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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON __________, 1999
REGISTRATION NO. ___
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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THE ALLIANCE GROUP, INC.
(Name of small business issuer in its charter)
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OKLAHOMA 443112 73-1548771
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(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S.EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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The Alliance Group, Inc. Joseph O. Evans
12101 North Meridian 12101 North Meridian
Oklahoma City, Oklahoma 73120 Oklahoma City, Oklahoma 73120
Telephone: (405) 748-8888 Telephone: (405) 748-8888
Facsimile: (405) 516-2345 Facsimile: (405) 516-2345
(ADDRESS AND TELEPHONE NUMBER OF (NAME, ADDRESS AND TELEPHONE
PRINCIPAL EXECUTIVE OFFICES AND NUMBER OF AGENT FOR SERVICE)
PRINCIPAL PLACE OF BUSINESS)
-------------------
Copies to:
David J. Ketelsleger, Esq. Mark A. Robertson, Esq.
McAfee & Taft A Professional Corporation Robertson & Williams
Tenth Floor, Two Leadership Square 3033 N.W. 63rd
211 North Robinson Suite 160
Oklahoma City, Oklahoma 73102 Oklahoma City, Oklahoma 73116
Telephone: (405) 235-9621 Telephone: (405) 848-1944
Facsimile: (405) 235-0439 Facsimile: (405) 843-6707
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------
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CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF DOLLAR PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
REGISTERED REGISTERED SHARE OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
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Common Stock, $.01 par (1) (1) $15,000,000(2) $4,425
value per share
- ----------------------------------------------------------------------------------------------------------------
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(1) Omitted pursuant to Rule 457(o).
(2) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Preliminary Prospectus
___________, 1999
THE ALLIANCE GROUP, INC.
BRINGING PEOPLE AND TECHNOLOGY TOGETHER.
[LOGO]
BETWEEN 1,000,000 AND 1,500,000
SHARES OF COMMON STOCK
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The Alliance Group, Inc. We will sell, install and maintain
12101 North Meridian telecommunications equipment, including
Oklahoma City, Oklahoma 73120 related software applications, and connect that
Telephone: (405) 748-8888 equipment to the public telephone network.
We will also provide local access, long distance,
internet access and data communications.
This is our initial public offering,
and no public market currently exists
for our shares. The offering price may
not reflect the market price of our
shares after the offering.
Proposed ______________________ Trading
Symbol: ___
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PER SHARE 1,000,000 SHARE OFFERING 1,500,000 SHARE OFFERING
- -------------------------------------------------------------------------------------------------
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PRICE TO PUBLIC
1,000,000 SHARE OFFERING
1,500,000 SHARE OFFERING
UNDERWRITING DISCOUNTS
1,000,000 SHARE OFFERING
1,500,000 SHARE OFFERING
PROCEEDS TO ALLIANCE
1,000,000 SHARE OFFERING
1,500,000 SHARE OFFERING
- -------------------------------------------------------------------------------------------------
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*If the underwriter exercises in full its 30-day option to purchase up to ____
additional shares (minimum offering) or _______ additional shares (maximum
offering) to cover over-allotments, the totals would be $___, $___ and $___ for
the minimum offering and $___, $___ and $___ for the maximum offering.
**The underwriter is offering the common stock on a firm commitment basis.
------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD ONLY PURCHASE
SHARES IF YOU CAN AFFORD A COMPLETE LOSS. BEFORE INVESTING, YOU SHOULD CAREFULLY
READ THIS PROSPECTUS AND ANY SUPPLEMENT, PAYING PARTICULAR ATTENTION TO THE
"RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
CAPITAL WEST SECURITIES, INC.
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TABLE OF CONTENTS
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A SUMMARY OF OUR GOALS, STRATEGY, FINANCIAL Summary 1
HISTORY AND OTHER FACTORS RELEVANT TO YOUR About this Prospectus 1
INVESTMENT DECISION. Where You Can Find More Information 1
About Alliance 1
Business and Growth Strategy 2
The Offering 3
Summary Financial Data 4
IMPORTANT FACTORS YOU SHOULD CONSIDER Risk Factors 5
BEFORE INVESTING.
A SELECTION OF OUR FINANCIAL INFORMATION. Summary Combined Financial Information 10
Unaudited Pro Forma Combined Financial
Statements 15
ABOUT ALLIANCE AND OUR RELATIONSHIPS WITH Business 21
THE INTERCONNECT PARTNERS. Alliance's Business and Growth Strategy 21
The Market 22
Products and Services 23
The Interconnect Partners 25
The Acquisitions 26
Competition 29
Property 30
Employees 30
Legal Proceedings 30
Capitalization 31
OUR PLAN OF OPERATIONS DURING THE FIRST Management's Plan of Operation 32
12 MONTHS. ABOUT OUR DIRECTORS, EXECUTIVE Management and Principal Stockholders 35
OFFICERS, SIGNIFICANT EMPLOYEES AND Directors, Executive Officers and
PRINCIPAL STOCKHOLDERS. Significant Employees 35
Compensation 37
Limitation on Directors' and Officers' Liability 37
Ownership of Management and Principal
Stockholders 38
Certain Relationships and Related Transactions 39
THE COMMON STOCK. Description of Common Stock 41
About the Common Stock 41
Dividend Policy 42
Use of Proceeds 42
Dilution 42
Market for Common Stock and Shares Eligible for
Future Sale 43
Transfer Agent 44
ABOUT THE UNDERWRITERS, THE ACCOUNTANTS, The Underwriter and the Plan of Distribution 44
AND THE VALIDITY OF THE COMMON STOCK. The Underwriting Agreement 44
Determining the Offering Price 46
Experts 46
Validity of Common Stock 48
FINANCIAL INFORMATION ABOUT THE Index to Financial Statements F-1
ALLIANCE GROUP AND OUR PARTNERS.
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2
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SUMMARY
THIS SECTION IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION
CONTAINED LATER IN THIS PROSPECTUS AND ALL OTHER INFORMATION RELATING TO THIS
OFFERING AT THE SOURCES IDENTIFIED IN THE PARAGRAPH "WHERE YOU CAN FIND MORE
INFORMATION" BELOW.
ABOUT THIS PROSPECTUS
When we complete this offering, we plan to acquire thirteen companies which
sell, install and maintain telephone systems for customers. We will acquire ten
of the companies through mergers and three companies through asset acquisitions.
The issued and outstanding stock of the merging companies will be converted into
cash and common stock of Alliance. Three companies will sell their assets to us
in exchange for cash and Alliance common stock. The number of shares of common
stock issued in the acquisitions depends on the initial public offering price of
the common stock. We estimated the number of shares of common stock issued in
the acquisitions to be approximately 348,960 based on an assumed initial public
offering price of $12.00 per share.
In addition to the information in this summary, more detailed information
and financial statements appear throughout this prospectus. You should review
all of these documents thoroughly before making your investment decision. We
have made some forward-looking statements in this prospectus about our plans,
objectives, expectations and intentions for Alliance after it acquires the
thirteen companies discussed above. These statements contain a certain amount of
risk and uncertainty and our actual results may differ significantly from the
statements made in this document. Unless we indicate otherwise, the information
we provide in this prospectus gives effect to the acquisition of the
interconnect companies, reflects a 2,850-for-one stock split and cancellation
of certain shares, both effected on April 9, 1999 and assumes that the
underwriter's over-allotment option is not exercised.
WHERE YOU CAN FIND MORE INFORMATION
Because this is our first public offering, we have never been subject to
the reporting requirements of the Securities and Exchange Act of 1934. We filed
a registration statement on Form SB-2 with the Securities and Exchange
Commission under the Securities Act of 1933 describing and discussing the common
stock offered in this prospectus. As allowed by the Securities and Exchange
Commission, this prospectus, which is part of the registration statement, does
not contain all of the information included in the registration statement.
Additionally, statements we make in the prospectus about contracts and other
documents are not necessarily complete. For more information about Alliance and
our common stock, you should read the registration statement and any attached
exhibits and schedules.
You can read and copy our registration statement and any other materials we
file with the Securities and Exchange Commission at the Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 or on the
Internet at http://www.sec.gov. You can get information about the operation of
the public reference room by calling the Commission at 1-800-SEC-0330.
ABOUT ALLIANCE
On September 4, 1998, Alliance incorporated under the name Advantage
Business Systems, Inc. Advantage was formed to consolidate the operations of
certain interconnect companies in Oklahoma. Advantage later changed its name to
Alliance. Unless we state otherwise, when we refer to Alliance we are also
referring to Advantage.
The primary business of the thirteen companies we will acquire is selling,
installing and maintaining telecommunications equipment and connecting that
equipment to the public telephone network. In the telecommunications industry,
these companies are called interconnect companies. An interconnect company
sells, installs and maintains telephone systems for business customers.
Interconnect companies can also represent the customer in dealings with the
local telephone company and/or long distance provider. Interconnect companies
also sell and install software applications for telephone systems that enhance
the features and functions of the telephone
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equipment.
Alliance identifies the thirteen interconnect companies it is acquiring as
"partners." After joining The Alliance Group, each of the partners will continue
operating under its own name through 1999. The partners will also continue to be
primarily responsible for their individual businesses and will maintain their
business relationships with existing customers.
Typically, interconnect companies:
- Provide and maintain a customer's telephone equipment;
- Represent customers in determining service requirements; and
- Obtain services for the customer through an agency agreement with
the local telephone service provider.
Customer premise equipment means all telecommunications equipment located
at the customer's office. This equipment normally consists of the telephone
system, telephones, the cabling system on the customer's premises, the telephone
company's lines that connect the customer's telephone system to the public
network and dedicated lines used for transmitting high-speed data or voice
traffic between the customer's equipment and public or private networks. We
believe that interconnect companies enjoy the respect of both customers and
telephone companies. THE INTERCONNECT COMPANY IS THE CUSTOMER PREMISE EQUIPMENT
EXPERT.
BUSINESS AND GROWTH STRATEGY
Our primary growth strategy will be to acquire interconnect companies in
states contiguous to Oklahoma. We believe we can benefit from economies of scale
as we consolidate the acquired companies. We can also distribute
telecommunication products and services to an increasing number of customers.
Alliance intends to meet the public's growing demand for
telecommunications services and increase its market share in the regional
telecommunications market by:
- Maintaining customer loyalty through the installation of a
customer support center, Internet access to Alliance services
and support, and professional training for our customer service
representatives.
- Utilizing the combined customer base of the partners and their
cumulative usage of voice and data services to negotiate better
terms with providers of local access, long distance, Internet
access, and data communications.
- Utilizing the combined purchasing power of the partners to
negotiate greater discounts and increased levels of marketing
and technical support with the equipment vendors.
- Utilizing the combined market share of the partners to position
Alliance as a premiere provider of voice, video and data products
and services.
THE OFFERING
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Common stock offered by Alliance _______ to _______ shares.
Common stock to be outstanding after this offering _______ to _______ shares.
4
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Use of proceeds Pay the cash portion of the purchase price for the
interconnect partners, retire indebtedness incurred
to finance the acquisitions and this offering and
general corporate purposes.
Proposed ______________________ Symbol ____
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5
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SUMMARY FINANCIAL DATA
Each of the interconnect partners will either merge with or sell its
assets to a newly formed, wholly-owned subsidiary of Alliance. The acquisitions
will occur concurrently with, and as a condition to, the completion of this
offering. The following unaudited pro forma combined summary financial data
presents certain data for Alliance, for the interconnect partners on an
historical combined basis and for Alliance on a pro forma combined basis, as
adjusted to give effect to the acquisitions and the offering and the application
of the proceeds therefrom. For more information, you should read the Unaudited
Pro Forma Combined Financial Statements and notes beginning on page 15.
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SUMMARY FINANCIAL DATA
Period ending
December 31, 1998
---------------------------------------
Interconnect
Partners
Historical Pro Forma
Combined Alliance as Adjusted
---------------------------------------
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STATEMENT OF OPERATIONS DATA:
Net sales $17,814,781 $-- $ 17,814,781
Cost of sales 8,227,477 -- 8,227,477
Total cost and expenses 17,471,509 113,078 18,255,266
Income (loss) before income taxes 343,272 (113,078) (440,485)
Income tax expense (108,843) -- (128,403)
Net income (loss) 234,429 (113,078) (568,888)
Net loss per share (.27)
Shares used in computing pro forma per share amounts 2,074,910
Period ending
December 31, 1998
---------------------------------------
Interconnect
Partners
Historical Pro Forma
Combined Alliance as Adjusted
---------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 691,837 $ 79,700 $ 3,100,037
Working capital 1,208,452 (57,176) 3,479,776
Total assets 4,618,905 142,852 18,756,726
Total long-term debt, including current portion 825,641 34,168 862,409
Stockholders' equity (deficit) 1,748,256 (22,076) 15,718,549
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE BUYING OUR COMMON STOCK.
WE INCLUDED SOME FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS ABOUT
OUR EXPECTATIONS FOR ALLIANCE AFTER THE ACQUISITIONS. THESE FORWARD-LOOKING
STATEMENTS CONTAIN SUBSTANTIAL RISKS AND UNCERTAINTIES WHICH MAY CAUSE OUR
ACTUAL RESULTS TO DIFFER SIGNIFICANTLY FROM OUR FORWARD-LOOKING STATEMENTS. YOU
CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL,"
"EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND "CONTINUE" OR SIMILAR WORDS.
YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY:
- DISCUSS OUR FUTURE EXPECTATIONS;
- CONTAIN PROJECTIONS OF OUR FUTURE OPERATING RESULTS OR OF OUR
FUTURE FINANCIAL CONDITION; OR
- STATE OTHER "FORWARD-LOOKING" INFORMATION.
WE BELIEVE IT IS IMPORTANT TO COMMUNICATE OUR EXPECTATIONS TO YOU, BUT
EVENTS MAY OCCUR IN THE FUTURE OVER WHICH WE HAVE NO CONTROL AND WHICH WE ARE
NOT ACCURATELY ABLE TO PREDICT. BEFORE YOU INVEST IN ALLIANCE, YOU SHOULD BE
AWARE THAT BUYING OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK AND ANY OF THE
FOLLOWING RISK FACTORS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION AND COULD RESULT IN A COMPLETE LOSS OF YOUR
INVESTMENT.
THERE IS INTENSE COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY.
The industries we are in are highly competitive. We may not be able to
compete successfully against current or future competitors. If our competitors
lower their prices or we are forced to lower ours, we will be adversely
affected.
Competitors vary in size and in the products and services they offer.
