet shall be accompanied by a report of ITP's accountants. The
STOCKHOLDERS and STOCKHOLDERS' accountants shall have the right to consult
during reasonable business hours with appropriate personnel of ITP and ITP's
accountants and to have access to, and to review and make copies of, the work
papers of ITP and ITP's accountants with respect to the preparation of the
Proposed Closing Balance Sheet.
(b) (i) The STOCKHOLDERS may dispute the Proposed Final Closing
Balance Sheet prepared by ITP and ITP's accountants by notice to ITP setting
forth in reasonable detail the amounts in dispute and the basis for such
dispute within 45 days of its receipt of the Proposed Final Closing Balance
Sheet. If the STOCKHOLDERS fail to deliver a notice of objections within such
45-day period, the STOCKHOLDERS shall be deemed to have accepted the Proposed
Final Closing Date Balance Sheet and the Net Asset Value thereon.<PAGE>
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(ii) If the amount is in dispute, ITP's accountants and
the STOCKHOLDERS' accountants shall attempt in good faith to resolve such
dispute, and any resolution as to any disputed amounts shall be final, binding
and conclusive. If there is no resolution of any such dispute within 15 days
of the date of receipt by ITP of a written notice of dispute, ITP and the
STOCKHOLDERS shall, within five additional days, retain Coopers & Lybrand,
L.L.P., which firm shall, within 30 days of each submission, resolve such
remaining dispute, and provide written notice of such resolution by facsimile,
confirmed by mail, and such resolution shall be binding and conclusive. Such
resolution shall be within the range of amounts proposed by ITP's accountants
and the amount proposed by the STOCKHOLDERS' accountants as to each disputed
item. The fees and disbursements of Coopers & Lybrand, L.L.P. shall be borne
by ITP and the STOCKHOLDERS in the proportion that the aggregate amount of
disputed items submitted to Coopers & Lybrand, L.L.P. that is unsuccessfully
disputed by each party (as finally determined by Coopers & Lybrand, L.L.P.)
bears to the total amount of the disputed items as submitted to Coopers &
Lybrand, L.L.P. After resolving the items in dispute, Coopers & Lybrand,
L.L.P. shall prepare and deliver a Final Closing Balance Sheet and a
certification of the Final Net Asset Value thereon.
(c) If the Final Net Asset Value is less than the net amount of
Net Asset Value shown on the Estimated Closing Date Balance Sheet, the
STOCKHOLDERS shall pay to ITP the difference plus interest thereon from the
Closing Date through the date of payment at a rate per annum, which may
fluctuate from time to time, equal to the then prime rate of Citibank. If the
Final Net Asset Value is greater than the net amount of Net Asset Value shown
on the Estimated Closing Date Balance Sheet, ITP shall pay to the STOCKHOLDERS
the difference, plus interest on such amount from the Closing Date through the
date of payment at a rate per annum, equal to the then prime rate of Citibank.
Such payment shall be made in immediately available funds not later than two
business days after the determination of the Final Net Asset Value by written
transfer to a bank account designated by the party entitled to receive the
payment.
4. CLOSING
At or prior to the Pre-Closing (as defined below), the parties shall take
all actions necessary to prepare to (i) effect the Merger (including, if
permitted by applicable state law, the advance filing with the appropriate
state authorities of the Articles of Merger, which shall become effective at
the Effective Time of the Merger) and (ii) effect the conversion and delivery
of shares referred to in Section 2 hereof; provided, that such actions shall
not include the actual completion of the Merger for purposes of this Agreement
or the conversion and delivery of the shares and transmission of funds by wire
referred to in Section 3 hereof, which actions shall only be taken upon the
Closing Date as herein provided. If there is no Closing Date and this
Agreement terminates, ITP hereby covenants and agrees to do all things
required by Delaware Law and all things which counsel for the COMPANY advise
ITP are required by applicable laws of the State of California in order to
rescind any merger or other actions effected by the advance filing of the
Articles of Merger as described in this Section. The taking of the actions
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described in clauses (i) and (ii) above (the "Pre-Closing") shall take place
on the date which is mutually agreeable to the COMPANY and ITP (the "Pre-
Closing Date") at the offices of Piper & Marbury L.L.P., Charles Center South,
36 South Charles Street, Baltimore, Maryland 21201, or upon consent of the
parties, via facsimile and overnight courier. On the Closing Date (x) the
Articles of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 11:00 a.m. Eastern Time on
the Closing Date, shall become effective and the Merger shall thereby be
effected, and (y) all transactions contemplated by this Agreement, including
the conversion and delivery of shares, issuance of the Note, and the
transmission of funds by wire pursuant to Section 3 hereof shall occur. The
date on which the actions described in the preceding clauses (x) and (y) occur
shall be referred to as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the
STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to ITP and NEWCO that all of the following
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of the
Pre-Closing and the Closing Date, and that such representations and warranties
shall survive the Closing Date for a period of 18 months (the last day of such
period being the "Expiration Date"), except that the representations and
warranties set forth in Sections 5.9 and 5.18 hereof shall survive until such
time as the applicable statute of limitations period has run, which shall be
deemed to be the Expiration Date for such purposes. For purposes of this
Section 5, the term "COMPANY" shall mean and refer to the COMPANY and all of
its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly
incorporated, validly existing and in good standing under the laws of the
state of its incorporation, and is duly authorized and qualified to do
business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on its business in the places and in the manner as
now conducted, to own or hold under lease the properties and assets it now
owns or holds under lease, and to perform all of its obligations under the
Material Contracts; is duly qualified in the jurisdictions listed in Schedule
5.1 and there are no other jurisdictions in which the conduct of the COMPANY's
business or activities or its ownership of assets requires any other
qualification under applicable law, the absence of which would have a
materially adverse effect on the COMPANY's business, condition (financial or
other), properties, business prospects or results of operations taken as a
whole (as used herein with respect to the COMPANY, or with respect to any
other person, a "Material Adverse Effect"). True, complete and correct copies
of the Certificate, Deed, or Articles of Incorporation and By-Laws, each as
amended, of the COMPANY (the "Charter Documents") are all attached to Schedule
5.1. The minute books and stock records of the COMPANY, as heretofore made
available to ITP, are correct and complete in all material respects.<PAGE>
<PAGE>
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this
Agreement by the COMPANY and performance by the COMPANY of its obligations
under this Agreement and the consummation by the COMPANY of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action in accordance with applicable law and the Articles of Incorporation and
By Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The entire authorized capital
stock of the COMPANY is as set forth in Schedule 1.4. All of the issued and
outstanding shares of capital stock of the COMPANY are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and, except as set forth on
Schedule 5.3, are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of
every kind. Except as disclosed on Schedule 5.3, there are no outstanding
options, rights (preemptive or otherwise), warrants, calls, convertible
securities or commitments or any other arrangements to which the COMPANY or
the STOCKHOLDERS is a party requiring or restricting issuance, sale or
transfer of any equity securities of the COMPANY or any securities convertible
directly or indirectly into equity securities of the COMPANY, or evidencing
the right to subscribe for any equity securities of the COMPANY, or giving any
person any rights with respect to the capital stock of the COMPANY. Except as
contemplated by this Agreement or disclosed on Schedule 5.3, there are no
voting agreements, voting trusts, other agreements (including cumulative
voting rights), commitments or understandings with respect to the capital
stock of the COMPANY. All of the issued and outstanding shares of capital
stock of the COMPANY have been duly authorized and validly issued, are fully
paid and nonassessable, and are owned of record and beneficially by the
STOCKHOLDERS.
5.4 Subsidiaries. Schedule 5.4 attached hereto lists the name of
each of the COMPANY's subsidiaries and sets forth the number and class of the
authorized capital stock of each of the COMPANY's subsidiaries and the number
of shares of each of the COMPANY's subsidiaries which are issued and
outstanding, all of which shares (except as set forth on Schedule 5.4) are
owned by the COMPANY, free and clear of all liens, security interests,
pledges, voting trusts, equities, restrictions, encumbrances and claims of
every kind. Except as set forth on Schedule 5.4, the COMPANY does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, nor is the
COMPANY, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
5.5 Financial Statements. The COMPANY has delivered to ITP copies of
the following financial statements (collectively, the "Financial Statements"):
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<PAGE>
(a) Balance Sheets and Income Statements at and for the years
ended December 31,1995 and 1996: and
(b) Balance Sheets and Income Statements at and for the interim
period ended August 31, 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and
cash flows for the periods related thereto in accordance with GAAP,
consistently applied among the periods which are the subject of the Financial
Statements, except unaudited interim financial statements which were or are
subject to normal year-end adjustments which were not and are not expected to
be material in amount and the addition of required footnotes thereto.
5.6 Liabilities and Obligations. The COMPANY's assets, tangible or
intangible, are owned by the COMPANY free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each, a "Lien"), except for purchase money security interests
created in the ordinary course of business. The COMPANY has delivered to ITP
an accurate list (which is set forth on Schedule 5.6) as of the Balance Sheet
Date of (i) all liabilities of the COMPANY in excess of $l0,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is
a party. Except as set forth on Schedule 5.6, since the Balance Sheet Date the
COMPANY has not incurred any liabilities in excess of $10,000 of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary
course of business.
5.7 Accounts and Notes Receivable. The COMPANY has delivered to ITP
an accurate list (which is set forth on Schedule 5.7) of the accounts and
notes receivable of the COMPANY as of the Balance Sheet Date. Within ten (l0)
days prior to Closing, the COMPANY shall provide ITP (x) an accurate list of
all outstanding receivables obtained subsequent to the Balance Sheet Date and
as of a date which is within ten (l0) calendar days of the Closing Date and
(y) an aging of all such accounts and notes receivable showing amounts due in
30 day aging categories (the "A/R Aging Reports"). Except to the extent
reflected on Schedule 5.7, the accounts, notes and other receivables shown on
Schedule 5.7 and on the A/R Aging Reports are and shall be, and the COMPANY
has no reason to believe that any such account receivable is not or shall not
be, collectible in the amounts shown net of reserves reflected in the balance
sheet as of the Balance Sheet Date.
5.8 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has valid licenses to all Intellectual
Property required for or otherwise used in connection with the conduct of
its business and the COMPANY has delivered to ITP an accurate list (which
is set forth on Schedule 5.8(a)) of all Intellectual Property owned or
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<PAGE>
or used by the COMPANY including a list of all licenses and sublicenses
granted by or to the COMPANY with respect to any Intellectual Property.
To the COMPANY's knowledge, each item of Intellectual Property owned by
or licensed to the COMPANY is valid and in full force and effect. Except
as set forth on Schedule 5.8(a), all right, title and interest in and to
each item of Intellectual Property owned by or licensed to the COMPANY is
not subject to any restriction, royalty or fee arrangement or pending or
threatened claim or dispute. To the COMPANY's knowledge, none of the
Intellectual Property owned by or licensed to the COMPANY nor any product
sold or licensed or service provided by the COMPANY, infringes any
Intellectual Property right of any other person or entity and to the
COMPANY's knowledge, no Intellectual Property owned by or licensed to the
COMPANY is infringed upon by any other person or entity.
(b) The COMPANY holds all licenses, franchises, permits and
governmental authorizations the absence of any of which could have a
Material Adverse Effect, and the COMPANY has delivered to ITP an accurate
list and summary description (which is set forth on Schedule 5.8(b)) of
all such licenses, franchises, permits and other governmental
authorizations, including permits, licenses, franchises and certificates
(a list of all environmental permits and other environmental approvals is
set forth on Schedule 5.9). To the COMPANY's knowledge, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.8(b) and 5.9 are valid and in effect, and the COMPANY has not
received any notice that any Governmental Authority intends to cancel,
terminate or not renew any such license, franchise, permit or other
governmental authorization. To the COMPANY's knowledge, the COMPANY has
conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the
licenses, franchises, permits and other governmental authorizations
listed on Schedules 5.8(b) and 5.9 and is not in material violation of
any of the foregoing or of any related regulatory or legal requirements
except where such noncompliance or violation would not have a Material
Adverse Effect. Except as specifically provided in Schedule 5.8(a) or
5.8(b), the transactions contemplated by this Agreement will not (i)
result in the infringement or misappropriation by the COMPANY of any
Intellectual Property right of any other person or entity, or (ii) result
in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded to the COMPANY by, any licenses, franchises,
permits or government authorizations listed on Schedule 5.8(b) or any
contracts involving the grant to the COMPANY of any rights relating to
the Intellectual Property of any third party.
(c) To the COMPANY's knowledge, the COMPANY's products and
services conform to all material respects with any material applicable
specification, documentation, performance standard, or contractual
commitment by the COMPANY existing with respect thereto, and there are no
unresolved material claims under warranty, contract or otherwise with
respect to the COMPANY's services or products.
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5.9 Environmental Matters.
(a) (i) "Environmental Requirements" for purposes of this
Agreement shall mean all applicable federal, state
and local laws, rules, regulations, ordinances and
requirements relating to Hazardous Materials (as
defined below), pollution, or protection of the
environment, health or safety, all as amended or
hereafter amended.
(ii) "Hazardous Materials" for purposes of this
Agreement shall include, without limitation: (A)
hazardous materials, hazardous substances,
extremely hazardous substances, hazardous
chemicals, toxic chemicals, toxic substances,
pollutants, contaminants, solid wastes or
hazardous wastes, as those terms are defined or
used in the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. sec.9601
et seq. ("CERCLA"), the Resource Conservation and
Recovery Act, 42 U.S.C. sec. 6901 et seq.("RCRA"),
the Clean Water Act, 33 U.S.C. sec. 1251 et seq.,
the Clean Air Act, 42 U.S.C. sec. 7401 et seq.,
the Toxic Substances Control Act, 15 U.S.C. sec.
2601 et seq., the Emergency Planning and Community
Right to Know Act, 42 U.S.C. sec. 11001 et seq.,
the Occupational Safety and Health Act, and any
other Environmental Requirements and other terms
of similar import or meaning; (B) petroleum and
petroleum products, including, without limitation,
crude oil or any faction thereof; (C) any
radioactive material, including, without
limitation, any source, special nuclear, or by-
product material as defined in 42 U.S.C. Section
2011 et seq.; and (D) asbestos in any form or
condition.
(b) Except as set forth on Schedule 5.9,
(i) the COMPANY and each of its predecessors and
subsidiaries are and at all times have been in
compliance in all material respects with, and are
not and have not been in violation of or liable
under, all Environmental Requirements;
(ii) the COMPANY and each of its predecessors and
subsidiaries possess all permits, licenses and
certificates required by all Environmental
Requirements, and have filed all notices or
applications required thereby;
(iii) no environmental clearances, approvals or consents
are required under applicable law from any<PAGE>
<PAGE>
Governmental Authority or entity in order to
consummate the transactions contemplated in this
Agreement or for the COMPANY to continue
operations after the Closing Date;
(iv) (A) the COMPANY and each of its predecessors
and subsidiaries have not been subject to, or
received any notice of any private, administrative
or judicial claim or action, or notice of any
intended private, administrative or judicial claim
or action or received any request for information
relating to the presence or alleged presence of
Hazardous Materials (1) in, under or upon any real
property currently or formerly owned, leased,
operated or used by (a) the COMPANY or any of its
predecessors or subsidiaries or (b) any other
person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY or
any of its predecessors or subsidiaries; or (2)
ever possessed, owned or generated by or on behalf
of the COMPANY or any of its predecessors or
subsidiaries at any location;
(B) there is no basis for any such notice,
claim, action or request; and
(C) there are no pending or, to the knowledge
of the COMPANY and each of its predecessors and
subsidiaries, threatened claims, actions or
proceedings (or notices of potential claims,
actions or proceedings) from any Governmental
Authority or any other entity regarding any matter
relating to health, safety or protection of the
environment against the COMPANY or any of its
predecessors and subsidiaries.
(v) There are and have been no past or present events,
conditions, circumstances, activities, practices,
incidents or actions which materially interfere
with or prevent continued compliance by the
COMPANY or the Surviving Corporation with any
Environmental Requirements, give rise to any legal
obligation or liability, or otherwise form the
basis of any claim, action, suit, proceeding,
hearing or investigation against or involving the
COMPANY or any real property presently or
previously owned or used by the COMPANY under any
Environmental Requirements or related common law
theories:
(vi) No real property currently or formerly owned or
operated by the COMPANY or any of its predecessors
<PAGE>
or subsidiaries is or was listed on the National
Priorities List, the CERCLIS or any similar state
or local list of potential or confirmed hazardous
waste sites;
(vii) To the COMPANY's knowledge, no conditions exist on
adjacent properties that threaten the
environmental condition or safety of any property
owned, operated or used by the COMPANY; and
(viii) The COMPANY and its predecessors and subsidiaries
have not released or disposed of any Hazardous
Materials at any property owned or used by the
COMPANY or its predecessors or subsidiaries and,
to the COMPANY's knowledge, no other person has
released or disposed of Hazardous Materials at any
such property.
5.10 Personal Property. The COMPANY has delivered to ITP an accurate
list (which is set forth on Schedule 5.10) of (x) all personal property with a
fair market value in excess of $10,000 which is included (or that will be
included) in "depreciable plant, property and equipment" (or similarly named
line item) on the balance sheet of the COMPANY as of the Balance Sheet Date,
(y) all other personal property owned by the COMPANY with a value individually
in excess of $10,000 (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date and (z) all leases and agreements in respect of
personal property, including, in the case of each of (x), (y) and (z), true,
complete and correct copies of all such leases which have been provided to
ITP's counsel. Except as set forth on Schedule 5.10, (i) all personal property
with a value individually in excess of $10,000 used by the COMPANY in its
business is either owned by the COMPANY or leased by the COMPANY pursuant to a
lease included on Schedule 5.10, (ii) all of the personal property listed on
Schedule 5.10 is in good working order and condition, ordinary wear and tear
excepted, and (iii) all leases and agreements included on Schedule 5.10 are in
full force and effect and constitute valid and binding agreements of the
COMPANY, and to the COMPANY's knowledge, of the other parties thereto in
accordance with their respective terms.
5.11 Significant Customers: Material Contracts and Commitments. The
COMPANY has delivered to ITP an accurate list (which is set forth on Schedule
5.11) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.11, means a customer
(or person or entity) representing 5% or more of the COMPANY's total annual
revenues as of the Balance Sheet Date. Except to the extent set forth on
Schedule 5.1 1, none of the COMPANY's significant customers has canceled or
substantially reduced or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
Except as listed or described on Schedule 5.11, as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of
<PAGE>
<PAGE>
the COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union
or any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than in
the COMPANY's ordinary course of business in excess of $10.000:
(c) any contract with a term in excess of one year for the
purchase, maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services (except
that the COMPANY need not list any such contract made in the ordinary course
of business) which requires aggregate future payments of greater than $10,000;
(d) any contract relating to the borrowing of money, or the
guaranty of another person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations, agreements
and other instruments for or relating to any lending or borrowing, including
assumed indebtedness;
(e) any contract granting any person a lien on any of the
assets of the COMPANY, in whole or in part;
(f) any contract granting to any person a first-refusal, first-
offer or similar preferential right to purchase or acquire any of the assets
of the COMPANY's business other than in the ordinary course of business;
(g) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY.
in either case having an original value in excess of $10,000;
(h) any contract providing for the indemnification of any
officer, director, employee or other person;
(i) any joint venture or partnership contract; and
(j) any other contract with a term in excess of one year,
whether or not made in the ordinary course of business, which involves or may
involve payments in excess of $10,000.
The COMPANY has provided ITP with a true and complete copy of each
written Material Contract, including all amendments or other modifications
thereto. Except as set forth on Schedule 5.11, each Material Contract is a
valid and binding obligation of the COMPANY, enforceable in accordance with
<PAGE>
<PAGE>
its terms, and is in full force and effect. Except as set forth on Schedule
5.11, the COMPANY has performed in all material respects all obligations
required to be performed by it under each Material Contract and neither the
COMPANY nor, to the knowledge of the COMPANY, any other party to any Material
Contract, is (with or without the lapse of time or the giving of notice or
both) in breach or default in any material respect thereunder; and there
exists no condition which would constitute a breach or default thereunder. The
COMPANY has not been notified that any party to any Material Contract intends
to cancel, terminate, not renew or exercise an option under any Material
Contract, whether in connection with the transactions contemplated hereby or
otherwise.
5.12 Real Property. (a) The COMPANY owns no real property.
(b) Schedule 5.12(b) includes an accurate list of real
property leases to which the COMPANY is a party. Counsel to ITP has
been provided with true, complete and correct copies of all leases and
agreements in respect of such real property leased by the COMPANY. Except
as set forth on Schedule 5.12(b), all of such leases included on Schedule
5.12(b) are in full force and effect and constitute valid and binding
agreements of the COMPANY and, to the COMPANY's knowledge, of the parties
thereto in accordance with their respective terms.
5.13 Insurance. The COMPANY has delivered to ITP:
(a) true and complete copies of all policies of insurance
to which the COMPANY is a party or under which the COMPANY, or any
director of the COMPANY, is or has been covered at any time within two
years preceding the date of this Agreement;
(b) true and complete copies of all pending applications
for policies of insurance; and
(c) any statement by the auditor of the COMPANY's
financial statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
5.14 Compensation: Employment Agreements; Organized Labor Matters.
The COMPANY has delivered to ITP an accurate list (which is set forth on
Schedule 5.14) showing all officers, directors and key employees of the
COMPANY, listing all employment agreements with such officers, directors and
key employees and the rate of compensation of each of such persons as of (i)
the Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to
ITP true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.14. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices. Except as set forth on
Schedule 5.14, there is no, and within the last three years the COMPANY has
not experienced any, strike, picketing, boycott, work stoppage or slowdown,
other labor dispute, union organizational activity, allegation, charge or
complaint of unfair labor practice, employment discrimination or other matters
<PAGE>
<PAGE>
relating to the employment of labor, pending or, to the COMPANY's knowledge,
threatened against the COMPANY.
5.15 Employee Plans. The COMPANY has delivered to ITP an accurate
schedule (which is set forth on Schedule 5. 15) showing all Benefit Plans,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, summary plan descriptions thereof,
the last determination letter (if any) issued to each Benefit Plan by the
Internal Revenue Service, and the last three Forms 5500 filed for such Benefit
Plans.
5.16 Compliance with ERISA.
(a) All Benefit Plans that are intended to qualify under
Section 401(a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified.
(b) Except as disclosed on Schedule 5.16, all reports and other
documents required to be filed with any Governmental Authority or distributed
to plan participants or beneficiaries (including, but not limited to,
actuarial reports, audits or tax returns) have been timely filed or
distributed.
(c) None of the STOCKHOLDERS, any such Benefit Plan, nor the
COMPANY has engaged in any transactions prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA.
(d) No material pending claim or lawsuit has been asserted or
instituted by or against a Benefit Plan, against the assets of a trust under a
Benefit Plan or by or against the plan sponsor, plan administrator, or any
fiduciary of a Benefit Plan (other than routine claims for benefits), and the
COMPANY has no knowledge of any fact which could form the basis for any such
claim or lawsuit.
(e) Each Benefit Plan (including without limitation a Benefit
plan covering retirees or their beneficiaries) may be terminated or amended by
the plan sponsor at any time without the consent of any person covered
thereunder and may be terminated without any liability for benefits accruing
after the date of such termination.
(f) No Benefit Plan has any provisions that would prohibit the
transactions contemplated by this Agreement or give rise to any severance,
termination or other payments or liabilities (including without limitation any
acceleration in benefits vesting or distribution) as a result of the
transactions contemplated by this Agreement.
(g) There have been no terminations, partial terminations or
discontinuance of contributions to any Benefit Plan intended to qualify under
Section 401(a) of the Code without notice to and approval by the Internal
Revenue Service and the Pension Benefit Guaranty Corporation.
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(h) All Benefit Plans and the administration thereof are in
substantial compliance with their terms and all applicable provisions of
ERISA, the Code and the regulations issued thereunder, as well as with all
other applicable federal, state and local statutes, ordinances and
regulations.
(i) All accrued contribution obligations or the COMPANY with
respect to any Benefit Plan have either been fulfilled in their entirety or
are fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
(j) The COMPANY further represents that, with respect to
Benefit Plans subject to Title IV of ERISA:
(a) no Benefit Plan has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA and no event has occurred or circumstance exists which may result in an
accumulated funding deficiency as of the last day of the current plan year for
any Benefit Plan;
(b) the benefit liabilities of each Benefit Plan (as
defined in Section 4001(a)(16) of ERISA), calculated using the actuarial
assumptions that would be used by the Pension Benefit Guaranty Corporation in
the event of plan termination, do not exceed the fair market value of plan
assets;
(c) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA and regulations thereunder) with respect
to any Benefit Plan, other than events with respect to which the 30 days'
notice requirement has been waived;
(d) the COMPANY and its ERISA Affiliates have not incurred
liability under Section 4062, 4063 or 4064 of ERISA with respect to any
Benefit Plan;
(e) no circumstances exist pursuant to which the COMPANY
could have any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the PBGC under Title IV
of ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such liability)
with respect to any Benefit Plan now or heretofore maintained or contributed
to by any ERISA Affiliate; and
(f) the COMPANY is not now, nor can it as a result of its
past activities become, liable to the PBGC or to any Benefit Plan that is a
multiemployer employee pension benefit plan as defined in Section 3(37) of
ERISA; and
5.17 Conformity with Law; Litigation. Except as set forth on
Schedule 5.17, the COMPANY has complied with all laws, rules, regulations,
writs, injunctions, decrees, and orders applicable to it or to the operation
of its Business (collectively, "Laws") and has not received any notice of any
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alleged claim or threatened claim, violation of, liability or potential
responsibility under, any such Law which has not heretofore been cured and for
which there is no remaining liability other than, in each case, those not
having a Material Adverse Effect.
Except to the extent set forth on Schedule 5.17 (which shall disclose the
parties to, nature of, and relief sought for each matter disclosed):
(a) There is no suit, action, proceeding, investigation, claim
or order pending or, to the COMPANY's knowledge, threatened against
either the COMPANY or, to the knowledge of the COMPANY, pending or
threatened against any of the officers, directors or employees of the
COMPANY with respect to its business or proposed business activities
which would have a Material Adverse Effect on the COMPANY, or to which
the COMPANY is otherwise a party, before any court, or before any
Governmental Authority (collectively, "Claims").
(b) The COMPANY is not subject to any judgment, order or decree
of any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to its business. The COMPANY is not engaged in any legal
action to recover monies due it or for damages sustained by it.
5.18 Taxes. Except as set forth on Schedule 5.18:
(a) All Returns required to have been filed by or with respect
to the COMPANY and any affiliated, combined, consolidated, unitary or
similar group of which the COMPANY is or was a member (a "Relevant
Group") with any Taxing Authority have been duly filed, and each such
Return correctly and completely reflects the Tax liability and all other
information required to be reported thereon. All Taxes (whether or not
shown on any Return) owed by the COMPANY, any subsidiary and any member
of a Relevant Group (individually, the "Acquired Party" and
collectively, the "Acquired Parties") have been paid on or prior to the
due date for payment of such Taxes.
(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction that is unresolved or if adversely determined would have a
Material Adverse Effect on such Acquired Party.
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(d) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid
or owing to any employee, creditor, independent contractor or other
third party.
(e) No Acquired Party expects any Taxing Authority to assess
any additional Taxes against or in respect of it for any past period.
There is no dispute or claim concerning any Tax liability of any
Acquired Party either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any Acquired Party. No issues have been raised
in any examination by any Taxing Authority with respect to any Acquired
Party which, by application of similar principles, reasonably could be
expected to result in a proposed deficiency for any other period not so
examined. Schedule 5.18 attached hereto lists all federal, state, local
and foreign income Tax Returns filed by or with respect to any Acquired
Party for all taxable periods ended on or after January 1, 1991,
indicates those Returns, if any, that have been audited, and indicates
those Returns that currently are the subject of audit. Each Acquired
Party has delivered to ITP complete and correct copies of all federal,
state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations,
the waiver of which remains in effect on the date hereof, in respect of
Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(g) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(h) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(i) None of the assets of any Acquired Party constitutes tax-
exempt bond financed property or tax-exempt use property, within the
meaning of Section 168 of the Code. No Acquired Party is a party to any
"safe harbor lease" that is subject to the provisions of Section 1
68(f)(8) of the Internal Revenue Code as in effect prior to the Tax
Reform Act of 1986, or to any "long-term contract" within the meaning of
Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341 (f)(1) of the Code, or comparable provisions of
any state statutes, and none of the assets of any Acquired Party is
subject to an election under Section 341 (f) of the Code or comparable
provisions of any state statutes.
<PAGE>
<PAGE>
(k) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for
federal income Tax purposes.
(l) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods
after the Closing Date.
(m) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and
legally binding agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section
6662(d) of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or
foreign law), (ii) as a transferee or successor, (iii) by contract or
(iv) otherwise.
(p) Prior to ITP's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax
Losses") under (i) Section 382 of the Code, (ii) Section 383 of the
Code, (iii) Section 384 of the Code, (iv) Section 269 of the Code, (v)
Section 1.1502-15 and Section 1.1502-15A of the Treasury regulations,
(vi) Section 1.1502-21 and Section 1.1502-21A of the Treasury
regulations or (vii) Sections 1.1502-91 through 1.1502-99 of the
Treasury regulations, in each case as in effect both prior to and
following the Tax Reform Act of 1986.
(q) The fair market value of the assets of the COMPANY as well
as the COMPANY's tax basis in such assets exceeds the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets
are subject.
(r) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351 (e)(2) of
the Code.
For purposes of this Section 5.19, the following definitions shall
apply:
"Returns" means any returns, reports or statements'(including any
information returns) required to be filed for purposes of a particular Tax
<PAGE>
<PAGE>
with any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.19 No Violations. The COMPANY is not in violation of any Charter
Document. To the knowledge of the COMPANY, except as set forth on Schedule
5.19, (a) the rights and benefits of the COMPANY under the Material Contracts
will not be adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance by the COMPANY and the
STOCKHOLDERS of their obligations hereunder and the consummation by the
COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will not
(i) result in any violation or breach of, or constitute a default under, any
of the terms or provisions of the Material Contracts or the Charter Documents
or (ii) require the consent, approval, waiver of any acceleration, termination
or other right or remedy or action of or by, or make any filing with or give
any notice to, any other party. Except as set forth on Schedule 5.19, none of
the Material Contracts requires notice to, or the consent or approval of, any
Governmental Authority or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any material
right or benefit.
5.20 Business Conduct. Except as set forth on Schedule 5.20, since
August 31, 1997, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no
liabilities other than in the ordinary course of business consistent with past
custom and practices. Except as forth on Schedule 5.20, since August 31, 1997,
there has not been any:
(a) Material adverse change in the COMPANY's operations,
condition (financial or otherwise), operating results, assets,
liabilities, employee, customer or supplier relations or business
prospects;
(b) Loan or advance by the COMPANY to any party other than
sales to customers on credit in the ordinary course of business
consistent with past custom and practices;
(c) Declaration, setting aside, or payment of any dividend or
other distribution in respect to the COMPANY's capital stock, any direct
<PAGE>
<PAGE>
or indirect redemption, purchase, or other acquisition of such stock, or
the payment of principal or interest on any note, bond, debt, instrument
or debt to any Affiliate;
(d) Incurrence of any debts, liabilities or obligations except
current liabilities incurred in connection with or for services rendered
or goods supplied in the ordinary course of business consistent with
past custom and practices, liabilities on account of taxes and
governmental charges but not penalties, interest or fines in respect
thereof, and obligations or liabilities incurred by virtue of the
execution of this Agreement;
(e) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(f) Cancellation, waiver or release by the COMPANY of any
debts, rights or claims, except in each case in the ordinary course of
business consistent with past custom and practices;
(g) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
(h) Amendment or termination of any, Material Contract, other
than expiration of such contract in accordance with its terms;
(i) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or
amortization policies or rates) utilized by the COMPANY;
(j) Sale or assignment by the COMPANY of any tangible assets
other than in the ordinary course of business;
(k) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $10,000 in
the aggregate;
(l) Liens of any asset of the COMPANY other than purchase money
security interests created in the ordinary course of business;
(m) Adoption, amendment or termination of any Benefit Plan;
(n) Increase in the benefits provided under any Benefit Plan;
or
(o) An occurrence or event not included in clauses (a) through
(o) that has or might be expected to have a Material Adverse Effect on
the COMPANY.
5.21 Prohibited Activities. Except as set forth on Schedule 5.21,
the COMPANY has not, between the Balance Sheet Date and the date hereof, taken
<PAGE>
<PAGE>
any of the actions set forth in Section 7.3.
5.22 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the schedules, certificates, and the other documents furnished by
the COMPANY to ITP pursuant hereto, taken as a whole, contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.7 hereof, shall be true at the time of the
Pre-Closing and on the Closing Date.
5.23 Authority; Ownership. Each STOCKHOLDER has the full legal
right, power and authority to enter into this Agreement. Each STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified
on Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.23, such COMPANY Stock is owned free and clear of any and all
Liens, voting trusts and restrictions of every kind
5.24 No Intention to Dispose of ITP Stock. No STOCKHOLDER has any
current plan or intention, or is under any binding commitment or contract to
sell, exchange or otherwise dispose of shares of ITP Stock received pursuant
to Section 3.1.
6. REPRESENTATIONS OF ITP AND NEWCO
ITP and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties
in this Section 6 are true at the date of this Agreement and, subject to
Section 7.7 hereof, shall be true at the time of the Pre-Closing and on the
Closing Date, and that such representations and warranties shall survive the
Closing Date for a period of 18 months (the "ITP Expiration Date").
6.1 Due Organization. ITP and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the
state of their incorporation, and are duly authorized and qualified to do
business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on their business in the places and in the manner
as now conducted, to own or hold under lease the properties and assets they
now own or hold under lease, and to perform all of their obligations under any
material agreement to which they are a party by which their properties are
bound; are duly qualified in the jurisdictions listed in Schedule 6.1 and
there are no other jurisdictions in which the conduct of ITP's and NEWCO's
business or activities or their ownership of assets requires any other
qualification under applicable law, the absence of which would have a
Materially Adverse Effect on either ITP's or NEWCO's business. True, complete
and correct copies of the Certificate or Articles of Incorporation and Bylaws,
each as amended, of ITP and NEWCO (the "ITP Charter Documents") are all<PAGE>
<PAGE>
attached hereto as Annex II. The minute books and stock records of each of ITP
and NEWCO, as heretofore made available to the COMPANY, are correct and
complete in all material respects.
6.2 Authorization. The respective representatives of ITP and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind ITP and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by ITP and NEWCO and
the performance by ITP and NEWCO of their respective obligations under this
Agreement and the consummation by ITP and NEWCO of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action by each in accordance with applicable law and the Certificate or
Articles of Incorporation and By-Laws of ITP and NEWCO, as the case may be.
This Agreement constitutes the valid and binding obligation of ITP and NEWCO,
enforceable in accordance with its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of
this Agreement nor their performance will violate, conflict with, or result in
a breach of any provision of any Law, rule, regulation, order, permit,
judgment, injunction, decree or other decision of any court or other tribunal
or any Governmental Authority binding on ITP or NEWCO or conflict with or
result in the breach of any of the terms, conditions or provisions of the
Certificate or Articles of Incorporation or the By-Laws of ITP or NEWCO or of
any contract, agreement, mortgage or other instrument or obligation of any
nature to which ITP or NEWCO is a party or by which ITP or NEWCO is bound.
6.4 Misrepresentation. To the knowledge of ITP, none of the
representations and warranties set forth in this Agreement or in any of the
certificates, schedules, exhibits, lists, documents, exhibits, or other
instruments delivered, or to be delivered, to the COMPANY as contemplated by
any provision hereof, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of ITP
consists of ten million shares of ITP Stock and two million shares of
Preferred Stock. Except as disclosed on Schedule 6.5, there are no outstanding
options, rights (preemptive or otherwise), warrants, calls, convertible
securities or commitments or any other arrangements to which ITP is a party
requiring or restricting issuance, sale or transfer of any equity securities
of ITP or any securities convertible directly or indirectly into equity
securities of ITP, or evidencing the right to subscribe for any equity
securities of ITP, or giving any person any rights with respect to the capital
stock of ITP. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with
respect to the ITP Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of
each of ITP's and NEWCO's subsidiaries and sets forth the number and class of
the authorized capital stock of each of ITP's and NEWCO's subsidiaries and the
number of shares of each of ITP's and NEWCO's subsidiaries which are issued
<PAGE>
<PAGE>
and outstanding prior to the Merger, all of which shares (except as set forth
on Schedule 6.6) are owned by ITP and NEWCO as the case may be, free and clear
of all liens, security interests, pledges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. Except as set forth on
schedule 6.6, ITP and NEWCO do not presently own, of record or beneficially,
or control, directly or directly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation,
association or business entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule
6.7, ITP and NEWCO have complied with all Laws, applicable to them or to the
operation of their businesses and have not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any Law which has not heretofore been cured and for which there is no
remaining liability other than, in each case, those not having a Material
Adverse Effect on the business, condition (financial or other), properties,
business prospects or financial results of ITP or NEWCO, taken as a whole.
Except to the extent set forth on Schedule 6.7 (which shall disclose to
the parties the, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation,
claim or order pending or, to the knowledge of ITP and NEWCO, threatened
against either of ITP or NEWCO or, to the knowledge of ITP and NEWCO,
pending or threatened against any of the officers, directors or employees
of ITP or NEWCO with respect to their businesses or proposed business
activities which would have a Material Adverse Effect on ITP or NEWCO, or
to which ITP or NEWCO are otherwise a party, before any court, or before
any Governmental Authority.
(b) ITP and NEWCO are not subject to any judgment, order or
decree of any court or Governmental Authority; ITP and NEWCO have not
received any opinion or memorandum from legal counsel to the effect that
either is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to their businesses. Neither ITP nor
NEWCO are engaged in any legal action to recover monies due it or them
for damages sustained by either of them.
6.8 Financial Statements. ITP has delivered to the COMPANY copies of
the following financial statements (collectively, the "ITP Financial
Statements"):
(a) Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows at and for the interim
period ended August 31, 1997.
Each of the ITP Financial Statements is consistent with the books and
records of ITP (which, in turn, are accurate and complete in all material
respects) and fairly presents ITP's financial condition, assets and
liabilities as of their respective dates and the results of operations and
cash flows for the periods related thereto in accordance with GAAP,
consistently applied among the periods which are the subject of the ITP<PAGE>
<PAGE>
Financial Statements, except unaudited interim financial statements which were
or are subject to normal year-end adjustments which were not and are not
expected to be material in amount and the addition of required footnotes
thereto.
6.9 Compensation; Employment Agreements; Organized Labor Matters.
ITP has delivered to the COMPANY an accurate list (which is set forth on
Schedule 6.9) showing all officers, directors and key employees of ITP and the
two most highly compensated employees of each of ITP's subsidiaries, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation of each of such persons as of the date hereof. Except
as set forth on Schedule 6.9, there is no, and within the last three years ITP
has not experienced any, strike, picketing, boycott, work stoppage or
slowdown, other labor dispute, union organizational activity, allegation,
charge or complaint of unfair labor practice, employment discrimination or
other matters relating to the employment of labor, pending or, to ITP's
knowledge threatened against ITP.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation: Due Diligence.
(a) Between the date of this Agreement and the Closing Date,
the COMPANY will afford to the officers and authorized representatives
of ITP access during business hours to all of the COMPANY's sites,
properties, books and records and will furnish ITP with such additional
financial and operating data and other information as to the business
and properties of the COMPANY as ITP may from time to time reasonably
request. The COMPANY will cooperate with ITP and its representatives,
including ITP's auditors and counsel, in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. ITP, NEWCO, the
STOCKHOLDERS and the COMPANY will treat all information obtained in
connection with the negotiation and performance of this Agreement or the
due diligence investigations conducted as confidential in accordance
with the provisions of Section 14 hereof.
(b) Between the date of this Agreement and the Closing Date,
ITP will afford to the officers and authorized representatives of the
COMPANY access during business hours to all of ITP's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of ITP and NEWCO as the COMPANY may from time to
time reasonably request. ITP and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance
of this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
<PAGE>
<PAGE>
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and
use its best efforts to retain its present key employees and
relationships with suppliers, customers and others having business
relations with the COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities:
(g) maintain present debt and lease instruments in accordance
with their respective terms and not enter into new or amended debt or
lease instruments, provided that debt and/or lease instruments may be
replaced if such replacement instruments are on terms at least as
favorable to the COMPANY as the instruments being replaced; and
(h) except in the ordinary course of business or as required by
law or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or
incentive agreement or arrangement with, any of the employees engaged in
the COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Plan
(except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v)
engage in any transaction with any Affiliates.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3
between the date hereof and the Closing Date, the COMPANY will not, without
the prior written consent of ITP:
(a) make any change in its Articles or Certificate of<PAGE>
<PAGE>
Incorporation or By-Laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities
of any kind other than in connection with the exercise of options or
warrants listed on Schedule 5.3;
(c) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
or engage in any transaction that will significantly affect the cash
reflected on the balance sheet of the COMPANY as of August 31, 1997.
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $10,000;
(e) create, assume or permit to exist any Lien upon any assets
or properties whether now owned or hereafter acquired, except (1) with
respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $10,000
necessary or desirable for the conduct of the business of the COMPANY,
(2) (A) Liens for Taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which adequate reserves
have been established and are being maintained) or (B) material men's,
mechanics', workers', repairmen's, employees' or other like Liens arising
in the ordinary course of business (the liens set forth in clause (2)
being referred to herein as "Statutory Liens"), or (3) Liens set forth on
Schedule 5.6 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-
up of any new business;
(h) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(i) waive any material right or claim of the COMPANY;
(j) commit a material breach of, materially amend or terminate
any Material Contract; or
(k) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 No Shop. In consideration of the substantial expenditure of
time, effort and expense undertaken by ITP in connection with its due
diligence review and the preparation and execution of this Agreement, the
COMPANY and the STOCKHOLDERS agree that neither they nor their<PAGE>
<PAGE>
representatives, agents or employees will, after the execution of this
Agreement until the earlier of (i) the termination of this Agreement or (ii)
the Closing, directly or indirectly, solicit, encourage, negotiate or discuss
with any third party (including by way of furnishing any information
concerning the COMPANY) any acquisition proposal relating to or affecting the
COMPANY or any part of it, or any direct or indirect interests in the COMPANY,
whether by purchase of assets or stock, purchase of interests, merger or other
transaction ("Acquisition Transaction"), and that the COMPANY will promptly
advise ITP of the terms of any communications any of the STOCKHOLDERS or the
COMPANY may receive or become aware of relating to any bid for all or any part
of the COMPANY.
7.5 Termination of Related Party Agreements. The STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting
agreements, voting trusts, options, warrants and employment agreements between
the COMPANY and any employee and (ii) any existing agreement between the
COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list of such
terminated agreements is set forth on Schedule 7.5 and copies of each such
agreement have been provided to counsel for ITP.
7.6 Notification of Certain Matters. Between the date hereof and the
Closing Date the STOCKHOLDERS and the COMPANY shall give prompt notice to ITP
of (i) the occurrence or non-occurrence of any event of which the COMPANY or
the STOCKHOLDERS have knowledge, the occurrence or non-occurrence of which,
would cause any representation or warranty of the COMPANY or the STOCKHOLDERS
contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of any STOCKHOLDER or the
COMPANY to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such person hereunder. Between the date hereof
and the Closing Date ITP and NEWCO shall give prompt notice to the COMPANY of
(i) the occurrence or nonoccurrence of any event of which ITP or NEWCO have
knowledge, the occurrence or non-occurrence of which, would cause any
representation or warranty of ITP or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of ITP or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.6 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering
such notice, which modification may only be made pursuant to Section 7.7, (ii)
modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.7 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules.<PAGE>
<PAGE>
(b) Notwithstanding the foregoing clause (a), no amendment or
supplement to a Schedule prepared by the COMPANY or the STOCKHOLDERS
that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect, individually or cumulatively with any other
events or occurrences, may be made unless ITP consents in writing to
such amendment or supplement; and provided further that no amendment or
supplement to a Schedule prepared by ITP or NEWCO that constitutes or
reflects an event or occurrence that would have a Material Adverse
Effect may be made unless the COMPANY consents in writing to such
amendment or supplement. In the event that the COMPANY or the
STOCKHOLDERS seek to amend or supplement a Schedule pursuant to this
Section 7.7 and ITP does not consent to such amendment or supplement, as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(a) hereof. In the event that ITP or
NEWCO seeks to amend or supplement a Schedule pursuant to this Section
7.7 and the COMPANY does not consent to such amendment or supplement, as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(a) hereof.
(c) For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth
in Sections 8 and 9 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this
Section 7.7. No party to this Agreement shall be liable to any other
party if this Agreement shall be terminated pursuant to the provisions
of this Section 7.7, except that, notwithstanding anything to the
contrary contained in this Agreement, if the COMPANY or the STOCKHOLDERS
on the one hand, or ITP or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement
and such amendment or supplement arises out of or reflects facts or
circumstances which such party knew about at the time of execution of
this Agreement and knew would result in a termination of this Agreement
or if such amendment or supplement otherwise is proposed in bad faith,
such party shall pay or reimburse ITP or the COMPANY and the
STOCKHOLDERS, as the case may be, for all of the legal, accounting and
other out of pocket costs reasonably incurred in connection with this
Agreement.
7.8 Further Assurances. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated hereby.
7.9 Approval of Merger Agreement. Each of the STOCKHOLDERS agrees to
vote all of his shares of the COMPANY Stock in favor of the Merger and all
other transactions contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY
<PAGE>
<PAGE>
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in
this Section 8, on the Closing Date are subject to the satisfaction or waiver
on or prior to the Pre-Closing Date and/or the Closing Date, as the case may
be, of all of the conditions set forth in this Section 8.
8.1 Representations and Warranties. All representations and
warranties of ITP and NEWCO contained in Section 6 shall be true and correct
in all material respects as of the Pre-Closing Date and the Closing Date as
though such representations and warranties had been made as of such date; and
a certificate to the foregoing effect dated the Pre-Closing Date and the
Closing Date and signed by the President or any Vice President of ITP shall
have been delivered to the COMPANY and the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by ITP and
NEWCO on or before each of the Pre-Closing Date and the Closing Date shall
have been duly complied with and performed in all material respects on or
before each of the Pre-Closing Date and the Closing Date, as the case may be;
and certificates to the foregoing effect dated each of the Pre-Closing Date
and the Closing Date and signed by the President or any Vice President of ITP
shall have been delivered to the COMPANY and the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any
other Governmental Authority or body shall have been instituted or threatened
to restrain or prohibit the Merger or the transactions contemplated by this
Agreement.
8.4 Opinion of Counsel. The STOCKHOLDERS shall have received an
opinion from counsel for ITP and NEWCO, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the
Closing Date, substantially in the form annexed hereto as Annex VI
8.5 Consents and Approvals. All necessary consents of and filings
required to be obtained or made by ITP or NEWCO with any Governmental
Authority or agency relating to the consummation of the transactions
contemplated by this Agreement shall have been obtained and made.
8.6 Good Standing Certificates. ITP and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than 10
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which ITP or NEWCO is authorized to do business,
showing that each of ITP and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
ITP and NEWCO, respectively, for all periods prior to the Closing have been
filed and paid.
8.7 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date
and signed by the secretary of ITP and of NEWCO, certifying the truth and
correctness of attached copies of the ITP's and NEWCO's respective
Certificates of Incorporation (including amendments thereto), By-Laws<PAGE>
<PAGE>
(including amendments thereto), and resolutions of the boards of directors
and, if required, the STOCKHOLDERS of ITP and NEWCO approving ITP's and
NEWCO's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ITP AND NEWCO
The obligations of ITP and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9.
9.1 Representations and Warranties. All the representations and
warranties of the STOCKHOLDERS and the COMPANY contained in this Agreement
shall be true and correct in all material respects as of the Pre-Closing Date
and the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date; and the STOCKHOLDERS shall
have delivered to ITP certificates dated the Pre-Closing Date and the Closing
Date and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before each of the Pre-Closing Date and the
Closing Date shall have been duly performed or complied within all material
respects on or before each of the Pre-Closing Date and the Closing Date, as
the case may be; and the STOCKHOLDERS shall have delivered to ITP certificates
dated the Pre-Closing Date and the Closing Date, respectively, and signed by
them to such effect.
9.3 No Litigation. No action or proceeding before a court or any
other Governmental Authority or body shall have been instituted or threatened
to restrain or prohibit the Merger or the transactions contemplated by this
Agreement and no Governmental Authority or body shall have taken any other
action or made any request of ITP as a result of which the management of ITP
deems it inadvisable to proceed with the transactions hereunder.
9.4 Secretary's Certificate. ITP shall have received a certificate
or certificates, dated each of the Pre-Closing Date and the Closing Date and
signed by the secretary of the COMPANY, certifying the truth and correctness
of attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the shareholders approving the
COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of
the Closing Date, no event or circumstance shall have occurred with respect to
the COMPANY which would constitute a Material Adverse Effect, and the COMPANY
shall not have suffered any material loss or damages to any of its properties
or assets whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its<PAGE>
<PAGE>
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to
ITP an instrument dated the Closing Date releasing the COMPANY from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and ITP and (ii)
obligations of the COMPANY and ITP to the STOCKHOLDERS, except for (x)
continuing obligations to the STOCKHOLDERS relating to their employment by the
COMPANY and (y) obligations arising under this Agreement or the transactions
contemplated hereby
9.7 Termination of Related Party Agreements. All agreements
specified in Section 7.5 hereof shall have been terminated effective prior to
or as of the Closing Date.
9.8 Opinion of Counsel. ITP shall have received an opinion from
counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the
Closing Date, substantially in the form attached hereto as Annex VII.
9.9 Consents and Approvals. All necessary consents of and filings
with any Governmental Authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.19 shall have
been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
ITP a certificate, dated as of a date no earlier than 10 days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by ITP, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Employment Agreements. Each of the STOCKHOLDERS shall have
entered into an employment agreement substantially in the form attached as
Annex VIII hereto.
9.12 Stockholders' Agreement. Each STOCKHOLDER shall have executed a
Joinder Agreement substantially in the form of Annex IX hereto binding them
and all of their shares of ITP Stock received in the Merger to the provisions
of the Stockholders' Agreement of IT Partners, Inc. dated May 29, 1997 (the
"Stockholders' Agreement").
9.13 Subordination Agreement. Each STOCKHOLDER shall have executed a
Subordination Agreement substantially in the form of Annex X hereto.
9.14 Financing. ITP and/or NEWCO, as the case may be, shall have
secured adequate financing to fund the amount of cash set forth on Annex III
under the Intercompany Loan and Security Agreement by and among ITP, NEWCO,
the lenders from time to time, Creditanstalt-Bankverein and Creditanstalt
Corporate Finance, Inc. (the "Agent").<PAGE>
<PAGE>
10. COVENANTS AFTER CLOSING
10.1 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end
on or before the Closing Date. Each STOCKHOLDER shall pay or cause to be
paid all Tax liabilities (in excess of all amounts already paid with
respect thereto or properly accrued or reserved with respect thereto on
the COMPANY Financial Statements) shown by such Returns to be due.
(b) ITP shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after
the Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the receding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(d) Each of the COMPANY, NEWCO, ITP and each STOCKHOLDER hereby
agrees to report the transaction as a tax-free reorganization pursuant
to Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
(e) ITP shall be solely responsible for any taxes payable in
respect of the net receivables of the COMPANY existing on the Closing
Date.
10.2 Subsequent Acquisitions. ITP covenants and agrees that it
will not acquire any other companies or all or substantially all of the assets
of any other company through November 30, 1997 if such acquisition would
include the issuance of shares of ITP Common Stock at an assumed price per
share of less than $5.30.
10.3 Stock Options. Subject to the provisions of the Stockholders'
Agreement referred to in Section 9.12 hereof, ITP covenants and agrees that it
will reserve an aggregate of 60,000 shares of its Common Stock for issuance
upon exercise of options granted from time to time to employees of the
Surviving Corporation in the sole and absolute discretion of ITP's Board of
Directors. ITP's Board of Directors will consider the recommendations of the
<PAGE>
<PAGE>
President of the Surviving Corporation with regard to the employees who should
receive such options.
11. INDEMNIFICATION
The STOCKHOLDERS, ITP and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless ITP, NEWCO, the COMPANY and the Surviving
Corporation at all times, from and after the date of this Agreement until the
Expiration Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and
reasonable expenses of investigation) incurred by ITP, NEWCO, the COMPANY or
the Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the
COMPANY under this Agreement, (iii) any liability under any Federal or state
law or regulation, at common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact relating
to the COMPANY or the STOCKHOLDERS, or arising out of or based upon any
omission or alleged omission by the COMPANY and/or the STOCKHOLDERS to state a
material fact relating to the COMPANY or the STOCKHOLDERS required to be
stated or necessary to make the statements not misleading, or (iv) any Tax
imposed upon the COMPANY, NEWCO or the Surviving Corporation or relating to
any third party or Acquired Party for any period ending on or prior to the
Closing Date, including, in each case, any such Tax arising out of or in
connection with the transactions effected pursuant to this Agreement or any
such Tax for which an Acquired Party may be liable under Section 1.1502-6 of
the Treasury Regulations (or any similar provisions of state, local or foreign
law), as a transferee or successor, by contract or otherwise.
11.2 Indemnification by ITP. ITP covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times
from and after the date of this Agreement until the ITP Expiration Date, from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the STOCKHOLDERS as a result of or arising from (i) any breach by
ITP or NEWCO of its representations and warranties set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of ITP or NEWCO under this Agreement, (iii) any
liability under any Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to ITP or NEWCO, or arising out of or
based upon any omission or alleged omission to state a material fact relating
to ITP or NEWCO required to be stated or necessary to make the statements not
misleading, or (iv) any liability associated with Charles Schaeffer's guaranty
of the COMPANY's lease dated April 17, 1997.<PAGE>
<PAGE>
11.3 Third Person Claims. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), of
the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof.
The Indemnifying Party shall have the right to defend and settle, at its own
expense and by its own counsel, any such matter so long as the Indemnifying
Party pursues the same in good faith and diligently, provided that the
Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense,
with the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement to said Third Person plus all
indemnifiable costs and expenses incurred to date, the Indemnifying Party
shall be relieved of its duty to defend and shall tender the Third Person
claim back to the Indemnified Party, who shall thereafter, at its own expense,
be responsible for the defense and negotiation of such Third Person claim. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails
diligently to pursue such defense, the Indemnified Party may undertake such
defense through counsel of its choice, at the cost and expense of the
Indemnifying Party, and the Indemnified Party may settle such matter, and the
Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim
without the written consent of the Indemnifying Party, which consent shall not
be unreasonably withheld or delayed.
11.4 Exclusive Remedy. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA) be the exclusive remedy in
any action seeking damages or any other form of monetary relief brought by any
party to this Agreement against another party, provided that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement or to seek relief for a
breach of any employment agreement with, or any stock option issued by, ITP.
11.5 Limitations on Indemnification. (a) the persons or entities
indemnified pursuant to Section 11.1 or 11.2(i), (ii) (except as it relates to
claims for Initial or Subsequent Merger Consideration) or (iii) shall not
assert any claim other than a Third Person claim for indemnification hereunder
<PAGE>
<PAGE>
until such time as, and solely to the extent that, the aggregate of all claims
which such persons may have shall exceed $150,000. An amount equal to $150,000
shall be a cumulative deductible against any claim for indemnification
hereunder. No person shall be entitled to indemnification under this Section
11: (i) if and to the extent that such person's claim for indemnification is
directly or indirectly related to a breach by such person of any
representation, warranty, covenant or other agreement set forth in this
Agreement; and (ii) unless such claim has been presented to the indemnifying
party with reasonable specificity describing the source, nature and, if
possible to ascertain, the potential amount of such claim and unless such
claim has been presented prior to the applicable Expiration Date or ITP
Expiration Date, as the case may be.
(b) ITP shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against
payments due to the STOCKHOLDERS under (i) this Agreement (including,
without limitation, the consideration set forth on Annex III hereto)
and/or (ii) any contract contemplated by, or referred to in, this
Agreement.
(c) Except for claims for Initial or Subsequent Merger
Consideration, the indemnification obligations under Section 11.1 shall
be limited, in the aggregate, to $3 million. To the extent amounts are
outstanding under the Notes, claims under Section 11.1 in excess of $1
million shall offset amounts due to the STOCKHOLDERS under the Notes.
The indemnification obligations under Section 11.2 shall be limited, in
the aggregate, to $3 million.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date solely:
(a) by mutual consent of the boards of directors of ITP and the
COMPANY;
(b) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by ITP (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated
by October 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on
the Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or by
ITP, on the other hand, if a material breach or default shall be made by
the other party in the observance or in the due and timely performance
of any of the covenants, agreements or conditions contained herein, and
the curing of such default shall not have been made on or before the
<PAGE>
Closing Date; or
(d) pursuant to Section 7.7 hereof.
12.2 Liabilities in Event of Termination. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. Provided that there is no Event of
Default (as defined in the Note) by ITP which remains uncured for a period of
thirty (30) days under the Note issued to such STOCKHOLDER pursuant to Article
III hereof, the STOCKHOLDERS will not, for a period of three (3) years
following the Closing Date, for any reason whatsoever, directly or indirectly,
for themselves or on behalf of or in conjunction with any other person,
company, partnership, corporation or business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with ITP or any of the subsidiaries thereof, within
300 miles of where the COMPANY or any of its subsidiaries conducted
business prior to the effectiveness of the Merger (the "Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of ITP (including the subsidiaries thereof) in a
sales representative or managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of ITP
(including the subsidiaries thereof), provided that each STOCKHOLDER
shall be permitted to call upon and hire any member of his or her
immediate family;
(c) call upon any person or entity which is, at that time, or
which has been, within three (3) years prior to the Closing Date, a
customer of ITP (including the subsidiaries thereof), of the COMPANY
within the Territory for the purpose of soliciting or selling products
or services in direct competition with ITP within the Territory;
(d) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in similar or
incidental businesses or activities, which candidate, to the actual
knowledge of such STOCKHOLDER after due inquiry, was called upon by ITP
(including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, ITP (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or<PAGE>
<PAGE>
(e) disclose customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever except to the extent that the
COMPANY has in the past disclosed such information to the public for
valid business reasons or disclosure is specifically required bylaw.
13.2 Damages. Because of the difficulty of measuring economic losses
to ITP as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to ITP for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the
event of breach by such STOCKHOLDER, the foregoing covenant may be enforced by
ITP by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that
the foregoing covenants in this Section 13 impose a reasonable restraint on
the STOCKHOLDERS in light of the activities and business of ITP (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of ITP.
13.4 Severability, Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant
shall not affect the provisions of any other covenant. Moreover, in the event
any court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any
STOCKHOLDER against ITP (including the subsidiaries thereof), whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by ITP of such covenants.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree
that this covenants in this Section 13 is a material and substantial part of
this transaction and the consideration for this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that
they, had in the past, currently have, and in the future may have, access to
certain confidential information of the COMPANY and/or ITP, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the COMPANY's and/or ITP's respective businesses. The
STOCKHOLDERS agree that they will not disclose such confidential information
to any person, firm, corporation, association or other entity for any purpose
or reason whatsoever, except (a) to authorized representatives of ITP who need
to know information in connection with the transactions contemplated hereby,
who have been informed of the confidential nature of such information and who
have agreed to keep such information confidential as provided hereby, (b)<PAGE>
<PAGE>
following the Closing, such information may be disclosed by the STOCKHOLDERS
as is required in the course of performing their duties for ITP or the
Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information becomes known to the public
generally through no fault of any such STOCKHOLDERS, (ii) disclosure is
required by law or the order of any Governmental Authority under color of law,
provided, that prior to disclosing any information pursuant to this clause
(ii), the STOCKHOLDERS shall, if possible, give prior written notice thereof
to ITP and provide ITP with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any of the
STOCKHOLDERS of the provisions of this Section 14, ITP shall be entitled to an
injunction restraining such STOCKHOLDERS from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as
prohibiting ITP from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, the
STOCKHOLDERS shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the COMPANY.
14.2 ITP and NEWCO. ITP and NEWCO recognize and acknowledge that
they had in the past, currently have, and in the future may have, access to
certain confidential information of the COMPANY, such as operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY's business. ITP and NEWCO agree that, prior to the Closing, or if
the transactions contemplated by this Agreement are not consummated, they will
not disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a)
to the STOCKHOLDERS and to authorized representatives of the COMPANY, and (b)
to counsel, the Agent and the Lenders and other advisers, provided that such
advisors (other than counsel) agree to the confidentiality provisions of this
Section 14.2, unless (i) such information becomes known to the public
generally through no fault of ITP or NEWCO, (ii) disclosure is required by law
or the order of any Governmental Authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), ITP and
NEWCO shall, if possible, give prior written notice thereof to the COMPANY and
the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with the
opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by ITP or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
ITP and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Sections 14.1 and
14.2, and because of the immediate and irreparable damage that would be caused
<PAGE>
<PAGE>
for which they would have no other adequate remedy, the parties hereto agree
that, in the event of a breach by any of them of the foregoing covenants, the
covenant may be enforced against the other parties by injunctions and
restraining orders.
14.4 Survival. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of three (3)
years from the Closing Date.
15. STOCKHOLDERS' AGREEMENT
15.1 Stockholders' Agreement. Each of the STOCKHOLDERS shall have
executed a Joinder Agreement substantially in the form of Annex IX hereto
binding them and all of their shares of ITP Stock received in the Merger to
the provisions of the Stockholders' Agreement. The certificates evidencing the
ITP Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as ITP may deem necessary or appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN STOCKHOLDERS' AGREEMENT, A COPY OF WHICH IS
ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY FOR INSPECTION, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDERS acknowledge that the shares of ITP Stock to be delivered
to the STOCKHOLDERS pursuant to this Agreement have not been and will not be
registered under the Act and therefore may not be resold without compliance
with the 1933 Act. The ITP Stock to be acquired by the STOCKHOLDERS pursuant
to this Agreement is being acquired solely for their own respective accounts,
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it in connection with a distribution.
16.1 Compliance with Law. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of ITP Stock issued to the STOCKHOLDERS will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All the ITP Stock
shall bear the following legend in addition to the legend required under
Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY I.T. PARTNERS, INC.,<PAGE>
<PAGE>
OPINION OF COUNSEL TO I. T. PARTNERS, INC. STATING THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
16.2 Economic Risk: Sophistication. The STOCKHOLDERS represent and
warrant that they are able to bear the economic risk of an investment in the
ITP Stock acquired pursuant to this Agreement, can afford to sustain a total
loss of such investment and have such knowledge and experience in financial
and business matters that they are capable of evaluating the merits and risks
of the proposed investment in the ITP Stock. The STOCKHOLDERS represent and
warrant that they have had an adequate opportunity to ask questions and
receive answers from the officers of ITP concerning any and all matters
relating to the transactions described herein including, without limitation,
the background and experience of the current and proposed officers and
directors of ITP, business, operations, financial conditions and plans for
ITP, and any plans for additional acquisitions and the like. Each STOCKHOLDER
represents that after taking into consideration the information and advice
provided herein each STOCKHOLDER has the requisite knowledge and experience in
financial and business matters to be capable of evaluating the merits and
risks of this investment.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDERS, ITP and NEWCO,
shall each deliver or cause to be delivered to the other on the Closing Date,
and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The STOCKHOLDERS will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with ITP on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
Tax Return filing obligations, actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing Date.
17.2 Successors and Assigns. Except that ITP and the Surviving
Corporation may assign the benefits of this Agreement to the Agent, this
Agreement and the rights of the parties hereunder (including, but not limited
to, the right to receive the Subsequent Merger Consideration) may not be
assigned (except by operation of law) and shall be binding upon and shall
inure to the benefit of the parties hereto, the successors of ITP, and the
heirs and legal representatives of the STOCKHOLDERS.
17.3 Entire Agreement. This Agreement (including the Schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the
STOCKHOLDERS, the COMPANY, NEWCO and ITP and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the STOCKHOLDERS, the
COMPANY, NEWCO and ITP, acting through their respective officers or trustees,
duly authorized by their respective boards of directors. Any disclosure made
<PAGE>
<PAGE>
any Schedule delivered pursuant hereto shall be deemed to have been disclosed
for purposes of any other Schedule required hereby, provided that the COMPANY
and the STOCKHOLDERS shall make a good faith effort to cross reference
disclosure. as necessary or advisable, between related Schedules.
17.4 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other parties hereto against all loss, cost, damages or expense
arising out of claims for fees or commissions of brokers employed or alleged
to have been employed by such indemnifying party. Notwithstanding the
foregoing, it is acknowledged and understood that the STOCKHOLDERS retained
the services of The Geneva Companies and will be solely responsible for any
fees, commissions or expenses of that entity.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, each of the parties hereto will pay its own fees, expenses
and disbursements and those of its agents, representatives, accountants
and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses
incurred in the performance and compliance with all conditions to be
performed by it under this Agreement.
(b) Each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer
Taxes. In addition, each STOCKHOLDER acknowledges that he, and not the
COMPANY or ITP, will pay all Taxes due upon receipt of the
consideration payable pursuant to Section 2 hereof, and will assume all
Tax risks and liabilities of such STOCKHOLDER in connection with the
transactions contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and may be given by depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person to an officer or agent of such party.
(a) If to ITP, or NEWCO, addressed to them at:
IT Partners, Inc.
9881 Broken Land Parkway, Suite 102
Columbia, Maryland 21046
Attn: Mr. Daniel J. Klein
<PAGE>
<PAGE>
with copies to:
Piper & Marbury L.L.P.
Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
Attn: Earl S. Wellschlager, Esquire
(b) If to the STOCKHOLDERS, addressed to them at their
addresses set forth on Annex IV, with copies to such counsel, if any,
as is set forth with respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Financial Systems Consulting, Inc.
One World Trade Center
Suite 1980
Long Beach, California 90831
Attn: Mr. Charles Schaeffer, President
with copies to:
Higham, McConnell & Dunning
28202 Cabot Road, Suite 450
Laguna Niguel, California 92677- 1250
Attn: Douglas F. Higham, Esquire
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Maryland, except that matters herein within the
purview of the matters covered by the General Corporation Law of the State of
Delaware shall be governed by such General Corporation Law, in each case
without reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall
it be construed as a waiver of or acquiescence in any such breach or default,
or of any similar breach or default occurring later; nor shall any waiver of
any single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
<PAGE>
<PAGE>
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
17.12 Remedies Cumulative. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
17.14 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of ITP, NEWCO, the COMPANY and STOCKHOLDERS who will
hold or who hold at least 50% of the ITP Stock issued or to be issued to the
STOCKHOLDERS upon consummation of the Merger. Any amendment or waiver effected
in accordance with this Section 17.14 shall be binding upon each of the
parties hereto, any other person receiving ITP Stock in connection with the
Merger and each future holder of such ITP Stock.
17.15 Attorneys' Fees. In the event of any arbitration or
proceeding arising out of or related to this Agreement, the prevailing party
shall be entitled to recover from the losing party all of its costs and
expenses incurred in connection with such arbitration or proceeding, including
court costs and reasonable attorneys' fees, whether or not such arbitration or
proceeding is prosecuted to judgment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
IT PARTNERS, INC.
By:
(SEAL)
Name: Daniel J. Klein
Title: President
By:
(SEAL)
Name: Jamie E. Blech
Title: Secretary
ITP NO. 4, INC.
By:
(SEAL)
Name: Daniel J. Klein
Title: Chairman of the Board
By:
(SEAL)
Name: Jamie E. Blech
Title: Assistant Secretary<PAGE>
<PAGE>
FINANCIAL SYSTEMS CONSULTING
INC.
By:
(SEAL)
Name:
Title:
By:
(SEAL)
Name:
Title:
STOCKHOLDERS:
(SEAL)
Charles Schaeffer
(SEAL)
Garrett Schaeffer
AGREEMENT AND PLAN OF ORGANIZATION
dated as of February , 1998
by and among
IT PARTNERS, INC.,
ITP NO. 11, INC.,
(a wholly-owned subsidiary of IT Partners, Inc.)
INCLINE CORP.,
and
the STOCKHOLDERS named herein
<PAGE>
<PAGE>
TABLE OF CONTENTS
1. THE MERGER. . . . . . . . . . . . . . . . . . . . . .
1.1 Delivery and Filing of Articles of Merger. . . . . . .
1.2 Effective Time of the Merger . . . . . . . . . . . . .
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, ITP and NEWCO. . . . . . . . . . . . .
2. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . .
2.1 Manner of Conversion . . . . . . . . . . . . . . . . .
3. DELIVERY OF MERGER CONSIDERATION; POST CLOSING ADJUSTMENT
3.1 Delivery of Initial Merger Consideration . . . . . . .
3.2 INTENTIONALLY OMITTED
3.3 Additional Merger Consideration. . . . . . . . . . . .
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . .
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . .
5.1 Due Organization . . . . . . . . . . . . . . . . . . .
5.2 Authorization. . . . . . . . . . . . . . . . . . . . .
5.3 Capital Stock of the COMPANY . . . . . . . . . . . . .
5.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . .
5.5 Financial Statements . . . . . . . . . . . . . . . . .
5.6 Liabilities and Obligations. . . . . . . . . . . . . .
5.7 Accounts and Notes Receivable. . . . . . . . . . . . .
5.8 Intellectual Property; Permits and Intangibles . . . .
5.9 Environmental Matters. . . . . . . . . . . . . . . . .
5.10 Personal Property. . . . . . . . . . . . . . . . . . .
5.11 Significant Customers; Material Contracts and Commitments
5.12 Real Property. . . . . . . . . . . . . . . . . . . . .
5.13 Insurance. . . . . . . . . . . . . . . . . . . . . . .
5.14 Compensation; Employment Agreements;
Organized Labor Matters. . . . . . . . . . . . . . . .
5.15 Employee Plans . . . . . . . . . . . . . . . . . . . .
5.16 Conformity with Law; Litigation. . . . . . . . . . . .
5.17 Taxes. . . . . . . . . . . . . . . . . . . . . . . . .
5.18 No Violations. . . . . . . . . . . . . . . . . . . . .
5.19 Business Conduct . . . . . . . . . . . . . . . . . . .
5.20 Prohibited Activities. . . . . . . . . . . . . . . . .
5.21 Misrepresentation. . . . . . . . . . . . . . . . . .
5.22 Authority; Ownership . . . . . . . . . . . . . . . . .
5.23 No Intention to Dispose of ITP Stock . . . . . . . . .
6. REPRESENTATIONS AND WARRANTIES OF ITP AND NEWCO . . .
6.1 Due Organization . . . . . . . . . . . . . . . . . . .
6.2 Authorization. . . . . . . . . . . . . . . . . . . . .
6.3 Transaction Not a Breach . . . . . . . . . . . . . . .
6.4 Misrepresentation. . . . . . . . . . . . . . . . . . .
6.5 Capital Stock. . . . . . . . . . . . . . . . . . . . .
6.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . .
6.7 Conformity with Law; Litigation. . . . . . . . . . . .
6.8 Financial Statements . . . . . . . . . . . . . . . . .
6.9 Valuation of ITP Stock . . . . . . . . . . . . . . . .
6.10 Stockholder Agreement. . . . . . . . . . . . . . . . .
7. COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . .
7.1 Access and Cooperation: Due Diligence. . . . . . . . .
7.2 Conduct of Business Pending Closing. . . . . . . . . .
7.3 Prohibited Activities. . . . . . . . . . . . . . . . .
7.4 [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . .
<PAGE>
<PAGE>
7.5 Agreements . . . . . . . . . . . . . . . . . . . . . .
7.6 Notification of Certain Matters. . . . . . . . . . . .
7.7 Amendment of Schedules . . . . . . . . . . . . . . . .
7.8 Further Assurances . . . . . . . . . . . . . . . . . .
7.9 Approval of Merger Agreement . . . . . . . . . . . . .
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY. . . . . . . . . . . . . . . . . . . .
8.1 Representations and Warranties . . . . . . . . . . . .
8.2 Performance of Obligations . . . . . . . . . . . . . .
8.3 No Litigation. . . . . . . . . . . . . . . . . . . . .
8.4 Opinion of Counsel . . . . . . . . . . . . . . . . . .
8.5 Consents and Approvals . . . . . . . . . . . . . . . .
8.6 Good Standing Certificates . . . . . . . . . . . . . .
8.7 Secretary's Certificate. . . . . . . . . . . . . . . .
8.8 Lease Rental Prepayment. . . . . . . . . . . . . . . .
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ITP AND NEWCO. .
9.1 Representations and Warranties . . . . . . . . . . . .
9.2 Performance of Obligations . . . . . . . . . . . . . .
9.3 No Litigation. . . . . . . . . . . . . . . . . . . . .
9.4 Secretary's Certificate. . . . . . . . . . . . . . . .
9.5 No Material Adverse Change . . . . . . . . . . . . . .
9.6 STOCKHOLDERS' Release. . . . . . . . . . . . . . . . .
9.7 Termination of Related Party Agreements. . . . . . . .
9.8 Opinion of Counsel . . . . . . . . . . . . . . . . . .
9.9 Consents and Approvals . . . . . . . . . . . . . . . .
9.10 Good Standing Certificates . . . . . . . . . . . . . .
9.11 Employment Agreements. . . . . . . . . . . . . . . . .
9.12 Stockholders' Agreement. . . . . . . . . . . . . . . .
9.13 Financing. . . . . . . . . . . . . . . . . . . . . . .
9.14 Working Capital Cash Needs . . . . . . . . . . . . . .
9.15 STOCKHOLDER Distribution . . . . . . . . . . . . . . .
9.16 Landlord Consent. . . . . . . . . . . . . . . . . . .
10. COVENANTS AFTER CLOSING . . . . . . . . . . . . . . .
10.1 Preparation and Filing of Tax Returns. . . . . . . . .
10.2 Stock Options . . . . . . . . . . . . . . . . . . . .
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . .
11.1 General Indemnification by the STOCKHOLDERS. . . . . .
11.2 Indemnification by ITP . . . . . . . . . . . . . . . .
11.3 Third Person Claims. . . . . . . . . . . . . . . . . .
11.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . .
11.5 Limitations on Indemnification . . . . . . . . . . . .
12. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . .
12.1 Termination. . . . . . . . . . . . . . . . . . . . . .
12.2 Liabilities in Event of Termination. . . . . . . . . .
13. NONCOMPETITION. . . . . . . . . . . . . . . . . . . .
13.1 Prohibited Activities. . . . . . . . . . . . . . . . .
13.2 Damages. . . . . . . . . . . . . . . . . . . . . . . .
13.3 Reasonable Restraint . . . . . . . . . . . . . . . . .
13.4 Severability, Reformation. . . . . . . . . . . . . . .
13.5 Independent Covenant . . . . . . . . . . . . . . . . .
13.6 Materiality. . . . . . . . . . . . . . . . . . . . . .
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . .
14.1 STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . .
14.2 INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . .
14.3 Damages. . . . . . . . . . . . . . . . . . . . . . . .
14.4 Survival . . . . . . . . . . . . . . . . . . . . . . .
15. STOCKHOLDER AGREEMENT . . . . . . . . . . . . . . . .
<PAGE>
<PAGE>
16. FEDERAL SECURITIES ACT REPRESENTATIONS. . . . . . . .
16.1 Compliance with Law. . . . . . . . . . . . . . . . . .
16.2 Economic Risk: Sophistication. . . . . . . . . . . . .
17. GENERAL . . . . . . . . . . . . . . . . . . . . . . .
17.1 Cooperation. . . . . . . . . . . . . . . . . . . . . .
17.2 Successors and Assigns . . . . . . . . . . . . . . . .
17.3 Entire Agreement . . . . . . . . . . . . . . . . . . .
17.4 Counterparts . . . . . . . . . . . . . . . . . . . . .
17.5 Brokers and Agents . . . . . . . . . . . . . . . . . .
17.6 Expenses . . . . . . . . . . . . . . . . . . . . . . .
17.7 Notices. . . . . . . . . . . . . . . . . . . . . . . .
17.8 Governing Law. . . . . . . . . . . . . . . . . . . . .
17.9 Exercise of Rights and Remedies. . . . . . . . . . . .
17.10Time. . . . . . . . . . . . . . . . . . . . . . . . . .
17.11Reformation and Severability. . . . . . . . . . . . .
17.12Remedies Cumulative . . . . . . . . . . . . . . . . .
17.13Captions. . . . . . . . . . . . . . . . . . . . . . .
17.14Amendments and Waivers. . . . . . . . . . . . . . . . .
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF ITP AND
NEWCO
ANNEX III MERGER CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCK OWNERSHIP OF ITP
ANNEX VI FORM OF OPINION OF COUNSEL TO ITP
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND
STOCKHOLDERS
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT
ANNEX IX FORM OF JOINDER AGREEMENT
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made
as of February , 1998, by and among (i) IT PARTNERS, INC., a Delaware
corporation ("ITP"), (ii) ITP NO. 11, INC., a Delaware corporation ("NEWCO"),
(iii) INCLINE CORP., a California corporation (the "COMPANY"), and (iv) Robert
Wentworth, Jon DeFina, Philip Tomasi and Charles Menzel (collectively, the
"STOCKHOLDERS").
WHEREAS, NEWCO is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on December 12, 1997,
solely for the purpose of completing the transactions set forth herein, and is
a wholly-owned subsidiary of ITP;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") and ITP deem it advisable and in the best interests of the
Constituent Corporations and ITP and their respective stockholders that the
COMPANY merge with and into NEWCO pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and California
(the "Merger"), and in furtherance thereof have approved the Merger;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY.
"Additional Merger Consideration" has the meaning set forth in Section
3.2(a).
"Affiliates" means any other person or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with a person.
"Agent" has the meaning set forth in Section 9.13.
"Balance Sheet Date" means October 31, 1997.
"Benefit Plan" means any Plan existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by
the COMPANY, or any predecessor of the COMPANY, under which any employee or
former employee of the COMPANY, or any beneficiary thereof, is covered, is
eligible for coverage or has benefit rights.
"Certificate of Merger" means the Certificate of Merger with respect to
the Merger substantially in the forms attached as Annex I hereto or with such
changes therein as may be required by applicable state laws.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Combined Financial Statements" means copies of the unaudited Balance
Sheet, Income Statement, Statement of Stockholders' Equity and Statement of
Cash Flows of the Surviving Corporation at and for the 12-month period ending
December 31, 1998, as if the Merger had occurred effective as of January 1,
1998, with the income and expenses of the Company for the period from January
1, 1998, to the day before the Closing Date being treated as the only income
and expenses of the Surviving Corporation during the period from January 1,
1998, to the day before the Closing Date.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization prepared in accordance with GAAP. In the case of the COMPANY
(for the period from January 1, 1998 through the day before the Closing Date)
and the Surviving Corporation, EBITDA shall not be impacted or reduced by any
expenses or overhead of ITP, allocated to the COMPANY or the Surviving
Corporation, as the case may be, unless such expenses or overhead are
pre-approved by the Management of the Surviving Corporation and are directly
and solely for the benefit of the Surviving Corporation.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate will occur on the
Closing Date.
"Environmental Requirements" has the meaning set forth in Section 5.9(a).
"Expiration Date" has the meaning set forth in Section 5(A).
"GAAP" means generally accepted accounting principles of the United
States applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.9(a).
"Intellectual Property" means trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for
any of the foregoing, and any trade secret, invention, discovery, method of
doing business, process, know-how, including but not limited to, training
techniques, training materials, computer software (including source and object
code), databases, technology systems and integration techniques, product
design and product packaging.
"Intercompany Loan and Security Agreement" has the meaning set forth in
Section 9.13.
"ITP" has the meaning set forth in the first paragraph of this Agreement.
"ITP Charter Documents" has the meaning set forth in Section 6. 1.
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"ITP Expiration Date" has the meaning set forth in Section 6.
"ITP Stock" means the common stock, par value $.01 per share, of ITP.
"Leases" mean the leases for real property included in the Material
Contracts.
"Lien" has the meaning set forth in Section 5.6.
"LTM EBITDA" shall mean the EBITDA of the COMPANY for the twelve (12)
month period commencing December 1, 1996 and ending November 30, 1997. The
parties agree that, for purposes of the Closing Date, LTM EBITDA is equal to
$1.499 Million Dollars.
"Knowledge", "best of knowledge", "aware" or similar expressions mean
only the actual knowledge of the individual to which the expression is
applicable. When such terms are used in connection with the knowledge of a
corporate entity, such knowledge shall include only the actual knowledge of
the officers or directors of that corporate entity.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.8, 5.9, 5.10, 5.11, 5.12, 5.14 or 5.15 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of the COMPANY with and into NEWCO pursuant to
this Agreement and the applicable provisions of the laws of the States of
Delaware and California.
"Merger Consideration" has the meaning set forth in Section 3.1(a).
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of NEWCO.
"NTM EBITDA" means EBITDA for the Surviving Corporation for the 12-month
period ending December 31, 1998, as if the Merger had occurred effective as of
January 1, 1998, with the income and expenses of the Company for the period
from January 1, 1998, to the day before the Closing Date being treated as the
only income and expenses of the Surviving Corporation during the period from
January 1, 1998, to the day before the Closing Date.
"Person" means any natural person, corporation, partnership, limited
liability company, proprietorship, other business organization, trust, union,
association or Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual.
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"Relevant Group" has the meaning set forth in Section 5.17(a).
"Returns" has the meaning set forth at the end of Section 5.17.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"Stockholder Agreement" has the meaning set forth in Section 6.10.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean NEWCO as the surviving party in the
Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.17.
"Taxing Authority" has the meaning set forth at the end of Section 5.17.
"Transfer Taxes" has the meaning set forth in Section 17.6(b).
"Working Capital Cash Needs" means that amount of cash and cash
equivalents equal to $100,000.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Delaware and stamped receipt
copies of such filing to be delivered to ITP on or before the Closing Date.
The Constituent Corporations will cause a copy of the Certificate of Merger,
certified by the Secretary of State of the State of Delaware, to be filed with
the Secretary of State of the State of California as soon as practicable
thereafter.
1.2 Effective Time of the Merger. At the Effective Time of the Merger
and subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law ("Delaware Law"), the
COMPANY shall be merged with and into NEWCO in accordance with the Certificate
of Merger, the separate existence of the COMPANY shall cease and NEWCO shall
be the Surviving Corporation in the Merger. At the Effective Time of the
Merger, the effect of the Merger otherwise shall be as provided in the
applicable provisions of Delaware Law and the law of the State of California.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time of the Merger, all the property, rights, privileges, powers and
franchises of the COMPANY and NEWCO shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the COMPANY and NEWCO shall become
the debts, liabilities and duties of the Surviving Corporation. The Merger
will be effected in a single transaction.
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<PAGE> 1.3 Certificate of Incorporation, By-laws and Board of Directors
of Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate of Incorporation of NEWCO then
in effect shall be the Certificate of Incorporation of the Surviving
Corporation until amended as provided by law;
(b) the By-laws of NEWCO then in effect shall be the
By-laws of the Surviving Corporation until amended as provided by law;
(c) Daniel J. Klein and Jamie E. Blech shall be the
directors of the Surviving Corporation until their respective successors are
elected or appointed and qualified in accordance with the terms of the By-laws
of the Surviving Corporation; the Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of Delaware Law and of
the Certificate of Incorporation and By-laws of the Surviving Corporation;
(d) the officers of the COMPANY immediately prior to
the Effective Time of the Merger shall continue as the officers of the
Surviving Corporation in the same capacity or capacities, and effective upon
the Effective Time of the Merger. In addition, Daniel J. Klein shall be
appointed Chairman of the Board of the Surviving Corporation and Jamie E.
Blech shall be appointed vice president and assistant secretary of the
Surviving Corporation, each such officer to serve, subject to the provisions
of the Certificate of Incorporation and By-laws of the Surviving Corporation,
until his successor is duly elected and qualified; and
(e) Subject to the provisions of the Stockholder
Agreement and subject to Delaware Law, ITP shall use its best efforts to have
one of the prior officers of the COMPANY nominated and appointed as a director
of ITP to serve until his successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, ITP and NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital
stock of the COMPANY, ITP and NEWCO as of the Closing Date:
(a) the authorized capital stock of the COMPANY is
as set forth on Schedule 1.4 hereto;
(b) the authorized capital stock of ITP will consist
of ten million shares of ITP Stock and two million shares of preferred stock,
par value $.01 per share ("Preferred Stock"); and
(c) the authorized capital stock of NEWCO consists
of 1,000 shares of NEWCO Stock, of which 100 shares are issued and outstanding
and beneficially owned by ITP.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock, in each
case issued and outstanding immediately prior to the Effective Time of the
Merger, into shares of (x) ITP Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and
outstanding immediately prior to the Effective Time of the Merger will be
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canceled and extinguished and, by virtue of the Merger and without any action
on the part of the holder thereof, automatically shall be deemed to represent,
with respect to each STOCKHOLDER, (1) the right to receive the number of
shares of ITP Stock set forth on Annex III hereto with respect to such
STOCKHOLDER; (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to such STOCKHOLDER; and (3) subject to
the provisions of Section 3.2 hereof, the right to receive the Additional
Merger Consideration set forth on Annex III with respect to such
STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the
COMPANY as treasury stock, if any, shall be canceled and retired and no shares
of ITP Stock or other consideration shall be delivered or paid in exchange
therefor; and
(c) each share of NEWCO Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of the
Merger and without any action on the part of ITP, automatically be converted
into one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding shares
of common stock of the Surviving Corporation immediately after the Effective
Time of the Merger.
All ITP Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all other shares of outstanding ITP
Stock (as set forth in the Certificate of Incorporation of ITP or as otherwise
provided by Delaware Law).
3. DELIVERY OF MERGER CONSIDERATION; POST-CLOSING ADJUSTMENTS
3.1 Delivery of Initial Merger Consideration
(a) On the Closing Date, the STOCKHOLDERS, who are the holders of
all outstanding certificates representing shares of COMPANY Stock, upon
surrender of such certificates shall receive (i) the respective number of
shares of ITP Stock set forth on Annex III and (ii) the amount of cash set
forth on Annex III with respect to such STOCKHOLDER (collectively, the "Merger
Consideration"). The cash payable pursuant to clause (ii) shall be paid
by wire transfer to each of the STOCKHOLDERS as designated by each of the
STOCKHOLDERS on the Closing Date.
(b) Certificate Delivery. The STOCKHOLDERS shall deliver in
trust to Swidler & Berlin, Chartered, counsel to ITP, at the Closing the
certificates, representing all outstanding shares of the COMPANY Stock, duly
endorsed in blank by the STOCKHOLDERS, or accompanied by stock powers duly
endorsed in blank, with signatures guaranteed by a national or state chartered
bank or other financial institution, and with all necessary Transfer Tax
and other revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and
canceled. The STOCKHOLDERS agree promptly to cure any deficiencies with
respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. Upon consummation of the transactions
contemplated to occur on the Closing Date, all of such certificates shall be
deemed released by such counsel to ITP without any further action on the
part of such counsel.
3.2 [INTENTIONALLY OMITTED].
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3.3 Additional Merger Consideration. As promptly as practicable after
the close of the Surviving Corporation's fiscal year ending December 31, 1998,
and in any event on or before March 31, 1999, Surviving Corporation (on behalf
of the STOCKHOLDERS) shall prepare and deliver to ITP the Combined Financial
Statements, including a calculation for NTM EBITDA, prepared on a basis
consistent with GAAP. ITP shall have 30 days after receipt of the Combined
Financial Statements and the STOCKHOLDERS' determination of NTM EBITDA to
review such information (the "NTM Review Period").
(a) If ITP accepts the STOCKHOLDERS' determination of NTM EBITDA,
or if ITP fails to give notice to the STOCKHOLDERS within the NTM Review
Period ("NTM Acceptance"), and if the determination of NTM EBITDA is equal to
or greater than 115% of the LTM EBITDA, within 5 days of the NTM Acceptance,
ITP shall deliver to the STOCKHOLDERS the respective number of additional
shares of ITP Stock set forth on Annex III (the "Additional Merger
Consideration").
(b) If the STOCKHOLDERS' determination of NTM EBITDA is less than
115% of the LTM EBITDA, the STOCKHOLDERS shall not be entitled to receive the
Additional Merger Consideration.
(c) ITP may dispute the STOCKHOLDERS' determination of NTM EBITDA
by giving notice within the NTM Review Period of such dispute to the
STOCKHOLDERS setting forth in reasonable detail the amounts in dispute and the
basis for such dispute. If ITP fails to deliver a notice of objections during
the NTM Review Period, ITP shall be deemed to have accepted the STOCKHOLDERS'
determination of NTM EBITDA upon expiration of the NTM Review Period.
(d) If the amount of NTM EBITDA is in dispute, ITP and
its accountants and the STOCKHOLDERS and their accountants shall attempt in
good faith to resolve such dispute, and any resolution as to any disputed
amounts shall be final, binding and conclusive.
(i) If the parties are able to resolve such dispute and agree
upon the NTM EBITDA and if such agreed NTM EBITDA is less than 115% of the LTM
EBITDA, the STOCKHOLDERS shall not be entitled to receive the Additional
Merger Consideration.
(ii) If the parties are able to resolve such dispute and agree
upon the NTM EBITDA, and if such agreed NTM EBITDA is equal to or greater than
115% of the LTM EBITDA, ITP shall deliver to STOCKHOLDERS the respective
number of shares of ITP Stock set forth on Annex III as Additional Merger
Consideration within five (5) business days after such resolution and
agreement.