Many competitors will have greater financial, technical, marketing and other
resources than we do. They may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. They may also be
able to devote greater resources to the development, promotion and sale of their
products and services than we can. We do not believe that a significant number
of other companies provide single-source solutions for the data networking, data
transport and telecommunications requirements of our target customers, but
numerous competitors can provide one or more of those requirements. Many of our
competitors also have long-standing relationships with their customers and
greater name recognition than Alliance. Our products and services do not
necessarily have any particular competitive advantage over other industry
participants.
THE TELECOMMUNICATIONS INDUSTRY MAY NOT CHANGE AS WE EXPECT.
If the products and services we represent are not accepted for any
reason, our business will be adversely affected. The market for our products may
grow more slowly than we expect. Technologies, customer requirements and
industry standards may change rapidly. We must improve our products to keep up
with these changes. New or improved products from competitors could make our
products less competitive or obsolete.
WE EXPECT OPERATING EXPENSES WILL INCREASE AND THIS COULD ADVERSELY AFFECT US.
The interconnect partners have been successful in recent years, but we
may not continue their success and profitability. We expect our expenses will
increase substantially as we:
- Increase our sales and marketing activities;
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- Develop our products and technology to keep up with the
changes in the telecommunications industry;
- Expand our state and regional markets; and
- Pursue strategic relationships and acquisitions.
We expect the net proceeds from this offering to satisfy our capital
requirements until our next significant acquisition. However, many factors could
cause us to need additional capital sooner. We may not be successful in
expanding our markets and our activities may be more expensive than we currently
expect. We may not experience any revenue growth in the future, and, in fact,
our revenue could decline. As a result, we cannot predict our future operating
results with any degree of certainty.
WE CANNOT GROW SUCCESSFULLY IF WE DO NOT INCREASE SALES TO EXISTING CUSTOMERS.
We plan to grow by selling additional products and services to our
existing customers. We will introduce new products and services to the partners'
customers. If we cannot coordinate the partners' products and services, or
cross-sell products and services economically, we will not be able to grow
adequately.
We depend on the partners' existing customers for future revenues. If
the partners' customers do not purchase additional products and services, or do
not continue to be customers, our business will be adversely affected. These
customers may not purchase additional products, upgrades or professional
services.
ALLIANCE AND THE INTERCONNECT PARTNERS HAVE NOT PREVIOUSLY DONE BUSINESS
TOGETHER.
Alliance has not conducted operations except to complete this offering
and the acquisitions. The combined and pro forma combined financial information
provided in this prospectus may not indicate Alliance's actual operating results
and financial condition for the periods presented if the acquisitions had
occurred on the dates indicated. Until we establish centralized accounting,
management information and other administrative systems, we must rely on the
separate systems of the acquired companies. To be successful, we must centralize
systems, eliminate duplication of functions and integrate the businesses we
acquire. Systems, hardware and software of some partners may be incompatible
with others. Customer and employee turnover occurs regularly during and after
acquisitions.
WE DEPEND ON OUR KEY EXECUTIVES AND OPERATING PERSONNEL.
To be successful, we must keep the services of a small number of key
management and operating personnel, including certain sales, technical and
marketing personnel. If one or more of these people join a competitor or
otherwise compete against Alliance, it could materially hurt our business. These
people are employees at will. If we lose people, we may not be able to hire
adequate replacements.
Competition for personnel in the telecommunications and data
communications industries is intense. In addition, new employees generally
require substantial training. This training will require substantial resources
and management attention.
OUR NEW EXECUTIVE TEAM MAY NOT BE ABLE TO MEET OUR BUSINESS OBJECTIVES.
Almost all of our executive officers, including our nominee for Chief
Executive Officer, the President and Chief Operating Officer and the Chief
Financial Officer have been employed by Alliance for a relatively short period
of time. Since joining Alliance, the new management team has devoted substantial
efforts to expanding our sales, marketing and professional services activities.
This management team has not worked together previously and may not be able meet
our goals.
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WE MAY BE UNABLE TO SUCCESSFULLY INTEGRATE THE PARTNERS INTO OUR BUSINESS.
We will complete the acquisition of the thirteen companies concurrently
with closing this offering. We must integrate the businesses and operations of
those thirteen companies. If we are unsuccessful our business may be adversely
affected. Additionally, we may never achieve the anticipated synergies from the
acquisition of the partners, including marketing, distribution or other
operational benefits. We may have difficulties in integrating the partners,
because the companies are geographically separated, have different corporate
cultures and have personnel with different business backgrounds. We could have
problems with:
- retaining the partners' key employees;
- standardizing sales quotas, territories and incentive
compensation plans for sales personnel; and
- keeping the partners' customers.
RISKS ARE INVOLVED IN ACQUIRING COMPANIES.
We expect to grow by acquiring more companies. Other companies have
similar goals and may try to acquire the same companies. Many of our competitors
have greater resources than ours and may be willing to pay higher prices than
Alliance. The stock of larger public companies may be more acceptable to people
who want to sell their companies. Management's attention and resources may focus
on acquisitions and cause a loss of existing business. Additionally, past
operations of, and unanticipated problems with, acquired businesses pose a great
deal of risk. Customer dissatisfaction or performance problems of a single
acquired company could harm Alliance's reputation generally. We may not succeed
in integrating and profitably managing additional businesses.
We may rely on common stock, cash, notes or other consideration for
future acquisitions. Our ability to use our stock depends on its market value.
If we do not use stock, our ability to raise capital from other sources may be
limited. Significant additional debt could adversely affect Alliance and the
value of the common stock.
OUR BUSINESS DEPENDS ON A CONTINUED MARKET FOR SOUTHWESTERN BELL SERVICES.
We depend upon the continued use and acceptance of Southwestern Bell as
a local telephone service provider. If customers prefer other providers, we will
lose business.
OUR BUSINESS DEPENDS SIGNIFICANTLY ON THIRD PARTIES.
We depend on our relationships with, and the success of, third parties
that provide Internet, voice and data services and related equipment and
services. We do not know if we will be able to get these services on a
competitive basis. Our agreements with these third parties are generally
terminable at will. If any of the agreements are terminated, we may not be able
to replace those products or services.
THE YEAR 2000 PROBLEM MAY RESULT IN BUSINESS LOSSES.
If any equipment or software of third-party providers does not
recognize the difference between 1900 and 2000, we may incur unexpected expenses
to remedy the problem. Additionally, a regional or national failure in the
telephone network or power grid could prevent Alliance from servicing its
customers and generating revenues. Alliance does not have a contingency plan if
any of these events occur.
NO PRIOR MARKET EXISTS FOR OUR STOCK AND PRICES MAY BE VOLATILE.
Until this offering, no public market for our common stock has existed.
We negotiated the initial public offering price with the underwriters. The
offering price does not necessarily indicate the price at which the common
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stock will trade. Stock prices and trading volumes for many telecommunication
companies fluctuate for a number of reasons, including some reasons which may
be unrelated to their business or results of operation. We intend to list the
shares of common stock on the _______________________. However, an active
trading market for the common stock may not develop or continue after the
offering.
WE DO NOT INTEND TO PAY DIVIDENDS.
We intend to retain our earnings, if any, to finance business expansion
and for general corporate purposes. We do not anticipate paying any cash
dividends in the foreseeable future. Additionally, our ability to pay dividends
may be restricted by loan or other agreements in the future.
DILUTION WILL AFFECT THE NET TANGIBLE BOOK VALUE OF THE STOCK.
The initial public offering price is substantially higher than the book
value per share of Alliance's common stock. As a result, investors purchasing
common stock in this offering will incur immediate dilution of $10.01 in net
tangible book value per share of common stock. This dilution figure deducts the
estimated underwriting discounts and commissions and estimated offering expenses
payable by Alliance from the initial public offering price.
OKLAHOMA LAW MAY RESTRICT POTENTIAL ACQUISITION BIDS FOR ALLIANCE.
Approximately one-third of our board of directors is elected each
year. Members of the board of directors cannot be removed except for cause. The
certificate of incorporation permits the board of directors to issue preferred
stock with dividend, redemption, conversion and exchange rights selected by the
board without prior approval of Alliance stockholders. The difficulty of
removing members of the board, and the board's ability to issue preferred stock,
could delay or prevent a change of control of Alliance. As a result, these
provisions may prevent the market price of Alliance common stock from reflecting
the effects of actual or rumored takeover attempts. These provisions may also
prevent changes in the management of Alliance.
Additionally, Oklahoma laws may inhibit potential acquisition bids for
Alliance. Oklahoma law prevents Alliance from engaging in a business
combination with any interested stockholder for three years following the date
that the stockholder became an interested stockholder. A business combination
includes a merger or consolidation involving Alliance and the interested
stockholder or the sale of more than 10% of Alliance's assets.
If we have 1,000 or more shareholders and meet other conditions, we
will be subject to Oklahoma's control shares act. With exceptions, this act
prevents holders of more than 20% of our stock from voting those shares. This at
least delays the time it takes anyone to gain control of Alliance. Also,
shareholder action by written consent without a meeting requires unanimous
shareholder consent.
OUR UNDERWRITER HAS LIMITED UNDERWRITING EXPERIENCE.
Capital West Securities, Inc. was first registered as a broker-dealer
in May 1995. Capital West has participated in only nine public equity offerings
as an underwriter, although certain of its employees have had experience in
underwriting public offerings while employed by other broker-dealers.
Prospective purchasers of the securities offer in this prospectus should
consider Capital West's limited underwriting experience in evaluating this
offering.
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SUMMARY COMBINED FINANCIAL INFORMATION
The following table sets forth the condensed historical financial data
of the interconnect partners for the periods ended and as of December 31, 1998,
except for Telkey Communications, Inc. and Terra Telecom, Inc., whose
information is as of September 30, 1998 and for the twelve months then ended.
The financial data of Access Communications Services, Inc., The Alliance Group,
Inc., American Telcom, Inc., Banner Communications, Inc., Communication
Services, Inc., Telephone and Paging Divisions of EIS Communications, Telkey
Communications, Inc., Terra Telecom, Inc. and Travis Business Systems, Inc. are
derived from the financial statements of each company, which have been audited
by Deloitte & Touche LLP, independent auditors. The financial data of Commercial
Telecom Systems, Inc. are derived from its financial statements, which have been
audited by Hunter, Atkins & Russell, PLC, independent auditors. The financial
data of Nobel Systems, Inc. are derived from its financial statements, which
have been audited by Saxon & Knol, P.C., independent auditors. The financial
data of Able Communication Incorporated, Perkins Office Machines, Inc. and The
Phone Man Sales and Services, Inc. set forth in the "Others" column are derived
from the unaudited financial statements of each company, which, in the opinion
of each company's management, present fairly the financial condition and results
of operations of the company. The table also sets forth the unaudited condensed
historical financial data of the interconnect partners and of Alliance on a
combined basis. The information should be read in conjunction with the
historical financial statements and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this prospectus.
11
<PAGE>
THE ALLIANCE GROUP, INC.
HISTORICAL COMBINED BALANCE SHEETS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS AMERICAN ACCESS BANNER CSI CTS EIS NOBEL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 82,545 $ 187,464 $ 13,486 $ 26,440 $ 54,532 $ * $ *
Accounts receivable 230,324 127,953 148,033 98,354 72,080 239,130 85,237
Inventory 25,484 51,820 68,939 32,482 90,902 177,340 51,976
Other current assets 2,800 3,864 * * * * *
-------- --------- --------- --------- --------- --------- ---------
Total current assets 341,153 371,101 230,458 157,276 217,514 416,470 137,213
PROPERTY AND EQUIPMENT, 75,659 143,044 79,140 45,944 14,843 19,212 32,489
NET
OTHER ASSETS * 198,977 * 200 610 * *
-------- --------- --------- --------- --------- --------- ---------
TOTAL $416,812 $ 713,122 $ 309,598 $ 203,420 $ 232,967 $ 435,682 $ 169,702
-------- --------- --------- --------- --------- --------- ---------
-------- --------- --------- --------- --------- --------- ---------
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 50,751 $ 191,484 $ 68,432 $ 68,511 $ 137,590 $ 123,327 $ 46,083
Current portion of long-term debt 66,827 73,474 50,073 29,445 4,044 11,064 71,567
Other current liabilities 87,351 79,595 32,646 51,813 159,341 55,923 16,822
-------- --------- --------- --------- --------- --------- ---------
Total current liabilities 204,929 344,553 151,151 149,769 300,975 190,314 134,472
Long-term debt * 116,748 44,807 28,195 7,348 16,581 17,228
-------- --------- --------- --------- --------- --------- ---------
Total liabilities 204,929 461,301 195,958 177,964 308,323 206,895 151,700
STOCKHOLDERS' EQUITY (DEFICIT) 211,883 251,821 113,640 25,456 (75,356) 228,787 18,002
-------- --------- --------- --------- --------- --------- ---------
TOTAL $416,812 $ 713,122 $ 309,598 $ 203,420 $ 232,967 $ 435,682 $ 169,702
-------- --------- --------- --------- --------- --------- ---------
-------- --------- --------- --------- --------- --------- ---------
</TABLE>
12
<PAGE>
THE ALLIANCE GROUP, INC.
HISTORICAL COMBINED BALANCE SHEETS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS INTERCONNECT
PARTNERS COMBINED
TELKEY TERRA TRAVIS OTHERS COMBINED ALLIANCE TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 140,053 $ 20,946 $ 153,409 $ 12,962 $ 691,837 $ 79,700 $ 771,537
Accounts receivable 154,280 118,120 381,421 63,644 1,718,576 * 1,718,576
Inventory 88,748 131,035 485,695 4,971 1,209,392 * 1,209,392
Other current assets 19,065 * 46,063 282 72,074 1,933 74,007
--------- --------- ---------- --------- ---------- --------- ----------
Total current assets 402,146 270,101 1,066,588 81,859 3,691,879 81,633 3,773,512
PROPERTY AND EQUIPMENT, NET 73,494 64,920 118,640 28,469 695,854 40,721 736,575
OTHER ASSETS 16,862 8,096 5,884 543 231,172 20,498 251,670
--------- --------- ---------- --------- ---------- --------- ----------
TOTAL $ 492,502 $ 343,117 $1,191,112 $ 110,871 $4,618,905 $ 142,852 $4,761,757
--------- --------- ---------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ---------- --------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Accounts payable $ 31,364 $ 126,585 $ 172,654 $ 15,596 $1,032,377 $ 32,464 $1,064,841
Current portion of long-term debt 59,782 59,143 * 13,000 438,419 8,049 446,468
Other current liabilities 54,701 86,145 382,341 5,953 1,012,631 98,296 1,110,927
--------- --------- ---------- --------- ---------- --------- ----------
Total current liabilities 145,847 271,873 554,995 34,549 2,483,427 138,809 2,622,236
Long-term debt 24,780 56,362 * 75,173 387,222 26,119 413,341
--------- --------- ---------- --------- ---------- --------- ----------
Total liabilities 170,627 328,235 554,995 109,722 2,870,649 164,928 3,035,577
STOCKHOLDERS' EQUITY (DEFICIT) 321,875 14,882 636,117 1,149 1,748,256 (22,076) 1,726,180
--------- --------- ---------- --------- ---------- --------- ----------
TOTAL $ 492,502 $ 343,117 $1,191,112 $ 110,871 $4,618,905 $ 142,852 $4,761,757
--------- --------- ---------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ---------- --------- ----------
</TABLE>
13
<PAGE>
THE ALLIANCE GROUP, INC.
HISTORICAL COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AMERICAN ACCESS BANNER CSI CTS EIS NOBEL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES $1,168,070 $1,345,576 $1,548,874 $ 807,432 $1,437,932 $2,349,845 $ 953,046
COSTS AND EXPENSES:
Cost of sales 463,476 523,506 798,261 350,793 694,385 1,232,744 439,803
Salaries and benefits 365,055 523,127 452,068 285,823 386,413 678,442 330,795
Selling, general and administrative 200,126 234,004 216,801 156,493 133,253 421,877 166,224
Interest 3,028 47,444 6,689 4,335 5,099 2,226 9,729
Depreciation and amortization 18,802 27,594 28,837 16,799 10,121 15,085 14,926
---------- ---------- ---------- --------- ---------- ---------- ---------
Total costs and expenses 1,050,487 1,355,675 1,502,656 814,243 1,229,271 2,350,374 961,477
---------- ---------- ---------- --------- ---------- ---------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES 117,583 (10,099) 46,218 (6,811) 208,661 (529) (8,431)
INCOME TAX (EXPENSE)
BENEFIT (31,955) 1,515 * * (76,316) * *
---------- ---------- ---------- --------- ---------- ---------- ---------
NET INCOME (LOSS) $ 85,628 $ (8,584) $ 46,218 $ (6,811) $ 132,345 $ (529) $ (8,431)
---------- ---------- ---------- --------- ---------- ---------- ---------
---------- ---------- ---------- --------- ---------- ---------- ---------
</TABLE>
14
<PAGE>
THE ALLIANCE GROUP, INC.
HISTORICAL COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
INTERCONNECT
PARTNERS COMBINED
TELKEY TERRA TRAVIS OTHERS COMBINED ALLIANCE TOTAL
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES $1,393,165 $1,956,623 $4,198,047 $ 656,171 $17,814,781 * $17,814,781
COSTS AND EXPENSES:
Cost of sales 566,249 1,052,621 1,771,499 334,140 8,227,477 * 8,227,477
Salaries and benefits 476,800 650,889 1,814,593 204,155 6,168,160 63,267 6,231,427
Selling, general and administrative 249,538 204,014 618,179 81,264 2,681,773 46,983 2,728,756
Interest 7,161 19,747 9,177 11,136 125,771 850 126,621
Depreciation and amortization 46,874 29,459 43,353 16,478 268,328 1,978 270,306
---------- ---------- ---------- --------- ----------- ---------- -----------
Total costs and expenses 1,346,622 1,956,730 4,256,801 647,173 17,471,509 113,078 17,584,587
---------- ---------- ---------- --------- ----------- ---------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES 46,543 (107) (58,754) 8,998 343,272 (113,078) 230,194
INCOME TAX (EXPENSE)
BENEFIT (11,792) 16 9,689 * (108,843) * (108,843)
---------- ---------- ---------- --------- ----------- ---------- -----------
NET INCOME (LOSS) $ 34,751 $ (91) $ (49,065) $ 8,998 $ 234,429 $ (113,078) $ 121,351
---------- ---------- ---------- --------- ----------- ---------- -----------
---------- ---------- ---------- --------- ----------- ---------- -----------
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give
effect to the acquisitions by Alliance of the outstanding capital stock or
assets of the interconnect partners. The acquisitions will be accounted for
using the purchase method of accounting. Alliance has been identified as the
accounting acquirer.
The unaudited pro forma combined balance sheet gives effect to the
acquisitions and the offering as if they had occurred on December 31, 1998. The
unaudited pro forma combined statements of operations give effect to these
transactions as if they had occurred on January 1, 1998. All of the historical
financial information included in the "Interconnect Partners Historical
Combined" column below is as of December 31, 1998 and for the twelve months then
ended, except for Telkey Communications, Inc. and Terra Telecom, inc, whose
information is as of September 30, 1998 and for the twelve months then ended.
Alliance has preliminarily analyzed the savings that it expects to
realize from reductions in salaries and benefits to certain stockholders of the
interconnect partners who will not be employees of Alliance. Net reductions have
been reflected in the pro forma combined statements of operations for the
stockholders and management of the interconnect partners who will not be
employed by Alliance and for certain other cost savings, including the overhead
allocations made by the parent of one of the interconnect partners. These
savings have been offset by the incremental increase in costs related to
consulting agreements and Alliance's new management. With respect to other
potential cost savings, Alliance has not and cannot quantify these savings until
completion of the acquisitions. It is anticipated that these savings will be
partially offset by the costs of being a publicly held company. However, these
costs, like the savings that they offset, cannot be quantified accurately.
Neither these anticipated savings nor the anticipated off-setting costs have
been included in the pro forma combined financial statements of Alliance.
The pro forma adjustments are based on estimates, available information
and certain assumptions and may be revised as additional information becomes
available. The pro forma combined financial data do not purport to represent
what Alliance's financial position or results of operations would actually have
been if such transactions in fact had occurred on those dates and are not
necessarily representative of Alliance's financial position or results of
operations for any future period. Since the interconnect partners were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma combined
financial statements should be read in conjunction with the risk factors
starting on page 5 of this prospectus and the financial statements and notes
thereto included elsewhere in this prospectus.
16
<PAGE>
THE ALLIANCE GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Interconnect
Partners Pro Forma
Historical Pro Forma As
Combined Alliance Adjustments Notes Adjusted
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 691,837 $ 79,700 $ 2,400,500 1 $ 3,100,037
(72,000) 7
Accounts receivable 1,718,576 1,718,576
Inventory 1,209,392 1,209,392
Other current assets 72,074 1,933 74,007
----------------------------------------- -----------
Total current assets 3,691,879 81,633 2,328,500 6,102,012
Property and equipment, net 695,854 40,721 (17,800) 7 718,775
Other assets 231,172 20,498 11,684,269 2 11,935,939
----------------------------------------- -----------
TOTAL $ 4,618,905 $ 142,852 $13,994,969 $18,756,726
----------------------------------------- -----------
----------------------------------------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 1,032,377 $ 32,464 $ 1,064,841
Accrued expenses 36,849 18,296 55,145
Current portion of long-term debt 438,419 8,049 446,468
Other current liabilities 975,782 80,000 1,055,782
----------------------------------------- -----------
Total current liabilities 2,483,427 138,809 2,622,236
Long-term debt 387,222 26,119 2,600 7 415,941
Other liabilities
STOCKHOLDERS' EQUITY
Common stock 9,063 7,610 4,076 1 20,749
Additional paid-in capital 353,493 83,392 15,373,993 1 15,810,878
Retained earnings 1,385,700 (113,078) (1,385,700) 1 (113,078)
----------------------------------------- -----------
Total stockholders' equity 1,748,256 (22,076) 13,992,369 15,718,549
----------------------------------------- -----------
TOTAL $ 4,618,905 $ 142,852 $13,994,969 $18,756,726
----------------------------------------- -----------
----------------------------------------- -----------
</TABLE>
17
<PAGE>
THE ALLIANCE GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Interconnect
Partners Pro Forma
Historical Pro Forma As
Combined Alliance Adjustments Notes Adjusted
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $17,814,781 $17,814,781
Cost of sales 8,227,477 8,227,477
Salaries and benefits 6,168,160 $ 63,267 $ (107,708) 3 6,123,719
Selling, general and administrative 2,681,773 48,961 2,730,734
Interest 125,771 850 126,621
Depreciation and amortization 268,328 778,387 4 1,046,715
----------------------------------------- -----------
Total costs and expenses 17,471,509 113,078 670,679 18,255,266
----------------------------------------- -----------
Income (loss) before income taxes 343,272 (113,078) (670,679) (440,485)
Income tax (expense) benefit (108,843) (19,560) 5 (128,403)
----------------------------------------- -----------
Net income (loss) $ 234,429 $ (113,078) $ (690,239) $ (568,888)
----------------------------------------- -----------
----------------------------------------- -----------
Net loss per share (both basic and
diluted) 6 (0.27)
-----------
-----------
Number of shares used in
computing net loss per share 2,074,910
-----------
-----------
</TABLE>
18
<PAGE>
THE ALLIANCE GROUP, INC.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
General - Acquisition of Interconnect Partners
Alliance was formed to identify and acquire the interconnect partners.
Concurrent with and as a condition of closing this offering, Alliance will
acquire the interconnect partners in separate transactions, in exchange for cash
and shares of Alliance common stock. The acquisitions will be accounted for
using the purchase method of accounting. For purposes of computing the purchase
price for accounting purposes, the value of shares is determined using an
estimated discounted value of $9.00 per share, which represents a discount of 25
percent from the initial public offering price of $12.00 per share due to
restrictions on the sale and transferability of the shares issued.
The purchase price has been allocated to the interconnect companies'
historical assets and liabilities based on their respective carrying values as
these carrying values are deemed to represent the discounted value of these
assets and liabilities. Alliance has allocated a portion of the purchase price
to noncompete agreements based on an analysis prepared by Alliance. The
allocations of the purchase price are considered preliminary until such time as
the closing of the offering and the acquisitions.
Neither all of the anticipated savings nor all of the anticipated costs of
the acquisitions have been included in the pro forma adjustments because such
matters are not presently quantifiable with any degree of certainty. Subsequent
to the offering, Alliance believes that it can realize savings from (1)
increased productivity of its technical service staff, (2) greater volume
discounts from suppliers, and (3) consolidation of insurance programs and other
corporate operations, such as financial and management reporting. Integration of
the interconnect partners may also present opportunities to reduce costs through
the elimination of duplicative functions and through increased employee
utilization. However, subsequent to the offering, Alliance will incur additional
costs and expenditures for corporate expenses related to being a public company,
systems development and corporate administration.
19
<PAGE>
THE ALLIANCE GROUP, INC.
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
PRO FORMA ADJUSTMENTS
NOTE 1 - To record the assumed $15,740,625 issuance of stock,
net of offering costs, from the sale of shares in the offering
and from the issuance of stock in the acquisitions as follows:
$ 15,000,000
Cash proceeds
Amount of interconnect partners' purchase price payable in stock 3,140,625
-------------
18,140,625
Offering costs (2,400,000)
-------------
Net proceeds 15,740,625
Less amount of proceeds paid to partners (10,199,500)
Less amount of proceeds paid in stock (3,140,625)
-------------
Net cash proceeds $ 2,400,500
-------------
-------------
The equity effect was recorded at an assumed issuance of
1,250,000 shares at $12.00 per share, and 348,960 shares
at a value of $9.00 per share, with a par value of $.01 per
share for Alliance common stock.
Also to eliminate the combined companies' historical combined
total equity including $9,063 in common stock and $353,493 in
additional paid-in capital.
NOTE 2 - To reflect allocation of the $13,340,125 purchase
price of the interconnect partners as follows:
Cost of tangible assets $ 1,655,856
-------------
Identified intangible assets $ 1,694,061
Goodwill 9,990,208
-------------
Adjustment to other assets 11,684,269
-------------
Total purchase price $ 13,340,125
-------------
-------------
Identified intangible assets consist of noncompetition
agreements with the interconnect partners' stockholders.
20
<PAGE>
NOTE 3 - To reflect:
Expense reductions:
Salaries and benefits for stockholders of the interconnect
partners that will not continue subsequent to the acquisition. $ 689,108
Overhead allocation from the parent of an interconnect partner
that will not continue. 309,333
-------------
Total estimated cost reductions 998,441
Less additional costs resulting from the purchase:
Consulting agreements with certain interconnect partners. (156,000)
Salaries and benefits for administrative employees of Alliance
for a twelve month period, net of actual expenses incurred. (734,733)
-------------
Pro forma adjustment to salaries and benefits $ 107,708
-------------
-------------
</TABLE>
NOTE 4 - To reflect amortization of goodwill over periods ranging from 5 to 30
years and identified intangible assets over a four to eight-year period.
NOTE 5 - To reflect the incremental provision for federal and state income
taxes, assuming all entities were subject to federal and state income tax and
provide the income tax benefit of pro forma net expenses. The adjustment assumes
a corporate income tax rate of 38% and that a majority of the goodwill and
intangible asset amortization is non-deductible.
NOTE 6 - Unaudited pro forma net loss per share (both basic and diluted) is
calculated using 2,074,910 shares of common stock. Shares outstanding include
1,250,000 shares sold pursuant to this offering, 348,960 shares issued to
interconnect partners and 475,950 shares owned by the existing shareholders of
Alliance following the cancellation of 285,000 shares from an exiting
stockholder.
NOTE 7 - To reflect certain asset distributions from certain of the interconnect
partners to their stockholders prior to the acquisitions consisting of:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash 72,000
Property and equipment 17,800
Long-term debt 2,600
</TABLE>
21
<PAGE>
BUSINESS
Alliance was incorporated in Oklahoma on September 4, 1998, under the
name Advantage Business Solutions, Inc. We formed Alliance so that we could
consolidate the operations of certain interconnect companies in Oklahoma.
When we refer to Alliance throughout this prospectus, we are also referring
to Advantage Business Solutions.
ALLIANCE'S BUSINESS AND GROWTH STRATEGY
Our objective is to become a leader in the next evolution of
interconnection. Interconnect companies have traditionally served as bridges
or integrators between the customers' telecommunications equipment and the
public telephone network. Alliance anticipates the interconnect's role as
overall solutions provider for the customer's communications requirement
expanding to include voice traffic within data networks. Alliance also
believes that the nature of the customer-interconnect relationship will put
Alliance in a position to provide its customers with best-of-class products
and services. At the same time, vendors and suppliers can channel their
products through Alliance to its consolidated customer base.
Alliance's primary growth strategy will be the acquisition of
interconnect companies in states contiguous to Oklahoma. Following the
acquisitions of the thirteen original interconnect partners, Alliance expects
to duplicate that model in the surrounding states. We believe that economies
of scale will benefit the company as it utilizes its growing customer base as
a means of distributing telecommunication products and services.
Alliance will maintain its market presence in support of traditional
voice offerings, as well as take advantage of the strong demand for emerging
technologies in telecommunication equipment and services, such as voice over
IP and packet-switching networks. The telecommunications industry has begun to
merge traditionally separate networks of voice and data into one consolidated
network. Therefore, Alliance will position itself as the integrator or bridge
between the communications service provider and the customer, where the
Alliance partners currently enjoy the reputation as the customer premise
experts.