(iii) If the parties are unable to resolve such dispute
and agree on the NTM EBITDA within 15 days of the date of receipt by the
STOCKHOLDERS of a written notice of dispute, ITP and the STOCKHOLDERS shall,
within five additional days, retain Coopers & Lybrand, L.L.P., (or such other
independent "Big Six" accounting firm to be mutually agreed upon by ITP and
the STOCKHOLDERS) (the "NTM Arbitrator"), which NTM Arbitrator shall, within
30 days of the retention of the NTM Arbitrator, resolve such dispute, and
provide written notice of such resolution, including the NTM Arbitrator's
determination of NTM EBITDA, by facsimile, confirmed by mail to ITP and the
STOCKHOLDERS, and such resolution shall be binding and conclusive. If NTM
EBITDA, as calculated by the NTM Arbitrator, is less than 115% of LTM EBITDA,
then the STOCKHOLDERS shall not be entitled to receive Additional Merger
Consideration and shall bear all of the fees and disbursements incurred by the
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NTM Arbitrator for resolving such dispute, conversely, if the NTM EBITDA, as
determined by the NTM Arbitrator, is equal to or greater than 115% of the LTM
EBITDA, then ITP shall deliver to the STOCKHOLDERS the respective number of
shares of ITP Stock set forth on Annex III as Additional Merger Consideration
within 5 business days after receipt of notice of such resolution and
calculation from the NTM Arbitrator, and ITP shall bear all fees and
disbursements incurred by the NTM Arbitrator for resolving such dispute.
4. CLOSING
At Closing, the parties shall take all actions necessary to prepare to
(i) effect the Merger and (ii) effect the conversion and delivery of shares
referred to in Section 2 hereof; provided, that such actions shall not include
the actual completion of the Merger for purposes of this Agreement or the
conversion and delivery of the shares and transmission of funds by wire
referred to in Section 3 hereof, which actions shall only be taken upon the
Closing Date as herein provided. If there is no Closing Date and this
Agreement terminates, each of ITP and the COMPANY hereby covenants and agrees
to do all things required by Delaware Law and all things which counsel for the
COMPANY advises ITP are required by applicable laws of the State of California
in order to rescind any merger or other actions effected by the advance filing
of the Certificate of Merger as described in this Section 4. On the Closing
Date (x) the Certificate of Merger shall be or shall have been filed in
accordance with Delaware Law so that it shall be or, as of 11:00 a.m. Pacific
Time on the Closing Date, shall become effective and the Merger shall thereby
be effected, and (y) all transactions contemplated by this Agreement,
including the conversion and delivery of shares and the transmission of funds
by wire pursuant to Section 3 hereof shall occur. The date on which the
actions described in the preceding clauses (x) and (y) occur shall be referred
to as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to ITP and NEWCO that all of the following
representations and warranties in this Section 5 are true as of the Closing
Date, and that such representations and warranties shall survive the Closing
Date for a period of two years (the last day of such period being the
"Expiration Date"), except that the representations and warranties set forth
in Sections 5.9 and 5.17 hereof shall survive until such time as the
applicable statute of limitations period has run, which shall be deemed to be
the Expiration Date for such purposes.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
California, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under
lease, and to perform all of its obligations under the Material Contracts; is
duly qualified in the jurisdictions listed in Schedule 5.1 and there are no
other jurisdictions in which the conduct of the COMPANY's business or
activities or its ownership of assets requires any other qualification under
applicable law, the absence of which would have a materially adverse effect on
the COMPANY's business, condition (financial or other), properties, business
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prospects or results of operations (as used herein with respect to the
COMPANY, or with respect to any other person, a "Material Adverse Effect").
True, complete and correct copies of the Articles of Incorporation and
By-laws, each as amended, of the COMPANY (the "Charter Documents") are all
attached to Schedule 5.1. The minute books and stock records of the COMPANY,
as heretofore made available to ITP, are correct and complete in all material
respects.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this
Agreement by the COMPANY and performance by the COMPANY of its obligations
under this Agreement and the consummation by the COMPANY of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action in accordance with applicable law and the Articles of Incorporation and
By- Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The entire authorized capital stock
of the COMPANY is as set forth in Schedule 1.4. All of the issued and
outstanding shares of capital stock of the COMPANY are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and, except as set forth on
Schedule 5.3, are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of
every kind. Except as disclosed on Schedule 5.3, there are no outstanding
options, rights (preemptive or otherwise), warrants, calls, convertible
securities or commitments or any other arrangements to which the COMPANY or
the STOCKHOLDERS is a party requiring or restricting issuance, sale or
transfer of any equity securities of the COMPANY or any securities convertible
directly or indirectly into equity securities of the COMPANY, or evidencing
the right to subscribe for any equity securities of the COMPANY, or giving any
person any rights with respect to the capital stock of the COMPANY. Except as
contemplated by this Agreement or disclosed on Schedule 5.3, there are no
voting agreements, voting trusts, other agreements (including cumulative
voting rights), commitments or understandings with respect to the capital
stock of the COMPANY. All of the issued and outstanding shares of capital
stock of the COMPANY have been duly authorized and validly issued, are fully
paid and nonassessable, and are owned of record and beneficially by the
STOCKHOLDERS.
5.4 Subsidiaries. The COMPANY currently has no, and since its formation
has never had any, subsidiaries. The COMPANY does not presently own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
Person, nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.5 Financial Statements. The COMPANY has delivered to ITP copies of
the following financial statements (collectively, the "Financial Statements"):
(a) Unaudited Balance Sheet, Income Statement, Statement of
Stockholders' Equity and Statement of Cash Flows at and for the year ended
December 31, 1996;
(b) Balance Sheet, Income Statement, Statement of Stockholders' Equity,
and Statement of Cash Flows at and for the interim period ended October 31,
1997, audited by Arthur Andersen, L.L.P.; and
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(c) Unaudited Balance Sheet, Income Statement, Statement of
Shareholders' Equity and Statement of Cash Flows at and for the interim period
ended November 30, 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and
cash flows for the periods related thereto in accordance with GAAP,
consistently applied among the periods which are the subject of the Financial
Statements, except unaudited interim financial statements which were or are
subject to normal year-end adjustments which were not and are not expected to
be material in amount and the addition of required footnotes thereto. The
COMPANY has not deferred recognition of any of its accounts payable or
accelerated recognition of any of its accounts receivable.
5.6 Liabilities and Obligations. The COMPANY s assets, tangible or
intangible, are owned by the COMPANY free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each, a "Lien"), except for purchase money security interests
created in the ordinary course of business. The COMPANY has delivered to ITP
an accurate list (which is set forth on Schedule 5.6) as of the Balance Sheet
Date of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY's Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is
a party. Except as set forth on Schedule 5.6, since the Balance Sheet Date
the COMPANY has not incurred any liabilities in excess of $10,000 of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary
course of business.
5.7 Accounts and Notes Receivable. The COMPANY has delivered to ITP an
accurate list (which is set forth on Schedule 5.7) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date. In the period between
the Balance Sheet Date and the Closing Date the COMPANY shall collect accounts
and notes receivables, and pay accounts and notes payable, in a manner
consistent with past practices and within ten (10) days prior to Closing, the
COMPANY shall provide ITP (i) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
ten (10) calendar days of the Closing Date and (ii) an aging of all such
accounts and notes receivable showing amounts due in 30 day aging categories
(the "A/R Aging Reports"). Except to the extent reflected on Schedule 5.7,
the accounts, notes and other receivables shown on Schedule 5.7 and on the A/R
Aging Reports are and shall be, and the COMPANY has no reason to believe that
any such account receivable is not or shall not be, collectible in the amounts
shown net of reserves reflected in the balance sheet as of the Balance Sheet
Date.
5.8 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has valid licenses to all Intellectual Property
required for or otherwise used in connection with the conduct of its business
and the COMPANY has delivered to ITP an accurate list (which is set forth on
Schedule 5.8(a)) of all Intellectual Property owned or used by the COMPANY
including a list of all licenses and sublicenses granted by or to the COMPANY
with respect to any Intellectual Property. To the COMPANY's knowledge, each
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item of Intellectual Property owned by or licensed to the COMPANY is valid and
in full force and effect. Except as set forth on Schedule 5.8(a), all right,
title and interest in and to each item of Intellectual Property owned by or
licensed to the COMPANY is not subject to any restriction, royalty or fee
arrangement or pending or, to the COMPANY's knowledge, threatened claim or
dispute. To the COMPANY's knowledge, none of the Intellectual Property owned
by or licensed to the COMPANY nor any product sold or licensed or service
provided by the COMPANY, infringes any Intellectual Property right of any
other person or entity and to the COMPANY's knowledge, no Intellectual
Property owned by or licensed to the COMPANY is infringed upon by any other
person or entity.
(b) The COMPANY holds all licenses, franchises, permits and governmental
authorizations the absence of any of which could have a Material Adverse
Effect, and the COMPANY has delivered to ITP an accurate list and summary
description (which is set forth on Schedule 5.8(b)) of all such licenses,
franchises, permits and other governmental authorizations, including permits,
licenses, franchises and certificates (a list of all environmental permits and
other environmental approvals is set forth on Schedule 5.9). To the COMPANY's
knowledge, the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.8(b) and 5.9 are valid and in effect, and
the COMPANY has not received any notice that any Governmental Authority
intends to cancel, terminate or not renew any such license, franchise, permit
or other governmental authorization. To the COMPANY's knowledge, the COMPANY
has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.8(b) and 5.9 and is not in material violation of any of the foregoing or of
any related regulatory or legal requirements except where such non-compliance
or violation would not have a Material Adverse Effect. Except as specifically
provided in Schedule 5.8(a) or 5.8(b), the transactions contemplated by this
Agreement will not (i) result in the infringement or misappropriation by the
COMPANY of any Intellectual Property right of any other person or entity, or
(ii) result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded to the COMPANY by, any licenses,
franchises, permits or government authorizations listed on Schedule 5.8(b) or
any contracts involving the grant to the COMPANY of any rights relating to the
Intellectual Property of any third party.
(c) To the COMPANY's knowledge, the COMPANY s products and services
conform in all material respects with any material applicable specification,
documentation, performance standard, or contractual commitment by the COMPANY
existing with respect thereto, and there are no unresolved material claims
under warranty, contract or otherwise with respect to the COMPANY s services
or products.
5.9 Environmental Matters.
(a) (i) "Environmental Requirements" for purposes of this Agreement
shall mean all applicable federal, state and local laws, rules, regulations,
ordinances and requirements relating to Hazardous Materials (as defined
below), pollution, or protection of the environment, health or safety, all as
amended or hereafter amended.
(ii) "Hazardous Materials" for purposes of this Agreement shall
include, without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances, hazardous chemicals, toxic chemicals, toxic
substances, pollutants, contaminants, solid wastes or hazardous wastes, as
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those terms are defined or used in the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. ("CERCLA"), the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.
("RCRA"), the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air
Act,42 U.S.C. Section 7401 et seq., the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., the Emergency Planning and Community Right to Know Act,
42 U.S.C. Section 11001 et seq.,the Occupational Safety and Health Act, and any
other Environmental Requirements and other terms of similar import or meaning;
(B) petroleum and petroleum products, including, without limitation, crude oil
or any faction thereof; (C) any radioactive material, including, without
limitation, anysource, special nuclear, or by-product material as defined in
42 U.S.C. Section 2011 et seq.; and (D) asbestos in any form or condition.
(b) Except as set forth on Schedule 5.9:
(i) the COMPANY and each of its predecessors are and at all times
have been in compliance in all material respects with, and are not and have
not been in violation of or liable under, all Environmental Requirements;
(ii) the COMPANY and each of its predecessors possess all
permits, licenses and certificates required by all Environmental Requirements,
and have filed all notices or applications required thereby;
(iii) no environmental clearances, approvals or consents are
required under applicable law from any Governmental Authority or entity in
order to consummate the transactions contemplated in this Agreement or for the
COMPANY to continue operations after the Closing Date;
(iv) (A) the COMPANY and each of its predecessors have not been
subject to, or received any notice of any private, administrative or judicial
claim or action, or notice of any intended private, administrative or judicial
claim or action or received any request for information relating to the
presence or alleged presence of Hazardous Materials (1) in, under or upon any
real property currently or formerly owned, leased, operated or used by (a) the
COMPANY or any of its predecessors or (b) any other person that has, at any
time, disposed of Hazardous Materials on behalf of the COMPANY or any of its
predecessors; or (2) ever possessed, owned or generated by or on behalf of the
COMPANY or any of its predecessors at any location;
(B) there is no basis for any such notice, claim, action or
request; and
(C) there are no pending or, to the knowledge of the COMPANY
and each of its predecessors, threatened claims, actions or proceedings (or
notices of potential claims, actions or proceedings) from any Governmental
Authority or any other entity regarding any matter relating to health, safety
or protection of the environment against the COMPANY or any of its
predecessors.
(v) There are and have been no past or present events, conditions,
circumstances, activities, practices, incidents or actions which materially
interfere with or prevent continued compliance by the COMPANY or the Surviving
Corporation with any Environmental Requirements, give rise to any legal
obligation or liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing or investigation against or involving the COMPANY or
any real property presently or previously owned or used by the COMPANY under
any Environmental Requirements or related common law theories;
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(vi) No real property currently or formerly owned or operated by the
COMPANY or any of its predecessors is or was listed on the National Priorities
List, the Comprehensive Environmental Response and Compensation Liability
Index System or any similar state or local list of potential or confirmed
hazardous waste sites;
(vii) To the COMPANY's knowledge, no conditions exist on
adjacent properties that threaten the environmental condition or safety of any
property owned, operated or used by the COMPANY; and
(viii) The COMPANY and its predecessors have not released or
disposed of any Hazardous Materials at any property owned or used by the
COMPANY or its predecessors and, to the COMPANY's knowledge, no other person
has released or disposed of Hazardous Materials at any such property.
5.10 Personal Property. The COMPANY has delivered to ITP an accurate
list (which is set forth on Schedule 5.10) of (x) all personal property with a
fair market value in excess of $10,000 which is included (or that will be
included) in "depreciable plant, property and equipment" (or similarly named
line item) on the Balance Sheet as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), true, complete and correct
copies of all such leases which have been provided to ITP's counsel. Except
as set forth on Schedule 5.10, (i) all personal property with a value
individually in excess of $10,000 used by the COMPANY in its business is
either owned by the COMPANY or leased by the COMPANY pursuant to a lease
included on Schedule 5.10, (ii) all of the personal property listed on
Schedule 5.10 is in good working order and condition, ordinary wear and tear
excepted, and (iii) all leases and agreements included on Schedule 5.10 are in
full force and effect and constitute valid and binding agreements of the
COMPANY, and to the COMPANY's knowledge, of the other parties thereto in
accordance with their respective terms.
5.11 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to ITP an accurate list (which is set forth on Schedule
5.11) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.11, means a customer
(or person or entity) representing 5% or more of the COMPANY's total annual
revenues as of the Balance Sheet Date. Except to the extent set forth on
Schedule 5.11, none of the COMPANY's significant customers has canceled or
substantially reduced or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
Except as listed or described on Schedule 5.11, as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Material Contracts relating to or in any way affecting the operation or
ownership of the COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or any
such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than in
the COMPANY's ordinary course of business in excess of $10,000;
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(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services (except
that the COMPANY need not list any such contract made in the ordinary course
of business) which requires aggregate future payments of greater than $10,000;
(d) any contract relating to the borrowing of money, or the guaranty of
another person's borrowing of money, including, without limitation, all notes,
mortgages, indentures and other obligations, agreements and other instruments
for or relating to any lending or borrowing, including assumed indebtedness;
(e) any contract granting any person a lien on any of the assets of the
COMPANY, in whole or in part;
(f) any contract granting to any person a first-refusal, first-offer or
similar preferential right to purchase or acquire any of the assets of the
COMPANY's business other than in the ordinary course of business;
(g) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment, vehicle or
other tangible personal property or real property, or
(ii) a lessor of any real property or tangible personal property
owned by the COMPANY, in either case having an original value in excess of
$10,000;
(h) any contract providing for the indemnification of any officer,
director, employee or other person;
(i) any joint venture or partnership contract; and
(j) any other contract with a term in excess of one year, whether or not
made in the ordinary course of business, which involves or may involve
payments in excess of $10,000.
The COMPANY has provided ITP with a true and complete copy of each
written Material Contract, including all amendments or other modifications
thereto. Except as set forth on Schedule 5.11, each Material Contract is a
valid and binding obligation of the COMPANY, enforceable in accordance with
its terms, and is in full force and effect. Except as set forth on Schedule
5.11, the COMPANY has performed all obligations required to be performed by it
under each Material Contract and neither the COMPANY nor, to the knowledge of
the COMPANY, any other party to any Material Contract, is (with or without the
lapse of time or the giving of notice or both) in breach or default in any
material respect thereunder; and there exists no condition which would
constitute a breach or default thereunder. The COMPANY has not been notified
that any party to any Material Contract intends to cancel, terminate, not
renew or exercise an option under any Material Contract, whether in connection
with the transactions contemplated hereby or otherwise.
5.12 Real Property.
(a) The COMPANY owns no real property.
(b) Schedule 5.12(b) includes an accurate list of real property
leases to which the COMPANY is a party. Counsel to ITP has been provided with
true, complete and correct copies of all leases and agreements in respect of
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such real property leased by the COMPANY. Except as set forth on Schedule
5.12(b), all of such leases included on Schedule 5.12(b) are in full force and
effect and constitute valid and binding agreements of the COMPANY and, to the
COMPANY's knowledge, of the parties thereto in accordance with their
respective terms.
5.13 Insurance. The COMPANY has delivered to ITP:
(a) true and complete copies of all policies of insurance to which
the COMPANY is a party or under which the COMPANY, or any director of the
COMPANY, is or has been covered at any time since January 1, 1996;
(b) true and complete copies of all pending applications for
policies of insurance; and
(c) any written statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's coverage or of the
reserves for claims.
5.14 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to ITP an accurate list (which is set forth on Schedule
5.14) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the rate of compensation of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to ITP
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.14. Except as set forth on Schedule 5.14, since the
Balance Sheet Date, there have been no increases in the compensation payable
or any special bonuses to any officer, director, key employee or other
employee, except ordinary salary increases implemented on a basis consistent
with past practices, a $20,000 salary increase (from $110,000 to $130,000 per
year) in the annual salary paid to each STOCKHOLDER and bonus and dividend
distributions to STOCKHOLDERS. Except as set forth on Schedule 5.14, there is
no, and within the last three years the COMPANY has not experienced any,
strike, picketing, boycott, work stoppage or slowdown, other labor dispute,
union organizational activity, allegation, charge or complaint of unfair labor
practice, employment discrimination or other matters relating to the
employment of labor, pending or, to the COMPANY's knowledge, threatened
against the COMPANY.
5.15 Benefit Plans. The COMPANY has delivered to ITP an accurate
schedule (which is set forth on Schedule 5.15) showing all Benefit Plans.
5.16 Conformity with Law; Litigation. Except as set forth on Schedule
5.16, to the Company's knowledge, the COMPANY has complied with all laws,
rules, regulations, writs, injunctions, decrees, and orders applicable to it
or to the operation of its business (collectively, "Laws") and has not
received any notice of any alleged claim or threatened claim, violation of,
liability or potential responsibility under, any such Law which has not
heretofore been cured and for which there is no remaining liability other
than, in each case, those not having a Material Adverse Effect.
Except to the extent set forth on Schedule 5.16 (which shall disclose the
parties to, nature of, and relief sought for each matter disclosed):
(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the COMPANY's knowledge, threatened against either the
COMPANY or, to the knowledge of the COMPANY, pending or threatened against any
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of the officers, directors or employees of the COMPANY with respect to its
business or proposed business activities which would have a Material Adverse
Effect on the COMPANY, or to which the COMPANY is otherwise a party, before
any court, or before any Governmental Authority (collectively, "Claims").
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any opinion
or memorandum from legal counsel to the effect that it is exposed, from a
legal standpoint, to any liability or disadvantage which may be material to
its business. The COMPANY is not engaged in any legal action to recover
monies due it or for damages sustained by it.
5.17 Taxes. Except as set forth on Schedule 5.17:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with any
Taxing Authority have been duly filed, and each such Return correctly and
completely reflects the Tax liability and all other information required to be
reported thereon. All Taxes (whether or not shown on any Return) owed by the
COMPANY and any member of a Relevant Group (individually, the "Acquired Party"
and collectively, the "Acquired Parties") have been paid on or prior to the
due date for payment of such Taxes.
(b) To the knowledge of the COMPANY and the STOCKHOLDERS, the
provisions for Taxes due by the COMPANY (as opposed to any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) in the COMPANY's financial statements are sufficient for all unpaid
Taxes, being current taxes not yet due and payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that is
unresolved or if adversely determined would have a Material Adverse Effect on
such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is no
dispute or claim concerning any Tax liability of any Acquired Party either (i)
claimed or raised by any Taxing Authority or (ii) otherwise known to any
Acquired Party. No issues have been raised in any examination by any Taxing
Authority with respect to any Acquired Party which, by application of similar
principles, reasonably could be expected to result in a proposed deficiency
for any other period not so examined. Schedule 5.17 attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with respect
to any Acquired Party for all taxable periods ended on or after December 31,
1996, indicates those Returns, if any, that have been audited, and indicates
those Returns that currently are the subject of audit. Each Acquired Party
has delivered to ITP complete and correct copies of all federal, state, local
and foreign income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since December 31, 1996.
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(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain circumstances
could require it to make any payments, that are not deductible under Section
280G of the Code.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to an
election under Section 341(f) of the Code or comparable provisions of any
state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income Tax
purposes.
(1) Except as provided in the sentence immediately succeeding,
there are no accounting method changes or proposed or threatened accounting
method changes, of any Acquired Party that could give rise to an adjustment
under Section 481 of the Code for periods after the Closing Date. ITP
understands, however, that since the COMPANY is a cash basis taxpayer and ITP
and its subsidiaries are accrual basis taxpayers, the merger of the COMPANY
into NEWCO may give rise to an adjustment under Code Section 481 for periods
before or after the Closing Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662(d) of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law), (ii) as
a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to ITP's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, Tax credits or other
similar items of any Acquired Party (collectively, the "Tax Losses") under (i)
Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section 384 of
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the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and Section
1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and Section
1.1502-21A of the Treasury regulations or (vii) Sections 1.1502-91 through
1.1502-99 of the Treasury regulations, in each case as in effect both prior to
and following the Tax Reform Act of 1986.
(q) The fair market value of the assets of the COMPANY as well as
the COMPANY's tax basis in such assets exceeds the sum of its liabilities,
plus the amount of liabilities, if any, to which the assets are subject.
(r) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.17, the following definitions shall apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax
with any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.18 No Violations. The COMPANY is not in violation of any Charter
Document. To the knowledge of the COMPANY, except as set forth on Schedule
5.18, (a) the rights and benefits of the COMPANY under the Material Contracts
will not be adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance by the COMPANY and the
STOCKHOLDERS of their obligations hereunder and the consummation by the
COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will not
(i) result in any violation or breach of, or constitute a default under, any
of the terms or provisions of the Material Contracts or the Charter Documents
or (ii) require the consent, approval, waiver of any acceleration, termination
or other right or remedy or action of or by, or make any filing with or give
any notice to, any other party. Except as set forth on Schedule 5.18, none of
the Material Contracts requires notice to, or the consent or approval of, any
Governmental Authority or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any material
right or benefit.
5.19 Business Conduct. Except as set forth on Schedule 5.19, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no
liabilities other than in the ordinary course of business consistent with past
custom and practices. Except as forth on Schedule 5.19, since December 31,
1996, there has not been any:
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(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities, employee,
customer or supplier relations or business prospects;
(b) Loan or advance by the COMPANY to any party in excess of $5,000
in the aggregate other than sales to customers on credit in the ordinary
course of business consistent with past custom and practices;
(c) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or indirect
redemption, purchase, or other acquisition of such stock, or the payment of
principal or interest on any note, bond, debt instrument or debt to any
Affiliate;
(d) Incurrence of any debts, liabilities or obligations except
current liabilities incurred in connection with or for services rendered or
goods supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges but
not penalties, interest or fines in respect thereof, and obligations or
liabilities incurred by virtue of the execution of this Agreement;
(e) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(f) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and
practices;
(g) Amendment of the COMPANY's Articles of Incorporation or
By-Laws;
(h) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(i) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(j) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(k) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $10,000 in the
aggregate;
(l) Liens with respect to any asset of the COMPANY other than
purchase money security interests created in the ordinary course of business;
(m) Adoption, amendment or termination of any Benefit Plan;
(n) Increase in the benefits provided under any Benefit Plan; or
(o) An occurrence or event not included in clauses (a) through (n)
that has or might be expected to have a Material Adverse Effect on the
COMPANY.
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5.20 Prohibited Activities. Except as set forth on Schedule 5.20, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.21 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDERS, none of the representations and warranties set forth in this
Agreement, the schedules, certificates, and the other documents furnished by
the COMPANY to ITP pursuant hereto, taken as a whole, contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the Closing
Date.
5.22 Authority; Ownership. Each STOCKHOLDER has the full legal right,
subject to spousal consent which is to be provided at or before the Closing
Date, power and authority to enter into this Agreement. Each STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified
on Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.22, such COMPANY Stock is owned free and clear of any and all
Liens, voting trusts and restrictions of every kind.
5.23 No Intention to Dispose of ITP Stock. No STOCKHOLDER has any
current plan or intention, or is under any binding commitment or contract to
sell, exchange or otherwise dispose of shares of ITP Stock received pursuant
to Section 3.
6. REPRESENTATIONS AND WARRANTIES OF ITP AND NEWCO
ITP and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties
in this Section 6 are true as of the Closing Date, and that such
representations and warranties shall survive the Closing Date for a period of
two years (the "ITP Expiration Date").
6.1 Due Organization. ITP and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the
state of their incorporation, and are duly authorized and qualified to do
business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on their business in the places and in the manner
as now conducted, to own or hold under lease the properties and assets they
now own or hold under lease, and to perform all of their obligations under any
material agreement to which they are a party or by which their properties are
bound; are duly qualified in the jurisdictions listed in Schedule 6.1 and
there are no other jurisdictions in which the conduct of ITP's and NEWCO's
business or activities or their ownership of assets requires any other
qualification under applicable law, the absence of which would have a
Materially Adverse Effect on either ITP's or NEWCO's business. True, complete
and correct copies of the Certificate or Articles of Incorporation and Bylaws,
each as amended, of ITP and NEWCO (the "ITP Charter Documents") are all
attached hereto as Annex II. The minute books and stock records of each of
ITP and NEWCO, as heretofore made available to the COMPANY, are correct and
complete in all material respects.
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6.2 Authorization. The respective representatives of ITP and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind ITP and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by ITP and NEWCO and
the performance by ITP and NEWCO of their respective obligations under this
Agreement and the consummation by ITP and NEWCO of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action by each in accordance with applicable law and the Certificate or
Articles of Incorporation and By-Laws of ITP and NEWCO, as the case may be.
This Agreement constitutes the valid and binding obligation of ITP and NEWCO,
enforceable in accordance with its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of
this Agreement nor their performance will violate, conflict with, or result in
a breach of any provision of any Law, rule, regulation, order, permit,
judgment, injunction, decree or other decision of any court or other tribunal
or any Governmental Authority binding on ITP or NEWCO or conflict with or
result in the breach of any of the terms, conditions or provisions of the
Certificate or Articles of Incorporation or the By-Laws of ITP or NEWCO or of
any contract, agreement, mortgage or other instrument or obligation of any
nature to which ITP or NEWCO is a party or by which ITP or NEWCO is bound.
6.4 Misrepresentation. To the knowledge of ITP, none of the
representations and warranties set forth in this Agreement or in any of the
certificates, schedules, exhibits, lists, documents, exhibits, or other
instruments delivered, or to be delivered, to the COMPANY as contemplated by
any provision hereof, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of ITP consists
of ten million shares of ITP Stock and two million shares of Preferred Stock.
All of the issued and outstanding shares of capital stock of ITP are set forth
in Annex V. Except as disclosed on Schedule 6.5, there are no outstanding
options, rights (preemptive or otherwise), warrants, calls, convertible
securities or commitments or any other arrangements to which ITP is a party
requiring or restricting issuance, sale or transfer of any equity securities
of ITP or any securities convertible directly
Philip Tomasi
---------------------------------(SEAL)
Charles Menzel
BUSINESS COMBINATION AGREEMENT
Dated as of May 29, 1997
By and Among
IT PARTNERS INC.
and
KANDL DATA PRODUCTS, INC.
and
MARTIN KANDL
and
HAEYOUNG P. KANDL
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TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS
Section 1.1. Adjustment Amount.. . . . . . . . . . . . . . . .4
Section 1.2. Affiliate . . . . . . . . . . . . . . . . . . . .4
Section 1.3. Balance Sheet . . . . . . . . . . . . . . . . . .5
Section 1.4. Benefit Arrangements. . . . . . . . . . . . . . .5
Section 1.5. Buyer . . . . . . . . . . . . . . . . . . . . . .5
Section 1.6. Buyer's Accountants . . . . . . . . . . . . . . .5
Section 1.7. Citibank Rate . . . . . . . . . . . . . . . . . .5
Section 1.8. Closing . . . . . . . . . . . . . . . . . . . . .5
Section 1.9. Closing Balance Sheet . . . . . . . . . . . . . .5
Section 1.10. Closing Date. . . . . . . . . . . . . . . . . . .5
Section 1.11. Code. . . . . . . . . . . . . . . . . . . . . . .5
Section 1.12. Confidentiality Agreement . . . . . . . . . . . .5
Section 1.13. Corporation . . . . . . . . . . . . . . . . . . .5
Section 1.14. Dispute Resolution Firm . . . . . . . . . . . . .5
Section 1.15. Employee. . . . . . . . . . . . . . . . . . . . .5
Section 1.16. Employee Benefit Plan . . . . . . . . . . . . . .6
Section 1.17. ERISA . . . . . . . . . . . . . . . . . . . . . .6
Section 1.18. Exhibit . . . . . . . . . . . . . . . . . . . . .6
Section 1.19. Final Closing Balance Sheet . . . . . . . . . . .6
Section 1.20. Final Net Asset Value . . . . . . . . . . . . . .6
Section 1.21. Financials Date . . . . . . . . . . . . . . . . .6
Section 1.22. Guarantees. . . . . . . . . . . . . . . . . . . .6
Section 1.23. Individual Returns. . . . . . . . . . . . . . . .6
Section 1.24. Individual Taxes. . . . . . . . . . . . . . . . .6
Section 1.25. Intellectual Property . . . . . . . . . . . . . .6
Section 1.26. IRS . . . . . . . . . . . . . . . . . . . . . . .6
Section 1.27. Material. . . . . . . . . . . . . . . . . . . . 6-
Section 1.28. Material Adverse Effect . . . . . . . . . . . . .7
Section 1.29. Material Contracts. . . . . . . . . . . . . . . .7
Section 1.30. [intentionally deleted] . . . . . . . . . . . . .7
Section 1.31. Net Asset Value . . . . . . . . . . . . . . . . .7
Section 1.32. Offering Memorandum . . . . . . . . . . . . . . .7
Section 1.33. Other Company . . . . . . . . . . . . . . . . . .7
Section 1.34. [intentionally deleted] . . . . . . . . . . . . .7
Section 1.35. PBGC. . . . . . . . . . . . . . . . . . . . . . .7
Section 1.36. Person. . . . . . . . . . . . . . . . . . . . . .7
Section 1.37. Proposed Closing Balance Sheet. . . . . . . . . .7
Section 1.38. [intentionally deleted] . . . . . . . . . . . . .7
Section 1.39. Purchase Price. . . . . . . . . . . . . . . . . .7
Section 1.40. Retirement Plan . . . . . . . . . . . . . . . . .7
Section 1.41. Schedule. . . . . . . . . . . . . . . . . . . . .8
Section 1.42. Securities Act. . . . . . . . . . . . . . . . . .8
Section 1.43. Seller. . . . . . . . . . . . . . . . . . . . . .8
Section 1.44. Seller's Accountants. . . . . . . . . . . . . . .8
Section 1.45. Senior Debt . . . . . . . . . . . . . . . . . . .8
Section 1.46. Shares. . . . . . . . . . . . . . . . . . . . . .8
Section 1.47. Subsidiary. . . . . . . . . . . . . . . . . . . .8
Section 1.48. Transaction Documents . . . . . . . . . . . . . .8
ARTICLE II: PURCHASE AND SALE OF SHARES
Section 21. Sale. . . . . . . . . . . . . . . . . . . . . . .8
Section 2.2 Purchase Price and Allocation . . . . . . . . . .8
<PAGE>
<PAGE.
Section 2.3. Adjustment of Purchase Price. . . . . . . . . . .9
Section 2.4 Board of Directors Membership: Amendments to Buyer's By-laws10
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1. Organization and Good Standing. . . . . . . . . 10
Section 3.2. Capitalization. . . . . . . . . . . . . . . . . 10
Section 3.3. Ownership of the Shares . . . . . . . . . . . . 11
Section 3.4. Execution and Effect of Agreement . . . . . . . 11
Section 3.5. Consents. . . . . . . . . . . . . . . . . . . . 11
Section 3.6. Balance Sheet . . . . . . . . . . . . . . . . . 11
Section 3.7. Absence of Certain Changes. . . . . . . . . . . 12
Section 3.8. Litigation. . . . . . . . . . . . . . . . . . . 12
Section 3.9. Properties: Absence of Encumbrances . . . . . . 13
Section 3.10. Intellectual Property . . . . . . . . . . . . . 13
Section 3.11. Contracts . . . . . . . . . . . . . . . . . . . 13
Section 3.12. Employees; Employee Benefit Matters . . . . . . 14
Section 3.13. Guarantees by Others. . . . . . . . . . . . . . 15
Section 3.14. Tax Matters . . . . . . . . . . . . . . . . . . 15
Section 3.15. Compliance with Law and Other Instruments;
Regulatory Matters. . . . . . . . . . . . . . . 15
Section 3.16. Permits . . . . . . . . . . . . . . . . . . . . 16
Section 3.17. Environmental Matters . . . . . . . . . . . . . 16
Section 3.18. Insurance . . . . . . . . . . . . . . . . . . . 16
Section 3.19. Banks: Powers of Attorney . . . . . . . . . . . 16
Section 3.20. Brokerage Fees. . . . . . . . . . . . . . . . . 16
Section 3.21. Limitation of Representations and Warranties. . 17
Section 3.22 Affiliates. . . . . . . . . . . . . . . . . . . 17
ARTICLE IV: PURCHASE AND SALE OF SHARES
Section 4.1. Organization and Good Standing. . . . . . . . . 17
Section 4.2. Investment Representation . . . . . . . . . . . 17
Section 4.3 Capitalization. . . . . . . . . . . . . . . . . 17
Section 4.4. Execution and Effect of Agreement . . . . . . . 18
Section 4.5 Affiliates. . . . . . . . . . . . . . . . . . . 18
Section 4.6 Financial Statements. . . . . . . . . . . . . . 18
Section 4.7. Restrictions. . . . . . . . . . . . . . . . . . 19
Section 4.8. No Lawsuits: Consents . . . . . . . . . . . . . 19
Section 4.9 Other Documents; Contracts. . . . . . . . . . . 19
Section 4.10 Code 351 Transaction. . . . . . . . . . . . . . 20
Section 4.11. Limitation of Representations and Warranties. . 20
ARTICLE V: PURCHASE AND SALE OF SHARES
Section 5.1. Corporate Action. . . . . . . . . . . . . . . . 20
Section 5.2 [intentionally deleted] . . . . . . . . . . . . 20
Section 5.3. Consents. . . . . . . . . . . . . . . . . . . . 20
Section 5.4. Access to Information and Cooperation . . . . . 21
Section 5.5. Public Statements . . . . . . . . . . . . . . . 21
ARTICLE VI: COVENANTS AND AGREEMENTS OF BUYER
Section 6.1. Corporate Action. . . . . . . . . . . . . . . . 21
Section 6.2. Public Statements . . . . . . . . . . . . . . . 21
Section 6.3. Consents. . . . . . . . . . . . . . . . . . . . 21
Section 6.4. Certain Employee Benefit Matters. . . . . . . . 22
Section 6.5. Preservation of and Access to Certain Information
and Cooperation After Closing . . . . . . . . . 22<PAGE>
<PAGE>
Section 6.6. Nondisposition of Shares. . . . . . . . . . . . 23
Section 6.7 Put Option. . . . . . . . . . . . . . . . . . . 23
ARTICLE VII: CONDITIONS OF OBLIGATIONS OF BUYER
Section 7.1. Representations and Warranties True . . . . . . 24
Section 7.2. Covenants and Agreements-No Default . . . . . . 24
Section 7.3. [intentionally deleted] . . . . . . . . . . . . 24
Section 7.4. No Material Adverse Change. . . . . . . . . . . 24
Section 7.5. Consents. . . . . . . . . . . . . . . . . . . . 24
Section 7.6. Transaction Documents . . . . . . . . . . . . . 25
Section 7.7. Adverse Proceedings . . . . . . . . . . . . . . 25
ARTICLE VIII: CONDITIONS OF OBLIGATIONS OF SELLER
Section 8.1. Representations and Warranties True . . . . . . 25
Section 8.2. Covenants and Agreements--No Default. . . . . . 25
Section 8.3. Officer's Certificates. . . . . . . . . . . . . 25
Section 8.4. Consents. . . . . . . . . . . . . . . . . . . . 25
Section 8.5. Other Transactions. . . . . . . . . . . . . . . 26
Section 8.6. Transaction Documents . . . . . . . . . . . . . 26
Section 8.7. Adverse Proceedings . . . . . . . . . . . . . . 26
Section 8.8 Board/Executive Committee . . . . . . . . . . . 26
ARTICLE IX. REGISTRATION RIGHTS
[intentionally deleted]
ARTICLE X. PURCHASE AND SALE OF SHARES
Section 10.1. Closing . . . . . . . . . . . . . . . . . . . . 26
Section 10.2. Documents to be Delivered by Seller . . . . . . 27
Section 10.3. Documents to be Delivered by Buyer. . . . . . . 27
ARTICLE XI. MISCELLANEOUS
Section 11.1. Survival of Representations Warranties,
Covenants and Agreements. . . . . . . . . . . . 28
Section 11.2. Indemnification . . . . . . . . . . . . . . . . 28
Section 11.3. Disclaimer of Other Representations and
Warranties by Seller. . . . . . . . . . . . . . 30
Section 11.4. Disclosure. . . . . . . . . . . . . . . . . . . 30
Section 11.5. Expenses and Taxes. . . . . . . . . . . . . . . 30
Section 11.6. Special Indemnification for Tax Liabilities . . 30
Section 11.7. Entire Agreement. . . . . . . . . . . . . . . . 32
Section 11.8. Amendment and Waiver. . . . . . . . . . . . . . 33
Section 11.9. Binding Agreement and Successors. . . . . . . . 33
Section 11.10. No Third Party Beneficiaries . . . . . . . . . 33
Section 11.11. Notices. . . . . . . . . . . . . . . . . . . . .33
Section 11.12. Further Assurances . . . . . . . . . . . . . . .34
Section 11.13. Article and Section Headings . . . . . . . . . .34
Section 11.14. Governing Law. . . . . . . . . . . . . . . . . .34
Section 11.15. Courts . . . . . . . . . . . . . . . . . . . . .34
Section 11.16. Construction . . . . . . . . . . . . . . . . . .34
Section 11.17. Counterparts . . . . . . . . . . . . . . . . . .35
<PAGE>
<PAGE>
SCHEDULES PAGE
Schedule 3.1. Organization and Good Standing. . . . .S
Schedule 3.2. Restrictions. . . . . . . . . . . . . .S
Schedule 3.5. Consents. . . . . . . . . . . . . . . .S
Schedule 3.6. Balance Sheet . . . . . . . . . . . . .S
Schedule 3.7. Recent Changes. . . . . . . . . . . . .S
Schedule 3.8. Litigation. . . . . . . . . . . . . . .S
Schedule 3.9. Properties. . . . . . . . . . . . . . .S
Schedule 3.10. Intellectual Property. . . . . . . . . S
Schedule 3.11. Contracts. . . . . . . . . . . . . . . S
Schedule 3.12. Employee Benefit Matters . . . . . . . S
Schedule 3.13. Guarantees by Others . . . . . . . . . S
Schedule 3.14. Tax Matters. . . . . . . . . . . . . . S
Schedule 3.15. Noncompliance. . . . . . . . . . . . . S
Schedule 3.16. Permits. . . . . . . . . . . . . . . . S
Schedule 3.17. Environmental Matters. . . . . . . . . S
Schedule 3.18. Insurance. . . . . . . . . . . . . . . S
Schedule 3.19. Banks; Powers of Attorney. . . . . . . S
Schedule 4.3(b) List of Buyer's Shareholders. . . . . .S
Schedule 4.9. Other Documents . . . . . . . . . . . .S
Schedule 5.2. Conduct of Business . . . . . . . . . .S
Schedule11.2. Indemnification Share Valuation . . . .S
Exhibit A Balance Sheet . . . . . . . . . . . . . . . E
Exhibit B Shareholder Agreement . . . . . . . . . . . E
Exhibit C ITP 1997 Long-Term Incentive Plan . . . . . E
Exhibit D Opinion of Shaw, Pittman, Potts & TrowbridgeE
Exhibit E Opinion of Semmes Bowen & Semmes. . . . . . E
Exhibit F Promissory Note . . . . . . . . . . . . . . E
Exhibit G Articles of Incorporation of Buyer. . . . . E
Exhibit H Bylaws of Buyer . . . . . . . . . . . . . . E
Exhibit J Stock Repurchase Agreement. . . . . . . . . E
<PAGE>
<PAGE>
BUSINESS COMBINATION AGREEMENT
This BUSINESS COMBINATION AGREEMENT ("Agreement") is made as of
May 29, 1997, by and among KANDL DATA PRODUCTS, INC., a Maryland
corporation with its principal office at 12104 Indian Creek Court, Suite H,
Beltsville, Maryland 20705 the "Corporation") and MARTIN KANDL and HAEYOUNG P.
KANDL, individuals who reside at 10700 Harper Avenue, Silver Spring, Maryland
20901 (collectively, such individuals are hereafter referred to as the
"Seller"), and IT PARTNERS INC., a Delaware corporation with its principal
office at 1006 Highland Drive, Silver Spring, Maryland 20910("Buyer").
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding capital stock
of the Corporation;
WHEREAS, the Corporation is engaged in the design, manufacture and
sale of products and services to the information technology industry;
WHEREAS, Seller and Buyer desire to accomplish a business combination
consistent with Section 351 of the Internal Revenue Code of 1986, as amended,
in connection with which Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, in accordance with the terms and conditions of this
Agreement, all of the issued and outstanding shares of capital stock of the
Corporation;
NOW THEREFORE, in consideration of the mutual covenants and agreements
of the parties contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
Section 1.1 Adjustment Amount. "Adjustment Amount" shall mean
$109,000.00.
Section 1.2. Affiliate. "Affiliate" shall mean any Person that
directly or indirectly controls, is controlled by, or is under common control
with the Person in question. For purposes of determining whether a Person is
an Affiliate, the term "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of securities, contract or
otherwise but shall not include either Creditanstalt Corporate Finance, Inc.
or Creditanstalt-Bankverein in their capacities as Lender, Agent or Issuing
Bank under, and as such term is defined in, the Loan and Security Agreement
among the Buyer, the lenders named therein, Creditanstalt-Bankverein as the
Issuing Bank and Creditanstalt Corporate Finance, Inc. as agent for such
lenders.
Section 1.3. Balance Sheet. "Balance Sheet" shall mean the audited
statement of net assets and liabilities of the Corporation as at February 28,
1997 which has been prepared by Ernst & Young at the request of Buyer, a copy
of which is attached hereto as Exhibit A.
<PAGE>
<PAGE>
Section 1.4. Benefit Arrangements. "Benefit Arrangements" shall mean
all profit sharing, life, health, hospitalization, savings, bonus, deferred
compensation, incentive compensation, severance pay, disability, vacation,
sick pay, holiday and fringe benefit plans, individual employment and
severance contracts and other policies and practices of the Corporation, or
any Affiliate thereof, providing employee or executive compensation or
benefits to Employees or beneficiaries of Employees, other than Retirement
Plans.
Section 1.5. Buyer. "Buyer" shall have the meaning set forth above.
Section 1.6. Buyer's Accountants. "Buyer's Accountants" shall mean the
independent accounting firm of Ernst & Young, LLP.
Section 1.7. Citibank Rate. "Citibank Rate" shall mean the rate
announced from time to time by Citibank, N.A. as its prime commercial
lending rate in New York City, New York (U.S.A.)
Section 1.8. Closing. "Closing" shall mean the consummation of the
events described in ARTICLE X.
Section 1.9. Closing Balance Sheet. "Closing Balance Sheet" shall mean
the statement of net assets and liabilities of the Corporation as at the
Closing Date as prepared and delivered in accordance with Section 2.4.
Section 1.10. Closing Date. "Closing Date" shall mean the date on which
the Closing shall occur.
Section 1.11. Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
Section 1.12. Confidentiality Agreement. "Confidentiality Agreement"
shall mean the Confidentiality Agreement dated as of November 19, 1996 between
Daniel F. Klein, Jamie Blech, the Corporation and Martin Kandl.
Section 1.13. Corporation. "Corporation" shall have the meaning set
forth above.
Section 1.14. Dispute Resolution Firm. "Dispute Resolution Firm" shall
mean the independent accounting firm of Arthur Andersen LLP.
Section 1.15. Employee. "Employee" shall mean each person who is a
current employee, former employee or retired employee of the Corporation or
its predecessors.
Section 1.16. Employee Benefit Plan. "Employee Benefit Plan" shall mean
each "employee benefit plan," as defined in Section 3(3) of ERISA, maintained
or contributed to by the Corporation or any Affiliate thereof, which provides
benefits to Employees, but excluding Multiemployer Plans
Section 1.17. ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
Section 1.18. Exhibit. "Exhibit" shall mean an exhibit to this
Agreement.
Section 1.19. Final Closing Balance Sheet. "Final Closing Balance Sheet"
shall have the meaning set forth in Section 2.3.
<PAGE>
<PAGE>
Section 1.20. Final Net Asset Value. "Final Net Asset Value" shall mean
the Net Asset Value as finally determined pursuant to Section 2.3(a), whether
by failure of Seller to deliver notice of objection, by agreement of the
parties, or by final determination of the Dispute Resolution Firm.
Section 1.21. Financials Date. "Financials Date" shall mean February 28,
1997.
Section 1.22. Guarantees. "Guarantees" shall mean any obligations,
contingent or otherwise, of a Person in respect of any indebtedness,
obligation or liability of another Person, including but not limited to direct
or indirect guarantees, endorsements (except for collection or deposit in the
ordinary course of business), notes co-made or discounted, recourse
agreements, take-or-pay agreements, keep-well agreements, agreements to
purchase or repurchase such indebtedness, obligation or liability or any
security therefor or to provide funds for the payment or discharge thereof,
agreements to maintain solvency, assets, level of income, or other financial
condition, and agreements to make payment other than for value received.
Section 1.23. Individual Returns. "Individual Returns" shall have the
meaning set forth in Section 3.14.
Section 1.24. Individual Taxes. "Individual Taxes" shall have the
meaning set forth in Section 3.14.
Section 1.25. Intellectual Property. "Intellectual Property" shall mean
patents, patent applications, trademark registrations and applications
therefor, service mark registrations and applications therefor, copyright
registrations and applications therefor and trade names.
Section 1.26. IRS. "IRS" shall mean the Internal Revenue Service.
Section 1.27. Material. "Material" (or "Materiality") when used with
reference to information, a fact or circumstance, a course of action, a
decision-making process, or other matter shall be limited to information,
facts and circumstances, courses of action, decision-making process or other
matters as to which there is a substantial likelihood that a reasonable
purchaser of the Shares would attach importance in determining whether to
purchase the Shares.
Section 1.28. Material Adverse Effect. "Material Adverse Effect" when
used with reference to a Person shall mean a material adverse effect on the
business, properties (taken as a whole) or financial condition of the Person
or Persons.
Section 1.29. Material Contracts. "Material Contract" shall mean the
contracts, agreements, commitments or other arrangements listed in Schedule
3.13.
Section 1.30. [intentionally deleted]
Section 1.31. Net Asset Value. "Net Asset Value" shall mean total assets
minus total liabilities, as shown on the Proposed Closing Balance Sheet or the
Final Closing Balance Sheet, as the case may be, each of which shall be
prepared on a basis consistent with the Balance Sheet. "Net Asset Value," when
used with reference to the Net Asset Value of the Corporation on February 28,
1997, shall mean $673,071.
<PAGE>
<PAGE>
Section 1.32. Offering Memorandum. "Offering Memorandum" shall mean the
Confidential Memorandum prepared by Ernst & Young, LLP dated 1997.
Section 1.33. Other Company. "Other Company" shall mean C. N. S., Inc.
Section 1.34. [intentionally deleted]
Section 1.35. PBGC. "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
Section 1.36. Person. "Person" shall mean any individual, corporation,
unincorporated association, business trust, estate, partnership, trust, State,
the United States or any other entity.
Section 1.37. Proposed Closing Balance Sheet. "Proposed Closing Balance
Sheet" shall mean the proposed Closing Balance Sheet, as set forth in Section
2.3.
Section 1.38. [intentionally deleted]
Section 1.39. Purchase Price. "Purchase Price" shall have the meaning
set forth in Section 2.2.
Section 1.40. Retirement Plan. "Retirement Plan" shall mean any plan,
fund, program or policy which provides retirement income to an Employee or
results in a deferral of income by an Employee for periods extending to or
beyond the termination of employment of the Employee by Seller and all
Affiliates thereof, and pursuant to which the Corporation or an Affiliate
thereof has paid benefits or contributed funds or has an obligation to pay
benefits or contribute funds in respect of such Employee.
Section 1.41. Schedule. "Schedule" shall mean a schedule to this
Agreement.
Section 1.42. Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended.
Section 1.43. Seller. "Seller" shall have the meaning set forth above.
Section 1.44. Seller's Accountants. "Seller's Accountants" shall mean
the independent accounting firm, if any, selected by Seller.
Section 1.45. Senior Debt. "Senior Debt" shall mean the loan from
CreditanstaltBankverein in the principal amount of $10,000,000 or such larger
amount as Buyer and Creditanstalt-Bankverein shall agree to.
Section 1.46. Shares. "Shares" shall mean all of the issued and
outstanding shares of stock of the Corporation.
Section 1.47. Subsidiary. "Subsidiary," as it relates to any Person,
shall mean a corporation more than 50% of whose outstanding securities the
Person has the right, other than as affected by events of default, directly or
indirectly, to vote for the election of directors.
Section 1.48. Transaction Documents. "Transaction Documents" shall mean
all other agreements, documents or instruments to be executed by the Seller
and the Buyer in connection with this Agreement.
<PAGE>
<PAGE>
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 21. Sale. On the terms and subject to the conditions set forth
in this Agreement, Seller hereby agrees to sell, transfer, assign and deliver
to Buyer or one or more of its designated subsidiaries free and clear of any
lien, security interest, charge, encumbrance or claim, and Buyer hereby agrees
to purchase from Seller the Shares on the Closing Date.
Section 2.2 Purchase Price and Allocation. The entire consideration
to be paid by Buyer to Seller in exchange for the sale, transfer, assignment
and delivery to Buyer of the Shares shall be $3,791,934 (the "Pre-adjusted
Purchase Price') and Adjustment Amount (collectively, the Pre-adjusted
Purchase Price and the Adjustment Amount are referred to as the Purchase
Price"). The Purchase Price shall be paid by Buyer to Seller at the time of
Closing in the following manner: As to cash, the amount of $1,895,967 plus the
Adjustment Amount by wire transfer of immediately available funds into an
account or accounts designated by Seller; as to debt, a Promissory Note made
by Buyer in favor of Seller in the principal amount of $568,790, a copy of
which is attached hereto as Exhibit F; and as to equity, 365,435 shares of the
common stock of Buyer. Seller acknowledges that 100,000 shares of Buyer common
stock shall be issued by Buyer to Seller at closing in connection with the
delivery, of the Stock Repurchase Agreement in the form of Exhibit attached
hereto, pursuant to Section 10.3(f) hereof.
Section 2.3. Adjustment of Purchase Price.
(a) As promptly as practicable, and in any event not more than 90
days following the Closing Date, Buyer together with Buyer's Accountants
shall prepare and deliver to Seller and Seller's Accountants the Proposed
Closing Balance Sheet The Proposed Closing Balance Sheet shall be prepared on
a basis consistent with and as provided in, the Balance Sheet, including use
of c same methodology and maintenance of all reserves at no higher than the
level provided for in the Balance Sheet (except that it shall include the net
book value at Closing of all work-in-process and finished products), shall be
unaudited and shall be accompanied by any supporting reports or documentation
prepared by Buyer's Accountants. The Proposed Closing Balance Sheet shall be
prepared solely the purpose of determining whether the Corporation's Net Asset
Value, as reflected in the Balance Sheet has changed since February 28, 1997.
The parties acknowledge that no additional adjustments which may have been
necessary as of February 28, 1997 on the Balance Sheet shall be included or
reflected on the Proposed Closing Balance Sheet or taken into account in the
determination of the Final Net Asset Value. In calculating the Corporation's
earnings for the period through the Closing, no amount shall be reflected as
accrued or expensed for any legal fees incurred in connection with this
transaction, although the Corporation shall bear all such legal fees pursuant
to Section 11.5 hereof.
(b) (i) Seller may dispute the Proposed Closing Balance Sheet
prepared by Buyer and Buyer's Accountants by notifying Buyer and Buyer's
Accountants in writing, setting forth in reasonable detail the amount(s) in
dispute and the basis for such dispute, within 60 days of Seller's receipt
of the Proposed Closing Balance Sheet. If Seller fails to deliver a notice
of objections within such 60-day period, Seller shall be deemed to have
accepted the Proposed Closing Balance Sheet and the Net Asset Value thereon.
In the event the aggregate amounts in dispute are less than $50,000, the Net
<PAGE>
<PAGE>
Asset Value proposed by Buyer and Buyer's Accountants shall be adjusted by
one-half of the dispute amount, and such resolution shall be final, binding
and conclusive on Seller and Buyer.
(ii) In the event the amounts in dispute exceed' $50,000, Buyer and
Seller shall attempt in good faith to resolve such dispute, and any resolution
by them as to any disputed amount(s) shall be final, binding and conclusive on
Seller and Buyer. If Buyer and Seller do not resolve any such dispute within
15 days of the date of receipt by Buyer of Seller's written notice of dispute,
Buyer and Seller shall, within five additional days, retain the Dispute
Resolution Firm, which firm shall, within 30 days of each submission, resolve
such remaining dispute, and provide written notice of such resolution by
facsimile, confirmed by mail, and such resolution shall be binding and
conclusive on Seller and Buyer. Such resolution shall be within the range of
amounts defined by the amount proposed by Buyer's Accountants and the amount
proposed by Seller as to each disputed item. The fees and disbursements of the
Dispute Resolution Firm shall be borne by Buyer and Seller in the proportion
that the aggregate amount of disputed items submitted to the Dispute
Resolution Firm that is unsuccessfully disputed by each party (as finally
determined by the Dispute Resolution Firm) bears to the total amount of the
disputed items as submitted to the Independent Accounting Firm. After
resolving the items in dispute, the Dispute Resolution Firm shall prepare and
deliver to each of Seller and Buyer the Final Closing Balance Sheet and a
certification of the Net Asset Value thereon.
(c) In the event that the Final Net Asset Value is less than the Net
Asset Value stated on the Balance Sheet, Seller shall pay to Buyer the
difference plus interest thereon from the Closing Date through the date of
payment at a rate per annum, which may fluctuate from time to time, equal to
the Citibank Rate. In the event that the Final Net Asset Value is greater than
the Net Asset Value stated on the Balance Sheet, Buyer shall pay to Seller the
difference, plus interest on such amount from the Closing Date through the
date of payment at a rate per annum, which may fluctuate from time to time,
equal to the Citibank Rate. Such payment shall be made in immediately
available funds not later than two business days after the determination of
the Final Net Asset Value by wire transfer to a bank account designated by the
party entitled to receive the payment.
(d) Any payment made pursuant to Section 2.3(c) shall be treated as an
increase or decrease, as the case may be, to the Purchase Price.
Section 2.4 Board of Directors Membership: Amendments to Buyer's By-laws.
Immediately following Closing, Buyer shall take such corporate action as may
be necessary to cause a designee of Seller to become a member of Buyer's Board
of Directors (the "Board"), and, if necessary, to reelect such designee, or
another designee of Seller, to continue to serve on the Board, as provided in
a certain Stockholder Agreement to be executed by the parties hereto and
certain other parties contemporaneously herewith. Such Stockholder Agreement
is attached hereto as Exhibit B.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1. Organization and Good Standing. The Corporation is duly
organized, validly existing and in good standing under the laws of the State
<PAGE>
<PAGE>
of Maryland. The Corporation has full corporate power and authority to carry
on its business as it is now being conducted. The Corporation is qualified as
a foreign corporation in, and is in good standing under the laws of, each
state set forth in Schedule 3.1, which are the only jurisdictions in which the
failure of the Corporation to be so qualified would have a Material Adverse
Effect on the Corporation.
Section 3.2. Capitalization. The authorized capital stock of the
Corporation consists of 1,000 shares of common Stock, no par value, all of
which shares are outstanding. Each of the outstanding Shares has been duly
authorized and validly issued and is fully paid and nonassessable. No shares
of capital stock of the Corporation are held in treasury, and there are no
other issued or outstanding equity securities of the Corporation and no other
issued or outstanding equity securities of the Corporation convertible at any
time into equity securities of the Corporation. Neither Seller nor the
Corporation is subject to any commitment or obligation that would require the
issuance or sale of additional shares of capital stock of the Corporation at
any time under options, subscriptions, warrants, rights or any other
obligations. Neither the execution and delivery of this Agreement and the
Transaction Documents nor the consummation of the transactions contemplated
hereby or thereby will (a) violate any of the provisions of the charter or
bylaws of the Corporation, or (b) conflict with or result in a breach of, or
give rise to a right of termination of, or accelerate the performance required
by the terms of any judgment, court order or consent decree, permit or license
or any statute, rule or regulation of any governmental body, or any agreement,
indenture, mortgage or instrument to which Seller, or the Corporation is a
party or to which it or its property is subject, or constitute a default
thereunder, except, in the case of clause (b), where such conflict, breach,
right of termination or default would not have a Material Adverse Effect on
the Corporation or Seller.
Section 3.3. Ownership of the Shares. Seller is the record and beneficial
owner of the Shares, which are free and clear of any lien, security interest,
charge, encumbrance or claim, and Seller has, or will have on the Closing
Date, the right to transfer to Buyer complete and encumbered legal and
equitable title to the Shares.
Section 3.4. Execution and Effect of Agreement. Seller has the ability
and authority to enter into and consummate this Agreement and the Transaction
Documents, and the execution and delivery of such agreements and the
consummation of the transactions completed hereby have, if and to the extent
necessary, been duly authorized. This Agreement has been duly executed and
delivered by the Seller, and constitutes a legal, valid and binding obligation
of each such Persons as constitute the Seller executing such Agreement subject
to such applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws affecting the rights of creditors generally and to the exercise of
judicial discretion in accordance with general principals of equity (whether
applied by a court of law or of equity).
Section 3.5. Consents. Except (a) for filings, consents, approvals and
authorizations that the failure to obtain or make would not have a Material
Adverse Effect on the Corporation, or (b) as set forth in Schedule 3.5, no
consent, waiver, approval or authorization of any governmental authority or of
any third party or notice to or filing with any governmental authority or any
third party, on the part of Seller, or the Corporation is required in
connection with the execution and delivery by Seller of this Agreement or any
instrument contemplated hereby or the consummation of any of the transactions
contemplated hereby.
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Section 3.6. Balance Sheet. Except as set forth in Schedule 3.6, the
Balance Sheet fairly presents the Corporation's financial condition as at the
Financials Date, provided that the parties acknowledge that the Balance Sheet
has been prepared by Buyer's Accountants and, accordingly, Seller makes no
representation as to whether such Balance Sheet and the information contained
therein has been presented in accordance with generally accepted accounting
principles. The Corporation has no Material liabilities or obligations,
whether contingent or absolute, direct or indirect, matured or unmatured,
which are not shown or provided for on the Balance Sheet or the notes thereto,
except for those which have arisen since the date of the Balance Sheet in the
ordinary course of business or are set forth on Schedule 3.6, or any other
Schedule to this Agreement, and Seller knows of no reasonable basis (as
determined in Seller's reasonable judgment) for the assertion of any such
liabilities or obligation.
Section 3.7. Absence of Certain Changes. Since February 28, 1997, except
as disclosed on Schedule 3.7 or as otherwise contemplated by this Agreement,
there has not been:
(a) any change in the assets, liabilities, business, properties or
operations of the Corporation, other than changes (i) described in the
Schedules or (ii) made or incurred in the ordinary course of business, which
taken in the aggregate have had a Material Adverse Effect on the Corporation;
(b) any dividend or other distribution declared, paid or made on or
in respect of the capital stock of the Corporation;
(c) any employment or other contract or commitment entered into by
the Corporation, except in the ordinary course of business;
(d) a cancellation of any claim of or debts owed to the
Corporation, except in the ordinary course of business:
(e) excluding any inventory or obsolete assets disposed of in the
ordinary course of business, any sale, assignment, transfer or other
disposition of (i) any Intellectual Property, the latest cost of which on the
accounting records of the Corporation exceeds $2,500 or (ii) any other assets,
the latest cost of which on the accounting records of the Corporation exceeds
$2,500;
(f) any capital expenditure, capital addition or capital
improvement by the Corporation involving an amount in excess of $100,000;
(g) any mortgage, lien, pledge, encumbrance or security interest
created on any assets, tangible or intangible, except purchase money security
interests created in the ordinary course of business;
(h) any damage, destruction or loss (whether or not covered by
insurance) which would have a Material Adverse Effect on the Corporation;
(i) any labor disturbances which would have a Material Adverse
Effect on the Corporation; or
(j) to Seller's knowledge, any other event or condition which has
had or, in the reasonable judgment of Seller, would likely have a Material
Adverse Effect on the Corporation.
Section 3.8. Litigation. Except as set forth in Schedule 3.8, Schedule 3.15
<PAGE>
<PAGE>
or Schedule 3.17, there is no action at law or in equity, arbitration
proceeding or governmental investigation pending or, to the knowledge of
Seller, threatened by or before any court, any governmental or administrative
agency or commission, or arbitrator, against Seller or the Corporation, in
respect of this Agreement or any of the transactions contemplated hereby that
would prevent a consummation of any of the transactions contemplated hereby.
Except as set forth in Schedule 3.8, Schedule 3.15, or Schedule 3.17, there is
no action at law or in equity, arbitration proceeding or governmental
investigation pending, or to the knowledge of Seller threatened, by or before
any court, any governmental or administrative agency or commission, or
arbitrator against or involving any of the businesses, properties, rights or
assets of the Corporation or its Affiliates, employees or agents, which
reasonably could be expected to have a Material Adverse Effect on the
Corporation.
Section 3.9. Properties: Absence of Encumbrances. Schedule 3.9 sets
forth a complete list of all real property leased, or used by the Corporation.
With respect to leasehold interests: (a) the leases are in full force and
effect and constitute valid and enforceable leasehold interests of the
Corporation, free and clear of all liens, claims, security interests,
encumbrances or mortgages created by Seller that would have a Material Adverse
Effect on the Corporation, (b) the Corporation is not in default and has not
received any written notice of default under any lease where there reasonably
could be expected to be a Material Adverse Effect on the Corporation, and (c)
to the knowledge of Seller there is no event which with notice or lapse of
time or both would constitute such a default by the Corporation or by a
lessor.
Section 3.10. Intellectual Property. Schedule 3.10 sets forth a complete
list of all Material Intellectual Property of the Corporation on the date
hereof and of all license agreements pursuant to which any such Intellectual
Property is licensed (a) by or to the Corporation. The Corporation does not
own, license or, to Seller's knowledge, use Intellectual Property Material to
the continued operation of its business that is not listed on Schedule 3.10.
Except as otherwise indicated in Schedule 3. 10, the Corporation owns the
Intellectual Property listed in Schedule 3.10 free and clear of any royalty,
lien, encumbrance or charge. Notwithstanding anything to the contrary
contained herein, Seller make no representation or warranty, and no such
representation or warranty shall be implied, that any of the Intellectual
Property is valid or enforceable. To the knowledge of Seller, except as set
forth in Schedule 3.8 or Schedule 3.10, the Corporation has not received
within the two-year period immediately preceding the date of this Agreement
any notice or claim that any such Intellectual Property is not valid or
enforceable, or of any infringement upon or conflict with any patent,
trademark, service mark, copyright or trade name of any third party by the
Corporation or of any claim by any third party alleging any such infringement
or conflict. To the knowledge of Seller, except as set forth in Schedule 3.8
or Schedule 3.10, during the two-year period immediately preceding the date of
this Agreement the Corporation has not given any notice of infringement to any
third party with respect to any of the Intellectual Property listed in
Schedule 3.10.
Section 3.11. Contracts. Except for contracts, agreements, commitments
or other arrangements set forth on Schedule 3.11 or other Schedules, as of the
date of this Agreement the Corporation is not a party to or obligated by any:
(a) Benefit Arrangements providing for aggregate payments of $2,500 or more in
any 12-month period or any contract with employees, consultants or agents not
terminable at will without cost or other liability by reason of such <PAGE>
<PAGE>
termination; (b) collective bargaining agreement; (c) guarantees by the
Corporation of any obligation for the borrowing of $2,500 in the aggregate;
(d) indentures, notes, mortgages, installment obligations, capital leases or
other instruments relating to the borrowing of money in excess of $2,500 in
the aggregate; (e) agreement, contract or lease (excluding open purchase
orders and supply agreements entered into in the ordinary course of business)
that involves the receipt or payment by the Corporation within one year of
more than $100,000; and (f) executory contracts involving the acquisition or
disposition of Material tangible or intangible assets other than in the
ordinary course of business. Except as disclosed on Schedule 3.8 or as would
not have a Material Adverse Effect on the Corporation, the Corporation is not
in default under any Material Contract, has not waived any Material rights
under any such Material Contract and (to the knowledge of Seller) has no
knowledge or notice that any party with whom it has a Material Contract is in
default under any Material Contract.
Section 3.12. Employees; Employee Benefit Matters.
(a) Schedule 3.12 to this Agreement contains a true and complete list
of all sales agents, consultants and employees of the Corporation (whether
employed or engaged by written or oral agreement), their respective rates of
compensation and any general or Material individual wage increase scheduled to
take effect prior to Closing other than in the ordinary course of business.
The Corporation has paid in full such employees, agents and consultants, or
adequately reserved for, all wages, salaries, commissions, bonuses and other
compensation for all services performed by them, except for such payments as
are not yet due; and the Corporation is in compliance in all material respects
with all laws and regulations respecting employment and employment practices,
terms and conditions or employment, wages and hours, employee benefit plans
and taxes (including withholding taxes) relating to employment.
(b) Schedule 3.12 sets forth a list of all Employee Benefit Plans, all
Material Benefit Arrangements, all Multiemployer Plans, and all Retirement
Plans. Except as set forth in Schedule 3.12, with respect to each of such
Employee Benefit Plans, Benefit Arrangements and Retirement Plans, Seller has
delivered or made available to Buyer, as and if applicable, copies of (i) the
text or formal plan document, including amendments and the summary plan
description, (ii) the most recent IRS determination letter relating to the
qualification of Retirement Plans under Section 401 of the Code and the
related trust's qualification under Section 501 of the Code, (iii) the trust
agreements, insurance contracts or other documents that constitute all or a
part of the funding vehicle, (iv) in the case of all Employee Benefit Plans,
the most recent annual reports (IRS Form 5500s), including the schedules
thereto, and (v) the most recent actuarial reports or other financial reports.
(c) Except as set forth in Schedule 3.12, (i) all Employee Benefit
Plans comply in all Material respects with ERISA and the Code; (ii) the
Corporation and its Affiliates have paid all contributions due under any of
the Employee Benefit Plans and Multiemployer Plans to which they are required
to contribute; and (iii) the Corporation and its Affiliates do not have
minimum funding deficiencies or Multiemployer Plan withdrawal liabilities
(including without limitation liabilities imposed by virtue of any other
member of a controlled group having such liabilities imposed on it).
(d) Except as set forth in Schedule 3.12, there are no Material
actions, suits or claims pending or, to the knowledge of Seller, threatened
against any Employee Benefit Plan, any Retirement Plan, any Benefit <PAGE>
<PAGE>
Arrangement, or any administrator or fiduciary thereof, other than benefit
claims arising in the normal course of operation of such Employee Benefit
Plans, Benefit Arrangements, or Retirement Plans.
(e) To the knowledge of Seller, the Corporation has not engaged in any
non-exempt "Prohibited Transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, with respect to any Employee Benefit Plan or with
respect to any other parties-in-interest.
Section 3.13. Guarantees by Others. Schedule 3.13 sets forth a complete
list as of the date hereof of all Guarantees of Seller and its Affiliates for
the benefit of Persons doing business with the Corporation.
Section 3.14. Tax Matters.
(a) Except as set forth in Schedule 3.14, the Corporation has filed
(including extensions) all federal, state, local, and other tax returns (the
"Individual Returns") required to be filed by it under applicable law,
including estimated tax returns and reports, and the Corporation has paid all
required Material federal, state and local income and other applicable taxes,
additions to such taxes, penalties and interest with respect thereto (the
"Individual Taxes") due and payable on or before the date hereof (and will
duly and timely pay all such amounts required to be paid between the date
hereof and the Closing Date).
(b) The Corporation has delivered or made available (or will make
available prior to Closing) to Buyer copies of all tax returns filed by the
Corporation for all tax years beginning with the year ended September 30,
1994, together with all tax basis fixed asset schedules and any information
necessary to document differences between tax basis accounting and accounting
reflected on the Balance Sheet and related income statements.
(c) No Material proposed taxes, addition to tax, interest, or penalties
have been asserted against the Corporation except those that have been paid in
full, those that would not have a Material Adverse Effect on the Corporation,
and those as set forth in Schedule 3.14. There are no agreements, waivers, or
other arrangements providing for extensions of time in respect of the
assessment or collection of any unpaid tax against the Corporation, except as
set forth in Schedule 3.14.
(d) No election or consent under Section 341(f) of the Code has been
made or shall be made on or prior to the Closing Date by or on behalf of the
Corporation.
Section 3.15. Compliance with Law and Other Instruments; Regulatory
Matters. Except as set forth on Schedule 3.15 or Schedule 3.16, (a) the
business of the Corporation has been and is being conducted in accordance with
all applicable laws, ordinances, rules and regulations of all authorities
(exclusive of Environmental Laws as defined in and covered by Section 3.17
below), violation of which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on the Corporation; and (b) the
Corporation is not in violation of, or in default under, any term or provision
of its charter documents or subject to any restriction of any kind or
character which reasonably could be expected to have a Material Adverse Effect
on the Corporation. Seller has received no notice of any proposed public
improvement which may involve any charge being levied or assessed against the
real property of the Corporation that reasonably could be expected to have a
Material Adverse Effect on the Corporation.
<PAGE>
<PAGE>
Section 3.16. Permits. Schedule 3.16 sets forth a list of all
governmental approvals, authorizations, licenses and permits of all
governmental agencies necessary to the conduct of the business of the
Corporation on the date hereof. Except as set forth in Schedule 3.16, all such
approvals, authorizations, licenses and permits are in full force and effect
and, to the knowledge of Seller, no proceedings to revoke them are pending or
threatened and the Corporation is in compliance with the terms and conditions
under which they were issued or granted.
Section 3.17. Environmental Matters. Except as set forth on Schedule 3.17,
the property leased by the Corporation and described in Section 3.9
("Property") and its existing and, to the knowledge of Seller, prior uses
comply and have at all times complied with, and the Corporation is not in
violation of and has not violated, in connection with the ownership, use,
maintenance or operation of its business, any applicable federal, state,
county or local statutes, laws, regulations, rules, ordinances, codes,
licenses or permits relating to the handling, manufacturing, treatment,
storage, disposal, discharge, use or transportation of hazardous or toxic
substances, materials or wastes, including without limitation the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and the Toxic Substances Control Act
(collectively, "Environmental Laws"). To Seller's knowledge, except as set
forth on Schedule 3.17, the Corporation has received no notice that any
Environmental Laws or other federal, state or local statutes, orders, rules or
regulations, ordinances or governmental policies require any work, repairs,
construction or capital expenditures with respect to the Property.
Section 3.18. Insurance. Schedule 3.18 sets forth a list of the
insurance coverage in effect as of the date of this Agreement. The Corporation
is named as an insured with insurance carriers not related to or affiliated
with Seller.
Section 3.19. Banks; Powers of Attorney. Schedule 3.19 sets forth as of
the date of this Agreement: (a) the names and locations of all banks, trust
companies, savings and loan associations and other financial institutions at
which the Corporation maintains safe deposit boxes or accounts of any nature
to which it has access, and the names of all Persons authorized to draw
thereon, make withdrawals therefrom or have access thereto; and (b) the names
of all Persons to whom the Corporation has granted a power of attorney.
Section 3.20. Brokerage Fees. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement or the transactions contemplated hereby based upon any
agreements, written or oral, made by or on behalf of Seller or by or on behalf
of any director, officer, employee, agent or Affiliate of Seller.
Section 3.21. Limitation of Representations and Warranties. Except as
expressly set forth herein, neither Seller nor any of its Affiliates makes any
representation or warranty, express or implied, in connection with the
transactions contemplated by this Agreement.
Section 3.22 Affiliates. Seller has no Affiliates.
<PAGE>
<PAGE> ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 4.1. Organization and Good Standing. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of
Maryland and has full corporate power and authority to carry on its businesses
as they are now being conducted.
Section 4.2. Investment Representation. Buyer is aware that the Shares
are not registered under the Securities Act. Buyer possesses such knowledge
and experience in business matters that it is capable of evaluating the merits
and risks of its investments hereunder. Buyer is acquiring the Shares for its
own account, for investment purposes only and not with a view to the
distribution of thereof.
Section 4.3 Capitalization.
(a) The authorized capital stock of Buyer consists of: (a) 10,000,000
shares of common stock, par value $0.01 per share, no shares of which shall be
outstanding immediately prior to Closing and 1,826,618 shares of which shall
be outstanding as of the Closing Date, (b) 450,000 shares of Class A preferred
stock, par value $0.01 per share, no shares of which shall be outstanding
immediately prior to Closing and 221,800 shares of which shall be outstanding
as of the Closing Date, and (c) 140 ,000 shares of Class B convertible
referred stock, par value $0.01 per share, zero shares of which shall be
outstanding as of the Clc sing Date. In addition, options have been authorized
but no yet issued as of the Closing Date ft r the purchase of 69,017 shares of
common stock of Buyer in five equal annual amounts at an exercise price to be
determined as of the date of issuance. In addition, warrants have been issued
and are outstanding as of the Closing Date representing the right to purchase
up to 515,133 shares of common stock of Buyer, and warrants have been issued
and are outstanding as of the Closing Date representing the right to purchase
up to 927,241 shares of Class B convertible preferred stock and/or common
stock of Buyer. Except for employment agreements with Martin Kandl and Mark
Yanson, Buyer is not currently subject to any additional commitment or
obligation that would require the issuance or sale of additional shares of
capital stock at any time under options, subscriptions, warrants, rights or
any other obligations. Neither the execution and delivery of this Agreement
and the Transaction Documents nor the consummation of the transactions
contemplated hereby or thereby will (a) violate any of the provisions of the
charter or by- laws of Buyer, or (b) conflict with or result in a breach of,
or give rise to a right of termination of, or accelerate the performance
required by the terms of any judgment, court order or consent decree, permit
or license or any statute, rule or regulation of any governmental body, or any
agreement, indenture, mortgage or instrument to which Buyer is a party or to
which it or its property is subject, or constitute a default thereunder,
except, in the case of clause (b), where such conflict, breach, right of
termination or default would not have a Material Adverse Effect on Buyer.
(b) Set forth on Schedule 4.3(b) is a list of the recordholders of the
Buyer's capital stock as of the Closing Date, in each case identifying the
number and type of shares owned in the Buyer, and a list of the option holders
and warrant holders of the Buyer's capital stock, in each case identifying the
number, vesting period-and exercise price of such options and warrants.
(c) All of the shares of Buyer's capital stock reflected on Schedule
4.3(b) shall be issued in exchange for Property at Closing. <PAGE>
<PAGE>
Section 4.4. Execution and Effect of Agreement. Buyer has the corporate
power and authority to enter into this Agreement and the Transaction
Documents, and the execution and delivery of such agreements and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Buyer. This Agreement has been duly
executed and delivered by Buyer and constitutes a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws affecting the rights of creditors generally and to the exercise of
judicial discretion in accordance with general principles of equity (whether
applied by a court of law or of equity). Each of the Transaction Documents,
upon its execution and delivery by Buyer, will constitute a legal, valid and
binding obligation of each such Person executing such Agreement, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws affecting the rights of creditors
generally and to the exercise of judicial discretion in accordance with
general principles of equity (whether applied by a court of law or of equity).
Section 4.5 Affiliates. At the time of the Closing, the Buyer has no
Affiliates, other than the Corporation, the directors of the Corporation,
FF-ITP, L.P., and the Other Company.
Section 4.6 Financial Statements.
(a) The Buyer is newly formed, has no current operations and has no
financial statements. Other than a note to Creditanstalt Corporate Finance,
Inc. in the maximum amount of $10,000,000, and following the payment of any
fees and expenses in connection with the Closing, the Buyer has no Material
liabilities or obligations, whether contingent or absolute, direct or
indirect, matured or unmatured, which if a balance sheet for the Buyer were
prepared would have to be reflected therein or in the notes thereto, and the
Buyer knows of no reasonable basis (as determined in the Buyer's reasonable
judgment) for the assertion of any such liabilities or obligations.
(b) The Buyer has provided the Seller with copies of the financial
statements for the Other Company (dated as of February 28, 1997), together
with a copy of the audit report prepared by Ernst & Young.
(c) The Buyer has provided the Seller with a copy of the pro forma
consolidated financial statements of the Buyer, consisting of the aggregate
financial statements of the Corporation and the Other Company prepared by
Ernst & Young, which reflect the contribution of the businesses of the
Corporation and the Other Company effective at Closing, together with all debt
and equity investments that are to be funded at Closing by Creditanstalt
Bankverein and FF-ITP, L.P.
(d) To the knowledge of the Buyer, the Balance Sheet of the Corporation
fairly presents the Corporation's financial conditions as at the Financials
Date and such Balance Sheet has been prepared in accordance with generally
accepted accounting principles.
Section 4.7. Restrictions. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(a) violate any of the provisions of the charter or by-laws of Buyer, or (b)
conflict with or result in a breach of, or give rise to a right of termination
of, or accelerate the performance required by the terms of any judgment, court
order or consent decree, or any agreement, indenture, mortgage or instrument
<PAGE>
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to which Buyer is a party or to which it or its property is subject, or
constitute a default thereunder, except, in the case of the foregoing clause
(b), where such conflict, breach, right of termination or default would not
have a Material Adverse Effect on Buyer.
Section 4.8. No Lawsuits: Consents. There is no lawsuit, proceeding or
investigation pending or, to the knowledge of Buyer threatened, against Buyer
the effect of which would prevent the consummation of any of the transactions
contemplated hereby. Except (a) for filings, consents, waivers, approvals and
authorizations as to which the failure to obtain or make would not have a
Material Adverse Effect on the Buyer, no filing, consent, approval or
authorization of any governmental authority or of any third party on the part
of the Buyer is required in connection with the execution and delivery of this
Agreement or any instrument contemplated hereby or the consummation of any of
the transactions contemplated hereby.
Section 4.9 Other Documents; Contracts.
(a) A true and correct copy of Buyer's Articles of Incorporation and all
amendments thereto as of the Closing Date is attached hereto as Exhibit G. A
true and correct copy of Buyer's bylaws and all amendments thereto as of the
Closing Date is attached hereto as Exhibit H.
(b) Buyer has provided Seller with true and correct copies of all loan
and other documents related to the loan from, and investment by, Creditanstalt
to Buyer.
(c) Buyer has provided Seller with true and correct copies of all
investment documents related to the investment in Buyer by FF-ITP, L.P.
(d) Buyer has provided Seller with true and correct copies of all
employment agreements between Buyer and any executives or employees.
(e) Buyer has provided Seller with true and correct copies of all
agreements relating to any transactions through which the stockholders of ITP
Acquisition Corp. will receive stock in Buyer.
(f) Schedule 4.9 sets forth a list of the documents provided pursuant to
Section 4.9(b), (c) and (d) and (e) above, together with any other contracts
or agreements related to any other debt of Buyer or equity investments in
Buyer.
Section 4.10 Code 351 Transaction. Buyer represents and warrants that all
shares of Buyer's capital stock and all options, warrants and other
convertible securities or instruments with respect to Buyer's capital stock
that are reflected on Schedule 4.3(b) hereto shall be issued or granted
contemporaneous with the Closing.
Section 4.11. Limitation of Representations and Warranties. Except as
expressly set forth herein, Buyer makes no representation or warranty, express
or implied, in connection with the transactions contemplated by this
Agreement.
<PAGE>
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ARTICLE V
COVENANTS AND AGREEMENTS OF THE SELLER
Seller covenants and agrees for the benefit of Buyer as follows:
Section 5.1. Corporate Action. Seller shall reasonably cooperate with
Buyer, and shall cause the Corporation to reasonably cooperate with Buyer,
with respect to all action, corporate or otherwise, necessary or appropriate
for the consummation of the transactions contemplated hereby. Seller shall
execute such additional documents, instruments, memoranda and other writings
as shall be necessary or appropriate to carry out and effectuate the terms and
conditions of this Agreement.
Section 5.2. [intentionally deleted]
Section 5.3. Consents.
(a) Seller shall use reasonable efforts to (i) obtain all consents,
waivers and authorizations and make all filings with and give all notices that
may be necessary or reasonably required to consummate the transactions
contemplated hereby, it being understood that neither Seller nor any of its
Affiliates shall be under any obligation to pay money to any third party
(other than fees imposed by statute or regulation to obtain governmental
consents or approvals) as a condition to receiving any such consents, waivers
or authorizations and (ii) cause each of the conditions precedent to the
obligations of Buyer hereunder to be satisfied.
Section 5.4. Access to Information and Cooperation. Subsequent to the date
of this Agreement, Seller shall give Buyer, its counsel, and its consultants
full and complete access, upon reasonable notice during normal business hours,
to all records and affairs of the Corporation within their possession and will
provide copies of such information concerning the Corporation, and the Other
Companies as Buyer may reasonably request for any proper purpose, including
without limitation in connection with the preparation of any tax returns or
financial statements or in connection with any judicial, quasi judicial,
administrative, tax audit or arbitration proceeding.
Section 5.5. Public Statements. Seller shall not release any information
concerning this Agreement or the transactions contemplated hereby that is
intended for or may result in public dissemination thereof without the prior
written consent of Buyer (which shall not be unreasonably withheld or
delayed), unless (a) in the opinion of counsel to Seller, the release of such
information is required by law and (b) prior to the release of such
information and as soon as possible after Seller has received such counsel's
opinion, (i) Seller shall advise Buyer of the opinion and (ii) at Buyer's
request, Seller shall provide a copy to Buyer, and further provided that
Seller shall be permitted to disclose to Employees, and upon Buyer's request
to give Buyer the opportunity to make a joint statement with Seller to
Employees, concerning the terms of Benefit Arrangements and Employee Benefit
Plans available to Employees following Closing.
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ARTICLE VI
COVENANTS AND AGREEMENTS OF BUYER
Buyer covenants and agrees for the benefit of Seller as follows:
Section 6.1. Corporate Action. Buyer shall take all action, corporate or
otherwise, necessary or appropriate for the consummation of the transactions
contemplated hereby. Buyer shall execute such additional documents,
instruments, memoranda and other writings as shall be necessary or appropriate
to carry out and effectuate the terms and conditions of this Agreement.
Section 6.2. Public Statements. Buyer shall not release any information
concerning this Agreement or the transactions contemplated hereby that is
intended for or may result in: public dissemination thereof without the prior
written consent of Seller (which shall not be unreasonably withheld or
delayed), unless (a) in the opinion of counsel to Buyer, the release of such
information is required by law and (b) prior to the release of such
information and as soon as possible after Buyer has received such counsel's
opinion, (i) Buyer shall advise Seller of the: opinion and (ii) at Seller's
request, Buyer shall provide a copy to Seller.
Section 6.3. Consents. Buyer shall use reasonable efforts to (i) obtain all
consents, waivers and authorizations and make all filings with and give all
notices that may be necessary or reasonably required to consummate the
transactions contemplated hereby, provided that Buyer shall not be under any
obligation to pay money to any third party as a condition to receiving any
such consents, waivers or authorizations, and (ii) cause each of the
conditions precedent to the obligations of Seller hereunder to be satisfied.
Section 6.4. Certain Employee Benefit Matters.
(a) Commencing upon the Closing Date, Buyer shall cause the
Corporation to continue to employ each Employee who is an employee on the
Closing Date upon the same terms and conditions of employment as pertained to
each Employee on the day immediately preceding the Closing Date and as are
specifically described in the Schedules to this Agreement, provided that this
undertaking shall in no way diminish the Corporation's existing rights to lay
off employees or to terminate employees on account of unacceptable performance
or otherwise in accordance with the terms of any contracts of employment. If
any Employee is laid off or on leave on the Closing Date, Buyer shall cause
the Corporation to recall or reinstate such Employee in accordance with the
layoff or leave of absence policy of the Corporation that is in effect on the
date of this Agreement and is specifically described in the Schedules. Buyer
shall take all reasonable action required or appropriate to cause the
Corporation to fulfill all obligations of the employer under all Benefit
Arrangements, Employee Benefit Plans, Multiemployer Plans, and Retirement
Plans as of the Closing Date (including without limitation severance payments
or benefits that have accrued, or that accrue or inure, on or after the
Closing Date or that inure after the date of this Agreement and prior to the
Closing Date as a result of action taken by Seller with consent of Buyer)
which are specifically described on the Schedules, except as may be required
otherwise by law.
(b) On or prior to the Closing, the Buyer shall adopt the ITP 1997 Long
Term Incentive Plan (the "Incentive Plan"), a copy of which is attached as
Exhibit C hereto. The Buyer has reserved a total of 37,919 shares of common
stock for issuance to the Corporation's Employees pursuant to the exercise of
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options that are to be granted pursuant to the Incentive Plan. On or prior to
Closing, the Seller will provide Buyer with the names of the recipients of
such option grants. Such option grants shall be approved effective as of the
Closing with an option agreement, and related documentation to be provided to
the recipients within five days subsequent to the Closing.
Section 6.5. Preservation of and Access to Certain Information and
Cooperation After Closing.
(a) Buyer shall, and from and afer the Closing Date shall cause the
Corporation and its Affiliates, to preserve all books and records of the
Corporation until Seller notifies Buyer that all statutes of limitations
relating to tax periods to which such records relate have expired, and
thereafter not to destroy or dispose of such records without notice to Seller
offering it the right to copy such records. Except as prohibited or limited by
law or regulation, Buyer shall, and shall cause the Corporation from and after
the Closing Date to, give Seller and Seller's employees, accountants, counsel,
and advisors, reasonable access upon reasonable notice and for proper business
purposes during normal business hours, to all officers, employees, offices,
properties, agreements, books, records and affairs of the Corporation, in a
manner that does not unreasonably interfere with the normal conduct of its
business. Buyer shall, and shall cause the Corporation to, prepare and
transmit such financial reports in accordance with past practices and
procedures and on a timely basis as may be necessary for Seller or its
Affiliates to prepare any Consolidated Tax Return, and ensure that Seller and
its authorized representatives shall be free, during the period referred to in
the first sentence of this Section, to make copies of such books, records,
files and data concerning the Corporation for the following purposes: (i) the
review of the Proposed Closing Balance Sheet and the resolution of any
disputes with respect to the Proposed Closing Balance Sheet, (ii) the
preparation of any tax returns for the Affiliated Group, and (iii) or in
anticipation of any judicial, quasi judicial, administrative, tax audit, or
arbitration proceeding initiated by or against third parties and relating to
the Corporation. Except as may be required by law or in the bona fide
prosecution of its rights under this Agreement or any Transaction Document and
except as specifically provided above, Seller shall not use or disclose any
such information.
Section 6.6. Nondisposition of Shares. Buyer shall not, and shall not
permit any of their Affiliates to, sell, transfer, offer for sale, pledge,
hypothecate, or otherwise dispose of the Shares except pursuant to a valid
registration under the Securities Act, unless an exemption from registration
under the Securities Act is available.
Section 6.7 Put Option.
(a) In the event that Creditanstalt Corporate Finance, Inc. or FF-ITP,
L.P. exercises its right under Article IV of the Stockholder Agreement
executed contemporaneously herewith to sell to Buyer all or any portion of its
shares, such shares as are requested to be sold being defined as the "Put
Shares" in such Stockholder Agreement, Seller shall have the right to give
notice to Buyer that it is electing to sell all or any portion of its common
stock in Buyer (the "Seller Put Shares"). In the event that Seller gives such
notice to Buyer, the price to be paid by Buyer for the Seller Put Shares will
be determined in accordance with Section 4.02 of such Stockholder Agreement.