We believe that Alliance will gain a significant share of the
interconnect-related telecommunications service business in its regional
market. We expect economies of scale to benefit Alliance as we utilize our
growing customer base to distribute telecommunication products and services.
As part of our business strategy, we will concentrate on:
PROVIDING AN INTEGRATED PORTFOLIO OF SERVICES. We believe that
substantial demand exists among customers in our target markets for a "one
stop" integrated portfolio of services that meet all of their telephone
equipment and related software applications needs. We will bundle a variety
of services and provide single-source solutions for data networking, data
communication and telecommunications requirements.
CROSS-SELLING ADDITIONAL SERVICES TO EXISTING CUSTOMERS. Our
interconnect partners will become multi-service companies. We believe we can
increase our revenues at a relatively minor incremental cost by offering an
expanded range of services to the customers of the interconnect partners. We
will have a substantial reservoir of prospective business customers that are
already familiar with some aspects of our services.
UTILIZING THE REGIONAL CUSTOMER BASE. We plan to utilize the regional
customer base with emerging packet-switched network providers to provide
enhanced voice, video and data services and increase our market presence.
EXPLORING POTENTIAL ACQUISITIONS AND MERGERS. While we expect to grow
through expanded sales, service and cross marketing efforts, we believe that
there are a number of attractive acquisition candidates in Oklahoma and the
surrounding region.
FOCUSING ON SMALL AND MEDIUM-SIZED CUSTOMERS. We will principally target
small and medium-sized business customers, initially in Oklahoma, and then
throughout the surrounding region. Growth and spending by
22
<PAGE>
these companies, which generally have fewer than 1,000 telephone, modem and
fax connections, reflects a trend in the overall economy which shows that
small and medium-sized companies are acquiring the technology previously
available only to larger companies. These companies are acquiring more
sophisticated technology and, as a result, requiring more service and support
coverage.
MARKETING AND CUSTOMER SERVICE. We will seek long-term service contracts
with our customers and hope to maintain a low customer attrition rate. We
intend to use an information system which provides immediate access to
customer service, facility inventory and billing records, allowing seamless
provisioning of new service, quick response to service problems and
inquiries and a single invoice for all services.
THE MARKET
The telecommunications industry in the United States is immense and
robust. Spending on telecommunications equipment, software and services totaled
$406.7 billion in 1997, up 11.3 percent over 1996 -- nearly twice the 5.8
percent rate of growth of the economy as a whole. The need to transmit larger
volumes of information, increased spending by small and medium-sized companies,
the desire to integrate voice and data, more compatible equipment stemming from
the development of standards and the search for cost-effective solutions are
among the principal factors fueling the telecommunications industry.
SERVICES IN SUPPORT OF TELECOMMUNICATIONS EQUIPMENT. As the installed
base of high-technology telecommunications equipment rises, demand for
services associated with the support of this equipment grows too. Industry
spending for these services totaled $82 billion in 1997 and increased by 17.3
percent in 1998. These services include market segments in which Alliance
will be positioning itself for future growth, such as:
- Maintenance and repair;
- Logistical support;
- Providing integration of products from different vendors;
- Technical assistance for hardware and software operations;
- End-user training; and
- Information technology consulting.
EQUIPMENT-BASED SALES. Industry studies indicate that the telephone
system markets will continue strong growth fueled by system replacements,
add-on lines, new purchases and shifts away from older technology. The
majority of shipments and the fastest growth have occurred in companies with
fewer that 1,000 telephone, modem and fax connections, reflecting the trend
in the overall economy in which small and medium-sized companies are
acquiring the technology previously available only to larger companies. This
market segment coincides directly with the target market for the Alliance
partners. Alliance believes the small to medium-sized companies will directly
influence its future growth.
AGENCY AGREEMENTS FOR LOCAL AND LONG DISTANCE. The regional bell
operating carriers were required to establish sales agency programs in 1984
as a prerequisite for the divested Bell operating companies to market network
services and terminating equipment jointly. Carriers found that using agents,
like the Alliance partners, proved to be a cost-effective way to sell
services with commissions ranging from approximately 6% to 15% and,
generally, being paid over the life of the contract. Carriers tend to seek
out business partners who can add value by providing access to new market
segments. Some of the Alliance partners already enjoy a good agency
relationship with Southwestern Bell. Alliance would like to enter into similar
relationships with long distance carriers and data communication carriers.
23
<PAGE>
In each of our targeted markets, a number of interconnect companies
provide telecommunications services. Consequently, we have numerous
opportunities to acquire companies that will supply us with important
technical support personnel, as well as management expertise. The
interconnect companies' business customers would provide us with a base for
further expansion, increased cash flow and product line development.
In general, an interconnect company has a client base that is
considerably more stable than the traditional carrier-driven long distance
consumer base. Industry data suggest that interconnect companies have client
relationships that last from five to ten years, or longer. On the other hand,
long distance companies, on average, retain customers for only 18 months.
Accordingly, the foundation of our success will be our partners'
relationships with their base of business customers. Many of the business
customers have been satisfied clients for years, in several cases for as long
as 15 or 20 years. The longevity of these business relationships reflects the
integrity and quality of service provided by the partners.
PRODUCTS AND SERVICES
Each of the interconnect partners has two or three primary lines of
telephone equipment they sell and support. However, many of them perform
maintenance on three to four times that many different manufacturers'
products. This broad base of experience has allowed the interconnect partners
to service a wide range of customers and gain expertise in a wide array of
communication products.
Alliance intends to focus on equipment lines that have a broad base of
support with the partners, have a strong market share in target market
segments and provide equipment that can easily be updated to accommodate new
and emerging technologies. Alliance has entered into distribution agreements
with some vendors that would not have been available to the partners without
Alliance. The Alliance Group has provided the partners with new products to
sell their customers and the opportunity to compete in additional geographic
areas.
We will provide important new products and services to our interconnect
partners. Some of the partners will enjoy increased margins in their current
equipment lines due to the combined purchasing power of two or more partners.
We plan to market and support the following products and services through the
interconnect partners:
- Telephone equipment sales and support;
- Telecommunications network design for medium to large companies and
companies having multiple locations, intrastate and/or interstate;
- Remote management and support of customer premise telephone equipment;
- Telephone software applications such as:
(1) Voice mail;
(2) Unified messaging -- combines voice mail, fax and e-mail to allow
users to access all of their messages through the telephone or at
their personal computer;
(3) Interactive voice recognition -- most commonly used in conjunction
with large company customer support centers, but is becoming cost
effective for small companies; and
(4) Automated call distribution -- commonly used in call centers for
telemarketing applications.
- Call Center design and installation for telemarketing;
- Video conferencing design and installation;
- Design and installation of structured cabling systems, both copper and
fiber.
24
<PAGE>
- Engineering, installation and administration of local and wide area data
networks.
- Coordinating and providing local access and long distance telephone
service.
NETWORK PROVIDER AGENCY PROGRAM. Alliance will secure the local access,
long distance and data communications portion of its business strategy
through the network provider agency program. Rather than committing
substantial investments to build a facilities-based network, initially,
Alliance will secure agent agreements with leading local exchange carriers or
competitive local exchange carriers and long distance or inter-exchange
carrier companies. The agency program will allow us to focus on building
network interfaces into the existing network infrastructure while still
allowing us to expand in the future as a facility based operator.
Under the agency agreements, we expect to be able to represent the
carrier's mature product lines with the following benefits:
- Extensive service offerings, including enhanced product capabilities.
- Co-branding of the Alliance name alongside the providers.
- Name recognition and regional marketing support.
- Competitive cost of services, with equal access to direct sales for
promotional and special pricing.
- Residual income based on net monthly invoice totals.
- Ability to attract and retain top sales representatives which provides
our customers with stable account management.
Targeted business customers that are not currently clients of the
partners may deal with several providers of communication equipment and
services. A typical business customer could employ four or more providers to
acquire, install and maintain voice and data networks. Each of these
providers produces separate invoices, separate contact points for sales and
service, and separate pricing based on specific services rather than
solution-based pricing. Alliance intends to reduce the number of contacts and
provide a single interface for the customer premise equipment.
A foundational service strategy is to retain customers and increase our
business by maintaining a CONSISTENT PRESENCE before the customer and being
MORE RESPONSIVE to the customer's needs than have a traditional telephone
service providers. The interconnect partners are not the lowest price
providers and they generally price their products to permit quality of
service and timely response for support. All of the partners enjoy good
working relationships with their customers and are trusted to provide sound
business advice in the telecommunications area of their businesses.
THE INTERCONNECT PARTNERS
The Alliance partners will continue to be primarily responsible for
their individual businesses and will keep their business relationships with
existing customers. The interconnect partners can combine their sales and
technical abilities, enabling each of them to provide products and services
which are not presently available to them individually. For example, as of
the date of this prospectus, four of the interconnect partners sell and
install equipment related to data communications. Upon completing the
acquisitions and forming The Alliance Group, each of the thirteen partners
will be able to provide customers with data communications services.
25
<PAGE>
As the following descriptions indicate, Alliance's interconnect partners
represent a diverse range of telephone products and services and related
software applications that complement one another and can be used to build a
more complete and solid business base:
ABLE COMMUNICATION INCORPORATED: Able was incorporated in 1987 and is
based in Oklahoma City, Oklahoma. Able provides business communications
solutions to small and medium sized business customers. Able is a preferred
dealer for the Comdial product line and coordinates the local access services
and data cabling requirements for the customers.
ACCESS COMMUNICATIONS SERVICES, INC.: Access Communications was formed
in 1986 and is based in Oklahoma City. Access has 12 employees who sell,
install and maintain a wide range of telecommunication products and services.
Access is a Panasonic DBS, Mitel and Harris dealer. Access also designs,
installs and maintains long distance inter-exchange switch facilities.
AMERICAN TELCOM, INC.: American Telcom was formed in 1987 and is based
in Del City, Oklahoma. American Telcom currently has 11 employees who sell,
install and maintain telecommunications systems as well as copper and fiber
cabling systems. American services its clients communications needs with a
wide variety of products and services. American is an authorized Toshiba and
NEC dealer. American is also a Southwestern Bell local service and wireless
agent and is an agent for TSR and Pagenet paging services.
BANNER COMMUNICATIONS, INC.: Banner was established in 1987 and is based
in Tulsa, Oklahoma. Banner has 13 employees and is a leading provider of
voice and data communicators in northeastern Oklahoma. Banner is a Mitel
"Elite" dealer, a Telrad dealer, an NEC associate, an AVT dealer, a NT Right
Fax dealer, a Spectralink Wireless dealer and a Lucent Data Value Added
Reseller. Banner is also an authorized agent of Southwestern Bell Telephone
Company.
COMMERCIAL TELECOM SYSTEMS, INC.: CTS was incorporated in 1988 and is
based in Oklahoma City, Oklahoma. CTS has eight employees who sell, install
and maintain telecommunications and data equipment for business customers.
CTS is a direct Newbridge distributor that provides digital cross connects,
access concentrators and ATM switches. CTS specializes in telemedicine and
hospital environments.
COMMUNICATION SERVICES, INC.: CSI was formed in 1987 and is based in
Shawnee, Oklahoma. CSI has 12 employees who sell, install and maintain
telecommunications systems and digital cellular services. CSI serves the
greater Shawnee area including Oklahoma City with Comdial and Panasonic. CSI
is a premiere authorized agent for Southwestern Bell Telephone Company and
Southwestern Bell wireless. CSI also serves as a cellular service retailer.
ELECTRICAL & INSTRUMENT SALES CORP. D/B/A EIS COMMUNICATIONS: EIS was
formed in 1975 and is located in Tulsa, Oklahoma. EIS is an authorized dealer
for Nortel Norstar and Meridian products and is also a Lucent Technologies
representative. EIS also provides Polycom video teleconferencing services and
private label paging services.
NOBEL SYSTEMS, INC.: Nobel was formed in 1984 and is based in Oklahoma
City, Oklahoma. Nobel currently has 14 employees who sell, install and
maintain telecommunication systems. Nobel is an authorized Comdial, Key-Voice
and Active Voice dealer. Nobel also installs equipment in support of local
and wide area networks.
PERKINS OFFICE MACHINES, INC.: Perkins was founded in 1982 and is based
in Lawton, Oklahoma. Perkins began selling telephone equipment in 1989.
Perkins sells, installs and maintains telephone systems and voice mail
systems. Perkins also provides data cabling services for its customers.
THE PHONE MAN SALES AND SERVICES, INC.: The Phone Man was incorporated
in 1987 and is based in
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Oklahoma City, Oklahoma. The Phone Man installs, services and maintains
telephone systems and communication cabling systems. Some of The Phone Man's
customers include a large hospital complex and a multi-location financial
institution.
TELKEY COMMUNICATIONS, INC.: Telkey was incorporated in 1984 and is
based in Tulsa, Oklahoma. Telkey has 14 employees who sell, install and
maintain telephone systems. Telkey is the exclusive Tadiran dealer in the
state of Oklahoma. Telkey's customer base includes large school systems which
require a complex network design. Telkey is also an agent for Southwestern
Bell and Southwestern Bell wireless.
TERRA TELECOM, INC.: Terra Telcom was founded in 1980 and is based in
Tulsa, Oklahoma. Terra employs 16 people who install and service voice and
data equipment for its customers. Terra was the first ITT/Cortelco PBX
authorized distributor in the United States. Terra is also an authorized
Toshiba dealer and an authorized Southwestern Bell agent.
TRAVIS BUSINESS SYSTEMS, INC.: Travis Business Systems was formed in
1988, and its headquarters is in Oklahoma City. Travis is the exclusive
distributor in Oklahoma for Lanier Worldwide's voice products division and is
a Lucent and Inter-tel telephone distributor. Travis is also an exclusive
Southwestern Bell agent. Travis employs 39 people and has offices in Tulsa,
Dallas, Houston, San Antonio and Springdale, Arkansas featuring its Digital
Communications Recording Division for the rapidly expanding call center
market. Travis is the third largest interconnect in Oklahoma and was recently
recognized as the 31st fastest growing company in Oklahoma.
THE ACQUISITIONS
THE AGREEMENTS. Alliance entered into definitive agreements with each of
the thirteen interconnect partners. Alliance will acquire the assets of Able
Communication Incorporated, Electrical & Instrument Sales Corp. and The Phone
Man Sales and Service, Inc. by asset purchase and will acquire the assets of
the other ten partners by merger. Each acquisition's closing is subject to
the closing of this offering and several standard conditions, including
accuracy of the representations and warranties made, performance of covenants
included in the agreements, execution of employment and consulting agreements
by certain employees of the interconnect partners and no material adverse
change in the results of operations, financial condition or business of the
interconnect partners. Additionally, any or all of the acquisition agreements
may be terminated before this offering closes:
- By the mutual consent of the boards of directors of Alliance and the
affected interconnect partner;
- If the offering and the acquisitions are not closed by May 31, 1999;
- By the interconnect partner if its schedules to its acquisition agreement
are amended to reflect a material adverse change and such amendment is
rejected by Alliance; or
- If a material breach or default under the agreement by one party occurs
and is not waived.
We cannot assure you that the conditions to the closing of all the
acquisitions will be satisfied or waived or that each merger will close. For
information about the employment and consulting agreements to be entered into
by stockholders of the interconnect partners, see the "Employees" paragraph
on page 30 of this "Business" section.
27
<PAGE>
THE CONSIDERATION. The aggregate consideration Alliance is paying in the
acquisitions is approximately $13.3 million, which is to be paid $10.2
million in cash and $3.1 million in Alliance common stock. The common stock
issued as purchase consideration will be valued at the initial public
offering price less a 25% discount due to sale and transferability
restrictions. The actual number of shares of common stock to be issued in the
acquisitions depends on the initial public offering price. Each merger and
asset purchase agreement provides that the number of shares of common stock
to be issued will be calculated by dividing the initial public offering price
into the designated dollar amount. Alliance will also assume the current
liabilities and long-term debt of the partners, issue a limited number of
warrants and permit certain distributions to be made by the interconnect
partners to their stockholders prior to closing. Alliance determined the
amount of consideration it would pay in the acquisitions in arm's length
negotiations between its representatives and representatives of each of the
respective companies.
The following table summarizes information relating to the consideration
payable to the interconnect partners pursuant to the mergers and asset
acquisitions:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE PRICE PAID IN
CASH STOCK (1)
-------------------------------------------------------------------------------------
COMPANY Value at Offering Discounted Value
Price ($12.00 per share) ($9.00 per share)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Able Communication
Incorporated $ 15,000 $ 50,000 $ 37,500
Access Communications
Services, Inc. 600,000 300,000 225,000
American Telcom, Inc. 850,000 250,000 187,500
Banner Communications, Inc. 1,275,000 225,000 168,750
Commercial Telecom
Systems, Inc. 1,300,000 100,000 75,000
Communication Services, Inc. 200,000 275,000 206,250
Electrical & Instrument Sales
Corp. 1,250,000 500,000 375,000
Nobel Systems, Inc. 385,000 325,000 243,750
Perkins Office Machines, Inc. 187,000 125,000 93,750
The Phone Man Sales and
Service, Inc. 37,500 37,500 28,125
Telkey Communications, Inc. 650,000 350,000 262,500
Terra Telecom, Inc. 1,050,000 450,000 337,500
Travis Business Systems, Inc. 2,400,000 1,200,000 900,000
----------- ---------- ----------
TOTAL: $10,199,500 $4,187,500 $3,140,625
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
- ------------------------------
(1) Total purchase price paid in Alliance stock is the discounted value of
the Alliance stock, or $3,140,625. The number of shares to be issued,
however, is based on the initial public offering price of the Alliance stock.
As a result, the number of shares to be issued to the interconnect partners
is approximately 348,960, or $4,187,500 divided by $12.00 per share.
OTHER CONSIDERATION.
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<PAGE>
CASH AND STOCK. The agreement between Alliance and Electrical &
Instrument Sales Corp. permits an increase in the purchase price by the
amount of net current assets existing on the date of closing, but not to
exceed $150,000. Electrical & Instrument's cash consideration could also
increase by an additional $150,000 if its gross revenues exceed $2,350,000
for the twelve months ended May 31, 1999. Electrical & Instrument's total
consideration received will also increase by an additional $50,000 in cash,
or $100,000 in Alliance stock, as purchase price for its paging business.
Alliance expects that Electrical & Instrument will meet the net asset and
gross revenue tests, and will elect to take cash in consideration for its
paging business. As a result, the cash consideration reflected as payable to
Electrical & Instrument in the table above has been increased by $350,000.
DEBT. Alliance is assuming certain current liabilities and long-term
debt of the partners. As of December 31, 1998, total assumed current
liabilities would have been approximately $2.48 million and total assumed
long-term debt would have been approximately $390,000, including the assumed
debt of a shareholder of Communication Services, Inc., which was
approximately $24,000 on December 31, 1998. Although the debt is in the name
of the shareholder, the proceeds were used for the benefit of Communications
Services, Inc.
OTHER DISTRIBUTIONS. Banner Communications, Inc. and Perkins Office
Machines, Inc. are Subchapter S corporations. Prior to the closing of the
acquisitions, both Banner and Perkins will distribute cash to their
stockholders, not to exceed the stockholders' individual tax liabilities
resulting from the partners' 1998 operations. The distribution for Banner is
expected to be no more than $2,500 and the distribution for
Perkins is expected to be no more than $10,000. Prior to closing,
Commercial Telecom Systems, Inc. will distribute cash to its stockholders in
an amount equal to the excess of its net worth on the date of closing over
its net worth existing on December 31, 1998.
Able Communication Incorporated, Access Communications Services, Inc.,
American Telcom, Inc., Banner Communications, Inc. and Travis Business
Systems, Inc. will each distribute certain automobiles to their stockholders
prior to closing. The stockholders will assume all liabilities and
obligations related to the automobiles for a net distribution of
approximately $60,000. Access will also distribute a time-share condominium
to a shareholder prior to closing. The time-share is valued at approximately
$10,500. Also prior to closing, American Telcom will cancel notes receivable
from its stockholders and distribute cash and certificates of deposit in the
aggregate amount of $99,477.
Alliance will issue to Commercial Telecom Systems, Inc. 10,000
non-transferable, four-year warrants to purchase common stock exercisable at
the initial public offering price. The warrants are exercisable commencing
one year after the closing of the acquisitions.
COMPETITION
Our business is highly competitive. Many companies provide the same
products and services that we provide, and many of those companies have
greater capital resources and more established reputations than Alliance. We
will compete primarily on the basis of pricing, quality of service and customer
loyalty. Our ability to compete effectively will depend on our ability to
maintain high quality services at prices generally equal to or below those
charged by our competitors.
We believe we are more capable of satisfying our customers' needs than
larger providers which are traditionally impersonal and slow to respond to
the customers' needs. Additionally, we are better equipped than other smaller
service providers because these smaller competitors generally do not have the
financial capability to provide a complete range of telecommunication products
and services.
PROPERTY
Our principal administrative, sales, marketing, consulting, education,
customer support and research and development facilities are located at 12101
North Meridian, Oklahoma City, Oklahoma 73120. Alliance currently occupies an
aggregate of approximately 2,200 square feet of office space in the Oklahoma
City facility that is leased
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<PAGE>
on a month-to-month basis. Once Alliance acquires the interconnect partners,
it will lease an additional nine facilities in Oklahoma and will own one
facility in Shawnee, Oklahoma. We believe that these facilities will exceed
our current and future requirements and that certain of these leases will be
terminated in accordance with their terms.
EMPLOYEES
As of April 1, 1999, Alliance had six full-time employees. None of our
employees are currently represented by a collective bargaining agreement. We
believe that we enjoy good relationships with our employees. The interconnect
partners currently have approximately 157 full-time employees, including 19
members of management, 46 in sales and customer service, 71 in technical
support and 21 in finance, administration and operations. None of these
employees are currently represented by a collective bargaining agreement. We
expect that we will have good relationships with employees of the
interconnect partners upon their acquisition.
Several of the interconnect partners' stockholders will execute
employment or consulting agreements with Alliance. These agreements are
intended to ensure that Alliance retains the goodwill created by each
interconnect partner's relationship with its customer base. The employment
agreements have terms of three years, provide for aggregate annual base
salaries of approximately $900,000, provide for bonuses generally based on
performance and include noncompete provisions. The consulting agreements have
terms of two years and have aggregate annual payments of $150,000.
Consultants will be bound by the two-year noncompete provisions set forth in
the acquisition agreements with each of the interconnect partners.
LEGAL PROCEEDINGS
Neither Alliance nor the interconnect partners are involved in any
material legal proceedings nor are they a party to any pending or threatened
claim that could reasonably be expected to have a material adverse effect on
its financial condition or results of operations.
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<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the cash,
long-term debt, including current maturities, and capitalization of (i)
Alliance on an actual basis, (ii) the interconnect partners on an historical
combined basis and (iii) Alliance on a pro forma combined basis to give
effect to the acquisitions and the offering and the application of the
estimated net proceeds therefrom. This table should be read in conjunction
with the Unaudited Pro Forma Combined Financial Statements of Alliance and
the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------
Interconnect Partners Alliance
Alliance Historic Pro Forma as
Actual Combined Adjusted
---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash $ 79,700 $ 691,837 $ 3,100,037
----------------------- ---------------------- ------------------
----------------------- ---------------------- ------------------
Long-term debt; including current
portion: 34,168 825,641 862,409
Stockholders' equity:
Preferred Stock: $.01 par value,
500,000 shares authorized: no
shares issued and outstanding * * *
Common Stock: $.01 par value,
4,500,000 shares authorized:
760,950 shares issued and
outstanding, Alliance; 2,074,910
shares issued and outstanding
Company pro forma as adjusted 7,610 9,063 20,749
Additional paid-in capital 83,392 353,493 15,810,878
Retained earnings (113,078) 1,385,700 (113,078)
----------------------- ---------------------- ------------------
Total stockholders' equity (22,076) 1,748,256 15,718,549
----------------------- ---------------------- ------------------
Total debt and capitalization $ 12,092 $2,573,897 $16,580,958
----------------------- ---------------------- ------------------
----------------------- ---------------------- ------------------
</TABLE>
- ------------------------------
(1) For a description of each company's debt, see the notes to financial
statements of the interconnect partners included elsewhere in this prospectus.
31
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
OVERVIEW
You should read the following discussion and analysis in conjunction
with the Unaudited Pro Forma Combined Financial Statements and related notes
found elsewhere in this document.
Alliance is an Oklahoma corporation and was incorporated on September 4,
1998. To date, Alliance has not started its business operations. Alliance
does not have any significant assets and has not engaged in any material
business operations relating to service associated with the maintenance and
installation of equipment. Our activities have been limited to acquiring the
interconnect partners, addressing organizational matters, conducting research
and due diligence and preparing and filing the registration statement of
which this prospectus is a part.
PURPOSE OF ORGANIZATION
We organized Alliance to consolidate and continue operations of thirteen
interconnect partners in Oklahoma in order to (1) take advantage of economies
of scale, (2) position the partners' combined customer base as a channel for
new products and services and (3) become a leader in the next evolution of
interconnect companies by adding value as the bridge or integration between
service providers and the business market. If successful, Alliance will gain
a competitive advantage in its operating markets, which will allow Alliance
to expand its base of operations to the contiguous states surrounding
Oklahoma.
PLAN OF OPERATIONS
Our plan of operations for Alliance throughout the next twelve months
includes (1) maintenance of current operations within the individual
interconnects, (2) development and installation of supporting information
systems, (3) implementation of new service offerings to the customer base,
(4) consolidation of certain operating facilities within the two major
metropolitan areas serviced by Alliance and (5) acquisition of additional
interconnects in Texas, Arkansas, Missouri or Kansas.
We will retain at least one of the former business owners as manager in
their respective base of business to be responsible for maintaining revenue
and profitability. Management is reinforcing a BUSINESS AS USUAL directive
for the first few months in order to manage the transition process for the
partners' customers and vendors.
Alliance has contracted with organizational and systems design
consultants in order to document current processes and deliver to management
a recommendation for best practice in sales and service management. Alliance
is in the process of reviewing information systems to support sales and
service as well as financial system requirements, project management, call
center/technical support and the Internet interface for internal and external
users. Alliance is also researching the database requirements to support the
consolidation of customer information to include customer premise equipment,
system configuration, cabling system, access lines, type of services and
software applications.
Alliance intends to implement new service offerings immediately
following the acquisition process. Alliance will prepare the sales staff to
offer company-wide local access and long distance services within the first
60 days of consolidated operations. Data communication services, like IP,
Frame Relay and ATM, local area and wide area network support and Internet
access will soon follow (some individual partners currently provide such
services). Additional offerings like unified messaging, interactive-voice
response and other sophisticated voice applications will be marketed as sales
and technical staff is qualified to support the products.
We are currently reviewing plans to consolidate technical, sales and
support staff within our areas of operation, which include Oklahoma City,
Tulsa, Shawnee and Lawton. We have included the partners in operational task
groups to determine the most efficient means of consolidating and the most
effective means of maintaining customer support and employee morale.
32
<PAGE>
After we complete the offering and the initial thirteen acquisitions, we
will utilize a similar acquisition model in the states surrounding Oklahoma.
Already, companies in Texas, Arkansas and Missouri have demonstrated interest
in joining The Alliance Group. Much like the original partners, these
companies' expressed interest in merging due to the accelerating change in
technology and the lack of access to adequate capital to fund growth.
After completing the offering, we believe we will have adequate cash
available to support both the combined operations of the partners and the
anticipated expenditures required to complete the consolidation. We will need
additional capital in order to fund the consummation of any additional
significant acquisitions.
Our management expects the consolidation phase of our operations to last
approximately six to twelve months. Barring any unexpected delays, we expect
to consolidate the financial and administrative functions of all of the
interconnect partners within this time frame. Alliance will operate each
partner's base of business, while one of that partner's original owners
serves as business manager. Each partner will be responsible for its own base
of business, much like a professional services company. Operating in this
manner will allow Alliance to retain the partners' customers, reduce
implementation barriers to new service offerings and provide coordination for
changes in policy and procedure.
We do not anticipate any significant reduction in employees. The growth
that we expect to experience should provide opportunities for existing
employees, allowing them to accept new or different responsibilities. At the
same time, these opportunities may require the employees to obtain additional
training. We have already started our training program in order to ensure
continued professional training and technical staff certifications. We are
also considering using state vocational-technical institutions to ensure
adequate staffing in critical support areas, such as engineering,
installation and support of voice and data networks.
IMPACT OF YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs using two digits
rather than four digits when defining the year in question. It is possible
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This mistake in recognition could result in system
failures or miscalculations causing disruptions of operations, including a
temporary inability to process transactions, send invoices or engage in
similar routine business activities.
COMPANY READINESS. Alliance's and the interconnect partners' information
systems are generally maintained on personal computers using packaged
software from outside vendors. Management believes that such systems are year
2000 compliant. If not, management believes that most of the tasks performed
by the systems can be temporarily performed manually, and that any costs
necessary to upgrade or replace noncompliant systems will be insignificant.