Under no circumstances shall Buyer be obligated to repurchase the Seller Put
Shares until Buyer has repurchased all of the Put Shares requested to be
bought by Creditanstalt Corporate Finance, Inc. and/or FF-ITP, L.P., pursuant
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to Article IV of such Stockholder Agreement. At such time as Buyer has
repurchased all of the Put Shares pursuant to Article IV of such Stockholder
Agreement, Seller may notify Buyer of the closing for the sale of the Seller
Put Shares to Buyer, which will not be less than fifteen (15) nor more than
ninety (90) days after the date of such notice. In the event that Buyer
thereafter defaults in its obligation to purchase all or any portion of the
Seller Put Shares, in addition to any other rights or remedies of Seller,
Seller shall have the remedies provided for in Section 4.04 of the Stockholder
Agreement.
(b) No Series A preferred stock shall be repurchased or redeemed by the
Buyer at any time that the Promissory Note provided for in Section 2.2 hereof
is outstanding. In conjunction with the exercise by either Creditanstalt or
FF-ITP, L.P. of the redemption right pursuant to Section B.5. of Article IV of
the Certificate of Incorporation, Buyer will repay any amounts outstanding on
the Promissory Note such that Seller and the holders of the Series A preferred
stock whose shares are to be repurchased or redeemed receives funds in
proportion to the amounts outstanding under the Promissory Note and the Series
A Preferential Amount associated with the Series A preferred stock.
ARTICLE VII
CONDITIONS OF OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the purchase of the Shares on the
Closing Date and to perform its other covenants and agreements in accordance
with the terms and conditions of this Agreement are subject to each of the
following conditions which, if not satisfied, may be waived in writing by
Buyer, provided however, that any such waiver, if made knowingly, shall also
be deemed a waiver of any claim for damages, losses or other remedies
otherwise available to, Buyer as the result of the failure to satisfy such
condition:
Section 7.1. Representations and Warranties True. Except as otherwise
permitted, contemplated, or limited by this Agreement and except for
representations and warranties that by their terms speak only as of a
specified date, (a) each of the representations and warranties of Seller
contained in ARTICLE III that is limited by Materiality shall be true and
correct in all Material respects on and as of the Closing Date as though made
on and as of the Closing Date, and (b) each of the representations and
warranties that is not so limited shall be true and correct on and as of the
Closing Date as though made on and as of the Closing Date.
Section 7.2. Covenants and Agreements--No Default. Seller shall not be in
default in respect of any obligation under this Agreement and Seller shall
have performed or complied in all Material respects with all covenants and
agreements required by this Agreement to be performed or complied with by them
prior to or as of the Closing Date.
Section 7.3. [intentionally deleted]
Section 7.4. No Material Adverse Change. Except as permitted or
contemplated by this Agreement or any Schedule, or disclosed in the Balance
Sheet, since the Financials Date the Corporation shall not have suffered an
adverse change in its business or financial condition that could reasonably be
expected to have a Material Adverse Effect on the Corporation.
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Section 7.5. Consents. Seller shall have obtained all third-party and
governmental consents, waivers, authorizations and approvals and shall have
made all filings and given all notices required in connection with the
consummation of the transactions contemplated by this Agreement other than
those that are not Material or set forth in Schedule 3.5, it being understood
that (a) the Seller shall not be under any obligation to pay money to any
third party (other than fees imposed by statute or regulation) as a condition
to receiving such consents, waivers, and authorizations, and (b) Seller shall
use reasonable efforts to cause each of the conditions precedent to the
obligations of Buyer hereunder to be satisfied. In the event Seller is unable
to obtain any such consents, the condition contained in this Section 7.5 shall
be deemed satisfied if Seller provides to Buyer and, other than as to matters
identified on Schedule 3.11, in a manner and form satisfactory to Buyer in its
sole discretion, at the Closing the economic equivalent of any rights that
would have inured to the Buyer had such consents been obtained.
Section 7.6. Transaction Documents. Seller shall have provided Buyer with
all of the documents required by Section 10.2 to be delivered at Closing by
Seller.
Section 7.7. Adverse Proceedings. No Material action, proceeding or
governmental investigation shall have been instituted or threatened against
the consummation of the transactions contemplated in this Agreement or any
Material Transaction Document or against or involving the Corporation where
the outcome might reasonably be expected to have a Material Adverse Effect on
the Corporation.
ARTICLE VIII
CONDITIONS OF OBLIGATIONS OF SELLER
The obligation of Seller to consummate the sale of the Shares on the
Closing Date and to perform their other covenants and agreements in accordance
with the terms and conditions of this Agreement are subject to each of the
following conditions which, if not satisfied, may be waived in writing by
Seller, provided however, that any such waiver, if made knowingly, shall also
be deemed a waiver of any claim for damages, losses or other remedies
otherwise available to Seller or its Affiliates as the result of the failure
to satisfy such condition:
Section 8.1. Representations and Warranties True. Except as otherwise
permitted or contemplated by this Agreement and except for representations
and warranties that by their terms speak only as of a specified date, (a) each
of the representations and warranties of Buyer contained in ARTICLE IV that is
limited by Materiality shall be true and correct in all Material respects on
and as of the Closing Date as though made on and as of the Closing Date and
(b) each of the representations and warranties that is not so limited shall be
true and correct on and as of the Closing Date as though made on and as of the
Closing Date.
Section 8.2. Covenants and Agreements--No Default. Buyer shall not be in
default in respect of any obligation under this Agreement and Buyer shall have
performed or complied in all Material respects with all covenants and
agreements required by this Agreement to be performed or complied with by
Buyer prior to or as of the Closing Date.
Section 8.3. Officer's Certificates. Buyer shall have furnished Seller with
a certificate signed by a corporate officer confirming the satisfaction of the
conditions set forth in Sections 8.1 and 8.2. <PAGE>
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Section 8.4. Consents. Buyer shall have obtained all third-party and
governmental consents, waivers, authorizations and approvals and shall have
made all filings and given all notices required in connection with the
consummation of the transactions contemplated by this Agreement that are
referenced in Section 4.6, it being understood that (a) Buyer shall not be
under any obligation to pay money to any third-party (other than fees imposed
by statute or regulation) as a condition to receiving such consents, waivers,
and authorizations and (b) Buyer shall use reasonable efforts to cause each of
the conditions precedent to the obligations of Seller hereunder to be
satisfied. Seller shall have obtained all third-party and governmental
consents, waivers, authorizations, and approvals and shall have made all
filings and given all notices required in connection with the consummation of
the transactions contemplated by this Agreement that are referenced in Section
3.5 or are set forth in Schedule 3.5.
Section 8.5. Other Transactions. Contemporaneous with the Closing
contemplated herein, Buyer shall close the acquisition of the Other Company
and the transactions contemplated in the documents provided to Seller pursuant
to Section 4.9(b) and Section 4.9(c) hereof and Section 4.10 hereof.
Section 8.6. Transaction Documents. Buyer shall have provided Seller with
all of the documents required by Section 10.3 to be delivered at Closing by
Buyer.
Section 8.7. Adverse Proceedings. No Material action, proceeding or
governmental investigation shall have been instituted or threatened against
the consummation of the transactions contemplated in this Agreement or the
Transaction Documents.
Section 8.8 Board/Executive Committee. Buyer shall have caused the Board
and Executive Committee to be formed, in accordance with a certain Stockholder
Agreement of even date herewith between Buyer, Seller and various other
parties. Buyer shall promptly arrange for a meeting of the stockholders of
Buyer, at which elections can be held for members on the Board.
ARTICLE IX
REGISTRATION RIGHTS
[intentionally deleted]
ARTICLE X
CLOSING
Section 10.1. Closing. The Closing shall take place at the offices of
Semmes, Bowen & Semmes, 250 West Pratt Street, Baltimore, Maryland 21201, on
May 29, 1997 at 10:00 a.m., or at such other place and at such other time and
date as may be mutually agreed upon in writing by Buyer and Seller, only upon
fulfillment of (a) all the conditions set forth in ARTICLE VII that have not
been waived by Buyer, and (b) all the conditions set forth in ARTICLE VIII
that have not been waived by Seller. All proceedings to be taken and all
documents to be executed and delivered by Seller in connection with the
consummation of the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Buyer and its counsel. All proceedings
to be taken and all documents to be executed and delivered by Buyer in
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connection with the consummation of the transactions contemplated hereby shall
be reasonably satisfactory in form and substance to Seller and its counsel.
All proceedings to be taken and all documents to be executed and delivered at
the Closing shall be deemed to have been taken and executed simultaneously,
and no proceedings shall be deemed taken nor any documents executed or
delivered until all have been taken, executed or delivered.
Section 10.2. Documents to be Delivered by Seller. Deliver, or shall cause
to be delivered, to Buyer the following:
(a) Certificates representing the Shares, which certificates shall be
duly endorsed in blank or, in lieu thereof, shall have affixed thereto stock
powers executed in blank and in proper form for transfer;
(b) An opinion of Shaw, Pittman, Potts & Trowbridge, counsel for
the Seller, dated the Closing Date, substantially in the form attached hereto
as Exhibit D;
(c) A good standing certificate and a copy of the Corporation's
charter, certified as of a date reasonably close to the Closing Date;
(d) The certificates contemplated by Section 7.3; and
(e) A Subordination Agreement to Creditanstalt-Bankverein subordinating
Seller's rights under the Promissory Note provided for in Section 2.2 hereof
to certain rights of Creditanstalt-Bankverein.
(f) Such other documents, instruments or agreements as may be
reasonably requested by Buyer to effectuate the transactions contemplated by
this Agreement.
Section 10.3. Documents to be Delivered by Buyer. At the closing, Buyer
shall deliver, or cause to be delivered, to Seller the following:
(a) A wire transfer of funds to the account designated by Seller in an
amount equal to the total Purchase Price, as provided in Section 2.2;
(b) The fully executed Promissory Note provided for in Section 2.2
(c) Certificates representing 265,435 shares of the common stock of the
(d) An opinion of Semmes Bowen & Semmes, counsel for Buyer, dated the
Closing Date, substantially in the form attached hereto as Exhibit E;
(e) The Executive Employment Agreement of Martin Kandl in the form agreed
to by the parties;
(f) The Stock Repurchase Agreement in favor of the Seller reflecting the
issuance of 100,000 shares of Buyer's common stock;
(g) Certificates of the Secretary or an Assistant Secretary of Buyer,
dated the Closing Date, setting forth copies of the resolutions of the Board
of Directors of Buyer, authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including all option grants contemplated by Section 6.4(b) hereof, and
certifying that such resolutions have not been amended or rescinded and are in
full force and effect;
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(h) The certificates contemplated by Section 8.3; and
(i) Such other documents, instruments or agreements as may be
reasonably requested by Seller to effectuate the transactions contemplated by
this Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Survival of Representations Warranties. Covenants and
Agreements. Except as otherwise expressly provided in this Agreement, all
covenants and all representations and warranties made by the parties in this
Agreement (including statements contained in any Schedule or certificate or
other instrument delivered by or on behalf of a party to this Agreement) shall
survive the execution of this Agreement and the Closing and any
investigations, examinations or audits made by or on behalf of the parties,
provided that representations and warranties shall survive only until the
applicable "Expiration Date" as follows:
(a) The Expiration Date for the representations and warranties made in
Section 3.14 shall be the date on which all applicable tax statutes of
limitation have expired; and
(b) The Expiration Date for all other representations and warranties made
in this Agreement shall be the six-month anniversary of the Closing Date.
On the applicable Expiration Date, the associated representations and
warranties shall have no further force or effect and all liabilities of the
parties thereunder shall be extinguished, provided that if prior to the
Expiration Date a party has delivered to the other party a notice asserting a
good faith claim for breach of representation and warranty, that specific
claim shall survive and be actionable after the Expiration Date.
Section 11.2. Indemnification. Subject to Section 11.2(f) hereof, Seller
shall hold harmless and indemnify Buyer from and against all claims, actions,
damages, liabilities or losses (including court costs and attorneys fees)
(collectively, "Losses") arising out of the breach by Seller of any of its
representations, warranties, covenants or agreements made under or pursuant to
this Agreement, but only where such claims are asserted within six months
after the Closing Date. In no event shall Seller be liable to Buyer under this
Section 11.2(a) in an aggregate amount greater than 50% of the Purchase Price.
Provided that Buyer shall be able to pay for any Losses without causing a
breach of any financial covenants contained in a certain Loan and Security
Agreement executed contemporaneously herewith between Buyer, the lenders named
therein (the "lenders") Creditanstalt-Bankverein as the Issuing Bank and
Creditanstalt Corporate Finance, Inc. as agent for the lenders (the "Loan
Agreement") or without violating provisions of such Loan Agreement relating to
borrowing availability, half of any liability of Seller to Buyer under this
Section 11.2(a) shall be paid through a reduction of the principal amount of
the Promissory Note provided for in Section 2.2 hereof, and the other half of
such liability shall be paid, at Seller's discretion, through a further
reduction in the principal amount of such Promissory Note or in the form of
shares of stock in Buyer, each such share being valued at the price per share
established at the Closing Date and set forth on Schedule 11.2. In the event
that Buyer cannot pay for all or a portion of the Losses without causing a
breach of any financial covenants contained in the Loan Agreement or without
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availability, any liability of Seller to Buyer under this Section 11.2(a)
shall be paid as follows: 50% shall be paid for through a repayment to Buyer
by Seller of cash (up to a maximum cash repayment of $500,000), and the
balance shall be paid through a reduction of the principal amount of the
Promissory Note. In this event, at such time as Buyer is able to act without
causing a breach of any financial covenants contained in the Loan Agreement or
without violating provisions of such Loan Agreement relating to borrowing
availability, Buyer shall promptly refund to Seller the cash paid by Seller
pursuant to this Section 11.2(a) and, at Seller's election, the amount of such
refund shall either be offset against the principal amount of the Promissory
Note, or Seller shall return to Buyer for cancellation shares of stock in
Buyer, each such share being valued at the price per share established at the
Closing Date and set forth on Schedule 11.2.
(b) Subject to Section 11.2(f) hereof, Buyer shall hold harmless and
indemnify Seller from and against all Losses arising out of: (i) the breach by
Buyer of any of its representations, warranties, covenants or agreements made
under or pursuant to this Agreement; (ii) the breach by Buyer or, after
Closing, the Corporation of any agreements with any third parties; (iii)
actions wrongfully taken with respect to the Corporation by Buyer or its
Affiliates, or by the Corporation after Closing; and (iv) actions taken with
respect to the Corporation by Seller prior to Closing at the request of Buyer.
(c) For purposes of this Section 11.2, any Losses incurred by the
Corporation shall be deemed to have been incurred by Buyer.
(d) After the Closing, Seller shall not be entitled to contribution from,
or recovery against, the Corporation with respect to any liability of Seller
which may arise under this Section 11.2.
(e) Consummation of the transactions contemplated by this Agreement and
the Transaction Documents shall not be deemed to be a waiver of any right or
remedy of a party, nor shall this Section 11.2 or any other provision of this
Agreement be deemed to be a waiver of any ground of defense by a party.
(f) No claims for any Losses hereunder shall be made unless and until
such Losses exceed $50,000 in the aggregate, and then the indemnifying party
shall only be liable for the amount of the Losses exceeding $50,000. The
foregoing shall not apply to adjustment of the Purchase Price pursuant to
Section 2.3 hereof.
(g) Any claims arising from or in connection with this Agreement are
governed solely by this ARTICLE XI.
Section 11.3. Disclaimer of Other Representations and Warranties by
Seller. The parties hereto acknowledge and agree that Seller does not make,
and has not made, any representations or warranties relating to Seller, the
Corporation, or any of Seller's Affiliates or any of the transactions
contemplated by this Agreement other than the representations and warranties
expressly set forth in this Agreement. Without limiting the generality of the
disclaimer set forth in the preceding sentence, Seller does not make, has not
made and shall not be deemed to have made any representations or warranties in
the Offering Memorandum, in any presentation relating to the businesses of the
Corporation given in connection with the transactions contemplated by this
Agreement, in any filing made by or on behalf of the Corporation or its
Affiliates with any governmental agency, or in any other information provided
to or made available to Buyer and not included in the Schedules to this
Agreement, and no statement contained in the Offering Memorandum or made or
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contained in any such presentation, filing, or information shall be deemed a
representation or warranty hereunder or otherwise. No person has been
authorized by Seller, its Affiliates or the Corporation to make any
representation or warranty in respect of Seller, its Affiliates or the
Corporation in connection with the transactions contemplated by this
Agreement.
Section 11.4. Disclosure. Notwithstanding any provision to the contrary
contained in this Agreement, the Exhibits or the Schedules, any information
disclosed in one Schedule shall be deemed to be disclosed in all Schedules.
Certain information set forth in the Schedules has been included and disclosed
solely for informational purposes and may not be required to be disclosed
pursuant to the terms and conditions of the Agreement. The disclosure of any
information shall not be deemed to constitute an acknowledgment or agreement
that the information is required to be disclosed in connection with the
representations and warranties made in this Agreement or that the information
is Material, nor shall any information so included and disclosed be deemed to
establish a standard of materiality or otherwise used to determine whether any
other information is Material.
Section 11.5. Expenses and Taxes. All legal, accounting and other costs
and fees incurred by the Corporation or the Seller in connection with the
transactions contemplated by this Agreement shall be borne and paid for by the
Corporation. All legal, accounting and other costs and fees incurred by Buyer
in connection with the transactions contemplated by this Agreement and all
taxes (other than value added taxes or taxes on, relating to or measured by
income or gains), stamp duty, notarial, registration and recording fees and
similar taxes resulting from or relating to the transfer of any of the Shares
to Buyer or any party designated by Buyer shall be borne by Buyer.
Section 11.6. Special Indemnification for Tax Liabilities
(a) In the event of a claim referred to in clause (c) of this Section
11.6, the Corporation and Buyer hereby agree to and shall lend Seller a sum
(the "Tax Loan") equal to all "Tax Liabilities" (as that term is hereinafter
defined), which Tax Loan shall not bear interest and shall be due and payable
upon the sale by Seller of Buyer's capital stock received in exchange for the
Shares, excluding any sales pursuant to the Stock Repurchase Agreement, to the
extent and as provided in clause (i) of this Section 11.6; Corporation and
Buyer shall indemnify and hold harmless Seller, on an after-tax basis, from
and against the payment of any and all interest and penalties on the Tax
Liabilities, any income taxes attributable to imputed income to Seller on the
Tax Loan, and any and all costs and expenses which may reasonably be incurred
in connection with contesting any claims for Tax Liabilities, including,
without limitation, reasonable fees and disbursements of counsel, accountants
and other experts (such interest and penalties, income taxes, costs and
expenses shall be referred to collectively as the "Costs and Expenses").
(b) For purposes of this Agreement, the term "Tax Liabilities" shall mean
and include any and all liabilities for taxes which are or shall be incurred
by Seller if the receipt by Seller of Buyer capital stock in connection with
the transactions contemplated herein fails to qualify for tax deferral under
Section 351 of the Code.
(c) In the event that Seller receives written notice of a claim made (or
an audit commenced) with respect to the sale of the Shares by any federal,
state, local or other governmental authority from such governmental authority
and that such claim (or any claim that may be made in connection with any such
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audit), if successful, would result in an obligation to pay any Tax
Liabilities (hereafter referred to collectively as a "claim"), Seller shall
give notice to the Corporation and the Buyer of such claim in writing, and
shall not make payment of the taxes claimed for at least thirty (30) days
after the giving of such notice (unless required by law to make payment prior
to such time). If the Buyer wishes to contest such claim on behalf of Seller,
the Buyer shall within thirty (30) days after notice of such claim, notify
Seller in writing of its desire to contest such claim on behalf of Seller. If
the Buyer desires to contest such claim, it. shall promptly furnish an opinion
of independent tax counsel selected by the Buyer and reasonably satisfactory
to Seller that there is a reasonable defense to the claim, which opinion shall
be a reasoned opinion reasonably satisfactory to Seller. In connection with
contesting any claim, the Buyer shall pay all Costs and Expenses in connection
with such contest and shall be obligated promptly to pay Seller all Costs and
Expenses incurred in connection with contesting such claim. Notwithstanding
the decision to contest or not to contest such claim, the Buyer shall remain
liable for all Costs and Expenses, and shall be required to extend the Tax
Loan.
(d) Regardless of whether the Buyer desires to contest such claim, the
Buyer shall promptly extend the Tax Loan upon Seller's request and in any
event at least ten (10) days prior to the date that Seller notifies the
Corporation and the Buyer that it will be making such payment to the
appropriate governmental authority. In addition, the Buyer shall advance or
reimburse Seller upon demand from time to time for all Costs and Expenses.
(e) The Seller's failure to give timely notice or to provide copies of
documents or to furnish relevant data in connection with any such claim shall
not constitute a defense (in whole or in part) to such claim for
indemnification for Seller, unless and only to the extent that such failure
shall result in any material prejudice to the Buyer.
(f) If any such claim referred to in subsection 11.6(c) hereof shall be
made by any federal, state, local or other governmental authority and the
Buyer shall have failed (i) to notify Seller in writing of its desire to
contest or not to contest such claim, as above provided, or (ii) to comply
with any of the other material terms of this Section 11.6, the Buyer shall
become obligated promptly to extend the Tax Loan and to pay Seller from time
to time upon demand, on an after-tax basis, the Costs and Expenses which
Seller may incur in connection with contesting such claim (whether or not
Seller elects to contest such claim).
(g) While there is a claim for indemnification or a request for the
funding of the Tax Loan hereunder that remains outstanding, no amounts in cash
or property (except for in-kind dividends on the Series A Preferred Stock)
shall be paid by the Buyer with respect to any of the Buyer's preferred stock
or common stock, as dividends, distributions or otherwise.
(h) In the event that the Buyer extends the Tax Loan and, prior to
Seller's repayment thereof, Seller receives a refund of taxes paid by Seller
as a result of the recognition by applicable taxing authorities of Seller's
exchange of the Shares as a tax- deferred rather than a taxable transaction,
then Seller shall promptly pay such amounts to the Corporation but only to the
extent required to repay outstanding amounts on the Tax Loan.
(i) In the event that the Buyer extends the Tax Loan and the Tax
Loan remains outstanding, and in the event of Seller's sale of all or any
portion of the shares of Buyer's capital stock received by Seller in the
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exchange for the Shares (the "Buyer Stock"), the Seller shall promptly repay
to the Corporation or the Buyer, as the case may be, an amount equal] to the
aggregate amount of any and all liabilities for income taxes which would have
been incurred at that time by Seller with respect to the portion of the Buyer
Stock sold at the then applicable tax rates if the transactions herein had
qualified for tax deferral under Section 351 of the Code, up to the amount of
the Tax Loan then outstanding. In the event the Seller has sold at any time or
from time to time some but not all of its Buyer Stock, any remaining
outstanding amount of the Tax Loan (after the repayment or repayments provided
for in the first sentence of this clause (i) have been made) shall be extended
until any subsequent sale of additional Buyer Stock by the Seller, at which
time, the Seller shall again be required to repay outstanding principal on the
Tax Loan pursuant to the calculation set forth in the preceding sentence. In
the event that Seller has sold all of its Buyer Stock, any remaining
outstanding amount of the Tax Loan (after the repayment or repayments provided
for in the first sentence of this clause (i) have been made) shall be forgiven
by the Corporation or the Buyer, as the case may be. For purposes of this
clause (i), Seller shall notify the Corporation and Buyer in writing of
Seller's estimate of the aggregate amount of any and all liabilities for
income taxes which would have been incurred at that time by Seller at the
then-applicable rates if the transactions herein had qualified for tax
deferral under Section 351 of the Code, and such calculation shall be binding
on the Corporation and the Buyer unless objected to within thirty (30) days
after receipt of Seller's estimate.
Section 11.7. Entire Agreement. This Agreement, the Schedules, and the
Exhibits constitute the entire agreement and understanding between the parties
hereto in respect of the : matters set forth herein, and all prior
negotiations, writings and understandings relating to the subject matter of
this Agreement (including without limitation the Offering Memorandum), other a
than the Confidentiality Agreement, are merged herein and are superseded and
canceled by this Agreement. Other than as expressly set forth in this
Agreement and the Schedules and Exhibits, no representations, warranties,
covenants, agreements or conditions, express or implied, whether by statute or
other wise, have been made by the parties hereto.
Section 11.8. Amendment and Waiver. This Agreement may be amended,
modified, supplemented or changed in whole or in part only by an agreement in
writing making specific reference to this Agreement and executed by each of
the parties hereto. Any of the terms and conditions of this Agreement may be
waived in whole or in part, but only by an agreement in writing making
specific reference to this Agreement and executed by the party that is
entitled to the benefit thereof.
Section 11.9. Binding Agreement and Successors. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that prior to
the consummation of this Agreement the rights of the parties hereunder may not
be assigned, and provided that the obligations of the parties hereunder may
not be delegated, in whole or in part, without the prior written consent of
the other party hereto.
Section 11.10. No Third Party Beneficiaries. Nothing in this Agreement is
intended to confer upon any Person other than the parties hereto any rights or
remedies.
Section 11.11. Notices. Any notice, request, instruction or other document
or communication required or permitted to be given under this Agreement shall
be in writing and shall be deemed to be given upon (i) delivery in person,
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(ii) five days after being deposited in the mail, postage prepaid, for mailing
by certified or registered mail, (iii) one day after being deposited with an
overnight courier, charges prepaid, or (iv) when transmitted by facsimile,
with a copy simultaneously sent as provided in clauses (ii) and (iii), in
every case as follows:
If to Buyer, delivered or mailed to:
IT PARTNERS Inc.
1006 Highland Drive
Silver Spring, Maryland 20910
Attention: Daniel J. Klein
with a copy delivered or mailed by the same method to:
Kevin M. O'Connell, Esquire
Semmes, Bowen & Semmes
250 West Pratt Street
Baltimore, Maryland 21201
If to Seller, delivered or mailed to:
Martin Kandl
10700 Harper Avenue
Silver Spring, Maryland 20901
Attention: Kandl
with a copy delivered or mailed by the same method to:
Craig E. Chason, Esq.
Shaw, Pittman, Potts & Trowbridge
1501 Farm Credit Drive
McLean, Virginia 22102
or to such other address or addresses as may be specified in writing at any
time or from time to time by either party to the other party hereto.
Section 11.12. Further Assurances. The parties hereto each agree to
execute, make, acknowledge, and deliver such instruments, agreements and other
documents as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
Section 11.13. Article and Section Headings. The Article, Exhibit and
Section headings contained in this Agreement, the Exhibits and the Schedules
are for convenience of reference only and shall not limit or otherwise affect
the meaning or interpretation of this Agreement, the Exhibits, or the
Schedules or any of their terms and conditions.
Section 11.14. Governing Law. This Agreement shall be construed and
enforced in accordance with and shall be governed by the laws of the State of
Maryland, without regard to its conflict of law provisions and principles.
Section 11. 15. Courts. Any dispute arising from the interpretation or
operation of this Agreement shall be resolved in the courts of the State of
Maryland, and the parties hereby consent to and elect, and waive any objection
to, such jurisdiction in the event of litigation hereunder.
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Section 11.16. Construction. As used in this Agreement, any reference to
the masculine, feminine or neuter gender shall include all genders, the plural
shall include the singular, and the singular shall include the plural. With
regard to each and every term and condition of this Agreement and any and all
agreements and instruments subject to the terms hereof, the parties hereto
understand and agree that the same have or has been mutually negotiated,
prepared and drafted, and that if at any time the parties hereto desire or are
required to interpret or construe any such term or condition or any agreement
or instrument subject hereto, no consideration shall be given to the issue of
which party hereto actually prepared, drafted or requested any term or
condition of this Agreement or any agreement or instrument subject hereto.
Section 11. 17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Corporation, Seller and Buyer have executed this
Agreement as of the day and year first above written.
KANDL DATA PRODUCTS, INC.
By:
--------------------------------
Martin Kandl, President
--------------------------------
Martin Kandl, Individually
--------------------------------
Haeyoung P. Kandl, Individually
IT PARTNERS INC.
By:
--------------------------------
Daniel J. Klein
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of January 8, 1998
by and among
IT PARTNERS, INC.,
ITP NO. 10, INC.,
(a wholly-owned subsidiary of IT Partners, Inc.)
SEQUOIA DIVERSIFIED PRODUCTS, INC.,
and
the STOCKHOLDERS named herein
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<PAGE>
TABLE OF CONTENTS
1. THE MERGER 5
1.1 Delivery and Filing of Articles of Merger 5
1.2 Effective Time of the Merger 6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation 6
1.4 Certain Information With Respect to the Capital
Stock of the COMPANY, ITP and NEWCO 7
2. CONVERSION OF STOCK 7
2.1 Manner of Conversion 7
2.2 Rights -- ITP 8
3. DELIVERY OF MERGER CONSIDERATION 8
3.1 Delivery of Merger Consideration 8
3.2 Closing Date Adjustments to Merger Consideration 8
3.3 Post-Closing Adjustments to Merger Consideration 9
4. CLOSING 11
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS 12
5.1 Due Organization 12
5.2 Authorization 12
5.3 Capital Stock of the COMPANY 13
5.4 Subsidiaries 13
5.5 Financial Statements 13
5.6 Liabilities and Obligations 14
5.7 Accounts and Notes Receivable 14
5.8 Intellectual Property; Permits and Intangibles 14
5.9 Environmental Matters 15
5.10 Personal Property 17
5.11 Significant Customers; Material Contracts and
Commitments 18
5.12 Real Property 19
5.13 Insurance 20
5.14 Compensation; Employment Agreements; Organized
Labor Matters 20
5.15 Employee Plans 20
5.16 Compliance with ERISA 20
5.17 Conformity with Law; Litigation 21
5.18 Taxes 22
5.19 No Violations 25
5.20 Business Conduct 25
5.21 Misrepresentation 26
5.22 Authority; Ownership 27
5.23 No Intention to Dispose of ITP Stock 27
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6. REPRESENTATIONS OF ITP and NEWCO 27
6.1 Due Organization 27
6.2 Authorization 28
6.3 Transaction Not a Breach 28
6.4 Misrepresentation 28
6.5 Capital Stock 28
6.6 Subsidiaries 29
6.7 Conformity with Law; Litigation 29
6.8 Financial Statements 30
6.9 No Undisclosed Liabilities 30
6.10 HSR Act 30
6.11 No Material Adverse Change 30
7. COVENANTS PRIOR TO CLOSING 31
7.1 Access and Cooperation: Due Diligence 31
7.2 Conduct of Business Pending Closing 31
7.3 Prohibited Activities 32
7.4 No Shop 33
7.5 Agreements 33
7.6 Notification of Certain Matters 34
7.7 Amendment of Schedules 34
7.8 Further Assurances 35
7.9 Approval of Merger Agreement 35
7.10 Conduct of Business by ITP Pending the Merger 35
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE NAMED
STOCKHOLDERS AND THE COMPANY 36
8.1 Representations and Warranties 36
8.2 Performance of Obligations 36
8.3 No Litigation 36
8.4 Opinion of Counsel 36
8.5 Consents and Approvals 37
8.6 Good Standing Certificates 37
8.7 Secretary's Certificate 37
8.8 No Material Adverse Change 37
8.9 Employment Agreements 37
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ITP AND NEWCO 37
9.1 Representations and Warranties 37
9.2 Performance of Obligations 38
9.3 No Litigation 38
9.4 Secretary's Certificate 38
9.5 No Material Adverse Change 38
9.6 STOCKHOLDERS' Release 38
9.7 Termination of Related Party Agreements 39
9.8 Opinion of Counsel 39
9.9 Consents and Approvals 39
9.10 Good Standing Certificates 39
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9.11 Employment Agreements 39
9.12 Stockholders' Agreement 39
9.13 Subordination Agreement 39
9.14 Financing 39
9.15 Letter Agreement 40
9.16 Employment Matters 40
10. COVENANTS AFTER CLOSING 40
10.1 Preparation and Filing of Tax Returns 40
10.2 Stock Options 41
10.3 Annual Incentive Compensation Plan 41
11. INDEMNIFICATION 41
11.1 General Indemnification by the STOCKHOLDERS 41
11.2 Indemnification by ITP 42
11.3 Third Person Claims 42
11.4 Exclusive Remedy 43
11.5 Limitations on Indemnification 43
11.6 Subrogation 44
11.7 Tax and Insurance 44
11.8 Undertakings 44
12. TERMINATION OF AGREEMENT 44
12.1 Termination 44
12.2 Liabilities in Event of Termination 45
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 45
13.1 STOCKHOLDERS 45
13.2 ITP and NEWCO 46
13.3 Damages 46
13.4 Survival 46
14. STOCKHOLDERS' AGREEMENT 46
14.1 Stockholders' Agreement 46
15. FEDERAL SECURITIES ACT REPRESENTATIONS 47
15.1 Compliance with Law 47
15.2 Economic Risk: Sophistication 47
16. GENERAL 48
16.1 Cooperation 48
16.2 Successors and Assigns 48
16.3 Entire Agreement 48
16.4 Counterparts 49
16.5 Brokers and Agents 49
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16.6 Expenses 49
16.7 Notices 49
16.8 Governing Law 50
16.9 Exercise of Rights and Remedies 50
16.10 Time 51
16.11 Reformation and Severability 51
16.12 Remedies Cumulative 51
16.13 Captions 51
16.14 Amendments and Waivers 51
<PAGE>
<PAGE>
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF ITP AND
NEWCO
ANNEX III MERGER CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCK OWNERSHIP OF ITP
ANNEX VI FORM OF OPINION OF COUNSEL TO ITP
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDERS
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT
ANNEX IX FORM OF JOINDER AGREEMENT
ANNEX X FORM OF PROMISSORY NOTE
ANNEX XI FORM OF SUBORDINATION AGREEMENT
ANNEX XII NORMALIZING ADJUSTMENTS OF THE COMPANY
ANNEX XIII LETTER AGREEMENT WITH CERTAIN STOCKHOLDERS
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
January 8, 1998, by and among (i) IT PARTNERS, INC., a Delaware corporation
("ITP"), (ii) ITP NO. 10, INC., a Delaware corporation ("NEWCO"), (iii)
SEQUOIA DIVERSIFIED PRODUCTS, INC., a Michigan corporation (the "COMPANY"),
and (iv) JOHN D. BAMBERGER, as Trustee U-A, dated November 9, 1995, ALAN E.
WISE, as Trustee U-A dated December 13, 1995, WILLIAM E. MURRAY, MICHAEL J.
BALTOSIEWICH, as Trustee U-A dated October 20, 1972, CARL J. GRIFFIN, WILLIAM
C. CHURCH and MICHAEL A. RYAN (collectively, the "NAMED STOCKHOLDERS" and
together with the other shareholders of the COMPANY, the "STOCKHOLDERS").
WHEREAS, NEWCO is a corporation duly organized and existing under the
laws of the State of Delaware, having been incorporated on December 12, 1997,
solely for the purpose of completing the transactions set forth herein, and is
a wholly-owned subsidiary of ITP;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that the COMPANY merge with and
into NEWCO pursuant to this Agreement and the applicable provisions of the
laws of the States of Delaware and Michigan (the "Merger"), and in furtherance
thereof have approved the Merger;
WHEREAS, unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule attached hereto and not otherwise defined
herein shall have the following meanings for all purposes of this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by ITP prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" means any other person or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with a person.
"Agent" has the meaning set forth in Section 9.14.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the forms attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
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"Balance Sheet" means the COMPANY's audited October 31, 1997 Balance
Sheet prepared by ITP's independent accountants, Arthur Andersen, L.L.P. and
delivered to the COMPANY.
"Balance Sheet Date" means October 31, 1997.
"Benefit Plan" means any Plan existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by
the COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing,
under which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"Company Delivered Documents" means this Agreement and the Schedules
attached hereto, as well as those documents, agreements and instruments to be
executed and delivered by the COMPANY and the NAMED STOCKHOLDERS at the
Closing in connection with this Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Contract" means any agreement, contract, lease, note, mortgage,
indenture, loan agreement, franchise agreement, covenant, employment
agreement, commitment, undertaking, obligation, whether written or oral,
express or implied.
"Debt" means all liabilities of the COMPANY for borrowed money.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization prepared in accordance with GAAP.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate will occur on the
Closing Date.
"Environmental Requirements" has the meaning set forth in Section 5.9(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.<PAGE>
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"ERISA Affiliate" means any Person who is, or at any time was, a member
of a controlled group (within the meaning of Section 412(n)(6) of the Code)
that includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Estimated Closing Date Balance Sheet" means a Closing Date balance sheet
for the COMPANY prepared by the COMPANY and reviewed by ITP, which shall
include an estimation of the Net Asset Value as of the Closing Date.
"Expiration Date" has the meaning set forth in Section 5(A).
"Final Closing Balance Sheet" means the Closing Date Balance Sheet as
finally determined under Section 3.3.
"Final Net Asset Value" means Net Asset Value as finally determined under
Section 3.3.
"Final FYE EBITDA" means the FYE EBITDA as finally determined under
Section 3.3.
"FYE EBITDA" means the EBITDA of the COMPANY for the twelve (12) month
period ending December 31, 1997, subject to the normalizing adjustments of the
COMPANY set forth on Annex XII hereto.
"GAAP" means generally accepted accounting principles of the United
States applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.9(a).
"Intellectual Property" means trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for
any of the foregoing, and any trade secret, invention, discovery, method of
doing business, process, know-how, including but not limited to, training
techniques, training materials, computer software (including source and object
code), databases, technology systems and integration techniques, product
design and product packaging.
"IPO" means the sale of ITP Common Stock by or for the account of ITP
pursuant to an initial public offering registered under the 1933 Act.
"ITP" has the meaning set forth in the first paragraph of this Agreement.
"ITP Charter Documents" has the meaning set forth in Section 6.1.
"ITP Delivered Documents" means this Agreement and those documents,
agreements and instruments to be executed and delivered by ITP and NEWCO at
the Closing in connection with this Agreement.<PAGE>
<PAGE>
"ITP Expiration Date" has the meaning set forth in Section 6.
"ITP Stock" means the common stock, par value $.01 per share, of ITP.
"Knowledge", "awareness" or similar expressions mean only the actual
knowledge of the individual to which the expression is applicable. When such
terms are used in connection with the knowledge of a corporate entity, such
knowledge shall include only the actual knowledge of the officers or directors
of that corporate entity.
"Lien" has the meaning set forth in Section 5.6.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Contract" means any Contract set forth on Schedule 5.8, 5.10,
5.11, 5.12 or 5.14 or any other Contract to which the COMPANY is a party or by
which its properties are bound which is material to the COMPANY.
"Merger" means the merger of the COMPANY with and into NEWCO pursuant to
this Agreement and the applicable provisions of the laws of the States of
Delaware and Michigan, with NEWCO as the Surviving Corporation.
"Net Asset Value" means the COMPANY's net worth as determined in
accordance with GAAP.
"Net Asset Value Adjustment" has the meaning set forth in Section
3.3(a)(ii).
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of NEWCO.
"Note" has the meaning set forth in Section 2.1(a).
"Permitted Liens" means any purchase money security interests created in
the ordinary course of business, any Liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for which
adequate reserves have been established and are being maintained), and any
materialmens', mechanics', workers', repairmens', employees' or other like
Liens arising in the ordinary course of business.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
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separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Proposed Final Closing Balance Sheet" means a Closing Date Balance Sheet
for the COMPANY prepared by ITP in accordance with Section 3.3.
"Relevant Group" has the meaning set forth in Section 5.18(a).
"Returns" has the meaning set forth at the end of Section 5.18.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean NEWCO as the surviving party in the
Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.18.
"Taxing Authority" has the meaning set forth at the end of Section 5.18.
"Transfer Taxes" has the meaning set forth in Section 17.6(c).
"Working Capital Cash Needs" means that amount of cash and cash
equivalents equal to $536,233.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
filed with the Secretary of State of the State of Delaware and the Department
of Consumer and Industry Services of the State of Michigan and stamped receipt
copies of each such filing to be delivered to ITP on or before the Closing
Date.
1.2 Effective Time of the Merger. At the Effective Time of the
Merger and subject to the terms and conditions of this Merger and the<PAGE>
<PAGE>
applicable provisions of the Delaware General Corporation Law ("Delaware Law")
and the Michigan Business Corporation Act, as amended ("Michigan Law"), the
COMPANY shall be merged with and into NEWCO in accordance with the Articles of
Merger, the separate existence of the COMPANY shall cease and NEWCO shall be
the Surviving Corporation in the Merger. At the Effective Time of the Merger,
the effect of the Merger otherwise shall be as provided in the applicable
provisions of Delaware Law and Michigan Law. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time of the Merger,
all the property, rights, privileges, powers and franchises of the COMPANY and
NEWCO shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the COMPANY and NEWCO shall become the debts, liabilities and duties
of the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate of Incorporation of NEWCO then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
amended as provided by law;
(b) the By-laws of NEWCO then in effect shall be the By-laws of
the Surviving Corporation until amended as provided by law;
(c) John D. Bamberger, Daniel J. Klein and Jamie E. Blech shall
be the directors of the Surviving Corporation until their respective
successors are elected or appointed and qualified in accordance with the terms
the By-laws of the Surviving Corporation; the Board of Directors of the
Surviving Corporation shall hold office subject to the provisions of the laws
of the State of Delaware and of the Certificate of Incorporation and By-laws
of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the
Effective Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, except that John D. Bamberger shall also be
appointed Vice Chairman of the Board of the Surviving Corporation. In
addition, Daniel J. Klein shall be appointed Chairman of the Board of the
Surviving Corporation and Jamie E. Blech shall be appointed vice president and
assistant secretary of the Surviving Corporation, each such officer to serve,
subject to the provisions of the Certificate of Incorporation and By-laws of
the Surviving Corporation, until his or her successor is duly elected and
qualified.
(e) Subject to the provisions of the Stockholders' Agreement
referred to in Section 9.12 hereof and subject to the provisions of the laws
of the State of Delaware, ITP shall, for the period beginning on the Closing
Date and ending on the effective time of an IPO, appoint and retain John D.
Bamberger as a director of ITP and, after the effective time of an IPO, shall
use its best efforts to have John D. Bamberger nominated and appointed as a
director of ITP to serve until his successor is duly elected and qualified.
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1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, ITP and NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital
stock of the COMPANY, ITP and NEWCO as of the date of this Agreement are as
follows:
(a) as of the date of this Agreement, the authorized capital
stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized
capital stock of ITP will consist of ten million shares of ITP Stock and two
million shares of preferred stock, par value $.01 per share ("Preferred
Stock"); and
(c) as of the date of this Agreement, the authorized capital
stock of NEWCO consists of 1,000 shares of NEWCO Stock, of which 100 shares
are issued and outstanding and beneficially owned by ITP.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of
(i) outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) ITP Stock and (y) common stock of the
Surviving Corporation, respectively, shall as of the Effective Time of the
Merger be as follows:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the part
of the holder thereof, automatically shall be deemed to represent, with
respect to each STOCKHOLDER, (1) the right to receive the number of shares of
ITP Stock set forth on Annex III hereto with respect to such STOCKHOLDER; (2)
the right to receive the amount of cash set forth on Annex III hereto with
respect to such STOCKHOLDER; and (3) the right to receive a subordinated
promissory note (the "Note") issued by ITP in an amount specified on Annex III
hereto with respect to such STOCKHOLDER (collectively, the "Merger
Consideration") and with the terms specified in Annex X hereto and subject to
a Subordination Agreement in the form attached hereto as Annex XI;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of ITP Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately prior to
the Effective Time of the Merger shall, by virtue of the Merger and without
any action on the part of ITP, automatically be converted into one fully paid
and non-assessable share of common stock of the Surviving Corporation, which
shall constitute all of the issued and outstanding shares of common stock of
the Surviving Corporation immediately after the Effective Time of the Merger.
2.2 Rights -- ITP Stock. All ITP Stock received by the
STOCKHOLDERS pursuant to this Agreement shall, except for restrictions on<PAGE>
<PAGE>
resale or transfer described in Sections 14 and 15 hereof, have the same
rights as all the other shares of outstanding ITP Stock by reason of the
provisions of the Certificate of Incorporation of ITP or as otherwise
provided by the Delaware Law.
3. DELIVERY OF MERGER CONSIDERATION; CLOSING AND POST-CLOSING ADJUSTMENTS
3.1 (a) Delivery of Merger Consideration. At the Effective
Time of the Merger and on the Closing Date, the STOCKHOLDERS, who are the
holders of all outstanding certificates representing shares of COMPANY Stock,
upon surrender of such certificates and subject to the adjustments specified
under Sections 3.2 and 3.3 below shall receive (i) the respective number of
shares of ITP Stock set forth on Annex III; (ii) the amount of cash set forth
on Annex III hereto with respect to such STOCKHOLDER; and (iii) a Note issued
by ITP in an amount specified on Annex III hereto with respect to such
STOCKHOLDER and with the terms specified in Annex X hereto and subject to a
Subordination Agreement in the form attached hereto as Annex XI. The cash
payable pursuant to clause (ii) shall be paid by wire transfer to the
STOCKHOLDERS in immediately available funds.
(b) Certificate Delivery. To the extent practicable, the
STOCKHOLDERS shall deliver to Piper & Marbury L.L.P., counsel to ITP, at the
Closing the certificates, representing all of the COMPANY Stock, duly endorsed
in blank by the STOCKHOLDERS, or accompanied by stock powers duly endorsed in
blank, with signatures guaranteed by a national or state chartered bank or
other financial institution, and with all necessary Transfer Tax and other
revenue stamps, acquired at the STOCKHOLDERS' expense, affixed and canceled.
The STOCKHOLDERS agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such COMPANY Stock or with respect to the stock powers accompanying
any COMPANY Stock. Upon consummation of the transactions contemplated to
occur on the Closing Date, all of such certificates shall be deemed released
by such counsel to ITP without any further action on the part of such counsel.
3.2 Closing Date Adjustments to Merger Consideration. On the
Closing Date, the amount of cash payable shown on Annex III shall be (x)
reduced by an amount equal to any Debt reflected on the Estimated Closing Date
Balance Sheet, and (y) reduced by the amount by which Working Capital Cash
Needs exceeds cash and cash equivalents as reflected on the Estimated Closing
Date Balance Sheet (the "Closing Date Adjustments"). Any additional payments
from the STOCKHOLDERS arising from the Closing Date Adjustments shall be paid
by and allocated among the STOCKHOLDERS in accordance with the provisions set
forth in Annex III under the caption "Post-Closing Adjustments to Merger
Consideration". All such additional payments shall be made by the
STOCKHOLDERS within five (5) business days after such final determination. In
the event that any of the STOCKHOLDERS are required to make any payments to
ITP in the form of the ITP Stock or the Notes, such STOCKHOLDERS shall return
to ITP (i) certificates evidencing sufficient shares of ITP Stock necessary to
comply with the additional payments required, and (ii) the Notes previously
issued to such STOCKHOLDERS; promptly after the return of the foregoing, ITP
shall reissue certificates for the ITP Stock and the Notes to the STOCKHOLDERS
in accordance with such final determination. In the event that the<PAGE>
<PAGE>
STOCKHOLDERS are required to make any payments in the form of cash, such
payments shall be made in immediately available funds by wire transfer,
cashier's check or other mutually agreed upon manner.
3.3 Post-Closing Adjustments to Merger Consideration.
(a) Net Asset Value Adjustment.
(i) On January 31, 1998, ITP, together with its
accountants, shall prepare and deliver to STOCKHOLDERS' accountants a Proposed
Final Closing Balance Sheet prepared on a basis consistent with the Balance
Sheet. The Proposed Final Closing Balance Sheet shall include an evaluation
of the Net Asset Value at the Closing Date. The Proposed Final Closing
Balance Sheet shall be accompanied by a report of ITP's accountants. The
STOCKHOLDERS and STOCKHOLDERS' accountants shall have the right to consult
during reasonable business hours with appropriate personnel of ITP and ITP's
accountants and to have access to, and to review and make copies of, the work
papers of ITP and ITP's accountants with respect to the preparation of the
Proposed Closing Balance Sheet.
(ii) If the Final Net Asset Value is less than the Net
Asset Value shown on the Estimated Closing Date Balance Sheet, the
STOCKHOLDERS shall pay to ITP the difference plus interest thereon from the
Closing Date through the date of payment at a rate per annum, which may
fluctuate from time to time, equal to the then prime rate of Citibank (the
"Net Asset Value Adjustment"). Any additional payments from the STOCKHOLDERS
arising from the Net Asset Value Adjustment shall be paid by and allocated
among the STOCKHOLDERS in accordance with the provisions set forth in Annex
III under the caption "Post-Closing Adjustments to Merger Consideration". All
such additional payments shall be made by the STOCKHOLDERS within five (5)
business days after such final determination. In the event that any of the
STOCKHOLDERS are required to make any payments to ITP in the form of the ITP
Stock or the Notes, such STOCKHOLDERS shall return to ITP (i) certificates
evidencing sufficient shares of ITP Stock necessary to comply with the
additional payments required, and (ii) the Notes previously issued to such
STOCKHOLDERS; promptly after the return of the foregoing, ITP shall reissue
certificates for the ITP Stock and the Notes to the STOCKHOLDERS in accordance
with such final determination. In the event that the STOCKHOLDERS are
required to make any payments in the form of cash, such payments shall be made
in immediately available funds by wire transfer, cashier's check or other
mutually agreed upon manner.
(b) Subsequent Valuation Adjustment.
(i) On January 31, 1998, upon presentation of financial
statements accompanied by a report of ITP's accountants reflecting the
COMPANY's FYE EBITDA, the consideration received by the STOCKHOLDERS will be
adjusted (i) upward by the amount by which FYE EBITDA multiplied by 8.86 (the
"Subsequent Valuation") exceeds the Merger Consideration, or (ii) downward by
the amount by which the Subsequent Valuation is less than the Merger
Consideration. The STOCKHOLDERS and STOCKHOLDERS' accountants shall have the
right to consult during reasonable business hours with appropriate personnel
<PAGE>
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of ITP and ITP's accountants and to have access to, and to review and make
copies of, the work papers of ITP and ITP's accountants with respect to the
preparation of the financial statements reflecting the COMPANY's FYE EBITDA.
(ii) The consideration payable pursuant to this Section
3.3(b) to or by the STOCKHOLDERS shall be paid by or to and allocated among
the STOCKHOLDERS in accordance with the provisions set forth in Annex III
under the caption "Post-Closing Adjustments to Merger Consideration"; provided
however, that the aggregate value of merger consideration payable to the
STOCKHOLDERS shall not exceed $27,500,000. In the event that any of the
STOCKHOLDERS are required to make any payments to ITP in the form of the ITP
Stock or the Notes, such STOCKHOLDERS shall return to ITP (i) certificates
evidencing sufficient shares of ITP Stock necessary to comply with the
additional payments required, and (ii) the Notes previously issued to such
STOCKHOLDERS; promptly after the return of the foregoing, ITP shall reissue
certificates for the ITP Stock and the Notes to the STOCKHOLDERS in accordance
with such final determination. In the event that ITP or the STOCKHOLDERS are
required to make any payments in the form of cash, such payments shall be made
in immediately available funds by wire transfer, cashier's check or other
mutually agreed upon manner.
(c) Procedure to Resolve Dispute.
(i) The STOCKHOLDERS may dispute the Proposed Final Closing
Balance Sheet and the determination of FYE EBITDA prepared by ITP and ITP's
accountants by notice to ITP setting forth in reasonable detail the amounts in
dispute and the basis for such dispute within 45 days of its receipt of the
Proposed Final Closing Balance Sheet and the determination of FYE EBITDA. If
the STOCKHOLDERS fail to deliver a notice of objections within such 45-day
period, the STOCKHOLDERS shall be deemed to have accepted the Proposed Final
Closing Date Balance Sheet (including the Net Asset Value thereon) and the
determination of FYE EBITDA. If the aggregate amounts in dispute are less
than $100,000, the Net Asset Value and the FYE EBITDA proposed by ITP shall be
adjusted by one-half of the dispute amount which shall then constitute the
Final Closing Balance Sheet, the Final Net Asset Value and the Final FYE
EBITDA.
(ii) If the amounts in dispute exceed $100,000, ITP's
accountants and the STOCKHOLDERS' accountants shall attempt in good faith to
resolve such dispute, and any resolution as to any disputed amounts shall be
final, binding and conclusive. If there is no resolution of any such dispute
within 15 days of the date of receipt by ITP of a written notice of dispute,
ITP and the STOCKHOLDERS shall, within five additional days, retain Coopers &
Lybrand, L.L.P., which firm shall, within 30 days of each submission, resolve
such remaining dispute, and provide written notice of such resolution by
facsimile, confirmed by mail, and such resolution shall be binding and
conclusive. Such resolution shall be within the range of amounts proposed by
ITP's accountants and the amount proposed by the STOCKHOLDERS' accountants as
to each disputed item. The fees and disbursements of Coopers & Lybrand,
L.L.P. shall be borne by ITP and the STOCKHOLDERS in the proportion that the
aggregate amount of disputed items submitted to Coopers & Lybrand, L.L.P. that
is unsuccessfully disputed by each party (as finally determined by Coopers &
<PAGE>
<PAGE>
Lybrand, L.L.P.) bears to the total amount of the disputed items as submitted
to Coopers & Lybrand, L.L.P. After resolving the items in dispute, Coopers &
Lybrand, L.L.P. shall prepare and deliver a Final Closing Balance Sheet
(including a certification of the Final Net Asset Value thereon) and a final
determination of FYE EBITDA.
4. CLOSING
At or prior to the Closing (as defined below), the parties shall take all
actions necessary to prepare to (i) effect the Merger (including, if permitted
by applicable state law and if desired by the parties hereto, the advance
filing with the appropriate state authorities of the Articles of Merger, which
shall become effective at the Effective Time of the Merger) and (ii) effect
the conversion and delivery of shares referred to in Section 2 hereof;
provided, that such actions shall not include the actual completion of the
Merger for purposes of this Agreement or the conversion and delivery of the
shares and transmission of funds by wire referred to in Section 3 hereof,
which actions shall only be taken upon the Closing Date as herein provided.
If there is no Closing Date and this Agreement terminates, ITP hereby
covenants and agrees to do all things required by Delaware Law and all things
which counsel for the COMPANY advise ITP are required by Michigan Law in order
to rescind any merger or other actions effected by the advance filing of the
Articles of Merger as described in this Section. The taking of the actions
described in clauses (i) and (ii) above shall take place on the date which is
mutually agreeable to the COMPANY and ITP at the offices of Piper & Marbury
L.L.P., Charles Center South, 36 South Charles Street, Baltimore, Maryland
21201, or upon consent of the parties, via facsimile and overnight courier.
On the Closing Date (x) the Articles of Merger shall be or shall have been
filed with the appropriate state authorities so that they shall be or, as of
11:00 a.m. Eastern Time on the Closing Date, shall become effective and the
Merger shall thereby be effected, and (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, issuance of
the Note, and the transmission of funds by wire pursuant to Section 3 hereof
shall occur. The date on which the actions described in the preceding clauses
(x) and (y) occurs (the "Closing") shall be referred to as the "Closing Date."
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of the COMPANY and the
STOCKHOLDERS.
Each of the COMPANY, John D. Bamberger and Alan E. Wise jointly and
severally represents and warrants and each of the other NAMED STOCKHOLDERS
severally, but not jointly, represents and warrants to ITP and NEWCO that all
of the following representations and warranties in this Section 5 are true at
the Closing Date (subject to Section 7.7 hereof), and that such
representations and warranties shall survive the Closing Date for a period of
eighteen (18) months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Sections
5.9 and 5.18 hereof shall survive until such time as the applicable statute of
limitations period has run, which shall be deemed to be the Expiration Date
<PAGE>
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for such purposes. For purposes of this Section 5, the term "COMPANY" shall
mean and refer to the COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly
incorporated, validly existing and in good standing under the laws of the
state of its incorporation, and is duly authorized and qualified to do
business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on its business in the places and in the manner as
now conducted except to the extent any such failure to be so authorized or
qualified would not have a materially adverse effect on the COMPANY's
business, condition (financial or other), properties, business prospects or
results of operations (as used herein with respect to the COMPANY, or with
respect to any other person, a "Material Adverse Effect"), to own or hold
under lease the properties and assets it now owns or holds under lease, and to
perform all of its obligations under the Material Contracts; is duly qualified
in the jurisdictions listed in Schedule 5.1 (except for the State of Ohio) and
there are no other jurisdictions in which the conduct of the COMPANY's
business or activities or its ownership of assets requires any other
qualification under applicable law, the absence of which would have a Material
Adverse Effect. True, complete and correct copies of the Articles of
Incorporation and By-laws (except the By-laws of the foreign subsidiaries of
the COMPANY), each as amended, of the COMPANY (the "Charter Documents") are
all attached to Schedule 5.1. The minute books and stock records of the
COMPANY, as heretofore made available to ITP, are correct and complete in all
material respects.
5.2 Authorization. The representatives of the COMPANY executing
this Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this
Agreement and the Company Delivered Documents and performance by the COMPANY
of its obligations under this Agreement and the Company Delivered Documents
and the consummation by the COMPANY of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action in
accordance with applicable law and the Articles of Incorporation and By-Laws
of the COMPANY on the part of the COMPANY and the STOCKHOLDERS. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
5.3 Capital Stock of the COMPANY. The entire authorized capital
stock of the COMPANY is as set forth in Schedule 1.4. All of the issued and
outstanding shares of capital stock of the COMPANY are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and, except as set forth on
Schedule 5.3, are owned free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of
every kind. Except as disclosed on Schedule 5.3, there are no outstanding
options, rights (preemptive or otherwise), warrants, calls, convertible
securities or commitments or any other arrangements to which the COMPANY or
the STOCKHOLDERS is a party requiring or restricting issuance, sale or<PAGE>
<PAGE>
transfer of any equity securities of the COMPANY or any securities convertible
directly or indirectly into equity securities of the COMPANY, or evidencing
the right to subscribe for any equity securities of the COMPANY, or giving any
person any rights with respect to the capital stock of the COMPANY. Except as
contemplated by this Agreement or disclosed on Schedule 5.3, there are no
voting agreements, voting trusts, other agreements (including cumulative
voting rights), commitments or understandings with respect to the capital
stock of the COMPANY. All of the issued and outstanding shares of capital
stock of the COMPANY have been duly authorized and validly issued, are fully
paid and nonassessable, and are owned of record and beneficially by the
STOCKHOLDERS.
5.4 Subsidiaries. Schedule 5.4 attached hereto lists the name of
each of the COMPANY's subsidiaries and sets forth the number and class of the
authorized capital stock of each of the COMPANY's subsidiaries and the number
of shares of each of the COMPANY's subsidiaries which are issued and
outstanding, all of which shares (except as set forth on Schedule 5.4) are
owned by the COMPANY, free and clear of all liens, security interests,
pledges, voting trusts, equities, restrictions, encumbrances and claims of
every kind. Except as set forth on Schedule 5.4, the COMPANY does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other
equity interest in any corporation, association or business entity, nor is the
COMPANY, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
5.5 Financial Statements. The COMPANY has delivered to ITP copies
of the following unaudited financial statements, copies of which are attached
hereto as Schedule 5.5 (collectively, the "Financial Statements"):
(a) Balance Sheet, Income Statement, Statement of Stockholders'
Equity and Statement of Cash Flows at and for the year ended December 31, 1995
and Balance Sheet at December 31, 1996; and
(b) Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows at and for the interim
period ended October 31, 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and
cash flows for the periods related thereto in accordance with GAAP,
consistently applied among the periods which are the subject of the Financial
Statements, except unaudited interim financial statements which were or are
subject to normal year-end adjustments which were not and are not expected to
be material in amount and the addition of required footnotes thereto. The
COMPANY has not deferred recognition of any of its accounts payable or
accelerated recognition of any of its accounts receivable.
5.6 Liabilities and Obligations. The COMPANY's assets, tangible
or intangible, are owned by the COMPANY free and clear of any liens, claims,
<PAGE>
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mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each, a "Lien"), except for the items listed on Schedule 5.6 and the
Permitted Liens. The COMPANY has delivered to ITP an accurate list (which is
set forth on Schedule 5.6) as of the Balance Sheet Date of (i) all liabilities
of the COMPANY known to the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and which are required by GAAP to be disclosed thereon, and (ii) all
material loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements to which the COMPANY is a party,
except for the Permitted Liens. Except as set forth on Schedule 5.6, and
except as otherwise described or disclosed in this Agreement (or the
Schedules, Exhibits or Annexes attached hereto), or reflected in the Financial
Statements, to the knowledge of the Named Stockholders since the Balance Sheet
Date the COMPANY has not incurred any liabilities in excess of $10,000 of any
kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business.
5.7 Accounts and Notes Receivable. The COMPANY has delivered to
ITP an accurate list (which is set forth on Schedule 5.7) of the accounts and
notes receivable of the COMPANY as of the Balance Sheet Date. Within ten (10)
days prior to Closing, the COMPANY shall provide ITP (x) an accurate list of
all outstanding receivables arising since the Balance Sheet Date and as of a
date which is within ten (10) calendar days of the Closing Date and (y) an
aging of all such accounts and notes receivable showing amounts due in 30 day
aging categories (the "A/R Aging Reports"). Except to the extent reflected on
Schedule 5.7, the accounts, notes and other receivables shown on Schedule 5.7
and on the A/R Aging Reports are, and the COMPANY has no reason to believe
that any such account receivable is not, collectible in the amounts shown net
of reserves reflected in the balance sheet as of the Balance Sheet Date.
5.8 Intellectual Property; Permits and Intangibles.
(a) To the knowledge of the COMPANY, the COMPANY owns or has
valid licenses to all Intellectual Property required for or otherwise used in
connection with the conduct of its business and the COMPANY has delivered to
ITP an accurate list (which is set forth on Schedule 5.8(a)) of all
Intellectual Property owned or used by the COMPANY including a list of all
licenses and sublicenses granted by or to the COMPANY with respect to any
Intellectual Property. To the COMPANY's knowledge, each item of Intellectual
Property owned by or licensed to the COMPANY is valid and in full force and
effect. To the knowledge of the COMPANY, except as set forth on Schedule
5.8(a), all right, title and interest in and to each item of Intellectual
Property owned by or licensed to the COMPANY is not subject to any
restriction, royalty or fee arrangement or pending or threatened claim or
dispute. To the COMPANY's knowledge, none of the Intellectual Property owned
by or licensed to the COMPANY nor any product sold or licensed or service
provided by the COMPANY, infringes any Intellectual Property right of any
other person or entity and to the COMPANY's knowledge, no Intellectual
Property owned by or licensed to the COMPANY is infringed upon by any other
person or entity.<PAGE>
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(b) The COMPANY holds all licenses, franchises, permits and
governmental authorizations the absence of any of which would be reasonably
likely to have a Material Adverse Effect (the "Material Licenses"), and the
COMPANY has delivered to ITP an accurate list and summary description (which
is set forth on Schedule 5.8(b)) of all such Material Licenses, including
permits, licenses, franchises and certificates (a list of all environmental-
related Material Licenses is set forth on Schedule 5.9). To the COMPANY's
knowledge, the Material Licenses listed on Schedules 5.8(b) and 5.9 are valid
and in effect, and the COMPANY has not received any notice that any
Governmental Authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. To the
COMPANY's knowledge, the COMPANY has conducted and is conducting its business
in compliance in all material respects with the requirements, standards,
criteria and conditions set forth in the Material Licenses on Schedules 5.8(b)
and 5.9 and is not in material violation of any of the foregoing or of any
related regulatory or legal requirements except where such non-compliance or
violation would not have a Material Adverse Effect. Except as specifically
provided in Schedule 5.8(a) or 5.8(b), the transactions contemplated by this
Agreement will not (i) to COMPANY'S knowledge, result in the infringement or
misappropriation by the COMPANY of any Intellectual Property right of any
other person or entity, or (ii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any Material Licenses listed on Schedule 5.8(b) or any contracts
involving the grant to the COMPANY of any rights relating to the Intellectual
Property of any third party.
(c) To the COMPANY's knowledge, the COMPANY's products and
services conform in all material respects with any material applicable
specification, documentation, performance standard, or contractual commitment
by the COMPANY existing with respect thereto, and there are no unresolved
material claims under warranty, contract or otherwise with respect to the
COMPANY's services or products, except where any of the foregoing would not
have a Material Adverse Effect.
5.9 Environmental Matters.
(a)(i) "Environmental Requirements" for purposes of this
Agreement shall mean all applicable federal, state and local laws, rules,
regulations, ordinances and requirements relating to Hazardous Materials (as
defined below), pollution, or protection of the environment, health or safety,
all as amended and as in effect as of the date hereof.
(ii) "Hazardous Materials" for purposes of this Agreement
shall include, without limitation: (A) hazardous materials, hazardous
substances, extremely hazardous substances, hazardous chemicals, toxic
chemicals, toxic substances, pollutants, contaminants, solid wastes or
hazardous wastes, as those terms are defined or used in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. sec 9601 et
seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. sec
6901 et seq. ("RCRA"), the Clean Water Act, 33 U.S.C. sec 1251 et seq., the
Clean Air Act, 42 U.S.C. sec 7401 et seq., the Toxic Substances Control Act,
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15 U.S.C. sec 2601 et seq., the Emergency Planning and Community Right to Know
Act, 42 U.S.C. sec 11001 et seq., the Occupational Safety and Health Act, and
any other Environmental Requirements and other terms of similar import or
meaning; (B) petroleum and petroleum products, including, without limitation,
crude oil or any faction thereof; (C) any radioactive material, including,
without limitation, any source, special nuclear, or by-product material as
defined in 42 U.S.C. sec 2011 et seq.; and (D) asbestos in any form or
condition.
(b) Except as set forth on Schedule 5.9:
(i) the COMPANY and each of its predecessors and
subsidiaries are and at all times have been in compliance in all material
respects with, and are not and have not been in violation of or liable under,
all Environmental Requirements;
(ii) the COMPANY and each of its predecessors and
subsidiaries possess all Material Licenses required by all Environmental
Requirements, and have filed all notices or applications required thereby;
(iii) no environmental clearances, approvals or consents are
required under applicable law from any Governmental Authority or entity in
order to consummate the transactions contemplated in this Agreement or for the
COMPANY to continue operations after the Closing Date;
(iv) (A) the COMPANY and each of its predecessors and
subsidiaries are not subject to, and have not received any notice of, any
private, administrative or judicial claim or action, or notice of any intended
private, administrative or judicial claim or action or received any request
for information relating to the presence or alleged presence of Hazardous
Materials (1) in, under or upon any real property currently or formerly owned,
leased, operated or used by (a) the COMPANY or any of its predecessors or
subsidiaries or (b) any other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY or any of its predecessors or
subsidiaries; or (2) ever possessed, owned or generated by or on behalf of the
COMPANY or any of its predecessors or subsidiaries at any location;
(B) to the COMPANY's knowledge, there is no basis
for any such notice, claim, action or request; and
(C) there are no pending or, to the knowledge of
the COMPANY and each of its predecessors and subsidiaries, threatened claims,
actions or proceedings (or notices of potential claims, actions or
proceedings) from any Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the environment against the
COMPANY or any of its predecessors and subsidiaries.
(v) To the COMPANY'S knowledge, there are and have been no
past or present events, conditions, circumstances, activities, practices,
incidents or actions which materially interfere with or prevent continued
compliance by the COMPANY or the Surviving Corporation with any Environmental
Requirements, give rise to any legal obligation or liability, or otherwise
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form the basis of any claim, action, suit, proceeding, hearing or
investigation against or involving the COMPANY or any real property presently
or previously owned or used by the COMPANY under any Environmental
Requirements or related common law theories;
(vi) No real property currently or formerly owned or
operated by the COMPANY or any of its predecessors or subsidiaries is or was
listed on the National Priorities List, the CERCLIS or any similar state or
local list of potential or confirmed hazardous waste sites;
(vii) To the COMPANY's knowledge, no conditions exist on
adjacent properties that threaten the environmental condition or safety of any
property owned, operated or used by the COMPANY; and
(viii) The COMPANY and its predecessors and subsidiaries
have not released or disposed of any Hazardous Materials at any property owned
or used by the COMPANY or its predecessors or subsidiaries, except as in
compliance with the Environmental Requirements and, to the COMPANY's
knowledge, no other person has released or disposed of Hazardous Materials at
any such property, except as in compliance with the Environmental
Requirements.
5.10 Personal Property. The COMPANY has delivered to ITP's
independent accountants, Arthur Andersen, LLP, an accurate list (which is set
forth on Schedule 5.10) of (x) all personal property with a fair market value
in excess of $10,000 which is included (or that will be included) in
"depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of each of (x), (y) and (z), true, complete and correct
copies of all such leases which have been provided to ITP's counsel. Except
as set forth on Schedule 5.10, (i) all personal property with a value
individually in excess of $10,000 used by the COMPANY in its business is
either owned by the COMPANY or leased by the COMPANY pursuant to a lease
included on Schedule 5.10, (ii) all of the personal property listed on
Schedule 5.10 is in good working order and condition, ordinary wear and tear
excepted, and (iii) all leases and agreements included on Schedule 5.10 are in
full force and effect and constitute valid and binding agreements of the
COMPANY, and to the COMPANY's knowledge, of the other parties thereto in
accordance with their respective terms.
5.11 Significant Customers; Material Contracts and Commitments.
(a) The COMPANY has delivered to ITP an accurate list (which is set forth
on Schedule 5.11(a)) of all significant customers, it being understood and
agreed that a "significant customer," for purposes of this Section 5.11, means
a customer (or person or entity) representing 5% or more of the COMPANY's
total annual revenues as of the ten month period ended on the Balance Sheet
Date. Except to the extent set forth on Schedule 5.11(a), none of the
COMPANY's significant customers has, since the Balance Sheet Date, canceled or
substantially reduced or, to the knowledge of the COMPANY, is currently<PAGE>
<PAGE>
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
(b) Except as listed or described on Schedule 5.11(b), as of or on
the date hereof, neither the COMPANY is a party to or bound by, nor do there
exist any, Contracts relating to or in any way affecting the operation or
ownership of the COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union
or any such agreement currently in negotiation or proposed;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than in
the COMPANY's ordinary course of business in excess of $10,000;
(c) any Contract with a term in excess of one year for the
purchase, maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services (except
that the COMPANY need not list any such contract made in the ordinary course
of business) which requires aggregate future payments of greater than $10,000;
(d) any Contract relating to the borrowing of money, or the
guaranty of another person's borrowing of money, including, without
limitation, all notes, mortgages, indentures and other obligations, agreements
and other instruments for or relating to any lending or borrowing, including
assumed indebtedness;
(e) any Contract granting any person a Lien on any of the assets
of the COMPANY, in whole or in part, except for any Permitted Liens;
(f) any Contract granting to any person a first-refusal, first-
offer or similar preferential right to purchase or acquire any of the assets
of the COMPANY's business other than in the ordinary course of business;
(g) any Contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $10,000;
(h) any contract providing for the indemnification of any
officer, director, employee or other person (excluding any provisions in the
Charter Documents);
(i) any joint venture agreement or partnership contract;
and
(j) any other Contract with a term in excess of one year,
whether or not made in the ordinary course of business, which involves or may
<PAGE>
<PAGE>
involve payments in excess of $10,000 (except for the Real Property Leases (as
defined in Section 5.12)).
The COMPANY has provided ITP with a true and complete copy of each
written Material Contract, including all amendments or other modifications
thereto, except for the leases referred to under Section 5.11(b)(g)(ii), which
shall be delivered to ITP on or before January 19, 1998. Except as set forth
on Schedule 5.11(b), each Material Contract is a valid and binding obligation
of the COMPANY, enforceable in accordance with its terms, and is in full force
and effect. Except as set forth on Schedule 5.11(b), the COMPANY has
performed all obligations required to be performed by it under each Material
Contract and neither the COMPANY nor, to the knowledge of the COMPANY, any
other party to any Material Contract, is (with or without the lapse of time or
the giving of notice or both) in breach or default in any material respect
thereunder; and, to the knowledge of the COMPANY there exists no condition
which would constitute a breach or default thereunder. The COMPANY has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew or exercise an option under any Material Contract,
whether in connection with the transactions contemplated hereby or otherwise.
5.12 Real Property. (a) The COMPANY owns no real property.
(b) Schedule 5.12(b) includes an accurate list of real property
leases to which the COMPANY is a party (the "Real Property Leases"). Counsel
to ITP has been provided with true, complete and correct copies of all the
Real Property Leases. Except as set forth on Schedule 5.12(b), all of such
leases included on Schedule 5.12(b) are in full force and effect and
constitute valid and binding agreements of the COMPANY and, to the COMPANY's
knowledge, of the parties thereto in accordance with their respective terms.
5.13 Insurance. The COMPANY has delivered to ITP:
(a) true and complete copies of all certificates of insurance
evidencing insurance policies to which the COMPANY is a party or under which
the COMPANY, or any director of the COMPANY, is or has been covered at any
time within two years preceding the date of this Agreement;
(b) true and complete copies of all pending applications for
policies of insurance; and
(c) any statement made by the auditor of the COMPANY's
financial statements with regard to the adequacy of such entity's coverage or
of the reserves for claims.
5.14 Compensation; Employment Agreements; Organized Labor Matters.
The COMPANY has delivered to ITP an accurate list (which is set forth on
Schedule 5.14) showing as of December 1, 1997, all officers, directors and key
employees of the COMPANY, listing all employment agreements with such
officers, directors and key employees and the rate of compensation of each of
such persons as of the date hereof. The COMPANY has provided to ITP true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.14. Since the Balance Sheet Date, there have been no increases in
<PAGE>
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the compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases and bonuses
implemented on a basis consistent with past practices. Except as set forth on
Schedule 5.14, there is no, and within the last three years the COMPANY and
Manage Pro, Inc., have not experienced any, strike, picketing, boycott, work
stoppage or slowdown, other similar labor dispute, union organizational
activity, allegation, charge or complaint of unfair labor practice, employment
discrimination pending or, to the COMPANY's knowledge, threatened against the
COMPANY or Manage Pro, Inc.
5.15 Employee Plans. The COMPANY has delivered to ITP an accurate
schedule (which is set forth on Schedule 5.15) showing all Benefit Plans,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, summary plan descriptions thereof,
the last determination letter (if any) issued to each Benefit Plan by the
Internal Revenue Service, and the last Forms 5500 filed for such Benefit
Plans.
5.16 Compliance with ERISA.
(a) All Benefit Plans that are intended to qualify under Section
401(a) of the Code are and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified.
(b) Except as disclosed on Schedule 5.16, all reports and other
documents required to be filed with any Governmental Authority or distributed
to plan participants or beneficiaries (including, but not limited to,
actuarial reports, audits or tax returns) have been timely filed or
distributed.
(c) None of the NAMED STOCKHOLDERS, any such Benefit Plan, nor
the COMPANY has engaged in any transactions prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA and for which no individual
or class exemption exists.
(d) No material pending claim or lawsuit has been asserted or
instituted by or against a Benefit Plan, against the assets of a trust under a
Benefit Plan or by or against the plan sponsor, plan administrator, or any
fiduciary of a Benefit Plan (other than routine claims for benefits), and the
COMPANY has no knowledge of any fact which could form the basis for any such
claim or lawsuit.
(e) Each Benefit Plan (including without limitation a Benefit
plan covering retirees or their beneficiaries) may be terminated or amended by
the plan sponsor at any time without the consent of any person covered
thereunder and may be terminated without any liability for benefits accruing
after the date of such termination.
(f) No Benefit Plan has any provisions that would prohibit the
transactions contemplated by this Agreement or give rise to any severance,
termination or other payments or liabilities (including without limitation any
<PAGE>
<PAGE>
acceleration in benefits vesting or distribution) as a result of the
transactions contemplated by this Agreement.
(g) There have been no terminations, partial terminations or
discontinuance of contributions to any Benefit Plan intended to qualify under
Section 401(a) of the Code without notice to and approval by the Internal
Revenue Service and the Pension Benefit Guaranty Corporation.
(h) All Benefit Plans and the administration thereof are in
substantial compliance with their terms and all applicable provisions of
ERISA, the Code and the regulations issued thereunder, as well as with all
other applicable federal, state and local statutes, ordinances and
regulations.
(i) All accrued contribution obligations of the COMPANY with
respect to any Benefit Plan have either been fulfilled in their entirety or
are fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
(j) The COMPANY further represents that it has never had any
Benefit Plans subject to Title IV of ERISA.
5.17 Conformity with Law; Litigation.
(a) Except as set forth on Schedule 5.17(a) and except with
respect to the Environmental Requirements (which are addressed in Section 5.9)
and with respect to the Benefit Plans and ERISA and similar laws (which are
addressed in Sections 5.15 and 5.16), the COMPANY has complied with all laws,
rules, regulations, writs, injunctions, decrees, and orders applicable to it
or to the operation of its Business (collectively, "Laws"), except where any
such noncompliance would not have a Material Adverse Effect, and has not
received any notice of any alleged claim or threatened claim, violation of,
liability or potential responsibility under, any such Law which has not
heretofore been cured and for which there is no remaining liability other
than, in each case, those not having a Material Adverse Effect.
(b) Except to the extent set forth on Schedule 5.17(b) (which
shall disclose the parties to, nature of, and relief sought for each matter
disclosed):
(a) There is no suit, action, proceeding, investigation,
claim or order pending or, to the COMPANY's knowledge, threatened against
either the COMPANY or, to the knowledge of the COMPANY, pending or threatened
against any of the officers, directors or employees of the COMPANY with
respect to its business or proposed business activities which would have a
Material Adverse Effect on the COMPANY, or to which the COMPANY is otherwise a
party, before any court, or before any Governmental Authority (collectively,
"Claims").
(b) The COMPANY is not subject to any judgment, order
or decree of any court or Governmental Authority expressly directed at the
COMPANY; the COMPANY has not received any written opinion or memorandum from
<PAGE>
legal counsel to the effect that it is exposed, from a legal standpoint, to
any liability or disadvantage which may have a Material Adverse Effect. The
COMPANY is not engaged in any legal action to recover monies due it or for
damages sustained by it.
5.18 Taxes. Except as set forth on Schedule 5.18:
(a) All Returns required to have been filed with any Taxing
Authority by the COMPANY including any affiliated, combined, consolidated,
unitary or similar group of which the COMPANY is or was a member (a "Relevant
Group") have been duly filed, and each such Return correctly and completely
reflects, in all material respects, the Tax liability and other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant Group
(individually, the "Acquired Party" and collectively, the "Acquired Parties")
have been paid on or prior to the due date for payment of such Taxes, except
for Taxes being contested in good faith and by appropriate proceedings (and
for which adequate reserves have been established and are being maintained).
(b) To the knowledge of the COMPANY and the NAMED
STOCKHOLDERS, the provisions for Taxes due by the COMPANY and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial Statements
are sufficient for all unpaid Taxes, being current taxes not yet due and
payable, of such Acquired Party.
(c) No Acquired Party is a party to any agreement extending
the time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that is
unresolved or if adversely determined would have a Material Adverse Effect on
such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third party.
(e) No Acquired Party has received notice that any Taxing
Authority intends to assess any additional Taxes against or in respect of it
for any past period. No Acquired Party has received notice that there is a
dispute or claim concerning any Tax liability of any Acquired Party either (i)
claimed or raised by any Taxing Authority or (ii) otherwise known to any
Acquired Party. No Acquired Party has received notice that issues have been
raised in any examination by any Taxing Authority with respect to any Acquired
Party which, by application of similar principles, reasonably could be
expected to result in a proposed deficiency for any other period not so
examined. Schedule 5.18 attached hereto lists all federal, state, local and
foreign income Tax Returns filed by or with respect to any Acquired Party for
all taxable periods ended on or after January 1, 1991, indicates those
Returns, if any, that have been audited, and indicates those Returns that
currently are the subject of audit. Each Acquired Party has delivered to ITP
complete and correct copies of all federal, state, local and foreign income
<PAGE>
<PAGE>
Tax Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, such Acquired Party since
January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Code.
(h) No Acquired Party is a party to any Tax allocation or
sharing agreement.
(i) None of the assets of any Acquired Party constitutes tax-
exempt bond financed property or tax-exempt use property, within the meaning
of Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to an
election under Section 341(f) of the Code or comparable provisions of any
state statutes.
(k) No Acquired Party is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income Tax purposes.
(l) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could give
rise to an adjustment under Section 481 of the Code for periods after the
Closing Date.
(m) No Acquired Party has received any written ruling of a
Taxing Authority related to Taxes or entered into any written and legally
binding agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with
Section 6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Section 6662(d) of the Code.
(o) No Acquired Party has any liability for Taxes of any
person other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
<PAGE>
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(p) Prior to ITP's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, Tax credits or other
similar items of any Acquired Party (collectively, the "Tax Losses") under (i)
Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section 384 of
the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15T and Section
1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21T and Section
1.1502-21A of the Treasury regulations or (vii) Sections 1.1502-91T through
1.1502-99 of the Treasury regulations, in each case as in effect both prior to
and following the Tax Reform Act of 1986.
(q) The fair market value of the assets of the COMPANY as well
as the COMPANY's tax basis in such assets exceeds the sum of its liabilities,
plus the amount of liabilities, if any, to which the assets are subject.
(r) The COMPANY is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.18, the following definitions shall apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax
with any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum or other taxes, assessments,
duties, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.19 No Violations. The COMPANY is not in violation of any
Charter Document. To the knowledge of the COMPANY, except as set forth on
Schedule 5.19, the execution of this Agreement and the performance by the
COMPANY and the NAMED STOCKHOLDERS of their obligations hereunder and the
consummation by the COMPANY and the NAMED STOCKHOLDERS of the transactions
contemplated hereby will not (i) result in any violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Contracts or the Charter Documents or (ii) require the consent, approval,
waiver of any acceleration, termination or other right or remedy or action of
or by, or make any filing with or give any notice to, any other party, except
where the failure to receive any such consent, approval or waiver or to make
such filing would not have a Material Adverse Effect.
5.20 Business Conduct. Except as set forth on Schedule 5.20 and
except with respect to the negotiations and actions related to and as
contemplated by this Agreement, since the Balance Sheet Date, the COMPANY has
conducted its business only in the ordinary course consistent with past custom
<PAGE>
<PAGE>
and practices and has incurred no liabilities other than in the ordinary
course of business consistent with past custom and practices. Except as forth
on Schedule 5.20 and except with respect to the negotiations and actions
related to and as contemplated by this Agreement, since the Balance Sheet
Date, there has not been any:
(a) Material adverse change in the COMPANY's operations,
condition (financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Loan or advance by the COMPANY to any party other than
sales to customers on credit in the ordinary course of business consistent
with past custom and practices;
(c) Declaration, setting aside, or payment of any dividend or
other distribution in respect to the COMPANY's capital stock, any direct or
indirect redemption, purchase, or other acquisition of such stock, or the
payment of principal or interest on any note, bond, debt instrument or debt to
any Affiliate;
(d) Incurrence of any Debts, liabilities or obligations
except current liabilities incurred in connection with or for services
rendered or goods supplied in the ordinary course of business consistent with
past custom and practices, liabilities on account of Taxes and governmental
charges but not penalties, interest or fines in respect thereof, and
obligations or liabilities incurred by virtue of the execution of this
Agreement;
(e) Issuance by the COMPANY of any notes, bonds, or other
debt securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(f) Cancellation, waiver or release by the COMPANY of any
Debts, rights or claims, except in each case in the ordinary course of
business consistent with past custom and practices;
(g) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
(h) Amendment or termination of any Material Contract, other
than expiration of such Material Contract in accordance with its terms;
(i) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(j) Sale or assignment by the COMPANY of any tangible assets
other than in the ordinary course of business;
(k) Capital expenditures or commitments therefor by the
COMPANY other than in the ordinary course of business in excess of $10,000 in
the aggregate;<PAGE>
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(l) Liens of any asset of the COMPANY other than Permitted
Liens;
(m) Adoption, amendment or termination of any Benefit Plan;
(n) Increase in the benefits provided under any Benefit Plan,
except as provided in such Benefit Plan; or
(o) An occurrence or event not included in clauses (a)
through (o) that has or might reasonably be expected to have a Material
Adverse Effect on the COMPANY.
5.21 Misrepresentation. To the knowledge of the COMPANY and the
NAMED STOCKHOLDERS, none of the representations and warranties set forth in
this Agreement or the Company Delivered Documents, taken as a whole, contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
(B) Representations and Warranties of the STOCKHOLDERS.
Each STOCKHOLDER severally, and not jointly, represents and warrants that the
representations and warranties set forth below are true as of the Closing Date
(subject to Section 7.7 hereof).
5.22 Authority; Ownership. Each NAMED STOCKHOLDER has the full
legal right, power and authority to enter into this Agreement. Each NAMED
STOCKHOLDER owns beneficially and of record all of the shares of the COMPANY
Stock identified on Annex IV as being owned by such STOCKHOLDER, and, except
as set forth on Schedule 5.22 and except for applicable securities laws, such
COMPANY Stock is owned free and clear of any and all Liens, voting trusts and
restrictions of every kind.
5.23 No Intention to Dispose of ITP Stock. No NAMED STOCKHOLDER
has any current plan or intention, or is under any binding commitment or
contract to sell, exchange or otherwise dispose of shares of ITP Stock
received pursuant to the Merger.
(C) Disclaimer; Disclosure
Notwithstanding anything in this Agreement or the COMPANY Delivered
Documents to the contrary, the COMPANY and the NAMED STOCKHOLDERS do not make,
and have not made, any representations or warranties relating to the COMPANY
(or any of its subsidiaries) or the STOCKHOLDERS in connection with the
transactions contemplated hereby other than those expressly set forth in this
Section 5. It is understood that any cost estimates, projections or other
predictions, any data, any financial information or any memoranda or offering
materials or presentations (including but not limited to the Confidential
Memorandum, dated May 1997, distributed by First of Michigan Corporation) are
not and shall not be deemed to be or to include representations or warranties
of the COMPANY or the STOCKHOLDERS, except to the extent otherwise expressly
covered by the representations and warranties in Section 5 of this Agreement.
No Person has been authorized by the COMPANY or the NAMED STOCKHOLDERS to make
any representation or warranty relating to the COMPANY (or any of its<PAGE>
<PAGE>
subsidiaries) or the STOCKHOLDERS in connection with the transactions
contemplated hereby other than those expressly set forth in this Section 5
and, if made, such representation or warranty must not be relied upon as
having been authorized by the COMPANY or the NAMED STOCKHOLDERS. Any
information disclosed in one Annex or Schedule shall be deemed to be disclosed
in this Agreement and in all Annexes and Schedules.
6. REPRESENTATIONS OF ITP and NEWCO
ITP and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDERS that all of the following representations and warranties
in this Section 6 are true at the Closing Date (subject to Section 7.7
hereof), and that such representations and warranties shall survive the
Closing Date for a period of three years (the "ITP Expiration Date").
6.1 Due Organization. ITP and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the
state of their incorporation, and are duly authorized and qualified to do
business under all applicable laws, regulations, ordinances and orders of
public authorities to carry on their business in the places and in the manner
as now conducted, to own or hold under lease the properties and assets they
now own or hold under lease, and to perform all of their obligations under any
material agreement to which they are a party by which their properties are
bound; are duly qualified in the jurisdictions listed in Schedule 6.1 and
there are no other jurisdictions in which the conduct of ITP's and NEWCO's
business or activities or their ownership of assets requires any other
qualification under applicable law, the absence of which would have a
Materially Adverse Effect on either ITP's or NEWCO's business. True, complete
and correct copies of the Certificate or Articles of Incorporation and Bylaws,
each as amended, of ITP and NEWCO (the "ITP Charter Documents") are all
attached hereto as Annex II. The minute books and stock records of each of
ITP and NEWCO, as heretofore made available to the COMPANY, are correct and
complete in all material respects.
6.2 Authorization. The respective representatives of ITP and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind ITP and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement and the ITP Delivered
Documents by ITP and NEWCO and the performance by ITP and NEWCO of their
respective obligations under this Agreement and the ITP Delivered Documents
and the consummation by ITP and NEWCO of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action by
each in accordance with applicable law and the Certificate or Articles of
Incorporation and By-Laws of ITP and NEWCO, as the case may be. This
Agreement constitutes the valid and binding obligation of ITP and NEWCO,
enforceable in accordance with its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery
of this Agreement and ITP Delivered Documents nor their performance will
violate, conflict with, or result in a breach of any provision of any Law,
rule, regulation, order, permit, judgment, injunction, decree or other
decision of any court or other tribunal or any Governmental Authority binding
<PAGE>
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on ITP or NEWCO or conflict with or result in the breach of any of the terms,
conditions or provisions of the Certificate or Articles of Incorporation or
the By-Laws of ITP or NEWCO or of any contract, agreement, mortgage or other
instrument or obligation of any nature to which ITP or NEWCO is a party or by
which ITP or NEWCO is bound or require the consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Authority, any
court or tribunal or any other person.