READINESS OF OTHERS. It is possible that noncompliance with year 2000
issues of other companies, including but not limited to the regional or
national telephone network or power grid, could delay Alliance's provision of
services to, or receipt of revenues from, its customers. Alliance and the
interconnect partners do not provide any assurance of year 2000 compliance
for the equipment they sell or install. Upon request, the interconnect
partners have provided their customers year 2000 compliance documentation
from the equipment manufactures. Alliance will continue to communicate with
the telephone equipment manufacturers to coordinate year 2000 compliance.
The interconnect partners regularly warrant the equipment and software
they sell. Alliance is presently investigating its potential liability for
noncompliant equipment and software which is (1) under a manufacturer's
warranty, (2) under an extended warranty of the interconnect partner, or (3)
not under a warranty of any kind. Presently, Alliance does not believe it
will have any material liability under these warranties.
CONTINGENCY PLANS. Alliance has no contingency plan for conversion of
its own equipment or business application software, and none will be
formulated. With regard to contingency plans for the failure, or possible
failure, of others, each major source of revenues or services will be handled
on a case-by-case basis, with full preparedness by December 31, 1999.
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<PAGE>
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information concerning each of
Alliance's directors and executive officers and certain other significant
employees. The board of directors consists of one director serving as one of the
three classes of directors serving staggered terms. Alliance expects to nominate
two or more directors to fill the second and third classes prior to closing this
offering. Directors and executive officers of Alliance are elected to serve
until they resign or are removed, or are otherwise disqualified to serve, or
until their successors are elected and qualified. Directors of Alliance are
elected at the annual meeting of the stockholders and the board of directors
appoints the officers shortly after each annual meeting of stockholders.
<TABLE>
<CAPTION>
DIRECTOR
TERM
NAME AGE(1) POSITION(S) EXPIRES
- ----------------------- --------- ------------------------------------- --------
<S> <C> <C> <C>
DIRECTORS AND OFFICERS
Ricky Naylor Chairman of the Board; Director 2001
Larry Travis (2) Chief Executive Officer
William J. Hartwig President and Chief Operating Officer
Joseph O. Evans Chief Financial Officer and Secretary
Debra G. Morehead Chief Accounting Officer
SIGNIFICANT EMPLOYEES
Roger Clanton Vice President - Sales and Marketing
Becky Brittain Major Accounts Manager
Don DeWald Network Technical Services Manager
</TABLE>
- ------------------------------
(1) Ages as of April 1, 1999.
(2) Mr. Travis is presently President of Travis Business Systems, Inc., an
interconnect partner. Mr. Travis has agreed to be the Chief Executive Officer
and a director of Alliance upon completion of this offering and the
acquisitions.
RICKY NAYLOR, CHAIRMAN OF THE BOARD. Mr. Naylor has served as a Director
of Alliance since September 8, 1998, and as Chairman of the Board of Alliance
since March 26, 1999. Mr. Naylor has devoted all his prior efforts to serving
as President and a Director of one or more of the Naylor Companies. The
Naylor Companies presently include Naylor Concrete, Naylor Concrete and
Steel, Milestone General Contractors, Milestone Real Estate, Interstate
Consulting and Prestige Investments, Inc. Mr. Naylor serves as Chairman of
the Board of the National Christian Collegiate Athletic Association.
LARRY TRAVIS, CHIEF EXECUTIVE OFFICER. Mr. Travis has served as
President and Chief Executive Officer of Travis Business Systems since 1988
and has served as President of Digital Transcription Systems, Inc. since
1992. Mr. Travis is on the Board of Directors of Milner Business Products, a
computer and telephone interconnect company in Atlanta, Georgia. Mr. Travis
is also a board member of The Independent Distributor Association and has
served as President of the Independent Distributor Association twice. Mr.
Travis is a current board member of Medical Transcription Industry Alliance
and is a former Vice President National Sales Manager for Lanier Worldwide in
Atlanta, Georgia. Mr. Travis is a graduate of Texas A&M Commerce with a BBA
in marketing.
WILLIAM J. HARTWIG, PRESIDENT AND CHIEF OPERATING OFFICER. Mr. Hartwig
has served as President and Chief Operating Officer of Alliance since March
26, 1999, and served as Vice President-Operations of Alliance from November,
1998 to March 26, 1999. From 1991 to 1998, Mr. Hartwig served as Systems
Development Manager for Braum's Ice Cream and Dairy Stores. Mr. Hartwig also
managed Braum's telecommunications requirements
34
<PAGE>
over a five-state area, with over 270 locations. Mr. Hartwig also installed
technologies related to networking, cabling, telecommunications and personal
computer hardware, including the installation and maintenance of token-ring,
Ethernet and TCP/IP topologies, Unix, Novell, and NT Networks, Cisco, 3Com,
Ascend routers, PBX and voice mail systems, T1 and ISDN communications and
structured cabling systems. Prior to his time at Braum's, Mr. Hartwig was
Contracting and Billing Manager for AAR Oklahoma, Inc. where he managed a
department that provided contract administration, job costing, contract
billing and sales accounting for five aviation division offices. Mr. Hartwig
holds a B.S. in Business Administration from the University of Central
Oklahoma and also has earned several technical certifications.
JOSEPH O. EVANS, CHIEF FINANCIAL OFFICER AND SECRETARY. Mr. Evans has
served as Chief Financial Officer and Secretary of Alliance since November,
1998. From 1997 to 1998, Mr. Evans served as Senior Vice President and
Financial Advisor of Energy Lending for the First National Bank of Commerce
in New Orleans, Louisiana. Prior to 1997, Mr. Evans practiced as an audit
partner of Deloitte & Touche LLP, with an emphasis in SEC practice. From 1990
to 1997, Mr. Evans served as an Associate Professional Practice Director for
the Oklahoma practice of Deloitte & Touche LLP, related to technical
accounting and auditing issues and quality control. Mr. Evans is a Certified
Public Accountant and holds a B.S. in Accounting from the University of
Central Oklahoma.
DEBRA G. MOREHEAD, CHIEF ACCOUNTING OFFICER. Ms. Morehead has served as
Chief Accounting Officer of Alliance since September 8, 1998. Ms. Morehead
has served as controller of The Naylor Companies since May of 1998. Prior to
that time, Ms. Morehead was a partner at the accounting firm of Olson &
Potter, CPA's. Ms. Morehead is an Certified Public Accountant and received a
B.S. in accounting from the University of Central Oklahoma.
ROGER CLANTON, VICE PRESIDENT SALES AND MARKETING. Mr. Clanton has
served as Vice President Sales and Marketing for Alliance since March 1,
1999. Mr. Clanton was with AT&T prior to joining Alliance, where he managed
the implementation of advanced communication services for a critical large
market account. From 1987 to 1998, Mr. Clanton served as Major Account
Manager for Sprint. During his tenure with Sprint, he managed Sprint's
largest accounts in Oklahoma City and Tulsa, Oklahoma.
BECKY BRITTAIN, MAJOR ACCOUNTS MANAGER. Ms. Brittain became Major
Accounts Manager for Alliance on March 1, 1999. Prior to that date, Ms.
Brittain was employed as Major Account Executive for Williams Communications
and Major Account Manager for GTE, Inc. Ms. Brittain also served as National
Accounts Manager, System Designer and Management Information Systems with
Nortel, Siemens Rolm and MCI.
DON DEWALD, NETWORK TECHNICAL SERVICES MANAGER. Mr. DeWald was appointed
Network Technical Services Manager on March 1, 1999. Prior to that date, Mr.
DeWald was Manager of Engineering Services for Global Data. From 1996 to 1997,
Mr. DeWald served as Systems Engineer for Precision Computer Services in
Oklahoma City. From 1992 to 1996, Mr. DeWald served as Technology Trainer and
Developer for Wave Technologies. As Technology Trainer and Developer, Mr. DeWald
wrote several training manuals for topics on computer networking and TCP/IP and
was selected by Wave to teach their initial offerings of administration and
advanced administration for Novell NetWare. Mr. DeWald is a Master Certified
Novell Engineer and a Microsoft Certified Systems Engineer.
COMPENSATION
EXECUTIVE OFFICERS. Alliance has not conducted any operations except
those related to the acquisitions and this offering. In 1998, Alliance paid
its Chief Executive Officer, David W. Aduddell, $33,615, plus a car allowance.
In 1999, Alliance paid David Aduddell $44,500, plus a car allowance. See
"Management and Principal Stockholders - Certain Relationships and Related
Transactions" for a discussion of why Mr. Aduddell is no longer Alliance's Chief
Executive Officer. We expect the following people to be the only executive
officers of Alliance to receive compensation in excess of $100,000 in 1999.
Their expected base
35
<PAGE>
salaries are:
<TABLE>
<CAPTION>
NAME TITLE ANNUAL COMPENSATION
- ---- ----- -------------------
<S> <C> <C>
Larry Travis Chief Executive Officer $
William J. Hartwig President and Chief Operating Officer $
Joseph O. Evans Chief Financial Officer $
</TABLE>
DIRECTORS. Directors of Alliance who are also employees will not receive
directors' fees. Alliance will pay non-employee directors fees of $1,000 for
each board meeting attended and will reimburse the directors for reasonable
out-of-pocket travel expenditures.
LIMITATION ON DIRECTORS' AND OFFICERS' LIABILITY
Alliance's Certificate of Incorporation provides for the indemnification
of officers and directors to the fullest extent permitted by the Oklahoma
General Corporation Act.
All of the Company's directors and officers will be covered by insurance
policies maintained by it against certain liabilities for actions taken in
their capacities as such.
Pursuant to the underwriting agreement filed as an exhibit to the
registration statement, the underwriter has agreed to indemnify Alliance,
each officer and director of Alliance and each person, if any, who controls
Alliance within the meaning of the Securities Act, against certain
liabilities resulting from information in this prospectus provided by the
underwriter.
To the extent that indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling person
of Alliance pursuant to its Certificate of Incorporation, Bylaws, Oklahoma
law or otherwise, Alliance has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Alliance of expenses incurred or paid by a director,
officer or controlling person of Alliance and the successful defense of any
person, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
Alliance will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
36
<PAGE>
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of April 9, 1999 by (a)
Alliance's executive officers, (b) each of Alliance's directors (including
persons who will become directors upon consummation of the offering), (c) all
executive officers and directors of Alliance as a group and (d) each other
person (or group of affiliated persons) who we know beneficially owns 5% or
more of Alliance's common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNERSHIP PERCENT
- --------------------------------- --------------------------------- ----------------------------------
Before Offering After Offering Before Offering After Offering
and and and and
Acquisitions Acquisitions Acquisitions Acquisitions
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Ricky Naylor
821 S.W. 66th
Oklahoma City, OK 73139 452,153 452,153 95% 22%
Larry Travis
4200 Perimeter Center Drive
Suite 100
Oklahoma City, OK 73112 -- 85,000(1) -- 4%(1)
William J. Hartwig
12101 North Meridian
Oklahoma City, OK 73120 -- -- -- --
Joseph O. Evans
12101 North Meridian
Oklahoma City, OK 73120 -- -- -- --
Debra G. Morehead
821 S.W. 66th
Oklahoma City, OK 73139 4,759 4,759 1% < 1%
All officers and directors as
a group (4 persons) 456,912 285,370 96% 22%
</TABLE>
- ------------------------------
(1) Mr. Travis is an officer and a director of the general partner of Wylie
Limited Partnership. Wylie Limited Partnership is expected to receive 85,000
shares of Alliance common stock from the acquisition of Travis Business
Systems, Inc., an investment partner, by Alliance. Mr. Travis owns 25% of the
general partner of Wylie Limited Partnership and owns 50% of the limited
partnership interests in Wylie Limited Partnership. The remaining interests
in the general partner, and limited partner interests in Wylie Limited
Partnership, are owned by Mr. Travis' wife and children. Mr. Travis disclaims
any beneficial ownership with respect to these interests.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Alliance was incorporated by David Aduddell on September 4, 1998 under
the name Advantage Business
37
<PAGE>
Solutions, Inc. Aduddell capitalized Alliance with $10.00 cash and certain
intangible personal property, including business plans, organizational
documents and economic projections relating to several consolidating company
opportunities. Aduddell was the sole shareholder until September 8, 1998,
when Advantage Business Solutions, Inc. sold 62.5% of its outstanding stock
to Ricky Naylor in exchange for $10.00 cash and a binding agreement to pay
Alliance $499,990 upon demand. At March 31, 1999, Naylor had paid Alliance
all amounts owed under this agreement.
David Aduddell is subject to a noncompetition agreement which, (1) if
Aduddell is affiliated in any way with Alliance, restricts Alliance's ability
to sell local and long distance service and (2) if Alliance sells local and
long distance service, restricts Aduddell's ability to own stock in Alliance.
Aduddell believed that Alliance could substantially increase its revenues and
net income by selling local and long distance services through the interconnect
partners' customer bases. Therefore, on April 9, 1999, Aduddell cancelled his
32.5% interest (285,000 shares) in Alliance. Also, on April 9, 1999, David
Aduddell resigned as Chief Executive Officer and a director of Alliance to
ensure that Alliance's ability to sell local and long distance services would
not be restricted by his affiliation with Alliance.
David Aduddell also owns 33.33% of Access Communications Services, Inc.,
one of the interconnect partners. Aduddell will receive $100,000 in cash and
Alliance common stock equal to $200,000 (estimated to be 16,667 shares) upon the
acquisition of Access by Alliance.
Steve Aduddell is David Aduddell's brother. Steve Aduddell owns 67.67%
of Access Communications Services, Inc., one of the interconnect partners.
Steve Aduddell will receive $500,000 in cash and Alliance common stock equal to
$100,000 (estimated to be 8,333 shares) stock upon the acquisition of Access by
Alliance.
Wylie Limited Partnership is expected to receive 85,000 shares of Alliance
common stock from the acquisition of Travis Business Systems, Inc., an
interconnect partner, by Alliance. Mr. Travis owns 25% of the general partner of
Wylie Limited Partnership and 50% of the limited partnership interests in Wylie
Limited Partnership.
Ricky Naylor has agreed to fund the operations of Alliance prior to the
closing of this offering. Any and all amounts loaned to Alliance will be
evidenced by a promissory note bearing interest at 10% per year and are
payable on the earlier of the closing of this offering or December 31, 1999.
This promissory note, together with accrued interest, will be repaid from the
proceeds of this offering.
Alliance's certificate of incorporation provides that all transactions
between Alliance or its subsidiaries and a director, officer or other
affiliate of Alliance will be void or voidable unless the material facts
regarding the relationship and the transaction are disclosed, or are known to
the board, and a majority of the disinterested directors in good faith
authorize the transaction; or the material facts regarding the relationship
and the transaction are disclosed, or are known to the stockholders entitled
to vote on the transaction, and a majority of the disinterested stockholders
approve the transaction. As a result of these provisions, any future
transactions with directors, officers, employees or affiliates of Alliance
are anticipated to be minimal and will, in any case, be approved in advance
by either a majority of the disinterested directors or disinterested
stockholders of Alliance.
38
<PAGE>
DESCRIPTION OF COMMON STOCK
ABOUT THE COMMON STOCK
As of the date of this prospectus, Alliance is authorized to issue
4,500,000 shares of common stock, par value $.01 per share, and 500,000
shares of preferred stock, par value $.01 per share. The summary of the terms
of Alliance's authorized and outstanding capital stock found below is
qualified in its entirety by reference to Alliance's certificate of
incorporation, a copy of which is included as an exhibit to the registration
statement of which this prospectus is a part.
COMMON STOCK. Owners of common stock will be entitled to dividends
declared by Alliance's board of directors out of funds legally available. The
common stockholders are entitled to one vote per share for the election of
directors and other corporate matters. In the event of liquidation,
dissolution or winding up, common stockholders would be entitled to share
ratably in all of Alliance's assets available for distribution. The common
stock carries no preemptive rights. All outstanding shares of common stock
are, and the shares of common stock to be sold by Alliance in the offering
when issued will be, duly authorized, validly issued, fully paid and
nonassessable. We are making application to list the common stock on the
____________________.
PREFERRED STOCK. The board of directors is authorized to issue from time
to time, without stockholder authorization, in one or more designated series,
500,000 shares of preferred stock with such dividend, redemption, conversion,
liquidation and exchange provisions as are provided in the particular series.
Except as expressly provided by law, or except as may be provided by
resolution of the board of directors, the preferred stock shall have no right
or power to vote on any question or in any proceeding or to be represented
at, or to receive notice of, any meeting of Alliance's stockholders. No
shares of preferred stock are issued or outstanding and the board of
directors has no present plans to issue any of the preferred stock.
POSSIBLE ANTI-TAKEOVER EFFECTS. The board is divided into three classes.
Each class of directors consists, as nearly as possible, of one-third of the
total number of directors constituting the entire board. Alliance's bylaws
provide that, subject to the rights of the holders of any series of preferred
stock, the number of directors may be fixed from time to time by resolution
of the board, but will consist of not less than one nor more than nine
members. The term for directors in the first class expires at the annual
meeting of stockholders to be held in 2000; the initial term for directors in
the second class expires at the annual meeting of stockholders to be held in
2001; and the initial term for directors in the third class expires at the
annual meeting of stockholders to be held in 2002. A director of Alliance may
be removed only for cause and only upon the affirmative vote of the holders
of a majority of the outstanding capital stock entitled to vote at an
election of directors. The board provisions set forth in Alliance's
certificate of incorporation may not be amended without the approval of at
least 66 2/3 percent of the voting power of all shares entitled to vote
generally in the election of directors, voting together as a single class.
The provisions of Alliance's certificate of incorporation and bylaws,
together with the ability of the board to issue preferred stock without
further stockholder action, could delay or frustrate the removal of incumbent
directors and could also discourage or make more difficult a merger, tender
offer or proxy contest even if such event would be favorable to the interests
of stockholders.
Section 1090.3 of the Oklahoma General Corporation Act prohibits a
publicly held Oklahoma corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date
of the transaction in which the person became an interested stockholder,
unless (1) prior to the date of the business combination, either the business
combination or the transaction which resulted in such person becoming an
interested stockholder is approved by the board of directors; (2) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock; or (3) on or after such date the business
combination is approved by the board of directors and by the affirmative vote
of at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns 15% or more of the corporation's voting
stock. The effect of such statute may be to discourage certain types of
transactions involving an actual or potential change in control of Alliance.
39
<PAGE>
If we have 1,000 or more shareholders and meet other conditions, we will
be subject to Oklahoma's control shares act. With exceptions, this act
prevents holders of more than 20% of our stock from voting those shares. This
provision at least delays the time it takes anyone to gain control of Alliance.
Also, shareholder action by written consent without a meeting must be unanimous.
DIVIDEND POLICY
Alliance intends to retain earnings, if any, to finance the expansion of
its business and for general corporate purposes. We do not expect to pay
dividends for the foreseeable future. Future lenders may also impose
restrictions on dividends.
USE OF PROCEEDS
The net proceeds to Alliance from the sale of the shares of common stock
offered in this prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us, are estimated to
be approximately $12.6 million (approximately $_____ million if the
underwriter exercises its over-allotment option in full). Of those net
proceeds, approximately $10.1 million will be used to pay the aggregate cash
portion of the purchase price for the interconnect partners, approximately
$__ million will be used to repay outstanding indebtedness to a founding
stockholder and the remaining net proceeds will be used for general corporate
purposes.
The indebtedness of the founding stockholder to be repaid from the
proceeds of the offering bears interest at a rate of 10% per annum and
matures upon the closing of this offering or December 31, 1999. Alliance
incurred this indebtedness to finance the professional and administrative
costs associated with the acquisition of the interconnect partners and this
offering.
DILUTION
The historical combined net tangible book value of Alliance as of
December 31, 1998 was approximately $1,726,180, or approximately $2.09 per
share, after giving effect to the acquisitions. See "Summary Combined
Financial Information." The historical combined net tangible book value per
share represents our pro forma net tangible assets as of December 31, 1998
divided by the number of shares to be outstanding after giving effect to the
acquisitions. After giving effect to the sale of an estimated 1,250,000
shares offered hereby at an assumed initial public offering price of $12.00
per share and deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by Alliance, our pro forma net tangible
book value as of December 31, 1998 would have been approximately $4,034,280
or approximately $1.94 per share. This represents an immediate decrease in
pro forma net tangible book value of approximately $.15 per share to existing
stockholders and an immediate dilution of approximately $10.06 per share to
new investors purchasing shares in the offering. The following table
illustrates this pro forma dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share $ 12.00
-----------
Pro forma net tangible book value per share before the offering 2.09
Decrease in pro forma net tangible value per share attributable to new investors (.15)
-----------
Pro forma net tangible book value per share after the offering 1.94
-----------
Dilution per share to new investors $10.06
-----------
-----------
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1998, the number of shares of common stock purchased from Alliance, the total
consideration to Alliance and the average price per share paid to Alliance by
existing stockholders and the new investors purchasing shares from Alliance
in the acquisitions and the offering (before deducting underwriting discounts
and commissions and estimated offering expenses):
40
<PAGE>
<TABLE>
<CAPTION>
AVERAGE
PRICE
SHARES PURCHASED TOTAL CONSIDERATION(1) PER SHARE
----------------------------------------------------------------------
NUMBER PERCENT AMOUNT PERCENT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 475,950 22.94% $ 500,001 2.68% $ 1.05
Interconnect partners 348,960 16.82% 3,140,625 16.85% 9.00
New investors 1,250,000 60.24% 15,000,000 80.47% 12.00
------------ ------------ ------------ ------------ --------
Total 2,074,910 100% $18,640,626 100% $ 8.98
------------ ------------ ------------ ------------ --------
------------ ------------ ------------ ------------ --------
</TABLE>
- ------------------------------
MARKET FOR COMMON STOCK AND SHARES ELIGIBLE FOR FUTURE SALE
No public market currently exists for Alliance's common stock. Upon
completion of the offering, 2,074,910 shares of common stock are expected to
be outstanding. All of the 1,250,000 shares expected to be purchased in the
offering ( _____ shares if the underwriter's over-allotment option is
exercised in full) will be freely tradeable without registration or other
restriction under the Securities Act, except for shares purchased by
affiliates of Alliance. All of the remaining shares of common stock
outstanding, which are the restricted shares, may be sold only pursuant to an
effective registration statement filed by Alliance or pursuant to an
applicable exemption, including an exemption under Rule 144 under the
Securities Act. In this regard, approximately _____ of the currently
outstanding shares of common stock will be eligible for resale pursuant to
Rule 144 after ___ days from the date of this prospectus and the remaining
_____ shares of common stock currently outstanding or issued in the
acquisitions will be eligible for resale pursuant to Rule 144 no later than
one year following the consummation of this offering.
In general, Rule 144 provides that if a person (including an affiliate)
holds restricted shares (regardless of whether such person is the initial
holder or a subsequent holder of such shares), and if at least one year has
elapsed since the later of the date on which the restricted shares were
issued or the date that they were acquired from an affiliate, then such
person is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the then outstanding shares of
common stock or the average weekly trading volume of such stock during the
four calendar weeks preceding the sale. After the restricted shares are held
for two years by a person who is not deemed an "affiliate" of Alliance, the
holder would be entitled to sell such shares under Rule 144 without regard to
the volume limitations described above.
The holders of approximately 348,960 shares of common stock and warrants
to purchase an additional 10,000 shares of common stock will have certain
rights to require Alliance to register such shares for resale under the
Securities Act. If, subsequent to the consummation of the offering, we
propose to register any of our securities under the Securities Act, such
holders are entitled to notice of such registration and to include their
shares in such registration with their expenses borne by Alliance, subject to
the right of an underwriter participating in the offering to limit the number
of shares included in such registration. In addition, the holders of a
majority of such shares of common stock have the right to immediately demand,
subject to certain limitations, that Alliance file one registration statement
covering sales of their respective shares, and we are obligated to pay the
expenses of such registration.
41
<PAGE>
Our directors and executive officers and all persons acquiring common
stock in the mergers (including those holders with registration rights
described above) have agreed that, during the ________ period following the
close of the offering they will not, and Alliance has agreed that for a
period of ___ days following the date of this prospectus it will not, without
the prior written consent of Capital West Securities, Inc., offer, sell,
contract to sell or otherwise dispose of any shares of common stock or any
securities convertible into, or exercisable or exchangeable for, common
stock, except that we may grant options under stock option plans, and may
issue shares of common stock (1) in connection with the acquisitions, or (2)
pursuant to the exercise of options granted under stock option plans.
The effect, if any, that future market sales of shares or the
availability of shares for sale will have on the prevailing market prices for
the common stock cannot be predicted. Nevertheless, sales of a substantial
number of shares in the public market could adversely affect prevailing
market prices for the common stock.
TRANSFER AGENT
The transfer agent for the common stock is ________.
THE UNDERWRITER AND THE PLAN OF DISTRIBUTION
THE UNDERWRITING AGREEMENT
Capital West Securities, Inc. has agreed, subject to the terms and
conditions set forth in the underwriting agreement between Alliance and
Capital West, to purchase from Alliance, and Alliance has agreed to sell to
Capital West ________ shares of common stock. Capital West is offering the
common stock on a firm commitment basis.
The underwriting agreement provides that the obligations of Capital West
to purchase the shares listed above are subject to certain conditions. The
underwriting agreement also provides that Capital West is committed to
purchase, and we are obligated to sell, all of the shares offered by this
prospectus, if any of the shares being sold pursuant to the underwriting
agreement are purchased (without consideration of any shares that may be
purchased through the exercise of the underwriter's over-allotment option).
Capital West has advised us that it proposes to offer the shares to the
public initially at the public offering price set forth on the cover page of
this prospectus and to certain dealers at such price, less a concession not
to exceed $_____ per share. Capital West may allow, and the dealers may
reallow, a concession to other dealers not to exceed $_____ per share. After
the initial public offering of the shares, the public offering price, the
concessions to selected dealers and the reallowance to other dealers may be
changed by Capital West.
Capital West was first registered as a broker-dealer in May 1995.
Capital West has participated in only ____ public equity offerings as an
underwriter, although certain of its employees have had experience in
underwriting public offerings while employed by other broker-dealers.
Prospective purchasers of the securities offered in this prospectus should
consider Capital West's limited underwriting experience in evaluating this
offering.
We have granted Capital West an option, exercisable during the ___ day
period after the date of this prospectus, to purchase up to an additional
_____ shares of common stock at the initial public offering price set forth
on the cover page of this prospectus, less underwriting discounts and
commissions. Capital West may exercise such option only to cover
over-allotments, if any, incurred in the sale of shares.
We have agreed to indemnify Capital West against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that Capital West may be required to make in respect thereof. Capital West
has informed us that it does not intend to confirm sales to any account over
which it exercises discretionary authority.
We agreed to pay to Capital West a non-accountable expense allowance of
__% of the gross proceeds
42
<PAGE>
derived from the sale of the common stock (including the sale of any shares
of common stock subject to Capital West's over-allotment option), $___ of
which has been paid as of the date of this prospectus. Alliance also has
agreed to pay all expenses in connection with qualifying its common stock for
sale under the laws of such states as Capital West may designate, including
filing fees and fees and expenses of counsel retained for such purposes by
the underwriter, and registering the offering with the National Association
of Securities Dealers, Inc.
In connection with this offering, Alliance has agreed to sell to Capital
West, for a price of $.___ per warrant, warrants to purchase shares of common
stock equal to __% of the total number of shares of common stock sold
pursuant to this offering, excluding shares subject to the over-allotment
option. The Capital West warrants are exercisable at a price equal to ___% of
the initial public offering price ($14.40 assuming an initial public offering
price of $12.00 per share) for four years, commencing one year from the date
of this prospectus. The Capital West warrants grant to Capital West, with
respect to the registration under the Securities Act of the securities
directly and indirectly issuable upon exercise of Capital West's warrants,
one demand registration right during the exercise period, as well as
piggyback registration rights at any time.
Holders of __% of the shares of Alliance's common stock (including
Alliance's directors and executive officers) outstanding after completion of
this offering have agreed for a period of ___ months after the date of this
prospectus, they will not offer, sell or otherwise dispose of any shares of
common stock owned by them. Certain of Alliance's executive officers have
agreed to enter into similar lock-up agreements with regard to ___ shares of
common stock they own, representing __% of the common stock outstanding after
completion of this offering, except that the term thereof is ___ months and
the officers will be permitted to sell a limited number of shares prior to
expiration of the __-month period if certain criteria are satisfied.
The shares of common stock are expected to be listed on the ________
_____________ under the trading symbol "__." Any listing is contingent,
among other things, upon Alliance obtaining 400 shareholders.
In connection with this offering, Capital West may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
persons may bid for or purchase common stock for the purpose of stabilizing
its market price. Capital West also may create a short position by selling
more common stock in connection with the offering than it is committed to
purchase from Alliance, and in such case, may purchase common stock in the
open market following completion of the offering to cover all or a portion of
such short position. Capital West may also cover all or a portion of such
short position, up to _____ shares of common stock, by exercising its
over-allotment option referred to above. In addition, Capital West may impose
"penalty bids" under contractual arrangements with the underwriters whereby
it may reclaim from an underwriter (or dealer participating in the offering)
for the account of the other underwriters, the selling concession with
respect to common stock that is distributed in the offering but subsequently
purchased for the account of the underwriters in the open market. Any
transactions described in this paragraph may result in the maintenance of the
price of the common stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The estimated aggregate expenses, to be paid solely by Alliance, in
connection with the distribution of the securities being registered is
approximately $___________.