6.4 Misrepresentation. To the knowledge of ITP, none of the
representations and warranties set forth in this Agreement or in any of the
certificates, schedules, exhibits, lists, documents, exhibits, or other
instruments delivered, or to be delivered, to the COMPANY as contemplated by
any provision hereof, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of ITP
consists of ten million shares of ITP Stock and two million shares of
Preferred Stock. All of the issued and outstanding shares of capital stock of
ITP are set forth in Annex V (including the names of the persons who own
beneficially five percent (5%) or more of each class of stock). Except as
disclosed on Schedule 6.5, there are no outstanding options, rights
(preemptive or otherwise), warrants, calls, convertible securities or
commitments or any other arrangements (including stock incentive, option and
similar plans) to which ITP is a party requiring or restricting issuance, sale
or transfer of any equity securities of ITP or any securities convertible
directly or indirectly into equity securities of ITP, or evidencing the right
to subscribe for any equity securities of ITP, or giving any person any rights
with respect to the capital stock of ITP. Except as contemplated by this
Agreement or disclosed on Schedule 6.5, there are no voting agreements, voting
trusts, other agreements (including cumulative voting rights), commitments or
understandings (including repurchase or redemption obligations) with respect
to the ITP Stock. Upon the consummation of the Merger contemplated hereby and
the issuance and delivery of certificates representing the ITP Stock as
provided in this Agreement, the shares of ITP Stock issued pursuant to the
Merger will be validly issued, fully paid and non-assessable shares.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of
each of ITP's and NEWCO's subsidiaries and sets forth the number and class of
the authorized capital stock of each of ITP's and NEWCO's subsidiaries and the
number of shares of each of ITP's and NEWCO's subsidiaries which are issued
and outstanding prior to the Merger, all of which shares (except as set forth
on Schedule 6.6) are duly authorized, validly issued, fully paid and
nonassessable and are owned by ITP and NEWCO as the case may be, free and
clear of all liens, security interests, pledges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. Except as set forth on
Schedule 6.6, ITP and NEWCO do not presently own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation,
association or business entity.
<PAGE>
<PAGE>
6.7 Conformity with Law; Litigation. Except as set forth on
Schedule 6.7, ITP and NEWCO have complied with all Laws, applicable to them or
to the operation of their businesses and have not received any notice of any
alleged claim or threatened claim, violation of, liability or potential
responsibility under, any Law which has not heretofore been cured and for
which there is no remaining liability other than, in each case, those not
having a Material Adverse Effect on the business, condition (financial or
other), properties, business prospects or financial results of ITP or NEWCO,
taken as a whole.
Except to the extent set forth on Schedule 6.7 (which shall disclose to
the parties the, nature of, and relief sought for each matter):
(a) There is no suit, action, proceeding, investigation, claim
or order pending or, to the knowledge of ITP and NEWCO, threatened against
either of ITP or NEWCO or, to the knowledge of ITP and NEWCO, pending or
threatened against any of the officers, directors or employees of ITP or NEWCO
with respect to their businesses or proposed business activities which would
have a Material Adverse Effect on ITP or NEWCO, or to which ITP or NEWCO are
otherwise a party, before any court, or before any Governmental Authority.
(b) ITP and NEWCO are not subject to any judgment, order or
decree of any court or Governmental Authority; ITP and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed, from a legal standpoint, to any liability or disadvantage which may
be material to their businesses. Neither ITP nor NEWCO are engaged in any
legal action to recover monies due it or them for damages sustained by either
of them.
6.8 Financial Statements. ITP has delivered to the COMPANY
copies of its Balance Sheets, Income Statements, Statements of Stockholders'
Equity, and Statements of Cash Flows at and for the interim period ended
October 31, 1997 (collectively the "ITP Financial Statements"). The ITP
Financial Statements are consistent with the books and records of ITP (which,
in turn, are accurate and complete in all material respects) and fairly
present ITP's financial condition, assets and liabilities as of their
respective dates and the results of operations and cash flows for the periods
related thereto in accordance with GAAP, consistently applied among the
periods which are the subject of the ITP Financial Statements, except
unaudited interim financial statements which were or are subject to normal
year-end adjustments which were not and are not expected to be material in
amount and the addition of required footnotes thereto. ITP has not deferred
recognition of any of its accounts payable or accelerated recognition of any
of its accounts receivable.
6.9 No Undisclosed Liabilities. Except as is disclosed in Schedule
6.9, neither ITP nor any of its subsidiaries has any liabilities required to
be disclosed or provided for in a balance sheet (or in the notes thereto)
(absolute, accrued, contingent or otherwise), except liabilities (a)
adequately provided for in the ITP Financial Statements (including any related
notes thereto), (b) incurred in the ordinary course of business and not
required under GAAP to be reflected in the ITP Financial Statements, (c)<PAGE>
<PAGE>
incurred since October 31, 1997 in the ordinary course of business and
consistent with past practice, (d) incurred in connection with this Agreement
or other merger agreements entered into by ITP and any of its subsidiaries, or
(e) which could not reasonably be expected to have a Material Adverse Effect
on ITP, its business prospects or its financial condition.
6.10 HSR Act. Neither ITP or NEWCO nor their "ultimate parent
entity" as that term is defined in 16 C.F.R. Part 801.1(a)(3) has annual net
sales or total assets of $100,000,000 or more, as determined pursuant to 16
C.F.R. Part 801.11. Assuming that neither the COMPANY or the STOCKHOLDERS nor
their "ultimate parent entity" as that term is defined in 16 C.F.R. Part
801.1(a)(3) has annual net sales or total assets of $100,000,000 or more, as
determined pursuant to 16 C.F.R. Part 801.11, neither ITP or NEWCO nor their
"ultimate parent entity is required to file a premerger notification with the
Federal Trade Commission or with the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), in connection with the transactions
contemplated by this Agreement.
6.11 No Material Adverse Change. Except as set forth on Schedule
6.11 or as stated in the ITP Financial Statements, since October 31, 1997,
(a) there has not been any change in ITP's operations, condition (financial or
otherwise), operating results, assets, liabilities, employee, customer or
supplier relations or business prospects the result of which would have a
Material Adverse Effect , (b) any damage to, destruction or loss of any assets
of the ITP or its subsidiaries (whether or not covered by insurance) that
would have a Material Adverse Effect, (c) any material change by ITP in its
accounting methods, principles or practices, (d) any material revaluation by
ITP of any of its assets, including without limitation, writing down the value
of inventory or writing off notes or accounts receivable other than in the
ordinary course of business, (e) any other action or event that would have
required the consent of the COMPANY pursuant to Section 7.10 had such action
or event occurred after the date of this Agreement, or (f) any sale of a
material amount of assets of ITP or any of its subsidiaries except in the
ordinary course of business..
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation: Due Diligence.
(a) Between the date of this Agreement and the Closing
Date, after reasonable prior notice, the COMPANY will afford to the officers
and authorized representatives of ITP access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish ITP with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as ITP may from time to time reasonably
request. The COMPANY will cooperate with ITP and its representatives,
including ITP's auditors and counsel, in the preparation of any documents or
other material which may be required in connection with the transactions
contemplated by this Agreement. ITP, NEWCO, the NAMED STOCKHOLDERS and the
COMPANY will treat all information obtained in connection with the negotiation
and performance of this Agreement or the due diligence investigations<PAGE>
<PAGE>
conducted as confidential in accordance with the provisions of Section 14
hereof.
(b) Between the date of this Agreement and the Closing Date,
after reasonable prior notice, ITP will afford to the officers and authorized
representatives of the COMPANY and the NAMED STOCKHOLDERS access during
business hours and after reasonable prior notice to all of ITP's and NEWCO's
sites, properties, books and records and will furnish the COMPANY and the
NAMED STOCKHOLDERS with such additional financial and operating data and other
information as to the business and properties of ITP and NEWCO as the COMPANY
may from time to time reasonably request. ITP and NEWCO will cooperate with
the COMPANY and the NAMED STOCKHOLDERS, their representatives, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with the transactions contemplated by this Agreement.
ITP, NEWCO, the NAMED STOCKHOLDERS and the COMPANY will treat all information
obtained in connection with the negotiation and performance of this Agreement
or the due diligence investigations conducted as confidential in accordance
with the provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of
this Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially
as conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
Material Contracts relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) maintain and preserve its business organization intact and
use its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all material permits, laws, rules
and regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities;
(g) maintain present Debt and lease instruments in accordance
with their respective terms and not enter into new or amended Debt or lease
instruments, provided that Debt and/or lease instruments may be replaced if
such replacement instruments are on terms at least as favorable to the COMPANY
as the instruments being replaced; and<PAGE>
<PAGE>
(h) except in the ordinary course of business or as required
by law or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any manner
the base compensation of, or enter into any new bonus or incentive agreement
or arrangement with, any of the employees engaged in the COMPANY's business,
(ii) pay or agree to pay any additional pension, retirement allowance or other
employee benefit to any such employee, whether past or present, (iii) enter
into any new employment, severance, consulting, or other compensation
agreement with any existing employee engaged in the COMPANY's business, (iv)
amend or enter into a new Plan (except as required by Law) or amend or enter
into a new collective bargaining agreement (except as required by this
Agreement), or (v) engage in any transaction with any Affiliates.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3
between the date hereof and the Closing Date, the COMPANY will not, without
the prior written consent of ITP:
(a) make any change in its Articles or Certificate of
Incorporation or By-Laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of any
kind other than in connection with the exercise of options or warrants listed
on Schedule 5.3;
(c) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of the Balance Sheet Date.
(d) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any Lien upon any
assets or properties whether now owned or hereafter acquired, except (1)
Permitted Liens, or (2) Liens set forth on Schedule 5.6 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the
start-up of any new business, except in the ordinary course of business or
pursuant to the Finders' Fee Agreement;
(h) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(i) waive any material right or claim of the COMPANY;<PAGE>
<PAGE>
(j) commit a material breach of, materially amend or
terminate any Material Contract; or
(k) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 No Shop. In consideration of the substantial expenditure of
time, effort and expense undertaken by ITP in connection with its due
diligence review and the preparation and execution of this Agreement, the
COMPANY and the NAMED STOCKHOLDERS agree that neither they nor their
representatives, agents or employees will, after the execution of this
Agreement until the earlier of (i) the termination of this Agreement or (ii)
the Closing, directly or indirectly, solicit, encourage, negotiate or discuss
with any third party (including by way of furnishing any information
concerning the COMPANY) any acquisition proposal relating to or affecting the
COMPANY or any part of it, or any direct or indirect interests in the COMPANY,
whether by purchase of assets or stock, purchase of interests, merger or other
transaction ("Acquisition Transaction"), and that the COMPANY will promptly
advise ITP of the terms of any communications any of the NAMED STOCKHOLDERS or
the COMPANY may receive or become aware of relating to any bid for all or any
part of the COMPANY.
7.5 Termination of Related Party Agreements. The NAMED
STOCKHOLDERS and the COMPANY shall terminate (i) any stockholders' agreements,
voting agreements, voting trusts, options, warrants and employment agreements
between the COMPANY and any employee and (ii) any existing agreement between
the COMPANY and any STOCKHOLDER (except for that certain Real Property Lease
between the Company and Church & Church, Inc.), on or prior to the Closing
Date. A list of such agreements to be so terminated is set forth on Schedule
7.5 and copies of each such agreement have been provided to counsel for ITP.
7.6 Notification of Certain Matters. The NAMED STOCKHOLDERS and
the COMPANY shall give prompt notice to ITP of (i) the occurrence or non-
occurrence of any event of which the COMPANY or the NAMED STOCKHOLDERS have
knowledge, the occurrence or non-occurrence of which, would cause any
representation or warranty of the COMPANY or the NAMED STOCKHOLDERS contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any NAMED STOCKHOLDER or the COMPANY
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by such person hereunder. ITP and NEWCO shall give prompt
notice to the COMPANY and the NAMED STOCKHOLDERS of (i) the occurrence or
nonoccurrence of any event of which ITP or NEWCO have knowledge, the
occurrence or non-occurrence of which, would cause any representation or
warranty of ITP or NEWCO contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of
ITP or NEWCO to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder. The delivery of any notice
pursuant to this Section 7.6 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.7, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.<PAGE>
<PAGE>
7.7 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto delivered by such party
pursuant to its representation with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
(b) Notwithstanding the foregoing clause (a), no amendment
or supplement to a Schedule prepared by the COMPANY or the NAMED STOCKHOLDERS
that constitutes or reflects an event or occurrence that would have a Material
Adverse Effect, individually or cumulatively with any other events or
occurrences, may be made unless ITP consents in writing to such amendment or
supplement; and provided further, that no amendment or supplement to a
Schedule prepared by ITP or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless the
COMPANY and the NAMED STOCKHOLDERS consent in writing to such amendment or
supplement. In the event that the COMPANY or the NAMED STOCKHOLDERS seek to
amend or supplement a Schedule pursuant to this Section 7.7 and ITP does not
consent to such amendment or supplement, as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 12.1(a)
hereof. In the event that ITP or NEWCO seeks to amend or supplement a
Schedule pursuant to this Section 7.7 and the COMPANY and the NAMED
STOCKHOLDERS do not consent to such amendment or supplement, as provided
above, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(a) hereof.
(c) For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 8 and 9 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.7. No
party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 7.7, except
that, notwithstanding anything to the contrary contained in this Agreement, if
the COMPANY or the NAMED STOCKHOLDERS on the one hand, or ITP or NEWCO on the
other hand, amends or supplements a Schedule which results in a termination of
this Agreement and such amendment or supplement arises out of or reflects
facts or circumstances which such party knew about at the time of execution of
this Agreement and knew would result in a termination of this Agreement or if
such amendment or supplement otherwise is proposed in bad faith, such party
shall pay or reimburse ITP or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement.
7.8 Further Assurances. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or
convenient to carry out the transactions contemplated hereby.
<PAGE>
<PAGE>
7.9 Approval of Merger Agreement. Each of the NAMED STOCKHOLDERS
agrees to vote all of his or her shares of the COMPANY Stock in favor of the
Merger and all other transactions contemplated by this Agreement.
7.10 Conduct of Business by ITP Pending the Merger.. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, ITP covenants and agrees
that, unless the COMPANY and the NAMED STOCKHOLDERS shall otherwise agree in
writing, ITP shall conduct its business, and cause the businesses of its
subsidiaries to be conducted, in the ordinary course consistent with past
practice, other than actions taken by ITP or its subsidiaries in contemplation
of the Merger or the other transactions contemplated in this Agreement or any
other merger agreement entered into by ITP or any of its subsidiaries, and
shall not directly or indirectly do, or propose to do, any of the following
without the prior written consent of the COMPANY and the NAMED STOCKHOLDERS:
(a) amend or otherwise change the Certificate of
Incorporation or Bylaws of ITP; or
(b) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock, except that a wholly owned subsidiary
of ITP may declare and pay a dividend to its parent; or
(c) take or agree in writing or otherwise to take any
action which would make any of the representations or warranties of ITP
contained in this Agreement untrue or incorrect or prevent ITP from performing
or cause ITP not to perform its covenants hereunder.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE NAMED STOCKHOLDERS AND THE
COMPANY
The obligations of the NAMED STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the conditions set forth in
this Section 8.
8.1 Representations and Warranties. All representations and
warranties of ITP and NEWCO contained in Section 6 shall be true and correct
in all material respects as of the Closing Date as though such representations
and warranties had been made as of such date; and a certificate to the
foregoing effect dated the Closing Date and signed by the President or any
Vice President of ITP shall have been delivered to the COMPANY and the NAMED
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by ITP and
NEWCO on or before the Closing Date shall have been duly complied with and
performed in all material respects on or before the Closing Date, provided
that non-performance of an obligation at any time shall not constitute a
failure of the condition contained in this Section 8.2 if such non-performance
is not a material breach of such obligation; and certificates to the foregoing
<PAGE>
<PAGE>
effect dated the Closing Date and signed by the President or any Vice
President of ITP shall have been delivered to the COMPANY and the NAMED
STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any
other Governmental Authority or body shall have been instituted or threatened
to restrain or prohibit the Merger or the transactions contemplated by this
Agreement.
8.4 Opinion of Counsel. The COMPANY and the NAMED STOCKHOLDERS
shall have received an opinion from counsel for ITP and NEWCO, dated the
Closing Date, substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by ITP and NEWCO for the authorization, execution and
delivery of this Agreement and the performance and consummation by them of the
transactions contemplated hereby shall have been obtained and made, except
where the failure to receive such consents, etc. could not reasonably be
expected to have a Material Adverse Effect on ITP.
8.6 Good Standing Certificates. ITP and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than 10
days prior to the Closing Date, duly issued by the Delaware Secretary of State
and in each state in which ITP or NEWCO is authorized to do business, showing
that each of ITP and NEWCO is in good standing and authorized to do business
and that all state franchise and/or income tax returns and taxes for ITP and
NEWCO, respectively, for all periods prior to the Closing have been filed and
paid.
8.7 Secretary's Certificate. The COMPANY and the NAMED
STOCKHOLDERS shall have received a certificate or certificates, dated the
Closing Date and signed by the secretary of ITP and of NEWCO, certifying the
truth and correctness of attached copies of the ITP's and NEWCO's respective
Certificates of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the boards of directors
and, if required, the stockholders of ITP and NEWCO approving ITP's and
NEWCO's entering into this Agreement and the performance and consummation of
the transactions contemplated hereby.
8.8 No Material Adverse Change. As of the Closing Date, no event
or circumstance shall have occurred with respect to ITP or NEWCO which would
constitute a Material Adverse Effect, and neither ITP nor the NEWCO shall have
suffered any material loss or damages to any of its properties or assets
whether or not covered by insurance, which change, loss or damage materially
affects or impairs the ability of each of ITP and NEWCO to conduct its
business.
8.9 Employment Agreements. NEWCO shall have entered into an
employment agreement with each of John D. Bamberger, Michael J. Baltosiewich
and Alan Wise substantially in the form attached as Annex VIII hereto.
<PAGE>
<PAGE>
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ITP AND NEWCO
The obligations of ITP and NEWCO with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the conditions set forth in this Section 9.
9.1 Representations and Warranties. All the representations and
warranties of the NAMED STOCKHOLDERS and the COMPANY contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; and the NAMED STOCKHOLDERS shall have
delivered to ITP certificates dated the Closing Date and signed by them to
such effect.
9.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the NAMED
STOCKHOLDERS and the COMPANY on or before the Closing Date shall have been
duly performed or complied with in all material respects on or before the
Closing Date, as the case may be, provided that non-performance of an
obligation at any time shall not constitute a failure of the condition
contained in this Section 9.2 if such non-performance is not a material breach
of such obligation; and the NAMED STOCKHOLDERS shall have delivered to ITP
certificates dated the Closing Date and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any
other Governmental Authority or body shall have been instituted or threatened
to restrain or prohibit the Merger or the transactions contemplated by this
Agreement and no Governmental Authority or body shall have taken any other
action or made any request of ITP as a result of which the management of ITP
deems it inadvisable to proceed with the transactions hereunder.
9.4 Secretary's Certificate. ITP shall have received a
certificate or certificates, dated the Closing Date and signed by the
secretary of the COMPANY, certifying the truth and correctness of attached
copies of the COMPANY's Certificate or Articles of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions
of the board of directors and the shareholders approving the COMPANY's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Closing Date, no event
or circumstance shall have occurred with respect to the COMPANY which would
constitute a Material Adverse Effect, and the COMPANY shall not have suffered
any material loss or damages to any of its properties or assets whether or not
covered by insurance, which change, loss or damage materially affects or
impairs the ability of the COMPANY to conduct its business.
9.6 STOCKHOLDERS' Release. The NAMED STOCKHOLDERS shall have
delivered to ITP an instrument dated the Closing Date releasing the COMPANY
from any and all (i) claims of the STOCKHOLDERS against the COMPANY and ITP
and (ii) obligations of the COMPANY and ITP to the NAMED STOCKHOLDERS, except
for (x) continuing obligations to the NAMED STOCKHOLDERS relating to their
<PAGE>
<PAGE>
employment by the COMPANY, (y) obligations arising under this Agreement or the
transactions contemplated hereby.
9.7 Termination of Related Party Agreements. All agreements
specified in Section 7.5 hereof to be terminated prior to or as of the Closing
Date shall have been terminated effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. ITP shall have received an opinion from
counsel to the COMPANY, dated the Closing Date, substantially in the form
attached hereto as Annex VII.
9.9 Consents and Approvals. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by the COMPANY and the NAMED STOCKHOLDERS for the
authorization, execution and delivery of this Agreement and the performance
and consummation by them of the transactions contemplated hereby shall have
been obtained and made, except where the failure to receive such consents,
etc. could not reasonably be expected to have a Material Adverse Effect on the
COMPANY.
9.10 Good Standing Certificates. The COMPANY shall have delivered
to ITP a certificate, dated as of a date no earlier than five days prior to
the Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by ITP, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business. In addition, the COMPANY shall have
delivered to ITP a letter from the Michigan Department of Treasury confirming
that all tax returns and taxes relating to Michigan Sales, Use and Withholding
Taxes and Michigan Single Business Taxes for all periods prior to December 15,
1997 have been filed and paid.
9.11 Employment Agreements. Each of John D. Bamberger, Michael J.
Baltosiewich and Alan Wise shall have entered into an employment agreement
substantially in the form attached as Annex VIII hereto.
9.12 Stockholders' Agreement. Each STOCKHOLDER shall have executed
a Joinder Agreement substantially in the form of Annex IX hereto binding them
and all of their shares of ITP Stock received in the Merger to the provisions
of the Stockholders' Agreement of IT Partners, Inc. dated May 30, 1997, as
amended to date, a true, correct and complete copy of which has been provided
to the COMPANY for distribution to the STOCKHOLDERS (the "Stockholders'
Agreement").
9.13 Subordination Agreement. Each of Messrs. John Bamberger and
Alan Wise, being the only STOCKHOLDERS to receive Notes shall have executed a
Subordination Agreement substantially in the form of Annex X hereto.
9.14 Financing. ITP and/or NEWCO, as the case may be, shall have
secured adequate financing to fund the amount of cash set forth on Annex III
under the Intercompany Loan and Security Agreement by and among ITP, NEWCO,
the lenders from time to time, Creditanstalt-Bankverein and Creditanstalt
Corporate Finance, Inc. (the "Agent").<PAGE>
<PAGE>
9.15 Letter Agreement. Each of the STOCKHOLDERS who are not NAMED
STOCKHOLDERS shall have executed a Letter Agreement in the form attached
hereto as Annex XIII setting forth certain representations, warranties,
covenants and agreements.
9.16 Employment Matters. The COMPANY shall have terminated any
agreement with Manage Pro, Inc. pursuant to which the COMPANY leases
employees. Further, the COMPANY shall, in the ordinary course following the
termination of such agreement, re-hire all employees previously leased from
Manage Pro, Inc.
10. COVENANTS AFTER CLOSING
10.1 Preparation and Filing of Tax Returns.
(a) The NAMED STOCKHOLDERS shall prepare draft Returns of any
Acquired Party for all taxable periods that end on or before the Closing Date
and NEWCO shall file or cause to be filed (after review and approval of such
Returns by the NAMED STOCKHOLDERS) all such Returns on or before the due dates
of such Returns.
(b) ITP shall file or cause to be filed all Returns of, or that
include, any Acquired Party for all taxable periods ending after the Closing
Date on or before the due dates of such Returns.
(c) Each party hereto shall, and shall cause its subsidiaries
and Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in filing
any Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings or other determinations by Taxing
Authorities and relevant records concerning the ownership and Tax basis of
property, which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to provide
explanation of any documents or information so provided. Subject to the
preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(d) Each of the COMPANY, NEWCO, ITP and each NAMED STOCKHOLDER
hereby agrees to report the transaction as a tax free reorganization pursuant
to Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code and hereby agrees
not to take any position which is inconsistent with the foregoing, including,
without limitation, any election under Section 338 of the Code.
10.2 Stock Options Subject to the provisions of the
Stockholders' Agreement referred to in Section 9.12 hereof, ITP covenants and
agrees that a stock option plan valued at the post-closing share price
equivalent in value to 6% of the stock portion of the Merger Consideration
will be implemented for the COMPANY'S employees. ITP's Board of Directors
will consider the recommendations of Messrs. John Bamberger, Alan Wise and
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Michael Baltosiewich with regard to the employees who should receive such
options.
10.3 Annual Incentive Compensation Plan ITP shall implement an
annual incentive compensation plan (the "Annual Incentive Compensation Plan")
for the employees of NEWCO, the terms of which shall be mutually agreed upon
by the parties. In connection with the Annual Incentive Compensation Plan,
ITP shall allocate the compensation of Messrs. John Bamberger, Alan Wise and
Michael Baltosiewich between ITP and NEWCO in a manner reflecting the
allocation of such individuals' time between ITP and NEWCO. The benefits to
be awarded under the Annual Incentive Compensation Plan shall be allocated to
the employees of NEWCO in the manner determined by Messrs. John Bamberger,
Alan Wise and Michael Baltosiewich from time to time.
11. INDEMNIFICATION
The NAMED STOCKHOLDERS, ITP and NEWCO each make the following covenants
that are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. John D.
Bamberger and Alan E. Wise covenant and agree that they, jointly and
severally, and the other NAMED STOCKHOLDERS covenant and agree that they
severally, but not jointly, will indemnify, defend, protect and hold harmless
ITP, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without
limitation, reasonable attorneys' fees and reasonable expenses of
investigation) incurred by ITP, NEWCO, the COMPANY or the Surviving
Corporation as a result of or arising from (i) any breach of the
representations and warranties of the NAMED STOCKHOLDERS or the COMPANY set
forth herein or in the Company Delivered Documents, (ii) any breach of any
agreement on the part of the NAMED STOCKHOLDERS or the COMPANY under this
Agreement or the Company Delivered Documents, (iii) any liability under any
Federal or state law or regulation, at common law or otherwise with respect to
the transactions contemplated in this Agreement, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact relating
to the COMPANY or the NAMED STOCKHOLDERS, or arising out of or based upon any
omission or alleged omission by the COMPANY and/or the NAMED STOCKHOLDERS to
state a material fact relating to the COMPANY or the NAMED STOCKHOLDERS
required to be stated or necessary to make the statements not misleading, (iv)
any Tax imposed upon the COMPANY, NEWCO or the Surviving Corporation or
relating to any third party or Acquired Party for any period ending on or
prior to the Closing Date, including, in each case, any such Tax arising out
of or in connection with the transactions effected pursuant to this Agreement
or any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury Regulations (or any similar provisions of state,
local or foreign law), as a transferee or successor, by contract or otherwise
(in excess of all amounts already paid with respect thereto or properly
accrued or reserved with respect thereto on the COMPANY Financial Statements,
the Estimated Closing Date Balance Sheet, the Final Closing Balance Sheet and
any other financial statements of the COMPANY delivered to ITP with respect to
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periods ending on or prior to the Closing Date); provided, however, that any
Tax arising out of or in connection with (a) the transactions effected
pursuant to this Agreement solely as a result of the unilateral action of ITP
after the Closing Date, and (b) any gain recognized by NEWCO in the event
NEWCO (and not ITP) is deemed to have transferred the ITP Stock to the
STOCKHOLDERS and if the transactions effected pursuant to this Agreement fail
to qualify as a tax free reorganization pursuant to Section 368(a)(1)(A) and
Section 368(a)(2)(D) of the Code shall not, in the case of either (a) or (b),
give rise to indemnification under this Section 11.1, or (v) any liability (in
excess of the collateral) arising in connection with the leases listed on
Schedule 5.11(b)(g)(ii), including any assignment or financing document
associated with such leases; provided, however, the indemnity provided in this
Section 11.1(v) shall not be subject to the limitation on indemnification set
forth in Section 11.5(a).
11.2 Indemnification by ITP. ITP covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times
from and after the date of this Agreement until the ITP Expiration Date, from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the STOCKHOLDERS as a result of or arising from (i) any breach by
ITP or NEWCO of its representations and warranties set forth herein or in the
ITP Delivered Documents, (ii) any breach of any agreement on the part of ITP
or NEWCO under this Agreement or the ITP Delivered Documents, or (iii) any
liability under any Federal or state law or regulation, at common law or
otherwise with respect to the transactions contemplated in this Agreement,
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact relating to ITP or NEWCO, or arising out of or based upon
any omission or alleged omission to state a material fact relating to ITP or
NEWCO required to be stated or necessary to make the statements not
misleading, or (iv) with respect to any Tax arising out of or in connection
with the transactions effected pursuant to this Agreement caused solely as a
result of the unilateral action of ITP after the Closing Date.
11.3 Third Person Claims. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), of
the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 11.1 or 11.2 hereof (hereinafter the "Indemnifying
Party"), give the Indemnifying Party written notice of such claim or the
commencement of such action or proceeding. Such notice shall state the nature
and the basis of such claim and a reasonable estimate of the amount thereof.
The Indemnifying Party shall have the right to defend and settle, at its own
expense and by its own counsel, any such matter so long as the Indemnifying
Party pursues the same in good faith and diligently, provided that the
Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or
settle, it shall promptly notify the Indemnified Party of its intention to do
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so, and the Indemnified Party shall cooperate, at the Indemnifying Party's
expense, with the Indemnifying Party and its counsel in the defense thereof
and in any settlement thereof. If the Indemnifying Party desires to accept a
final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement to said Third Person
plus all indemnifiable costs and expenses incurred to date, the Indemnifying
Party shall be relieved of its duty to defend and shall tender the Third
Person claim back to the Indemnified Party, who shall thereafter, at its own
expense, be responsible for the defense and negotiation of such Third Person
claim. If the Indemnifying Party does not undertake to defend such matter to
which the Indemnified Party is entitled to indemnification hereunder, or fails
diligently to pursue such defense, the Indemnified Party may undertake such
defense through counsel of its choice, at the cost and expense of the
Indemnifying Party, and the Indemnified Party may settle such matter, and the
Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim
without the written consent of the Indemnifying Party, which consent shall not
be unreasonably withheld or delayed.
11.4 Exclusive Remedy. The indemnification provided for in this
Section 11 shall (except as prohibited by ERISA and except as otherwise
expressly provided in this Agreement, the Company Delivered Documents or the
ITP Delivered Documents) be the exclusive remedy in any action seeking damages
or any other form of monetary relief brought by any party to this Agreement
against another party.
11.5 Limitations on Indemnification. (a) The persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim other
than a Third Person claim for indemnification hereunder until such time as,
and solely to the extent that, the aggregate of all claims which such persons
may have shall exceed $150,000. An amount equal to $150,000 shall be a
cumulative deductible against any claim for indemnification hereunder. No
person shall be entitled to indemnification under this Article 11 if and to
the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
(b) ITP shall have the right, upon reasonable prior written
notice, to offset indemnification amounts due to it by a NAMED STOCKHOLDER
pursuant to this Agreement against payments due to such NAMED STOCKHOLDER
under (i) this Agreement (including, without limitation, the consideration set
forth on Annex III hereto) and/or (ii) any contract contemplated by, or
referred to in, this Agreement.
(c) Except for claims for Merger Consideration, the
indemnification obligations under Section 11.1 shall be limited, in the
aggregate, to fifty percent (50%) of the value of the Merger Consideration as
of the Closing Date received by the STOCKHOLDERS pursuant to Article 3. The
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indemnification obligations under Section 11.2 shall be limited, in the
aggregate, to fifty percent (50%) of the total value of the Merger
Consideration as of the Closing Date paid by ITP pursuant to Article 3.
11.6 Subrogation. In the event that the Indemnifying Party shall
be obligated to provide indemnification hereunder to a claimant (the
"Claimant"), the Indemnifying Party shall, upon payment of such indemnity in
full, be subrogated to all rights of the Claimant with respect to the Losses
to which such indemnification relates.
11.7 Tax and Insurance. All indemnification or reimbursement
payments required pursuant to this Agreement shall be made net of all tax and
insurance benefits actually received by the Indemnified Party. In the event
that any claim for indemnification asserted hereunder is, or may be, the
subject of any insurance coverage or other right to indemnification or
contribution from any third person, the Indemnified Party(ies) expressly agree
that he (they) shall promptly notify the applicable insurance carrier of any
such claim or loss and tender defense thereof to such carrier, and shall also
promptly notify any potential third party indemnitor or contributor which may
be liable for any portion of such losses or claims. The Indemnified
Party(ies) agree to pursue, at the cost and expense of the Indemnified Party,
such claims diligently and to reasonably cooperate, at the cost and expense of
the Indemnified Party, with each applicable insurance carrier and third party
indemnitor or contributor.
11.8 Undertakings. Prior to the assertion of any claims for
indemnification under this Agreement, the Indemnified Party shall utilize all
reasonable efforts, consistent with normal practices and policies and good
commercial practice, to mitigate any losses or damages subject to
indemnification hereunder.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date solely:
(a) by mutual consent of the boards of directors of ITP and
the COMPANY;
(b) by the NAMED STOCKHOLDERS or the COMPANY (acting through
its board of directors), on the one hand, or by ITP (acting through its board
of directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
January 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to
be performed by it prior to or on the Closing Date;
(c) by the STOCKHOLDERS or the COMPANY, on the one hand, or
by ITP, on the other hand, if a material breach or default shall be made by
the other party in the observance or in the due and timely performance of any
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of the covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date; or
(d) pursuant to Section 7.7 hereof.
12.2 Liabilities in Event of Termination. Except as provided in
Section 7.7 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 STOCKHOLDERS. The NAMED STOCKHOLDERS recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of the COMPANY and/or ITP,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the COMPANY's and/or ITP's respective businesses
(collectively, the "Confidential Information"). The NAMED STOCKHOLDERS,
severally and not jointly, agree that they will not disclose such Confidential
Information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
ITP who need to know such Confidential Information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such Confidential Information and who have agreed to keep such
Confidential Information confidential as provided hereby, (b) following the
Closing, such Confidential Information may be disclosed by the NAMED
STOCKHOLDERS as is required in the course of performing their duties for ITP
or the Surviving Corporation and (c) to counsel and other advisers, provided
that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 13.1, unless (i) such Confidential Information
becomes known to the public generally through no fault of any such NAMED
STOCKHOLDERS, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law, provided, that prior to disclosing
any Confidential Information pursuant to this clause (ii), the NAMED
STOCKHOLDERS shall, if possible, give prior written notice thereof to ITP and
provide ITP with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any of the NAMED STOCKHOLDERS of the
provisions of this Section 13, ITP shall be entitled to an injunction
restraining such NAMED STOCKHOLDERS from disclosing, in whole or in part, such
Confidential Information. Nothing herein shall be construed as prohibiting
ITP from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, the NAMED STOCKHOLDERS
shall have none of the above-mentioned restrictions on their ability to
disseminate Confidential Information with respect to the COMPANY.
13.2 ITP and NEWCO. ITP and NEWCO recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
Confidential Information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
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COMPANY's business. ITP and NEWCO agree that, prior to the Closing, or if the
transactions contemplated by this Agreement are not consummated, they will not
disclose such Confidential Information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a)
to the NAMED STOCKHOLDERS and to-authorized representatives of the COMPANY,
and (b) to counsel, the Agent and the Lenders and other advisers, provided
that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 13.2, unless (i) such Confidential Information
becomes known to the public generally through no fault of ITP or NEWCO, (ii)
disclosure is required by law or the order of any Governmental Authority under
color of law, provided, that prior to disclosing any Confidential Information
pursuant to this clause (ii), ITP and NEWCO shall, if possible, give prior
written notice thereof to the COMPANY and the NAMED STOCKHOLDERS and provide
the COMPANY and the NAMED STOCKHOLDERS with the opportunity to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by ITP or
NEWCO of the provisions of this Section, the COMPANY and the NAMED
STOCKHOLDERS shall be entitled to an injunction restraining ITP and NEWCO from
disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the COMPANY and the NAMED
STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
13.3 Damages. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Sections 13.1
and 13.2, and because of the immediate and irreparable damage that would be
caused for which they would have no other adequate remedy, the parties hereto
agree that, in the event of a breach by any of them of the foregoing
covenants, the covenant may be enforced against the other parties by
injunctions and restraining orders.
13.4 Survival. The obligations of the parties under this Article
13 shall survive the termination of this Agreement for a period of three (3)
years from the Closing Date.
14. STOCKHOLDERS' AGREEMENT
14.1 Stockholders' Agreement. Each of the STOCKHOLDERS shall have
executed a Joinder Agreement substantially in the form of Annex IX hereto
binding them and all of their shares of ITP Stock received in the Merger to
the provisions of the Stockholders' Agreement. The certificates evidencing
the ITP Stock delivered to the STOCKHOLDERS pursuant to Section 3 of this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as ITP may deem necessary or appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED MAY 30, 1997,
AS AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE COMPANY FOR INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED,
APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION.<PAGE>
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15. FEDERAL SECURITIES ACT REPRESENTATIONS
The NAMED STOCKHOLDERS acknowledge that the shares of ITP Stock to be
delivered to the NAMED STOCKHOLDERS pursuant to this Agreement have not been
and will not be registered under the Act and therefore may not be resold
without compliance with the 1933 Act. The ITP Stock to be acquired by the
NAMED STOCKHOLDERS pursuant to this Agreement is being acquired solely for
their own respective accounts, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution.
15.1 Compliance with Law. The NAMED STOCKHOLDERS covenant, warrant
and represent that none of the shares of ITP Stock issued to the NAMED
STOCKHOLDERS will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after fall compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the ITP Stock shall bear the following legend in addition to the
legend required under Article 14 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY IT PARTNERS, INC., AN
OPINION OF COUNSEL TO IT PARTNERS, INC. STATING THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
15.2 Economic Risk: Sophistication. The NAMED STOCKHOLDERS
represent and warrant that they are able to bear the economic risk of an
investment in the ITP Stock acquired pursuant to this Agreement, can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the
merits and risks of the proposed investment in the ITP Stock. The NAMED
STOCKHOLDERS represent and warrant that they have had an adequate opportunity
to ask questions and receive answers from the officers of ITP concerning any
and all matters relating to the transactions described herein including,
without limitation, the background and experience of the current and proposed
officers and directors of ITP, business, operations, financial conditions and
plans for ITP, and any plans for additional acquisitions and the like. Each
NAMED STOCKHOLDER represents that after taking into consideration the
information and advice provided herein each NAMED STOCKHOLDER has the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of this investment.
Notwithstanding the foregoing, the NAMED STOCKHOLDERS have the right to rely
fully upon each of the representations, warranties, covenants and agreements
of ITP and NEWCO contained in this Agreement, the Company Delivered Documents
and the ITP Delivered Documents.
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16. GENERAL
16.1 Cooperation. The COMPANY, the NAMED STOCKHOLDERS, ITP and
NEWCO, shall each deliver or cause to be delivered to the other on the Closing
Date, and at such other times and places as shall be reasonably agreed to,
such additional instruments as the other may reasonably request for the
purpose of carrying out this Agreement. The NAMED STOCKHOLDERS will, at ITP's
expense, cooperate and use their reasonable efforts to have the present
officers, directors and employees of the COMPANY cooperate with ITP on and
after the Closing Date in furnishing information, evidence, testimony and
other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
16.2 Successors and Assigns. Except that ITP and the Surviving
Corporation may assign the benefits of this Agreement to the Agent, this
Agreement and the rights and obligations of the parties hereunder (including,
but not limited to, the right to receive the Subsequent Merger Consideration)
may not be assigned (except by operation of law) and shall be binding upon and
shall inure to the benefit of the parties hereto, the permitted successors of
ITP, and the heirs and legal representatives of the NAMED STOCKHOLDERS.
16.3 Entire Agreement. This Agreement (including the Schedules,
exhibits and annexes attached hereto), the Company Delivered Documents and the
ITP Delivered Documents constitute the entire agreement and understanding
among the NAMED STOCKHOLDERS, the COMPANY, NEWCO and ITP and supersede any
prior agreement and understanding relating to the subject matter of this
Agreement. Subject to Section 16.14, this Agreement may be modified or
amended only by a written instrument executed by the NAMED STOCKHOLDERS, the
COMPANY, NEWCO and ITP, acting through their respective officers or trustees,
duly authorized by their respective boards of directors (as the case may be).
Any disclosure made on any Schedule delivered pursuant hereto shall be deemed
to have been disclosed for purposes of any other Schedule required hereby,
provided that the COMPANY and the NAMED STOCKHOLDERS, on the one hand, and ITP
and NEWCO, on the other hand, shall make a good faith effort to cross
reference disclosure, as necessary or advisable, between related Schedules.
16.4 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
16.5 Brokers and Agents. ITP and NEWCO represent and warrant that
they employed no broker or agent in connection with this transaction. It is
acknowledged and understood that the COMPANY and the NAMED STOCKHOLDERS
retained the services of First of Michigan Corporation and the STOCKHOLDERS
will be solely responsible for any fees, commissions or expenses of that
entity.
16.6 Expenses.
(a) Except as otherwise expressly provided in this Agreement,
whether or not the transactions herein contemplated shall be consummated, each
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of the parties hereto will pay its own fees, expenses and disbursements and
those of its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by it under this Agreement.
(b) Each NAMED STOCKHOLDER shall pay all sales, use, transfer,
real property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the transactions
contemplated hereby. Each NAMED STOCKHOLDER shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition,
each NAMED STOCKHOLDER acknowledges that he, and not the COMPANY or ITP, will
pay all Taxes attributable to the receipt of the Merger Consideration payable
pursuant to Section 2 hereof, and will assume all Tax risks and liabilities of
such NAMED STOCKHOLDER in connection with the transactions contemplated
hereby.
16.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given (i)
if physically delivered, (ii) if telephonically transmitted by facsimile
transmission, if such transmission is confirmed by delivery by certified or
registered United States Mail (with first class postage pre-paid) or
guaranteed overnight delivery, (iii) five business days after having been
deposited in the United States Mail, as certified or registered mail (with
return receipt requested and with first class postage pre-paid), or (iv) one
(1) business day after having been transmitted to a third party providing
delivery services in the ordinary course of business which guarantees delivery
on the next business day after such transmittal (e.g., via Federal Express),
all of which notices or other communications shall be addressed to the
recipient (or to an officer or agent of the recipient) as follows:
(a) If to ITP, or NEWCO, addressed to them at:
IT Partners, Inc.
9881 Broken Land Parkway, Suite 102
Columbia, Maryland 21046
Attn: Mr. Daniel J. Klein
with copies to:
Piper & Marbury L.L.P.
Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
Attn: Earl S. Wellschlager, Esquire
(b) If to the NAMED STOCKHOLDERS, addressed to them at
their addresses set forth on Annex IV, with copies to such counsel, if any, as
is set forth with respect to each NAMED STOCKHOLDER on such Annex IV;
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(c) If to the COMPANY, addressed to it at:
Sequoia Diversified Products, Inc.
107 South Squirrel Road
Auburn Hills, Michigan 48326
Attn: Mr. John D. Bamberger
with copies to:
Dykema Gossett PLLC
400 Renaissance Center
Detriot, Michigan 48243-1688
Attn: J. Michael Bernard, Esquire
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 16.7 from time to time.
16.8 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Maryland, except that matters herein
within the purview of the matters covered by Delaware Law or by Michigan Law
shall be governed by such Delaware Law or Michigan Law (as the case may be),
in each case without reference to conflicts of laws principles.
16.9 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall
it be construed as a waiver of or acquiescence in any such breach or default,
or of any similar breach or default occurring later; nor shall any waiver of
any single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
16.10 Time. Time is of the essence with respect to this Agreement.
16.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
16.12 Remedies Cumulative. No right, remedy or election given by
any term of this Agreement shall be deemed exclusive but each shall be
cumulative with all other rights, remedies and elections available at law or
in equity.
16.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.<PAGE>
<PAGE>
16.14 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived only
with the written consent of ITP, NEWCO, the COMPANY and NAMED STOCKHOLDERS who
will hold or who hold at least 50% of the ITP Stock issued or to be issued to
the STOCKHOLDERS upon consummation of the Merger. Any amendment or waiver
effected in accordance with this Section 16.14 shall be binding upon each of
the parties hereto, any other person receiving ITP Stock in connection with
the Merger and each future holder of such ITP Stock.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein (SEAL)
----------------------
Name: Daniel J. Klein
Title: President
ITP NO. 10, INC.
By: /s/ Daniel J. Klein (SEAL)
-----------------------
Name: Daniel J. Klein
Title: Chairman of the Board
<PAGE>
<PAGE>
SEQUOIA DIVERSIFIED PRODUCTS, INC.
By: /s/ John D. Banberger (SEAL)
-----------------------
Name: John D. Bamberger
Title: President
NAMED STOCKHOLDERS:
/s/John D. Bamberger
-----------------------------
John D. Bamberger, as Trustee U-A,
dated November 9, 1995
/s/ Alan E. Wise
-----------------------------
Alan E. Wise, as Trustee U-A,
dated December 13, 1995
/s/ William E. Murray
----------------------
William E. Murray
/s/Michael J. Baltosiewich
----------------------------
Michael J. Baltosiewich, as Trustee U-A,
dated October 20, 1972
/s/Carl J. Griffin
--------------------------
Carl J. Griffin
/s/William C. Church
---------------------------
William C. Church
/s/ Michael A. Ryan
---------------------------
Michael A. Ryan
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of March 31, 1998
By and Among
IT PARTNERS, INC.
as the Borrower,
THE LENDERS NAMED HEREIN,
CREDITANSTALT CORPORATE FINANCE, INC.,
as the LC Issuer,
CREDIT AGRICOLE INDOSUEZ,
as Co-Agent,
and
CREDITANSTALT CORPORATE FINANCE, INC.,
as the Collateral Agent and Administrative Agent
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND REFERENCES 2
1.1 Certain Definitions 2
1.2 Use of Defined Terms 20
1.3 Accounting Terms; Calculations 20
1.4 Other Terms 20
1.5 Terminology 20
1.6 Exhibits 20
2. THE LOANS AND LETTERS OF CREDIT 20
2.1 Loans 20
2.2 Borrowing Procedures 21
2.3 Loan Account; Statements of Account 22
2.4 Use of Proceeds 22
2.5 Several Obligations of the Lenders;
Remedies Independent 25
2.6 Letters of Credit 25
2.7 Term; Termination 28
2.8 Loans in Excess of Limitations 28
2.9 Payments 29
2.10 Prorata Treatment 29
2.11 Sharing of Payments, Etc. 30
2.12 Prepayment; Commitment Reduction 31
2.13 Certain Notices; Minimum Amounts 32
3. FEES AND INTEREST 33
3.1 Interest 33
3.2 Interest Period 34
<PAGE>
3.3 Limitations on Interest Periods 34
3.4 Conversions and Continuations 34
3.5 Commitment Fee 34
3.6 Letter of Credit Fees 34
3.7 Illegality 35
3.8 Inability to Determine Quoted Rate 35
3.9 Increased Costs and Reduced Return 35
3.10 Indemnity 36
3.11 Notice of Amounts Payable 36
3.12 Interest Savings Clause 36
4. SECURITY INTEREST - COLLATERAL 37
4.1 Security Interest 37
4.2 Additional Collateral 38
4.3 Perfection of Security Interest 38
<PAGE>
4.4 Right to Inspect; Verifications 38
5. REPRESENTATIONS AND WARRANTIES 39
5.1 Corporate Existence and Qualification 39
5.2 Corporate Authority; Valid and Binding Effect 39
5.3 No Conflict 39
5.4 Governmental Action 39
5.5 No Litigation 40
5.6 Solvency 40
5.7 Taxes 40
5.8 Financial Information 40
5.9 Title to Property 41
5.10 Violations of Law 41
5.11 ERISA 41
5.12 Environmental Laws 42
5.13 Margin Stock 42
5.14 No Default 42
5.15 Chief Executive Office; Collateral Locations 43
5.16 Corporate and Trade or Fictitious Names 43
5.17 Accounts 43
5.18 Adequacy of Intangible Assets 44
5.19 Equipment 44
5.20 Inventory 44
5.21 Investment Property 44
5.22 Indebtedness 44
5.23 Existing Liens 44
5.24 Trade Relations 45
5.25 Broker's or Finder's Fees 45
5.26 Security Interest 45
5.27 Regulatory Matters 45
5.28 Disclosure 45
5.29 Burdensome Restrictions 45
5.30 Senior Indebtedness 45
5.31 Shell Subsidiaries 46
6. AFFIRMATIVE COVENANTS 46
6.1 Records Respecting Collateral;
Lockbox or Blocked Account Arrangement 46
6.2 Reporting Requirements 46
6.3 Tax Returns 48
6.4 Compliance With Laws 48
6.5 Environmental Laws 48
6.6 ERISA 48
6.7 Books and Records 49
<PAGE>
6.8 Notifications to the Administrative
Agent and the Lenders 49
6.9 Insurance 49
6.10 Maintenance of Intellectual Property 50
6.11 Preservation of Corporate Existence 50
6.12 Equipment 50
6.13 Other Indebtedness 50
6.14 Year 2000 Compliance 51
6.15 Assignment of Leasehold Interests 51
6.16 Additional Documents 51
6.17 Upstream Payment of Dividends and Distributions 51
7.. NEGATIVE COVENANTS 51
7.1 Liens 52
7.2 Indebtedness 52
7.3 Asset Sales 52
7.4 Guaranties 52
7.5 Investments and Acquisitions 52
7.6 Prohibition of Fundamental Changes 53
7.7 Issuance of Stock 53
7.8 Fiscal Year 53
7.9 ERISA 53
7.10 Relocations; Use of Name 54
7.11 Arm's-Length Transactions 54
7.12 Amendments 54
8. FINANCIAL COVENANTS 54
8.1 Net Worth 54
8.2 Leverage Ratio 54
8.3 Senior Debt Leverage Ratio 55
8.4 Interest Coverage Ratio 55
8.5 Dividends 55
9. EVENTS OF DEFAULT 55
9.1 Obligations 55
9.2 Misrepresentations 56
9.3 Covenants 56
9.4 Other Covenants 56
9.5 Other Debts 56
9.6 Tax Lien 56
9.7 ERISA 56
9.8 Voluntary Bankruptcy 57
9.9 Involuntary Bankruptcy 57
9.10 Suspension of Business 57
9.11 Judgments 57
9.12 RICO 57
<PAGE>
9.13 Failure of Security 57
9.14 Guaranty 58
9.15 Intercompany Loan Documents 58
9.16 Management 58
9.17 Change of Control 58
9.18 Exercise of Put Option 58
10. REMEDIES 58
10.1 Default Rate 59
10.2 Termination; Acceleration of the Obligations 59
10.3 Set-Off 59
10.4 Rights and Remedies of a Secured Party 59
10.5 Take Possession of Collateral 59
10.6 Sale of Collateral 59
10.7 Judicial Proceedings 60
10.8 Actions in Respect of the Letters of
Credit Upon Default 60
10.9 Notice 60
10.10 Appointment of the Collateral Agent
as the Borrower's Lawful Attorney 61
11. CONDITIONS PRECEDENT 61
11.1 Conditions Precedent to Effectiveness 61
11.2 All Loans 64
11.3 Delay in Satisfaction of Conditions Precedent 65
12. THE AGENT 65
12.1 Appointment, Powers and Immunities 65
12.2 Reliance by Agents 65
12.3 Defaults 66
12.4 Rights as a Lender 66
12.5 Indemnification 66
12.6 Non-Reliance on Administrative Agent
and the other Lenders 67
12.7 Failure to Act 67
12.8 Resignation or Removal of an Agent 67
12.9 Collateral Matters 68
12.10 The Borrower Not a Beneficiary 70
13. MISCELLANEOUS 71
13.1 Waiver 71
13.2 Survival 71
13.3 Assignments; Successors and Assigns 71
13.4 Counterparts 73
13.5 Expense Reimbursement 73
<PAGE>
13.6 Severability 73
13.7 Notices 73
13.8 Entire Agreement; Amendment 74
13.9 Time of the Essence 74
13.10 Interpretation 75
13.11 Lenders Not Joint Venturers 75
13.12 Cure of Defaults by Lenders 75
13.13 Indemnity 75
13.14 Consequential Damages 76
13.15 Attorney-in-Fact 76
13.16 Financing Statements 76
13.17 Governing Law; Jurisdiction 76
13.18 Waiver of Jury Trial 2
Schedule 5.1 - Foreign Qualifications
Schedule 5.5 - Litigation and Related Proceedings
Schedule 5.7 - Taxes
Schedule 5.11 - ERISA Matters
Schedule 5.15 - Executive Offices; Business and Collateral
Locations
Schedule 5.16 - Corporate and Trade or Fictitious Names
Schedule 5.18 - Intangible Assets
Schedule 5.21 - Investments
Schedule 5.23 - Existing Liens
Schedule 5.22 - Existing Indebtedness
Exhibit A - Form of Intercompany Loan and Security Agreement
Exhibit B - Form of Master Contribution and Indemnity Agreement
Exhibit C - Form of Master Subsidiary Guaranty
Exhibit D - Form of Master Subsidiary Pledge Agreement
Exhibit E - Form of Master Subsidiary Security Agreement
Exhibit F - Form of Promissory Note
Exhibit G - Form of Opinion of Counsel (Intercompany Loans)
Exhibit H - Form of Request for Letter of Credit
Exhibit I - Form of Notice of Borrowing
Exhibit J - Form of Compliance Certificate
Exhibit K - Form of Borrowing Availability Certificate
Exhibit L - Form of Opinion of Swidler & Berlin, Chartered
Exhibit M - Form of Assignment
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the "Agreement")
is made and entered into as of the 31st day of March, 1998, by and among IT
PARTNERS, INC., a Delaware corporation (the "Borrower"), each of the Lenders
signatory hereto (hereinafter referred to individually as the "Lender" and
collectively as the "Lenders"), CREDITANSTALT CORPORATE FINANCE, INC., as the
letter of credit issuer (in such capacity, the "LC Issuer"), CREDIT AGRICOLE
INDOSUEZ, as co-agent for the Lenders (in such capacity, together with its
successors and assigns, the "Co-Agent") and CREDITANSTALT CORPORATE FINANCE,
INC., as collateral agent for the Lenders (in such capacity, together with its
successors and assigns, the "Collateral Agent") and administrative agent for
the Lenders (in such capacity, together with its successors and assigns, the
"Administrative Agent"; the Co-Agent, Collateral Agent and Administrative
Agent are collectively, the "Agents" and individually an "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower and Creditanstalt Corporate Finance, Inc. ("CCF"),
as agent and sole Lender, are a party to that certain Loan and Security
Agreement dated as of May 30, 1997, as
amended by that certain First Amendment to Loan and Security Agreement dated
as of October 17, 1997, that certain Second Amendment to Loan and Security
Agreement, dated as of December 16, 1997 and that certain Third Amendment to
Loan and Security Agreement, dated as of March 13, 1998 (as so amended, the
"Original Loan Agreement"), pursuant to which the lenders thereunder made
available to the Borrower a revolving credit facility permitting advances up
to Thirty-Five Million Dollars ($35,000,000) at any one time outstanding; and;
WHEREAS, the Borrower has requested that CCF further amend the Original
Loan Agreement (i) to increase the revolving credit facility by $35,000,000
to permit advances of up to Seventy Million Dollars ($70,000,000) at any one
time outstanding, and (ii) to add Credit Agricole Indosuez as a Lender and a
Co-Agent; and
WHEREAS, the Lenders are willing to extend such financing to the
Borrower, subject to the terms and conditions set forth herein; and
WHEREAS, the Borrower, the Lenders and the Agents have agreed, for the
sake of convenience, to amend and restate the Original Loan Agreement in its
entirety as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt, adequacy and sufficiency of
which are acknowledged by the
<PAGE>
parties hereto, the Borrower, the Lenders, the LC Issuer and the Agents
hereby agree to amend and restate the Original Loan Agreement as follows:
1. DEFINITIONS AND REFERENCES
1.1 Certain Definitions. When used herein, the following terms
shall have the following respective meanings:
"Accounts" shall mean any "account," as such term is defined in
Section 9-106 of the UCC, now owned or hereafter acquired by the Borrower and,
in any event, shall include all of the accounts, contract rights, book debts
and other forms of obligations (other than forms of obligations evidenced by
Chattel Paper, Documents or Instruments) of the Borrower, whether now existing
or hereafter acquired or arising or in which the Borrower now has or hereafter
acquires any rights, including, without limitation, all present and future
rights to payments for goods, merchandise or Inventory sold or leased or for
services rendered, whether or not represented by invoices or other billing,
and whether or not earned by performance; proceeds of any letter of credit on
which the Borrower is a beneficiary and all forms of obligations whatsoever
owing to the Borrower, together with all instruments and documents of title
representing any of the foregoing, all rights in any goods, merchandise or
Inventory which any of the foregoing may represent, all rights in any
returned or repossessed goods, merchandise or Inventory, and all rights,
security and guaranties with respect to each of the foregoing, including,
without limitation, any rights of stoppage in transit.
"Account Debtor" shall mean any "account debtor," as such term is
defined in Section 9-105(1)(a) of the UCC and, in any event, shall include any
Person who is or may become obligated to the Borrower on any Account.
"Acquisition" shall mean any transaction, or any series of related
transactions by which (a) the Borrower acquires, directly or indirectly, the
business or all or substantially all of the assets of any Person, or any
division of any Person, whether through Investment, purchase of assets,
merger, capital contribution or otherwise or (b) any Person that was not
theretofore a Subsidiary of the Borrower becomes a Subsidiary of the Borrower.
"Administrative Agent" shall have the meaning given to such term
in the preamble of this Agreement.
"Adjusted Cash Flow" shall mean for any Person for any Calculation
Period, the sum of (a) such Person's Cash Flow for the Calculation Period,
plus (b) to the extent not included in
<PAGE>
clause (a) above, the Cash Flow for the Calculation Period of any other Person
acquired by such Person subsequent to the first day of the Calculation Period
and prior to or simultaneously with the date of the Loan or Intercompany Loan
for which such calculation is made, adjusted to give effect to the Acquisition
of such Person on a pro forma basis as if such Acquisition occurred on the
first (1st) day of the Calculation Period; provided, however, that any such
adjustment that would increase the Cash Flow of such Person shall (x) be
reviewed by a firm of independent public accountants of nationally recognized
standing and (y) require approval of the Agents.
"Affiliate" shall mean, as to any Person, any other Person which,
directly or indirectly, owns or controls, on an aggregate basis, including all
beneficial ownership and ownership or control as a trustee, guardian or other
fiduciary, at least ten percent (10%) of the outstanding shares of capital
stock having ordinary voting power to elect a majority of the board of
directors or other governing body (irrespective of whether, at the time, stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) of such Person or
at least ten percent (10%) of the partnership or other ownership interest of
such Person; or which controls, is controlled by or is under common control
with such Person; provided, however, that in no event shall the Borrower and
the Lender be deemed or regarded as Affiliates of
each other. For the purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" shall mean this Loan and Security Agreement, as
amended, modified or supplemented from time to time.
"Agents" shall have the meaning given to such term in the preamble
of this Agreement.
"Applicable Law" shall mean all provisions of statutes, rules,
regulations and orders of any Governmental Authority applicable to a Person,
and all orders and decrees of all courts and arbitrators in proceedings or
actions in which the Person in question is a party.
"Applicable Margin" shall mean (a) with respect to Eurodollar
Loans, four percent (4%) per annum and (b) with respect to Base Rate Loans,
two percent (2%) per annum; provided however, that if on the last day of any
fiscal quarter, commencing with the quarter ending June 30, 1998, Borrower's
Senior Debt Leverage Ratio shall fall within any of the ranges set forth
below, then, subject to delivery by a senior financial
<PAGE>
officer of Borrower of financial statements for that quarter, together with a
Compliance Certificate of the chief financial officer of Borrower certifying
as to Borrower's Senior Debt Leverage Ratio, in each case as required pursuant
to Section 6.2(e) hereof, the Applicable Margin payable on the Loans shall be
adjusted, from the date of Administrative Agent's receipt of such financial
statements and Compliance Certificate until the date on which the next
following quarterly financial statements are required to be delivered to the
Administrative Agent, to the rate, calculated daily on the basis of a 360-day
year and actual days elapsed, for the applicable type of Loan set forth
opposite such range in the schedule below:
<TABLE>
<CAPTION>
Senior Debt Base Eurodollar Rate Letter of
Leverage Ratio Rate Loans Loans Credit
Credit
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 3.50:1.00 1.50% 3.50% 3.50%
but greater than or
equal to
3.00:1.00
- --------------------------------------------------------------------------
Less than 3.00:1.00 1.25% 3.25% 3.25%
but greater than or
equal to
2.50:1.00
- --------------------------------------------------------------------------
Less than 2.50:1.00 1.00% 3.00% 3.00%
but greater than or
equal to
2.00:1.00
- --------------------------------------------------------------------------
Less than 2.00:1.00 0.75% 2.75% 2.75%
</TABLE>
If Borrower does not qualify for an adjustment in interest rates as set forth
above for any given fiscal quarter of Borrower or if no Compliance Certificate
and quarterly financial statements are delivered by the required date, the
Applicable Margin shall be those set forth in clauses (a) and (b) above.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as
may be amended from time to time.
"Base Lending Rate" shall mean an interest rate per annum,
fluctuating daily, equal to the higher of (a) the rate announced by the
Reference Bank from time to time, as its prime rate for domestic (United
States) commercial loans in effect on such day; and (b) the Federal Funds Rate
in effect on such day plus one-half of one percent (1/2%). The Base Lending
Rate is not necessarily intended to be the lowest rate of interest charged by
the Reference Bank in connection with extensions of credit. Each change in
the Base Lending Rate shall result in a corresponding change in the interest
rate hereunder with respect to a Base Rate Loan and such change shall be
effective on the effective date of such change in the Base Lending Rate.
"Base Rate Loan" shall mean a Loan bearing interest at a rate
based on the Base Lending Rate.
"Borrower" shall have the meaning given to such term in the
preamble of this Agreement.
"Borrowing Availability" shall mean, for any Person, for (a) the
period beginning on the Effective Date and ending on May 30, 1998, the sum of
an amount equal to such Person's Adjusted Cash Flow for the twelve (12) month
period most recently ended multiplied by 4.0 minus the currently outstanding
aggregate amount of Indebtedness permitted pursuant to Section 7.2(c) hereof;
(b) the period beginning May 31, 1998 and ending on May 30, 1999, the sum of
an amount equal to such Person's Adjusted Cash Flow for the twelve (12) month
period most recently ended multiplied by 3.5 minus the currently outstanding
aggregate amount of Indebtedness permitted pursuant to Section 7.2(c) hereof;
and (c) thereafter, the sum of an amount equal to such Person's Adjusted Cash
Flow for the twelve-month period most recently ended multiplied by 3.0 minus
the currently outstanding aggregate amount of Indebtedness permitted pursuant
to Section 7.2(c) hereof.
<PAGE>
"Borrowing Availability Certificate" shall have the meaning given
to such term in Section 6.2(e)(ii) hereof.
"Business Day" shall mean a day on which banks are not required or
authorized to close in Greenwich, Connecticut and New York, New York and, if
such day relates to a borrowing of, a payment or prepayment of principal or
interest on, a Continuation or Conversion of or into, or an Interest Period
for, a Eurodollar Loan or a notice by the Borrower with respect to any such
borrowing, payment, prepayment, Continuation, Conversion or Interest Period,
which is also a day on which dealings by and between banks in U.S. dollar
deposits are carried out in the interbank Eurodollar market.
"Calculation Period" shall be the six (6) month period most
recently ended multiplied by two (2).
"Capital Expenditures" shall mean, for any period, expenditures
(including the aggregate amount of Capital Lease Obligations incurred during
such period) incurred by the Borrower to acquire or construct fixed assets,
plants and equipment (including renewals, improvements and replacements, but
excluding repairs) during such period, computed on a consolidated basis for
the Borrower and its consolidated Subsidiaries in accordance with GAAP.
"Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property
which obligations are required to be classified and accounted for as a capital
lease on a balance sheet of such Person under GAAP (including Statement of
Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board) and, for the purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof determined in accordance with GAAP
(including such Statement No. 13).
"Capital Stock" shall mean, as to any Person, any and all shares,
interests, warrants, participations or other equivalents (however designated)
of corporate stock of such Person.
"Cash Flow" shall mean, for any Person, for any period for which
the same is computed, the sum of (a) such Person's net income (loss) for such
period, plus (b) such Person's Interest Expense for such period, plus (c) such
Person's depreciation and amortization for financial reporting purposes for
such period, plus (d) income tax expense for such period, computed in each
case on a consolidated basis for such Person and its consolidated Subsidiaries
in accordance with GAAP.
"CCF" shall have the meaning given to such term in the preamble of
this Agreement.
"Chattel Paper" shall mean any "chattel paper," as such term is
defined in Section 9-105(1)(b) of the UCC, now owned or hereafter acquired by
the Borrower.
"Co-Agent" shall have the meaning given to such term in the
preamble of this Agreement.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder from time to time.
"Collateral" shall mean the property of the Borrower in which the
Collateral Agent has, or is to have, a Lien on or security interest in
pursuant to this Agreement or the Loan Documents, or any of them, as security
for payment of the Obligations.
"Collateral Agent" shall have the meaning given to such term in
the preamble of this Agreement.
"Commitment" shall mean the aggregate obligation of the Lenders to
make Loans and to incur Letter of Credit Obligations to the Borrower, subject
to the terms and conditions hereof, up to an aggregate principal amount not to
exceed at any one time outstanding as to all of the Lenders Seventy Million
Dollars ($70,000,000), subject to reduction as set forth in Section 2.12
hereof.
"Commitment Fee" shall mean that amount due and payable to the
Lenders from the Borrower pursuant to and in the amount specified in Section
3.5 hereof.
"Commitment Percentage" shall mean, as to each Lender, that
amount, expressed as a percentage, equal to the ratio of the amount set forth
opposite the name of such Lender on the signature pages hereto under the
heading "Commitment" to the aggregate amount of the Commitment; provided, that
the Commitment Percentage of each Lender shall be increased or decreased, as
appropriate, to reflect any assignments made by such Lender pursuant to
Section 13.3(c) hereof.
"Continue," "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 3.4 hereof of a Eurodollar Loan as a
Eurodollar Loan from one Interest Period to the next Interest Period.
"Contracts" shall mean all contracts, undertakings, or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which the Borrower may now or hereafter have any
right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof.
"Convert," "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 3.4 hereof of a Base Rate Loan into a
Eurodollar Loan or of a Eurodollar Loan into a Base Rate Loan.
"Copyrights" shall mean all of the following now or hereafter
acquired by the Borrower: (a) all copyrights, registrations and applications
therefor, (b) all renewals and extensions thereof, (c) all income, royalties,
damages and payments now and hereafter due or payable or both with respect
thereto, including, without limitation, damages and payments for past or
future infringements or misappropriations thereof, (d) all rights to sue for
past, present and future infringements or misappropriations thereof, and (e)
all other rights corresponding thereto throughout the world.
"Current Assets" shall mean all assets which in accordance with
GAAP would be classified as current assets.
"Current Liabilities" shall mean all liabilities which, in
accordance with GAAP, would be classified as current liabilities.
"Default" shall mean the occurrence of any event or condition
which, after satisfaction of any requirement for the giving of notice or the
lapse of time, or both, would become an Event of Default.
"Default Rate" shall mean (a) with respect to any Loan or portion
thereof, an interest rate per annum equal to two percent (2%) above the
interest rate set forth for such Loan in Section 3.1(a)(i) or (ii) hereof or
(b) with respect to any portion of the Obligations other than Loans, two
percent (2%) above the rate set forth in Section 3.1(a)(ii) hereof.
"Documents" shall mean any "documents," as such term is defined in
Section 9-105(1)(f) of the UCC, now owned or hereafter acquired by the
Borrower.
"Effective Date" shall mean the date that this Agreement has been
signed by the Borrower, the Lenders and the Agents and all conditions
precedent set forth in Section 11.1 have been satisfied.
<PAGE> "Environmental Laws" shall mean all federal, state, local
and foreign laws relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of any Hazardous Substance into the environment (including without
limitation ambient air, surface water, ground water or land), or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of Hazardous Substances
and any and all regulations, codes, standards, plans, orders, decrees, writs,
judgments, injunctions, notices or demand letters issued, entered, promulgated
or approved thereunder.
"Equipment" shall mean any "equipment," as such term is defined in
Section 9-109(2) of the UCC, now owned or hereafter acquired by the Borrower,
and, in any event, shall include all of the equipment, fixtures and leasehold
improvements of the Borrower, whether now existing or hereafter acquired or
arising or in which the Borrower now has or hereafter acquires any rights,
including, without limitation, all furniture, machinery, vehicles and trade
fixtures, together with any and all accessories, accessions, parts and
appurtenances thereto, substitutions therefor and replacements thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules and regulations from time to
time issued or promulgated thereunder.
"ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which, together with the Borrower is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean that portion of a Loan bearing
interest at a rate based on the Quoted Rate.
"Event of Default" shall mean any of the events or conditions
described in Article 9 hereof.
"Excess Cash Flow" shall mean, for any fiscal year of Borrower, an
amount equal to (a) Borrower's Cash Flow for such fiscal year, less (b)
Capital Expenditures by Borrower during such fiscal year, less (c) to the
extent not previously included in item (b) hereof, scheduled payments of
principal of Indebtedness of Borrower during such fiscal year less (d)
Borrower's Interest Expense paid in cash during such fiscal year, less (e)
Borrower's income tax expense paid in cash during such fiscal year less (f)
increases in Working Capital from the first of such fiscal year to the last
day of such fiscal year, plus (g) decreases in Working Capital from the first
of such fiscal year to the last day of such fiscal year, all as set forth on
the annual financial statements of Borrower delivered pursuant to Section
5.8(b) hereof and in each case computed on a consolidated basis for Borrower
and its Subsidiaries in accordance with GAAP.
"Federal Funds Rate" shall mean, for any day, the overnight
federal funds rate in New York City, New York, as published for such day (or,
if such day is not a New York Business Day, for the next preceding Business
Day) in the Federal Reserve Statistical Release H.15 (519) or any successor
publication, or if such rate is not so published for any day which is a New
York Business Day, the average of the quotations for such day on overnight
federal funds transactions in New York City received by the Administrative
Agent from three federal funds brokers of recognized standing selected by the
Administrative Agent.
"Fee Letter" shall mean that certain letter agreement dated March
17, 1998 between Borrower and CCF providing for the payment of certain fees by
the Borrower to CCF in its capacity as Administrative Agent and Collateral
Agent.
"Funded Debt" shall mean , for any Person, collectively, (a) the
aggregate principal amount of Indebtedness for borrowed money which would, in
accordance with GAAP, be classified as long-term debt, together with the
current maturities thereof; (b) all Indebtedness outstanding under any
revolving credit, line of credit or similar agreement providing for borrowings
(and any extensions or renewals thereof), notwithstanding that any such
Indebtedness is created within one year of the expiration of such agreement;
(c) the principal component of Capital Lease Obligations; (d) all
indebtedness, obligations or other liabilities of such Person with respect to
letters of credit issued for such Person's account; and (e) any other
Indebtedness bearing interest or carrying a similar payment requirement
(including (i) any outstanding Capital Stock constituting Indebtedness under
clause (d) of the definition thereof and (ii) any Indebtedness issued at a
discount to its face amount), calculated in all cases for such Person and its
Subsidiaries on a consolidated basis in accordance with GAAP.
<PAGE>
"GAAP" shall mean generally accepted accounting principles
consistently applied and maintained throughout the period indicated and
consistent with the prior financial practice of the Borrower and its
Subsidiaries, as reflected in the financial information referred to in Section
5.8 hereof.
"General Intangibles" shall mean any "general intangibles," as
such term is defined in Section 9-106 of the UCC, now owned or hereafter
acquired by the Borrower, and, in any event shall include all general
intangibles of the Borrower, whether now existing or acquired or arising or in
which the Borrower now has or hereafter acquires any rights, including,
without limitation, all choses in action, causes of action, corporate or other
business records, inventions, designs, Patents, patent applications, service
marks, Trademarks, trade names, Trade Secrets, proprietary or confidential
information, inventions (whether patented or patentable or not) and technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processors, models, drawings, materials,
records, goodwill, Copyrights, registrations, Licenses, franchises, customer
lists, agency and other contracts, tax refund claims, computer programs, all
claims under guaranties, Liens or other security held by or granted to the
Borrower to secure payment of any of the Accounts by an Account Debtor, all
rights to indemnification, and all other intangible property of every kind and
nature (other than Accounts).
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to any government.
"Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of,
or otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) property, products, materials, supplies or
services primarily for the purpose of enabling a debtor to make payment of
such debtor's obligations or an agreement to assure a creditor against loss,
and including, without limitation, causing a bank or other financial
institution to issue a letter of credit or other similar instrument for the
benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
"Hazardous Substances" shall mean any pollutant, contaminant,
hazardous, toxic or dangerous waste, substance or material, or any other
substance or material regulated or controlled pursuant to any Environmental
Law, including, without limiting the generality of the foregoing, asbestos,
PCBs, petroleum products (including crude oil, natural gas, natural gas
liquids, liquified natural gas or synthetic gas) or any other substance
defined as a "hazardous substance," "extremely hazardous waste," "restricted
hazardous waste," "hazardous material," "hazardous chemical," "hazardous
waste," "regulated substance," "toxic chemical," "toxic substance" or other
similar term in any Environmental Law.
"Indebtedness" shall mean, as applied to any Person at any time,
(a) all indebtedness, obligations or other liabilities of such Person (i) for
borrowed money or evidenced by debt securities, debentures, acceptances, notes
or other similar instruments, and any accrued interest, fees and charges
relating thereto; (ii) under profit payment agreements or similar agreements;
(iii) with respect to letters of credit issued for such Person's account; (iv)
to pay the deferred purchase price of property or services, except unsecured
accounts payable and accrued expenses arising in the ordinary course of
business which are less than sixty (60) days past due; or (v) Capital Lease
Obligations; (b) all indebtedness, obligations or other liabilities of such
Person or others secured by a Lien on any property of such Person, whether or
not such indebtedness, obligations or liabilities are assumed by such Person,
all as of such time; (c) all indebtedness, obligations or other liabilities of
such Person in respect of any foreign exchange contract or Interest Hedge
Agreement, net of liabilities owed to such Person by the counterparties
thereon; (d) all Capital Stock of such Person subject (upon the occurrence of
any contingency or otherwise) to mandatory redemption prior to the first
anniversary of the Maturity Date; provided, however, that Indebtedness shall
not include (i) Borrower's Series A Preferred Stock, or (ii) the "Warrants,"
as such term is defined in the Preferred Stock and Warrant Purchase Agreement;
(e) indebtedness of others Guaranteed by such Person.
<PAGE>
"Instruments" shall mean any "instrument," as such term is defined
in Section 9-105(1)(i) of the UCC, now owned or hereafter acquired by the
Borrower, other than instruments that constitute, or are a part of a group of
writings that constitute, Chattel Paper.
"Intercompany Contribution and Indemnity Agreement" shall mean the
Intercompany Contribution and Indemnity Agreement executed or to be executed
by and among each Subsidiary receiving an Intercompany Loan.
"Intercompany Loan and Security Agreement" shall mean a Loan and
Security Agreement substantially in the form of Exhibit A attached hereto, by
and between the Borrower, as the Lender, and a Subsidiary of the Borrower, as
the Borrower, providing for the making of revolving loans by the Borrower to
such Subsidiary and for the grant to the Borrower of a first priority lien and
security interest in all of the assets of such Subsidiary to secure the
Intercompany Loans thereunder.
"Intercompany Guaranties" shall mean the guaranties in favor of
the Borrower executed or to be executed by each Subsidiary receiving an
Intercompany Loan in favor of the Borrower guaranteeing the obligations of
each other Subsidiary of the Borrower under an Intercompany Loan and Security
Agreement.
"Intercompany Loan Documents" shall mean, with respect to the
Intercompany Loans made by the Borrower to any Subsidiary of the Borrower, the
Intercompany Loan and Security Agreements, the Intercompany Guaranties, the
Intercompany Pledge Agreements, the Intercompany Contribution and Indemnity
Agreement, the UCC-1 financing statements, and each of the other agreements,
documents and instruments to be executed and delivered in connection
therewith.
"Intercompany Loans" shall mean revolving loans made by the
Borrower to a Subsidiary of the Borrower from time to time in accordance with
the terms of an Intercompany Loan and Security Agreement.
"Intercompany Pledge Agreements" shall mean the pledge agreements
in favor of the Borrower executed or to be executed by each Subsidiary
receiving an Intercompany Loan (the "Pledging Subsidiary"), pledging to
Borrower all issued and outstanding shares of stock of each Subsidiary of such
Pledging Subsidiary as security for the obligations of each such Pledging
Subsidiary under an Intercompany Loan and Security Agreement and Intercompany
Guaranty.
"Interest Coverage Ratio" shall mean, as to any Person, for any
period, the ratio of (a) such Person's Cash Flow for such period to (b) such
Person's Interest Expense (excluding any amortization of original issue
discount related to the Subordinated Seller Notes) for such period, in each
case calculated in accordance with GAAP.
"Interest Expense" shall mean, for any period, as to any Person,
total interest expense, whether paid, accrued or capitalized (including the
interest component of Capital Lease Obligations), of such Person, including,
but not limited to, all origination and other fees, all amortization of
original issue discount and the net amount payable under any Interest Hedge
Agreement between such Person and any other Person, computed in each case on a
consolidated basis for such Person and its consolidated subsidiaries in
accordance with GAAP.
"Interest Hedge Agreement" shall mean, for any Person, an interest
rate swap, cap or collar agreement or similar arrangement between such Person
and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
<PAGE>
"Interest Period" shall mean, in connection with any Eurodollar
Loan, the period beginning on the date such Eurodollar Loan is made, Continued
or Converted and continuing for one (1), two (2), three (3) or six (6) months
as selected by the Borrower in its Notice of Borrowing. Notwithstanding the
foregoing, however, (a) any applicable Interest Period 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; and (b) any applicable Interest Period which begins on
a day for which there is no numerically corresponding day in the calendar
month during which such Interest Period is to end shall (subject to clause (a)
above) end on the last day of such calendar month.
"Inventory" shall mean all "inventory," as such term is defined in
Section 9-109(4) of the UCC, owned or hereafter acquired by the Borrower, and,
in any event, shall include all of the inventory of the Borrower, whether now
existing or acquired or arising or in which the Borrower now has or hereafter
acquires any rights, including, without limitation, any and all goods,
merchandise and other personal property, wheresoever located and whether or
not in transit, which is or may at any time be held for sale or lease or to be
furnished under any contract of service or held as raw materials, work in
process, finished goods or materials, and supplies of any kind, nature or
description used or consumed in the business of the Borrower, including,
without limitation, all such property, the sale or other disposition of which
has given rise to an Account and which may have been returned to or
repossessed or stopped in transit by the Borrower.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of
any securities at a time when such securities are now owned by the Person
entering into such short sale), (b) any deposit with, or advance, loan or
other extension of credit to, such Person (other than any such advance, loan
or extension of credit representing the purchase price of goods, intangibles
or services sold or supplied in the ordinary course of business) or Guarantee
of, or other contingent obligation with respect to, Indebtedness or other
liability of such Person and (without duplication) any amount committed to be
advanced, lent or extended to such Person, (c) any Acquisition other than the
acquisition of goods, intangibles or services purchased in the ordinary course
of business and accounted for as an expense in accordance with GAAP or as a
Capital Expenditure or (d) the entering into of any Interest Hedge Agreement.
"Investment Property" shall mean all "investment property" of the
Borrower, as such term is defined in Section 9-115 of the UCC, whether now
owned or existing or hereafter acquired or arising, and, in any event, shall
include all of the following: (a) all securities of the Borrower, whether
certificated or uncertificated; (b) any share, participation or other interest
in a Person or in property or in an enterprise of a Person held directly or
indirectly by the Borrower which is, or is of a type, dealt in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment; (c) all commodity futures contracts of
the Borrower, options on any commodity futures contract held by the Borrower,
all commodity options or other contracts of the Borrower that are traded on,
or subject to the rules of, a board of trade that has been designated as a
contract market for such contracts pursuant to the federal commodities laws or
which are traded on one or more foreign commodity boards of trade, exchanges,
or markets and are carried on the books of registered futures commodity
merchant or on the books of a Person providing clearance or settlement
services for a board of trade that has been designated as a contract market
for such a contract pursuant to the federal commodities laws; (d) any of the
foregoing held, directly or indirectly, in the name of any other Person to the
extent such other Person has expressly agreed to treat the Borrower as the
Person entitled to exercise the rights comprising the foregoing; and (e) all
right, title and interest of the Borrower in any account to which any of the
foregoing have been credited.
"LC Issuer" shall have the meaning given to such term in the
preamble of this Agreement.
<PAGE>
"Lenders" shall have the meaning given to such term in the
preamble of this Agreement.
"Letter of Credit" shall mean any documentary or standby letter of
credit issued at the request and for the account of the Borrower or for which
the Lenders have incurred Letter of Credit Obligations under Section 2.6 of
this Agreement.
"Letter of Credit Documents" shall mean, collectively, such
reimbursement agreements and other instruments, documents or agreements as
shall be executed by the Borrower with or in favor of the LC Issuer.
"Letter of Credit Obligations" shall mean all outstanding
obliga-tions incurred by the LC Issuer or any of its Affiliates at the request
of the Borrower, whether di-rect or indirect, contingent or otherwise, due or
not due, in con-nection with the issuance or deemed issuance by the LC Issuer
or any of its Affiliates, of Letters of Credit, including, without limitation,
the undrawn amount of any outstanding Letter of Credit and any amount
disbursed by the LC Issuer or any of its Affiliates pursuant to a Letter of
Credit for which the LC Issuer has not been reimbursed by the Borrower
pursuant to Section 2.6 hereof. The amount of such Letter of Credit
Obligations at any time shall equal the maxi-mum amount which may be payable
by the LC Issuer pursuant to the Letters of Credit at such time.
"Leverage Ratio" shall mean, as of the last day of any fiscal
quarter of Borrower, the ratio of (a) the aggregate amount of Borrower's
Funded Debt outstanding on such date, to (b) the Borrower's Adjusted Cash Flow
for the Calculation Period then ending, in each case computed on a
consolidated basis for Borrower and its Subsidiaries in accordance with GAAP.
"License" shall mean any Patent License, Trademark License or
other license as to which the Lender has been granted a security interest
hereunder.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the UCC or comparable law of any
jurisdiction).
"Loans" shall mean, collectively, the loans made pursuant to
Section 2.1 hereof and "Loan" shall mean any loan made pursuant to Section 2.1
hereof.
"Loan Documents" shall mean this Agreement, the Fee Letter, the
Notes, the Letter of Credit Documents, the Stock Pledge, the Master Subsidiary
Guaranty, the Master Subsidiary Security Agreement, the Master Subsidiary
Pledge Agreement, and the other instruments, documents or agreements executed
by the Borrower, any of its Affiliates or any other Person pursuant to
Sections 2.4(b), 4.2 or 11.1, hereof, any subordination agreement relating to
Subordinated Debt, any financing statements covering portions or all of the
Collateral and any and all other instruments, documents, and agreements now or
hereafter executed and/or delivered by the Borrower in connection herewith, or
any one, more, or all of the foregoing, as the context shall require, and
"Loan Document" shall mean any one of the Loan Documents.
"Majority Lenders" shall mean, at any time, the Lenders holding at
least sixty-seven percent (67%) of the aggregate outstanding amount of the
Commitments or, if the Commitments have been terminated, the Lenders holding
at least sixty-seven percent (67%) of the aggregate outstanding principal
amount of the Loans.
"Margin Stock" shall mean "margin stock," as such term is defined
from time to time in Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
"Master Contribution and Indemnity Agreement" shall mean the
amended and restated master contribution and indemnity agreement,
substantially in the form of Exhibit B attached hereto and incorporated herein
by reference, executed by and among each Subsidiary of the Borrower.
"Master Subsidiary Guaranty" shall mean the amended and restated
master guaranty of the Obligations hereunder, substantially in the form of
Exhibit C attached hereto and incorporated herein by reference, executed by
each Subsidiary of the Borrower in favor of the Collateral Agent, for the
benefit of the Lenders.
<PAGE>
"Master Subsidiary Pledge Agreement" shall mean the amended and
restated master pledge agreement, executed by each Subsidiary of Borrower in
favor of the Collateral Agent, for the benefit of the Lenders, substantially
in the form of Exhibit D attached hereto and incorporated herein by reference,
and pledging a second priority lien on and security interest in all of the
stock, partnership interest or other ownership interest held by such
Subsidiary in any other Subsidiary of Borrower to the Collateral Agent, for
the benefit of the Lenders, as security for the Obligations.
"Master Subsidiary Security Agreement" shall mean the amended and
restated master security agreement, substantially in the form of Exhibit E
attached hereto and incorporated herein by reference, executed and delivered
by each Subsidiary of Borrower in favor of the Collateral Agent, for the
benefit of the Lenders, and granting, respectively, a second priority security
interest in and lien on all of the assets of such Subsidiary to the Collateral
Agent, for the benefit of the Lenders.
"Material Adverse Effect" shall mean any event or condition which,
alone or when taken with other events or conditions occurring or existing
concurrently therewith, (a) has or is reasonably expected to have a material
adverse effect on the business, operations, condition (financial or
otherwise), assets, liabilities, prospects, or properties of the Borrower or
any of its Subsidiaries; (b) has or is reasonably expected to have any
material adverse effect on the validity or enforceability of this Agreement or
any Loan Document; (c) materially impairs or is reasonably expected to
materially impair the ability of the Borrower to pay and perform the
Obligations; (d) materially impairs or is reasonably expected to materially
impair the ability of the Lender to enforce its rights and remedies under this
Agreement and the Loan Documents; or (e) has or is reasonably expected to have
any material adverse effect on the Collateral, the Liens of the Lender in the
Collateral or the priority of such Liens.
"Maturity Date" shall mean November 30, 2001.
"MPPAA" shall mean the Multiemployer Pension Plan Amendments Act
of 1980, amending Title V of ERISA.
"Multiemployer Plan" shall have the same meaning as set forth in
Section 4001(a)(3) of ERISA.
"Net Income" shall mean, for any period and for any Person, the
income (or loss) of such Person for such period, after deducting therefrom all
operating expenses, provisions for all taxes and reserves and all other proper
deductions, all determined in accordance with GAAP.
"Net Worth" shall mean, as to any Person, at any time, the excess
of such Person's total assets over Total Liabilities, excluding, however, from
the definition of assets the amount of (a) any write-up in the book value of
any asset resulting from a revaluation thereof subsequent to the later to
occur of (i) the Effective Date and (ii) the date any such Person acquired
such asset; (b) treasury stock; (c) receivables from Affiliates of such
Person; and (d) unamortized debt discount and expense of such Person, all
determined in accordance with GAAP on a consolidated basis for such Person and
its Subsidiaries.
"Notes" shall have the meaning given such term in Section 2.1
hereof.
<PAGE>
"Notice of Borrowing" shall have the meaning given such term in
Section 2.13(a) hereof.
"Obligations" shall mean the Loans, the Letter of Credit
Obligations and any and all other indebtedness, liabilities and obligations of
the Borrower to the Agents or any Lender of every kind and nature (including,
without limitation, interest, charges, expenses, attorneys' fees and other
sums chargeable to the Borrower by the Agents or any Lender and future
advances made to or for the benefit of the Borrower), arising under this
Agreement or under any of the other Loan Documents, or acquired by the Agents
from any other source, whether arising by reason of an extension of credit,
opening of a letter of credit, loan, lease, guaranty, indemnification,
Interest Hedge Agreement or in any other manner, in each case whether direct
or indirect, absolute or contingent, primary or secondary, due or to become
due, now existing or hereafter acquired or arising.
"Operating Lease" shall mean, as to any Person, any lease that is
not required to be classified and accounted for as a capital lease on a
balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board).
"Patent License" shall mean all of the following, whether now
owned or existing or hereafter acquired or arising or in which the Borrower
now has or hereafter acquires any rights: any written agreement granting any
right to make, use, sell, sublicense and/or practice any invention on which a
Patent is in existence.
"Patents" shall mean all of the following, whether now owned or
existing or hereafter acquired or arising or in which the Borrower now has or
hereafter acquires any rights: (a) all patents and patent applications, (b)
all inventions and improvements described and claimed therein, (c) all
reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, (d) all income, royalties, damages and payments
now and hereafter due and/or payable to the Borrower with respect thereto,
including without limitation, damages and payments for past, present or future
infringements or misappropriations thereof, (e) all rights to sue for past
present and future infringements or misappropriations thereof, and (f) all
other rights corresponding thereto throughout the world.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established under ERISA, or any successor agency or Person performing
substantially the same functions.
"Permitted Liens" shall mean, collectively: (a) those Liens
existing on the date hereof with respect to specific items of Equipment and
described on Schedule 5.23 hereto; (b) Liens in favor of the Collateral Agent
arising under the Loan Documents; (c) Liens on assets of Borrower's
Subsidiaries in favor of the Collateral Agent, as assignee of the Borrower,
arising under the Intercompany Loan Documents; and (d) Liens for (i) property
taxes not delinquent, (ii) taxes not yet subject to penalties, (iii) pledges
or deposits made under Workmen's Compensation, Unemployment Insurance, Social
Security and similar legislation, or in connection with appeal or surety bonds
incident to litigation, or to secure statutory obligations, and (iv)
mechanics' and materialmen's Liens with respect to liabilities which are not
yet due or which are being contested in good faith.
"Person" shall mean and include any individual, sole
proprietorship, partnership, joint venture, limited liability company, trust,
unincorporated organization, association, corporation, institution, entity,
party or government (whether national, federal, state, county, city,
municipal, or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Plan" shall mean any employee benefit plan, program, arrangement,
practice or contract, maintained by or on behalf of the Borrower or an ERISA
Affiliate, which provides benefits or compensation to or on behalf of
employees or former employees, whether formal or informal, whether or not
written, including, but not limited to, the following types of plans:
(a) Executive Arrangements - any bonus, incentive compensation,
stock option, deferred compensation, commission, severance, "golden
parachute," "rabbi trust," or other executive compensation plan, program,
contract, arrangement or practice ("Executive Arrangements");
<PAGE>
(b) ERISA Plans - any "employee benefit plan," except any
Multiemployer Plan, as defined in Section 3(3) of ERISA, whether maintained by
or for a single employee or by or for multiple employees, including, but not
limited to, any defined benefit pension plan, profit sharing plan, money
purchase plan, savings or thrift plan, stock bonus plan, employee stock
ownership plan, or any plan, fund, program, arrangement or practice providing
for medical (including post-retirement medical), hospitalization, accident,
sickness, disability, or life insurance benefits ("ERISA Plans");
(c) Other Employee Fringe Benefits - any stock purchase,
vacation, scholarship, day care, prepaid legal services, severance pay or
other fringe benefit plan, program, arrangement, contract or practice ("Fringe
Benefit Plans"); and
(d) Multiemployer Plan - any Multiemployer Plan.
"Preferred Stock and Warrant Purchase Agreement" shall mean that
certain Second Amended and Restated Preferred Stock and Warrant Purchase
Agreement dated as of the date hereof, by and among Borrower, CCF, FF-ITP,
L.P., Indosuez IT Partners, Wachovia Capital Associates, Inc. and each of the
other stockholders named on the signature pages thereto, as amended,
modified, supplemented and/or restated from time to time.
"Proceeds" shall mean "proceeds," as such term is defined in
Section 9-306(1) of the UCC and, in any event, shall include, without
limitation, (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Borrower from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to the Borrower from time to time in connection with any requisitions,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting under color of
Governmental Authority) and (c) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Quoted Rate" shall mean, when used with respect to an Interest
Period for a Eurodollar Loan, the quotient of (i) the offered rate quoted by
the Reference Bank in the interbank Eurodollar market in New York, New York or
London, England on or about 11:00 a.m. (New York or London time, as the case
may be) two (2) Business Days prior to such Interest Period for U.S. dollar
deposits of an aggregate amount comparable to the principal amount of the
Eurodollar Loan to which the Quoted Rate is to be applicable and for a period
comparable to such Interest Period, divided by (ii) one (1) minus the Reserve
Percentage. For purposes of this definition, (a) "Reserve Percentage" shall
mean with respect to any Interest Period, the percentage which is in effect on
the first day of such Interest Period under Regulation D as the maximum
reserve requirement for member banks of the Federal Reserve System in New York
City with deposits comparable in amount to those of the Reference Bank against
Eurocurrency Liabilities and (b) "Eurocurrency Liabilities" has the meaning
assigned to that term in Regulation D, as in effect from time to time. The
Quoted Rate for the applicable period shall be adjusted automatically on and
as of the effective date of any change in the applicable Reserve Percentage.
"Reference Bank" shall mean Creditanstalt AG, an Austrian banking
corporation acting through its Connecticut Branch; provided, however, that in
the event the Creditanstalt AG no longer announces a prime rate or provides a
Quoted Rate, the Reference Bank shall be such other bank or other financial
institution, having rates substantially similar to Creditanstalt AG, as the
Administrative Agent, in consultation with the Borrower, shall reasonably
select.
"Regulation D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System, as it may be amended from time to time.
"Reportable Event" shall have the meaning set forth in Section
4043 of ERISA.
"Request for a Letter of Credit" shall have the meaning given such
term in Section 2.13(a) hereof.
"Secured Indebtedness" shall mean, as applied to any Person, all
Indebtedness of such Person that is secured in whole or in part by a Lien on
any property of such Person.
"Senior Debt" shall mean all Funded Debt of the Borrower other
than Subordinated Debt.
<PAGE>
"Senior Debt Leverage Ratio" shall mean, as of the last day of any
fiscal quarter of Borrower, the ratio of (a) the aggregate amount of
Borrower's Senior Debt outstanding on such date, to (b) the Borrower's
Adjusted Cash Flow for the Calculation Period then ending, in each case
computed on a consolidated Basis for Borrower and its Subsidiaries in
accordance with GAAP.
"Solvent" shall mean, as to any Person, that such Person (a) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage, (b) is able to pay its debts
as they mature and (c) owns property whose fair salable value is greater than
the amount required to pay its debts (including contingent obligations).
"Stockholder Agreement" shall mean that certain Amended and
Restated Stockholder Agreement, dated as of the date hereof, by and among the
Borrower, Daniel J. Klein, Jamie E. Blech, Martin Kandl, Haeyoung Kandl,
Stanley A. Nice, John Clement, CCF FF-ITP, L.C., Indosuez IT Partners,
Wachovia Capital Associates, Inc. and the other stockholders of Borrower.
"Stock Pledge Agreement" shall mean that certain Stock Pledge
Agreement of even date herewith, as the same may be amended, restated,
supplemented or otherwise modified from time to time, by and between the
Borrower and the Collateral Agent, pursuant to which the Borrower pledges to
the Collateral Agent, for the benefit of the Lenders and the Agents, all of
the issued and outstanding Capital Stock of each Subsidiary of the Borrower.
"Subordinated Debt" shall mean collectively (a) the Subordinated
Seller Notes and (b) all other Indebtedness of the Borrower that is unsecured
and has been subordinated in right of payment to the payment in full of the
Obligations, all on terms and conditions satisfactory to the Agents and the
Majority Lenders.
"Subordinated Seller Notes" shall mean promissory notes issued by
Borrower as a portion of the consideration payable in connection with an
Acquisition permitted by, or consented to by the Majority Lenders in
accordance with, Section 7.5 hereof and which have been subordinated in right
of payment to the payment in full of the Obligations, all on terms and
conditions satisfactory to the Agents and the Majority Lenders.
"Subsidiary" shall mean, as to any Person, any other Person, of
which more than fifty percent (50%) of the outstanding shares of Capital Stock
or other ownership interest having ordinary voting power to elect a majority
of the board of directors of such corporation or similar governing body of
such other Person (irrespective of whether or not at the time stock or other
ownership interests of any other class or classes of such other Person shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by such Person or by
one or more "Subsidiaries" of such Person.
"Tax" shall mean and include any present or future tax, levy,
cost or charge of any nature imposed by any government or any authority or
political subdivision thereof, excluding taxes on or measured by the net
income of the Lender imposed by any jurisdiction in which the principal or
relevant lending office of the Lender is located.
"Termination Date" shall mean the earliest of (a) the Maturity
Date; (b) the date the Commitment is reduced to zero pursuant to Section 2.12
hereof; and (c) the date the Commitment is terminated pursuant to Section 10.2
hereof.
"Total Liabilities" shall mean all Obligations, Indebtedness or
other liabilities of any kind or nature, fixed or contingent, due or not due,
which, in accordance with GAAP, would be classified as a liability on the
consolidated balance sheet of the Borrower and its consolidated Subsidiaries,
together with any obligation, indebtedness or other liability of any kind or
nature, fixed or contingent, due or not due, which, in accordance with GAAP,
would be classified as a liability on the balance sheet of any Person other
than the Borrower and its consolidated Subsidiaries and which has been
Guaranteed by the Borrower or any of its consolidated Subsidiaries.
"Trade Secrets" shall mean (a) trade secrets, along with any and
all (b) income, royalties, damages and payments now and hereafter due and/or
payable to the Borrower with respect thereto, including, without limitation,
damages and payments for past or future infringements or misappropriations
thereof, (c) rights to sue for past, present and future infringements or
misappropriations thereof, and (d) all rights corresponding thereto throughout
the world.
"Trademark License" shall mean all of the following, whether now
owned or existing or hereafter acquired or arising or in which the Borrower
now has or hereafter acquires any rights: any written agreement granting any
right to use any Trademark or trademark registration.
<PAGE>
"Trademarks" shall mean all of the following, whether now owned or
existing or hereafter acquired or arising or in which the Borrower now has or
hereafter acquires any rights: (a) all trademarks (including service marks and
trade names, whether registered or at common law), registrations and
applications therefor, and the entire product lines and goodwill of the
business of the Borrower connected therewith and symbolized thereby, (b) all
renewals thereof, (c) all income, royalties, damages and payments now and
hereafter due or payable or both with respect thereto, including, without
limitation, damages and payments for past, present or future infringements or
misappropriations thereof, (d) all rights to sue for past, present and future
infringements or misappropriations thereof, and (e) all other rights
corresponding thereto throughout the world.
"UCC" shall mean the Uniform Commercial Code as in effect in the
State of New York.
"Working Capital" shall mean, as of any date, the amount by which
Borrower's Current Assets exceed Borrower's Current Liabilities.
1.2 Use of Defined Terms. All terms defined in this Agreement
and the Exhibits hereto shall have the same defined meanings when used in any
other Loan Document, unless the context shall require otherwise.
1.3 Accounting Terms; Calculations. All accounting terms not
specifically defined herein shall have the meanings generally attributed to
such terms under GAAP. Calculations hereunder shall be made and financial
data required hereby shall be prepared, both as to classification of items and
as to amounts, in accordance with GAAP, consistently applied (except as
otherwise specifically required herein).
1.4 Other Terms. All other terms used in this Agreement which
are not specifically defined herein but which are defined in the UCC shall
have the meanings set forth therein.
1.5 Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and the plural shall
include the singular. Titles of Articles and Sections in this Agreement are
for convenience only, and neither limit nor amplify the provisions of this
Agreement, and all references in this Agreement to Articles, Sections,
subsections, paragraphs, clauses, subclauses, Exhibits or Schedules shall
refer to the corresponding Article, Section, subsection, paragraph, clause,
subclause of, Exhibit or Schedule attached to, this Agreement, unless specific
reference is made to the articles, sections or other subdivisions of, exhibits
or schedules to, another document or instrument. All references to any
instrument, document or agreement shall, unless the context otherwise
requires, refer to such instrument, document or agreement as the same may be,
from time to time, amended, modified, supplemented, renewed, extended,
replaced or restated.
1.6 Exhibits. All Exhibits and Schedules attached hereto are by
reference made a part hereof.
<PAGE>
2. THE LOANS AND LETTERS OF CREDIT
2.1 Loans. Subject to the terms and conditions hereof and
provided that there exists no Default or Event of Default, each Lender
severally agrees to make one (1) or more loans (each a "Loan" and
collectively, the "Loans") to the Borrower, upon the Borrower's request
therefor made in accordance with the provisions of Section 2.2 hereof, from
time to time on any Business Day during the period from the date hereof and up
to, but not including, the Termination Date in an aggregate principal amount
not to exceed at any one time outstanding, an amount equal to (a) the lesser
of (i) the Commitment and (ii) the Borrowing Availability of the Borrower,
less (b) the aggregate Letter of Credit Obligations outstanding; provided,
however, that in the case of any Loan the proceeds of which are to be used for
the purpose of making an Acquisition, the principal amount of such Loan shall
not, unless the Majority Lenders otherwise agree, exceed the Borrowing
Availability of the business that is the subject of the Acquisition. The
Loans made by each Lender shall be evidenced by a promissory note,
substantially in the form of Exhibit F attached hereto, payable to the Lender
in the original principal face amount of such Lender's Commitment (together
with any and all amendments, modifications and supplements thereto, and any
renewals, replacements or extensions thereof, in whole or in part,
individually, a "Note" and collectively, the "Notes"). Prior to the
Termination Date, Loans may be borrowed, repaid and reborrowed in accordance
with the terms hereof. All Loans shall be payable in full on the Termination
Date.
2.2 Borrowing Procedures.
(a) The Borrower shall give the Administrative Agent notice of
each request for a Loan hereunder in accordance with Section 2.2 hereof. The
Administrative Agent shall promptly notify each Lender of any Notice of
Borrowing received hereunder. Not later than 11:00 a.m. (prevailing Eastern
time), on the date specified for each borrowing hereunder, each Lender shall
make available to the Administrative Agent the amount of the Loan to be made
by such Lender in accordance with such Lender's Commitment Percentage of the
Loan requested, in immediately available funds at an account of the
Administrative Agent designated by the Administrative Agent. The
Administrative Agent shall, subject to the terms and conditions of this
Agreement, not later than 2:00 p.m. (prevailing Eastern time) on the Business
Day specified for such borrowing, make such amount available to the Borrower
in same day funds at the office of Administrative Agent.
(b) Unless the Administrative Agent shall have been notified by
any Lender at least one (1) Business Day prior to the date on which any
Eurodollar Loan is to be made to the Borrower and not later than 11:00 a.m.
(prevailing Eastern time) on the date any Base Rate Loan is to be made, that
such Lender does not intend to make available to the Administrative Agent such
Lender's Commitment Percentage of such borrowing, the Administrative Agent may
assume that such Lender has made such amount available to the Administrative
Agent on the date of such Loan and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower a corresponding amount.
If such corresponding amount is not in fact made available to the
Administrative Agent by such Lender, the Administrative Agent shall be
entitled to recover such corresponding amount on demand from such Lender,
which demand shall be made in a reasonably prompt manner. If such Lender does
not pay such a corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent shall promptly notify the Borrower
and the Borrower shall pay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to recover from such
Lender interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by the Administrative Agent
to the Borrower to the date such corresponding amount as recovered by the
Administrative Agent at a rate per annum equal to the Federal Funds Rate, for
the first two (2) Business Days, and thereafter at the rate per annum then in
effect with respect to Base Rate Loans. Nothing herein shall be deemed to
relieve any Lender from its obligation to fulfill its Commitment or to
prejudice any rights which the Administrative Agent or the Borrower may have
against any Lender as a result of any default by such Lender hereunder.
<PAGE>
(c) Borrower agrees that, on the Effective Date, it shall borrow
Loans from the Lenders who are not party to the Original Loan Agreement and
repay Loans of the other Lenders such that, after giving effect thereto, the
Loans (including, without limitation, the principal amounts, types and (if
applicable) Interest Periods thereof) shall be held by the Lenders ratably in
accordance with their Commitment Percentage of the Commitment by reference to
the principal amounts of the Loans.
2.3 Loan Account; Statements of Account. The Administrative
Agent will maintain one or more loan accounts for the Borrower to which the
Administrative Agent will charge all amounts advanced to or for the benefit of
the Borrower hereunder or under any of the other Loan Documents and to which
the Administrative Agent will credit all amounts collected under each such
credit facility from or on behalf of the Borrower. The Administrative Agent
will account to the Borrower periodically with a statement of charges and
payments made pursuant to this Agreement, and each such account statement
shall be deemed final, binding and conclusive unless the Administrative Agent
is notified by the Borrower in writing to the contrary within thirty (30) days
of the date of each account statement. Any such notice shall only be deemed
an objection to those items specifically objected to therein. The unpaid
principal amount of the Loans, the unpaid interest accrued thereon, the
interest rate or rates applicable to such unpaid principal amount and the
accrued and unpaid fees, premiums and other amounts due hereunder shall at all
times be ascertained from the records of the Administrative Agent and such
records shall constitute prima facie evidence of the amounts so due and
payable.
2.4 Use of Proceeds.
(a) The proceeds of the Loans shall be used (i) for costs and
expenses related to the closing of Acquisitions, and (ii) for the purpose of
making one or more Intercompany Loans to Subsidiaries of Borrower; provided,
however, that the aggregate amount of such Intercompany Loans made to any
Subsidiary shall not exceed, at any one time outstanding, such Subsidiary's
Borrowing Availability.
(b) As a condition to the making of the initial Intercompany
Loan to each Subsidiary of the Borrower, the Borrower and/or such Subsidiary
shall execute and deliver to the Collateral Agent each of the following
instruments, documents and agreements, each in form and substance satisfactory
to the Collateral Agent in its sole discretion:
(i) an Intercompany Loan and Security Agreement;
(ii) an Intercompany Guaranty;
(iii) if such Subsidiary has Subsidiaries of its own, an Intercompany
Pledge Agreement, pledging to the Borrower, as security for such Intercompany
Loan, all of the issued and outstanding shares of Capital Stock or other
ownership interests in all Subsidiaries of such Subsidiary;
(iv) UCC-1 Financing Statements for each jurisdiction in which
such Subsidiary maintains or is deemed to maintain any personal property,
which UCC-1 Financing Statements names such Subsidiary as the debtor, the
Borrower as the secured party, and the Collateral Agent as assignee of the
secured party;
(v) an Addendum to Master Subsidiary Guaranty, pursuant to which such
Subsidiary becomes a party to the Master Subsidiary Guaranty and guarantees
the payment and performance of the Obligations (as defined in the Master
Subsidiary Guaranty);
(vi) an Addendum to Master Subsidiary Security Agreement, pursuant to
which such Subsidiary becomes a party to the Master Subsidiary Security
Agreement and grants a Lien on all of its assets as security for the
Obligations (as defined in the Master Subsidiary Security Agreement);
(vii) an Addendum to Master Subsidiary Pledge Agreement, amending the
Master Subsidiary Pledge Agreement to pledge all of the issued and outstanding
shares of Capital Stock or other ownership interest in such Subsidiary and in
all Subsidiaries of such Subsidiary, if any, to the Collateral Agent as
security for the Obligations;
(viii) an Addendum to Master Contribution and Indemnity Agreement,
amending the Master Contribution and Indemnity Agreement executed by and
between the Subsidiaries of the Borrower with respect to the Obligations of
such Subsidiaries (as defined in the Master Contribution and Indemnity
Agreement);
<PAGE>
(ix) an amendment to the Stock Pledge Agreement, amending the Stock
Pledge Agreement to pledge all of the issued and outstanding shares of Capital
Stock or other ownership interest in such Subsidiary to the Collateral Agent
as security for the Obligations;
(x) copies of all filing receipts or acknowledgments issued by
any Governmental Authority to evidence any filing or recordation necessary to
perfect the security interests of the Borrower or the Collateral Agent in the
personal property of such Subsidiary and evidence in a form acceptable to the
Collateral Agent that such security interests constitute valid and perfected
first priority security interests;
(xi) one or more assignments executed by the Borrower in favor of
the Collateral Agent assigning all of the Borrower's right, title and interest
in, to and under such Intercompany Loan Documents to which such Subsidiary is
a party to the Collateral Agent as security for the Obligations in accordance
with Section 4.2 hereof;
(xii) a certificate of the chief financial officer of the
Borrower
certifying that:
(A) both before and after giving effect to the making of
such Intercompany Loan, the representations and warranties set forth in
Article 5 of this Agreement and the applicable Intercompany Loan and Security
Agreement are true and correct in all material respects; and
(B) both before and after giving effect to the making of
such Intercompany Loan, no Default or Event of Default has occurred or is
continuing;
(xiii) a certificate of the Secretary of such Subsidiary
dated as of the closing date of the Intercompany Loan and Security Agreement
certifying (A) that attached thereto is a true and correct copy of the By-laws
of such Subsidiary, as in effect on the date of such certification, (B) that
attached thereto is a true and complete copy of Resolutions adopted by the
Board of Directors of such Subsidiary, authorizing the execution, delivery and
performance of such Intercompany Loan and Security Agreement, Intercompany
Guaranty and the agreements, documents and instruments executed and delivered
in connection therewith; and (C) as to the incumbency and genuineness of the
signatures of the officers of such Subsidiary executing such Intercompany Loan
Agreement, Intercompany Guaranty or any of the agreements, documents or
instruments to be executed in connection therewith;
(xiv) an opinion of counsel to such Subsidiary and the Borrower,
substantially in the form of Exhibit G hereto; and
(xv) such other instruments, documents and agreements as the Collateral
Agent may reasonably request.
(c) No portion of the proceeds of any Loan may be used by the
Borrower in any manner which would cause such Loan or the application of the
proceeds thereof to violate any of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
2.5 Several Obligations of the Lenders; Remedies Independent.
The failure of any Lender to make any Loan to be made by it on the
date specified therefor shall not relieve any other Lender of its obligation
to make any Loan to be made by it on such date, but neither any Lender nor any
Agent shall be responsible for the failure of any other Lender to make a Loan
to be made by such other Lender. The amounts payable by the Borrower at any
time hereunder and under the Note to each Lender shall be a separate and
independent debt and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and its Note, and it shall not be
necessary for any other Lender or Agent to consent to, or be joined as an
additional party in, any proceeding for such purposes.
<PAGE>
2.6 Letters of Credit.
(a) Subject to the terms and conditions hereof and provided that
there exists no Default or Event of Default, at any time and from time to time
from the Effective Date to (but not including) the Maturity Date, the LC
Issuer agrees, in reliance upon the agreement of the Lenders set forth in
Section 2.6(c) below, to issue, for the account of the Borrower, such Letters
of Credit as the Borrower may request by a Request for Letter of Credit (in
the manner described in Section 2.6(b)), each in such form as may be requested
from time to time by the Borrower and agreed to by the LC Issuer; provided,
however, that after giving effect to the issuance of any such Letter of
Credit, (i) the aggregate amount of all Letter of Credit Obligations of the
Borrower outstanding at any one time does not exceed $1,000,000, and (ii) the
aggregate amount of all outstanding Loans, together with all outstanding
Letter of Credit Obligations, will not exceed the lesser of (A) the Commitment
and (B) the Borrowing Availability of the Borrower. No Letter of Credit shall
be issued by the LC Issuer under this Section 2.6(a) except to the extent
reasonably necessary in connection with transactions in the ordinary course of
business of the Borrower and its Subsidiaries. The expiration date of any
such Letter of Credit shall not extend beyond the earliest of (i) one (1) year
from the date of issuance thereof, (ii) the Maturity Date, and (iii) any date
fixed for termination of the Commitment pursuant to Section 2.12 hereof.
(b) Each request by the Borrower to the LC Issuer for a Letter of
Credit shall either be oral, with prompt written confirmation, which may be by
telecopy; or in writing, with such written confirmation or writing to be
substantially in the form of Exhibit H attached hereto (a "Request for Letter
of Credit") and shall be effective only if received by LC Issuer prior to
10:00 a.m. (prevailing Eastern time) at least three (3) Business Days prior to
the date when such Letter of Credit is required, accompanied by an appropriate
letter of credit application on the LC Issuer's customary form and such other
Letter of Credit Documents (including, without limitation, a reimbursement
agreement) in such form and containing such terms and conditions as the LC
Issuer requires, executed by the chief executive officer of the Borrower.
Promptly upon receipt of a Request for a Letter of Credit, the LC Issuer will
notify the Administrative Agent and each Lender of such request.
(c) Simultaneously with the issuance by the LC Issuer of any
Letter of Credit under Section 2.6(a) above, each Lender shall be deemed to
have irrevocably and unconditionally purchased and received from the LC
Issuer, without recourse or warranty, an undivided interest and participation
in such Letter of Credit (including, without limitation, all obligations of
the Borrower with respect thereto) and any security therefor or guaranty
pertaining thereto, equal to such Lender's Commitment Percentage of such
Letter of Credit. Each Lender severally agrees that it shall be absolutely
liable, without regard to the occurrence of any Default or Event of Default or
any other condition precedent whatsoever, to the extent of such Lender's
Commitment Percentage, to reimburse the LC Issuer on demand for the amount of
each draft paid by the LC Issuer under such Letter of Credit to the extent
that such amount is not reimbursed by the Borrower. The failure of any Lender
to make available to the LC Issuer its Commitment Percentage of the
unreimbursed amount of any such payment shall not relieve any other Lender of
its obligation hereunder to make available to the LC Issuer its Commitment
Percentage of the unreimbursed amount of any payment on the date such payment
is to be made. The obligations of each Lender to make payments to the LC
Issuer with respect to any Letter of Credit and its participations therein
pursuant to the provisions of this Section or otherwise and the obligations of
the Borrower to make payments to the LC Issuer with respect to any Letter of
Credit shall be irrevocable, and shall not be subject to any qualification or
exception whatsoever.
<PAGE>
In the event that any payment by the Borrower received by the LC
Issuer with respect to a Letter of Credit and distributed by the LC Issuer to
the Lenders on account of their participations is thereafter set aside,
avoided or recovered from the LC Issuer in connection with any receivership,
liquidation, reorganization or bankruptcy proceeding, each Lender which
received such distribution shall, upon demand by the LC Issuer, contribute
such Lender's Commitment Percentage of the amount set aside, avoided or
recovered, together with interest at the rate required to be paid by the LC
Issuer upon the amount required to be repaid by it. Each Lender shall share,
pro rata, in accordance with its participating interest, in any interest (but
not in the processing, administration and similar fees charged by the LC
Issuer, which fees shall be solely for the account of the LC Issuer) which
accrues to the LC Issuer pursuant to any applicable reimbursement agreement.
(d) The Borrower hereby agrees to reimburse, within five (5)
Business Days after demand therefor, a principal amount equal to any payment
made by the LC Issuer in respect of any Letter of Credit, together with
interest on such amount from the date of any payment through the date of
payment by the Borrower at the per annum rate applicable to Base Rate Loans;
provided, however, that subject to the terms and conditions hereof the
Borrower may substitute for such payment a request made within the time
permitted hereunder for a Loan (which shall be a Base Rate Loan) in accordance
with Section 2.13. The principal amount of any such payment made by the
Borrower to the LC Issuer shall be used to reimburse the LC Issuer, or the
Lenders, as the case may be, for the payment made by it in respect of such
Letter of Credit.
(e) If the Borrower fails to make any payment as and when
required by Section 2.6(d), or if the Borrower fails to request a Loan in an
amount sufficient to pay the outstanding Letter of Credit Obligations, the LC
Issuer may, without notice to or the consent of the Borrower, deliver a Notice
of Borrowing to the Administrative Agent for a Loan in an aggregate amount
equal to the amount paid by the LC Issuer in respect of its Letter of Credit
Obligations pursuant to Section 2.6(c) above and, for this purpose, the
conditions precedent to the making of a Loan under this Agreement shall not
apply. The proceeds of such Loan shall be paid to the LC Issuer to reimburse
it for any pay-ments made by it in respect of such Letter of Credit
Obligations.
(f) The issuance of any supplement, modification, amendment,
renewal or extension to or of any Letter of Credit shall be treated in all
respects the same as the issuance of a new Letter of Credit, and each such
Letter of Credit, and all Letter of Credit Obliga-tions in respect thereof,
shall in each case remain subject to this Section 2.6.
(g) If any draft shall be presented or other demand for payment
shall be made under any Letter of Credit, the LC Issuer shall notify the
Administrative Agent and the Borrower of the date and amount of the draft
presented or demand for payment and of the date and time when it expects to
pay such draft or honor such demand for payment. If the Borrower fails to
reimburse the LC Issuer pursuant to the applicable reimbursement agreement as
provided in Section 2.6(d) above, the LC Issuer may at any time thereafter
notify the Administrative Agent and its Lenders of the amount of any such
unpaid reimbursement obligation. No later than 3:00 p.m. (prevailing Eastern
time) on the Business Day next following the receipt of such notice, each
Lender shall make available to the LC Issuer at the LC Issuer's principal
office in Greenwich, Connecticut, in immediately available funds, such
Lender's Commitment Percentage of such unpaid reimbursement obligation,
together with an amount equal to the product of (i) the average, computed for
the period referred to in clause (iii) below, of the weighted average interest
rate paid by the LC Issuer for federal funds acquired by the LC Issuer during
each day included in such period, times (ii) an amount equal to such Lender's
Commitment Percentage of such unpaid reimbursement obligation, times (iii) a
fraction, the numerator of which is the number of days that elapse from and
including the date the LC Issuer paid the draft presented for honor or
otherwise made payment to the date on which such Lender's Commitment
Percentage of such unpaid reimbursement obligation shall become immediately
available to the LC Issuer and the denominator of which is 360; provided,
however, that if the LC Issuer fails to give the Lenders notice the Borrower's
failure to reimburse the LC Issuer, as the case may be, within three (3)
Business Days following such failure, the Lenders shall be required to pay
interest only for the period from and including the date the LC Issuer made
payment through and including the third Business Day
<PAGE>
following such failure. The responsibility of the LC Issuer to the Borrower,
the Agents and the Lenders shall be only to determine that the documents
(including each draft) delivered under each Letter of Credit in connection
with such presentment shall be in conformity in all material respects with
such Letter of Credit.
(h) The Borrower's obligations under this Section 2.6 shall be
absolute and unconditional under any and all circumstances and irrespective of
the occurrence of any Default or Event of Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the LC Issuer, the Agents, any Lender or
any beneficiary of a Letter of Credit. The Borrower further agrees with the
LC Issuer, the Agents and the Lenders that the LC Issuer, the Agents and the
Lenders shall not be responsible for, and the Borrower's reimbursement
obligations under Section 2.6(d) shall not be affected by, among other things,
the validity or genuineness of documents or of any endorsements thereon, even
if such documents should in fact prove to be in any or all respects invalid,
fraudulent or forged, or any dispute between or among the Borrower, the
beneficiary of any Letter of Credit or any financing institution or other
party to which any Letter of Credit may be transferred or any claims or
defenses whatsoever of the Borrower against the beneficiary of any Letter of
Credit or any such transferee. Neither the LC Issuer, the Agents nor the
Lenders shall be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Borrower agrees
that any action taken or omitted by the LC Issuer, the Agents or any Lender
under or in connection with each Letter of Credit and the related drafts and
documents, if done in good faith and without gross negligence, shall be
binding upon the Borrower and shall not result in any liability on the part of
the LC Issuer, the Agents or any Lender to the Borrower.
(i) The LC Issuer shall be entitled to rely, and shall be fully
protected in relying, upon any Letter of Credit, draft, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document
believed by it in good faith to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel, independent accountants and other experts
selected by the LC Issuer. The LC Issuer shall be fully justified in failing
or refusing to take any action under this Agreement unless it shall first have
received such advice or concurrence of the Majority Lenders as it reasonably
deems appropriate or it shall first be indemnified to its reasonable
satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action.
(j) As between the Borrower, on the one hand, and the Agents and
the Lenders, on the other, the provisions of this Agreement, to the extent in
conflict with any provision of any Letter of Credit Documents, shall control.
2.7 Term; Termination. This Agreement shall terminate upon the
latest to occur of (a) the Termination Date; (b) the repayment and
satisfaction of all Obligations; and (c) the termination or expiration of all
Letters of Credit.
2.8 Loans in Excess of Limitations. The Borrower acknowledges
that neither the Lenders nor the LC Issuer are obligated and do not presently
intend to make Loans, incur Letter of Credit Obligations, or make other
extensions of credit to the Borrower the principal amount of which, in the
aggregate, at any time would exceed (a) the Commitment, (b) the Borrowing
Availability of the Borrower, or (c) with respect to advances for the purpose
of making an Acquisition, the Borrowing Availability of the business that is
the subject of the Acquisition. However, it is agreed that, should the Loans,
Letter of Credit Obligations or other extensions of credit incurred hereunder
exceed any of such limitations, all of the obligations of the Borrower to the
LC Issuer and the Lenders with respect to such Loans, Letter of Credit
Obligations and
<PAGE>
extensions of credit shall nevertheless constitute Obligations under this
Agreement and shall be entitled to the benefit of all Liens granted under this
Agreement and all other Loan Documents. Notwithstanding the foregoing, if any
amounts outstanding hereunder shall exceed any of such limitations, the
Borrower shall immediately repay such excess amounts to the Administrative
Agent.
2.9 Payments.
(a) Each payment by the Borrower on the Loans shall be made
prior to 1:00 p.m. (prevailing Eastern time) on the date due and shall be made
without set-off or counterclaim to the Administrative Agent at its principal
U.S. office located at 2 Greenwich Plaza, 4th Floor, Greenwich, Connecticut
06830 or at such other place or places as the Administrative Agent may
designate from time to time in writing to the Borrower. Each such payment
shall be in lawful currency of the United States of America and in immediately
available funds. The Administrative Agent shall promptly remit to each Lender
such Lender's share of any payment received by the Administrative Agent from
the Borrower.
(b) Each payment made by the Borrower hereunder to the LC
Issuer, any Agent or any Lender shall either (i) be exempt from, and be made
without reduction by reason of, any Tax or (ii) to the extent that any such
payment shall be subject to any Tax, be accompanied by an additional payment
by the Borrower of such amount as may be necessary so that the net amount
received by the LC Issuer, each Agent and each Lender (after deducting all
applicable Taxes) is the same as the LC Issuer, each Agent and each such
Lender would have received had such payment not been subject to such Tax.
Upon any payment of Tax by the Borrower, the Borrower shall promptly (and in
any event within thirty (30) days) furnish to the Administrative Agent such
tax receipts, certificates and other evidence of such payment as the Borrower
may have or any Agent, the LC Issuer or any Lender may reasonably request.
(c) If the due date of any payment hereunder or under the Note
would otherwise fall on a day which is not a Business Day, then such payment
shall be due on the next succeeding Business Day and interest shall be payable
on the principal amount of such payment for the period of such extension. If
the Administrative Agent has not received any payment due hereunder by the
close of business on the date such payment is due, the Borrower authorizes the
Administrative Agent, at its option, to submit, on Borrower's behalf, a Notice
of Borrowing for the amount of such payment, to cause the Lenders to make a
Loan in the amount of such payment and to apply the proceeds of such Loan to
such payment.
2.10 Prorata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing from the Lenders under Sections 2.1 hereof shall be
made from the Lenders and each payment of its Commitment Fee under Section 3.5
hereof and of the Letter of Credit fee under Section 3.6 hereof shall be made
to the Administrative Agent for the account of the Lenders pro rata according
to their respective Commitment Percentages; (b) each termination or reduction
of the amount of the Commitments under Section 2.12 hereof shall be applied to
the Lenders, pro rata according to their respective Commitment Percentages;
(c) the making, Conversion and Continuation of Loans of a particular type
shall be made pro rata among the Lenders according to their respective
Commitment Percentages and then current Interest Period for each Eurodollar
Loan shall be coterminous; (d) each payment or prepayment of principal of
Loans by the Borrower shall be made for the account of the Lenders pro rata in
accordance with their respective Commitment
<PAGE>
Percentages; provided, that if immediately prior to giving effect to any such
payment in respect of any Loans the outstanding principal amount of the Loans
shall not be held by the Lenders pro rata in accordance with their respective
Commitment Percentages in effect at the time such Loans were made (by reason
of a failure of a Lender to make a Loan hereunder in the circumstances
described in the last paragraph of Section 13.8 hereof), then such payment
shall be applied to the Loans in such manner as shall result, as nearly as is
practicable in the judgment of the Administrative Agent, in the outstanding
principal amount of the Loans being held by the Lenders prorata in accordance
with their respective Commitment Percentages; and (e) each payment of interest
on Loans by the Borrower shall be made for account of the Lenders prorata in
accordance with the amounts of interest on such Loans then due and payable to
the respective the Lenders.
2.11 Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Lender
may otherwise have, each Lender shall be entitled, at its option, to offset
balances held by it for account of the Borrower at any of its offices, in
dollars or in any other currency, against any principal of or interest on any
of such Lender's Loans or any other amount payable to such Lender hereunder,
that is not paid when due (regardless of whether such balances are then due to
the Borrower), in which case it shall promptly notify the Borrower and the
Administrative Agent thereof; provided that such Lender's failure to give such
notice shall not affect the validity thereof.
(b) If any Lender shall obtain from the Borrower payment of any
principal of or interest on any Loan owing to it or payment of any other
amount under this Agreement through the exercise of any right of set-off,
banker's lien or counterclaim or similar right or otherwise (other than from
the Administrative Agent as provided herein), and, as a result of such
payment, such Lender shall have received more than its Commitment Percentage
of the principal of or interest on the Loans or such other amounts then due
hereunder by such Borrower, it shall promptly notify the Administrative Agent
of such payment and promptly purchase from such other the Lenders
participations in (or, if and to the extent specified by such Lender, direct
interests in) the Loans or such other amounts, respectively, owing to such
other the Lenders (or in interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of such
excess payment (net of any expenses that may be incurred by such Lender in
obtaining or preserving such excess payment) prorata in accordance with the
unpaid principal of and/or interest on the Loans or such other amounts,
respectively, owing to each of the Lenders; provided, that if at the time of
such payment the outstanding principal amount of the Loans shall not be held
by the Lenders in accordance with their respective Commitment Percentages in
effect at the time such Loans were made (by reason of a failure of a Lender to
make a Loan hereunder in the circumstances described in the last paragraph of
Section 13.8 hereof), then such purchases of participations and/or direct
interests shall be made in such manner as will result, as nearly as is
practicable in the judgment of the Administrative Agent, in the outstanding
principal amount of the Loans being held by the Lenders according to each
Lender's Commitment Percentage. To such end all the Lenders shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored.
(c) The Borrower agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off,
banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans or
other amounts (as the case may be) owing to such Lender in the amount of such
participation.
<PAGE>
(d) Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise,
and retain the benefits of exercising, any such right with respect to any
other indebtedness or obligation of the Borrower. If, under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured
claim in lieu of a set-off to which this Section 2.11 applies, such Lender
shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section 2.11 to share in the benefits of any recovery on such
secured claim.
2.12 Prepayment; Commitment Reduction.
(a) On April 1 of each fiscal year, commencing with the fiscal
year following the fiscal year in which the sum of the aggregate outstanding
principal balance of the Loans and aggregate outstanding Letter of Credit
Obligations first equals or exceeds Sixty-Five Million Dollars ($65,000,000),
the aggregate amount of the Commitments shall be reduced by an amount equal
to, and the Borrower shall prepay the outstanding Loans in an amount equal to,
sixty percent (60%) of Borrower's Excess Cash Flow for the immediately
preceding fiscal year; provided, however, that Borrower shall not be required
to reduce the Commitments below $10,000,000 pursuant to this Section 2.12(a).
(b) Concurrently with the closing of any sale by Borrower of
shares of its Capital Stock in an offering registered under the Securities Act
of 1933, as amended, Borrower shall prepay the Loans in an amount equal to
(i) the net cash proceeds received by the Borrower from the sale of such
shares of Capital Stock less (ii) any prepayments of Subordinated Seller Notes
made currently with such closing, to the extent such prepayments are permitted
by Section 7.12 hereof.
(c) Subject to the other terms and conditions hereof, upon
written notice to the Administrative Agent in accordance with Section 13.7,
the Borrower may, at its option, reduce the Commitment, in whole or in part,
in integral multiples of $500,000, on the date specified in such notice, by
paying to the Lender the accrued amount of the Commitment Fee applicable to
the amount of the Commitment reduction.
(d) In no event may the Borrower reduce the Commitment below the
sum of (i) the principal amount of Loans outstanding hereunder and (ii) the
Letter of Credit Obligations.
(e) The Commitment shall be automatically reduced to zero on the
Maturity Date.
(f) The Commitment, once terminated or reduced, may not be
reinstated or increased.
(g) The Borrower may prepay the Loan, in whole or in part, as
provided in Section 2.13, provided, however, that the Borrower may not prepay
any Loan which is a Eurodollar Loan prior to the last day of the Interest
Period applicable to such Eurodollar Loan unless the Borrower pays to the
Administrative Agent, for the benefit of the Lenders, concurrently with such
prepayment, all amounts payable to the Lenders pursuant to Section 3.10
hereof.
<PAGE>
2.13 Certain Notices; Minimum Amounts.
(a) All notices given by the Borrower to the Administrative
Agent hereunder of terminations or reductions of the Commitment, or of
borrowings, Conversions, Continuations or prepayments of Loans hereunder shall
either be oral, with prompt written confirmation, which may be by telecopy; or
in writing, with such written confirmation or writing, in the case of a
borrowing, to be substantially in the form of Exhibit I attached hereto (a
"Notice of Borrowing"); shall be irrevocable; shall be effective only if
received by the Administrative Agent prior to 10:00 a.m. (prevailing Eastern
time) on a Business Day which is: (i) at least fifteen (15) days prior to any
such termination or reduction of the Commitment; (ii) not later than one (1)
Business Day prior to the date such Loan is to be made as, Converted to or
Continued as a Base Rate Loan; (iii) at least three (3) Business Days prior to
the date such Loan is to be made as, Converted to or Continued as a Eurodollar
Loan; (iv) at least five (5) days prior to any such prepayment, in the case of
a prepayment of a Eurodollar Loan; and (v) not later than the date of any such
prepayment, in the case of a prepayment of a Base Rate Loan. Each such notice
to reduce the Commitment or to prepay the Loans shall specify the amount of
the Commitment to be reduced or of the Loans to be prepaid and the date of
such reduction or prepayment. Each such notice of borrowing, Conversion or
Continuation shall specify: (1) the amount of such borrowing, Conversion or
Continuation; (2) that the amount of the Loan to be made, Converted or
Continued, when aggregated with all other Loans to be outstanding following
the funding, Conversion or Continuation of such Loan, does not exceed the
Borrowing Availability; (3) whether such Loan will be made, Converted or
Continued as a Eurodollar Loan or as a Base Rate Loan; (4) the date such Loan
is to be made, Converted or Continued (which shall be a Business Day and, if
such Loan is to Convert or Continue a Eurodollar Loan then outstanding, shall
not be prior to the last day of then current Interest Period for such
outstanding Loan); and (5) if such Loan is a Eurodollar Loan, the duration of
the Interest Period with respect thereto. If the Borrower fails to specify
the duration of the Interest Period for any Eurodollar Loan, the Borrower
shall instead be deemed to have requested that such Loan be made as, Converted
to or Continued as a Base Rate Loan. Each request for a borrowing, Conversion
or Continuation of a Loan, for the issuance of a Letter of Credit or for any
other financial accommodation by the Borrower pursuant to this Agreement or
the other Loan Documents shall constitute (x) an automatic warranty and
representation by the Borrower to each Lender that there does not then exist a
Default or Event of Default or any event or condition which, with the making
of such Loan or the issuance of such Letter of Credit, would constitute a
Default or Event of Default and (y) an affirmation that as of the date of such
request all of the representations and warranties of the Borrower contained in
this Agreement and
<PAGE>
the other Loan Documents are true and correct in all material respects, both
before and after giving effect to the making of such Loan or the issuance of
such Letter of Credit. If on the last day of the Interest Period of any
Eurodollar Loan hereunder, the Administrative Agent has not received a timely
notice hereunder to Convert, Continue or prepay such Loan, the Borrower shall
be deemed to have submitted a notice to Convert such Loan to a Base Rate Loan.
(b) Except for mandatory prepayments made pursuant to Section
2.8 hereof and Conversions or prepayments made pursuant to Section 3.7 hereof,
each borrowing, Conversion and partial prepayment of principal of Loans shall
be in a minimum principal amount of $100,000 and shall be in an integral
multiple of $100,000 (borrowings, Conversions or prepayments of or into Loans
of different types or, in the case of Eurodollar Loans, having different
Interest Periods at the same time hereunder to be deemed separate borrowings,
Conversions and prepayments for purposes of the foregoing, one for each type
of Loan or Interest Period).
3. FEES AND INTEREST
3.1 Interest.
(a) Subject to modification pursuant to Section 10.1 hereof, the
average daily outstanding principal amount of the Obligations (other than
Obligations representing the undrawn amount of outstanding Letters of Credit)
shall bear interest from the date thereof until paid in full at the following
rates:
(i) the outstanding principal amount of each Eurodollar
Loan shall bear interest at a fixed rate of interest per annum equal to the
Quoted Rate for then-current Interest Period for such Loan plus the Applicable
Margin for Eurodollar Loans, calculated daily on the basis of a 360-day year
and actual days elapsed; or
(ii) the outstanding principal amount of each Base Rate
Loan, Letter of Credit Obligations and all other sums payable by the Borrower
hereunder shall bear interest at a fluctuating rate per annum equal to the
Base Lending Rate plus the Applicable Margin for Base Rate Loans, calculated
daily on the basis of a 360-day year and actual days elapsed; and
(iii) the amount of any payment of principal and, to the
extent permitted by Applicable Law, interest or other amount payable hereunder
which is not paid when due, shall, at the election of the Administrative
Agent, bear interest at the Default Rate.
(b) Accrued interest shall be payable (i) in the case of Base
Rate Loans, monthly on the first day of each month hereafter for the previous
month, commencing April 1, 1998; (ii) in the case of a Eurodollar Loan, on the
last day of each Interest Period, provided, however, that if any Interest
Period in respect of a Eurodollar Loan is longer than three (3) months, such
interest prior to maturity shall be paid on the last Business Day of each
three (3) month interval within such Interest Period as well as on the last
day of such Interest Period; (iii) in the case of any Loan, upon the payment
or prepayment thereof; (iv) in the case of any other sum payable hereunder as
set forth elsewhere in this Agreement or, if not so set forth, on demand; and
(i) in the case of interest payable at the Default Rate, on demand.
3.2 Interest Period. The Interest Period for any Eurodollar
Loan shall commence on the date such Loan is made, Converted or Continued as
specified in the notice delivered pursuant to Section 2.13 hereof applicable
thereto and shall continue for a period of one (1), two (2), three (3) or six
(6) months, as specified in such notice for such Eurodollar Loan. If the
Borrower fails to specify the duration of the Interest Period for any
Eurodollar Loan in the notice therefor delivered pursuant to Section 2.13
hereof, such Loan shall instead be made or Converted, as appropriate, as a
Base Rate Loan.
<PAGE>
3.3 Limitations on Interest Periods. The Borrower may not
select any Interest Period for any Eurodollar Loan which extends beyond the
Maturity Date. Notwithstanding any other provision hereof to the contrary,
the Borrower shall not have, in the aggregate for all Loans outstanding, more
than four (4) different Interest Periods at any given time during the term of
this Agreement (for which purpose Base Rate Loans shall be counted as an
Interest Period).
3.4 Conversions and Continuations. So long as there then
exists no Default or Event of Default hereunder, the Borrower shall have the
right, on any Business Day, from time to time, upon written notice in
accordance with Section 2.13 hereof, to Convert Loans of one type to Loans of
the other type and to Continue Loans of one type as Loans of the same type;
provided that a Eurodollar Loan may not be Converted to a Base Rate Loan prior
to the end of the Interest Period applicable thereto. The Borrower agrees
that, if it shall fail to repay any Loan or portion thereof when due (whether
by acceleration or otherwise) and the Loan at such maturity is being
maintained as a Eurodollar Loan, the Administrative Agent, without limiting
the rights of the Agents or the Lenders hereunder or under the Note evidencing
such Loan, may at any time and from time to time after such due date Convert
to another type of Loan or Continue such Loan as a Loan of the same type.
3.5 Commitment Fee. The Borrower hereby agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee (the
"Commitment Fee"), calculated on the basis of a 360-day year and actual days
elapsed, equal to one-half of one percent (1/2 of 1%) per annum of the average
daily amount by which the Commitment exceeds the sum of the aggregate
principal amount of the outstanding Loans plus the aggregate outstanding
Letter of Credit Obligations, payable on the first day of each calendar
quarter thereafter for the previous calendar quarter or portion thereof
(commencing with the first such date following the Effective Date) and on the
Termination Date.
3.6 Letter of Credit Fees. As additional consideration for the
issuance of any Letters of Credit pursuant to Section 2.6 hereof, the Borrower
hereby agrees to pay to the Administrative Agent for the account of each
Lender, in addition to the processing, administrative and similar fees charged
by the LC Issuer in connection with the issuance of Letters of Credit and any
other sums due pursuant to Section 2.6 hereof, a letter of credit fee on the
average daily aggregate undrawn amount of the Letters of Credit at a per annum
rate equal to the Applicable Margin for Letter of Credit, calculated on the
basis of a 360-day year and actual days elapsed, payable on the first day of
each calendar quarter for the previous calendar quarter or portion thereof
(commencing with the first such date following the Effective Date) and on the
Termination Date.
3.7 Illegality. Notwithstanding any other provision of this
Agreement to the contrary, in the event that it shall become unlawful for any
Lender to obtain funds in the London interbank market or for any Lender to
maintain a Eurodollar Loan, then such Lender shall promptly notify the
Administrative Agent and the Borrower whereupon (a) the right of Borrower to
request any Eurodollar Loan shall thereupon terminate and (b) any Eurodollar
Loan then outstanding shall commence to bear interest at the rate applicable
to Base Rate Loans on the last day of the then applicable Interest Period or
at such earlier time as may be required by Applicable Law.
3.8 Inability to Determine Quoted Rate. In the event that
Administrative Agent determines (which determination shall be conclusive
absent manifest error) that, by reason of circumstances affecting the London
interbank market, quotation of interest rates for the relevant deposits
referred to in the definition of the "Quoted Rate" herein are not being
provided in the relevant amounts or for the relevant maturities for the
purpose of determining rates of interest for a Eurodollar Loan, Administrative
Agent will give notice of such determination to Borrower and each Lender at
least one day prior to the date specified in such
<PAGE>
notice of borrowing, Conversion or Continuation for such Loan to be made. If
any such notice is given, no Lender shall have any obligation to make
available, maintain, Convert or Continue Eurodollar Loans. Until the earlier
of the date any such notice has been withdrawn by Administrative Agent or the
date when Administrative Agent, the Lenders and Borrower have mutually agreed
upon an alternate method of determining the rates of interest payable on a
Eurodollar Loan, as the case may be, Borrower shall not have the right to have
or maintain any Eurodollar Loan.
3.9 Increased Costs and Reduced Return.
(a) If any event shall occur (whether in the form of a reserve
requirement (not included in the definition of the Quoted Rate), exchange
control regulations, governmental charges, compliance with any guideline or
request from any central bank or other Governmental Authority, changes in the
interbank eurodollar market or the position of any Lender in such market or
otherwise) and the result of any such event is, in any Lender's reasonable
judgment, to increase the costs which such Lender determines are attributable
to its making or maintaining any Eurodollar Loan, or its obligation to make
available any Eurodollar Loan or to reduce the amount of any sum received or
receivable by such Lender under this Agreement or the Note with respect to any
Eurodollar Loan, then, within ten (10) days after demand by such Lender, the
Borrower hereby agrees to pay to such Lender such additional amount or amounts
as will compensate such Lender for such increased cost or reduction.
(b) In addition to any amounts payable pursuant to Section
3.9(a) above, if the LC Issuer or any Lender shall have determined that the
adoption after the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
enforcement or interpretation or administration of any of the foregoing by any
court or any central bank or other Governmental Authority, charged with the
enforcement or interpretation or administration thereof, or compliance by the
LC Issuer or any Lender (or any lending office of any Lender) or the LC
Issuer's or such Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the LC Issuer's or such Lender's
capital or on the capital of the LC Issuer's or such Lender's holding company,
if any, as a consequence of its making or maintaining any Loan, its incurring
any Letter of Credit Obligations, or its incurring any obligations under this
Agreement to a level below that which the LC Issuer or such Lender or the LC
Issuer's or such Lender's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into consideration the
LC Issuer's or such Lender's policies and the policies of the LC Issuer's or
such Lender's holding company with respect to capital adequacy) by an amount
deemed by the LC Issuer or such Lender to be material, then, upon demand by
the LC Issuer or such Lender, the Borrower hereby agrees to pay to the LC
Issuer or such Lender from time to time such additional amount or amounts as
will compensate the LC Issuer or such Lender or the LC Issuer's or such
Lender's holding company for any such reduction suffered.
3.10 Indemnity. The Borrower hereby indemnifies and agrees to
hold harmless each Agent and each Lender from and against any and all losses
or expenses which it may sustain or incur as a consequence of failure by the
Borrower to consummate any notice of prepayment, borrowing, Conversion or
Continuation made by the Borrower, including, without limitation, any such
loss or expense arising from interest or fees payable by any Lender to lenders
of funds obtained by it in order to maintain any Eurodollar Loan. The
Borrower hereby further indemnifies and agrees to hold harmless each Agent and
each Lender from and against any and all losses or expenses which it may
sustain or incur as a consequence of prepayment of any Eurodollar Loan on
other than the last day of the Interest Period for such Loan (including,
without limitation, any prepayment pursuant to Sections 2.12, 3.7 and 3.12).
The Borrower's obligations under this Section shall survive the termination of
this Agreement and the repayment of the Obligations.
<PAGE>
3.11 Notice of Amounts Payable. If any Agent, the LC Issuer or
any Lender shall seek payment of any amounts from the Borrower pursuant to
Sections 2.9(b), 3.9 or 3.10 hereof, it shall notify the Administrative Agent
and the Borrower of the amount payable by the Borrower thereunder. A
certificate of such Agent, the LC Issuer or such Lender seeking payment
pursuant to Sections 2.9(b), 3.9 or 3.10 hereof, setting forth in reasonable
detail the factual basis for and the computation of the amounts specified,
shall be conclusive and binding on all parties for all purposes, absent
manifest error, as to the amounts owed. The Borrower's obligations under this
Section shall survive the termination of this Agreement and the repayment of
the Obligations.
3.12 Interest Savings Clause. Nothing contained in this
Agreement or in the Notes or in any Letter of Credit Documents or in any of
the other Loan Documents shall be construed to permit any Lender to receive at
any time interest, fees or other charges in excess of the amounts which such
Lender is legally entitled to charge and receive under any law to which such
interest, fees or charges are subject. In no contingency or event whatsoever
shall the compensation payable to such Lender by the Borrower, howsoever
characterized or computed, hereunder or under the Note or under any other
agreement or instrument evidencing or relating to the Obligations, exceed the
highest rate permissible under any law to which such compensation is subject.
There is no intention that any Lender shall contract for, charge or receive
compensation in excess of the highest lawful rate, and, in the event it should
be determined that any excess has been charged or received, then, ipso facto,
such rate shall be reduced to the highest lawful rate so that no amounts shall
be charged which are in excess thereof; and such Lender shall apply such
excess against the Loans then outstanding (with such application being made
first against the Base Rate Loans, to the extent thereof, second against the
Eurodollar Loans, to the extent thereof, and then to any other Obligations
hereunder) and, to the extent of any amounts remaining thereafter, refund such
excess to the Borrower.
4. SECURITY INTEREST - COLLATERAL
4.1 Security Interest. As security for the Obligations, the
Borrower hereby reconfirms its grant made pursuant to the Original Loan
Agreement, and hereby grants to the Collateral Agent, for the benefit of the
Lenders, a continuing, first priority Lien (except for Permitted Liens) on and
security interest in and to the following described property of the Borrower,
whether now owned or existing or hereafter acquired or arising or in which the
Borrower now has or hereafter acquires any rights and wheresoever located
(sometimes herein collectively referred to as "Collateral"):
(a) Accounts;
(b) Chattel Paper;
(c) Contracts;
(d) Documents;
(e) Equipment;
(f) General Intangibles;
(g) Investment Property;
(h) Instruments;
(i) Inventory;
<PAGE>
(j) All Intercompany Loan and Security Agreements and all other
Loan Documents entered into from time to time and the rights of the Borrower
thereunder, including, without limitation, any security interest in any and
all assets of each Subsidiary of the Borrower granted to the Borrower by such
Subsidiary pursuant to an Intercompany Loan and Security Agreement;
(k) all monies, residues and property of any kind of the
Borrower now or at any time or times hereafter, in the possession or under the
control of any Agent or any Lender or a bailee of the Collateral Agent, the
Co-Agent or any Lender;
(l) all books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs and other computer
materials and records) of the Borrower pertaining to any of the foregoing;
(m) all accessions to, substitutions for and all replacements,
products and Proceeds of the foregoing, including, without limitation,
proceeds of insurance policies insuring the Collateral; and
(n) any and all other property of the Borrower.
4.2 Additional Collateral. As additional security for the
Obligations, the Borrower shall pledge to the Collateral Agent, for the
benefit of the Lenders, (i) pursuant to the terms and conditions of the Stock
Pledge Agreement, all of the issued and outstanding shares of Capital Stock of
each Subsidiary which it currently holds or holds subsequent to the Effective
Date, (ii) each Intercompany Loan and Security Agreement that it may become a
party to subsequent to the Effective Date and all Intercompany Loan Documents
executed in connection with such Intercompany Loan. The Borrower agrees that
all of such additional security described in this Section 4.2 shall be
included in the "Collateral."
4.3 Perfection of Security Interest. Until the termination of
this Agreement in accordance with the terms of Section 2.7 hereof, the
Collateral Agent's Lien in the Collateral and all products and Proceeds
thereof, shall continue in full force and effect. The Borrower shall perform,
and shall cause each of its Subsidiaries to perform, any and all steps
requested by the Collateral Agent or the Majority Lenders to perfect, maintain
and protect the Collateral's Lien in the Collateral including, without
limitation, executing and filing financing or continuation statements, or
amendments thereof, in form and substance satisfactory to the Collateral
Agent; delivering to the Collateral Agent upon the Collateral Agent's request
therefor all Documents, Instruments, Investment Property or Chattel Paper
included in the Collateral, the possession of which is necessary or
appropriate to perfect the Collateral Agent's Liens therein; delivering to the
Collateral Agent all letters of credit on which the Borrower or any of its
Subsidiaries is named as a beneficiary; and using best efforts to obtain and
deliver such consents and waivers from such landlords, developers or other
Persons as the Collateral Agent may request. The Collateral Agent may file
one or more financing statements disclosing the Collateral Agent's Liens under
this Agreement without the Borrower's signature appearing thereon and the
Borrower shall pay the costs of, or incidental to, any recording or filing of
any financing statements concerning the Collateral. The Borrower agrees that
a carbon, photographic, photostatic, or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement.
4.4 Right to Inspect; Verifications. Each Agent and each Lender
(or any person or persons designated by it), in its sole discretion, shall
have the right to call at any place of business or property location of the
Borrower or any of its Subsidiaries at any reasonable time during business
hours, and, without hindrance or delay, to inspect the Collateral and to
inspect, audit, check and make extracts from the books, records, journals,
orders, receipts and any correspondence and other data of the Borrower or any
of its Subsidiaries relating to the Collateral, to the business of the
Borrower or such Subsidiary, or to any other transactions between the parties
hereto and to discuss any of the foregoing with any of the
<PAGE>
employees, officers and directors of the Borrower or any of its Subsidiaries
and with the independent accountants for the Borrower. Additionally, the
Collateral Agent may, at any time and from time to time in its sole
discretion, require the Borrower to verify the individual Accounts immediately
upon its request therefor.
5. REPRESENTATIONS AND WARRANTIES
In order to induce the Agents, the LC Issuer and the Lenders to enter
into this Agreement and to make Loans hereunder, the Borrower hereby makes the
following representations and warranties to the Agents and the Lenders, which
shall be true and correct in all material respects on the date hereof and
shall continue to be true and correct in all material respects at the time of
the making of any Loan and until the Loans have been repaid in full:
5.1 Corporate Existence and Qualification. The Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Borrower is duly qualified as a foreign
corporation in good standing in each state wherein the conduct of its business
or the ownership of its property requires such qualification. Schedule 5.1 is
a listing of each state where the Borrower or any of its Subsidiaries is duly
qualified as a foreign corporation.
5.2 Corporate Authority; Valid and Binding Effect. The Borrower
has the corporate power and authority to execute, deliver and perform under
this Agreement and the other Loan Documents, and to borrow hereunder, and has
taken all necessary and appropriate corporate action to authorize the
execution, delivery and performance of this Agreement and such other Loan
Documents. This Agreement and the other Loan Documents constitute the valid
and legally binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms; except that enforceability
may be limited by bankruptcy, insolvency and other laws affecting creditor's
rights generally and except that the availability of certain remedies may be
limited by general principles of equity.
5.3 No Conflict. The execution, delivery and performance by the
Borrower of this Agreement and the other Loan Documents (a) are not in
contravention of any provisions of Applicable Law applicable to the Borrower;
(b) will not violate or result in a default under any agreement or indenture
to which the Borrower is a party or by which the Borrower is bound; (c) do not
contravene the Articles of Incorporation or By-laws of the Borrower; and (d)
will not result in or require the creation or imposition of any Lien on any of
the property or assets of the Borrower or any of its Subsidiaries other than
Liens in favor of the Lender created by this Agreement or the Loan Documents.
5.4 Governmental Action. The execution, delivery and
performance of this Agreement and the other Loan Documents by the Borrower do
not require any registration with, consent or approval of, or any notice to,
or other action to, with or by any Governmental Authority except (a) filings,
consent or notices which have been obtained and a copy thereof furnished to
the Lender; and (b) filings necessary to perfect the Liens granted by this
Agreement and the Loan Documents.
5.5 No Litigation. Except as set forth on Schedule 5.5 hereto,
there are no proceedings pending or threatened against the Borrower or any of
its Subsidiaries before or by any court or administrative agency.
5.6 Solvency. After giving effect to the execution and delivery
of this Agreement and the Loan Documents, the consummation of the transactions
contemplated hereby and thereby and the making of each Loan and Intercompany
Loans hereunder, the Borrower and each of its Subsidiaries are Solvent.
5.7 Taxes. Except as set forth on Schedule 5.7 hereof, the
Borrower and each of its Subsidiaries has filed all federal, state, local and
foreign tax returns, reports and estimates which are required to be filed by
it and all taxes (including penalties and interest, if any) shown on such
returns, reports and estimates as being due and payable or which are otherwise
due and payable have been fully paid. Such tax returns properly and correctly
reflect the income and taxes of the Borrower or such Subsidiary for the
periods covered thereby. The federal tax identification number of Borrower
and each of its Subsidiaries is set forth on Schedule 5.7 attached hereto.
<PAGE>
5.8 Financial Information.
(a) The audited consolidated financial statements of Borrower
and its consolidated Subsidiaries for the fiscal year ending December 31, 1997
(the "Audited Financial Statements"), and the unaudited, interim consolidated
financial statements of Borrower and its consolidated Subsidiaries for the
one-month period ending January 31, 1998, including consolidated balance
sheets, consolidated income statements and consolidated statements of cash
flow, copies of which have been delivered by Borrower to the Administrative
Agent, are true and correct in all material respects and contain no material
misstatement or omission, and fairly present the consolidated financial
position, assets and liabilities of Borrower and its consolidated Subsidiaries
as of the respective dates thereof and the consolidated results of operations
of Borrower and its consolidated Subsidiaries for the respective periods then
ended, and as of the date thereof there were no liabilities of Borrower or its
consolidated Subsidiaries, fixed or contingent, which are material that were
not reflected in such financial statements.
(b) The forecasted financial statements of Borrower and its
Subsidiaries, consisting of balance sheets, income statements and cash flow
statements for Borrower and its Subsidiaries, and the projected schedules of
excess availability, giving effect to the consummation of the transactions
contemplated by this Agreement, covering the five-year period commencing on
January 31, 1997 and prepared on an annual basis (the "Projections"): (i) are
based on reasonable estimates and assumptions; and (ii) reflected, as of the
date prepared, and continue to reflect, as of the date of this Agreement, the
reasonable estimate of Borrower of the results of operations and other
information projected therein for the periods covered thereby.
(c) Since the date of the financial statements referred to in
Section 5.8(a), except as set forth in the financial statements referred to in
Section (b), there has been no material adverse change in the consolidated
assets, liabilities, financial position or results of operations of the
Borrower and its consolidated Subsidiaries, and neither the Borrower nor any
of its Subsidiaries have (i) incurred any obligation or liability, fixed or
contingent, which would materially and adversely affect its business,
operations, prospects or financial condition; (ii) incurred any Indebtedness
or Capital Lease Obligations other than the Obligations; or (iii) Guaranteed
the obligations of any other Person.
5.9 Title to Property. The Borrower and each of its
Subsidiaries has good and marketable title to or a valid leasehold interest in
all its real estate and valid and legal title to or a valid leasehold interest
in all the Collateral and all of its other assets, free and clear of any and
all Liens whatsoever except for Permitted Liens.
5.10 Violations of Law. Neither the Borrower nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation or
ordinance of any Governmental Authority, the violation of which might have a
Material Adverse Effect.
5.11 ERISA. Except as disclosed on Schedule 5.11 attached hereto
and incorporated herein by reference:
(a) Identification of Plans. Neither the Borrower nor any ERISA
Affiliate maintains or contributes to, or has maintained or contributed to,
any Plan or Multiemployer Plan that is subject to regulation by Title IV of
ERISA;
(b) Compliance. Each Plan has at all times been maintained, by
its terms and in operation, in accordance with all Applicable Laws; except for
such noncompliance (when taken as a whole) that will not have a Material
Adverse Effect;
(c) Liabilities. Neither the Borrower nor any ERISA Affiliate
is currently or, to the best knowledge of the Borrower or any ERISA Affiliate,
will become subject to any liability (including withdrawal liability), tax or
penalty whatsoever to any person whomsoever with respect to any Plan,
including, but not limited to, any tax, penalty or liability arising under
Title I or Title IV of ERISA or Chapter 43 of the Code, except such
liabilities (when taken as a whole) as will not have a Material Adverse
Effect;
(d) Funding. The Borrower and each ERISA Affiliate has made
full and timely payment of (i) all amounts required to be contributed under
the terms of each Plan and Applicable Law and (ii) all material amounts
required to be paid as expenses of each Plan. No
<PAGE>
Plan has any "amount of unfunded benefit liabilities" (as defined in Section
4001(a)(18) of ERISA); and
(e) Insolvency; Reorganization. No Plan is insolvent (within
the meaning of Section 4245 of ERISA) or in reorganization (within the meaning
of Section 4241 of ERISA).
5.12 Environmental Laws.
(a) The Borrower and each of its Subsidiaries has obtained all
permits, licenses and other authorizations, if any, which are required under
Environmental Laws for the operation of the Borrower's or such Subsidiary's
business and the Borrower and each of its Subsidiaries is in compliance with
all terms and conditions of required permits, licenses and authorizations, and
is also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, notifications, schedules
and timetables contained in the Environmental Laws;
(b) Neither the Borrower nor any of its Subsidiaries is aware of
or has received notice of, the disposal or release or presence of Hazardous
Substances on any of its properties, or of any past, present or future events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent compliance or continued compliance on the
part of the Borrower or any such Subsidiary with Environmental Laws, or may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, demand, suit, Lien, proceeding, hearing, study or
investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or
the emission, discharge, release or threatened release into the environment,
of any Hazardous Substance;
(c) All assets of the Borrower and its Subsidiaries are free
from Hazardous Substances except for Hazardous Substances used, maintained or
handled by the Borrower or such Subsidiary in the ordinary course of business
and the use and disposal of any and all such Hazardous Substances is effected
by the Borrower or such Subsidiary in compliance with all applicable
Environmental Laws; and
(d) There is not pending or threatened against the Borrower or
any of its Subsidiaries and neither the Borrower nor any of its Subsidiaries
knows of any facts or circumstances that might give rise to, any civil,
criminal or administrative action, suit, demand, claim, hearing, notice or
demand letter, notice of violation, environmental Lien, investigation, or
proceeding relating in any way to Environmental Laws.
5.13 Margin Stock. Neither the Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for buying or carrying Margin Stock, and no
part of the proceeds of any Loan shall be used, directly or indirectly, to
purchase or carry Margin Stock.
5.14 No Default. Neither the Borrower nor any of its
Subsidiaries is in default with respect to (a) any note, indenture, loan
agreement, mortgage, lease, deed or other similar agreement relating to
Indebtedness to which the Borrower or such Subsidiary is a party or by which
the Borrower or such Subsidiary is bound or (b) any other instrument, document
or agreement to which the Borrower or any of its Subsidiaries is a party or by
which the Borrower or any of its Subsidiaries or any of their respective
properties are bound, the default of which would have a Material Adverse
Effect.
5.15 Chief Executive Office; Collateral Locations. The
Borrower's and each of its Subsidiaries' principal place of business, chief
executive office and location of its books and records is set forth on
Schedule 5.15 attached hereto and neither the Borrower, any of its
Subsidiaries nor any of their respective predecessors has had any other chief
executive office or principal place of business except as set forth on
Schedule 5.15 during the five (5) years immediately preceding the date hereof.
Schedule 5.15 attached hereto and incorporated herein by reference sets forth
a true, correct and complete list of all places of business and all locations
at which any Collateral is located.
5.16 Corporate and Trade or Fictitious Names. Except as set
forth on Schedule 5.16 hereof, during the five (5) years immediately preceding
the date of this Agreement, neither the Borrower, any of its Subsidiaries, nor
any of their respective predecessors has been known as or used any corporate,
trade or fictitious name other than its current corporate or individual name
as such name is set forth in this Agreement.
5.17 Accounts. With regard to each Account now or hereafter
shown on any schedule or aging of Accounts provided to the Lender hereunder:
(a) Such Account arises or will arise under a contract between
the Borrower or a Subsidiary of the Borrower and an Account Debtor in each
case providing for the bona fide sale of goods or performance of services by
the Borrower or its Subsidiaries in the ordinary course of its business for or
on behalf of the Account Debtor except to the extent otherwise expressly
indicated on such schedule or aging of accounts;
(b) The Borrower or a Subsidiary of the Borrower has made
delivery of the goods or has rendered the services ordered to which such
Account relates and the Account Debtor has accepted such goods and/or services
except to the extent otherwise expressly indicated on such schedule or aging
of accounts;
<PAGE>
(c) Except to the extent otherwise expressly indicated on such
schedule or aging of accounts, the amount of the face value of such Accounts
is actually and absolutely owing to the Borrower or a Subsidiary of the
Borrower, is not contingent for any bona fide reason, and there are no
setoffs, counterclaims, disputes or deductions existing or asserted with
respect thereto (except to the extent, if any, that such Account Debtor(s) may
be entitled to normal trade discounts, warranties, adjustments, returns and
al-lowances).
(d) The Borrower or the applicable Subsidiary of the Borrower
will have preserved and will continue to preserve any Liens and any rights to
Liens available by virtue of the sales giving rise to such Account;
(e) Such Account is free and clear of all Liens other than
Permitted Liens; and
(f) The Borrower or the applicable Subsidiary has full right,
power and authority to collaterally assign such Account.
5.18 Adequacy of Intangible Assets. The Borrower and each of its
Subsidiaries possesses all intellectual property licenses, patents, patent
applications, copyrights, Trademarks, Trademark Licenses, trademark
applications, and trade names and all governmental registrations and licenses
reasonably necessary to continue to conduct its business as heretofore
conducted by it, and all such intellectual property licenses, patents, patent
applications, copyrights, Trademarks, Trademark Licenses, trademark
applications, trade names, licenses and registrations which have been
registered with any Governmental Authority are listed on Schedule 5.18 hereto.
5.19 Equipment. The Equipment is and shall remain in good
condition, normal wear and tear excepted, meets all standards imposed by any
Governmental Authority having regulatory authority over such Equipment and its
use and is currently usable in the normal course of business of the Borrower
or any of its Subsidiaries.
5.20 Inventory. The Inventory is and shall remain in good
condition, meets all standards imposed by any Governmental Authority having
regulatory authority over such goods, their use and/or sale, is either
currently usable or currently salable in the normal course of the Borrower's
business and is not subject to any output contract or similar agreement
between the Borrower and any other Person.
5.21 Investment Property. Schedule 5.21 is a complete list of
all Subsidiaries, Investment Property and other Investments in any Person,
including but not limited to, all interests in any partnership or joint
venture. Except as otherwise disclosed on Schedule 5.21, all shares of stock
in any corporation held by Borrower or any of its Subsidiaries are evidenced
by stock certificates issued in the name of Borrower or such Subsidiary and
all other Investment Property of Borrower or any Subsidiary is held directly
in the name of Borrower or such Subsidiary and is not held in any brokerage or
similar account, in the name of any financial institution or in any nominee
name.
5.22 Indebtedness. Schedule 5.22 hereto is a complete and
correct list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, note purchase agreement, guarantee, Interest Hedge
Agreement or other arrangement providing for or otherwise relating to any
Indebtedness to, or guarantee by, the Borrower or any of its Subsidiaries and
the aggregate principal or face amount outstanding as of the date hereof or
which may become outstanding under each such arrangement is correctly
described in said Schedule 5.22. The Borrower has no Indebtedness other than
as set forth on Schedule 5.22 or as permitted by Section 7.2 hereof.
5.23 Existing Liens. Schedule 5.23 hereto is a complete and
correct list, as of the date of this Agreement, of each Lien existing on the
date hereof securing Indebtedness and the aggregate principal amount of
Indebtedness secured by each such Lien is correctly described in such Schedule
5.22.
5.24 Trade Relations. There exists no actual nor, to the best of
the Borrower's knowledge, threatened limitation of the business relationship
of the Borrower or any of its Subsidiaries with any material customer,
supplier, landlord or with any company whose contracts or projected contracts
with the Borrower or such Subsidiary could be material to the operations of
the Borrower or such Subsidiary; and there exists no condition or state of
facts or circumstances which could have a Material Adverse Effect on the
Borrower or any of its
<PAGE>
Subsidiaries or prevent the Borrower or any of its Subsidiaries from
conducting its business after the consummation of the transactions
contemplated by this Agreement as such business is conducted or proposed to be
conducted in the Projection and other information furnished to the
Administrative Agent by the Borrower or such Subsidiary.
5.25 Broker's or Finder's Fees. No broker's or finder's fees or
commissions have been incurred or will be payable by the Borrower or any of
its Subsidiaries to any Person in connection with the transactions
contemplated by this Agreement.
5.26 Security Interest. This Agreement creates a valid Lien on
the Collateral securing payment of the Obligations, subject only to Permitted
Liens, and all filings and other actions necessary or desirable to perfect and
protect such Lien have been taken, and the Collateral Agent has a valid and
perfected first priority Lien in the Collateral subject only to Permitted
Liens.
5.27 Regulatory Matters. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Federal Power Act, the Interstate Commerce Act or any other federal or
state statute or regulation which limits its ability to incur Indebtedness or
its ability to consummate the transactions contemplated hereby.
5.28 Disclosure. Neither this Agreement nor any other
instrument, document, agreement, financial statement or certificate furnished
to the Lender by or on behalf of the Borrower or any of its Subsidiaries in
connection herewith or therewith contains an untrue statement of a material
fact or omits to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or omits to state any fact which may in the future have a Material
Adverse Effect.
5.29 Burdensome Restrictions. Neither any contract, lease,
indenture, agreement or other instrument, or corporate restriction, judgment,
decree, or order to which the Borrower or any of its Subsidiaries is a party
or by which the Borrower or any of its Subsidiaries is bound, nor any
provision of Applicable Law, has or can reasonably be expected to have a
Material Adverse Effect.
5.30 Senior Indebtedness. The Obligations constitute "Senior
Indebtedness," as such term is defined in each of the subordination agreements
relating to the Subordinated Seller Notes.
5.31 Shell Subsidiaries. As of the date hereof, each of ITP
No. 5, Inc., a Delaware corporation; ITP No. 6, Inc., a Delaware corporation;
ITP No. 7, Inc., a Delaware corporation; ITP No. 8, Inc., a Delaware
corporation; and ITP No. 9, Inc., a Delaware corporation, (a) is a
wholly-owned Subsidiary of the Borrower; (b) was formed solely for the purpose
of effecting a proposed Acquisition by the Borrower, which Acquisition has not
yet been consummated; (c) does not own or hold any material assets or
properties; and (d) has neither conducted any business nor engaged in any
activities other than the business of negotiating and closing the Acquisition
to be entered into by it.
6. AFFIRMATIVE COVENANTS
The Borrower hereby covenants to the Agents and the Lenders that from
and after the date hereof, and until the termination of this Agreement in
accordance with Section 2.7 hereof, unless the Majority Lenders otherwise
consent in writing:
6.1 Records Respecting Collateral; Lockbox or Blocked Account
Arrangement. The Borrower shall, and shall cause each of its Subsidiaries to,
keep all records with respect to the Collateral at its respective office set
forth on Schedule 5.15 hereof and not remove such records from such addresses
without the prior written consent of the Collateral Agent and, upon request of
the Collateral Agent or the Majority Lenders, following the occurrence of an
Event of
<PAGE>
Default, enter into such lockbox or blocked account arrangement with respect
to collection of the Accounts and execute and deliver such documents in
connection therewith as Collateral Agent or the Majority Lenders may
reasonably require.
6.2 Reporting Requirements. The Borrower shall, and shall cause
each of its Subsidiaries to, furnish or cause to be furnished to the Agents
and each Lender:
(a) As soon as practicable, and in any event within forty-five
(45) days after the end of each month, interim unaudited financial statements
of the Borrower and its consolidated Subsidiaries, prepared on a consolidated
basis for the Borrower and its consolidated Subsidiaries, including a balance
sheet, income statements and statements of cash flow, for the month and
year-to-date period then ended, prepared in accordance with GAAP and certified
as to truth and accuracy thereof by the chief financial officer of the
Borrower;
(b) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year, audited consolidated annual financial
statements of the Borrower and its consolidated Subsidiaries, including
consolidated balance sheets, consolidated income statements and consolidated
statements of cash flow for the fiscal year then ended, prepared in accordance
with GAAP, in comparative form and accompanied by the unqualified opinion of a
nationally recognized firm of independent certified public accountants
retained by the Borrower and its Subsidiaries and acceptable to the
Administrative Agent and the Majority Lenders;
(c) Together with the annual financial statements referred to in
clause (b) above, a statement from such independent certified public
accountants that, in making their examination of such financial statements,
they obtained no knowledge of any Default or Event of Default or, in lieu
thereof, a statement specifying the nature and period of existence of any such
Default or Event of Default disclosed by their examination;
(d) Not later than the first day of each fiscal year, (i) a
projected operating budget for Borrower and its Subsidiaries for such fiscal
year, consisting of projected monthly balance sheets, income statements and a
statement of cash flows and (ii) a list of the beginning and ending dates of
each monthly and quarterly accounting periods of such fiscal year;
(e) Together with the financial statements referred to in
clauses (a) and (b) above, (i) a compliance certificate of the chief financial
officer of the Borrower, in substantially the forms of Exhibit J hereto (the
"Compliance Certificate"), setting forth the calculations for determining
compliance with the financial covenants set forth in Article 8 hereof and
certifying that such calculations are true and accurate and that, to the best
of his knowledge, no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto; and (ii) a Borrowing Availability
Certificate, in substantially the form of Exhibit K attached hereto (a
"Borrowing Availability Certificate"), setting forth the Adjusted Cash Flow of
the Borrower as of the end of the immediately preceding month and signed by
the chief financial officer of the Borrower; provided, however, that the
Borrower may, at its option, in connection with its request for approval of an
Acquisition pursuant to Section 7.5 hereof, deliver to the Administrative
Agent a Borrowing Availability Certificate, prepared on a pro forma basis,
giving effect to such Acquisition;
(f) As soon as available, and in any event within thirty (30)
days after the end of each month, an accounts receivable aging, showing
separately for the Borrower and each Subsidiary, in summary form the aggregate
dollar value of the Accounts of each and indicating the aggregate value of the
Accounts that are past due and whether such Accounts are thirty (30), sixty
(60) or ninety (90) or more days past due and containing such other
information regarding such Accounts as the Lender may request, all as of the
last day of the preceding month;
<PAGE>
(g) Promptly after the sending or filing thereof, as the case
may be, copies of any definitive proxy statements, financial statements or
reports which the Borrower sends to its shareholders and copies of any regular
periodic and special reports or registration statements which the Borrower
files with the Securities and Exchange Commission (or any Governmental
Authority substituted therefor), including, but not limited to, all Form 10-K
and Form 10-Q reports, if any, or any report or registration statement which
the Borrower files with any national securities exchange;
(h) At least fifteen (15) Business Days prior to the time any
consent by the Majority Lenders will be necessary, the Borrower shall furnish
to the Agents and the Lenders all pertinent information regarding any proposed
Acquisition by the Borrower hereunder which is reasonably necessary or
appropriate to permit the Lenders to evaluate such Acquisition in a manner
consistent with prudent banking standards; and
(i) Such other information respecting the condition or
operations, financial or otherwise, of the Borrower and its Subsidiaries as
the Lenders may from time to time reasonably request.
6.3 Tax Returns. The Borrower shall, and shall cause each of
its Subsidiaries to, file all federal, state and local tax returns and other
reports that the Borrower and its Subsidiaries are required by law to file,
maintain adequate reserves for the payment of all taxes, assessments,
governmental charges and levies imposed upon its income, or its profits, or
upon any property belonging to it, and pay and discharge all such taxes,
assessments, governmental charges and levies prior to the date on which
penalties attach thereto, except where the same may be contested in good faith
by appropriate proceedings and for which adequate reserves have been
established.
6.4 Compliance With Laws. The Borrower shall, and shall cause
each of its Subsidiaries to, comply with all laws, statutes, rules,
regulations and ordinances of any Governmental Authority applicable to the
Borrower or its Subsidiaries, including, without limitation, any such laws,
statutes, rules, regulations or ordinances regarding the collection, payment,
and deposit of employees' income, unemployment, and Social Security taxes and
with respect to pension liabilities, the violation of which might have a
Material Adverse Effect.
6.5 Environmental Laws. The Borrower shall, and shall cause
each of its Subsidiaries to, comply with all Environmental Laws and, in the
event of any "release" or "threatened release" of any Hazardous Substance
onto, at or under the property of any the Borrower or any of its Subsidiaries
which requires or may require notification, response, assessment,
investigation or remedial action pursuant to any Environmental Law, notify the
Lender and all appropriate Governmental Authorities thereof, and proceed with
due diligence and, at the cost and expense of the Borrower or such Subsidiary,
to respond appropriately, in accordance with all requirements of the
Environmental Laws.
6.6 ERISA. The Borrower shall, and shall cause each ERISA
Affiliate to:
(a) At all times make prompt payment of contributions required
to meet the minimum funding standards set forth in Sections 302 and 305 of
ERISA with respect to each Plan and otherwise comply with ERISA and all rules
and regulations promulgated thereunder;
<PAGE>
(b) Promptly after the occurrence thereof with respect to any
Plan, or any trust established thereunder, notify the Administrative Agent and
the Lenders of (i) a "reportable event" described in Section 4043 of ERISA and
the regulations issued from time to time thereunder (other than a "reportable
event" not subject to the provisions for 30-day notice to the PBGC under such
regulations), or (ii) any other event which could subject the Borrower or any
ERISA Affiliate to any material tax, penalty or liability under Title I or
Title IV of ERISA or Chapter 43 of the Code;
(c) At the same time and in the same manner as such notice must
be provided to the PBGC, or to a Plan participant, beneficiary or alternative
payee, give the Administrative Agent and the Lenders any notice required under
Section 101(d), 302(f)(4), 303, 307, 4041(b)(1)(A) or 4041(c)(1)(A) or ERISA
or under Section 401(a)(29) or 412 of the Code with respect to any Plan;
(d) Furnish to the Administrative Agent or any Lender, promptly
upon the request of the Administrative Agent or such Lender, (i) true and
complete copies of any and all documents, government reports and determination
or opinion letters for any Plan; and (ii) a current statement of withdrawal
liability, if any, for each Multiemployer Plan; and
(e) Furnish to the Administrative Agent or any Lender, promptly
upon the request of the Administrative Agent or such Lender therefor, such
additional information concerning any Plan as may be reasonably requested.
6.7 Books and Records. The Borrower shall, and shall cause each
of its Subsidiaries to, keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with GAAP reflecting all its financial transactions.
6.8 Notifications to the Administrative Agent and the Lenders.
The Borrower shall notify the Administrative Agent and the Lenders immediately
by telephone (with each such notice to be confirmed in writing within three
(3) Business Days): (a) upon the Borrower's learning thereof, of any
litigation affecting the Borrower or any of its Subsidiaries claiming damages
of $100,000 or more, individually or when aggregated with other litigation
pending against the Borrower or its Subsidiaries, whether or not covered by
insurance, and of the threat or institution of any suit or administrative
proceeding against the Borrower or any of its Subsidiaries which, if adversely
determined, might have a Material Adverse Effect, and establish such
reasonable reserves with respect thereto as the Majority Lender may request in
accordance with GAAP; (b) upon occurrence thereof, of any Default or Event of
Default hereunder; (c) upon occurrence thereof, of any event or condition
which could have a Material Adverse Effect; and (d) upon the occurrence
thereof, of the Borrower's or any of its Subsidiaries' default under (i) any
note, indenture, loan agreement, mortgage, lease, deed or other similar
agreement relating to any Indebtedness of the Borrower or such Subsidiary or
(ii) any other instrument, document or agreement to which the Borrower or any
of its Subsidiaries is a party or by which the Borrower or any of its
Subsidiaries or any of their respective properties is bound, the default of
which could have a Material Adverse Effect.
6.9 Insurance. The Borrower shall, and shall cause each of its
Subsidiaries to:
<PAGE>
(a) keep all of its property insured by insurance companies (i)
acceptable to the Majority Lenders; and (ii) licensed to do business in all
jurisdictions in which the Collateral is located against loss or damage by
fire or other risk usually insured against under extended coverage endorsement
and theft, burglary, and pilferage, together with such other hazards as the
Majority Lenders may reasonably from time to time request, in amounts
satisfactory to the Majority Lenders and naming the Collateral Agent as loss
payee thereon pursuant to a loss payee clause satisfactory to the Collateral
Agent;
(b) maintain at all times liability insurance coverage against
such risks and in such amounts as are customarily maintained by others in
similar businesses, such insurance to be carried by insurance companies (i)
acceptable to the Majority Lenders and (ii) licensed to do business in the
states in which the Borrower and its Subsidiaries conduct business; and
(c) deliver certificates of insurance for such policy or
policies to the Collateral Agent, containing endorsements, in form
satisfactory to the Lenders, providing that the insurance shall not be
cancelable, except upon thirty (30) days' prior written notice to the
Collateral Agent. In the event of any termination or notice of non-payment by
any insurer with respect to any policy or any lapse in the coverage
thereunder, the Borrower shall cause such insurer to give prompt written
notice to Johanna Connor, Senior Vice President, Creditanstalt Corporate
Finance, Inc., 2 Greenwich Plaza, 4th Floor, Greenwich, Connecticut 06830 of
the occurrence of such termination, nonpayment or lapse.
6.10 Maintenance of Intellectual Property. The Borrower shall,
and shall cause each of its Subsidiaries to, keep all General Intangibles in
full force and effect except for immaterial General Intangibles allowed to
lapse by the Borrower or any of its Subsidiaries in the ordinary course of its
business and any other General Intangible for which the Borrower or any of its
Subsidiaries has obtained a substantially similar substitution or the lapse of
which, because of such substitution, will not have a Material Adverse Effect
on the business or operations of the Borrower or such Subsidiary, as the case
may be, and maintain all of its other property necessary or useful in the
proper conduct of its respective business in good working condition, ordinary
wear and tear excepted.
6.11 Preservation of Corporate Existence. The Borrower shall,
and shall cause each of its Subsidiaries to, preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified as a foreign corporation
in each jurisdiction in which such qualification is necessary in view of its
business and operations or the ownership of its properties.
6.12 Equipment. The Borrower shall, and shall cause each of its
Subsidiaries to, keep and maintain the Equipment in good operating condition,
reasonable wear and tear excepted, repair and make all necessary replacements,
renewals, additions or improvements thereto so that the value and operating
efficiency thereof shall at all times be maintained and preserved and not
permit any item of Equipment to become a fixture to real estate or accession
to other personal property unless the Collateral Agent has a first priority
Lien on such real estate or other personal property. The Borrower shall,
immediately on demand therefor by the Collateral Agent, deliver to the
Collateral Agent any and all existing evidence of ownership of any of the
Equipment (including, without limitation, certificates of title and
applications for title, together with any necessary applications to have the
Collateral Agent's Lien noted thereon, in the case of vehicles).
6.13 Other Indebtedness. The Borrower shall, and shall cause
each of its Subsidiaries to, maintain all of its Indebtedness in whatsoever
manner incurred, including, but not limited to, Indebtedness for borrowed
money or for services or goods purchased, in a current status.
6.14 Year 2000 Compliance. Borrower and each of its Subsidiaries
shall cause, on or prior to December 31, 1998 and at all times thereafter, all
software and other processing capabilities of Borrower and its Subsidiaries to
have the ability to correctly interpret and manipulate all data, in whatever
form, including, but not limited to, printed form, screen
<PAGE>
displays, financial records, calculations and loan-related data, so as to
avoid errors in processing that may otherwise occur because of the inability
of the software or other processing capabilities to recognize accurately the
year 2000 or subsequent dates, except to the extent the failure to have such
ability would not be reasonably expected to have a Material Adverse Effect.
6.15 Assignment of Leasehold Interests. Upon request of the
Collateral Agent, execute and deliver to the Collateral Agent (a) such fee
mortgages, leasehold mortgages or other appropriate security instruments, as
and in such form as the Collateral Agent requests, in respect of any real
property owned or leased by the Borrower or any Subsidiary, and (b) any and
all environmental assessments, surveys, title insurance policies, opinions,
certificates, instruments, documents and agreements as the Collateral Agent or
the Majority Lenders may reasonably request in connection therewith.
6.16 Additional Documents. Upon formation or Acquisition by the
Borrower or any Subsidiary of the Borrower of any new Subsidiary, the Borrower
shall deliver, or cause to be delivered to the Collateral Agent, for the
benefit of the Lenders, each in form and substance satisfactory to the
Collateral Agent, (a) an addendum to the Master Subsidiary Guaranty executed
by such new Subsidiary, guaranteeing the Obligations, (b) an amendment to the
Stock Pledge Agreement or an addendum to the Master Subsidiary Pledge
Agreement, as applicable, pledging the ownership interest in such new
Subsidiary, (c) an addendum to the Master Subsidiary Security Agreement
executed by such new Subsidiary, and (d) all other instruments, documents or
agreements reasonably necessary or desirable to create, evidence or perfect a
lien on or security interest in favor of the Collateral Agent, for the benefit
of the Lenders, in the assets of such new Subsidiary and/or to reaffirm the
obligations of the Borrower and its Subsidiaries; provided, however, that the
Borrower may cause any newly-formed Subsidiary to delay executing and
delivering the documents required by this Section 6.16 until the closing of an
Acquisition by such Subsidiary so long as (i) such Subsidiary was formed for
the sole purpose of consummating an Acquisition that is subject to the terms
of Section 7.5 hereof; (ii) such Subsidiary has no material assets or
properties; and (iii) such Subsidiary conducts no business and engages in no
activities other than the business of negotiating and closing an Acquisition.
6.17 Upstream Payment of Dividends and Distributions. In the
event that any wholly owned Subsidiary receives a dividend or other
distribution (other than a dividend paid in stock) from a Subsidiary of such
Subsidiary, the Subsidiary receiving such dividend or other distribution shall
promptly, and in any event within ten (10) days of its receipt of such
dividend or distribution, pay such dividend or distribution to the Borrower.
7. NEGATIVE COVENANTS
The Borrower hereby covenants with the Agents and the Lenders that from
and after the date hereof and until the termination of this Agreement in
accordance with Section 2.7 hereof, without the prior written consent of the
Majority Lenders:
7.1 Liens. The Borrower shall not, and shall not permit any of
its Subsidiaries to, create, incur, assume, or suffer to exist any Lien of any
kind in any of the Collateral or their other assets other than Permitted
Liens.
7.2 Indebtedness. The Borrower shall not, and shall not permit
any of its Subsidiaries to, incur, assume, or suffer to exist any Indebtedness
except for (a) the Obligations; (b) Indebtedness listed on Schedule 5.22; (c)
other purchase money Indebtedness or unsecured Indebtedness in an aggregate
principal amount which, when aggregated with the aggregate outstanding
principal amount of the Indebtedness on Schedule 5.22 which is not
Subordinated Debt, does not exceed $3,500,000; and (d) the Subordinated Debt.
<PAGE>
7.3 Asset Sales. The Borrower shall not, and shall not permit
any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any
or all of the Collateral or any interest therein or any of their other assets
other than (a) the sale of Inventory in the ordinary course of business; and
(b) the sale of other assets no longer used or usable in the business of the
Borrower or such Subsidiary and which have a value which does not exceed
$250,000 in the aggregate for all such assets so sold.
7.4 Guaranties. The Borrower shall not, and shall not permit
any of its Subsidiaries to, Guarantee the obligations of any other Person
except (a) pursuant to the Master Subsidiary Guaranty and the Intercompany
Guaranties and (b) by endorsement of negotiable instruments for deposit or
collection and similar transactions in the ordinary course of business.
7.5 Investments and Acquisitions. The Borrower shall not, and
shall not permit any of its Subsidiaries to, make any Investment or
Acquisitions except for the following:
(a) The Borrower may make Intercompany Loans to any Subsidiary
of the Borrower pursuant to an Intercompany Loan and Security Agreement, in
accordance with the terms of such Intercompany Loan and Security Agreement,
for the working capital purposes of such Subsidiary; provided, that, as a
condition to the making of any such advance to a Subsidiary pursuant to an
Intercompany Loan Agreement, all requirements of Section 2.4 hereof are
satisfied to the satisfaction of the Administrative Agent and the Collateral
Agent; provided, further, that at the time of each such Intercompany Loan,
both before and after giving effect thereto, there does not exist a Default or
an Event of Default hereunder.
(b) Borrower or any Subsidiary of Borrower may make intercompany
loans to other Subsidiaries of Borrower other than out of proceeds from Loans.
The Borrower acknowledges and agrees that, without limiting any right of
approval granted to the Agents or the Lenders or any of them elsewhere in this
Agreement or the Loan Documents, any approval to an Acquisition required of
the Majority Lenders may be given or withheld by the Majority Lenders in their
discretion. The Agents and the Lenders agree to respond to any request by the
Borrower for approval of any proposed Acquisition as promptly as practical
after receiving all pertinent information regarding such proposed Acquisition
and the completion of all due diligence deemed necessary by the Lenders in
order to evaluate such Acquisition in a manner consistent with prudent banking
standards.
7.6 Prohibition of Fundamental Changes. The Borrower shall not,
and shall not permit any of its Subsidiaries to, enter into any transaction of
merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution) or make any substantial
change in the basic type of business conducted by the Borrower or such
Subsidiary as of the date hereof except that:
(a) The Borrower may merge with any Person to consummate an
Acquisition permitted by, or consented to by the Majority Lenders pursuant to,
Section 7.5 hereof; provided, however, that (i) the Borrower is the
corporation surviving such merger and (ii) there then exists no Default or
Event of Default nor any event or conditions which, with the consummation of
such merger, would constitute a Default or Event of Default.
(b) Any Subsidiary of the Borrower may be merged or consolidated
with or into: (i) the Borrower if the Borrower shall be the continuing or
surviving corporation; or (ii) any other Person to consummate an Acquisition
permitted, or consented to by the Majority Lenders pursuant to, by Section 7.5
hereof; provided that, after giving effect to such merger or consolidation,
the Person surviving the merger or consolidation is a wholly-owned Subsidiary
of Borrower; or (iii) any other Subsidiary; provided that if any such
transaction shall be between a Subsidiary and a wholly-owned Subsidiary, the
wholly-owned Subsidiary shall be the continuing or surviving corporation;
<PAGE>
(c) Any wholly-owned Subsidiary of Borrower may be dissolved
into its parent corporation.
7.7 Issuance of Stock. The Borrower shall not, and shall not
permit any of its Subsidiaries to, issue any shares of Capital Stock or other
ownership interests in the Borrower or any of its Subsidiaries, except that
the Borrower may issue (a) shares of common stock of a class currently
authorized by Borrower's Certificate of Incorporation; (b) shares of Series B
Preferred Stock of the Borrower; and (c) additional shares of Borrower's
Series A Preferred Stock as dividends on outstanding shares of Series A
Preferred Stock as provided in the terms of said Series A Preferred Stock as
in effect on the date hereof.
7.8 Fiscal Year. The Borrower shall not, and shall not permit
any of its Subsidiaries to, change its fiscal year end from December 31.
7.9 ERISA. The Borrower shall not, and shall not permit any of
its Subsidiaries to, take, or fail to take, or permit any ERISA Affiliate to
take, or fail to take, any action with respect to a Plan including, but not
limited to, (a) amending any Plan, (b) terminating or withdrawing from any
Plan, or (c) incurring an amount of unfunded benefit liabilities, as defined
in Section 4001(a)(18) of ERISA, where such action or failure could have a
Material Adverse Effect, result in a Lien on the property of the Borrower or
any of its Subsidiaries or require the Borrower or any of its Subsidiaries to
provide any security.
7.10 Relocations; Use of Name. The Borrower shall not, and shall
not permit any of its Subsidiaries to, relocate its executive offices, open
new places of business or relocate existing places of business; maintain any
Collateral or records with respect to Collateral at any other locations than
those locations presently kept or maintained, as set forth on Schedule 5.15
hereto; or use any corporate name (other than its own) or any fictitious name,
in each case, except upon thirty (30) days prior written notice to the
Collateral Agent and after the delivery to the Collateral Agent of financing
statements, if required by the Collateral Agent, in form satisfactory to the
Collateral Agent.
7.11 Arm's-Length Transactions. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any transaction, including,
without limitation, the purchase, sale or exchange of property or the
rendering of any service or the payment of management or other service fees,
with any Affiliate except in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's or such Subsidiary's business and
upon fair and reasonable terms which are fully disclosed to the Administrative
Agent and the Lenders in writing and which are no less favorable to the
Borrower than those which would prevail in a comparable arm's-length
transaction with a Person not an Affiliate.
<PAGE>
7.12 Amendments. The Borrower shall not (a) amend, supplement or
otherwise modify the Preferred Stock and Warrant Purchase Agreement or the
Subordinated Seller Notes or (b) prepay any Subordinated Debt; provided,
however, that Borrower may prepay not more than $11,000,000 of Subordinated
Seller Notes concurrently with the closing of a offering of its common stock,
registered under the Securities Act of 1933, as amended, resulting in cash
proceeds, net of underwriter commissions and discounts, to the Company of not
less than $80,000,000.
8. FINANCIAL COVENANTS
The Borrower hereby covenants with the Agents and the Lenders that from
and after the date hereof and until the termination of this Agreement in
accordance with Section 2.7 hereof unless the Majority Lenders otherwise
consent in writing:
8.1 Net Worth. The Borrower shall maintain a Net Worth at all
times of not less than the sum of (i) $6,427,526, plus (ii) one hundred
percent (100%) of the amount by which the Borrower's shareholders' equity is
increased as a result of the issuance of equity securities, plus (iii)
seventy-five percent (75%) of Net Income from the period beginning on January
1, 1998 through the date of determination.
8.2 Leverage Ratio. Borrower and its consolidated Subsidiaries
shall maintain, on a consolidated basis, as of the end of each fiscal quarter
of Borrower during the applicable periods set forth below a Leverage Ratio for
each such quarter of not greater than the ratio set forth below opposite the
applicable period during which such quarter occurs:
Applicable Period Ratio
Effective Date - 06/30/98 6.0:1.0
07/01/98 -06/30/99 5.5:1.0
At all times thereafter 5.0:1.0
8.3 Senior Debt Leverage Ratio. Borrower and its consolidated
Subsidiaries shall maintain, on a consolidated basis, as of the end of each
fiscal quarter of Borrower during the applicable periods set forth below a
Senior Debt Leverage Ratio for each such quarter of not greater than the ratio
set forth below opposite the applicable period during which such quarter
occurs:
Applicable Period Ratio
Effective Date - 06/30/98 4.0:1.0
07/01/98 - 06/30/99 3.5:1.0
At all times thereafter 3.0:1.0
8.4 Interest Coverage Ratio. Borrower and its consolidated
Subsidiaries shall maintain, on a consolidated basis, as of the end of each
fiscal quarter of Borrower during the applicable periods set forth below, an
Interest Coverage Ratio for such fiscal quarter of not less than the ratio set
forth below opposite each such applicable period:
Applicable Period Ratio
Effective Date - 06/30/98 2.00:1.00
07/01/98 - 06/30/99 2.50:1.00
07/01/98 - 12/31/00 2.75:1:00
At all times thereafter 3.00:1.00
<PAGE>
8.5 Dividends. Neither the Borrower nor any of its Subsidiaries
shall declare or pay any dividends on, or make any distribution with respect
to, the shares of any class of their Capital Stock, or purchase, redeem,
acquire, defease or retire any shares of their Capital Stock, or take any
action having an effect equivalent to the foregoing except (i) Borrower may
declare and pay dividends to holders of Series A Preferred Stock payable
solely in additional shares of Series A Preferred Stock and (ii) any
Subsidiary of the Borrower may declare and pay dividends to the Borrower or to
any wholly-owned Subsidiary of the Borrower.
9. EVENTS OF DEFAULT
The occurrence of any of the following events or conditions shall
constitute an Event of Default hereunder:
9.1 Obligations. The Borrower shall fail to make any payments
of principal of or interest on any Loan or any other Obligation when due.
9.2 Misrepresentations. The Borrower or any of its Subsidiaries
shall make any representation or warranty in this Agreement or any of the
other Loan Documents or in any certificate or statement furnished at any time
hereunder or in connection with this Agreement or any of the other Loan
Documents which proves to have been untrue or misleading in any material
respect when made or furnished and which continues to be untrue or misleading
in any material respect.
9.3 Covenants. The Borrower or any of its Subsidiaries shall
default in the observance or performance of any covenant in Article 6 hereof
(other than Section 6.8 hereof) applicable to the Borrower or such Subsidiary
and such default continues for thirty (30) days after notice thereof.
9.4 Other Covenants. The Borrower or any of its Subsidiaries
shall default in observance or performance of any other covenant applicable to
the Borrower or such Subsidiary under this Agreement or any of the other Loan
Documents.
9.5 Other Debts. (a) The Borrower or any of its Subsidiaries
shall fail to pay any principal of or premium or interest on any of its
Indebtedness, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace or cure period, if any,
specified in the agreement, mortgage, indenture or instrument relating to such
Indebtedness; or (b) any other event shall occur or condition shall exist
under any agreement, mortgage, indenture or instrument relating to any such
Indebtedness and shall continue after the applicable grace or cure period, if
any, specified in such agreement, mortgage, indenture or instrument, if the
effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or (c) any such
Indebtedness shall be accelerated or otherwise declared to be due and payable
prior to the stated maturity thereof, or (d) any such Indebtedness shall be
required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such Indebtedness shall be required to be made, in each
case prior to the stated maturity thereof.
9.6 Tax Lien. A notice of Lien, levy or assessment is filed of
record with respect to all or any assets of the Borrower or any of its
Subsidiaries by the United States or any other Governmental Authority,
including, without limitation, the PBGC, which adversely affects the priority
of the Liens granted to the Collateral Agent hereunder or under any of the
other Loan Documents.
9.7 ERISA. The occurrence of any of the following events: (a)
the happening of a Reportable Event with respect to any Plan; (b) the
disqualification or involuntary termination of a Plan for any reason; (c) the
voluntary termination of any Plan while such Plan has a funding deficiency (as
determined under Section 412 of the Code); (d) the appointment of a trustee by
an appropriate United States district court to administer any such Plan; (e)
the institution of any proceedings by the PBGC to terminate any such Plan or
to appoint a trustee to administer any such Plan; (f) the failure of the
Borrower to notify the Administrative Agent promptly upon receipt by the
Borrower or any of its ERISA Affiliates of any notice of the institution of
any proceeding or other actions which may result in the termination of any
such Plan.
9.8 Voluntary Bankruptcy. The Borrower or any of its
Subsidiaries shall: (a) file a voluntary petition or assignment in bankruptcy
or a voluntary petition or assignment or answer seeking liquidation,
reorganization, arrangement, readjustment of its debts, or any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether State, Federal, or foreign, now or
hereafter existing; (b) enter into any agreement indicating consent to,
approval of, or acquiescence in, any such petition or proceeding; (c) apply
for or permit the appointment, by consent or acquiescence, of a receiver,
custodian or trustee of itself or themselves or for all or a substantial part
of its or their property; (d) make an assignment for the benefit of creditors;
or (e) be unable or shall fail to
<PAGE>
pay its or their debts generally as such debts become due, admit in writing
its or their inability or failure to pay its or their debts generally as such
debts become due, or otherwise cease to be Solvent.
9.9 Involuntary Bankruptcy. There occurs (a) a filing or
issuance against the Borrower or any of its Subsidiaries an involuntary
petition in bankruptcy or seeking liquidation of the Borrower or such
Subsidiary, reorganization, arrangement, readjustment of its or their debts or
any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether State, Federal or foreign,
now or hereafter existing and either such proceeding shall continue in effect
for a period of sixty (60) days or more or an order for relief against the
Borrower or any of its Subsidiaries shall be entered therein; (b) the
involuntary appointment of a receiver, liquidator, custodian or trustee of the
Borrower or any of its Subsidiaries or for all or a substantial part of its or
their property; or (c) the issuance of a warrant of attachment, execution or
similar process against all or any substantial part of the property of the
Borrower or any of its Subsidiaries.
9.10 Suspension of Business. The suspension of the transaction
of the usual business of the Borrower or any of its Subsidiaries or the
dissolution of the Borrower.
9.11 Judgments. Any judgment, decree or order for the payment of
money which, when aggregated with all other judgments, decrees or orders for
the payment of money pending against the Borrower or any of its Subsidiaries
exceeds the sum of One Hundred Thousand Dollars ($100,000), shall be rendered
against the Borrower or any of its Subsidiaries and remain unsatisfied and in
effect for a period of sixty (60) consecutive days or more without being
vacated, discharged, satisfied or stayed or bonded pending appeal.
9.12 RICO. The Borrower, any of its Subsidiaries, or any of
their respective directors, shareholders or executive officers shall be
indicted under the Racketeer Influenced and Corrupt Organizations Act of 1970
(18 U.S.C. Section 1961 et seq.) or the Majority Lenders otherwise reasonably
believe in good faith that all or any portion of the Borrower's or any of its
Subsidiaries' assets are subject to forfeiture pursuant to Applicable Law.
9.13 Failure of Security. At any time (a) Liens in favor of the
Collateral Agent contemplated by the Loan Documents shall, at any time, for
any reason (except by reason of an affirmative act or omission of the
Collateral Agent), be invalidated or otherwise cease to be in full force and
effect; (b) such Liens shall be subordinated or shall not have the priority
contemplated by this Agreement or the other Loan Documents; or (c) the
Borrower or other Borrower under any such Loan Document seeks to repudiate its
or his obligations thereunder.
9.14 Guaranty. At any time, for any reason other than the
consent of the Majority Lenders, any guaranty of the Obligations ceases to be
in full force and effect in any material respect or guarantor thereunder seeks
to repudiate its obligations thereunder and the Liens intended to be created
thereby or in connection therewith are, or such guarantor seeks to render such
Liens, invalid and unperfected.
9.15 Intercompany Loan Documents. There shall occur any event of
default under any one or more of the Intercompany Loan and Security Agreements
or Intercompany Guaranties or any other Intercompany Loan Document, or the
Borrower shall amend, modify, or otherwise change any Intercompany Loan and
Security Agreement, Intercompany Guaranty or any other Intercompany Loan
Document, fail to exercise any of its rights, privileges or option thereunder,
release any party thereto from the performance of such party's obligations
thereunder, or grant any waiver, consent or indulgence thereunder to any other
party thereto, except where such amendment, modification or change would not
have an adverse effect upon the Collateral Agent's rights therein.
<PAGE>
9.16 Management. Daniel J. Klein and Jamie E. Blech cease to be
the chief executive officer and president, respectively, of the Borrower and
the vacancy so created is not filled by another Person reasonably acceptable
to the Majority Lenders.
9.17 Change of Control. Either (a) a Person or "group" (within
the meaning of the Securities Exchange Act of 1934), other than Daniel J.
Klein and Jamie E. Blech, acquires or obtains beneficial ownership of
securities (including options) of the Borrower representing a percentage of
the ordinary voting power of the Borrower that is greater than the percentage
of the ordinary voting power represented by the shares of Capital Stock owned,
beneficially and of record, with power to vote, by Daniel J. Klein and Jamie
E. Blech, or (b) there shall occur a change in the composition of the Board of
Directors of the Borrower such that the current directors (or directors
designated or approved by such directors) shall not have a majority of the
ordinary voting power of the Borrower.
9.18 Exercise of Put Option. The Borrower (a) shall default in
the observance or performance of any covenant applicable to Borrower under the
Preferred Stock and Warrant Purchase Agreement, and (b) such default results
in the exercise of or an attempt at exercising any Put Option (as such term is
defined in Section 4.05 of the Stockholder Agreement).
10. REMEDIES
Upon the occurrence or existence of any Event of Default, and during the
continuation thereof, without prejudice to the rights of the Agents or the
Lenders to enforce their claims against the Borrower for damages or failure by
the Borrower to fulfill any of the obligations hereunder, the Agents and the
Lenders shall have the following rights and remedies, in addition to any other
rights and remedies available to the Agents and the Lenders at law, in equity
or otherwise:
10.1 Default Rate. At the election of the Administrative Agent,
evidenced by written notice to the Borrower, the outstanding principal balance
of the Obligations, and to the extent permitted by Applicable Law, accrued and
unpaid interest thereon, shall bear interest at the Default Rate until paid in
full.
10.2 Termination; Acceleration of the Obligations. In the event
of an Event of Default set forth in Sections 9.8 or 9.9 hereof, the Commitment
shall automatically and immediately terminate and in the event of any other
Event of Default, the Majority Lenders, at their option, may terminate the
Commitment, whereupon in either case all of the Obligations shall become
immediately due and payable, without presentment, demand, protest, notice of
non-payment or any other notice required by law relative thereto, all of which
are hereby expressly waived by the Borrower, anything contained herein to the
contrary notwithstanding.
10.3 Set-Off. The right of each Lender to set-off, without
notice to the Borrower or any of its Subsidiaries, any and all deposits at any
time credited by or due from such Lender to the Borrower or such Subsidiary,
whether in a general or special, time or demand, final or provisional account
or any other account or represented by a certificate of deposit and whether or
not unmatured or contingent against any or all of the Obligations of the
Borrower or such Subsidiary, now existing or hereafter arising, whether or not
such Lender shall have made any demand under this Agreement or any of the Loan
Documents.
10.4 Rights and Remedies of a Secured Party. All of the rights
and remedies of a secured party under the UCC or under other Applicable Law,
all of which rights and remedies shall be cumulative, and none of which shall
be exclusive, to the extent permitted by law, in addition to any other rights
and remedies contained in this Agreement, and in any of the other Loan
Documents.
<PAGE>
10.5 Take Possession of Collateral. The right of the Collateral
Agent's to (a) enter upon the premises of the Borrower or any of its
Subsidiaries, or any other place or places where the Collateral is located and
kept, through self-help and without judicial process, without first obtaining
a final judgment or giving the Borrower or any of its Subsidiaries notice and
opportunity for a hearing on the validity of the Collateral Agent's claim and
without any obligation to pay rent to the Borrower or any of its Subsidiaries,
and remove the Collateral therefrom to the premises of the Collateral Agent or
any agent of the Collateral Agent, for such time as the Collateral Agent may
desire, in order to effectively collect or liquidate the Collateral; and/or
(b) require the Borrower to assemble the Collateral and make it available to
the Collateral Agent at a place to be designated by the Collateral Agent, in
its sole discretion.
10.6 Sale of Collateral. The right of the Collateral Agent to
sell or to otherwise dispose of all or any of the Collateral, at public or
private sale or sales, with such notice as may be required by law, in lots or
in bulk, for cash or on credit, all as the Collateral Agent, in its sole
discretion, may deem advisable. Such sales may be adjourned from time to time
with or without notice. The Collateral Agent shall have the right to conduct
such sales on the premises of the Borrower or any of its Subsidiaries or
elsewhere and shall have the right to use the premises of the Borrower or any
of its Subsidiaries, without charge for such sales for such time or times as
the Collateral Agent may see fit. The Collateral Agent is hereby granted a
license or other right to use, without charge, the labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks and advertising matter, or any property of a similar nature,
whether owned by the Borrower or with respect to which the Borrower has rights
under license, sublicense or other agreements, as it pertains to the
Collateral, in preparing for sale (including, without limitation, finishing
any unfinished Inventory of the Borrower), advertising for sale and selling
any Collateral and the rights of the Borrower under all licenses and all
franchise agreements shall inure to the benefit of the Agents and the Lenders.
The Collateral Agent shall have the right to sell, lease or otherwise dispose
of the Collateral, or any part thereof, for cash, credit or any combination
thereof, and the Collateral Agent or any Lender may purchase all or any part
of the Collateral at public or, if permitted by law, private sale and, in lieu
of actual payment of such purchase price, may set off the amount of such price
against the Obligations. The proceeds realized from the sale of any
Collateral shall be applied first to the costs, expenses and attorneys' fees
and expenses incurred by the Collateral Agent for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of
the Collateral; second to interest due upon any of the Obligations; and third
to the principal of the Obligations. Any remaining proceeds shall be remitted
to the Borrower or other Person legally entitled thereto. If any deficiency
shall arise, the Borrower shall remain liable to the Lenders therefor.
10.7 Judicial Proceedings. The right to proceed by an action or
actions at law or in equity to obtain possession of the Collateral, to recover
the Obligations and amounts secured hereunder or to foreclose under this
Agreement and sell the Collateral or any portion thereof, pursuant to a
judgment or decree of a court or courts of competent jurisdiction, all without
the necessity of posting any bond.
<PAGE>
10.8 Actions in Respect of the Letters of Credit Upon Default.
If any Event of Default shall have occurred and be continuing, the LC Issuer
may, irrespective of whether the Agents or the Lenders are taking any of the
other actions described in this Article 10 or otherwise, make demand upon the
Borrower to, and forthwith upon such demand the Borrower will, pay to the LC
Issuer in accordance with Section 2.8, for deposit in a cash collateral
account, an amount equal to the aggregate face amount of all Letters of Credit
then outstanding. If at any time the LC Issuer determines that any funds held
in any such cash collateral account are subject to any right or claim of any
Person other than the LC Issuer or that the total amount of such funds is less
than the aggregate face amount of all Letters of Credit, the Borrower will,
forthwith upon demand by the LC Issuer, pay to the LC Issuer, as additional
funds to be deposited and held in such cash collateral account, an amount
equal to the excess of (a) such aggregate face amount of all outstanding
Letters of Credit over (b) the total amount of funds, if any, then held in
such cash collateral account that the LC Issuer determines to be free and
clear of any such right and claim.
10.9 Notice. Any notice required to be given by the Collateral
Agent of a sale, lease, or other disposition of the Collateral or any other
intended action by the Lender, given to the Borrower in the manner set forth
in Section 13.7 below, at least ten (10) days prior to such proposed action,
shall constitute commercially reasonable and fair notice thereof to the
Borrower.
10.10 Appointment of the Collateral Agent as the Borrower's
Lawful
Attorney. The Borrower irrevocably designates, makes, constitutes and
appoints the Collateral Agent (and all persons designated by the Collateral
Agent) as the true and lawful attorney of the Borrower and the Collateral
Agent or the Collateral Agent's Agent, may, without notice to the Borrower and
at such time or times following an Event of Default as the Collateral Agent or
said Collateral Agent, in its sole discretion, may determine, in the name of
the Borrower or in the Collateral Agent's name:(a) demand payment of the
Accounts; (b) enforce payment of the Accounts, by legal proceedings or
otherwise; (c) exercise all of the rights and remedies of the Borrower with
respect to the collection of the Accounts; (d) settle, adjust, compromise,
extend or renew the Accounts; (e) settle, adjust or compromise any legal
proceedings brought to collect the Accounts; (f) notify the postal authorities
to change the address and delivery of mail addressed to the Borrower to such
address as the Collateral Agent may designate; (g) if permitted by Applicable
Law, sell or assign the Accounts upon such terms, for such amounts and at such
time or times as the Collateral Agent deems advisable; (h) discharge and
release the Accounts; (i) take control, in any manner, of any item of payment
or proceeds on the Accounts; (j) prepare, file and sign the names of the
Borrower on a Proof of Claim in Bankruptcy or similar document against any
Account Debtor; (k) prepare, file and sign the names of the Borrower on any
notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Accounts; (l) do all acts and things necessary, in the
Collateral Agent's sole discretion, to fulfill the obligations of the Borrower
under this Agreement; (m) endorse the name of the Borrower upon any of the
items of payment or proceeds on any Account, and deposit the same to the
account of the Lenders on account of the Obligations; (n) endorse the name of
the Borrower upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to the Accounts
or Inventory; (o) use the stationery of the Borrower and sign the name of the
Borrower to verifications of the Accounts and notices thereof to Account
Debtors; and (p) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts and Inventory to which the Borrower has access.
11. CONDITIONS PRECEDENT
11.1 Conditions Precedent to Effectiveness. Notwithstanding any
other provision of this Agreement, it is understood and agreed that this
Agreement shall not be effective unless and until the following conditions
have been met, to the sole and complete satisfaction of the Lenders, the
Agents and their respective counsel:
(a) Litigation. No action, suit, litigation, proceeding,
investigation, regulation or legislation, including, but not limited to, any
arising under the Environmental Laws, shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body which
(i) seeks to enjoin, restrain, or prohibit, or to obtain substantial
<PAGE>
damages in respect of, or which is related to or arises out of this Agreement
or the making of any Loan hereunder; or (ii) if decided adversely to the
Borrower or any of its Subsidiaries may result in a Material Adverse Effect.
(b) -Equity Transaction. The Agents shall have received
evidence satisfactory to them that Borrower has received, on or immediately
prior to the Effective Date, not less than $5,000,000 in cash proceeds from
the sales of shares of Borrower's common stock and/or Series B Preferred
Stock.
(c) Subordinated Seller Notes. The Agents shall have received
evidence satisfactory to them that any and all promissory notes issued on or
prior to the Effective Date in connection with Acquisitions are unsecured and
have been subordinated in right of payment to the Obligations on terms and
conditions satisfactory to the Agents and the Lenders and otherwise are on
terms and conditions satisfactory to the Lenders and the Agents.
(d) Financial Reports. The Agents shall have received each of
the following: (i) the Audited Financial Statements and (ii) the Projections.
(e) Loan Conditions. All conditions precedent set forth in
Section 11.2 hereof have been fulfilled.
(f) Fee Letter. All amounts required to be paid on the
Effective Date pursuant to the Fee Letter have either been paid or
arrangements for the payment thereof have been made to the satisfaction of the
Administrative Agent and the Collateral Agent.
(g) Documentation. The Administrative Agent and the Lenders
shall have received the following documents, each dated the Effective Date
(unless otherwise specified), each duly executed and delivered to the
Administrative Agent and the Lenders, and each to be satisfactory in form and
substance to the Administrative Agent and their respective and its counsel:
(i) this Agreement;
(ii) the Notes;
(iii) the Amendment to the Master Agreements, executed by
each of the Subsidiaries of Borrower;
(iv) an Amended & Restated Collateral Assignment of Rights
Agreement executed by the Borrower in favor of the Collateral Agent with
respect to the Intercompany Loan Documents;
(v) a certificate signed by the President or chief
financial officer of the Borrower certifying that (A) the representations and
warranties set forth in Article 5 hereof are true and correct in all respects
on and as of such date with the same effect as though made on and as of such
date; (B) the Borrower is on such date in compliance with all the terms and
conditions set forth in this Agreement on its part to be observed and
performed; and (C) on the Effective Date, after giving effect to the making of
the initial Loan, no Default or Event of Default has occurred or is
continuing;
(vi) a certificate executed by the President or chief
financial officer of the Borrower certifying as to the Equipment owned by the
Borrower and the locations at which such Equipment is maintained;
<PAGE>
(vii) a certificate of the Secretary of the Borrower
certifying (A) that attached thereto is a true and complete copy of the
By-Laws of the Borrower, as in effect on the date of such certification; (B)
that attached thereto is a true and complete copy of Resolutions adopted by
the Board of Directors of the Borrower, authorizing the execution, delivery
and performance of this Agreement and the other Loan Documents; and (C) as to
the incumbency and genuineness of the signatures of the officers of the
Borrower executing this Agreement or any of the other Loan Documents;
(viii) a certificate of the Secretary of each
Subsidiary the Borrower certifying (A) that attached thereto is a true and
complete copy of the By-Laws of each Subsidiary of the Borrower, as in effect
on the date of such certification; (B) that attached thereto is a true and
complete copy of Resolutions adopted by the Board of Directors of each
Subsidiary of the Borrower, authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents; and (C) as to the
incumbency and genuineness of the signatures of the officers of each
Subsidiary of the Borrower executing this Agreement or any of the other Loan
Documents;
(ix) a Borrowing Availability Certificate completed and
signed by the chief financial officer of the Borrower and satisfactory to the
Administrative Agent;
(x) a copy of the Articles or Certificate of Incorporation
of the Borrower and its Subsidiaries, and all restatements thereof or
amendments thereto, certified as of a date close to the Effective Date by the
Secretary of State of the State of each Person's incorporation;
(xi) good standing certificates for the Borrower, certified
as to a date close to the Effective Date, issued by the Secretaries of State
of those states listed on Schedule 5.1 hereof in respect of Borrower;
(xii) good standing certificates for the Subsidiaries of
the
Borrower, certified as of a date close to the Effective Date, and issued in
each case by the Secretary of State of the states set forth on Schedule 5.15
hereto.
(xiii) the written opinion of Swidler & Berlin,
Chartered, counsel to the Borrower and its Subsidiaries, in the form attached
hereto as Exhibit L, as to the transactions contemplated by this Agreement;
(xiv) such other documents, instruments and agreements with
respect to the transactions contemplated by this Agreement, in each case in
such form and containing such additional terms and conditions as may be
satisfactory to the Administrative Agent, the Collateral Agent and the
Majority Lenders, containing, without limitation, representations and
warranties which are customary and usual in such documents.
11.2 All Loans. The obligation of each Lender to make any Loan
hereunder (including the initial Loan) and to issue any Letter of Credit
(including the initial Letter of Credit) shall be subject to fulfillment of
the following conditions:
<PAGE>
(a) No Injunction. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any Governmental Authority to enjoin, restrain, or prohibit, or to
obtain substantial damages in respect of, or which is related to or arises out
of this Agreement, such Loan or such Letter of Credit or which in the sole
discretion of the Administrative Agent and the Majority Lenders, would make it
inadvisable to make such Loan or such Letter of Credit;
(b) No Material Adverse Change. Since December 31, 1997, there
shall not have occurred any material adverse change in the assets,
liabilities, business, operations or condition (financial or otherwise) of the
Borrower, or any event, condition, or state of facts which would be expected
materially and adversely to affect the prospects of the Borrower or any of its
Subsidiaries subsequent to the making of such Loan to the Borrower, as
determined by the Administrative Agent and the Lenders in their sole
discretion.
(c) Solvency. The Lenders and the Administrative Agent shall
be satisfied that, giving effect to the making of such Loan, or the issuance
of such Letter of Credit, the Borrower and each of its Subsidiaries will be
Solvent.
(d) No Default or Event of Default. There shall exist no
Default or Event of Default or any event or condition which, with the making
of such Loan or the issuance of such Letter of Credit, would constitute a
Default or Event of Default.
(e) Representations and Warranties. All representations and
warranties made by the Borrower and its Subsidiaries hereunder shall be true
and correct in all respects as of the date of such Loan or Letter of Credit
with the same force and effect as if made on and as of such date.
(f) Regulatory Restrictions. Neither the Borrower nor any of
its Subsidiaries shall be subject to any statute, rule, regulation, order,
writ or injunction of any Governmental Authority which would restrict or
hinder the conduct of the Borrower's or such Subsidiary's business as
conducted or proposed to be conducted and which could have a Material Adverse
Effect. In addition, the Administrative Agent, Collateral Agent and the
Majority Lenders shall have reasonably satisfied itself that the Borrower and
each of its Subsidiaries is in compliance with all Applicable Laws of any
Governmental Authority the failure to comply with which, in the opinion of the
Lender, could have a Material Adverse Effect.
(g) Regulatory Approvals. The Borrower shall have received all
required regulatory and other approvals or consents with regard to this
Agreement and the other Loan Documents, such Loan or in respect of any
Collateral being pledged in connection with such Loan.
11.3 Delay in Satisfaction of Conditions Precedent. If the
Lenders make a Loan or issue a Letter of Credit prior to the fulfillment of
any condition precedent set forth in this Article 11, the making of such Loan
or issuance of such Letter of Credit shall constitute only an extension of
time for the fulfillment of such condition and not a waiver thereof. The
failure of the Borrower, for any reason, to satisfy or cause to be satisfied
any such condition precedent within thirty (30) days after the date thereof
shall constitute an Event of Default for all purposes under this Agreement and
the other Loan Documents, unless such failure is waived in writing by the
Lenders.
<PAGE>
12. THE AGENT
12.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes each of the Agents to each act as its
agent hereunder with such powers as are specifically delegated to such Agent
by the terms of this Agreement, together with such other powers as are
reasonably incidental thereto. No Agent (which term as used in this sentence
and in Section 12.5 hereof and the first sentence of Section 12.6 hereof shall
include reference to its Affiliates and its own and its Affiliates' officers,
directors, employees and agents): (a) shall have any duties or
responsibilities except those expressly set forth in this Agreement with
respect to such Agent, and shall not by reason of this Agreement be a trustee
for any Lender; (b) shall be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement or any
of the other Loan Documents, or in any certificate or other instrument,
document or agreement referred to or provided for in, or received by any of
them under, this Agreement or any of the other Loan Documents, or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement, any Note or any of the other Loan Documents or for any failure
by either Borrower or any other Person to perform any of its obligations
hereunder or thereunder; (c) subject to Section 12.3 hereof, shall be required
to initiate or conduct any litigation or collection proceedings hereunder; and
(d) shall be responsible for any action taken or omitted to be taken by it
hereunder or under any other agreement, document or instrument referred to or
provided for herein or in connection herewith, except for its own gross
negligence or willful misconduct. The Administrative Agent and Collateral
Agent may each employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a written notice of the assignment or transfer
complying with the terms and conditions of Section 13.3 hereof.
12.2 Reliance by Agents. Each Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof
by telephone, telex, facsimile, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by such Agent. As to any
matters not expressly provided for by this Agreement, each Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by the Majority Lenders (unless the
instructions of or consent of all of the Lenders is required hereunder), and
such instructions and any action taken or failure to act pursuant thereto
shall be binding on all of the Lenders; provided, however, no Agent shall be
required to take any action which (a) such Agent reasonably believes will
expose it to personal liability unless such Agent receives an indemnification
satisfactory to it from the Lenders with respect to such action or (b) is
contrary to this Agreement, the Notes, the other Loan Documents or Applicable
Law.
12.3 Defaults. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default or Event of Default
(other than the non-payment of principal of or interest on Loans or of
Commitment Fees) unless the Administrative Agent has received notice from a
Lender or the Borrower specifying such Default or Event of Default and stating
that such notice is a "Notice of Default." In the event that the
Administrative Agent receives such a notice of the occurrence of a Default or
Event of Default, the Administrative Agent shall give prompt notice thereof to
the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 12.7 hereof)
take such action with respect to such Default or Event of Default as shall be
directed by the Majority Lenders (unless the directions of or consent of all
of the Lenders is required hereunder), provided that, unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interest of the Lenders.
12.4 Rights as a Lender. With respect to its Commitment and the
Loans made by it, CCF (and any successor acting as Administrative Agent or
Collateral Agent) in its capacity as a Lender hereunder shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not acting as the Administrative Agent and/or Collateral Agent,
and the term "the Lender" or "the Lenders" shall, unless the context otherwise
indicates, include each in its individual capacity. CCF (and any successor
acting as Administrative Agent or Collateral Agent) and its Affiliates may
(without having to account therefor to any Lender) accept deposits from, lend
money to and generally engage in any kind of banking, trust or other business
with the Borrower (and any of its Affiliates) as if it were not acting as the
Administrative Agent or Collateral Agent, and CCF and its Affiliates may
accept fees and other consideration from the Borrower for services in
connection with this Agreement or otherwise without having to account for the
same to the Lenders.
<PAGE>
12.5 Indemnification. The Lenders agree to indemnify the
Administrative Agent, Collateral Agent, Co-Agent and the LC Issuer (to the
extent not reimbursed under Sections 13.5 or 3.10 hereof, but without limiting
the obligations of the Borrower under said Sections 13.5 and 3.10), for their
respective Commitment Percentages of any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Administrative Agent, Collateral Agent,
Co-Agent or the LC Issuer in any way relating to or arising out of this
Agreement or any other instruments, documents or agreements contemplated by or
referred to herein or the transactions contemplated hereby (including, without
limitation, the costs and expenses which the Borrower is are obligated to pay
under Section 13.5 hereof but excluding, unless an Event of Default has
occurred and is continuing, normal administrative costs and expenses of the
Administrative Agent, the Collateral Agent and the Co-Agent incident to the
performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or of any such other instruments, documents or agreements,
provided that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the party to be
indemnified. The obligations of the Lenders under this Section 12.5 shall
survive the termination of this Agreement.
12.6 Non-Reliance on Administrative Agent and the other Lenders.
Each Lender agrees that it has, independently and without reliance on the
Administrative Agent, the Collateral Agent, the Co-Agent, the LC Issuer or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and the Subsidiaries
of the Borrower and its own decision to enter into this Agreement and that it
will, independently and without reliance upon the Administrative Agent, the
Collateral Agent, the Co-Agent, the LC Issuer or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement. Neither the Administrative Agent, the Collateral Agent
nor the Co-Agent shall be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement or any other
instrument, document or agreement referred to or provided for herein or to
inspect the properties or books of the Borrower. Except for notice, reports
and other documents and information expressly required to be furnished to the
Lenders by the Administrative Agent or the Collateral Agent hereunder, neither
the Administrative Agent, the Collateral Agent, any Co-Agent nor the LC Issuer
shall have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of
the Borrower (or any of its Affiliates) which may come into the possession of
the Administrative Agent, the Collateral Agent, any Co-Agent nor the LC Issuer
or any of their respective Affiliates.
12.7 Failure to Act. Except for action expressly required of the
Administrative Agent, Collateral Agent, Co-Agent or LC Issuer hereunder, such
Administrative Agent, Collateral Agent, Co-Agent or LC Issuer, as applicable
shall in all cases be fully justified in failing or refusing to act hereunder
unless it shall receive further assurances to its satisfaction from the
Lenders of their indemnification obligations under Section 12.5 hereof against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.
12.8 Resignation or Removal of an Agent.
(a) Subject to the appointment and acceptance of a successor Agent as
provided below, an Agent may resign at any time by giving notice thereof to
the Lenders and the Borrower, and an Agent may be removed at any time with
cause by the Majority Lenders. Upon any such resignation or removal, the
Majority Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Majority Lenders and shall
have accepted such appointment with thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Lender's removal of
the retiring Agent, the retiring Agent may, on behalf of the Lenders, appoint
a successor Agent, which shall be a bank which has a combined capital and
<PAGE>
surplus of at least Three Hundred Million Dollars ($300,000,000). Upon the
acceptance of any appointment as Agent, such 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 hereunder. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this Section 12.8 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as an Agent.
(b) In the event that Applicable Law imposes any restrictions on the
identity of an agent such as the Administrative Agent or Collateral Agent or
requires the appointment of any co-agent in connection therewith, the
Administrative Agent or Collateral Agent, as the case may be, may, in its
discretion, for the purpose of complying with such restrictions, appoint one
or more subagents or co-agents hereunder. Any such subagent(s) or co-agent(s)
shall have the same rights, powers, privileges and obligations as the
Administrative Agent or Collateral Agent, as the case may be, and shall be
subject to and entitled to the benefits of all provisions of this Agreement
and the Loan Documents relative to such Agent. In addition to any rights of
the Majority Lenders set forth in subsection (a) above, any such subagent or
co-agent may be removed at any time by Agent which appointed such subagent or
co-agent.
12.9 Collateral Matters.
(a) Authority. Each Lender authorizes and directs the
Collateral Agent to enter into the Loan Documents relating to the Collateral
for the benefit of the Lenders. Each Lender agrees that any action taken by
the Collateral Agent or the Majority Lenders (or, where required by the
express terms of this Agreement, a greater proportion of the Lenders) in
accordance with the provisions of this Agreement or the other Loan Documents,
and the exercise by the Collateral Agent or the Majority Lenders (or, where so
required, such greater proportion) of the powers as are reasonably incidental
thereto, shall be authorized and binding upon all of the Lenders. Without
limiting the generality of the foregoing, the Collateral Agent shall have the
sole and exclusive right and authority to (i) act as the disbursing and
collecting agent for the Lenders with respect to all payments and collections
arising in connection with this Agreement and the Loan Documents relating to
the Collateral; (ii) execute and deliver each Loan Document relating to the
Collateral and accept delivery of each such agreement delivered by the
Borrower or any of its Subsidiaries; (iii) act as collateral agent for the
Lenders for purposes of the perfection of all security interests and Liens
created by such agreements and all other purposes stated therein, provided,
however, the Collateral Agent hereby appoints, authorizes and directs the
Lenders to act as collateral sub-agents for the Collateral Agent and the
Lenders for purposes of the perfection of all security interests and Liens
with respect to the Borrower's and its Subsidiaries' respective deposit
accounts maintained with, and cash and other property held by, such Lender;
(iv) manage, supervise and otherwise deal with the Collateral; (v) take such
action as is necessary or desirable to maintain the perfection and priority of
the security interest and Liens created or purported to be created by the Loan
Documents, and (vi) except as may be otherwise specifically restricted by the
terms of this Agreement or any other Loan Document, exercise all remedies
given to the Collateral Agent or the Lenders with respect to the Collateral
under the Loan Documents, Applicable Law or otherwise.
<PAGE>
(b) Each Lender hereby directs, in accordance with the terms of
this Agreement, the Collateral Agent to release or to subordinate any Lien
held by the Collateral Agent for the benefit of the Lenders:
(i) against all of the Collateral, upon final and
indefeasible payment in full of the Obligations and termination of this
Agreement;
(ii) against any part of the Collateral sold or disposed of
by the Borrower or any of its Subsidiaries, if such sale or disposition is
permitted by Section 7.3 hereof or is otherwise consented to by the Majority
Lenders, as certified to the Collateral Agent by the Borrower in an Officer's
Certificate;
(iii) against any part of the Collateral constituting
property in which the Borrower owned no interest at the time the Lien was
granted or at any time thereafter; or
(iv) if approved, authorized or ratified in writing by the
Collateral Agent at the direction of Majority Lenders.
Each Lender hereby directs the Collateral Agent to execute and deliver or file
such termination and partial release statements and do such other things as
are necessary to release Liens to be released pursuant to Section 12.9(b)
hereof promptly upon the effectiveness of any such release.
(c) Each Lender hereby directs, in accordance with the terms of
this Agreement, the Collateral Agent to release any Subsidiary of Borrower
from any Guarantee provided by such Subsidiary in favor by the Collateral
Agent for the benefit of the Lenders:
(i) upon final and indefeasible payment in full of the
Obligations and termination of this Agreement;
(ii) upon the sale or other disposition of all of the
issued and outstanding shares of capital stock of such Subsidiary if such sale
or disposition is permitted by Section 7.3 hereof or is otherwise consented to
by the Majority Lenders, as certified to the Collateral Agent by the Borrower
in an Officer's Certificate;
(iii) if approved, authorized or ratified in writing by the
Collateral Agent at the direction of Majority Lenders.
Each Lender hereby directs the Collateral Agent to execute and deliver or file
such releases and do such other things as are necessary to release Guarantees
to be released pursuant to Section 12.9(c) hereof promptly upon the
effectiveness of any such release.
(d) Without in any manner limiting the Collateral Agent's
authority to act without any specific or further authorization or consent by
Majority Lenders (as set for in Sections 12.9(b) or (c) hereof), each Lender
agrees to confirm in writing, upon request by the Borrower, the authority to
release Collateral conferred upon the Collateral Agent under clauses (i)
through (iv) of Section 12.9(b) hereof or the authority to release Guarantees
conferred upon the Collateral Agent under clause (i) through (iii) of Section
12.9(c) hereof. So long as no Default or Event of Default is then continuing,
upon receipt by the Collateral Agent of any such written confirmation from the
Majority Lenders of its authority to release any particular items or types of
Collateral, and in any event upon any sale and transfer of Collateral which is
expressly permitted pursuant to the terms of this Agreement, and upon at least
five (5) Business Days prior written request by the Borrower, the Collateral
Agent shall (and is hereby irrevocably
<PAGE>
authorized by the Lenders to) execute such documents as may be necessary to
evidence the release of the Liens granted to the Collateral Agent for the
benefit of the Lenders herein or pursuant hereto upon such Collateral;
provided, that (i) the Collateral Agent shall not be required to execute any
such document on terms which, in the Collateral Agent's opinion, would expose
the Collateral Agent to liability or create any obligation or entail any
consequence other that the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens upon (or obligations of the Borrower in respect of)
all interests retained by the Borrower, including without limitation the
proceeds of any sale, all of which shall continue to constitute part of the
Collateral.
(e) The Collateral Agent shall have no obligation whatsoever to
the Lenders or to any other Person to assure that the Collateral exists or is
owned by the Borrower or any of its Subsidiaries or is cared for, protected or
insured or has been encumbered or that the Liens granted to the Collateral
Agent pursuant to this Agreement or any of the Loan Documents have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to the Collateral Agent in this Section 12.9 or in any of the Loan
Documents, it being understood and agreed that in respect of the Collateral,
or in any act, omission or event related thereto, the Collateral Agent may act
in any manner it may deem appropriate, in its sole discretion, given its own
interest in the Collateral as one of the Lenders and that the Collateral Agent
shall have no duty or liability whatsoever to any Lender.
12.10 The Borrower Not a Beneficiary. The provisions of this
Article 12 are solely for the benefit of the Agents, the LC Issuer and the
Lenders and neither the Borrower nor any Subsidiary of the Borrower shall have
any right to rely on or enforce any of the provisions hereof. In performing
their functions and duties under this Agreement, the Agents shall act solely
as the Agents of the Lenders and do not assume and shall not be deemed to have
assumed any obligations or relationship of agency, trustee or fiduciary with
or for the Borrower or any Subsidiary of the Borrower.
13. MISCELLANEOUS
13.1 Waiver. Each and every right and remedy granted to the
Agents, the LC Issuer and the Lenders under this Agreement, the other Loan
Documents or any other document delivered hereunder or in connection herewith
or allowed them by law or in equity, shall be cumulative and may be exercised
from time to time. No failure on the part of the Agents, the LC Issuer or any
Lender to exercise, and no delay in exercising, any right or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Agents or any Lender of any right or remedy preclude any other or future
exercise thereof or the exercise of any other right or remedy. No waiver by
the Agents or the Lenders of any Default or Event of Default shall
<PAGE>
constitute a waiver of any subsequent Default or Event of Default.
13.2 Survival. All representations, warranties and covenants
made herein shall survive the execution and delivery of all of the Loan
Documents. The terms and provisions of this Agreement shall continue in full
force and effect until the termination of this Agreement in accordance with
Section 2.7 hereof; provided, further, that the Borrower's obligations under
Sections 2.9(b), 3.9, 3.10, 13.5 and 13.13 shall survive the repayment of the
Obligations and the termination of this Agreement.
13.3 Assignments; Successors and Assigns.
(a) This Agreement is a continuing obligation and binds, and the
benefits hereof shall inure to, the Borrower, the Agents, the LC Issuer and
each Lender and their respective successors and assigns; provided, that the
Borrower may not transfer or assign any or all of its rights or obligations
hereunder without the prior written consent of all of the Lenders.
(b) Any Lender may, in accordance with Applicable Law, at any
time sell to one or more banks or other financial institutions
("Participants") participating interests in any Loans owing to such Lender,
any of the Notes held by such Lender, any Commitment held by such Lender
hereunder or any other interests of such Lender hereunder. The Borrower
agrees that each Participant shall be entitled to the benefits of Sections
2.9(b), 3.9, 3.10 and 13.13 hereof with respect to its participation; provided
that no Participant shall be entitled to receive any greater amount pursuant
to such Section than such Lender would have been entitled to receive in
respect of the amount of the participation transferred by such Lender to such
Participant had no such transfer occurred.
(c) Each Lender may, with the Administrative Agent's consent and in
accordance with Applicable Law, at any time assign, pursuant to an assignment
substantially in the form of Exhibit M attached hereto and incorporated herein
by reference, without the Borrower's consent to one or more banks having
unimpaired capital and surplus of Two Hundred Fifty Million Dollars
($250,000,000) or more or may assign with the Borrower's consent (which shall
not be unreasonably withheld) to any other financial institution (in either
case, "Eligible Assignees") all or any part of any Loans owing to such Lender,
any of the Notes held by such Lender, such Lender's reimbursement and other
rights and obligations in connection with any Letter of Credit issued
hereunder, the portion of the Commitment held by such Lender or any other
interest of such Lender hereunder; provided, however, that (i) unless Borrower
and the Administrative Agent consent otherwise, and except in the case of an
assignment to another Lender, any such partial assignment shall be in a
minimum principal amount of Five Million Dollars ($5,000,000) and (ii) each
such assignment by a Lender of its Loans, Notes, Commitment, or Letter of
Credit Obligations shall be made in such manner so that the same portion of
its Loans, Notes, Commitment, and Letter of Credit Obligations is assigned to
the respective assignee. The Borrower and the Lenders agree that to the
extent of any assignment the Assignee shall be deemed to have the same rights
and benefits with respect to the Borrower under this Agreement and any of the
Notes and any Letter of Credit as it would have had if it were a Lender
hereunder on the Effective Date and the assigning Lender shall be released
from its Commitment and other obligations hereunder, to the extent of such
assignment. Upon the making of an assignment, the assigning Lender shall pay
to the Administrative Agent an assignment fee of $3,000.
<PAGE>
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 13.3, any Lender may assign and
pledge all or any portion of its Loans and its Note to any Federal Reserve
Bank as collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank. No such assignment shall
release the assigning Lender from its obligations hereunder.
(e) The Borrower authorizes each Lender to disclose to any
Participant or Eligible Assignee ("Transferee") and any prospective Transferee
any and all financial information in such Lender's possession concerning the
Borrower or any of its Subsidiaries which has been delivered to such Lender by
the Borrower or the Administrative Agent pursuant to this Agreement or which
has been delivered to such Lender by the Borrower in connection with such
Lender's credit evaluation of the Borrower prior to entering into this
Agreement.
(f) Any Lender shall be entitled to have any Note held by it
subdivided in connection with a permitted assignment of all or any portion of
such Note and the respective Loans evidenced thereby pursuant to Section
13.3(c) above. In the case of any such subdivision, the new Note (the "New
Note") issued in exchange for a Note (the "Old Note") previously issued
hereunder (i) shall be substantially in the form of Exhibit F hereto, as
appropriate, (ii) shall be dated the date of such assignment, (iii) shall be
otherwise duly completed and (iv) shall bear a legend, to the effect that such
New Note is issued in exchange for such Old Note and that the indebtedness
represented by such Old Note shall not have been extinguished by reason of
such exchange. Without limiting the obligations of the Borrower under Section
13.5 hereof, the Lenders shall use reasonable best efforts to ensure that any
such assignment does not result in the imposition of any intangibles,
documentary stamp and other taxes, if any, which may be payable in connection
with the execution and delivery of any such New Note.
(g) Anything in this Section 13.3 to the contrary
notwithstanding, no Lender may assign or participate any interest in any Loan
held by it hereunder to the Borrower or any of its respective Affiliates or
Subsidiaries without the prior written consent of each Lender.
13.4 Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which when fully executed shall be an original, and
all of said counterparts taken together shall be deemed to constitute one and
the same agreement. Any signature page to this Agreement may be witnessed by
a telecopy or other facsimile of any original signature page and any signature
page of any counterpart hereof may be appended to any other counterpart hereof
to form a completely executed counterpart hereof.
13.5 Expense Reimbursement. The Borrower agrees to reimburse the
Administrative Agent, the Collateral Agent and the Co-Agent for all of their
respective expenses incurred in connection with the negotiation, preparation,
execution, delivery, modification, and enforcement of this Agreement, the
Notes and the other Loan Documents, including, without limitation, audit
costs, appraisal costs, the cost of searches, filings and filing fees, taxes
and the fees and disbursements of the Agents' counsel, and all costs and
expenses incurred by the Administrative Agent, Collateral Agent, the Co-Agent
and the Lenders (including, without limitation, attorneys' fees and
disbursements) to: (a) commence, defend or intervene in any court proceeding;
(b) file a petition, complaint, answer, motion or other pleading, or to take
any other action in or with respect to any suit or proceeding (bankruptcy or
otherwise) relating to the Collateral, any Letter of Credit or this Agreement,
the Notes or any of the other Loan Documents; (c) protect, collect, lease,
sell, take possession of, or liquidate any of the Collateral; (d) attempt to
enforce any Lien in any of the Collateral or to seek any advice with respect
to such enforcement; and (e) enforce any of the Agents' and the Lenders'
rights to collect any of the Obligations. The Borrower also agrees to pay,
and to save harmless the Agents and the Lenders from any delay in paying, any
intangibles, documentary stamp and other taxes, if any, which may be payable
in connection with the execution and delivery of this Agreement, the Notes, or
any of the other Loan Documents, or the recording of any thereof, the issuance
of any Letter of Credit or in any modification hereof or thereof.
Additionally, the Borrower agrees to pay to the Lender on demand any and all
fees, costs and expenses which the Administrative Agent or such Lender pays to
a bank or other similar institution arising out of or in connection with (i)
the forwarding to the Borrower or any other Person, on behalf of the Borrower,
by the
<PAGE>
Administrative Agent or such Lender of proceeds of any Loan and (ii) the
depositing for collection by the Administrative Agent and each Lender of any
check or item of payment received by or delivered to the Administrative Agent
or such Lender on account of the Obligations. All fees, costs and expenses
provided for in this Section 13.5 may, at the option of the Majority Lenders,
be charged as Loans to the loan account of the Borrower with the
Administrative Agent provided for in Section 2.3 hereof. The Borrower's
obligations under this Section 13.5 shall survive the termination of this
Agreement and the repayment of the Obligations.
13.6 Severability. If any provision of this Agreement or any of
the other Loan Documents or the application thereof to any party thereto or
circumstances shall be invalid, illegal or unenforceable to any extent, the
remainder of this Agreement or such Loan Document and the application of such
provisions to any other party thereto or circumstance shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
13.7 Notices. Except as otherwise provided herein, all notices,
requests, demands and other communications under this Agreement shall be in
writing and shall be deemed to have been given or made when (a) delivered by
hand, (b) sent by telex or facsimile transmitter (with receipt confirmed),
provided that a copy is mailed by certified mail, return receipt requested, or
(c) when received by the addressee, if sent by Express Mail, Federal Express
or other overnight delivery service (receipt requested), in each case to the
appropriate addresses, telex numbers, facsimile numbers designated for a party
at the "Address for Notices" specified below its name on the signature pages
hereto or to such other addresses as may be designated hereafter in writing by
the respective parties hereto.
13.8 Entire Agreement; Amendment. This Agreement and the other
Loan Documents constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior negotiations,
understandings and agreements between such parties in respect of such subject
matter. Neither this Agreement nor any provision hereof may be changed,
waived, discharged, modified or terminated except pursuant to a written
instrument signed by the Borrower, the Administrative Agent and the Majority
Lenders or by the Borrower and the Administrative Agent acting with the
consent of the Majority Lenders; provided, however, that no such amendment,
waiver, discharge, modification or termination shall, except pursuant to an
instrument signed by the Borrower, the Agents and all of the Lenders or by the
Borrower and the Administrative Agent acting with the consent of all of the
Lenders, (a) increase the amount of, extend the term of, or extend the time or
waive any requirement for the termination of the Commitments; (b) extend the
date fixed for the scheduled payment of principal of, or interest on, any
Loan; (c) reduce the amount of any scheduled payment of principal of, or the
rate of interest on, any Loan; (d) reduce any fee payable hereunder; (e) alter
the terms of this Section 13.8; (f) except as permitted by Section 12.9(c)
hereof, release any guarantor of the Obligations; (g) reduce the Commitment of
any Lender in any manner which would change such Lender's Commitment
Percentage; or (h) amend the definitions of the term "Majority Lenders" or
"Borrowing Availability" set forth in Section 1.1 hereof; provided, further,
that any amendment, waiver, discharge modification or termination of any
provision of Section 12 hereof, or which increases the obligations of any
Agent hereunder and under the Loan Documents, shall require the written
consent of the such Agent.
Anything in this Agreement to the contrary notwithstanding, if any
Lender shall fail to fulfill its obligations to make any Loan hereunder then,
for so long as such failure shall continue, such Lender shall (unless the
Majority Lenders, determined as if such Lender were not a " Lender" hereunder,
shall otherwise consent in writing) be deemed for all purposes relating to
amendments, modifications, waivers or consents under this Agreement or the
Notes (including, without limitation, under this Section 13.8) to have no
Loans, no Commitment, shall not be treated as a "Lender" hereunder when
performing the computation of Majority Lenders, and shall have no rights under
the preceding paragraph of this Section 13.8; provided that any action taken
by the other Lenders with respect to the matters referred to in clauses (a)
through (h) of the preceding paragraph shall not be effective as against such
Lender.
<PAGE>
13.9 Time of the Essence. Time is of the essence in this
Agreement and the other Loan Documents.
13.10 Interpretation. No provision of this Agreement shall be
construed against or interpreted to the disadvantage of any party hereto by
any court or other Governmental Authority by reason of such party having or
being deemed to have structured or dictated such provision.
13.11 Lenders Not Joint Venturers. Neither this Agreement, the
other Loan Documents, any agreements, instruments, documents executed and
delivered pursuant hereto or thereto or in connection herewith or therewith,
nor any of the transactions contemplated hereby or thereby shall in any
respect be interpreted, deemed or construed as making any Agent or any Lender
a partner or joint venturer with the Borrower or any of its Subsidiaries or as
creating any similar relationship or entity, and the Borrower agrees that it
will not make, and will not permit any of its Subsidiaries to make, any
assertion, contention, claim or counterclaim to the contrary in any action,
suit or other legal proceeding involving an Agent or the Lenders and the
Borrower or any of its Subsidiaries.
13.12 Cure of Defaults by Lenders. If, hereafter, the Borrower
or
any of its Subsidiaries defaults in the performance of any duty or obligation
to any third party, any Lender may, at its option, but without obligation,
cure such default and any costs, fees and expenses incurred by such Lender in
connection therewith including, without limitation, for payment on mortgage or
note obligations, for the purchase of insurance, the payment of taxes and the
removal or settlement of Liens and claims, and such costs, fees and expenses
shall be included in the Obligations and be secured by the Collateral.
13.13 Indemnity. In addition to any other indemnity provided
for
herein, the Borrower hereby indemnifies the Agents, the LC Issuer and each
Lender from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever (including, without limitation, fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against the Agents, the LC Issuer or such Lender in any litigation, proceeding
or investigation instituted or conducted by any Governmental Authority or any
other Person (other than the Borrower) with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement or the other Loan Documents, whether or not the Agents, the LC
Issuer or such Lender is a party thereto, except to the extent that any of the
foregoing arises out of gross negligence, willful misconduct or a material
breach of this Agreement by the Agents, the LC Issuer or such Lender, as the
case may be. Additionally, the Borrower hereby indemnifies and holds the
Agents, the LC Issuer and each Lender harmless from all loss, cost (including,
without limitation, fees and disbursements of counsel), liability and damage
whatsoever incurred by the Agents, the LC Issuer or such Lender by reason of
any violation of any applicable Environmental Laws for which the Borrower, any
of its Subsidiaries or any of their respective predecessors has any liability
or which occurs upon any real estate owned by or under the control of the
Borrower or any of its Subsidiaries, or by reason of the imposition of any
governmental Lien for the recovery of environmental cleanup costs expended by
reason of such violation. The Borrower's obligations under this Section 13.13
shall survive the termination of this Agreement and the repayment of the
Obligations.
13.14 Consequential Damages. NEITHER ANY AGENT, THE LC ISSUER
NOR
ANY LENDER SHALL BE RESPONSIBLE OR LIABLE TO THE BORROWER, ANY OF ITS
SUBSIDIARIES, OR ANY OTHER PERSON OR ENTITY FOR ANY PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
13.15 Attorney-in-Fact. The Borrower hereby designates, appoints
and empowers the Administrative Agent irrevocably as its attorney-in-fact, at
the Borrower's cost and expense, to do in the name of the Borrower any and all
actions which the Administrative Agent may deem necessary or advisable to
carry out the terms hereof upon the failure, refusal or inability of the
Borrower to do so, and the Borrower hereby agrees to indemnify and hold the
Administrative Agent harmless from any costs, damages, expenses or liabilities
arising against or incurred by the Administrative Agent in connection
therewith except to the extent that any of such costs, damages, expenses or
liabilities arise out of the Administrative Agent's gross negligence or
willful misconduct.
<PAGE>
13.16 Financing Statements.
(a) Borrower hereby ratifies and confirms that all financing
statements filed under the Uniform Commercial Code in connection with the
Original Loan Agreement, showing "IT Partners, Inc." as the debtor and CCF, as
agent, as the secured party, shall be sufficient to perfect the Liens
continued and granted to the Collateral Agent pursuant to this Agreement and
the Loan Documents, to the extent such Liens may be perfected by the filing of
financing statements and Borrower hereby agrees that it shall not make any
assertion, contention, claim or counterclaim to the contrary in any action,
suit or other legal proceeding involving any Agent or the Lenders and
Borrower.
(b) The Borrower acknowledges and agrees that it is the
Borrower's intent that all financing statements filed against the Borrower or
any of its Subsidiaries in connection with this Agreement or the Original Loan
Agreement shall remain in full force and effect until the Commitment shall
have been terminated in accordance with the provisions hereof, even if, at any
time or times prior to such termination, no Loans or Letters of Credit shall
be outstanding hereunder. Accordingly, the Borrower waives any right which it
may have under Section 9-404(1) of the UCC to demand the filing of termination
statements with respect to the Collateral, and agrees that the Collateral
Agent shall not be required to send such termination statements to the
Borrower or any of its Subsidiaries, or to file them with any filing office,
unless and until the Commitment shall have been terminated in accordance with
the terms of this Agreement and all Obligations paid in full in immediately
available funds and until the termination or expiration of all Letters of
Credit. Upon such termination and payment in full, the Collateral Agent shall
execute appropriate termination statements and deliver the same to the
Borrower.
13.17 Governing Law; Jurisdiction. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
THE BORROWER, THE AGENTS, THE LC ISSUER AND EACH LENDER HEREBY (A) SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT, THE LETTERS OF CREDIT, THE NOTES, OR THE OTHER LOAN
DOCUMENTS; (B) AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THIS AGREEMENT AND THE
LOAN DOCUMENTS; AND (C) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NOTHING HEREIN SHALL
LIMIT THE RIGHT OF ANY AGENT, THE LC ISSUER OR ANY LENDER TO BRING PROCEEDINGS
AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
13.18 Waiver of Jury Trial. AFTER REVIEWING THIS PROVISION
SPECIFICALLY WITH ITS RESPECTIVE COUNSEL, THE BORROWER, EACH AGENT, THE LC
ISSUER AND EACH LENDER HEREBY KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY
WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LEGAL PROCEEDING BASED ON OR ARISING OUT OF, UNDER, IN CONNECTION WITH, OR
RELATING TO THIS AGREEMENT, THE LETTERS OF CREDIT, ANY OF THE NOTES, ANY OF
THE OTHER LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR
ACTIONS OF THE BORROWER, ANY AGENT OR ANY LENDER. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDERS TO MAKE THE LOANS TO THE BORROWER.
DK
------
Initials
IN WITNESS WHEREOF, the Borrower, the Administrative Agent, the
Collateral Agent, the Co-Agent, the LC Issuer and the Lenders have caused
their duly authorized officers to set their hands and seals as of the day and
year first above written.
"Borrower"
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
-------------------
Daniel J. Klein
Chairman and Chief Executive Officer
Attest: /s/ Jamie E. Blech
------------------
Jamie E. Blech
Secretary
[CORPORATE SEAL]
Address for Notices:
IT Partners, Inc.
9881 Broken Land Parkway
Suite 102
Columbia, MD 21046
Attn.: Daniel J. Klein
Facsimile: (410) 309-9801
Telephone: (410) 309-9800
with a copy to:
Swidler & Berlin, Chartered
3000 K Street
Washington, DC 20007
Attn.: Andrew M. Ray, Esq.
Facsimile: (202) 424-7643
Telephone: (202) 424-7585
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Administrative Agent"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
------------------
Carl G. Drake
Vice President
Address for Notices:
Creditanstalt Corporate Finance, Inc.
Two Greenwich Plaza
Greenwich, Connecticut 06830
Attn: Lisa Bruno
Facsimile No: (203) 861-6594
with copies to:
Creditanstalt Corporate Finance, Inc.
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Attn: Robert M. Biringer
Carl G. Drake
Facsimile No: (770) 390-1851
and
Troutman Sanders LLP
600 Peachtree Street, N.W.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: Hazen H. Dempster, Esq.
Facsimile No: (404) 885-3900
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Collateral Agent"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
------------------
Carl G. Drake
Vice President
Address for Notices:
Creditanstalt Corporate Finance, Inc.
Two Greenwich Plaza
Greenwich, Connecticut 06830
Attn: Lisa Bruno
Facsimile No: (203) 861-6594
with copies to:
Creditanstalt Corporate Finance, Inc.
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Attn: Robert M. Biringer
Carl G. Drake
Facsimile No: (770) 390-1851
and
Troutman Sanders LLP
600 Peachtree Street, N.W.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: Hazen H. Dempster, Esq.
Facsimile No: (404) 885-3900
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Co-Agent"
CREDIT AGRICOLE INDOSUEZ
CREDIT AGRICOLE INDOSUEZ
By: /s/ Mitchell Goldstein
--------------------------
Name:Mitchell Goldstein
Title:Vice President
By: /s/ Patricia Frankel
---------------------------
Name:Patricia Frankel
Title:First Vice President
Address for Notices:
Credit Agricole Indosuez
1211 6th Avenue, 7th Floor
New York, NY 10036
Attn: Michael Arougheti
Facsimile No: (212) 278-2254
with copies to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005-1720
Attn: John Schuster, Esq.
Facsimile No: (212) 269-5420
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Lenders"
Commitment: CREDITANSTALT CORPORATE FINANCE, INC.
$35,000,000
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
------------------
Carl G. Drake
Vice President
Address for Notices:
Creditanstalt Corporate Finance, Inc.
Two Greenwich Plaza
Greenwich, Connecticut 06830
Attn: Lisa Bruno
Facsimile No: (203) 861-6594
with copies to:
Creditanstalt Corporate Finance, Inc.
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Attn: Robert M. Biringer
Carl G. Drake
Facsimile No: (770) 390-1851
and
Troutman Sanders LLP
600 Peachtree Street, N.W.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: Hazen H. Dempster, Esq.
Facsimile No: (404) 885-3900
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
Commitment: CREDIT AGRICOLE INDOSUEZ
$35,000,000
By: /s/ Mitchell Goldstein
--------------------------
Name:Mitchell Goldstein
Title:Vice President
By: /s/ Patricia Frankel
---------------------------
Name:Patricia Frankel
Title:First Vice President
Address for Notices:
Credit Agricole Indosuez
1211 6th Avenue, 7th Floor
New York, NY 10036
Attn: Michael Arougheti
Facsimile No: (212) 278-2254
with copies to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005-1720
Attn: John Schuster, Esq.
Facsimile No: (212) 269-5420
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"LC Issuer"
CREDITANSTALT CORPORATE FINANCE, INC.
By:/s/ Robert M. Bitiringer
Robert M. Biringer
Executive Vice President
By:/s/ Carl G. Drake
Carl G. Drake
Vice President
Address for Notices:
Creditanstalt Corporate Finance, Inc.
Two Greenwich Plaza
Greenwich, Connecticut 06830
Attn: Lisa Bruno
Facsimile No: (203) 861-6594
with copies to:
Creditanstalt Corporate Finance, Inc.
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Attn: Robert M. Biringer
Carl G. Drake
Facsimile No: (770) 390-1851
and
Troutman Sanders LLP
600 Peachtree Street, N.W.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: Hazen H. Dempster, Esq.
Facsimile No: (404) 885-3900
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(the "First Amendment") is made and entered into as of the 2nd day of July,
1998, by and among IT PARTNERS, INC., a Delaware corporation (the "Borrower"),
each of the Lenders signatory hereto (hereinafter referred to individually as
a "Lender" and collectively as the "Lenders"), CREDITANSTALT CORPORATE
FINANCE, INC., as the letter of credit issuer (in such capacity, the "LC
Issuer"), CREDIT AGRICOLE INDOSUEZ, as co-agent for the Lenders (in such
capacity, together with its successors and assigns, the "Co-Agent") and
CREDITANSTALT CORPORATE FINANCE, INC., as collateral agent for the Lenders (in
such capacity, together with its successors and assigns, the "Collateral
Agent") and administrative agent for the Lenders (in such capacity, together
with its successors and assigns, the "Administrative Agent"; the Co-Agent,
Collateral Agent and Administrative Agent are collectively referred to as the
"Agents" and individually referred to as an "Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the Lenders, LC Issuer and the Agents are parties to
that certain Amended and Restated Loan and Security Agreement dated as of
March 31, 1998 (as the same may be amended, restated and supplemented from
time to time, the "Loan Agreement"), which currently provides for a revolving
credit facility (the "Loan" or "Loans") in the aggregate principal amount of
up to Seventy Million Dollars ($70,000,000) at any one time outstanding; and
WHEREAS, the Borrower has requested that the Lenders, LC Issuer and the
Agents amend the Loan Agreement in order to amend certain definitions and
covenants, and to make certain other changes as provided herein; and
WHEREAS, the Lenders, LC Issuer and the Agent are willing to agree to
such request, subject to the terms and conditions of this First Amendment;
NOW, THEREFORE, for and in consideration of the premises, the terms and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
<PAGE>
1. Defined Terms. Defined terms used herein, as indicated by the
initial capitalization thereof, shall have the same respective meanings
ascribed to such terms in the Loan Agreement unless otherwise specifically
defined herein.
2. Amendments.
2.1. The definition of "Applicable Margin" contained in Section 1.1 of
the Loan Agreement is hereby amended by deleting such definition in its
entirety and substituting in lieu thereof a new definition of "Applicable
Margin" to read as follows:
"Applicable Margin" shall mean (a) with respect to Eurodollar Loans,
four percent (4%) per annum and (b) with respect to Base Rate Loans, two
percent (2%) per annum; provided however, that if on the last day of any
fiscal quarter, commencing with the earlier of (i) the fiscal quarter during
which Borrower completes a registered public offering of shares of its common
stock which results in the repayment of not less than $25,000,000 in principal
amount of Loans from the proceeds of such offering and (ii) the fiscal quarter
ending December 31, 1998, Borrower's Senior Debt Leverage Ratio shall fall
within any of the ranges set forth below, then, subject to delivery by a
senior financial officer of Borrower of financial statements for that quarter,
together with a Compliance Certificate of the chief financial officer of
Borrower certifying as to Borrower's Senior Debt Leverage Ratio, in each case
as required pursuant to Section 6.2(e) hereof, the Applicable Margin payable
on the Loans shall be adjusted, from the date of Administrative Agent's
receipt of such financial statements and Compliance Certificate until the date
on which the next following quarterly financial statements are required to be
delivered to the Administrative Agent, to the rate, calculated daily on the
basis of a 360-day year and actual days elapsed, for the applicable type of
Loan set forth opposite such range in the schedule below:
<TABLE>
<CAPTION>
Senior Debt Base Eurodollar Rate Letter of
Leverage Ratio Rate Loans Loans Credit
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 3.50:1.00 1.50% 3.50% 3.50%
but greater than or
equal to 3.00:1.00
- -------------------------------------------------------------------------
Less than 3.00:1.00 1.25% 3.25% 3.25%
but greater than or
equal to 2.50:1.00
- ------------------------------------------------------------------------
Less than 2.50:1.00 1.00% 3.00% 3.00%
but greater than or
equal to 2.00:1.00
- ------------------------------------------------------------------------
Less than 2.00:1.00 0.75% 2.75% 2.75%
</TABLE>
If Borrower does not qualify for an adjustment in interest rates as set forth
above for any given fiscal quarter of Borrower or if no Compliance Certificate
and quarterly financial statements are delivered by the required date, the
Applicable Margin shall be those set forth in clauses (a) and (b) above.
<PAGE>
2.2. The definition of "Borrowing Availability" contained in Section
1.1 of the Loan Agreement is hereby amended by deleting such definition in its
entirety and substituting in lieu thereof a new definition of "Borrowing
Availability" to read as follows:
"Borrowing Availability" shall mean, for any Person, an amount equal to
(a) (i) for the period beginning on the Effective Date and ending on the
earlier of (A) December 31, 1998, and (B) the date immediately preceding the
closing of a public offering of shares of common stock of the Borrower
registered under the Securities Act of 1933, as amended, an amount equal to
such Person's Adjusted Cash Flow for the twelve (12) month period most
recently ended multiplied by 4.0; (ii) for the period beginning on the earlier
of (A) January 1, 1999, and (B) the closing of a public offering of shares of
common stock of the Borrower registered under the Securities Act of 1933, as
amended, and ending on May 31, 1999, an amount equal to such Person's Adjusted
Cash Flow for the twelve (12) month period most recently ended multiplied by
3.5; and (iii) thereafter, an amount equal to such Person's Adjusted Cash Flow
for the twelve-month period most recently ended multiplied by 3.0; minus (b)
the currently outstanding aggregate amount of Indebtedness permitted pursuant
to Section 7.2(c) hereof.
2.3. The definition of "Cash Flow" contained in Section 1.1 of the Loan
Agreement is hereby amended by deleting such definition in its entirety and
substituting in lieu thereof a new definition of "Cash Flow" to read as
follows:
"Cash Flow" shall mean, for any Person, for any period for which
the same is computed, the sum of (a) such Person's net income (loss) for such
period, plus (b) such Person's Interest Expense for such period, plus (c) such
Person's depreciation and amortization for financial reporting purposes for
such period, plus (d) income tax expense for such period, plus (e) with
respect to the Borrower, to the extent deducted from the Borrower's net income
(loss) for such period, any costs, not to exceed One Million Two Hundred
Fifty-Two Thousand One Hundred Forty-Five Dollars ($1,252,145) in the
aggregate, related to Information Technology Partners, Inc., which was merged
with and into a Subsidiary of the Borrower, computed in each case on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP.
2.4. The definition of "Calculation Period" contained in Section 1.1 of
the Loan Agreement is hereby amended by deleting such definition in its
entirety and substituting in lieu thereof a new definition of "Calculation
Period" to read as follows:
"Calculation Period" shall mean the twelve month period most
recently ended.
2.5. The definition of "Indebtedness" contained in Section 1.1 of the
Loan Agreement is hereby amended by deleting such definition in its entirety
and substituting in lieu thereof a new definition of "Indebtedness" to read as
follows:
"Indebtedness" shall mean, as applied to any Person at any time,
(a) all indebtedness, obligations or other liabilities of such Person (i) for
borrowed money or evidenced by debt securities, debentures, acceptances, notes
or other similar instruments, and any accrued interest, fees and charges
relating thereto; (ii) under profit payment agreements or similar agreements;
(iii) with respect to letters of credit issued for such Person's account; (iv)
to pay the deferred purchase price of property or services, except (A)
unsecured accounts payable and
<PAGE>
accrued expenses arising in the ordinary course of business which are less
than sixty (60) days past due; and (B) the deferred portion of the purchase
price, in connection with Acquisitions, which is contingent on the
post-acquisition financial performance of the Person that is the subject of
such Acquisition; or (v) Capital Lease Obligations; (b) all indebtedness,
obligations or other liabilities of such Person or others secured by a Lien on
any property of such Person, whether or not such indebtedness, obligations or
liabilities are assumed by such Person, all as of such time; (c) all
indebtedness, obligations or other liabilities of such Person in respect of
any foreign exchange contract or Interest Hedge Agreement, net of liabilities
owed to such Person by the counterparties thereon; (d) all Capital Stock
(other than (i) Borrower's Series A Preferred Stock, (ii) Borrower's Series C
Preferred Stock, or (iii) any warrants issued in connection with Borrower's
Series A Preferred Stock or Borrower's Series C Preferred Stock or which are
otherwise outstanding on July __, 1998) of such Person subject (upon the
occurrence of any contingency or otherwise) to mandatory redemption prior to
the first anniversary of the Maturity Date; and (e) indebtedness of others
Guaranteed by such Person.
2.6. The definition of "Interest Coverage Ratio" contained in Section
1.1 of the Loan Agreement is hereby amended by deleting such definition in its
entirety and substituting in lieu thereof a new definition of "Interest
Coverage Ratio" to read as follows:
"Interest Coverage Ratio" shall mean, as to any Person, for any
period, the ratio of (a) such Person's Cash Flow for such period to (b) such
Person's Interest Expense (excluding from Interest Expense any non-cash
Interest Expense (whether positive or negative) resulting from (i) the
imputation, for financial reporting purposes, of an interest rate to any
Subordinated Seller Note that is higher than the applicable interest rate set
forth in such Subordinated Seller Note; (ii) any adjustment, whether positive
or negative, made for financial reporting purposes to the value of any warrant
for the purchase of Capital Stock of the Borrower caused by a change in the
value of the shares of common stock of the Borrower; (iii) any accretion to
the value of the Series A Preferred Stock and the Series C Preferred Stock
required in accordance with GAAP and resulting from a book value of such
preferred stock that is less than the redemption price for such preferred
stock; and (iv) non-cash Interest Expense associated with deferred financing
fees of $710,000 paid to Credit Agricole Indosuez) for such period, in each
case calculated in accordance with GAAP.
2.7. Section 1.1 of the Loan Agreement is hereby amended by inserting,
in appropriate alphabetical order, a new definition of "Series C Preferred
Stock" to read as follows:
"Series C Preferred Stock" shall mean the contemplated Series C
Preferred Stock of Borrower.
<PAGE>
2.8. Section 2.6(a) of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
2.6(a) to read as follows:
2.6 Letters of Credit.
(a) Subject to the terms and conditions hereof and provided that
there exists no Default or Event of Default, at any time and from time to time
from the Effective Date to (but not including) the Maturity Date, the LC
Issuer agrees, in reliance upon the agreement of the Lenders set forth in
Section 2.6(c) below, to issue, for the account of the Borrower, such Letters
of Credit as the Borrower may request by a Request for Letter of Credit (in
the manner described in Section 2.6(b)), each in such form as may be requested
from time to time by the Borrower and agreed to by the LC Issuer; provided,
however, that after giving effect to the issuance of any such Letter of
Credit, (i) the aggregate amount of all Letter of Credit Obligations of the
Borrower outstanding at any one time does not exceed $2,500,000, and (ii) the
aggregate amount of all outstanding Loans, together with all outstanding
Letter of Credit Obligations, will not exceed the lesser of (A) the Commitment
and (B) the Borrowing Availability of the Borrower. No Letter of Credit shall
be issued by the LC Issuer under this Section 2.6(a) except to the extent
reasonably necessary in connection with transactions in the ordinary course of
business of the Borrower and its Subsidiaries. The expiration date of any
such Letter of Credit shall not extend beyond the earliest of (i) one (1) year
from the date of issuance thereof, (ii) the Maturity Date, and (iii) any date
fixed for termination of the Commitment pursuant to Section 2.12 hereof.
2.9. Section 8.1 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
8.1 to read as follows:
8.1 Net Worth. The Borrower shall maintain, commencing April 1, 1998
and at all times thereafter, a Net Worth of not less than the sum of (a)
$27,500,000, plus (b) effective upon the closing of any issuance of equity
securities of Borrower, eighty percent (80%) of the amount by which Borrower's
shareholders' equity is increased as a result of such issuance of equity
securities, plus (c) effective January 1 of each year, an amount equal to the
greater of (A) zero, and (B) seventy-five percent (75%) of Net Income of
Borrower and its consolidated Subsidiaries for the immediately preceding
fiscal year.
2.10. Section 8.2 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
8.2 to read as follows:
8.2 Leverage Ratio. Borrower and its consolidated Subsidiaries shall
maintain, on a consolidated basis, as of the end of each fiscal quarter of
Borrower during the applicable periods set forth below a Leverage Ratio for
each such quarter of not greater than the ratio set forth below opposite the
applicable period during which such quarter occurs:
<PAGE>
Applicable Period Ratio
Effective Date - 12/31/98 6.0:1.0
01/01/99 - 06/30/99 5.5:1.0
At all times thereafter 5.0:1.0
2.11. Section 8.3 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
8.3 to read as follows:
8.3 Senior Debt Leverage Ratio. Borrower and its consolidated
Subsidiaries shall maintain, on a consolidated basis, as of the end of each
fiscal quarter of Borrower during the applicable periods set forth below a
Senior Debt Leverage Ratio for each such quarter of not greater than the ratio
set forth below opposite the applicable period during which such quarter
occurs:
Applicable Period Ratio
Effective Date - 12/31/98 4.0:1.0
01/01/99 - 06/30/99 3.5:1.0
At all times thereafter 3.0:1.0
2.12. Section 8.4 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
8.4 to read as follows:
8.4 Interest Coverage Ratio. Borrower and its consolidated
Subsidiaries shall maintain, on a consolidated basis, as of the end of each
fiscal quarter of Borrower during the applicable periods set forth below, an
Interest Coverage Ratio for such fiscal quarter of not less than the ratio set
forth below opposite each such applicable period:
Applicable Period Ratio
Effective Date - 12/31/98 2.00:1.00
01/01/99 - 06/30/99 2.50:1.00
07/01/99 - 12/31/00 2.75:1:00
At all times thereafter 3.00:1.00
3. Representations and Warranties; No Default. Borrower hereby
represents and warrants to the Lenders and the Agents that all of Borrower's
representations and warranties contained in the Loan Agreement and the other
Loan Documents are true and correct in all material respects on and as of the
date hereof as fully as though such representations and warranties had been
made on the date hereof (except for changes therein occurring since the
Effective Date in the ordinary course of business which do not constitute a
Default or Event of Default hereunder, which are not, individually or in the
aggregate, materially adverse to the assets, liabilities, financial conditions
or results of operations of Obligors, or either of them, and which have, to
the extent required, been disclosed to the Agents and/or the Majority Lenders
pursuant to Section 6.8 of the Loan Agreement or otherwise) and with specific
reference to this First Amendment and any and all documents executed in
connection herewith. To induce the Lenders and the Agents to enter into this
First Amendment and to continue to make advances to Borrower pursuant to the
Loan Agreement, as amended hereby, Borrower and hereby represents and warrants
that, on and as of the date of this First Amendment, no Event of Default, nor
any event or condition which, with notice, lapse of time, or both, would
constitute an Event of Default has occurred and is continuing under the Loan
Agreement. As a further inducement of the Lenders and the Agents to enter
into this First Amendment and to continue to make advances to Borrower
pursuant to the Loan Agreement, as amended hereby, Borrower hereby represents
and warrants to the Agents and the Lenders as follows:
<PAGE>
(a) Borrower has the power and authority to enter into this
First Amendment and the other instruments, documents or agreements executed by
Borrower pursuant hereto or in connection herewith (the "Amendment Documents")
and to perform all of its respective obligations hereunder and thereunder;
(b) the execution and delivery of this First Amendment and the
Amendment Documents to which it is a party have been duly authorized by all
necessary action (corporate or otherwise) on the part of Borrower;
(c) the execution and delivery of this First Amendment and the
Amendment Documents and performance thereof by the Borrower does not and will
not violate the Articles or Certificate of Incorporation, By-laws or other
organizational documents of Borrower and does not and will not violate or
conflict with any law, order, writ, injunction, or decree of any court,
administrative agency or other governmental authority applicable to Borrower
or its properties; and
(d) the First Amendment and the Amendment Documents have been
duly executed and delivered by Borrower and constitute the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms.
4. Waiver. The Agents and Lenders hereby waive any Default or Event
of Default arising under the Loan Agreement solely as a result of Borrower's
failure for the period commencing January 1, 1998 through April 1, 1998, to
maintain the Net Worth required by Section 8.1 of the Loan Agreement (as in
effect prior to the First Amendment).
5. Expenses. Borrower agrees to pay, immediately upon demand by
Lenders and Agents, all costs, expenses, attorneys' fees, and other charges
and expenses incurred by Lenders and Agents in connection with the
negotiation, preparation, execution and delivery of this First Amendment.
6. Defaults Hereunder. The breach of any representation, warranty or
covenant contained herein or in any document executed in connection herewith,
or the failure to observe or comply with any term or agreement contained
herein or in any document executed in conjunction herewith, shall constitute
an Event of Default under the Loan Documents and the Lenders and the Agents
shall be entitled to exercise all rights and remedies they may have under the
Loan Agreement, any of the other Loan Documents and applicable law.
7. Conditions Precedent. Subject to the other terms and conditions
of this First Amendment, the amendments and waivers set forth herein shall not
become effective, and the Lenders shall have no obligation to fund any Loans,
unless and until (a) the Administrative Agent shall have received this First
Amendment, duly executed and delivered by Borrower, the Lenders,
<PAGE>
the Agents and the LC Issuer, and (b) the Administrative Agent shall have
received a reaffirmation of each of the Loan Documents executed by each of the
Subsidiaries and Affiliates of Borrower party to the Loan Documents, duly
executed and delivered to the Lenders and the Agents, in form and substance
satisfactory to the Administrative Agent and its counsel. Once all the
conditions precedent set forth above have been fulfilled, this First Amendment
will be deemed effective as of April 1, 1998.
8. References in Loan Documents. All references in the Loan
Agreement and the other Loan Documents to the Loan Agreement shall hereafter
be deemed to be references to the Loan Agreement as amended hereby and as the
same may hereafter be amended from time to time.
9. No Claims, Offset. Borrower hereby represents, warrants,
acknowledges and agrees to and with the Lenders and the Agents that (a)
Borrower does not hold or claim any right of action, claim, cause of action or
damages, either at law or in equity, against the Lenders or the Agents which
arises from, may arise from, allegedly arise from, is based upon or is related
in any manner whatsoever to the Loan Agreement and the Loan Documents or which
is based upon acts or omissions of the Lenders or the Agents in connection
therewith and (b) the Obligations are absolutely owed to the Agents and the
Lenders, without offset, deduction or counterclaim.
10. No Novation. The terms of this First Amendment are not intended
to and do not serve to effect a novation as to the Loan Agreement. The
parties hereto expressly do not intend to extinguish any debt or security
interest created pursuant to the Loan Agreement. Instead, it is the express
intention of the parties hereto to affirm the Loan Agreement and the security
created pursuant thereto.
11. Limitation of First Amendment. Except as expressly set forth
herein, this First Amendment shall not be deemed to waive, amend or modify any
term or condition of the Loan Agreement or any of the other Loan Documents,
each of which is hereby ratified and reaffirmed in all respects, and which
shall remain in full force and effect without modification or waiver, nor to
serve as a consent to any matter prohibited by the terms and conditions
thereof.
12. Counterparts. This First Amendment may be executed in any number
of counterparts, and any party hereto may execute any counterpart, each of
which, when executed and delivered, will be deemed to be an original and all
of which, taken together, will be deemed to be but one and the same agreement.
13. Successors and Assigns. This First Amendment shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
parties hereto. Notwithstanding any other language in this First Amendment or
the Loan Agreement, any one of the Lenders may at any time assign all or any
portion of its rights under the Loan Agreement, as amended hereby, in
accordance with Section 12.3 of the Loan Agreement.
14. Section References. Section titles and references used in this
First Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
<PAGE>
15. Further Assurances. Borrower agrees to take such further action as
the Lenders and the Agents shall reasonably request in connection herewith to
evidence the amendments herein contained to the Loan Agreement.
16. Governing Law. This First Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York, without
regard to principles of conflicts of law.
[Signatures on Following Page]
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Administrative Agent, the
Collateral Agent, the Co-Agent, the LC Issuer and the Lenders have caused
their duly authorized officers to set their hands and seals as of the day and
year first above written.
"Borrower"
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
-------------------
Daniel J. Klein
Chairman and Chief Executive Officer
Attest: /s/ Jamie E. Blech
----------------
Jamie E. Blech
Secretary
[CORPORATE SEAL]
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Administrative Agent"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
----------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
---------------------
Carl G. Drake
Vice President
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Collateral Agent"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Bibinger
----------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
--------------------
Carl G. Drake
Vice President
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Co-Agent"
CREDIT AGRICOLE INDOSUEZ
By: /s/ Mitchell Goldstein
--------------------------
Name:Mitchell Goldstein
Title:Vice President
By: /s/ Patricia Frankel
---------------------------
Name:Patricia Frankel
Title:First Vice President
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"Lenders"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
----------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
---------------------
Carl G. Drake
Vice President
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
CREDIT AGRICOLE INDOSUEZ
By: /s/ Mitchell Goldstein
--------------------------
Name:Mitchell Goldstein
Title:Vice President
By: /s/ Patricia Frankel
---------------------------
Name:Patricia Frankel
Title:First Vice President
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
"LC Issuer"
CREDITANSTALT CORPORATE FINANCE, INC.
By:/s/ Robert M. Biringer
----------------------
Robert M. Biringer
Executive Vice President
By:/s/ Carl G. Drake
Carl G. Drake
Vice President
[Signatures Continued on Following Page]
[Signatures Continued from Previous Page]
ACKNOWLEDGED AND AGREED:
C.N.S., INC.; KANDL DATA PRODUCTS, INC.;
A-COM, INC.; FINANCIAL SYSTEM CONSULTING,
INC.; SEQUOIA DIVERSIFIED PRODUCTS, INC.;
INCLINE CORP.; CALL BUSINESS SYSTEMS, INC.;
SERVINET CONSULTING GROUP, INC.
By: /s/ Daniel J. Klein
-------------------
Daniel J. Klein
Chairman and Chief Executive Officer
Attest: /s/ Janie E. Blech
------------------
Jamie E. Blech
Secretary
<PAGE>
PAGE>
SECOND AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Second Amendment") is made and entered into as of the 27th day
of July, 1998, by and among IT PARTNERS, INC., a Delaware corporation (the
"Borrower"), each of the Lenders signatory hereto (hereinafter referred to
individually as a "Lender" and collectively as the "Lenders"), CREDITANSTALT
CORPORATE FINANCE, INC., as the letter of credit issuer (in such capacity, the
"LC Issuer"), CREDIT AGRICOLE INDOSUEZ, as co-agent for the Lenders (in such
capacity, together with its successors and assigns, the "Co-Agent") and
CREDITANSTALT CORPORATE FINANCE, INC., as collateral agent for the Lenders (in
such capacity, together with its successors and assigns, the "Collateral
Agent") and administrative agent for the Lenders (in such capacity, together
with its successors and assigns, the "Administrative Agent"; the Co-Agent,
Collateral Agent and Administrative Agent are collectively referred to as the
"Agents" and individually referred to as an "Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the Lenders, the LC Issuer and the Agents are parties
to that certain Amended and Restated Loan and Security Agreement dated as of
March 31, 1998 (as the same has been and may be further amended, restated and
supplemented from time to time, the "Loan Agreement"), which currently
provides for a revolving credit facility (the "Loan" or "Loans") in the
aggregate principal amount of up to Seventy Million Dollars ($70,000,000) at
any one time outstanding; and
WHEREAS, the Borrower has requested that the Lenders, the LC Issuer and
the Agents amend the Loan Agreement as provided herein; and
WHEREAS, the Lenders, the LC Issuer and the Agent are willing to agree
to such request, subject to the terms and conditions of this Second Amendment;
NOW, THEREFORE, for and in consideration of the premises, the terms and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms. Defined terms used herein, as indicated by the
initial capitalization thereof, shall have the same respective meanings
ascribed to such terms in the Loan Agreement unless otherwise specifically
defined herein.
<PAGE>
2. Amendments.
2.1. The definition of "Interest Expense" contained in Section 1.1 of
the Loan Agreement is hereby amended by deleting such definition in its
entirety and substituting in lieu thereof a new definition of "Interest
Expense" to read as follows:
"Interest Expense" shall mean, for any period, as to any Person,
the sum of (a) total interest expense, whether paid, accrued or capitalized
(including the interest component of Capital Lease Obligations), of such
Person, including, but not limited to, all origination and other fees, all
amortization of original issue discount, the net amount payable under any
Interest Hedge Agreement between such Person and any other Person, plus (b)
with respect to the Borrower, dividends on the Series C Preferred Stock of the
Borrower, to the extent paid in cash during such period, computed in each case
on a consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP.
2.2. The definition of "Series C Preferred Stock" contained in Section
1.1 of the Loan Agreement is hereby amended by deleting such definition in its
entirety and substituting in lieu thereof a new definition of "Series C
Preferred Stock" to read as follows:
"Series C Preferred Stock" shall mean the 12% Series C Senior
Redeemable Preferred Stock of the Borrower.
2.3. Section 1.1 of the Loan Agreement is hereby amended by inserting,
in appropriate alphabetical order, new definitions of "Qualified Stock,"
"Qualifying IPO," "Second Amendment Effective Date," "Series A Preferred
Stock," "Series B Preferred Stock," "Series C Certificate of Designation,"
"Series C Investor" and "Series C Stock Purchase Agreement" to read as
follows:
"Qualified Stock" shall mean collectively (a) shares of common
stock of Borrower of a class currently authorized by Borrower's Certificate of
Incorporation; (b) the Series B Preferred Stock; and (c) other preferred stock
of Borrower provided that (i) dividends and/or distributions do not accrue or
cumulate on such stock, and (ii) such stock is not redeemable at the option of
the holder thereof (whether upon the happening of any contingency or
otherwise) on or prior that date which is one year after the Maturity Date.
The Series A Preferred Stock and Series C Preferred Stock shall not constitute
Qualified Stock hereunder.
"Qualifying IPO" shall mean the sale of common stock of Borrower
which (a) is registered under the Securities Act of 1933, as amended; and (b)
results in proceeds to Borrower of not less than $40,000,000, net of
underwriter discounts and commissions.
"Second Amendment Effective Date" shall mean the date on which all
conditions precedent to the effectiveness to the Second Amendment to Amended
and Restated Loan and Security Agreement have been fulfilled and such Second
Amendment has become effective in accordance with its terms.
<PAGE>
"Series A Preferred Stock" shall mean the Series A Preferred Stock
of the Borrower.
"Series B Preferred Stock" shall mean the Series B Preferred Stock
of the Borrower.
"Series C Certificate of Designation" shall mean that certain
Certificate of Designation of Preferences and Rights of 12% Series C Senior
Redeemable Preferred Stock of IT Partners, Inc., adopted by the Board of
Directors of the Borrower on July 27, 1998.
"Series C Investor" shall mean FBR Business Development Capital, a
Delaware business trust, and, if more than seven hundred (700) shares of
Series C Preferred Stock are issued, Wachovia Capital Associates, Inc.
"Series C Stock Purchase Agreement" shall mean that certain 12%
Series C Senior Redeemable Preferred Stock and Warrant Purchase Agreement,
dated as of July 27, 1998, by and between the Borrower and the Series C
Investor.
2.4. Section 5 of the Loan Agreement is hereby amended by inserting a
new Section 5.32 to read as follows:
5.32 Purchase Agreement; Issuance of Preferred Stock
(a) The Series C Purchase Agreement is in full force and effect
as of the Second Amendment Effective Date, has not been terminated, rescinded
or withdrawn, and no portion thereof has been amended or waived by any party.
All representations and warranties of Borrower, and to the best of Borrower's
knowledge, all representations and warranties of the Series C Investor
contained in the Series C Stock Purchase Agreement are true and correct in all
material respects as of the date hereof with the same effect as though made on
and as of the date hereof. As of the date hereof, and giving effect to the
transactions contemplated hereby, there does not exist any default, event of
default or any event or conditions which, with notice, lapse of time or both,
would constitute such a default or event of default under the Series C Stock
Purchase Agreement.
(b) The creation and the issuance of the Series C Preferred
Stock has been duly authorized by all corporate action necessary on the part
of Borrower, 354,169.571 shares of Series A Preferred Stock have been duly and
validly issued and remain outstanding, no shares of Series B Preferred Stock
have been issued or are outstanding and 700 shares of Series C Preferred Stock
have been duly and validly issued to the Series C Investor. Such issuance of
shares of the Series C Preferred Stock complied with all applicable laws,
rules, regulations applicable thereto, including, but not limited to, the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, and all applicable state securities or Blue Sky laws.
<PAGE>
(c) Borrower has received aggregate gross cash proceeds of not
less than $7,000,000 from the issuance of 700 shares, or $10,000,000 from the
issuance of 1,000 shares, of the Series C Preferred Stock and from the
issuance of the warrants described in the Series C Stock Purchase Agreement.
2.5. Section 6.2 of the Loan Agreement is hereby amended by deleting
subsection (g) thereof in its entirety and substituting in lieu thereof a new
subsection (g) to read as follows:
(g) Promptly after the sending or filing thereof, as the case
may be, copies of any definitive proxy statements, financial statements or
reports which the Borrower sends to its shareholders (including, but not
limited to, any such statements or reports required to be delivered to the
Series C Investor pursuant to the Series C Stock Purchase Agreement or the
Series C Certificate of Designation) and copies of any regular periodic and
special reports or registration statements which the Borrower files with the
Securities and Exchange Commission (or any Governmental Authority substituted
therefor), including, but not limited to, all Form 10-K and Form 10-Q reports,
if any, or any report or registration statement which the Borrower files with
any national securities exchange;
2.6. Section 7.7 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
7.7 to read as follows:
7.7 Issuance of Stock. The Borrower shall not, and shall not
permit any of its Subsidiaries to, issue any shares of Capital Stock or other
ownership interests in the Borrower or any of its Subsidiaries, except that
the Borrower may issue (a) shares of common stock of a class currently
authorized by Borrower's Certificate of Incorporation; (b) shares of Series B
Preferred Stock of the Borrower; (c) additional shares of Borrower's Series A
Preferred Stock as dividends on outstanding shares of Series A Preferred Stock
as provided in the terms of said Series A Preferred Stock as in effect on the
date hereof; and (d) up to 1,000 shares of Series C Preferred Stock; provided,
however, that the Borrower shall use the proceeds of the sale of such Series C
Preferred Stock for repayment of the Obligations, costs and expenses relating
to the closing of Acquisitions, general working capital needs, and for costs,
fees and expenses in connection with the issuance or sale of Capital Stock of
the Borrower that is or is to be registered under the Securities Act of 1933,
as amended; provided, further, that commencing on the date of the initial
issuance of the Series C Preferred Stock, the Borrower shall not use the
proceeds of the sale of such Series C Preferred Stock, the proceeds of Loans
or any combination thereof, to pay more than Two Million Dollars
($2,000,000.00) of costs, fees or expenses (including, but not limited to,
audit, legal and printing costs) arising from any proposed initial public
offering of shares of Capital Stock of the Borrower that is or is to be
registered under the Securities Act of 1933, as amended, whether or not such
public offering is ultimately consummated.
2.7. Section 7.12 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
7.12 to read as follows:
<PAGE>
7.12 Amendments and Prepayments. The Borrower shall not (a)
amend, supplement or otherwise modify (i) the Preferred Stock and Warrant
Purchase Agreement; (ii) the Subordinated Seller Notes; (iii) the Series C
Stock Purchase Agreement; or (iv) the Series C Certificate of Designation; or
(b) prepay any Subordinated Debt; provided, however, that Borrower may prepay
not more than $10,500,000 of Subordinated Seller Notes concurrently with the
closing of a Qualifying IPO.
2.8. Section 8.5 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
8.5 to read as follows:
8.5 Dividends. Neither the Borrower nor any of its Subsidiaries shall
declare or pay any dividends on, or make any distribution with respect to, the
shares of any class of their Capital Stock, or purchase, redeem, acquire,
defease or retire any shares of their Capital Stock, or take any action having
an effect equivalent to the foregoing except (i) Borrower may declare and pay
dividends to holders of Series A Preferred Stock payable solely in additional
shares of Series A Preferred Stock; (ii) Borrower may, commencing 18 months
after the Second Amendment Effective Date, declare and pay cash dividends to
holders of Series C Preferred Stock; provided, however, that at the time such
payment is made, there exists no Default or Event of Default nor any event or
condition which, giving effect to the payment of such dividend (both as if
such payment and been made on the last day of the fiscal quarter most recently
ended and as if made on the actual date of payment) would result in a Default
or Event of Default; (iii) (A) upon the closing of a Qualifying IPO, Borrower
may redeem the outstanding shares of Series C Preferred Stock to the extent
such redemption is required by Section 4(a)(i) of the Series C Certificate of
Designation; and (B) if a Qualifying IPO has not occurred by the third (3rd)
anniversary of the issuance of the Series C Preferred Stock, Borrower may
redeem the outstanding shares of the Series C Preferred Stock, provided that,
after giving effect to such redemption, there exists no Default or Event of
Default; provided, further, that solely for purposes of determining whether a
Default or Event of Default exists for purposes of this Section 8.5(ii) and
(iii)(B), any amendment to Articles 8 or 9 of this Agreement closing after the
Second Amendment Effective Date shall not be given effect; and (iv) any
Subsidiary of the Borrower may declare and pay dividends to the Borrower or to
any wholly-owned Subsidiary of the Borrower.
2.9. Section 9.17 of the Loan Agreement is hereby amended by deleting
such section in its entirety and substituting in lieu thereof a new Section
9.17 to read as follows:
9.17 Change of Control. Either (a) a Person or "group" (within the
meaning of the Securities Exchange Act of 1934), other than Daniel J. Klein
and Jamie E. Blech, acquires or obtains beneficial ownership of securities
(including options) of the Borrower representing a percentage of the ordinary
voting power of the Borrower that is greater than the percentage of the
ordinary voting power represented by the shares of Capital Stock owned,
beneficially and of
<PAGE>
record, with power to vote, by Daniel J. Klein and Jamie E. Blech; (b) there
shall occur a change in the composition of the Board of Directors of the
Borrower such that the current directors (or directors designated or approved
by such directors) shall not have a majority of the ordinary voting power of
the Borrower; or (c) there shall occur a "Change in Control" (as such term is
defined in the Series C Certificate of Designation).
2.10. Section 9 of the Loan Agreement is hereby amended by inserting
a
new Section 9.19 to read as follows:
9.19 Event of Noncompliance. Any "Event of Noncompliance" (as
such term is defined in the Series C Stock Purchase Agreement) shall occur.
3. Representations and Warranties; No Default. Borrower hereby
represents and warrants to the Lenders and the Agents that all of Borrower's
representations and warranties contained in the Loan Agreement and the other
Loan Documents are true and correct in all material respects on and as of the
date hereof as fully as though such representations and warranties had been
made on the date hereof (except for changes therein occurring since the
Effective Date in the ordinary course of business which do not constitute a
Default or Event of Default hereunder, which are not, individually or in the
aggregate, materially adverse to the assets, liabilities, financial conditions
or results of operations of Obligors, or either of them, and which have, to
the extent required, been disclosed to the Agents and/or the Majority Lenders
pursuant to Section 6.8 of the Loan Agreement or otherwise) and with specific
reference to this Second Amendment and any and all documents executed in
connection herewith. To induce the Lenders and the Agents to enter into this
Second Amendment and to continue to make advances to Borrower pursuant to the
Loan Agreement, as amended hereby, Borrower and hereby represents and warrants
that, on and as of the date of this Second Amendment, no Event of Default, nor
any event or condition which, with notice, lapse of time, or both, would
constitute an Event of Default has occurred and is continuing under the Loan
Agreement. As a further inducement of the Lenders and the Agents to enter
into this Second Amendment and to continue to make advances to Borrower
pursuant to the Loan Agreement, as amended hereby, Borrower hereby represents
and warrants to the Agents and the Lenders as follows:
(a) Borrower has the power and authority to enter into this
Second Amendment and the other instruments, documents or agreements executed
by Borrower pursuant hereto or in connection herewith (the "Amendment
Documents") and to perform all of its respective obligations hereunder and
thereunder;
(b) the execution and delivery of this Second Amendment and the
Amendment Documents to which it is a party have been duly authorized by all
necessary action (corporate or otherwise) on the part of Borrower;
(c) the execution and delivery of this Second Amendment and the
Amendment Documents and performance thereof by the Borrower does not and will
not violate the Articles or Certificate of Incorporation, By-laws or other
organizational documents of Borrower and does not and will not violate or
conflict with any law, order, writ, injunction, or decree of any court,
administrative agency or other governmental authority applicable to Borrower
or its properties; and
<PAGE>
(d) the Second Amendment and the Amendment Documents have been
duly executed and delivered by Borrower and constitute the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms.
4. Expenses. Borrower agrees to pay, immediately upon demand by
Lenders and Agents, all costs, expenses, attorneys' fees, and other charges
and expenses incurred by Lenders and Agents in connection with the
negotiation, preparation, execution and delivery of this Second Amendment.
5. Defaults Hereunder. The breach of any representation, warranty or
covenant contained herein or in any document executed in connection herewith,
or the failure to observe or comply with any term or agreement contained
herein or in any document executed in conjunction herewith, shall constitute
an Event of Default under the Loan Documents and the Lenders and the Agents
shall be entitled to exercise all rights and remedies they may have under the
Loan Agreement, any of the other Loan Documents and applicable law.
6. Conditions Precedent. Subject to the other terms and conditions
of this Second Amendment, the amendments set forth herein shall not become
effective, and the Lenders shall have no obligation to fund any Loans, unless
and until (a) the Administrative Agent shall have received this Second
Amendment, duly executed and delivered by Borrower, the Lenders, the Agents
and the LC Issuer, (b) the Administrative Agent shall have received a
reaffirmation of each of the Loan Documents executed by each of the
Subsidiaries and Affiliates of Borrower party to the Loan Documents, duly
executed and delivered to the Lenders and the Agents, in form and substance
satisfactory to the Administrative Agent and its counsel, and (c) Borrower
shall have issued the Series C Preferred Stock to the Series C Investor on
terms and conditions acceptable to the Majority Lenders.
7. References in Loan Documents. All references in the Loan
Agreement and the other Loan Documents to the Loan Agreement shall hereafter
be deemed to be references to the Loan Agreement as amended hereby and as the
same may hereafter be amended from time to time.
8. No Claims, Offset. Borrower hereby represents, warrants,
acknowledges and agrees to and with the Lenders and the Agents that (a)
Borrower does not hold or claim any right of action, claim, cause of action or
damages, either at law or in equity, against the Lenders or the Agents which
arises from, may arise from, allegedly arise from, is based upon or is related
in any manner whatsoever to the Loan Agreement and the Loan Documents or which
is based upon acts or omissions of the Lenders or the Agents in connection
therewith and (b) the Obligations are absolutely owed to the Agents and the
Lenders, without offset, deduction or counterclaim.
9. No Novation. The terms of this Second Amendment are not intended
to and do not serve to effect a novation as to the Loan Agreement. The
parties hereto expressly do not intend to extinguish any debt or security
interest created pursuant to the Loan Agreement. Instead, it is the express
intention of the parties hereto to affirm the Loan Agreement and the security
created pursuant thereto.
<PAGE>
10. Limitation of Second Amendment. Except as expressly set forth
herein, this Second Amendment shall not be deemed to waive, amend or modify
any term or condition of the Loan Agreement or any of the other Loan
Documents, each of which is hereby ratified and reaffirmed in all respects,
and which shall remain in full force and effect without modification or
waiver, nor to serve as a consent to any matter prohibited by the terms and
conditions thereof.
11. Counterparts. This Second Amendment may be executed in any number
of counterparts, and any party hereto may execute any counterpart, each of
which, when executed and delivered, will be deemed to be an original and all
of which, taken together, will be deemed to be but one and the same agreement.
12. Successors and Assigns. This Second Amendment shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
parties hereto. Notwithstanding any other language in this Second Amendment
or the Loan Agreement, any one of the Lenders may at any time assign all or
any portion of its rights under the Loan Agreement, as amended hereby, in
accordance with Section 12.3 of the Loan Agreement.
13. Section References. Section titles and references used in this
Second Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
14. Further Assurances. Borrower agrees to take such further action as
the Lenders and the Agents shall reasonably request in connection herewith to
evidence the amendments herein contained to the Loan Agreement.
15. Governing Law. This Second Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York, without
regard to principles of conflicts of law.
[Signatures on Following Page]
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Administrative Agent, the
Collateral Agent, the Co-Agent, the LC Issuer and the Lenders have caused
their duly authorized officers to set their hands and seals as of the day and
year first above written.
"Borrower"
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
-------------------
Daniel J. Klein
Chairman and Chief Executive Officer
Attest: /s/ Jamie E. Blech
-------------------
Jamie E. Blech
Secretary
[CORPORATE SEAL]
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"Administrative Agent"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
----------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
---------------------
Carl G. Drake
Vice President
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"Collateral Agent"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Bibinger
----------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
--------------------
Carl G. Drake
Vice President
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<PAGE>
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"Co-Agent"
CREDIT AGRICOLE INDOSUEZ
By: /s/ Mitchell Goldstein
--------------------------
Name:Mitchell Goldstein
Title:Vice President
By: /s/ Patricia Frankel
---------------------------
Name:Patricia Frankel
Title:First Vice President
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"Lenders"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
----------------------
Robert M. Biringer
Executive Vice President
By: /s/ Carl G. Drake
---------------------
Carl G. Drake
Vice President
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<PAGE>
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CREDIT AGRICOLE INDOSUEZ
By: /s/ Mitchell Goldstein
--------------------------
Name:Mitchell Goldstein
Title:Vice President
By: /s/ Patricia Frankel
---------------------------
Name:Patricia Frankel
Title:First Vice President
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<PAGE>
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"LC Issuer"
CREDITANSTALT CORPORATE FINANCE, INC.
By:/s/ Robert M. Biringer
----------------------
Robert M. Biringer
Executive Vice President
By:/s/ Carl G. Drake
Carl G. Drake
Vice President
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ACKNOWLEDGED AND AGREED:
C.N.S., INC.; KANDL DATA PRODUCTS, INC.;
A-COM, INC.; FINANCIAL SYSTEM CONSULTING,
INC.; SEQUOIA DIVERSIFIED PRODUCTS, INC.;
INCLINE CORP.; CALL BUSINESS SYSTEMS, INC.;
SERVINET CONSULTING GROUP, INC.
By: /s/ Daniel J. Klein
-------------------
Daniel J. Klein
Chairman and Chief Executive Officer
Attest: /s/ Jamie E. Blech
------------------
Jamie E. Blech
Secretary
IT PARTNERS, INC.
AMENDED AND RESTATED 1997 LONG-TERM INCENTIVE PLAN
1. Definitions
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1 "Agreement" means a written agreement implementing an Award.
1.2 "Restricted Stock and Nonqualified Stock Option Agreement" means a
Restricted Stock and Nonqualified Stock Option Agreement executed by and
between the Corporation and an Optionee or Grantee.
1.3 "Award" means a grant of an Option or Right or an award of
Restricted Stock or Incentive Shares.
1.4 "Subsidiary" means a "subsidiary corporation" as defined in section
425(f) of the Code.
1.5 "Board" means the Board of Directors of the Corporation.
1.6 "Change of Control" means either:
(a) the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) of fifty percent (50%) or more of the then
outstanding shares of common stock of the Corporation, but excluding for this
purpose any such acquisition by (A) the Corporation, any Subsidiary of the
Corporation, or any other entity a majority of which is owned, directly or
indirectly, by the beneficial owners of a majority of the outstanding shares
of voting common stock of the Corporation, or (B) any corporation with respect
to which, following such acquisition, more than fifty percent (50%) of the
then outstanding shares of voting common stock of such corporation is then
beneficially owned, directly or indirectly, by the Corporation, a Subsidiary
of the Corporation, or the individuals and entities who were the beneficial
owners, directly or indirectly, of the voting common stock of the Corporation
immediately prior to such acquisition; or
<PAGE>
<PAGE> (b) approval by the holders of the stock of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to which
the Corporation, any Subsidiary of the Corporation, or any other entity a
majority of which is owned, directly or indirectly, by the beneficial owners
of a majority of the outstanding shares of voting Common Stock of the
Corporation, do not, alone or in combination, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than
fifty percent (50%) or more of the then outstanding shares of voting common
stock of the corporation resulting from such reorganization, merger or
consolidation.
1.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.8 "Committee" means the committee of the Board appointed by the Board
to administer the Plan. Unless otherwise determined by the Board, the
Compensation Committee of the Board shall be the Committee.
1.9 "Common Stock" means the common stock, par value $.01 per share, of
the Corporation.
1.10 "Consultant" means a person engaged by the Corporation, or a parent
or Subsidiary of the Corporation, pursuant to a written agreement, to perform
consulting services with respect to the business of the Corporation.
1.11 "Corporation" means IT Partners, Inc.
1.12 "Date of Exercise". means the date on which the Corporation receives
notice of the exercise of an Option or Right in accordance with the terms of
Article 8.
1.13 "Date of Grant" means the date on which an Option or Right is
granted or Restricted Stock or Incentive Shares are awarded under the Plan.
1 .14 "Director" means a member of the Board of the Corporation or an
Subsidiary.
1.15 "Employee" means any employee of the Corporation or of a Subsidiary,
including an Employee Director or any person who has been hired to be an
employee of the Corporation or a Subsidiary.
1.16 "Employee Director" means a Director who is also an Employee.
1.17 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.18 "Fair Market Value" means on any applicable determination date shall
mean (i) if the stock is listed or admitted to trade on a securities exchange,
the closing price of the stock, on such day, on the principal securities
exchange on which the stock is so listed or admitted to trade, or, if there is
no such reported sale on such date, the average closing bid and asked prices
on such day, or (if none) then the closing price of the stock or (if none)
such average, as reported on the next preceding date on which there was such
reported activity in such shares (such determination or earlier date being
hereinafter referred to as the "applicable trading date"); (ii) if the stock
is not listed or admitted to trade on a securities exchange, the last reported
sales price for the stock or (if none) the average of the last reported bid
and asked prices on the applicable trading date, as reported by the principal
reputable quotation system available to the Committee; (iii) if the stock is
not listed or admitted to trade on a <PAGE>
<PAGE>
securities exchange and no such reported closing sale price or closing bid and
asked prices are available, the average of the reported high bid and low asked
price for the stock on the applicable trading date, as reported by a reputable
quotation source designated by the Committee; or (iv) if the stock is not
listed or admitted to trade on a securities exchange, trading is not so
reported, and bid and asked prices are not available on a reasonably current
basis, the value as established by the Committee in good faith at such time
for purposes of this Plan.
1.19 "Grantee" means an Employee, Director or Consultant to whom
Restricted Stock has been awarded pursuant to Article 9 or Incentive Shares
have been awarded pursuant to Article 10.
1.20 "Incentive Shares" means Shares awarded under the Plan pursuant to
the provisions of Article 10.
1.21 "Incentive Stock Option" means an Option granted under the Plan that
qualifies as
an incentive stock option under Section 422 of the Code and that the
Corporation designates as such in the Agreement granting the option.
1.22 "Mature Shares" means Shares held by the Optionee free and clear of
any liens or encumbrances for at least six months.
1.23 "Nonqualified Stock Option" means an Option granted under the Plan
that is not an Incentive Stock Option.
1.24 "Option" means an option to purchase Shares granted under the Plan
in accordance with the terms of Article 6.
1.25 "Optionee" means an Employee, Director or Consultant to whom an
Option or Right has been granted.
1.26 "Option Period" means the period during which an Option may be
exercised.
1.27 "Option Price" means the price per Share at which an Option may be
exercised. The Option Price shall be determined by the Committee and shall
not be less than the Fair Market Value determined as of the Date of Grant.
Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to an Optionee who (applying the rules of Section 424(d) of the Code)
owns stock possessing more than ten percent of the total combined voting power
of all classes of stock of the corporation or a Subsidiary (a "Ten-Percent
Stockholder"), the Option Price shall not be less than one hundred and ten
percent (110%) of the Fair Market Value on the Date of Grant.
1.28 "Performance Goals" means performance goals established by the
Committee which may be based on earnings or earnings growth, sales, return on
assets, equity or investment, regulatory compliance, satisfactory internal or
external audits, improvement of financial ratings, achievement of balance
sheet or income statement objectives, or any other objective goals established
by the Committee, and may be absolute in their terms or measured against or in
relationship to other companies comparably, similarly or otherwise situated.
Such performance standards may be particular to an employee or the department,
branch, Subsidiary or other division in which he or she works, or may be based
on the performance of the Corporation generally, and may cover such period as
may be specified by the Committee. <PAGE>
<PAGE>
1.29 "Plan" means the IT Partners, Inc. Amended and Restated 1997
Long-Term Incentive Plan.
1.30 "Related Option" means the Option in connection with which, or by
amendment to which, a specified Right is granted.
1.31 "Related Right" means the Right granted in connection with, or by
amendment to, a specified Option.
1.32 "Restricted Stock" means Shares awarded under the Plan pursuant to
the provisions of Article 9.
1.33 "Right" means a stock appreciation right granted under the Plan in
accordance with the terms of Article 7.
1.34 "Right Period" means the period during which a Right may be
exercised.
1.35 "Share" means a share of Common Stock of the Corporation.
2. Purpose
The Plan is intended to assist the Corporation and its Subsidiaries in
attracting and retaining Employees, Directors and Consultants of outstanding
ability and to promote the identification of their interests with those of the
stockholders of the Corporation.
3. Administration
The Committee shall administer the Plan and shall have plenary authority,
in its discretion, to award Options, Rights, Restricted Stock and Incentive
Shares to Employees, Directors or Consultants subject to the provisions of the
Plan. The committee shall have plenary authority and discretion, subject to
the provisions of the Plan, to determine the terms of all Awards (which terms
need not be identical), including, but not limited to, the exercise price of
Options, the time or times at which Awards are made, the number of Shares
covered by Awards, whether an Option shall be an Incentive Stock Option or a
Nonqualified Stock Option, and the period during which Options and Rights may
be exercised and Restricted Stock shall be subject to restrictions. In making
these determinations, the Committee may take into account the nature of the
services rendered by the Award recipients, their present and potential
contributions to the success of the Corporation and its Subsidiaries, and such
other factors as the Committee in its discretion shall deem relevant. Subject
to the provisions of the Plan, the Committee shall have plenary authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it and to make all other determinations deemed necessary or
advisable for the administration of the Plan. The determinations of the
Committee on the matters referred to in this Article 3 shall be binding and
final.
4. Eligibility
Options, Rights, Restricted Stock and Incentive Shares may be granted or
awarded only to Employees, Directors or Consultants.
<PAGE>
<PAGE>
5. Stock Subject to the Plan
5.1 The maximum number of Shares that may be issued under the Plan is
2,250,000. The maximum number of shares that may be issued to any one
employee is 2,250,000.
5.2 If an Option or Right expires or terminates for any reason (other
than termination by virtue of the exercise of a Related Option or Related
Right, as the case may be), without having been fully exercised, if Shares of
Registered Stock are forfeited or if Incentive Shares are not issued or are
forfeited, the unissued or forfeited Shares which had been subject to the
Award shall become available for the grant of additional Awards.
5.3 Upon exercise of a Right (regardless of whether the Right is settled
in cash or Shares), the number of Shares with respect to which the Right is
exercised shall be charged against the number of Shares issuable under the
Plan and shall not become available for the grant of other Awards.
6. Options
6.1 Options granted under the Plan to Optionees shall be either
Incentive Stock Options or Nonqualified Stock Options, as designated by the
Committee. Each Option granted under the Plan shall be clearly identified
either as a Nonqualified Stock Option or an Incentive Stock Option and shall
be evidenced by an Agreement that specifies the terms and conditions of the
grant. Options granted to Optionees shall be subject to the terms and
conditions set forth in this Article 6 and such other terms and conditions not
inconsistent with this Plan as the Committee may specify. All Incentive Stock
Options granted under the Plan shall comply with the provisions of the Code
governing incentive stock options and with all other applicable rules and
regulations.
6.2 The Option Period for options granted to Optionees shall be
determined by the Committee and specifically set forth in the Agreement,
provided, however, that an Option shall not be exercisable after ten years
(five years in the case of an Incentive Stock Option granted to a Ten- Percent
Stockholder) from its Date of Grant.
6.3 The Committee, in its discretion, may provide in an Agreement for
the right of the Optionee to surrender to the Corporation an Option (or a
portion thereof) that has become exercisable and to receive upon such
surrender, without any payment to the Corporation (other than required tax
withholding amounts or as otherwise provided in Section 16) that number of
Shares (equal to the highest whole number of Shares) having an aggregate Fair
Market Value as of the date of surrender equal to that number of Shares
subject to the Option (or portion thereof) being surrendered multiplied by an
amount equal to the excess of (i) the Fair Market Value on the date of
surrender over (H) the Option Price, plus an amount of cash equal to the Fair
Market Value of any fractional Share to which the Optionee would be entitled
but for the parenthetical above relating to whole number of Shares. Any such
surrender shall be treated as the exercise of the Option (or portion thereof).
6.4 If an Option is intended to qualify as an Incentive Stock Option,
the Option must be granted within ten years from the date the Plan is adopted
or the date the Plan is approved by the stockholders of the Corporation,
whichever is earlier.
<PAGE>
<PAGE>
6.5 To the extent that the aggregate " fair market value" of stock with
respect to which Incentive Stock Options first become exercisable by an
Optionee in any calendar year exceeds $100,000, such options shall be treated
as Nonqualified Stock Options. For this purpose, the "fair market value" of
the stock subject to options shall be determined as of the date the Options
were awarded. In reducing the number of Options treated as Incentive Stock
Options to meet the $100,000 limit, the most recently granted options shall be
reduced first. To the extent a reduction of simultaneously granted options is
necessary to meet the $100,000 limit, the Committee may, in the manner and to
the extent permitted by law, designate which shares of Common Stock are to be
treated as shares acquired pursuant to the exercise of an Incentive Stock
Option.
7. Rights
7.1 Rights granted under the Plan shall be evidenced by an Agreement
specifying the terms and conditions of the grant. A Right may be granted
under the Plan:
(a) in connection with, and at the same time as, the grant of an
Option under
(b) by amendment of an outstanding Option granted under the Plan;
or
(c) independently of any Option granted under the Plan.
A Right granted under clause (a) or (b) of the preceding sentence is a
Related Right. A Related Right may, in the Committee's discretion, apply to
all or a portion of the Shares subject to the Related Option.
7.2 A Right may be exercised in whole or in part as provided in the
applicable Agreement, and, subject to the terms of the Agreement, entitles its
optionee to receive, without payment to the Corporation (but subject to
required tax withholding or as otherwise provided in Section 16), either cash
or that number of Shares (equal to the highest whole number of Shares), or a
combination thereof, in an amount or having a Fair Market Value determined as
of the Date of Exercise not to exceed the number of Shares subject to the
portion of the Right exercised multiplied by an amount equal to the excess of
(i) the Fair Market Value on the Date of Exercise of the Right over (ii)
either (A) the Fair Market Value on the Date of Grant of the Right if it is
not a Related Right, or (B) the Option Price as provided in the Related Option
if the Right is a Related Right.
7.3 The Right Period shall be determined by the Committee and
specifically set forth in the Agreement, subject to the following conditions:
(a) a Right will expire no later than the earlier of (A) ten years
from the Date of Grant or (B) in the case of a Related Right, the expiration
of the Related Option;
(b) a Right may be exercised only when the Fair Market Value on the
Date of Exercise exceeds either (A) the Fair Market Value on the Date of Grant
of the Right if it is not a Related Right or (B) the Option Price of the
Related Option if the Right is a Related Right; and
(c) a Right that is a Related Right to an Incentive Stock Option or
Nonqualified Stock Option may be exercised only when and to the extent the
Related Option is exercisable. <PAGE>
<PAGE>
7.4 The exercise, in whole or in part, of a Related Right shall cause a
reduction in the number of Shares subject to the Related Option equal to the
number of Shares with respect to which the Related Right is exercised.
Similarly, the exercise, in whole or in part, of a Related Option shall cause
a reduction in the number of Shares subject to the Related Right equal to the
number of Shares with respect to which the Related Option is exercised.
8. Exercise of Options and Rights; Call or Put of Awards
8.1 An Option or Right may, subject to the terms of the applicable
Agreement under which it was granted, be exercised in whole or in part by the
delivery to the Corporation of written notice of the exercise, in such form as
the Committee may prescribe, accompanied, in the case of an Option, by full
payment for the shares with respect to which the Option is exercised. To the
extent provided in the applicable Option Agreement, payment may be made, in
whole or in part, in Mature Shares (other than Restricted Stock) valued at
Fair Market Value on the Date of Exercise or by delivery of a promissory note
as provided in Section 8.2 hereof.
8.2 To the extent provided in an Option Agreement and permitted by
applicable law, the Committee may accept as partial payment of the Option
Price a promissory note executed by the Optionee evidencing his or her
obligation to make future cash payment thereof. Promissory notes made pursuant
to this Section 8.2 shall be fully recourse, shall have a fixed maturity date
no later than four years from the date the promissory note is made, shall bear
interest on the unpaid portion thereof at ten percent (10%), shall be secured
by a pledge of the Shares received upon exercise of the Option, and shall
contain such other terms as may be determined by the Committee.
8.3 An Option or right may be exercised during the Optionee's lifetime
only by Optionee or, in the event of his or her legal disability, by his or
her legal representative. After the death of an Optionee, an Option or Right
may be exercised only by the Optionee's legal representative.
8.4 (a) In the event of a Change of Control, the Corporation may,
pursuant to the Agreement, have the right, but not the obligation, by written
notice to the applicable Optionees and Grantees, to call some or all of the
Options, Rights, Restricted Stock and Incentive Shares granted hereunder
(respectively, the "Called Options," "Called Rights," "Called Restricted
Stock" and "Called Incentive Shares"). In the event of a Change of Control,
the employee may, pursuant to the Agreement, have the right, but not the
obligation, by written notice to the Corporation, to put some or all of the
Options, Rights, Restricted Stock and Incentive Shares granted to him or her
hereunder (respectively, the "Put Options," "Put Rights," "Put Restricted
Stock" and "Put Incentive Shares").
(b) The Called or Put Restricted Stock and/or Called or Put
Incentive Shares shall be purchased by the Corporation for the purchase price
and on the same terms and conditions as the other shares of the Corporation
being purchased in connection with the Change of Control. Such purchase shall
occur on the same date as the Change of Control (the "Closing Date").
(c) On the Closing Date, any Called or Put Options shall be deemed
to have been exercised and the purchase price therefor shall be deemed to have
been paid in Shares of Common Stock issuable thereunder (and any Rights that
are Related Rights of Called or Put Options shall be deemed exercised). On
the Closing Date, the remaining number of Shares which the Optionee is
entitled to <PAGE>
<PAGE>
receive pursuant to any Called or Put Options shall be purchased by the
Corporation for the purchase price and on the same terms and conditions as the
other shares of the Corporation being purchased in connection with the Change
of Control.
(d) On the Closing Date, any Called or Put Rights that are not
Related Rights shall be deemed exercised and any amounts due by the
Corporation to the Optionee thereunder shall be paid to the Optionee on the
same terms and conditions as the other shares of the Corporation being
purchased in connection with the Change of Control.
8.5 In determining the effect of a termination on the rights and
benefits of an Award, the Committee may make distinctions based upon the cause
of termination. Unless the Committee otherwise determines the effect a
termination of employment on the rights and benefits under an Award, and in
the case of Incentive Stock Options, subject to the applicable Code limits:
(a) upon an Optionee's death, an Award shall become and shall
remain fully exercisable for one year after the date of death or until the
expiration of the stated term of the Award, whichever occurs first;
(b) upon the termination by the Corporation of the Optionee's
employment for cause (other than a termination for cause within two (2) years
following a Change in Control), as determined by the Committee in its sole
discretion, the Award shall terminate; and
(c) upon a termination of a Optionee's employment or services for
any reason
other than the reasons set forth in clauses (a) and (b), any portion of an
Award that is not yet exercisable shall terminate and any portion of such
Award that is then exercisable shall remain fully exercisable for three (3)
months after the date of termination or until the expiration of the stated
term of the Award, whichever occurs first.
9. Restricted Stock Awards
9.1 Restricted Stock awards under the Plan shall consist of Shares that
are restricted against transfer, subject to forfeiture, and subject to such
other terms and conditions intended to further the purposes of the Plan as may
be determined by the Committee. Such terms and conditions may provide, in the
discretion of the Committee, for the vesting of such awards to be contingent
upon the achievement of one or more specified Performance Goals or upon a
Change in Control.
9.2 Restricted Stock awards under the Plan shall be evidenced by
Agreements specifying the terms and conditions of the Award. Each Agreement
evidencing an award of Restricted Stock shall contain the following:
(a) prohibitions against the sale, assignment, transfer, exchange,
pledge, hypothecation, or other encumbrance of (A) the Shares awarded as
Restricted Stock under the Plan, (B) the right to vote the Shares, to the
extent such Shares have voting rights, and (C) the right to receive dividends
thereon, in each case during the restriction period applicable to the Shares:
provided. however, that the Grantee shall have all the other rights of a
stockholder including, but not limited to, the right to receive dividends and
the right to vote the Shares, to the extent such Shares have voting rights;
<PAGE>
<PAGE>
(b) a requirement that each certificate representing Shares of
Restricted Stock shall be deposited with the Corporation, or its designee, and
shall bear the following legend:
This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including the risks of forfeiture
and restrictions against transfer) contained in the IT Partners, Inc.,
Amended 1997 Long-Term Incentive Plan, and an Agreement entered
into between the registered owner and IT Partners, Inc. Release from
such terms and conditions shall be made only in accordance with the
provisions of the Plan and the Agreement, a copy of each of which
his on file in the office of the Secretary of IT Partners, Inc.
(c) the terms and conditions upon which any restrictions applicable
to Shares of Restricted Stock shall lapse and new certificates free of the
foregoing legend, but subject to any restrictions contained in the Restricted
Stock and Nonqualified Stock Option Agreement, shall be issued to the Grantee
or his or her legal representative; and
(d) such other terms, conditions and restrictions as the Committee
in its discretion may specify including, without limitation, terms that
condition the lapse of forfeiture and transfer restrictions upon the
achievement of Performance Goals.
10. Incentive Share Awards
Incentive Shares awarded under the Plan shall be evidenced by an
Agreement specifying the terms and conditions of such Award. Incentive Share
awards shall provide for the issuance of Shares to a Grantee at such times and
subject to such terms and conditions as the Committee shall deem appropriate
including, but not limited to, terms that condition the issuance of Shares
upon the achievement of Performance Goals.
11. Nontransferability
Awards made under this Plan shall not be transferable other than (i) by
will or the laws of descent and distribution, or (ii) pursuant to a qualified
domestic relations order as defined in Section 414(p) of the Code. A Related
Right is transferable only when the Related Option is transferable and only
with the Related Option and under the same conditions that apply to the
Related Option.
12. Capital Adjustments
In the event of any change in the outstanding Common Stock by reason of
any stock dividend, split-up, recapitalization, reclassification, combination
or exchange of shares, merger (where the Corporation is not the surviving
entity), consolidation or liquidation and the like, the Committee shall
provide for a substitution for or adjustment, as appropriate, in (i) the
number and class of Shares subject to outstanding Options, Rights, Restricted
Stock and Incentive Share awards (ii) the Option Price of Options and the base
price upon which payments under Rights that are not Related Rights are
determined, and (iii) the aggregate number and class of Shares for which
Awards thereafter may be made under the Plan and to individual Award
recipients.
<PAGE>
<PAGE>
13. Amendment and Termination of Agreement
The Board may amend, alter or terminate the Plan in any respect at any
time; provided, however, that, after the Plan has been approved by the
stockholders of the Corporation, no amendment, alteration or termination of
the Plan shall be made by the Board without approval of (i) the Corporation's
stockholders to the extent stockholder approval of the amendment is required
by the applicable law, and (ii) each affected Optionee or Grantee if such
amendment, alteration or termination would adversely affect his or her rights
or obligations under any Award made prior to the date of such amendment,
alteration or termination.
14. Modification, Extension and Renewal of Options, Rights, Restricted Stock
and Incentive Shares, Substituted Options and Rights
14.1 Subject to the terms and conditions of the Plan, the Committee may
modify, extend or renew outstanding Options and Rights, or accept the
surrender of outstanding Options and Rights (to the extent not theretofore
exercised) granted under the Plan or under any other plan of the Corporation
or an Subsidiary, and authorize the granting of new Options and Rights
pursuant to the Plan in substitution therefor (to the extent not theretofore
exercised), and the substituted Options or Rights may specify a lower exercise
price than the surrendered Options and Rights, a longer term than the
surrendered Options and Rights, or have any other provisions that are
authorized by the Plan. Subject to the terms and conditions of the Plan, the
Committee may modify the terms of any outstanding awards of Restricted Stock
or Incentive Shares. Notwithstanding the foregoing, however, no modification
of an Award shall, without the consent of the Optionee or Grantee, alter or
impair any of the Optionee's or Grantee's rights or obligations under such
Award.
14.2 Anything contained herein to the contrary notwithstanding, Options
and Rights may, at the discretion of the Committee, be granted under the Plan
in substitution for stock appreciation rights and options to purchase shares
of capital stock of another corporation which is merged into, consolidated
with, or all or a substantial portion of the property or stock of which is
acquired by, the Corporation or one of its Subsidiaries. The terms and
conditions of the substitute options and rights so granted may vary from the
terms and conditions set forth in this Plan to such extent as the Committee
may deem appropriate in order to confirm, in whole or part, to the provisions
of the options and stock appreciation rights in substitution for which they
are granted. Such options and rights shall be counted toward the Share limits
imposed by Section 5.1, except to the extent it is determined by the Committee
that the applicability of such sentence is required in order for grants of
Options and Rights hereunder to be eligible to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code.
15. Effectiveness of the Plan
The Plan and any amendments requiring stockholder approval pursuant to
Article 13 are subject to approval by vote of the stockholders of the
Corporation within 12 months after their adoption by the Board. Subject to
that approval, the Plan and any amendments are effective on the date on which
they are adopted by the Board. Options, Rights, Restricted Stock and
Incentive Shares may be granted or awarded prior to stockholder approval of
the Plan or amendments, but each such Award shall be subject to the approval
of the Plan or amendments by the stockholders. The date on which any Option,
Right, Restricted Stock or Incentive Shares granted or awarded prior to <PAGE>
<PAGE>
stockholder approval of the Plan or amendment is granted or awarded shall be
the Date of Grant for all purposes as if the Option, Right, Restricted Stock
or Incentive Shares had not been subject to approval. No Option or Right may
be exercised prior to such stockholder approval, and any Restricted Stock or
Incentive Shares awarded shall be forfeited if such stockholder approval is
not obtained.
16. Withholding
The Corporation's obligation to deliver Shares or pay any amount pursuant
to the terms of any Award hereunder shall be subject to the satisfaction of
applicable federal, state and local tax withholding requirements. To the
extent provided in the applicable Agreement and in accordance with rules
prescribed by the Committee, an Optionee or Grantee may satisfy any such
withholding tax obligation by any of the following means or by a combination
of such means: (i) tendering a cash payment, (ii) authorizing the corporation
to withhold Shares otherwise issuable to the Optionee or Grantee, or (iii)
delivering to the Corporation Mature Shares.
17. Term of the Plan
Unless sooner terminated by the Board pursuant to Article 13, the Plan
shall terminate on ________, 2008, and no Options, Rights, Restricted Stock or
Incentive Shares may be granted or awarded after such date. The termination
of the Plan shall not affect the validity of any Award outstanding on the date
of termination.
18. Indemnification of Committee
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the
defense of any action, suit or proceeding or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Option,
Right, Restricted Stock or Incentive Shares granted or awarded hereunder, and
against all amounts reasonably paid by them in settlement thereof or paid by
them in satisfaction of a judgment in any such action, suit or proceeding, if
such members acted in good faith and in a manner which they believed to be in,
and not opposed to, the best
interests of the Corporation.
19. General Provisions
19.1 The establishment of the Plan shall not confer upon any Employee,
Director or Consultant any legal or equitable right against the Corporation,
any Subsidiary or the Committee, except as expressly provided in the Plan.
19.2 The Plan does not constitute an inducement or consideration for the
employment or services of any Employee, Director or Consultant, nor is it a
contract between the Corporation or any Subsidiary and any Employee, Director
or Consultant. Participation in the Plan shall not give an Employee any right
to be retained in the service of the Corporation or any Subsidiary.
19.3 Neither the adoption of this Plan nor its submission to the
stockholders, shall be taken to impose any limitations on the powers of the
Corporation or its subsidiaries to issue, grant, or assume options, warrants,
<PAGE>
<PAGE>
rights or restricted stock, other than under this Plan, or to adopt other
stock option or restricted stock plans or to impose any requirement of
stockholder approval upon the same.
19.4 The interests of any Employee, Director or Consultant under the Plan
are not subject to the claims of creditors and may not, in any way, be
assigned, alienated or encumbered except as provided in Article 11.
19.5 The Plan shall be governed, construed and administered in accordance
with the laws of the State of Maryland and the intention of the Corporation
that Incentive Stock Options granted under the Plan qualify as such under
Section 422 of the Code.
19.6 The Committee may require each person acquiring Shares pursuant to
Awards hereunder to represent to and agree with the Corporation in writing
that such person is acquiring the Shares without a view to distribution
thereof. The certificates for such Shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer. All
certificates for Shares issued pursuant to the Plan shall be subject to such
stock transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed, and any applicable federal or state securities laws.
The Committee may place a legend or legends on any such certificates to make
appropriate reference to such restrictions.
19.7 The Corporation shall not be required to issue any certificate or
certificates for Shares with respect to Awards under this Plan, or record any
person as a holder of record of such Shares, without obtaining, to the
complete satisfaction of the Committee, the approval of all regulatory bodies
deemed necessary by the Committee, and without complying to the Committee's
complete satisfaction, with all rules and regulations, under federal, state or
local law deemed applicable by the Committee.<PAGE>
<PAGE>
OPTION NO.:
EMPLOYEE:
DATE OF GRANT:
OPTION PRICE:
COVERED SHARES:
IT PARTNERS, INC.
AMENDED 1997 LONG-TERM INCENTIVE PLAN
* * * *
NONQUALIFIED STOCK OPTION AGREEMENT
1. Definitions. In this Agreement, except where the context otherwise
indicates, the following definitions apply:
(a) "Agreement" means this Nonqualified Stock Option Agreement.
(b) "Board" means the Board of Directors of the Company.
(c) A "Change of Control" means either:
(i) the acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) of fifty percent (50%) or more of the then
outstanding shares of common stock of the Company or a Subsidiary of the
Company, but excluding for this purpose any such acquisition by (A) the
Company, a Subsidiary of the Company, or any other entity a majority of which
is owned, directly or indirectly, by the beneficial owners of a majority of
the outstanding shares of voting Common Stock of the Company, or (B) any
corporation with respect to which, following such acquisition, more than fifty
percent (50%) of the then outstanding shares of voting common stock of such
corporation is then beneficially owned, directly or indirectly, by the
Company, a Subsidiary of the Company, or the individuals and entities who were
the beneficial owners, directly or indirectly, of the voting common stock of
the Company immediately prior to such acquisition; or
(ii) approval by the holders of the stock of the Company of a
reorganization, merger or consolidation, in each case, with respect to which
the Company, any subsidiary of the Company, or any other entity a majority of
which is owned, directly or indirectly, by the beneficial owners of a majority
of the outstanding shares of voting common stock of the Company, do not, alone
or in combination, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than fifty percent (50%) or
more of the then outstanding shares of voting common stock of the corporation
resulting from such reorganization, merger or consolidation.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the committee charged, pursuant to the
provisions of the Plan, with the administration of the Plan. Unless otherwise
determined by the Board, the Compensation Committee of the Board shall be the
Committee. <PAGE>
<PAGE>
(f) "Common Stock" means the common stock, $.01 per share, of the
Company.
(g) "Company" means IT Partners, Inc.
(h) "Covered Shares" means the Shares subject to the Option set
forth as the "Covered Shares" on Page 1 of this Agreement.
(i) "Date of Exercise" means the date on which the Company receives
notice pursuant to Paragraph 5(a) of the exercise, in whole or in part, of the
Option.
(j) "Date of Expiration" means the date on which the Option shall
expire, which shall be ten years after the Date of Grant.
(k) "Date of Grant" means the date set forth as the "Date of Grant"
on page 1 of this Agreement.
(l) "Employee" means the person identified as Employee on page 1 of
this Agreement.
(m) "Fair Market Value " means the amount equal to the sales price
for a Share, on the date such fair market value is to be determined, as
determined by the Board of Directors in good faith.
(n) "Mature Shares" means Shares held by the Employee free and
clear of any liens or encumbrances for at least six months.
(o) "Option" means the Nonqualified stock option granted to the
employee in Paragraph 2 of this Agreement.
(p) "Option Price" means the price per Share at which an Option may
be exercised. The Option Price shall be determined by the Committee and shall
not be less than the Fair Market Value determined as of the Date of Grant.
Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to an Employee who (applying the rules of Section 424(d) of the Code)
owns stock possessing more than ten percent of the total combined voting power
of all classes of stock of the corporation or a Subsidiary (a "Ten-Percent
Stockholder"), the Option Price shall not be less than one hundred and ten
percent (110%) of the Fair Market Value on the Date of Grant.
(q) "Option Price" means the dollar amount per Share set forth as
the "Option Price" on page 1 of this Agreement.
(r) "Employee" means the person identified as the "Employee" on
page 1 of this Agreement.
(s) "Plan" means the IT Partners, Inc., Amended 1997 Long-Term
Incentive Plan.
(t) "Share" means a share of Common Stock.
(u) "Subsidiary" means a corporation at least fifty percent of the
total combined voting owner of all classes of stock of which is owned by the
Company, either directly or through one or more other Subsidiaries.
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2. Nonqualified Options.
(a) Grant of Option. Pursuant to the Plan and subject to the terms
of this Agreement, the Company hereby grants to the Employee or his successors
Options (the "Options") to purchase from the Company that number of Shares
equal to the Covered Shares, exercisable at the Option Price.
(b) Terms of the Option.
(i) Type of Option. The Options are intended to be
Nonqualified stock options, and not incentive stock options within the meaning
of Section 422 of the Code.
(ii) Option Periods. During the period commencing on the Date
of Grant and terminating on the Date of Expiration, the Options may be
exercised with respect to all or a portion of the Covered Shares (in full
shares), to the extent that the Options have not been previously exercised
with respect to such Covered Shares, subject to the following limitations:
(A) No Options may be exercised until the second
anniversary of the Date of Grant,
(B) On and after the second anniversary of the Date of
Grant, Options may be exercised to a maximum of forty percent (40%) of the
Covered Shares;
(C) On and after the third anniversary of the Date of
Grant, Options may be exercised to a cumulative maximum of sixty percent (60%)
of the Covered Shares;
(D) On and after the fourth anniversary of the Date of
Grant, Options may be exercised to a cumulative maximum of eighty percent
(80%) of the Covered Shares;
and
(E) Thereafter, all Options may be exercised in full.
(iii) Notwithstanding the above provisions of this
Paragraph 2(b), the Options may be exercised in full upon a Change of Control.
(iv) Exercise During Employee's Lifetime, After Death. The
Option may be exercised during the Employee's lifetime only by the Employee
or, in the event of his or her legal disability, by his or her legal
representative. After the Employee's death, the Options may be exercised only
by the Employee's legal representative.
(v) Termination of Employment or Service. If Employee's
employment with the Company is terminated, any Options (or portion thereof)
not exercisable on or before that date shall be forfeited. To the extent that
any Options remain exercisable, during the period commencing on termination of
employment or service and terminating on the date which is thirty (30) days
after the date of termination of employment or service, such Options may be
exercised with respect to the number of the Covered Shares (in full shares),
to the extent that the Options have not been previously exercised with respect
to such Covered Shares; provided, however, in the event of termination of
employment or service by reason of death or disability, the thirty (30)-day
period provided for in this sentence shall be ninety (90) days. After such
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<PAGE>
thirty day period (or, if applicable, ninety day period), the Options shall be
forfeited.
(vi) Nontransferability. The Options are not transferable by
the employee other than (i) by will or the laws of descent and distribution,
or (h) pursuant to a qualified domestic relations order as defined in Section
414(p) of the Code. Any permitted transferee shall be subject to all of the
terms and conditions of this Agreement applicable to the Employee.
(vii) Payment of the Option Price. The Employee, upon
exercise, in whole or in part, of an Option, may pay the Option Price in cash,
or by delivering duly endorsed certificates representing Mature Shares having
a Fair Market Value on the Date of Exercise aggregating not more than the
portion of the Option Price being paid by delivery of such Mature Shares, or
in a combination of cash and Mature Shares, or as provided in Paragraph 2(i)
hereof.
(c) Capital Adjustments. The number of Covered Shares and Option
Price shall be subject to such adjustment, if any, as appropriate to reflect
such events as stock dividends, stock splits, adoption of stock rights plans,
recapitalizations, mergers, consolidations or reorganizations
of or by the Company.
(d) Exercise.
(i) Notice. The Options shall be exercised, in whole or in
part, by the delivery to the Company of written notice of such exercise, in
such form as the Committee may from time to time prescribe, accompanied by (i)
full payment of the Option Price with respect to that portion of the Option
being exercised and (ii) any amounts required to be withheld pursuant to
applicable income tax laws in connection with such exercise. Until the
Committee notifies the Employee to the contrary, the form attached to this
Agreement as Exhibit A shall be used to exercise the Option. Payment of all
amounts required to be withheld may be made, at the option of the Employees,
in cash, Options, or Mature Shares.
(ii) Effect. The exercise, in whole or in part, of an Option
shall cause a reduction in the number of Covered Shares equal to the number of
Shares with respect to which the Option is exercised.
(e) Restriction on Exercise and Upon Shares of Common Stock Issued
Upon Exercise. Notwithstanding any other provision of this Agreement, the
Employee agrees, for himself and his successors, that the Options may not be
exercised at any time that the Company does not have in effect a registration
statement under the Securities Act of 1933, as amended, relating to the offer
of Common Stock to the Employee under the Plan, unless the Company shall
determine, on the basis of representations of the Employee, or the Company
receives an opinion of counsel satisfactory to the Company that the exercise
of the Option would not violate the registration provisions of the Securities
Act of 1933, as amended.
(f) Rights as Stockholder. The Employee shall have no rights as a
stockholder with respect to any Shares subject to the Options until and unless
a certificate or certificates representing such shares are issued to the
Employee pursuant to this Agreement. Except as agreed, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
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<PAGE>
(g) Employment and Service. Neither the granting of an Option
evidenced by this Agreement nor any term or provision of this Agreement shall
constitute or be evidence of any understanding, express or implied, on the
part of the Company or any of its Subsidiaries to employ or retain the
services of the Employee, as the case may be, for any period. Whatever
reference is made in this Agreement to the employment or service of the
Employee, it means employment or service, as the case may be (including
service as a Director or Consultant) by the Company or a Subsidiary thereof,
including ________________________ (the "Subsidiary").
(h) Subject to the Plan. The Options evidenced by this Agreement
and the exercise thereof are subject to the terms and conditions of the Plan,
which are incorporated herein by reference and made a part hereof, but the
terms of the Plan shall not be considered an enlargement of any benefits under
this Agreement. In addition, the Option is subject to any miles and
regulations promulgated by the Committee.
(i) Surrender of Option in Exchange for Shares. The Committee
shall permit the Employee to surrender the Option evidenced by this Agreement
(or a portion thereof) and to receive upon such surrender that number of
Shares having an aggregate Fair Market Value as of the date of surrender equal
to the product of (a) the excess of Fair Market Value as of such surrender
date over the Option Price with respect to such surrendered Option (or portion
thereof), multiplied by (b) the number of Shares covered by the Option (or
portion thereof) surrendered. No fractional Shares shall be issued upon such
surrender. Cash shall be paid in lieu of any such fractional Share in amount
equal to the product of such fraction multiplied by the Fair Market Value on
the date of surrender. Any such surrender shall be treated as an exercise of
such Option (or portion thereof) for purposes of this Agreement. No such
surrender may be made before the Option (or the portion thereof surrendered)
is exercisable.
3. Protection of Confidential Information, Non-Competition.
(a) The Employee acknowledges that:
(i) The established nature of the business of The Subsidiary
was material to the decision of the Company to acquire and conduct the
business of The Subsidiary;
(ii) As a result of his employment by The Subsidiary, the
Employee has obtained and will obtain certain proprietary, secret and
confidential information concerning the business of The Subsidiary and the
Company, including, without limitation, financial and organizational
information, the identity of customers and sources of supply, their needs and
requirements, the nature and extent of contracts with them, and related cost,
price and sales information;
(iii) The Subsidiary and the Company will suffer immediate,
irreparable and substantial damage which will be difficult to compute if,
during the period of his employment with The Subsidiary or thereafter, the
Employee should enter a competitive business with any material segment of The
Subsidiary's or the Company's business (whether as an employee, shareholder,
member, officer or otherwise) or should divulge secret and confidential
information relating to the business of the Company heretofore or hereafter
acquired by him in the course of his employment by The Subsidiary; and
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<PAGE>
(iv) The provisions of this Section 3 are reasonable and
necessary for the protection of the business of The Subsidiary and the
Company.
(b) The Employee agrees that he will not at any time, either
during his employment with The Subsidiary or thereafter, divulge to any
person, firm or corporation any confidential information obtained or learned
by him during the course of his employment with The Subsidiary, or prior to
the commencement thereof in the course of his employment by The Subsidiary and
the operation of the business, with regard to the operational, financial,
organizational, business or other affairs of The Subsidiary, the Company or
any Subsidiary, or their business, their officers and directors, including,
without limitation, trade "know how," secrets, customer lists, sources of
supply, pricing policies, operational methods or technical processes, except:
(i) in the course of faithfully performing his duties hereunder, (ii) with The
Subsidiary's or the Company's express written consent, (iii) to the extent
that any such information is in the public domain other than as a result of
the Employee's breach of any of his obligations hereunder, or (iv) where
required to be disclosed by court order, subpoena or other governmental
process. In the event that the Employee shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, the
Employee promptly but in no event more than forty-eight (48) hours after
leaning of such subpoena, court order, or other governmental process, shall
notify, by personal delivery or by facsimile, confirmed by mail or by
certified mail, return receipt requested, the Company and, at the Company's
expense, the Employee shall:
(A) take all reasonably necessary steps requested by The
Subsidiary or the Company to defend against the enforcement of such subpoena,
court order or other governmental process, and
(B) permit The Subsidiary or the Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
(c) Upon termination of his employment with The Subsidiary, or at
any time The Subsidiary's or the Company's Board of Directors may reasonably
request, the Employee will promptly deliver to The Subsidiary and/or the
Company all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the business of The
Subsidiary or the Company and all property associated therewith, which he may
then possess or have under his control.
(d) During the term of his employment with The Subsidiary and for a
period of one (1) fiscal year thereafter, the Employee shall not, without the
express prior written permission of the Company, within 250 miles of The
Subsidiary's or the Company's principal place of business, directly or
indirectly: (i) enter into the employ of or render any significant and
material services to any person, firm or corporation engaged in any
Competitive Business (as defined in Subsection (j) of Section 3 hereof),
except if named as a fiduciary in a Last Will and Testament; (ii) engage in
any Competitive Business for his own account; (iii) become associated with or
interested in any Competitive Business as an individual, partner, shareholder,
creditor, director, officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity; (iv) employ or retain, or
have or cause any other person or entity to employ or retain, any person who
was employed or retained by The Subsidiary or the Company or its Subsidiaries
while the Employee was employed by The Subsidiary; (v) employ or retain, or
<PAGE>
<PAGE>
have or cause any other person or entity to employ or retain, any person who
remains employed or retained by The Subsidiary or the Company or its
Subsidiaries, or (vi) solicit, interfere with, or endeavor to entice away from
the Subsidiary or the Company or its Subsidiaries any of its or their
customers or sources of supply. Nothing in this Agreement, however, shall
preclude the Employee from investing his personal assets in the securities of
any corporation or other business entity which is engaged in a Competitive
Business if such securities are traded on a national stock exchange or in
over-the-counter market and if such investment does not result in his actually
and/or beneficially owning, at any time, more than five percent (5%) of the
publicly traded equity securities of such competitor.
(e) If the Employee commits a breach or threatens to commit a
breach, of any of the provisions of Sections 3(d)(i) through 3(d)(iii), The
Subsidiary's and/or the Company's sole right and remedy shall be the automatic
cancellation of all of the Employee's unexercised Options, whether or not such
Options are exercisable hereunder. If the Employee commits a breach, or
threatens to commit a breach, of any of the provisions of Sections 3(b)
through 3(c) and/or Sections
3(d)(iv) through 3(d)(vi), The Subsidiary and/or the Company shall have the
right and remedy:
(i) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by the Employee that the services being rendered to The Subsidiary are
of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to The Subsidiary and the
Company and that money damages alone will not provide an adequate remedy to
The Subsidiary and the Company; and
(ii) to require the Employee to account for and pay over to The
Subsidiary and/or the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Employee as the result of any transactions constituting a breach of any of
the provisions of Sections 3(b) through 3(c) and/or Sections 3(d)(iv) through
3(d)(vi), and the Employee hereby agrees to account for and pay over such
Benefits to the Company. Each of the rights and remedies enumerated in this
Section 3(e) shall be independent of the other, and shall be severally
enforceable, and such rights and remedies shall be in addition to, and not in
lieu of, any other rights and remedies available to The Subsidiary and/or the
Company under law or equity.
(f) If the Employee shall violate any covenant contained in Section
3(d), the duration of such covenant so violated shall be automatically
extended for a period of two (2) years from the date on which the Employee
permanently ceases such violation or for a period of two (2) years from the
date of the entry by a court of competent jurisdiction of a final order or
judgment enforcing such covenant, whichever period is later.
(g) If any provision of Sections 3(b) or 3(d) is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them to the minimum extent necessary so that
these provisions would be enforceable, and such provision or provisions shall
then be applicable in such modified form.
(h) The Employee acknowledges that he may be directly and
materially involved in many important policy and operational decisions of The
<PAGE>
<PAGE>
Subsidiary. The Employee further acknowledges that the scope of the foregoing
restrictions has been specifically bargained between The Subsidiary, the
Company and the Employee, each being fully informed of all relevant facts.
Accordingly, the Employee acknowledges that the foregoing restrictions of this
Section 3 are fair and reasonable, are minimally necessary to protect The
Subsidiary, the Company and its Subsidiaries, their stockholders and the
public from the unfair competition of the Employee who, as a result of his
employment with The Subsidiary, will have had unlimited access to the most
confidential and important information of The Subsidiary and the Company and
its Subsidiaries, their business and future plans. The Employee furthermore
acknowledges that no unreasonable harm or injury will be suffered by him from
enforcement of the covenants contained herein and that he will be able to earn
a reasonable livelihood following termination of his employment
notwithstanding enforcement of the covenants contained herein.
(i) The Subsidiary, the Company and the Employee do hereby further
acknowledge and agree that none of the time span, scope or area covered by the
restrictive covenants above is or are unreasonable, and that it is the
specific intent of The Subsidiary, the Company and the Employee that each and
all of the provisions set forth in this section shall be valid and enforceable
as specifically set forth hereinabove to the fullest extent possible. If it
shall be judicially determined that any of the provisions set forth in this
section shall not be valid or enforceable as specifically set forth
hereinabove, such provision shall not be declared invalid but rather shall be
modified in such manner so as to result in the same being valid and
enforceable to the maximum extent permitted by law. It is further agreed and
understood that, because of the highly confidential and sensitive nature of
The Subsidiary's and the Company's business, in the event of any violation by
the Employee of any of the preceding provisions of this section, The
Subsidiary and/or the Company may, in addition to any other remedies which it
may have, obtain injunctive relief in any court of appropriate jurisdiction to
enforce the terms hereof.
(j) As used in this Agreement, the term "Competitive Business"
shall mean either: (i) any of the development, production, marketing or
distribution of products and services of the information technology industry;
or (ii) any other product or service (including software- related products or
services) of every nature, kind and description whatsoever which was under
active development, production, marketing or distribution by the Company at
the time of the termination of the Employee's employment, as documented by
existing Company records at the time of such termination.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company and The Subsidiary have caused this
Agreement to be signed on its behalf effective as of the Date of Grant.
ATTEST: IT PARTNERS, INC.
By:
---------------------------------
Daniel J. Klein, President
ATTEST: [SUBSIDIARY]
By:
----------------------------------
, President
---------------
Accepted and agreed to as of the Date of Grant.
- -------------------------------------
Employee
<PAGE>
<PAGE>
"EXHIBIT A"
EXERCISE OF OPTION
Board of Directors
IT Partners, Inc.
Gentlemen:
The undersigned, the employee under the Nonqualified Stock Option
Agreement identified as Option No. , granted pursuant to the
-------------------
IT Partners, Inc. Amended 1997 Long- Term Incentive Plan (the "Option"),
hereby irrevocably elects to exercise the Option granted in the Agreement to
purchase shares of Common Stock of IT Partners, Inc. par value $.01 per share
and herewith makes payment of $ in the form of: [CHOOSE ONE]
-----------------
(a) $ in cash; or
(b) Mature Shares*
(c) $ in Options; or
(d) $ in cash and Mature Shares*.
The undersigned, the Employee under the Nonqualified Stock Option
Agreement identified as Option No. , granted pursuant to the
----------------
IT Partners, Inc. Amended 1997 Long- Term Incentive Plan (the "Option"),
hereby elects to satisfy its withholding requirements regarding the foregoing
exercise of the Option in the form of: [CHOOSE ONE]
(a) $ in cash; or
(b) Mature Shares*
Dated:
------------------- ------------------------------------
(Signature of Employee)
Date Received by:
------------------------
Received by:
-----------------------------
* "Mature Shares" means shares of IT Partners, Inc. held by the Employee
free and clear of any liens or encumbrances for at least six months. Mature
Shares being delivered in payment of all or any part of the exercise price or
being used to satisfy withholding requirements must be represented by
certificates registered in the name of the Employee and duly endorsed by the
Employee and by each and every other co-owner in whose name the shares may
also be registered.
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
THIS SENIOR EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), dated as of
June 30, 1997 between Christopher R. Corbett (the "Executive")residing at
12619 Oxon Road, Herndon, Virginia 20171 (the "Executive") and IT PARTNERS,
INC., a Delaware corporation, having its principal office at 1006 Highland
Drive, Silver Spring, Maryland 20910 (the "Company").
RECITALS:
A. The Company has acquired, by indirect merger, one hundred percent
(100%) of the outstanding common stock of A-COM, Inc. ("A-COM");
B. The Company is utilizing such acquired assets to conduct a
business which is engaged in the design, manufacture and sale of products and
services to the information technology industry and such Business will
continue hereafter, during the term of this Agreement, to be operated and
conducted by the Company; and
C. The Company desires to assure itself of the Executive's services
with respect to the company's operation of the Business
NOW, THEREFORE, in exchange for good and valuable consideration, both the
receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs the Executive during the Term (as
hereinafter defined) of this Agreement as President of the A-COM, Inc.
Division and National Practice Leader for the Company's Electronic Systems
Integrator Companies ("ESIC"). The Executive shall report directly to the
President and be subject to the reasonable direction, policies, plans,
oversight and review of the President of the Company.
1.2 The Company may assign to the Executive such other executive and
administrative duties for the Company as may be determined by the President
consistent with the Executive's expertise, experience and prior duties with A-
COM, Inc.
1.3 The Executive accepts such employment and agrees to devote his
full and exclusive business time, energies, attention and best efforts to the
performance of his duties hereunder, which may include such travel as may
reasonably be required of him, it being understood that throughout the term of
this Agreement the Executive shall be posted in, and be based out of, the
Northern Virginia area.
1.4 The Executive shall not, without the prior written consent of the
Company, during the Term of this Agreement be engaged in any other business
activity involving a Competitive Business, whether or not pursued for gain,
profit or other pecuniary advantage; but this shall not be construed as
preventing the Executive from making and supervising personal investments,
provided they:
(a) will not require any substantial services on his part in the
operation of the affairs of the companies in which such
investments are made, provided, further, however, that this
shall not be construed so as to prevent the Executive from
continuing the ownership interest in Electronic Systems
Distributors, Inc. ("ESD"), which ownership interest has been
previously disclosed to the Buyer, or from serving on the Board
of the Directors of ESD, or otherwise engaging in the business
of ESD, provided, further, however, that such ownership
interest and board service shall not be construed to be a
breach of this Agreement or to represent a conflict interest
under this Agreement;
(b) will not cause a breach of Section 4.4, below; and
(c) will not unduly interfere with the performance of the
Executive's duties hereunder.
1.5 All of the Executive's work product and work in process resulting
from this Agreement shall be considered "work made for hire" under the U.S.
Copyright Act, 17 USC Section 101 et. seq and all intellectual property rights
therein shall be the sole and exclusive property of the Company. In addition,
in the event that any work product or work in process is not considered to be
a work made for hire, the Executive hereby agrees, at the Company's expense,
to assign all proprietary rights in such work product or work in process to
the Company.
2. Compensation; Benefits.
2.1 As partial compensation during the Term of this Agreement for all
of the Executive's services to be rendered hereunder, Company agrees to pay,
or cause to be paid, to the Executive, in the manner hereinafter provided, an
amount comprised of base compensation equal to $190,000 per annum (the "Base
Salary"), to be paid in weekly installments. less all such sums as may be
required by law to be withheld or deducted.
(a) As compensation for serving as the National Practice
Leader for IT Partners' electronic systems integrator
companies, the Executive will be paid, in addition to the
amounts provided for in Section 2.1, the sum of $25,000 per
year, the same to be paid in weekly installments, or in
such manner as the Executive shall direct.
(b) In addition to the consideration described in paragraph
2.1, the Executive will be paid a finders fee of five
percent (5 %) of the first million dollars, four percent
(4%) of the second million dollars, three percent (3%) of
the third million dollars, two percent (2%) of the fourth
million dollars, and one (1%) of the remaining dollars of
the purchase price for any other electronic systems
<PAGE>
integration companies which he will be personally and
primarily responsible for recruiting. The finders fee shall
be paid in cash and/or stock of the Company, as directed by
The Executive, at the settlement of the sale of the
recruited company to the Company. To avoid misunderstandings
and possible disagreements, the Executive will disclose
recruiting targets and the Company will immediately advise
Corbett of any prior contacts or recruitment plans that the
Company had relative to the target companies All members of
the National System Contractors Association are potential
targets for which the Executive is personally and primarily
responsible for recruiting. All out-of-pocket expenses,
including travel, meals, overnight accommodations and
entertainment, shall be borne by the Company, provided,
however, that all of the provisions of this Section 2.1(b)
shall terminate upon the closing of an initial public
offering of the Buyer's common stock.
2.2 In addition to the base salary referred to in Section 2.1, the
Executive shall, should an EBITDA of $1,694,048 or greater to be achieved by
A-COM by March 31, 1998, be entitled to compensation in an amount equal to six
(6) times the EBITDA in excess of $1,694,048, said sum not to exceed
$1,500,000, and such sum to be paid to the Executive in the same proportions
of cash, stock and debt as was the Purchase Price for A-COM, provided,
however, that the value of the stock, if any, received by the Executive
pursuant to this section shall be calculated as of March 31, 1998, and,
provided, further, that the EBITDA for A-Com shall be based on the sole
performance of A-COM, as A-COM existed as of the Closing, without regard to
the performance of any related entity. Should A-COM acquire an additional
company or companies so as to materially impact the EBITDA, the EBITDA shall
be appropriately recalculated. Beginning June 30, 1998, the Executive shall
receive an annual bonus as set forth in the Company's current Annual Incentive
Compensation Plan.
2.2 (a) In case of any "event" and/or occurrence under Section 3.2,
3.3(b), 3.3(c) or 3.4(a), prior to March 31, 1998, the
EBITDA and the amounts owed under this section shall be
prorated based upon a 365-day year (using the EBITDA value
existing on the last day of the month immediately preceding
the date of death, disability and/or termination).
2.3 Severance Pay. In the event the Executive's employment
hereunder is terminated by the Company at any time on or after the initial
four (4) year Term pursuant to the express terms of Section 3.1 hereof, the
Company shall pay to the Executive severance pay within thirty (30) days of
said termination consisting of his Base Salary and Incentive Compensation
equal to the amount paid for the fiscal years immediately preceding such
termination and continue to provide him the benefits as set forth herein one
year after such termination.
<PAGE>
2.4 Business Expenses. The Executive will be reimbursed for
automobile, travel, entertainment, lodging and other related reasonable
business expenses actually incurred in connection with his work upon terms and
conditions established by the Company from time to time and consistently
applied for all of its senior executive officers.
2.5 Vacation: Sick Leave. The Executive shall be entitled to
periods of vacation not less than three (3) weeks annually and sick leave
during the Term of this Agreement upon terms and conditions established by the
Company from time to time and consistently applied for all of its senior
executive officers.
2.6 Other Benefits. The Executive shall receive hospitalization,
major medical, disability and pension plan benefits upon terms and conditions
established by the Company from time to time and consistently applied for all
of its senior executive officers.
2.7 Insurance. The Company may, in the exercise of its sole and
absolute discretion, obtain a policy or policies of insurance covering the
life of the Executive. The Executive covenants that he will cooperate fully
by performing all requirements of the insurer which are necessary to the
issuance and maintenance of any such policies. The Company further agrees
that it will pay all premiums of any such policy or policies.
3. Term and Termination.
3.1 The initial term of this Agreement shall be four (4) years,
commencing as of June 30, 1997 and continuing through June 30, 2001 (the
"Initial Expiration Date"), unless sooner terminated as herein provided. The
term of this Agreement shall renew automatically for subsequent terms of one
(1) year each (each a "Renewal Term"), unless at least sixty (60) days before
the Initial Expiration Date, or at least sixty (60) days in advance of the
expiration of any subsequent Renewal Term (as the case may be), either party
gives the other party notice in writing of its intent not to renew this
Agreement. As used in this Agreement, the term "Term" shall mean either the
Initial Term or any Renewal Term, as the case may be.
3.2 If the Executive dies during the Term of this Agreement, the
Term of this Agreement shall immediately terminate, except that the Company
shall for a period of one hundred eighty (180) days following the date of his
death pay to the legal representatives of the Executive's estate the Base
Salary, as then in effect. The Company shall also pay up to and through the
date of death the Incentive Compensation (prorated on a daily basis based on
the prior year's Incentive Compensation, if any, or, if such termination
occurs during the first full fiscal year, $50,000, pro rated on a daily
basis). Such payment will be made within thirty (30) days of the date of
death.
3.3 (a) The Company, by written notice to the Executive, may
terminate the Term of this Agreement for proper cause
upon ten (10) days notice. As used herein, "proper
cause" shall exclusively mean that the Executive has:
<PAGE>
<PAGE>
(i) refused or willfully failed to carry out specific
directions of the Board, or willfully refused or
willfully failed to perform a material part of his
duties hereunder;
(ii) committed a material breach of any of the provisions of
Article 4 of this Agreement;
(iii) acted in a fraudulent or dishonest manner in his
relations with the Company that has served to adversely
and materially harm the Company;
(iv) committed larceny, embezzlement, conversion or any act
involving the misappropriation of funds in the course of
his employment; or
(v) been convicted of any crime involving an act of moral
turpitude.
In the event of a termination under subparagraph (a) above, all
Base Salary, Incentive Compensation and other benefits, the
Term under this Agreement to be paid or provided to the
Executive shall immediately cease, provided that, the Executive
shall be entitled to receive all such compensation and benefits
through the effective date of such termination.
(b) In the event the Company terminates this Agreement by
dismissing the Executive without proper cause, the Company
shall pay the Executive his Base Salary and Incentive
Compensation (equal to the amount paid for the full fiscal
year immediately preceding such termination or, if such
termination occurs during the first full fiscal year, $190,000
and continue to provide to him the benefits as set forth herein
for the balance of the entire applicable Initial Term or
Renewal Term, as the case may be.
(c) In the event the Executive terminates the Term of this
Agreement for "good reason", the Company shall pay the
Executive his Base Salary and Incentive Compensation (equal to
the amount paid for the full fiscal year immediately preceding
such termination or, if such termination occurs during the
first full fiscal year, $190,000 and provide to him the
benefits as set forth herein for the balance of the entire
applicable Initial Term or Renewal Term, as the case may be.
For purposes of this section, the Executive shall have "good
reason" to voluntarily terminate his employment if the Company
shall have materially and substantially reduced the job
description of such Executive or assigned to the Executive
significant duties which are materially inconsistent with the
Executive expertise, experience and prior duties with
<PAGE>
Information Technology Partners, Inc., as the case may be.
3.4 (a) The Company, by notice to the Executive, may upon thirty
(30) days prior notice, terminate the Term of this
Agreement if the Executive shall become disabled.
Notwithstanding such termination, the Company shall for a
period of one hundred eight days (180) days following the
date of such termination both pay to the Executive all
monies due hereunder up to the date of such notice,
including Base Salary and Incentive Compensation (prorated
on a daily basis based on the prior year's Incentive
Compensation, if any) or if such termination occurs during
the first full fiscal year pro rated on a daily basis
based upon $190,000 and additionally provide the benefits
as set forth herein.
(b) For purposes of this Agreement, the term "disability" (i)
shall mean the Executive's inability, for a period of one
hundred eighty (180) consecutive days, to devote his full
time to those duties as an employee of the Company which
he was performing prior to his disability, and (ii) shall
be deemed to have occurred on the one hundred eightieth
first (181st) day of his inability to devote his full time
to his duties as an employee of the Company. If by the
one hundred eightieth (180th) consecutive day of absence
the Executive can provide evidence, in the form of a
doctor's certificate, of the likelihood of his return to
work within the next one hundred eighty (180) days,
"disability" shall be deemed to have occurred on the three
hundred sixtieth first (361st) day of absence. The
definition of "disability" may be altered by a vote of a
simple majority of the board of Directors of Information
Technology Partners, Inc. on a case by case basis, for
example, to exclude disability which lasts for longer
than one hundred eighty (180) consecutive days but is not
permanent, or to include disability where each absence
does not total one hundred eighty (180) consecutive days
but involves absences frequent enough to be considered
permanent.
4. Protection of Confidential Information; Non-Competition.
4.1 The Executive acknowledges that:
(a) The established nature of the Business was material to the
decision of the Company to acquire and conduct the Business
and to employ the Executive hereunder.
(b) As a result of his employment by the Company and his
operation of the Business, the Executive has obtained and
<PAGE>
will obtain certain proprietary, secret and confidential
information concerning the business of the Company,
including, without limitation, financial and organizational
information, the identity of customers and sources of
supply, their needs and requirements, the nature and extent
of contracts with them, and related cost, price and sales
information.
(c) The Company will suffer immediate, irreparable and
substantial damage which will be difficult to compute if,
during the period of his employment with the Company or
thereafter, the Executive should enter a competitive
business with any material segment of the Company's
business (whether as an employee, shareholder, member,
officer or otherwise) or should divulge secret and
confidential information relating to the business of the
Company heretofore or hereafter acquired by him in the
course of his management of the Business and his employment
by the Company.
(d) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the
Company.
4.2 The Executive agrees that he will not at any time, either during
the Term of this Agreement or thereafter, divulge to any person, firm or
corporation any confidential information obtained or learned by him during the
course of his employment with the Company, or prior to the commencement
thereof in the course of his employment by and management of the Business,
with regard to the operational, financial, organizational, business or other
affairs of the Business or the Company, their officers and directors,
including, without limitation, trade "know how," secrets, customer lists,
sources of supply, pricing policies, operational methods or technical
processes, except: (i) in the course of faithfully performing his duties
hereunder, (ii) with the Company's express written consent, (iii) to the
extent that any such information is in the public domain other than as a
result of the Executive's breach of any of his obligations hereunder, or (iv)
where required to be disclosed by court order, subpoena or other governmental
process. In the event that the Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, the
Executive promptly but in no event more than forty-eight (48) hours after
learning of such subpoena, court order, or other governmental process, shall
notify, by personal delivery or by facsimile, confirmed by mail or by
certified mail, return receipt requested. the Company and, at the Company's
expense, the Executive shall:
(a) take all reasonably necessary steps requested by the
Company to defend against the enforcement of such
subpoena, court order or other governmental process, and
(b) permit the Company to intervene and participate with
counsel of its choice in any proceeding relating to the
enforcement thereof.
<PAGE>
4.3 Upon termination of his employment with the Company, or at any
time the Company's Board of Directors may reasonably request, the Executive
will promptly deliver to the Company all memoranda, notes, records, reports,
manuals, drawings, blueprints and other documents (and all copies thereof)
relating to the business of the Company and all property associated therewith,
which he may then possess or have under his control.
4.4 During the term of his employment with the Company and for a
period of one (1) fiscal year thereafter, except in the event of a termination
without cause prior to the end of the Initial Expiration Date, the Executive
shall not, without the express prior written permission of the Company, in the
State of Maryland, the Commonwealth of Virginia, the Commonwealth of
Pennsylvania and the District of Columbia, directly or indirectly: (i) enter
into the employ of or render any significant and material services to any
person, firm or corporation engaged in any Competitive Business (as defined in
Section 6); (ii) engage in any Competitive Business for his own account; (iii)
become associated with or interested in any Competitive Business as an
individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) employ or retain, or have or cause any other person or entity
to employ or retain, any person who was employed or retained by Company while
the Executive was employed by the Company; or (v) solicit, interfere with, or
endeavor to entice away from the Company any of its or their customers or
sources of supply. Nothing in this Agreement, however, shall preclude the
Executive from investing his personal assets in the securities of any
corporation or other business entity which is engaged in a Competitive
Business if such securities are traded on a national stock exchange or in
over-the-counter market and if such investment does not result in his actually
and/or beneficially owning, at any time, more than five percent (5 %) of the
publicly traded equity securities of such competitor. Notwithstanding any
other provision of this Agreement, the event of a termination occurring prior
to the end of the Initial Term either without cause or a voluntary termination
for good reason, the Executive shall be free from the restrictions set forth
in this Section 4.4.
4.5 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 4.2 through 4.4, the Company
shall have the right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being
acknowledged and agreed by the Executive that the services
being rendered hereunder to the Company are of a special,
unique and extraordinary character and that any such breach
or threatened breach will cause irreparable injury to the
Company and that money damages alone will not provide an
adequate remedy to the Company; and
(b) to require the Executive to account for and pay over to the
Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits")
derived or received by the Executive as the result of any
<PAGE>
transactions constituting a breach of any of the provisions
of Sections 4.2 through 4.4, and the Executive hereby agrees
to account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated in this Section
4.5 shall be independent of the other, and shall be
severally enforceable. and such rights and remedies shall be
in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
4.6 If the Executive shall violate any covenant contained in Section
4.4, the duration of such covenant so violated shall be automatically extended
for a period of two (2) years from the date on which the Executive permanently
ceases such violation or for a period of two (2) years from the date of the
entry by a court of competent jurisdiction of a final order or judgment
enforcing such covenant, whichever period is later.
4.7 If any provision of Sections 4.2 or 4.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them to the minimum extent necessary so that
these provisions would be enforceable, and such provision or provisions shall
then be applicable in such modified form.
(iv) The Executive acknowledges that he will be directly
and materially involved as a senior executive in all
important policy and operational decisions of the
Company. The Executive further acknowledges that the
scope of the foregoing restrictions has been
specifically bargained between the Company and the
Executive, each being fully informed of all relevant
facts. Accordingly, the Executive acknowledges that
the foregoing restrictions of this Section 4 are fair
and reasonable, are minimally necessary to protect
the Company, its stockholders and the public from the
unfair competition of the Executive who, as a result
of his employment with the Company, will have had
unlimited access to the most confidential and
important information of the Company, its business
and future plans. The Executive furthermore
acknowledges that no unreasonable harm or injury will
be suffered by him from enforcement of the covenants
contained herein and that he will be able to earn a
reasonable livelihood following termination of his
employment notwithstanding enforcement of the
covenants contained herein.
(v) Both the Company and the Executive do hereby further
acknowledge and agree that none of the time span,
scope or area covered by the restrictive covenants
above is or are unreasonable, and that it is the
specific intent of both the Company and the Executive
that each and all of the provisions set forth in this
<PAGE>
section shall be valid and enforceable as
specifically set forth hereinabove to the fullest
extent possible. If it shall be judicially deter
mined that any of the provisions set forth in this
section shall not be valid or enforceable as
specifically set forth hereinabove, such provision
shall not be declared invalid but rather shall be
modified in such manner so as to result in the same
being valid and enforceable to the maximum extent
permitted by law. It is further agreed and
understood that, because of the highly confidential
and sensitive nature of the Company's business, in
the event of any violation by the Executive of any of
the preceding provisions of this section, the Company
may, in addition to any other remedies which it may
have, obtain injunctive relief in any court of
appropriate jurisdiction to enforce the terms hereof.
5. Laws of the State of Maryland to Govern.
(a) This Agreement shall be construed and interpreted exclusively in
accordance with the applicable laws of the State of Maryland,
without regard to its conflicts of law provisions that might
refer the construction or interpretation of this Agreement to the
laws of another state.
(b) If any legal action is necessary to enforce the terms of this
Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees in addition to any other relief to which that
party may be entitled.
6. Definitions. As used in this Agreement, the term "Competitive
Business" shall mean either: (A) any of the development, production,
marketing or distribution of products and services of the information
technology industry; or (B) any other product or service (including
software-related products or services) of every nature, kind and description
whatsoever which was under active development, production, marketing or
distribution by the Company at the time of the termination of the Executive's
employment, as documented by existing Company records at the time of such
termination.
7. Miscellaneous Provisions.
7.1 Notices. Any notice, request, instruction or other document or
communication required or permitted to be given under this Agreement shall be
in writing and shall be deemed to be given upon (i) delivery in person, (ii)
five (5) days after being deposited in the mail, postage prepaid, for mailing
by certified or registered mail, (iii) one (1) day after being deposited with
an overnight courier service, charges prepaid, or (iv) when transmitted by
facsimile, with a copy simultaneously set as provided in causes, (ii) and
(iii), in every case as follows:
<PAGE>
If to the Company, delivered or mailed to:
IT Partners, Inc.
1006 Highland Drive
Silver Spring, Maryland 20910
Attn: Daniel J. Klein
with a copy delivered or mailed by the same method to:
Kevin M. O'Connell, Esquire
Semmes, Bowen & Semrnes
250 W. Pratt Street
Baltimore, Maryland 21201
If to the Executive, delivered or mailed to:
Christopher R. Corbett
c/o A-COM, Inc.
14720-K Flint Lee Road
Chantilly,. Virginia 22021
with a copy delivered or mailed by the same method to:
Bernard R. Corbett, Esq.
Law Office of Bernard R. Corbett
123 South Royal Street
Alexandria, Virginia 22314
7.2 Entire Agreement. This Agreement sets forth the entire
agreement of the parties with regard to the specific subject matter hereof and
is intended to supersede all prior negotiations, understandings and
agreements. No provisions of this Agreement may be waived or changed except
by a writing signed by the party against whom such waiver or change is sought
to be enforced. The failure of any party to require performance of any
provision hereof shall in no manner affect his or its right at a later time to
enforce such provision.
7.3 Article Headings. The article headings are inserted only as a
matter of convenience and for reference and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
7.4 Confidential Nature. The parties acknowledge that all of the
terms and conditions of this Agreement are of a confidential and sensitive
nature and shall be disclosed or divulged to any third party whatsoever only
to the extent required by any applicable requirement of law.
7.5 Further Assurances. The parties hereto hereby agree to do such
further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments from time to time, as
either may at any time reasonably request in order to better assure and
confirm unto each party their respective rights, powers and remedies conferred
hereunder.
<PAGE>
7.6 Arbitration. Except with respect to Section 4 hereof for which
specific performance shall be available, any and all claims, demands,
disputes, controversies, differences or misunderstandings arising out of or
relating to this Agreement, or the failure or refusal to perform the whole or
any part hereof, shall be settled by arbitration conducted in Baltimore,
Maryland by the American Arbitration Association (the "AAA") in accordance
with the rules thereof then pertaining. Each of the parties hereto hereby
submit to the jurisdiction of the courts of the State of Maryland in any
proceeding for the enforcement of this Agreement to arbitrate and for the
enforcement of the award rendered by the arbitrators, and agree that judgment
upon such award may be entered in any court, in or out of the State of
Maryland, having jurisdiction thereof. The fees of the AAA shall be borne by
the parties equally.
7.7 Specific Performance. Subject to Section 7.6 above, the parties
hereto hereby expressly recognize and acknowledge that extensive and
irreparable damage would result in the event that this Agreement is not
specifically enforced. Therefore, their respective rights and obligations
hereunder shall be enforceable in a court of equity by a decree of specific
performance and appropriate injunctive relief may be applied for and granted
in connection therewith. Such remedies and any and all other remedies
provided for in this Agreement shall, however, be cumulative and not exclusive
and shall be in addition to any other remedies which any party may have under
this Agreement or otherwise.
7.8 Severability. If any term or condition of this Agreement should
be held invalid by a court, arbitrator or tribunal of competent jurisdiction
in any respect, such invalidity shall not affect the validity of any other
term or condition hereof. If any term or condition of this Agreement should
be held to be unreasonable as to time, scope or otherwise by such a court,
arbitrator or tribunal, it shall be construed by limiting or reducing it to
the minimum extent so as to be enforceable under then applicable law. The
parties hereto acknowledge that they would have executed this Agreement with
any such invalid term or condition excluded or with any such unreasonable term
or condition so limited or reduced.
7.9 Binding Effect. This Agreement shall be binding upon, and inure
to the benefit of, the heirs, personal representatives, legal successors and
assigns of the respective parties hereto; provided that, neither party shall
assign this Agreement (by merges, consolidation, operation of law or
otherwise) without the written consent of the others and any attempted
assignment without said consent shall be null, void and without any effect
whatsoever ab initio. Nothing in this Agreement shall be construed as
granting to any person or entity whatsoever other than the parties hereto, and
their respective successors and permitted assigns, and any remedy, claim or
other privilege or right under or in respect of this Agreement or any
provision hereof.
7.10 Construction. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement
<PAGE>
or any amendments or exhibits hereto.
WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.
/s/Christopher Corbett
---------------------
Christopher Corbett
IT PARTNERS, INC
By:/s/ Daniel J. Klein
--------------------
Daniel J. Klein
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of May 30, 1997, between IT PARTNERS, INC. , a
Delaware corporation ("ITPI") and DANIEL J. KLEIN ("Klein").
WHEREAS, ITPI desires to employ Klein and Klein desires to accept such
employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of ITPI's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of ITPI, having been acquired through ITPI's
efforts and the expenditure of considerable time and money, are among the
principal assets of ITPI; and
WHEREAS, the parties hereby acknowledge that as a result of the
position(s) in which Klein will be employed, Klein will develop special skills
and knowledge peculiar to ITPI's business, whereby he will become, through his
employment with ITPI, acquainted with the identities of the clients and
customers of ITPI, and will acquire access to the techniques of ITPI in
carrying on its business as well as other confidential and proprietary
information; and
WHEREAS, the parties hereto acknowledge that the Covenants set forth in
Section 8 of this Agreement are necessary for the reasonable and proper
protection of ITPI's confidential and proprietary information (as defined
herein), customer relationships, and the goodwill of ITPI's business, and that
such Covenants constitute a material portion of the consideration for Klein's
employment hereunder.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. Term. ITPI agrees to employ Klein, and Klein agrees to be
employed, as Chief Executive Officer and/or Chairman as determined by ITPI's
Board of Directors (the "Board") from time to time for an initial term of five
(5) years commencing June 1, 1997 and ending May 30, 2002 (the "Initial
Term"), unless such employment is sooner terminated as provided herein. In
such capacity, Klein shall perform such duties and have such responsibilities
as are incident and customary to such offices, and shall have such powers and
perform such other duties and responsibilities as may be assigned to him by
the Board. During term hereof, Klein shall devote his full time, attention,
skill and energy to the performance of his duties under this Agreement, and he
shall comply with all reasonable professional requests of the Company.
2. Compensation.
2.1 Base Salary. In consideration of Klein's services
<PAGE>
hereunder, ITPI shall, beginning with the pay period commencing 6/1/1997, pay
Klein a minimum base salary of One Hundred Twenty Thousand and 00/100 Dollars
($120,000) per annum, payable in equal monthly installments in accordance with
ITPI's normal payroll practices. Such base salary will be reviewed annually,
and may be increased (but not decreased) by ITPI's Board, or its Executive
Committee in its sole discretion.
2.2. Bonus Compensation. In addition, Klein shall be eligible
for an annual performance bonus of up to one hundred percent (100%) of Klein's
base salary, based upon the achievement of certain defined annual performance
goals consistent with the Company's 5-year operating plan established by the
Board (including, without limitation, "threshold" goals, "plan" goals and
"override" goals), in consultation with ITPI management, during the term
hereof.
a. Achievement by the Company of its "threshold"
performance goal for a given year shall make Klein eligible to receive a bonus
payment equal to twenty percent (20%) of his annual base salary.
b. Achievement by the Company of its "plan" performance
goal for a given year shall make Klein eligible to receive a bonus payment
equal to sixty percent (60%) of his annual base salary.
c. Achievement by the Company of its "override"
performance goal for a given year shall make Klein eligible to receive a bonus
payment equal to one hundred percent (100%) of his annual base salary.
d. ITPI may, in its sole discretion, pay a bonus to Klein
over and above any bonuses determined and paid to Klein in accordance with
this Section.
3. Fringe Benefits.
3.1. During the term of this Agreement, Klein shall be entitled
to participate in any and all fringe benefit plans, programs and practices
which shall from time to time be sponsored by ITPI for the benefit of its
executive employees, and shall be furnished with other services and
perquisites appropriate to his position.
3.2. Without limiting the generality of the foregoing, Klein
shall be entitled to the following benefits (regardless of whether such
benefits are provided to other executives):
a. Comprehensive medical insurance for Klein, his spouse,
and his dependent children with no deductibles or co-insurance.
b. Dental and vision insurance for Klein, his spouse, and
his dependent children with no deductibles or co-nsurance.
c. Group term life insurance with death benefits of not
less than $1,000,000.00.
<PAGE>
d. Long-term disability insurance paying disability
benefits of at least 70% of Klein's salary upon the termination of Klein's
employment by reason of disability.
e. Accidental death and dismemberment insurance benefits
of not less than $1,000,000.00.
f. Annual physical examinations.
g. Financial planning services with a value of up to
$2,500.00 per year during the term hereof.
4. Vacation and Sick Leave. Klein shall be entitled to a total of
four (4) weeks of vacation each year during the term hereof. Unused vacation
shall not accumulate from year to year. Klein may take his vacation at such
time or times as shall not unreasonably interfere with the performance of his
duties under this Agreement. Klein shall be entitled to paid sick leave and
holidays in accordance with ITPI's announced policy for executive employees as
in effect from time to time.
5. Reimbursement of Expenses. Klein is authorized to incur
reasonable expenses in connection with the business of ITPI including expenses
for travel and similar items. ITPI will reimburse Klein for all previously
approved reasonable expenses upon itemized account of expenditures.
6. Illness or Disability. Klein shall receive full compensation for
any period of illness or disability during the term of this Agreement until
such time as he receives benefits under the long term disability insurance
coverage referred to in Section 4, supra; provided, however, that such interim
period of compensation for illness or disability shall not exceed six (6)
months. Notwithstanding the foregoing, ITPI shall have the right to terminate
this Agreement without further obligation to Klein if such illness or
disability shall be of such a character as totally to disable Klein from
rendering any services to ITPI for a period of more than six (6) consecutive
months on giving at least thirty (30) days' written notice of intention to do
so.
7. Termination of Employment. Klein's employment hereunder is
employment at will, and either ITPI or Klein may terminate this Agreement and
Klein's employment at any time, with or without cause. If ITPI terminates the
Agreement other than (i) for Cause (defined below) or (ii) due to Klein's
Disability as described in Section 6 hereof, Klein shall be entitled to
receive, as his exclusive remedy for such termination, the payment of his
then-current base salary for the remainder of the Term hereof (the "Severance
Benefit"). Such Severance Benefit shall be payable to Klein in equal monthly
installments consistent with ITPI's standard payroll practices, the first of
such installments to be due within thirty (30) days after a qualifying
termination hereof. For purposes of this Agreement, "Cause" shall mean drug
or alcohol abuse, conviction of a felony or crime involving moral turpitude, a
material breach of this Agreement, or any willful or grossly negligent act or
omission by Klein having a material adverse effect on the business of ITPI.
<PAGE>
8. Restrictive Covenants.
a. Noncompetition. Klein agrees that during his employment,
and for a period of two (2) years after the later of termination of this
Agreement and termination of his employment with ITPI (the "Protected
Period"), he will not: (a) engage in, manage, operate, control or supervise,
or participate in the management, operation, control or supervision of, any
business or entity that provides computer programming or consulting services,
or any other products or services competitive with those currently provided by
ITPI or those ITPI is providing as of the date of termination of Klein's
employment with ITPI ("Competitive Activity"); or (b) have any ownership or
financial interest, directly or indirectly, in any entity that engages in
Competitive Activity, including, without limitation, as an individual,
partner, shareholder (other than as a shareholder of a publicly owned
corporation in which Klein owns less than 2% of the outstanding shares of such
corporation), officer, director, employee, member, associate, principal,
agent, representative or consultant, and shall not in any other manner,
directly or indirectly, compete to any extent with such business of ITPI.
Notwithstanding the foregoing, if the Agreement is terminated by ITPI and such
termination is without Cause, as defined herein, Klein shall be bound by the
terms of this subsection 8a only for the shorter of (i) two (2) years
following such termination or (ii) the period of time following such
termination during which ITPI, at ITPI's sole discretion, continues to pay
Klein's then-current base salary.
b. Nonsolicitation. During Klein's employment with ITPI, and
during the Protected Period, Klein agrees not to solicit or conduct business,
without ITPI's consent, with any client or customer of ITPI (past or present),
whether or not ITPI is doing work for such client or customer as of the date
of termination of Klein's employment with ITPI, as well as any prospective
client or customer of ITPI, or to contact, solicit, interfere with or attempt
to entice in any form, fashion or manner any employee of ITPI for the purpose
of inducing that employee to terminate his/her employment with ITPI or act in
any way that would be contrary to the best interests of ITPI.
c. Nondisclosure. During and after Klein's employment with
ITPI, Klein agrees not to disclose, or to knowingly allow any other employee
to disclose, to any other person or business entity, or use for personal
profit or gain, any confidential or proprietary information of ITPI,
regardless of whether the same shall be or may have been originated,
discovered or invented by Klein or by Klein in conjunction with others. For
purposes of this Agreement, the term "confidential or proprietary information"
shall include, without limitation: the names, addresses and telephone numbers
of past, present and prospective clients or customers of ITPI, as well as
products, designs, business plans, proposed business development, marketing
strategies, customers requirements, contractual provisions, employee
capabilities, proposed marketing initiatives, pricing methods, company
earning, computer software and reporting systems, and the procedures, systems
and business methods of ITPI.
d. Geographic Scope of Restrictive Covenants. The geographic
area in which Klein shall not engage in any of the prohibited activities
<PAGE>
listed in subsections 8a and 8b hereof shall be limited to the continental
United States.
9. Remedies for Breach. Klein hereby acknowledges and agrees that a
violation of any of the covenants set forth in Section 8 hereof (the
"Covenants") would result in immediate and irreparable harm to ITPI, and that
ITPI's remedies at law, including, without limitation, the award of money
damages, would be inadequate relief to ITPI for any such violation.
Therefore, any violation or threatened violation by Klein of the Covenants
shall give ITPI the right to enforce such Covenants through specific
performance, temporary restraining order, preliminary or permanent injunction,
and other equitable relief. Such remedies shall be cumulative and in addition
to any other remedies ITPI may have, at law or in equity.
10. Notice of Subsequent Employment; Etc. Klein agrees that he
shall, during the two (2) year period following the termination of his
employment with ITPI, give written notice to ITPI of the names and addresses
of each person, firm, corporation or other entity by whom he is employed or
for whom he acts as director, agent, representative, member, associate or
consultant. Klein further agrees that if at any time during such two (2) year
period he conducts business on his own account, or through a proprietary
interest in any business, firm, partnership or other entity, or as contractor,
or owns any stock in a corporation, Klein shall give written notice to ITPI of
the name, address and nature of any such business.
11. Return of ITPI Property; Assignment of Inventions.
a. Return of Property. Upon the termination of Klein's
employment with ITPI for any reason, Klein shall leave with or return to ITPI
all personal property belonging to ITPI ("ITPI Property") that is in Klein's
possession or control as of the date of such termination of employment,
including, without limitation, all records, papers, drawings, notebooks,
specifications, marketing materials, software, reports, proposals, equipment,
or any other device, document or possession, however obtained, whether or not
such ITPI Property contains confidential or proprietary information of ITPI as
described in Section 8c hereof.
b. Assignment of Inventions. If at any time or times during
Klein's employment, Klein shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable
or registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that (a) relates to the business of
ITPI or any of the products or services being developed, manufactured or sold
by ITPI or that may be used in relation therewith, (b) results from tasks
assigned him by ITPI or (c) results from the use of premises or personal
property (whether tangible or intangible) owned, leased or contracted for by
ITPI, such Developments and the benefits thereof shall immediately become the
sole and absolute property of ITPI and its assigns, and Klein shall promptly
disclose to ITPI (or any persons designated by it) each such Development and
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hereby assigns any rights Klein may have or acquire in the Developments and
benefits and/or rights resulting therefrom to ITPI and its assigns without
further compensation and shall communicate, without cost or delay, and without
publishing the same, all available information relating thereto (with all
necessary plans and models) to ITPI.
Upon disclosure of each Development to ITPI, Klein will, during his
employment and at any time thereafter, at the request and expense of ITPI,
sign, execute, make and do all such deeds, documents, acts and things as ITPI
and its duly authorized agents may reasonably require:
(i) to apply for, obtain and vest in the name of ITPI
alone (unless ITPT otherwise directs) letters patent,
copyrights or other analogous protection in any
country throughout the world and when so obtained or
vested to renew and restore the same; and
(ii) to defend any opposition proceedings in respect of
such applications and any opposition proceedings or
petitions or applications for revocation of such
letters patent, copyright or other analogous
protection.
In the event ITPI is unable, after reasonable effort, to secure
Klein's signature on any letters patent, copyright or other analogous
protection relating to a Development, whether because of Klein's physical or
mental incapacity or for any other reason, Klein hereby irrevocably designates
and appoints ITPI and its duly authorized officers and agents as Klein's
agents and attorneys-in-fact, to act for and in behalf of Klein and stead to
execute and file any such application or applications and to do all other
lawfully permitted acts to further the prosecution and issuance of letters
patent, copyright or other analogous protection thereon with the same legal
force and effect as if executed by Klein.
12. Survival. The provisions of Sections 8, 9, 10 and 11 hereof
shall survive the termination of this Agreement, regardless of the manner or
cause of such termination.
13. Effect of Agreement. This Agreement sets forth the final and
complete Agreement of the parties. It shall not be assigned by Klein and may
not be modified except by way of a writing executed by both parties. All the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their successors and
assigns.
14. Governing Law. The provisions of this Agreement and any
disputes arising hereunder shall be governed by and construed in accordance
with the laws of the State of Delaware.
[The next page is the Signature Page.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their seals affixed hereto as of the day and year first
above written.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein (SEAL)
---------------------
Name: Daniel J. Klein
Title: President
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of January 8, 1998
by and between John D. Bamberger, residing at 2712 Murfield Court, Rochester
Hills, Michigan 48306 (the "Executive") and Sequoia Diversified Products, Inc.
(f/k/a ITP No. 10, Inc., a Delaware corporation, having its principal office
at 107 South Squirrel Road, Auburn Hills, Michigan 48326 (the "Company").
RECITALS:
A. Pursuant to an Agreement and Plan of Organization (the "Merger
Agreement") made as of January 8, 1998, by and among (i) the Company, (ii) IT
Partners, Inc., a Delaware corporation and sole stockholder of the Company
("ITP"), (iii) Sequoia Diversified Products, Inc., a Michigan corporation
("Target"), and (iv) the stockholders of Target named therein;
B. ITP and the Company are utilizing the assets acquired by
operation of the Merger (as defined in the "Merger Agreement") to conduct a
business (the "Business") which is engaged in the design, manufacture and sale
of products and services to the information technology industry and such
Business will continue hereafter to be operated and conducted by the Company;
and
C. ITP and the Company desire to assure themselves of the
Executive's services with respect to the operation of the Business.
NOW, THEREFORE, in exchange for good and valuable consideration, both the
receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Employment, Duties and Acceptance
1.1 The Company hereby employs the Executive during the Term (as
hereinafter defined) of this Agreement as the Vice Chairman, Chief Executive
Officer and Treasurer of Target. The Executive shall report directly to the
President of ITP and shall be subject to the reasonable direction, policies,
plans, oversight and review of the Board of Directors of ITP.
1.2 The Company may assign to the Executive such other executive and
administrative duties for the Company or ITP as may be determined by the Board
of Directors of the Company consistent with the Executive's expertise,
experience and prior duties with Target. The Executive shall perform such
additional duties and functions without separate compensation, unless
otherwise authorized by the Board of Directors.
1.3 The Executive accepts such employment and agrees to devote his
full and exclusive business time, energies, attention and best efforts to the
performance of his duties hereunder, which may include such travel as may
reasonably be required of him.
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1.4 The Executive shall not, without the prior written consent of
the Company, during the Term of this Agreement be engaged in any other
business activity involving a Competitive Business (as defined in Section 6),
whether or not pursued for gain, profit or other pecuniary advantage; but this
shall not be construed as preventing the Executive from making and supervising
personal investments, provided they:
(a) will not cause a breach of Section 4.4, below; and
(b) will not materially interfere with the performance of the
Executive's duties hereunder.
1.5 All of the Executive's work product and work in process created
during the Term of this Agreement shall be considered "work made for hire"
under the U.S. Copyright Act, 17 U.S.C. section 101 et seq. and all
intellectual property rights therein shall be the sole and exclusive property
of the Company. In addition, in the event that any work product or work in
process created during the Term of the Agreement is not considered to be a
work made for hire, the Executive hereby agrees, at the Company's expense, to
assign all proprietary rights in such work product or work in process to the
Company.
2. Compensation; Benefits; Relocation
2.1 Base Salary. As partial compensation during the Term of this
Agreement for all of the Executive's services to be rendered hereunder,
Company agrees to pay, or cause to be paid, to the Executive, in the manner
hereinafter provided, an amount comprised of base compensation equal to Two
Hundred Thousand Dollars ($200,000.00) per annum (the "Base Salary"), to be
paid in biweekly installments, less all such sums as may be required by law to
be withheld or deducted. Such Base Salary shall be subject to normal periodic
review based on the policies and practices of the Company, provided that in no
event shall the Base Salary be less than the dollar amount set forth in the
preceding sentence, unless mutually agreed upon by the parties.
2.2 Business Expenses. The Executive will be reimbursed for
automobile, travel, entertainment, lodging and other related reasonable
business expenses actually incurred in connection with his work upon terms and
conditions established by ITP from time to time and consistently applied for
all of the senior executive officers of its operating subsidiaries.
2.3 Vacation; Sick Leave. The Executive shall be entitled to
periods of vacation not less than three (3) weeks annually and sick leave
during the Term of this Agreement upon terms and conditions established by ITP
from time to time and consistently applied for all of the senior executive
officers of its operating subsidiaries.
2.4 Other Benefits. The Executive shall receive hospitalization,
major medical, disability and pension plan benefits upon terms and conditions
established by ITP from time to time and consistently applied for all of the
senior executive officers of its operating subsidiaries; it being understood
that there is no assurance with respect to the establishment of such plans or,
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if established, the continuation of such plans during the term of this
Agreement.
2.5 Insurance. The Company may, in the exercise of its sole and
absolute discretion, obtain a policy or policies of insurance covering the
life of the Executive. The Executive covenants that he will cooperate fully
by performing all requirements of the insurer which are reasonably necessary
to the issuance and maintenance of any such policies, including but not
limited to submitting to a physical examination and providing historical
medical records. The Company further agrees that it will pay all premiums of
any such policy or policies.
2.6. Relocation. The Executive shall not be required to relocate
without his consent.
3. Term and Termination.
3.1 Term and Renewal. The initial term of this Agreement shall be
four (4) years, commencing as of January 8, 1998 and continuing through
January 7, 2002 (the "Initial Expiration Date"), unless sooner terminated as
herein provided (the "Initial Term"). The Initial Term shall renew
automatically for subsequent terms of one (1) year each (each a "Renewal
Term"), unless at least sixty (60) days before the Initial Expiration Date, or
at least sixty (60) days in advance of the expiration of any subsequent
Renewal Term (as the case may be), either party gives the other party notice
in writing of its intent not to renew this Agreement. As used in this
Agreement, the term "Term" shall mean either the Initial Term or any Renewal
Term, as the case may be.
3.2 Termination Upon Death. If the Executive dies during the Term
of this Agreement, this Agreement shall immediately terminate, except that the
Company shall for a period of one hundred eighty (180) days following the date
of his death pay to the legal representatives of the Executive's estate the
Base Salary, as then in effect. Such payment will be made within thirty (30)
days of the date of death.
3.3 Termination for Proper Cause.
(a) The Company, by written notice to the Executive, may
terminate this Agreement for proper cause and the
continuance thereof for ten (10) business days' after
written notice. As used herein, "proper cause" shall
exclusively mean that the Executive has:
(i) refused or willfully failed to carry out specific
directions of the Board of Directors of the Company
which are not in conflict with the terms of this
Agreement, or willfully refused or willfully failed
to perform a material part of his duties hereunder;
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(ii) committed a material breach of any of the
provisions of Article 4 of this Agreement;
(iii) acted in a fraudulent or dishonest manner in his
relations with the Company that has served to
adversely and materially harm the Company;
(iv) committed larceny, embezzlement, conversion or any
act involving the misappropriation of funds in the
course of his employment; or
(v) been convicted of any crime involving an act of
moral turpitude.
The determination as to whether proper cause (as defined
above) exists shall be made in the good faith opinion of
ITP's Board of Directors by the affirmative vote of two-
thirds (2/3) of all of the directors (but not including the
Executive if the Executive is a director). In the event of
a termination under subparagraph (a) above, all Base Salary
and other benefits under the terms of this Agreement to be
paid or provided to the Executive shall immediately cease,
provided that the Executive shall be entitled to receive all
such compensation and benefits through the effective date of
such termination.
(b) In the event the Company terminates this Agreement by
dismissing the Executive without proper cause, the Company
shall pay the Executive his Base Salary (equal to the amount
paid for the full fiscal year immediately preceding such
termination or, if such termination occurs during the first
full fiscal year, his first year's Base Salary) and continue
to provide to him the benefits as set forth herein for the
balance of the entire applicable Initial Term or Renewal
Term, as the case may be.
3.4 Termination by Executive for Good Reason. In the event the
Executive terminates this Agreement for "good reason," the Company shall pay
the Executive his Base Salary and provide to him the benefits as set forth
herein for the balance of the entire applicable Initial Term or Renewal Term,
as the case may be. For purposes of this section, the Executive shall have
"good reason" to voluntarily terminate his employment if (i) the Company shall
have materially and substantially reduced the job description of such
Executive or assigned to the Executive significant duties which are materially
inconsistent with the Executive expertise, experience and prior duties with
the Target, as the case may be or (ii) ITP has not completed an initial public
offering of its capital stock under the Securities Act of 1933, as amended,
pursuant to a registration statement filed with, and declared effective by,
the Securities and Exchange Commission by June 30, 2000.
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<PAGE>
3.5 Termination Due to Disability
(a) The Company, by notice to the Executive, may upon thirty
(30) days prior written notice, terminate this Agreement if
the Executive shall become disabled. Notwithstanding such
termination, the Company shall for a period of one hundred
eight days (180) days following the date of such termination
both pay to the Executive all monies due hereunder up to the
date of such notice, including Base Salary and additionally
provide the benefits as set forth herein.
(b) For purposes of this Agreement, the terms "disabled" or
"disability" (i) shall mean the Executive's inability, for a
period of one hundred eighty (180) consecutive days, to
devote his full time to those duties as an employee of the
Company which he was performing prior to his disability, and
(ii) shall be deemed to have occurred on the one hundred
eighty-first (181st) day of his inability to devote his full
time to his duties as an employee of the Company. If by the
one hundred eightieth (180th) consecutive day of absence the
Executive can provide evidence, in the form of a doctor's
certificate, of the likelihood of his return to work within
the next one hundred eighty (180) days, "disability" shall
be deemed to have occurred on the three hundred sixty-first
(361st) day of absence. The definition of "disabled" or
"disability" may be altered by the affirmative vote of two-
thirds (2/3) of the Board of Directors of ITP on a case-by-
case basis, for example, to exclude disability which lasts
for longer than one hundred eighty (180) consecutive days
but is not permanent, or to include disability where each
absence does not total one hundred eighty (180) consecutive
days but involves absences frequent enough to be considered
permanent by the Board of Directors.
4. Protection of Confidential Information; Non-Competition.
4.1 The Executive acknowledges that:
(a) The established nature of the Business was material to the
decision of ITP to acquire and conduct the Business and for
the Company to employ the Executive hereunder.
(b) As a result of his employment by the Company and his
operation of the Business, the Executive has obtained and
will obtain certain proprietary, secret and confidential
information concerning the business of the Company and ITP,
including, without limitation, financial and organizational
information, the identity of customers and sources of
supply, their needs and requirements, the nature and extent
of contracts with them, and related cost price and sales
information.<PAGE>
<PAGE>
(c) The Company and ITP will suffer immediate, irreparable and
substantial damage which will be difficult to compute if,
during the period of his employment with the Company or
thereafter, the Executive should enter a competitive
business with any material segment of the Company's and
ITP's business (whether as an employee, shareholder,
director, officer or otherwise) or should divulge secret
and confidential information relating to the business of
the Company and ITP heretofore or hereafter acquired by him
in the course of his management of the Business and his
employment by the Company.
(d) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company
and ITP.
4.2 The Executive agrees that he will not at any time, either during
the Term of this Agreement or thereafter, divulge to any person, firm or
corporation any confidential information obtained or learned by him during the
course of his employment with the Company, or prior to the commencement
thereof in the course of his employment by and management of the Business,
with regard to the operational, financial, organizational, business or other
affairs of the Business of ITP, the Company, any of their subsidiaries, or any
of their officers and directors, including, without limitation, trade "know
how," secrets, customer lists, sources of supply, pricing policies,
operational methods or technical processes, except: (i) in the course of
faithfully performing his duties hereunder, (ii) with the Company's express
written consent, (iii) to the extent that any such information is in the
public domain other than as a result of the Executive's breach of any of his
obligations hereunder, or (iv) where required to be disclosed by court order,
subpoena or other governmental process. In the event that the Executive shall
be required to make disclosure pursuant to the provisions of clause (iv) of
the preceding sentence, the Executive promptly but in no event more than
forty-eight (48) hours after learning of such subpoena, court order, or other
governmental process, shall notify, by personal delivery or by facsimile,
confirmed by mail or by certified mail, return receipt requested, the Company
and, at the Company's expense, the Executive shall:
(a) take all reasonably necessary steps requested by the
Company to defend against the enforcement of such subpoena,
court order or other governmental process, and
(b) permit the Company to intervene and participate with counsel
of its choice in any proceeding or actions relating to the
enforcement thereof.
4.3 Upon termination of his employment with the Company, or at any
time the Company's Board of Directors may reasonably request, the Executive
will promptly deliver to the Company all memoranda, notes, records, reports,
manuals, drawings, blueprints and other documents (and all copies thereof)
relating to the business of the Company and ITP and all property associated
therewith, which he may then possess or have under his control.<PAGE>
<PAGE>
4.4 During the Term of his employment with the Company and for a
period of one (1) year thereafter, except in the event of a termination
without proper cause prior to the end of the Initial Expiration Date, the
Executive shall not, without the express prior written permission of the
Company, in the State of Michigan, or any adjacent state, directly or
indirectly: (i) enter into the employ of or render any significant and
material services to any person, firm or corporation engaged in any
Competitive Business (as defined in Section 6); (ii) engage in any Competitive
Business for his own account; (iii) become associated with or interested in
any Competitive Business as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity; or (iv) solicit, interfere with, or
endeavor to entice away from the Company any of its employees, customers or
sources of supply. Nothing in this Agreement, however, shall preclude the
Executive from investing his personal assets in the securities of any
corporation or other business entity which is engaged in a Competitive
Business if such securities are traded on a national stock exchange or in
over-the-counter market and if such investment does not result in his actually
and/or beneficially owning, at any time, more than five percent (5%) of the
publicly traded equity securities of such competitor. Notwithstanding any
other provision of this Agreement, in the event of a termination occurring
prior to the end of the Initial Term either by the Company without proper
cause or a voluntary termination by the Executive for good reason or in the
event the Notes (as defined in the Merger Agreement) are not paid in
accordance with the terms thereof, the Executive shall be free from the
restrictions set forth in this Section 4.4.
4.5 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Article 4, the Company shall have the
right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being
acknowledged and agreed by the Executive that the services
being rendered hereunder to the Company are of a special,
unique and extraordinary character and that any such breach
or threatened breach will cause irreparable injury to the
Company and that money damages alone will not provide an
adequate remedy to the Company; and
(b) to require the Executive to account for and pay over to the
Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits")
derived or received by the Executive as the result of any
transactions constituting a breach of any of the provisions
of Article 4, and the Executive hereby agrees to account for
and pay over such Benefits to the Company. Each of the
rights and remedies enumerated in this Section 4.5 shall be
independent of the other, and shall be severally
enforceable, and such rights and remedies shall be in
addition to, and not in lieu of, any other rights and<PAGE>
<PAGE>
remedies available to the Company under law or equity.
4.6 If the Executive shall violate any covenant contained in Article
4, the duration of such covenant so violated shall be automatically extended
for a period of two (2) years from the date on which the Executive permanently
ceases such violation or for a period of two (2) years from the date of the
entry by a court of competent jurisdiction of a final order or judgment
enforcing such covenant, whichever period is later.
4.7 If any provision of Article 4 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal
making such determination shall have the power to modify such scope, duration,
or area, or all of them to the minimum extent necessary so that these
provisions would be enforceable, and such provision or provisions shall then
be applicable in such modified form.
4.8 The Executive acknowledges that he will be directly and
materially involved as a senior executive in many important policy and
operational decisions of the Company and ITP. The Executive further
acknowledges that the scope of the foregoing restrictions has been
specifically bargained between the Company and the Executive, each being fully
informed of all relevant facts. Accordingly, the Executive acknowledges that
the foregoing restrictions of this Section 4 are fair and reasonable, are
minimally necessary to protect the Company and ITP, its stockholders and the
public from the unfair competition of the Executive who, as a result of his
employment with the Company, will have had access to the confidential and
important information of the Company and ITP, its business and future plans.
The Executive furthermore acknowledges that no unreasonable harm or injury
will be suffered by him from enforcement of the covenants contained herein and
that he will be able to earn a reasonable livelihood following termination of
his employment notwithstanding enforcement of the covenants contained herein.
4.9 Both the Company and the Executive do hereby further acknowledge
and agree that none of the time span, scope or area covered by the restrictive
covenants above is or are unreasonable, and that it is the specific intent of
both the Company and the Executive that each and all of the provisions set
forth in this section shall be valid and enforceable as specifically set forth
hereinabove to the fullest extent possible. If it shall be judicially
determined that any of the provisions set forth in this section shall not be
valid or enforceable as specifically set forth hereinabove, such provision
shall not be declared invalid but rather shall be modified in such manner so
as to result in the same being valid and enforceable to the maximum extent
permitted by law. It is further agreed and understood that, because of the
highly confidential and sensitive nature of the Company's and ITP's business,
in the event of any violation by the Executive of any of the preceding
provisions of this section, the Company may, in addition to any other remedies
which it may have, obtain injunctive relief in any court of appropriate
jurisdiction to enforce the terms hereof.
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5. Laws of the State of Maryland to Govern.
(a) This Agreement shall be governed by and construed and interpreted
exclusively in accordance with the applicable laws of the State of Maryland,
without regard to its conflicts of law provisions that might refer the
construction or interpretation of this Agreement to the laws of another state.
(b) If any legal action is necessary to enforce the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys'
fees in addition to any other relief to which that party may be entitled.
(c) Each of the parties hereto hereby submit to the jurisdiction of
the courts of the State of Michigan in any proceeding for the enforcement of
this Agreement.
6. Definitions. As used in this Agreement, the term "Competitive
Business" shall mean either: (A) any of the development, production,
marketing or distribution of products and services of the information
technology industry engaged in, or to the knowledge of the Executive,
contemplated by, the Company or ITP during the Term of the Executive's
employment; or (B) any other product or service (including software-related
products or services) of every nature, kind and description whatsoever which
was under active development, production, marketing or distribution by the
Company, ITP, or any of their subsidiaries at any time prior to or during the
Term of the Executive's employment.
7. Miscellaneous Provisions.
7.1 Notices. Any notice, request, instruction or other document or
communication required or permitted to be given under this Agreement shall be
in writing and shall be deemed to be given upon (i) delivery in person, (ii)
five (5) days after being deposited in the mail, postage prepaid, for mailing
by certified or registered mail, (iii) one (1) day after being deposited with
an overnight courier service, charges prepaid, or (iv) when transmitted by
facsimile, with a copy simultaneously sent as provided in clauses (ii) and
(iii), in every case as follows:
If to the Company, delivered or mailed to:
c/o Sequoia Diversified Products, Inc.
9881 Broken Land Parkway
Suite 102
Columbia, Maryland 21046
Attn: Daniel J. Klein, Chairman of the Board
with a copy delivered or mailed by the same method to:
Earl S. Wellschlager, Esquire
Piper & Marbury, L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
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If to the Executive, delivered or mailed to:
John D. Bamberger
2712 Murfield Court
Rochester Hills, Michigan 48306
with a copy delivered or mailed by the same method to:
J. Michael Bernard, Esquire
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243-1668
7.2 Entire Agreement. This Agreement sets forth the entire agreement
of the parties with regard to the specific subject matter hereof and is
intended to supersede all prior negotiations, understandings and agreements.
No provisions of this Agreement may be waived or changed except by a writing
signed by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof shall in no manner affect his or its right at a later time to enforce
such provision.
7.3 Article Headings. The article headings are inserted only as a
matter of convenience and for reference and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
7.4 Confidential Nature. The parties acknowledge that all of the
terms and conditions of this Agreement are of a confidential and sensitive
nature and shall be disclosed or divulged to any third party whatsoever only
to the extent required by any applicable requirement of law.
7.5 Further Assurances. The parties hereto hereby agree to do such
further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments from time to time, as
either may at any time reasonably request in order to better assure and
confirm unto each party their respective rights, powers and remedies conferred
hereunder.
7.6 Arbitration. Except with respect to Article 4 hereof for which
specific performance shall be available, any and all claims, demands,
disputes, controversies, differences or misunderstandings arising out of or
relating to this Agreement, or the failure or refusal to perform the whole or
any part hereof, shall be settled by arbitration conducted in Detroit,
Michigan by the American Arbitration Association (the "AAA") in accordance
with the rules thereof then pertaining. With respect to the determination of
"proper cause" by the Board of Directors of ITP under Section 3.3 hereof, the
sole role of the arbitrators will be to determine whether the Board of
Directors of ITP acted in good faith. Each of the parties hereto hereby
submit to the jurisdiction of the courts of the State of Michigan in any
proceeding for the enforcement of this Agreement to arbitrate and for the
enforcement of the award rendered by the arbitrators, and agree that judgment
upon such award may be entered in any court, in or out of the State of<PAGE>
<PAGE>
Michigan, having jurisdiction thereof. The fees of the AAA shall be borne by
the parties equally.
7.7 Specific Performance. Subject to Section 7.6 above, the parties
hereto hereby expressly recognize and acknowledge that extensive and
irreparable damage would result in the event that this Agreement is not
specifically enforced. Therefore, their respective rights and obligations
hereunder shall be enforceable in a court of equity by a decree of specific
performance and appropriate injunctive relief may be applied for and granted
in connection therewith. Such remedies and any and all other remedies
provided for in this Agreement shall, however, be cumulative and not exclusive
and shall be in addition to any other remedies which any party may have under
this Agreement or otherwise.
7.8 Severability. If any term or condition of this Agreement should
be held invalid by a court, arbitrator or tribunal of competent jurisdiction
in any respect, such invalidity shall not affect the validity of any other
term or condition hereof. If any term or condition of this Agreement should
be held to be unreasonable as to time, scope or otherwise by such a court,
arbitrator or tribunal, it shall be construed by limiting or reducing it to
the minimum extent so as to be enforceable under then applicable law. The
parties hereto acknowledge that they would have executed this Agreement with
any such invalid term or condition excluded or with any such unreasonable term
or condition so limited or reduced.
7.9 Binding Effect. This Agreement shall be binding upon, and inure
to the benefit of, the heirs, personal representatives, legal successors and
assigns of the respective parties hereto; provided that, neither party shall
assign this Agreement (by merger, consolidation, operation of law or
otherwise) without the written consent of the others and any attempted
assignment without said consent shall be null, void and without any effect
whatsoever ab initio. Nothing in this Agreement shall be construed as
granting to any person or entity whatsoever other than the parties hereto, and
their respective successors and permitted assigns, and any remedy, claim or
other privilege or right under or in respect of this Agreement or any
provision hereof.
7.10 Construction. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement
or any amendments or exhibits hereto.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.
WITNESS: EXECUTIVE:
/s/ John D. Bamberger (SEAL)
----------------------------
John D. Bamberger
ATTEST: COMPANY:
/s/ Jamie E. Blech By: /s/ Daniel J. Klein (SEAL)
-----------------------------
Name:
Title:
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of September 16, 1997, between IT PARTNERS,
INC., a Delaware corporation ("ITPI") and Christine E. Norcross ("Norcross").
WHEREAS, ITPI desires to employ Norcross and Norcross desires to accept
such employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of ITPI's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of ITPI, having been acquired through ITPI's
efforts and the expenditure of considerable time and money, are among the
principal assets of ITPI; and
WHEREAS, the parties hereby acknowledge that as a result of the
position(s) in which Norcross will be employed, Norcross will develop special
skills and knowledge peculiar to ITPI's business, whereby she will become,
through her employment with ITPI, acquainted with the identities of the
clients and customers of ITPI, and will acquire access to the techniques of
ITPI in carrying on its business, as well as other confidential and
proprietary information; and
WHEREAS, the parties hereto acknowledge that the Covenants set forth in
Section 10 of this Agreement are necessary for the reasonable and proper
protection of ITPI's confidential and proprietary information (as defined
herein), customer relationships, and the goodwill of ITPI's business, and that
such Covenants constitute a material portion of the consideration for
Norcross's employment hereunder,
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. Term. ITPI agrees to employ Norcross, and Norcross agrees to
be employed, as Chief Operating Officer for an initial term of three (3) years
commencing October 13, 1997 and ending October 12, 2000 (the "Initial Term"),
unless such employment is sooner terminated as provided herein. After the
Initial Term, thin Agreement shall renew automatically for successive one (1)
year terms. In such capacity, Norcross shall perform such duties and have
such responsibilities as are incident and customary to such offices, and shall
have such powers and perform such other duties and responsibilities as may be
assigned to her by the Board of Directors (the "Board"). During term hereof,
Norcross shall devote her full time, attention, skill and energy to the
performance of her duties under this Agreement, and she shall comply with all
reasonable professional requests of the Company.
<PAGE>
<PAGE>
2. Compensation.
2.1. Base Salary. In consideration of Norcross's services
hereunder, ITPI shall, beginning with the pay period commencing October 1,
1997, pay Norcross a minimum base salary of One Hundred Thirty Thousand and
00/100 Dollars ($130,000) per annum, payable in equal biweekly installments in
accordance with ITPI's normal payroll practices. Such base salary will be
reviewed annually, and may be increased (but not decreased) by ITPI's Board,
or its Executive Committee in its sole discretion.
2.2. Bonus Compensation. In addition, Norcross shall be
eligible for an annual performance bonus of up to seventy-five percent (75%)
of Norcross's base salary, based upon the achievement of certain defined
annua1 performance goals consistent with the Company's 5-year operating plan
established by the Board (including, without limitation, "threshold" goals,
"plan" goals and "override" goals), in consultation with ITPI management,
during the term hereof. At Norcross's discretion, up to fifty percent (50%)
of the annual performance bonus amount may be paid in the form of stock
options. Such options shall be granted at an exercise price equal to the then
current price per share and shall vest forty percent (40%) after two years and
twenty percent (20%) each year thereafter until fully vested.
a. Achievement by the Company of its '' threshold"
performance goa1 for a given year shall make Norcross eligible to receive a
bonus payment equal to fifteen percent (15%) of her annual base salary.
b. Achievement by the Company of its "plan"
performance goal for a given year shall make Norcross eligible to receive a
bonus payment equal to forty-five percent (45%) of her annual base salary.
c. Achievement by the Company of its "override''
performance goal for a given year shall make Norcross eligible to receive a
bonus payment equal to seventy-five percent (75%) of her annual base salary.
d. ITPI may, in its sole discretion, pay a bonus to
Norcross over and above any bonuses determined and paid to Norcross in
accordance with this Section.
3. Signing Bonus. Norcross will be paid a signing bonus of
Seventy Five Thousand Dollars ($75,000), one-third (1/3) to be paid on the
commencement of employment with ITPI, one-third (1/3) to be paid on April 15,
1998, and one-third (1/3) to be paid October 15, 1998. In the event that
Norcross voluntarily leaves employment with ITPI prior to December 31, 1998,
she must repay the signing bonus to ITPI, less any actual relocation expenses
she incurred in relocating to the Baltimore-Washington area.
4. Relocation and Moving Expenses. ITPI will pay reasonable
expenses for Norcross for up to twelve (12) months for temporary housing,
furniture rental, automobile rental, and airfare from and to Atlanta up to a
maximum of two thousand five hundred dollars ($2,500) per month. In addition,
ITPI will pay reanonable moving expenses for Norcross from Atlanta to the
Baltimore-Washington area up to a maximum of Ten Thousand Dollars ($10,000).
<PAGE>
<PAGE>
5. Stock Options. In addition, sixty (60) days after the start of
employment by ITPI, and in consideration of accepting employment as Chief
Operating Officer, Norcross shall be granted 50,000 stock options at the then
current price per share, and which shall vest forty percent (40%) after two
years and twenty percent (20%) each year thereafter until fully vested.
6. Fringe Benefits. During the term of this Agreement, Norcross
shall be entitled to participate in any and all fringe benefit plans, programs
and practices, including life insurance, which shall from time to time be
sponsored by ITPI for the benefit of its executive employees, and shall be
furnished with other services and perquisites appropriate to her position.
7. Vacation and Sick Leave. Norcross shall be entitled to a total
of four (4) weeks of vacation during the term hereof. Unused vacation shall
not accumulate from year to year. Norcross may take her vacation at such time
or times as shall not unreasonably interfere with the performance of her
duties under this Agreement. Norcross shall be entitled to paid sick leave
and holidays in accordance with ITPI 's announced policy for executive
employees as in effect from time to time.
8. Reimbursement of Expenses. Norcross is authorized to incur
reasonable expenses in connection with the business of ITPI including expenses
for travel and similar items. ITPI will reimburse Norcross for all previously
approved reasonable expenses upon itemized account of expenditures.
9. Illness or Disability. Norcross shall receive full
compensation for any period of illness or disability during the term of this
Agreement until such time as she receives benefits under the long term
disability insurance coverage provided by ITPI, provided, however, that such
interim period of compensation for illness or disability shall not exceed six
(6) months. Notwithstanding the foregoing, ITPI shall have the right to
terminate this Agreement without further obligation to Norcross if such
illness or disability shall be of such a character as totally to disable
Norcross from rendering any services to ITPI for a period of more than six (6)
consecutive months on giving at least thirty (30) days' written notice of
intention to do so.
10, Termination of Employment. Norcross's employment hereunder is
employment at will, and either ITPI or Norcross may terminate this Agreement
and Norcross's employment at any time, with or without cause. If ITPI
terminates the Agreement other than (i) for Cause (defined below) or (ii) due
to Norcross's Disability as described in Section 6 hereof, Norcross shall be
entitled to receive, as her exclusive remedy for such termination, the payment
of her then-current base salary for the longer of (A) six months from the date
of termination or (B) the remainder of the Term hereof (the "Severance
Benefit"). Such Severance Benefit shall be payable to Norcross in equal
monthly installments consistent with ITPI's standard payroll practices, the
first of such installments to be due within thirty (30) days after a
qualifying termination hereof. For purposes of this Agreement, "Cause" shall
mean drug or alcohol abuse, conviction of a felony or crime involving moral
turpitude, a material breach of this Agreement, or any willful or grossly<PAGE>
<PAGE>
negligent act or omission by Norcross having a material adverse effect on the
business of ITPI.
11. Restrictive Covenants.
a. Noncompetition. Norcross agrees that during her
employment, and for the remainder of the Term hereof (the "Protected Period"),
she shall not: (a) engage in, manage, operate, control or supervise, or
participate in the management, operation, control or supervision of, any
business or entity that provides computer programining or consulting services,
or any other products or services competitive with those currently provided by
ITPI or those ITPI is providing as of the date of termination of Norcross's
employment with ITPI ("Competitive Activity"); or (b) have any ownership or
financial interest, directly or indirectly, in any entity that engages in
Competitive Activity, including, without limitation, as an individual,
partner, shareholder (other than as a shareholder of a publicly owned
corporation in which Norcross owns less than 2% of the outstanding shares of
such corporation), officer, director, employee, member, associate, principal,
agent, representative or consultant, and shall not in any other manner,
directly or indirectly, compete to any extent with such business of ITPI.
b. Nonsolicitation. During Norcross's employment with ITPI,
and during the Protected Period, Norcross agrees not to solicit or conduct
business, without ITPI's consent, with any client or customer of ITPI (past or
present), whether or not ITPI is doing work for such client or customer as of
the date of termination of Norcross's Employment with ITPI, as well as any
prospective client or customer of ITPI, or to contact, solicit, interfere with
or attempt to entice in any form, fashion or manner any employee of ITPI for
the purpose of inducing that employee to terminate her/her employment with
ITPI or act in any way that would be contrary to the best interests of ITPI.
c . Nondisclosure. During and after Norcross's employment
with ITPI, Norcross agrees not to disclose, or to knowingly allow any other
employee to disclose, to any other person or business entity, or use for
personal profit or gain, any confidential or proprietary information of ITPI,
regardless of whether the same shall be or may have been originated,
discovered or invented by Norcross or by Norcross in conjunction with others.
For purposes of this Agreement, the term "confidential or proprietary
information'' shall include, without limitation: the names, addresses and
telephone numbers of past, present and prospective clients or customers of
ITPI, as well as products, designs, business plans, proposed business
development, marketing strategies, customers requirements, contractual
provisions, employee capabilities, proposed marketing initiatives, pricing
methods, company earnings, computer software and reporting systems, and the
procedures, systems and businees methods of ITPI.
d. Geographic Scope of Restrictive Covenants. The geographic
area in which Norcross shall not engage in any of the prohibited activities
listed in subsections 8a and 8b hereof shall be limited to the continental
United States.
<PAGE>
<PAGE>
12. Remedies for Breach. Norcross hereby acknowledges and agrees
that a violation of any of the covenants see forth in Section 8 hereof (the
"Covenants") would reoult in immediate and irreparable harm to ITPI, and that
ITPI's remedies at law, including, without limitation, the award of money
damages, would be inadequate relief to ITPI for any such violation.
Therefore, any violation or threatened violation by Norcross of the Covenants
shall give ITPI the right to enforce such Covenant through specific
performance, temporary restraining order, preliminary or permanent injunction,
and other equitable relief. Such remedies shall be cumulative and in addition
to any other remedies ITPI may have, at law or in equity.
13. Notice of Subsequent Employment; Etc. Norcross agrees that she
shall, during the one (l) year period following the termination of her
employment with ITPI, give written notice to ITPI of the names and addresses
of each person, firm, corporation or other entity by whom she is employed or
for whom she acts as director, agent, representative, member, associate or
consultant. Norcross further agrees that if at any time during such one (1)
year period she conducts business on her own account, or through a proprietary
interest in any business, firm, partnership or other entity, or as contractor,
or owns any stock in a corporation, Norcross shall give written notice to ITPI
of the name, address and nature of any such business.
14. Return of ITPI Property; Assignment of Inventions.
a. Return of Property. Upon the termination of Norcross's
employment with ITPI for any reason, Norcross shall leave with or return to
ITPI all personal property belonging to ITPI ("ITPI Property") that is in
Norcross's possession or control as of the date of such termination of
employment, including, without limitation, all records, papers, drawings,
notebooks, specifications, marketing materials, software, reports, proposals,
equipment, or any other device, document or possession, however obtained,
whether or not such ITPI Property contains confidential or proprietary
information of ITPI as described in Section 8c hereof.
b. Assignment of Inventions. If at any time or times during
Norcross's employment, Norcross shall (either alone or with others) make,
conceive, discover or reduce to practice any invention, modification,
discovery, design, development, improvement, process, software program, work
of authorship, documentation, formula, data, technique, know-how, secret or
intellectual property right whatsoever or any interest therein (whether or not
patentable or registrable under copyright or similar statutes or subject to
analogous protection) (herein called "Developments") that (a) relates to the
business of ITPI or any of the products or services being developed,
manufactured or sold by ITPI or that may be used in relation therewith, (b)
results from tasks assigned her by ITPI or (c) results from the use of
premises or personal property (whether tangible or intangible) owned, leased,
or contracted for by ITPI, such Developments and the benefits thereof shall
immediately become the sole and absolute property of ITPI and its assigns, and
Norcross shall promptly disclose to ITPI (or any persons designated by it)
each such Development and hereby assigns any rights Norcross may have or
acquire in the Developments and benefits and/or rights resulting therefrom to
ITPI and its assigns without further compensation and shall communicate,<PAGE>
<PAGE>
without cost or delay, and without publishing the same, all available
information relating thereto with all necessary plans and models) to ITPI.
Upon disclosure of each Development to ITPI, Norcross will,
during her employment and at any time thereafter, at the request and expense
of ITPI, sign, execute, make and do all such deeds, documents, acts and things
as ITPI and its duly authorized agents may reasonably require:
(i) to apply for, obtain and vest in the name of ITPI
alone (unless ITPI otherwise directs) letters patent,
copyrights or other analogous protection in any
country throughout the world and when so obtained or
vested to renew and restore the same; and
(ii) to defend any opposition proceedings in respect of
such applications and any opposition proceedings or
petitions or applications for revocation of such
letters patent, copyright or other analogous
protection.
In the event ITPI is unable, after reasonable effort, to secure Norcross's
signature on any letters patent, copyright or other analogous protection
relating to a Development, whether because of Norcross's physical or mental
incapacity or for any other reason, Norcross hereby irrevocably designates and
appoints ITPI and its duly authorized officers and agents as Norcross's agents
and attorneys-in-fact, to act for and in behalf of Norcross and stead to
execute and file any such application or applications and to do all other
lawfully permitted acts to further the prosecution and issuance of letters
patent, copyright or other analogous protection thereon with the same legal
force and effect as if executed by Norcross.
15. Survival. The provisions of Sections 11, 12, 13 and 14 hereof
shall survive the termination of this Agreement, regardless of the manner or
cause of such termination.
16. Effect of Agreement. This Agreement sets forth the final and
complete Agreement of the parties. It shall not be assigned by Norcross and
may not be modified except by way of a writing executed by both parties. All
the terms and provisions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their successors
and assigns.
17. Governing Law. The provisions of this Agreement and any
disputes arising hereunder shall be governed by and construed in accordance
with the laws of the State of Delaware.
18. Other Agreements. Any earlier employment or stock option
agreements between Norcross and ITPI are hereby terminated and shall be no
further effect after the effective date hereof.
[The next page is the Signature Page.]<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their seals affixed hereto as of the day and year first
above written.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
-----------------------
Name: Daniel J. Klein
Title: CEO
/s/ Christine E. Norcross (SEAL)
---------------------
Christine E. Norcross
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of May 30, 1997, between IT PARTNERS, INC. , a
Delaware corporation ("ITPI") and JAMIE E. BLECH ("Blech").
WHEREAS, ITPI desires to employ Blech and Blech desires to accept such
employment on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereby acknowledge that the goodwill, continued
patronage, names, addresses and specific business requirements of ITPI's
clients and customers, and the designs, procedures, systems, strategies,
business methods and know-how of ITPI, having been acquired through ITPI's
efforts and the expenditure of considerable time and money, are among the
principal assets of ITPI; and
WHEREAS, the parties hereby acknowledge that as a result of the
position(s) in which Blech will be employed, Blech will develop special skills
and knowledge peculiar to ITPI's business, whereby he will become, through his
employment with ITPI, acquainted with the identities of the clients and
customers of ITPI, and will acquire access to the techniques of ITPI in
carrying on its business as well as other confidential and proprietary
information; and
WHEREAS, the parties hereto acknowledge that the Covenants set forth in
Section 8 of this Agreement are necessary for the reasonable and proper
protection of ITPI's confidential and proprietary information (as defined
herein), customer relationships, and the goodwill of ITPI's business, and that
such Covenants constitute a material portion of the consideration for Blech's
employment hereunder.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. Term. ITPI agrees to employ Blech, and Blech agrees to be
employed, as Vice Chairman and/or Chief Operating Officer as determined by
ITPI's Board of Directors (the "Board") from time to time for an initial term
of five (5) years commencing June 1, 1997 and ending May 30, 2002 (the
"Initial Term"), unless such employment is sooner terminated as provided
herein. In such capacity, Blech shall perform such duties and have such
responsibilities as are incident and customary to such offices, and shall have
such powers and perform such other duties and responsibilities as may be
assigned to him by the Board. During term hereof, Blech shall devote his full
time, attention, skill and energy to the performance of his duties under this
Agreement, and he shall comply with all reasonable professional requests of
the Company.
<PAGE>
<PAGE>
2. Compensation.
2.1 Base Salary. In consideration of Blech's services
hereunder, ITPI shall, beginning with the pay period commencing 6/1/1997, pay
Blech a minimum base salary of One Hundred Twenty Thousand and 00/100 Dollars
($120,000) per annum, payable in equal monthly installments in accordance with
ITPI's normal payroll practices. Such base salary will be reviewed annually,
and may be increased (but not decreased) by ITPI's Board, or its Executive
Committee in its sole discretion.
2.2. Bonus Compensation. In addition, Blech shall be
eligible for an annual performance bonus of up to one hundred percent (100%)
of Blech's base salary, based upon the achievement of certain defined annual
performance goals consistent with the Company's 5-year operating plan
established by the Board (including, without limitation, "threshold" goals,
"plan" goals and "override" goals), in consultation with ITPI management,
during the term hereof.
a. Achievement by the Company of its "threshold"
performance goal for a given year shall make Blech eligible to receive a bonus
payment equal to twenty percent (20%) of his annual base salary.
b. Achievement by the Company of its "plan"
performance goal for a given year shall make Blech eligible to receive a bonus
payment equal to sixty percent (60%) of his annual base salary.
c. Achievement by the Company of its "override"
performance goal for a given year shall make Blech eligible to receive a bonus
payment equal to one hundred percent (100%) of his annual base salary.
d. ITPI may, in its sole discretion, pay a bonus to
Blech over and above any bonuses determined and paid to Blech in accordance
with this Section.
3. Fringe Benefits.
3.1. During the term of this Agreement, Blech shall be
entitled to participate in any and all fringe benefit plans, programs and
practices which shall from time to time be sponsored by ITPI for the benefit
of its executive employees, and shall be furnished with other services and
perquisites appropriate to his position.
3.2. Without limiting the generality of the foregoing, Blech
shall be entitled to the following benefits (regardless of whether such
benefits are provided to other executives):
a. Comprehensive medical insurance for Blech, his
spouse, and his dependent children with no deductibles or co-insurance.
b. Dental and vision insurance for Blech, his spouse,
and his dependent children with no deductibles or co-insurance.
<PAGE>
<PAGE>
c. Group term life insurance with death benefits of
not less than $1,000,000.00.
d. Long-term disability insurance paying disability
benefits of at least 70% of Blech's salary upon the termination of Blech's
employment by reason of disability.
e. Accidental death and dismemberment insurance
benefits of not less than $1,000,000.00.
f. Annual physical examinations.
g. Financial planning services with a value of up to
$2,500.00 per year during the term hereof.
4. Vacation and Sick Leave. Blech shall be entitled to a total of
four (4) weeks of vacation each year during the term hereof. Unused vacation
shall not accumulate from year to year. Blech may take his vacation at such
time or times as shall not unreasonably interfere with the performance of his
duties under this Agreement. Blech shall be entitled to paid sick leave and
holidays in accordance with ITPI's announced policy for executive employees as
in effect from time to time.
5. Reimbursement of Expenses. Blech is authorized to incur
reasonable expenses in connection with the business of ITPI including expenses
for travel and similar items. ITPI will reimburse Blech for all previously
approved reasonable expenses upon itemized account of expenditures.
6. Illness or Disability. Blech shall receive full compensation
for any period of illness or disability during the term of this Agreement
until such time as he receives benefits under the long term disability
insurance coverage referred to in Section 4, supra; provided, however, that
such interim period of compensation for illness or disability shall not exceed
six (6) months. Notwithstanding the foregoing, ITPI shall have the right to
terminate this Agreement without further obligation to Blech if such illness
or disability shall be of such a character as totally to disable Blech from
rendering any services to ITPI for a period of more than six (6) consecutive
months on giving at least thirty (30) days' written notice of intention to do
so.
7. Termination of Employment. Blech's employment hereunder is
employment at will, and either ITPI or Blech may terminate this Agreement and
Blech's employment at any time, with or without cause. If ITPI terminates the
Agreement other than (i) for Cause (defined below) or (ii) due to Blech's
Disability as described in Section 6 hereof, Blech shall be entitled to
receive, as his exclusive remedy for such termination, the payment of his
then-current base salary for the remainder of the Term hereof (the "Severance
Benefit"). Such Severance Benefit shall be payable to Blech in equal monthly
installments consistent with ITPI's standard payroll practices, the first of
such installments to be due within thirty (30) days after a qualifying
termination hereof. For purposes of this Agreement, "Cause" shall mean drug
or alcohol abuse, conviction of a felony or crime involving moral turpitude, a
<PAGE>
<PAGE>
material breach of this Agreement, or any willful or grossly negligent act or
omission by Blech having a material adverse effect on the business of ITPI.
8. Restrictive Covenants.
a. Noncompetition. Blech agrees that during his employment,
and for a period of two (2) years after the later of termination of this
Agreement and termination of his employment with ITPI (the "Protected
Period"), he will not: (a) engage in, manage, operate, control or supervise,
or participate in the management, operation, control or supervision of, any
business or entity that provides computer programming or consulting services,
or any other products or services competitive with those currently provided by
ITPI or those ITPI is providing as of the date of termination of Blech's
employment with ITPI ("Competitive Activity"); or (b) have any ownership or
financial interest, directly or indirectly, in any entity that engages in
Competitive Activity, including, without limitation, as an individual,
partner, shareholder (other than as a shareholder of a publicly owned
corporation in which Blech owns less than 2% of the outstanding shares of such
corporation), officer, director, employee, member, associate, principal,
agent, representative or consultant, and shall not in any other manner,
directly or indirectly, compete to any extent with such business of ITPI.
Notwithstanding the foregoing, if the Agreement is terminated by ITPI and such
termination is without Cause, as defined herein, Blech shall be bound by the
terms of this subsection 8a only for the shorter of (i) two (2) years
following such termination or (ii) the period of time following such
termination during which ITPI, at ITPI's sole discretion, continues to pay
Blech's then-current base salary.
b. Nonsolicitation. During Blech's employment with ITPI,
and during the Protected Period, Blech agrees not to solicit or conduct
business, without ITPI's consent, with any client or customer of ITPI (past or
present), whether or not ITPI is doing work for such client or customer as of
the date of termination of Blech's employment with ITPI, as well as any
prospective client or customer of ITPI, or to contact, solicit, interfere with
or attempt to entice in any form, fashion or manner any employee of ITPI for
the purpose of inducing that employee to terminate his/her employment with
ITPI or act in any way that would be contrary to the best interests of ITPI.
c. Nondisclosure. During and after Blech's employment with
ITPI, Blech agrees not to disclose, or to knowingly allow any other employee
to disclose, to any other person or business entity, or use for personal
profit or gain, any confidential or proprietary information of ITPI,
regardless of whether the same shall be or may have been originated,
discovered or invented by Blech or by Blech in conjunction with others. For
purposes of this Agreement, the term "confidential or proprietary information"
shall include, without limitation: the names, addresses and telephone numbers
of past, present and prospective clients or customers of ITPI, as well as
products, designs, business plans, proposed business development, marketing
strategies, customers requirements, contractual provisions, employee
capabilities, proposed marketing initiatives, pricing methods, company
earning, computer software and reporting systems, and the procedures, systems
and business methods of ITPI.
<PAGE>
<PAGE>
d. Geographic Scope of Restrictive Covenants. The geographic
area in which Blech shall not engage in any of the prohibited activities
listed in subsections 8a and 8b hereof shall be limited to the continental
United States.
9. Remedies for Breach. Blech hereby acknowledges and agrees that
a violation of any of the covenants set forth in Section 8 hereof (the
"Covenants") would result in immediate and irreparable harm to ITPI, and that
ITPI's remedies at law, including, without limitation, the award of money
damages, would be inadequate relief to ITPI for any such violation.
Therefore, any violation or threatened violation by Blech of the Covenants
shall give ITPI the right to enforce such Covenants through specific
performance, temporary restraining order, preliminary or permanent injunction,
and other equitable relief. Such remedies shall be cumulative and in addition
to any other remedies ITPI may have, at law or in equity.
10. Notice of Subsequent Employment; Etc. Blech agrees that he
shall, during the two (2) year period following the termination of his
employment with ITPI, give written notice to ITPI of the names and addresses
of each person, firm, corporation or other entity by whom he is employed or
for whom he acts as director, agent, representative, member, associate or
consultant. Blech further agrees that if at any time during such two (2) year
period he conducts business on his own account, or through a proprietary
interest in any business, firm, partnership or other entity, or as contractor,
or owns any stock in a corporation, Blech shall give written notice to ITPI of
the name, address and nature of any such business.
11. Return of ITPI Property; Assignment of Inventions.
a. Return of Property. Upon the termination of Blech's
employment with ITPI for any reason, Blech shall leave with or return to ITPI
all personal property belonging to ITPI ("ITPI Property") that is in Blech's
possession or control as of the date of such termination of employment,
including, without limitation, all records, papers, drawings, notebooks,
specifications, marketing materials, software, reports, proposals, equipment,
or any other device, document or possession, however obtained, whether or not
such ITPI Property contains confidential or proprietary information of ITPI as
described in Section 8c hereof.
b. Assignment of Inventions. If at any time or times during
Blech's employment, Blech shall (either alone or with others) make, conceive,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable
or registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Developments") that (a) relates to the business of
ITPI or any of the products or services being developed, manufactured or sold
by ITPI or that may be used in relation therewith, (b) results from tasks
assigned him by ITPI or (c) results from the use of premises or personal
property (whether tangible or intangible) owned, leased or contracted for by
ITPI, such Developments and the benefits thereof shall immediately become the
<PAGE>
sole and absolute property of ITPI and its assigns, and Blech shall promptly
disclose to ITPI (or any persons designated by it) each such Development and
hereby assigns any rights Blech may have or acquire in the Developments and
benefits and/or rights resulting therefrom to ITPI and its assigns without
further compensation and shall communicate, without cost or delay, and without
publishing the same, all available information relating thereto (with all
necessary plans and models) to ITPI.
Upon disclosure of each Development to ITPI, Blech will, during
his employment and at any time thereafter, at the request and expense of ITPI,
sign, execute, make and do all such deeds, documents, acts and things as ITPI
and its duly authorized agents may reasonably require:
(i) to apply for, obtain and vest in the name of ITPI alone
(unless ITPI otherwise directs) letters patent,
copyrights or other analogous protection in any country
throughout the world and when so obtained or vested to
renew and restore the same; and
(ii) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or
petitions or applications for revocation of such
letters patent, copyright or other analogous
protection.
In the event ITPI is unable, after reasonable effort, to secure
Blech's signature on any letters patent, copyright or other analogous
protection relating to a Development, whether because of Blech's physical or
mental incapacity or for any other reason, Blech hereby irrevocably designates
and appoints ITPI and its duly authorized officers and agents as Blech's
agents and attorneys-in-fact, to act for and in behalf of Blech and stead to
execute and file any such application or applications and to do all other
lawfully permitted acts to further the prosecution and issuance of letters
patent, copyright or other analogous protection thereon with the same legal
force and effect as if executed by Blech.
12. Survival. The provisions of Sections 8, 9, 10 and 11 hereof
shall survive the termination of this Agreement, regardless of the manner or
cause of such termination.
13. Effect of Agreement. This Agreement sets forth the final and
complete Agreement of the parties. It shall not be assigned by Blech and may
not be modified except by way of a writing executed by both parties. All the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their successors and
assigns.
14. Governing Law. The provisions of this Agreement and any
disputes arising hereunder shall be governed by and construed in accordance
with the laws of the State of Delaware.
[The next page is the Signature Page.]<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their seals affixed hereto as of the day and year first
above written.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein
-----------------------
Name: Daniel J. Klein
Title: President
/s/ Jamie E. Blech (SEAL)
----------------------
Jamie E. Blech
PROMISSORY NOTE
$2,226,000 Silver Spring, Maryland
June 30, 1997
FOR VALUE RECEIVED, the undersigned, IT PARTNERS, INC., a Delaware
corporation (the "Maker") promises to pay to CHRISTOPHER CORBETT (the "Payee")
the principal sum of Two Million Two Hundred Twenty-Six Thousand Dollars
($2,226,000), together with interest at the rate of eight percent (8%) per
annum accruing on the unpaid principal balance in the following manner:
Simple interest on the unpaid principal shall be paid to the Payee quarterly.
The principal and any remaining accrued interest shall be due in its entirety,
and this Note shall mature, upon the earlier of (1) five years from the date
of this Note, (2) the closing date of any public offering of the common stock
of the Maker, or (3) the closing date of (a) any sale of all or substantially
all of the Maker's stock or assets to an entity that is not an Affiliate of
the Maker, or (b) any transaction in which the Maker is merged out of
existence and into an entity that is not an Affiliate of the Maker.
"Affiliate" shall have the meaning set forth in that certain Business
Combination Agreement between the Maker and the Payee, dated June 30, 1997,
pursuant to which this Note has been issued.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc., by virtue of and pursuant to that certain Loan and Security
Agreement by and among the Maker, the Lenders (the "Lenders") as party thereto
and Creditanstalt Corporate Finance, Inc., as Agent for the Lenders (the
"Agent"), dated May 30, 1997 (the "Loan Agreement"), as well as that certain
Subordination Agreement executed by the Payee on even date in favor of the
Lenders described therein.
In the event Maker shall fail to make any payment within ten (10) days
after its due date, the Maker shall pay a late charge of five percent (5%) of
the amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment
on which it is imposed.
All payments required under the terms of the Note shall be paid in lawful
money of the United States of America at such place as the holder of this Note
shall designate to the Maker in writing at any time or from time to time.
The Maker may prepay the principal amount outstanding, in full or in
part, at any time, without premium or penalty. However, any such prepayment
shall be applied to installments (or portions thereof) in reverse order of
their due dates, so that any such payment shall not excuse the Maker from
paying any installment in full as it becomes due and payable until such time
as the principal is paid in full. All payments made pursuant to this note
shall be applied, first, to any late fees and penalties hereunder, next, to
all accrued and outstanding interest on the principal amount hereof and lastly
to the principal amount outstanding hereunder.<PAGE>
<PAGE>
If this Note is forwarded to an attorney for collection, the Maker shall
pay on demand all costs and expenses of collection, including a reasonable fee
for attorneys not to exceed fifteen percent (15%) of the then outstanding
principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of the Maker to pay any
obligation hereunder within ten (10) days after the due date thereof, or (2) a
breach of any of the covenants, warranties or representations made by the
Maker and contained in that certain Business Combination Agreement between the
Maker and the Payee, dated June 30, 1997 or under any agreement executed
pursuant thereto.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
If following the occurrence and during the continuance of an Event of
Default, Maker desires to sell all or substantially all of the assets of
A-COM, Inc. (other than as a part of any sale of substantially all of the
assets of the Maker and the subsidiaries generally), Payee shall have the
right of first refusal to purchase such assets on terms and conditions
identical to those being offered to Maker for a period of thirty (30) days
after written notice; provided however that any such sale shall be subject to
the prior written consent of the Agent. If the Payee exercises its right of
first refusal and purchases such assets, the Maker shall credit the amount due
under the Note towards the purchase price of the assets of A-COM, Inc., except
to the extent that the Agent and the Lenders require that the purchase price
be applied to the Maker's outstanding obligations under the Loan Agreement.
The rights and remedies set forth in this Note may be exercised by the
Payee during any default by the Maker, regardless of any prior forbearance,
and are in addition to any other rights or remedies provided by law or in
equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law.
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by
reference as though fully set forth herein verbatim.<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein (SEAL)
------------------------------
Daniel J. Klein, President
PROMISSORY NOTE
Stanton L. Call
$2,876,206.00 Columbia, Maryland
5/13, 1998
---------------
FOR VALUE RECEIVED, the undersigned, IT PARTNERS, INC., a Delaware
corporation (the "Maker") promises to pay to Stanton L. Call (the "Payee") the
principal sum of TWO MILLION EIGHT HUNDRED SEVENTY SIX THOUSAND TWO HUNDRED
SIX AND 00/100 DOLLARS ($2,876,206.00), together with interest at the rate of
eight Percent (8%) per annum accruing on the unpaid principal balance in the
following manner: Simple interest on the unpaid principal shall be paid to the
Payee quarterly commencing August 15, 1998, and payable thereafter on the
fifteenth of November, February and May, respectively, through the Maturity
Date. The principal and any remaining accrued interest shall be due in its
entirety, and this Note shall mature, upon the earlier of (1) five years from
the date of this Note, or (2) the closing date of (a) any sale of all or
substantially all of the Maker's stock or assets to an entity that is not an
Affiliate of the Maker, or (b) any transaction in which the Maker is merged
out of existence and into an entity that is not an Affiliate of the Maker.
"Affiliate" shall have the meaning set forth in that certain Asset Purchase
Agreement between the Maker and the Payee, dated 5/13,1998 (the "Asset
Purchase Agreement"), pursuant to which this Note has been issued.
The principal amount of this Note will be subject to cancellation and
amendment pursuant to Section 2.1(iii)(d) of the Asset Purchase Agreement. If
this Note is canceled or amended in accordance with the Asset Purchase
Agreement, the Payee, upon demand of Maker, shall within seven (7) days of
such demand return this Note to Maker for cancellation and return any excess
payment made on this Note to the Maker.
Upon determination of the NTM EBITDA, as such term is defined in the
Asset Purchase Agreement, this Note shall be convertible into Common Shares of
ITP at a conversion price of $5.70 per share.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc. by virtue of and pursuant to that certain Amended and Restated
Loan and Security Agreement by and between the Maker and the Lenders named
therein, dated March 31, 1998, as well as that certain Subordination Agreement
executed by the Payee on even date in favor of the Lenders described therein.
In the event Maker shall fail to make any payment within ten (10) days
after its due date, the Maker shall pay a late charge of Five Percent (5%) of
the amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment on
which it is imposed.
All payments required under the terms of the Note shall be paid in lawful
<PAGE>
money of the United States of America at such place as the holder of this Note
shall designate to the Maker in writing at any time or from time to time.
The Maker may prepay the principal amount outstanding, in full or in
part, at any time. without premium or penalty. However, any such prepayment
shall be applied to installments (or portions thereof) in reverse order of
their due dates, so that any such prepayment shall not excuse the Maker from
paying any installment in full as it becomes due and payable until such time
as the principal is paid in full. All payments made pursuant to this Note
shall be applied, first, to any late fees and penalties hereunder, next, to
all accrued and outstanding interest on the principal amount hereof, and
lastly to the principal amount outstanding hereunder.
If this Note rightfully is forwarded to an attorney for collection, the
Maker shall pay on demand all costs and expenses of collection, including a
reasonable fee for attorneys not to exceed Fifteen Percent (15%) of the then
outstanding principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of the Maker to pay any
obligation hereunder within ten (10) days after the due date thereof, or (2) a
breach of any of the covenants, warranties or representations made by the
Maker and contained in the Asset Purchase Agreement or under any agreement
executed pursuant thereto.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
The rights and remedies set forth in this Note may be exercised by the
holder of this Note during any default by the Maker, regardless of any prior
forbearance, and are in addition to any other rights or remedies provided by
law or in equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by<PAGE>
<PAGE>
reference as though fully set forth herein verbatim.
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written
IT PARTNERS, INC.
By: /s/ Jamie E. Blech
----------------------------
Title: President
-------------------------
PROMISSORY NOTE
$102,036.50 Columbia, Maryland
July 28, 1997
FOR VALUE RECEIVED, the undersigned, IT PARTNERS, INC., a Delaware
corporation (the "Maker") promises to pay to Stanley Nice (the "Payee") the
principal sum of One Hundred Two Thousand Thirty-Six Dollars and Fifty Cents
($102,036.50), together with interest at the rate of Eight Percent (8%) per
annum accruing on the unpaid principal balance in the following manner: Simple
interest on the unpaid principal shall be paid to the Payee quarterly. The
principal and any remaining accrued interest shall be due in its entirety, and
this Note shall mature, upon the earlier of (1) five years from the date of
this Note, (2) the time immediately prior to the Maker commencing a public
offering of its common stock, or (3) the closing date of (a) any sale of all
or substantially all of the Maker's stock or assets to an entity that is not
an Affiliate of the Maker, or (b) any transaction in which the Maker is merged
out of existence and into an entity that is not an Affiliate of the Maker.
"Affiliate" shall have the meaning set forth in that certain Business
Combination Agreement between the Maker, the Payee and the other parties
thereto, dated May 22, 1997 (the "Merger Agreement"), pursuant to which this
Note has been issued.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc. by virtue of and pursuant to that certain Loan and Security
Agreement by and between the Maker and Creditanstalt Corporate Finance, Inc.,
dated May 30, 1997 (as amended from time to time), as well as that certain
Subordination Agreement executed by the Payee on even date in favor of the
lenders described therein.
In the event Maker shall fail to make any payment within ten (10) days
after its due date, the Maker shall pay a late charge of Five Percent (5%) of
the amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment on
which it is imposed.
All payments required under the terms of the Note shall be paid in lawful
money of the United States of America at such place as the holder of this Note
shall designate to the Maker in writing at any time or from time to time.
The Maker may prepay the principal amount outstanding, in full or in
part, at any time, without premium or penalty. However, any such prepayment
shall be applied to installments (or portions thereof) in reverse order of
their due dates, so that any such prepayment shall not excuse the Maker from
paying any installment in full as it becomes due and payable until such time
as the principal is paid in full. All payments made pursuant to this Note
shall be applied, first, to any late fees and penalties hereunder, next, to
<PAGE>
<PAGE>
all accrued and outstanding interest on the Principal amount hereof and lastly
to the Principal amount outstanding hereunder.
If this Note rightfully is forwarded to an attorney for collection, the
Maker shall pay on demand all costs and expenses of collection, including a
reasonable fee for attorneys not to exceed Fifteen Percent ( 15%) of the then
outstanding principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of the Maker to pay any
obligation hereunder within ten (10) days after the due date thereof, or (2) a
material breach of any of the covenants, warranties or representations made by
the Maker and contained in the Merger Agreement.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
The rights and remedies set forth in this Note may be exercised by the
holder of this Note during any default by the Maker, regardless of any prior
forbearance, and are in addition to any other rights or remedies provided by
law or in equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law.
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by
reference as though fully set forth herein verbatim.
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written.
IT PARTNERS. INC.
By: /s/ Daniel J. Klein (SEAL)
--------------------------
Daniel J. Klein, President
PROMISSORY NOTE
$102,036.50 Columbia, Maryland
July 28, 1997
FOR VALUE RECEIVED, the undersigned, IT PARTNERS, INC., a Delaware
corporation (the "Maker") promises to pay to John Clement (the "Payee") the
principal sum of One Hundred Two Thousand Thirty-Six Dollars and Fifty Cents
($102,036.50), together with. interest at the rate of Eight Percent (8%) per
annum accruing on the unpaid principal balance in the following manner: Simple
interest on the unpaid principal shall be paid to the Payee quarterly. The
principal and any remaining accrued interest shall be due in its entirety, and
this Note shall mature, upon the earlier of (1) five years from the date of
this Note, (2) the time immediately prior to the Maker commencing a public
offering of its common stock, or (3) the closing date of (a) any sale of all
or substantially all of the Maker's stock or assets to an entity that is not
an Affiliate of the Maker, or (b) any transaction in which the Maker is merged
out of existence and into an entity that is not an Affiliate of the Maker.
"Affiliate" shall have the meaning set forth in that certain Business
Combination Agreement between the Maker, the Payee and the other parties
thereto, dated May 22, 1997 (the "Merger Agreement"), pursuant to which this
Note has been issued.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc. by virtue of and pursuant to that certain Loan and Security
Agreement by and between the Maker and Creditanstalt Corporate Finance, Inc.,
dated May 30, 1997 (as amended from time to time), as well as that certain
Subordination Agreement executed by the Payee on even date in favor of the
Lenders described therein.
In the event Maker shall fail to make any payment within ten (10) days
after its due date, the Maker shall pay a late charge of Five Percent (5%) of
the amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment on
which it is imposed.
All payments required under the terms of the Note shall be paid in lawful
money of the United States of America at such place as the holder of this Note
shall designate to the Maker in writing at any time or from time to time.
The Maker may prepay the principal amount outstanding, in full or in
part, at any time, without premium or penalty. However, any such prepayment
shall be applied to installments (or portions thereof) in reverse order of
their due dates, so that any such prepayment shall not excuse the Maker from
paying any installment in full as it becomes due and payable until such time
as the principal is paid in full. All payments made pursuant to this Note
shall be applied, first, to any late fees and penalties hereunder, next, to
<PAGE>
<PAGE>
all accrued and outstanding interest on the principal amount hereof, and
lastly to the principal amount outstanding hereunder.
If this Note rightfully is forwarded to an attorney for collection, the
Maker shall pay on demand all costs and expenses of collection, including a
reasonable fee for attorneys not to exceed Fifteen Percent (15%) of the then
outstanding principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of the Maker to pay any
obligation hereunder within ten (10) days after the due date thereof, or (2) a
material breach of any of the covenants, warranties or representations made by
the Maker and contained in the Merger Agreement.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
The rights and remedies set forth in this Note may be exercised by the
holder of this Note during any default by the Maker, regardless of any prior
forbearance, and are in addition to any other rights or remedies provided by
law or in equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law.
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by
reference as though fully set forth herein verbatim.
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written.
IT PARTNERS, INC.
By:/s/ Daniel J. Klein (SEAL)
-------------------------
Daniel J. Klein, President
PROMISSORY NOTE
$472,409.90 Silver Spring, Maryland
May 27, 1997
FOR VALUE RECEIVED, the undersigned IT Partners, Inc., a Delaware
corporation (the "Maker") promises to pay to STANLEY NICE (the "Payee") the
principal sum of FOUR HUNDRED SEVENTY-TWO THOUSAND FOUR HUNDRED NINE DOLLARS
AND NINETY CENTS ($472,409.90), together with interest at the rate of Eight
Percent (8%) per annum accruing on the unpaid principal balance in the
following manner: Simple interest on the unpaid principal shall be paid to the
Payee quarterly. The principal and any remaining accrued interest shall be due
in its entirety, and this Note shall mature, upon the earlier of (1) five
years from the date of this Note, (2) the time immediately prior to the Maker
commencing a public offering of its stock or (3) the closing date of (a) any
sale of all or substantially all of the Maker's stock or assets to an entity
that is not an Affiliate of the Maker, or (b) any transaction in which the
Maker is merged out of existence and into an entity that is not an Affiliate
of the Maker. "Affiliate" shall have the meaning set forth in that certain
Business Combination Agreement between the Maker and the Payee, dated May 27,
1997, pursuant to which this Note has been issued.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc. by virtue of and pursuant to that certain Loan and Security
Agreement by and between the Maker and Creditanstalt Corporate Finance, Inc.,
dated May 27, 1997, as well as that certain Subordination Agreement of even
date executed by the Payee in favor of the lenders described therein.
In the event Maker shall fail to make any payment within Ten (10) days
after its due date, Maker shall pay a late charge of Five Percent (5%) of the
amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment on
which it is imposed.
All payments required under the terms of the Note shall be paid in lawful
money of the United States of America at such place as the holder of this Note
shall designate to Maker in writing at any time or from time to time.
Maker may prepay the principal amount outstanding, in full or in part, at
any time, without premium or penalty. However, any such prepayment shall be
applied to installments (or portions thereof) in reverse order of their due
dates, so that any such prepayment shall not excuse Maker from paying any
installment in full as it becomes due and payable until such time as the
principal is paid in full. All payments made pursuant to this note shall be
applied, first, to any late fees and penalties hereunder, next, to all accrued
and outstanding interest on the principal amount hereof, and lastly to the
principal amount outstanding hereunder.<PAGE>
<PAGE>
If this Note rightfully is forwarded to an attorney for collection, Maker
shall pay on demand all costs and expenses of collection, including a
reasonable fee for attorneys not to exceed Fifteen Percent (15%) of the then
outstanding principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of Maker to pay any
obligation hereunder within Ten (10) days after the due date thereof, or (2) a
breach of any of the covenants, warranties or representations made by Maker
and contained in that certain Business Combination Agreement between Maker and
Payee, dated May 27, 1997 or under any agreement executed pursuant thereto.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
The rights and remedies set forth in this Note may be exercised by the
holder of this Note during any default by the Maker, regardless of any prior
forbearance, and are in addition to any other rights or remedies provided by
law or in equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law.
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by
reference as though fully set forth herein verbatim.
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written.
IT PARTNERS. INC
By: /s/ Daniel J. Klein,(SEAL)
-------------------------
PROMISSORY NOTE
$432,998.90 Silver Spring, Maryland
May 27, 1997
FOR VALUE RECEIVED, the undersigned IT Partners, Inc., a Delaware
corporation (the "Maker") promises to pay to JOHN CLEMENT (the "Payee") the
principal sum of FOUR HUNDRED THIRTY-TWO THOUSAND NINE HUNDRED NINETY EIGHT
DOLLARS AND NINETY CENTS ($432,998.90), together with interest at the rate of
Eight Percent (8%) per annum accruing on the unpaid principal balance in the
following manner: Simple interest on the unpaid principal shall be paid to the
Payee quarterly. The principal and any remaining accrued interest shall be due
in its entirety, and this Note shall mature, upon the earlier of (1) five
years from the date of this Note, (2) the time immediately prior to the Maker
commencing a public offering of its stock, or (3) the closing date of (a) any
sale of all or substantially all of the Maker's stock or assets to an entity
that is not an Affiliate of the Maker, or (b) any transaction in which the
Maker is merged out of existence and into an entity that is not an Affiliate
of the Maker. "Affiliate" shall have the meaning set forth in that certain
Business Combination Agreement between the Maker and the Payee, dated May 27,
1997, pursuant to which this Note has been issued.
This Note shall be at all times subordinate to any security interests,
liens, rights, privileges and entitlements held by Creditanstalt Corporate
Finance, Inc. by virtue of and pursuant to that certain Loan and Security
Agreement by and between the Maker and Creditanstalt Corporate Finance, Inc.,
dated May 27, 1997, as well as that certain Subordination Agreement of even
date executed by the Payee in favor of the lenders described therein.
In the event Maker shall fail to make any payment within Ten (10) days
after its due date, Maker shall pay a late charge of Five Percent (5%) of the
amount not paid in a timely manner, without written notice or additional
demand therefor. Any such late charge shall be payable with the installment on
which is imposed.
All payments required under the terms of the Note shall be paid in lawful
money of the United States of America at such place as the holder of this Note
shall designate to Maker in writing at any time or from time to time.
Maker may prepay the principal amount outstanding, in full or in part, at
any time, without premium or penalty. However, any such prepayment shall be
applied to installments (or portions thereof) in reverse order of their due
dates, so that any such prepayment shall not excuse Maker from paying any
installment in full as it becomes due and payable until such time as the
principal is paid in full. All payments made pursuant to this note shall be
applied, first, to any late fees and penalties hereunder, next, to all accrued
and outstanding interest on the principal amount hereof, and lastly to the
principal amount outstanding hereunder.
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If this Note rightfully is forwarded to an attorney for collection, Maker
shall pay on demand all costs and expenses of collection, including a
reasonable fee for attorneys not to exceed Fifteen Percent (15%) of the then
outstanding principal balance hereunder.
Any of the following events ("Events of Default") shall constitute a
default under the terms of this Note: (1) failure of Maker to pay any
obligation hereunder within Ten (10) days after the due date thereof, or (2) a
breach of any of the covenants, warranties or representations made by Maker
and contained in that certain Business Combination Agreement between Maker and
Payee, dated May 27, 1997 or under any agreement executed pursuant thereto.
If an Event of Default shall occur, the Maker shall be deemed in default
of its obligations under this Note, and the holder of this Note may declare
the entire unpaid principal balance of this Note, together with any accrued
and unpaid interest, and any unpaid late charges imposed thereon, immediately
due and payable. The Maker shall in any event have the right to cure the
default for up to thirty (30) days after such event of default. The Maker
hereby waives and releases, to the extent permitted by law, all errors and all
rights of exemption, appeal, stay of execution, inquisition and extension upon
any levy on real estate or personal property to which the Maker may otherwise
be entitled under any law now enforced or which may hereafter be passed.
The rights and remedies set forth in this Note may be exercised by the
holder of this Note during any default by the Maker, regardless of any prior
forbearance, and are in addition to any other rights or remedies provided by
law or in equity.
The Maker hereby waives presentment for payment, demand for payment,
protest, notice of protest and of dishonor, and any and all demands and
notices that might otherwise be required by law.
This Note shall be deemed to be made in and shall be governed by the laws
of the State of Maryland.
The terms of any documents referred to herein are incorporated herein by
reference as though fully set forth herein verbatim.
IN WITNESS WHEREOF, the Maker has executed this Note, under seal, the day
and year first above written.
IT PARTNERS, INC.
By: /s/ Daniel J. Klein (SEAL)
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Daniel J. Klein, President