DETERMINING THE OFFERING PRICE
Prior to this offering, there has been no public market for Alliance's
common stock. We determined the initial public offering price in negotiations
with Capital West. Among the factors we considered in determining the initial
public offering price, in addition to prevailing market conditions, were the
following:
- Our financial information and prospects for future revenues;
43
<PAGE>
- The history of, and the prospects for, Alliance and the industry in which
it competes;
- An assessment of our management;
- Alliance's past and present operations;
- The present state of our development; and
- All of these factors in relation to market values and valuation measures
of other companies engaged in activities similar to Alliance.
The initial public offering price set forth on the cover page of this
prospectus should not be considered an indication of the actual value of the
common stock. The price is subject to change as a result of market conditions
and other factors. We cannot assure you that an active trading market will
develop for the common stock or that the common stock will trade in the
public market subsequent to the offering at or above the initial public
offering price.
EXPERTS
The financial statements of the following companies (for the periods
indicated) included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports (as further described
below) appearing herein and elsewhere in this registration statement, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing:
As of December 31, 1998, and for the period from September 4, 1998 (date of
inception), to December 31, 1998:
The Alliance Group, Inc. (formerly Advantage Business Solutions, Inc.)
As of December 31, 1998, and for the year then ended:
Access Communications Services, Inc.
American Telcom, Inc.
Banner Communications, Inc.
Communication Services, Inc.
Travis Business Systems, Inc.
As of December 31, 1998 and 1997, and for the years then ended:
Telephone and Paging Divisions of Electrical & Instrument Sales
Corporation ("EIS") (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the divisions being a
component part of EIS)
As of September 30, 1998, and for the year then ended:
Terra Telecom, Inc.
Telkey Communications, Inc.
The financial statements of the following companies (for the periods
indicated) included in this prospectus have been audited by Saxon & Knoll,
P.C., independent auditors, as stated in their reports appearing herein and
elsewhere in this registration statement, and are included in reliance upon
the reports of such firm given upon their authority as experts in accounting
and auditing:
As of December 31, 1998, and for the year then ended:
Nobel Systems, Inc.
As of December 31, 1997, and for the year then ended:
44
<PAGE>
Access Communications Services, Inc.
American Telcom, Inc.
Banner Communications, Inc.
Travis Business Systems, Inc.
As of September 30, 1997, and for the year then ended:
Terra Telecom, Inc.
Telkey Communications, Inc.
The financial statements of Commercial Telecom Systems, Inc. as of
December 31, 1998, and for the year then ended included in this prospectus
have been audited by Hunter, Atkins & Russell, PLC, independent auditors, as
stated in their report appearing herein and elsewhere in this registration
statement, and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing:
45
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed on for
Alliance by McAfee & Taft A Professional Corporation, Oklahoma City,
Oklahoma. Certain legal matters in connection with the shares of common stock
will be passed on for Capital West by Robertson & Williams, Oklahoma City,
Oklahoma.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE ALLIANCE GROUP, INC. (formerly Advantage Business Solutions, Inc.)
Independent Auditors' Report
Balance Sheet, December 31, 1998
Statement of Operations for the Period from September 4, 1998
(date of inception) to December 31, 1998
Statement of Stockholders' Deficiency for the Period from September 4, 1998
(date of inception) to December 31, 1998
Statement of Cash Flows for the Period from September 4, 1998 (date of
inception) to December 31, 1998
Notes to Financial Statements for the Period from September 4, 1998
(date of inception) to December 31, 1998
ACCESS COMMUNICATIONS SERVICES, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Independent Auditors' Report
Balance Sheets, December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended December 31, 1998 and
1997
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997
Notes to Financial Statements for the Years Ended December 31, 1998 and 1997
AMERICAN TELCOM, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Independent Auditors' Report
Balance Sheets, December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended December 31, 1998
and 1997
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997
Notes to Financial Statements for the Years Ended December 31, 1998 and 1997
BANNER COMMUNICATIONS, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Independent Auditors' Report
Balance Sheets, December 31, 1998 and 1997
Statements of Earnings for the Years Ended December 31, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended December 31, 1998
and 1997
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997
Notes to Financial Statements for the Years Ended December 31, 1998 and 1997
COMMERCIAL TELECOM SYSTEMS, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheets, December 31, 1998 and 1997
Statements of Earnings for the Years Ended December 31, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended December 31, 1998
and 1997
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997
Notes to Financial Statements for the Years Ended December 31, 1998 and 1997
COMMUNICATION SERVICES, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
F-1
<PAGE>
Balance Sheet, December 31, 1998
Statement of Operations for the Year Ended December 31, 1998
Statement of Stockholders' Equity for the Year Ended December 31, 1998
Statement of Cash Flows for the Year Ended December 31, 1998
Notes to Financial Statements for the Year Ended December 31, 1998
TELEPHONE AND PAGING DIVISIONS OF EIS COMMUNICATIONS AUDITED COMBINED FINANCIAL
STATEMENTS
Independent Auditors' Report
Combined Balance Sheets, December 31, 1998 and 1997
Combined Statements of Operations for the Years Ended December 31, 1998
and 1997
Combined Statements of Division Equity for the Years Ended December 31, 1998
and 1997
Combined Statements of Cash Flows for the Years Ended December 31, 1998
and 1997
Notes to Combined Financial Statements for the Years Ended December 31, 1998
and 1997
NOBEL SYSTEMS, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheet, December 31, 1998
Statement of Earnings for the Year Ended December 31, 1998
Statement of Stockholders' Equity for the Year Ended December 31, 1998
Statement of Cash Flows for the Year Ended December 31, 1998
Notes to Financial Statements for the Year Ended December 31, 1998
TELKEY COMMUNICATIONS, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Independent Auditors' Report
Balance Sheets, September 30, 1998 and 1997
Statements of Operations for the Years Ended September 30, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended September 30, 1998
and 1997
Statements of Cash Flows for the Years Ended September 30, 1998 and 1997
Notes to Financial Statements for the Years Ended September 30, 1998 and 1997
TELKEY COMMUNICATIONS, INC. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Balance Sheet, December 31, 1998
Statement of Operations for the Three Months Ended December 31, 1998 and 1997
Statement of Cash Flows for the Three Months Ended December 31, 1998 and 1997
Notes to Financial Statements for the Three Months Ended December 31, 1998
TERRA TELECOM, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Independent Auditors' Report
Balance Sheets, September 30, 1998 and 1997
Statements of Operations for the Years Ended September 30, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended September 30, 1998
and 1997
Statements of Cash Flows for the Years Ended September 30, 1998 and 1997
Notes to Financial Statements for the Years Ended September 30, 1998 and 1997
TERRA TELECOM, INC. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Balance Sheets, December 31, 1998 and September 30, 1998
Statement of Operations for the Three Months Ended December 31, 1998 and 1997
Statement of Cash Flows for the Three Months Ended December 31, 1998 and 1997
Notes to Financial Statements for the Three Months Ended December 31, 1998
F-2
<PAGE>
TRAVIS BUSINESS SYSTEMS, INC. AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report
Independent Auditors' Report
Balance Sheets, December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31, 1998 and 1997
Statements of Stockholders' Equity for the Years Ended December 31, 1998
and 1997
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997
Notes to Financial Statements for the Years Ended December 31, 1998 and 1997
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Alliance Group, Inc. (formerly
Advantage Business Solutions, Inc.):
We have audited the accompanying balance sheet of The Alliance Group, Inc.
(formerly Advantage Business Solutions, Inc.) as of December 31, 1998, and
the related statements of operations, stockholders' deficiency, and cash
flows for the period from September 4, 1998 (date of inception) to December
31, 1998. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Alliance Group, Inc. (formerly
Advantage Business Solutions, Inc.) at December 31, 1998, and the results of
its operations and its cash flows for the period from September 4, 1998 (date
of inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 18, 1999 (April 9, 1999 as to
Note 7 to the financial statements)
F-4
<PAGE>
THE ALLIANCE GROUP, INC.
(FORMERLY ADVANTAGE BUSINESS SOLUTIONS, INC.)
<TABLE>
BALANCE SHEET
DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 79,700
Other current assets 1,933
-----------
Total current assets 81,633
PROPERTY AND EQUIPMENT:
Vehicles 35,988
Equipment 6,711
-----------
42,699
Less accumulated depreciation (1,978)
-----------
Property and equipment, net 40,721
OTHER ASSETS:
Deferred offering costs 19,109
Other assets 1,389
-----------
Total other assets 20,498
-----------
TOTAL $ 142,852
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,049
Accounts payable 32,464
Cash advances payable 80,000
Other current liabilities 18,296
-----------
Total current liabilities 138,809
Long-term debt, net of current portion 26,119
-----------
Total liabilities 164,928
-----------
COMMITMENTS
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.01 par value, 500,000 shares authorized; none issued Common
stock, $.01 par value; 4,500,000 shares authorized;
760,950 shares issued and outstanding (see note 7) 7,610
Additional paid in-capital 492,400
Accumulated deficit (113,078)
Stock subscription receivable (409,008)
-----------
Total stockholders' deficiency (22,076)
-----------
TOTAL $ 142,852
-----------
-----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
THE ALLIANCE GROUP, INC.
(FORMERLY ADVANTAGE BUSINESS SOLUTIONS, INC.)
<TABLE>
STATEMENT OF OPERATIONS
PERIOD FROM SEPTEMBER 4, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
- -----------------------------------------------------------------------------------
<S> <C>
COSTS AND EXPENSES:
Salaries and benefits $ 63,267
General and administrative expenses 48,961
Interest expense 850
-----------
Total costs and expenses 113,078
-----------
NET LOSS $ (113,078)
-----------
-----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
THE ALLIANCE GROUP, INC.
(FORMERLY ADVANTAGE BUSINESS SOLUTIONS, INC.)
<TABLE>
STATEMENT OF STOCKHOLDERS' DEFICIENCY
PERIOD FROM SEPTEMBER 4, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON ADDITIONAL STOCK
SHARES COMMON PAID-IN SUBSCRIPTION ACCUMULATED
(SEE NOTE 7) STOCK CAPITAL RECEIVABLE DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
September 4, 1998
(Date of inception) -
Issuance of
common stock 760,950 $ 7,610 $ 492,400 $ (500,000) $ - $ 10
Collections on stock
subscription
receivable - - - 90,992 - 90,992
Net loss - - - - (113,078) (113,078)
--------- -------- ----------- ----------- ----------- -----------
BALANCE,
December 31, 1998 760,950 $ 7,610 $ 492,400 $ (409,008) $ (113,078) $ (22,076)
--------- -------- ----------- ----------- ----------- -----------
--------- -------- ----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
THE ALLIANCE GROUP, INC.
(FORMERLY ADVANTAGE BUSINESS SOLUTIONS, INC.)
<TABLE>
STATEMENT OF CASH FLOWS
PERIOD FROM SEPTEMBER 4, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (113,078)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 1,978
Changes in current assets and liabilities:
Other current assets (1,933)
Other assets (20,498)
Accounts payable 32,464
Other current liabilities 98,296
-----------
Net cash used in operating activities (2,771)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (42,699)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 10
Proceeds from borrowings under line of credit 36,073
Payments on long-term debt (1,905)
Collections on stock subscription receivable 90,992
-----------
Net cash provided by financing activities 125,170
-----------
NET INCREASE IN CASH 79,700
CASH, beginning of period -
CASH, end of period $ 79,700
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 775
Common stock issued under stock subscription receivable $ 500,000
</TABLE>
See notes to financial statements.
F-8
<PAGE>
THE ALLIANCE GROUP, INC.
(FORMERLY ADVANTAGE BUSINESS SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM SEPTEMBER 4, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Alliance Group, Inc., formerly Advantage Business Solutions, Inc. (the
"Company"), was incorporated on September 4, 1998, under the laws of the
State of Oklahoma. The Company was formed solely for the purpose of
identifying and acquiring interconnect telecommunications companies.
At December 31, 1998, the Company has an accumulated deficit of $113,078
and a stockholders' deficiency of $22,076 that may raise concerns about
the Company's ability to continue as a going concern. The losses are due
to costs incurred prior to the Company earning any revenues. The
stockholders' deficiency is mainly due to the stock subscription
receivable (see Note 4 to the financial statements). Collections on such
subscription will help fund future costs of the Company. Subsequent to
December 31, 1998, the Company collected $284,000 on the stock
subscription receivable through March 18, 1999. In addition, a stockholder
has agreed to fund the Company's operations prior to commencement of
operations in exchange for a note payable. Management's plans to improve
the Company's financial position include plans for expansion by
acquisition (see Note 6 to the financial statements) and seeking large
telecommunication installation projects. In February 1999 the Company
obtained its first contract with a third party for maintenance of
telecommunications equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Major
additions and improvements are capitalized at cost, while maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed. When assets are sold or retired, cost and accumulated
depreciation are removed from the respective accounts. Any gains or losses
resulting from disposal are included in current period income or loss.
Property and equipment owned by the Company are depreciated using the
straight-line method over their estimated useful lives of three to seven
years.
The Company records impairments to its long-lived assets when it becomes
probable that the carrying values of the assets will not be fully
recovered over their estimated lives. Impairments are recorded to reduce
the carrying value of the assets to their estimated fair values determined
by the Company based on facts and circumstances in existence at the time
of the determination. No impairments were recorded in 1998.
F-9
<PAGE>
INCOME TAXES - The Company uses an asset and liability approach to account
for income taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences and operating loss and tax credit
carryforwards by applying enacted tax rates applicable to future years to
differences between the financial statement amounts and the tax bases of
existing assets and liabilities. At December 31, 1998, the Company has a
net operating loss carryforward of $113,078 and a related deferred tax
asset of approximately $34,000. A valuation allowance of approximately
$34,000 has been established based on management's opinion that it is more
likely than not that the deferred tax asset will not be realized.
ADVERTISING - Advertising costs incurred by the Company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash,
short-term payables, and notes payable. The carrying amounts of cash and
short-term payables approximate fair value due to their short-term nature.
The carrying amounts of notes payable approximate fair value based on
borrowing terms currently available to the Company.
3. LONG-TERM DEBT
The Company's long-term debt at December 31, 1998, consists of the
following:
<TABLE>
<S> <C>
Note payable to a bank, due in monthly principal and interest payments, interest
rate of 8.75%, secured by a vehicle, due in 2002 $ 34,168
Less current maturities 8,049
---------
Total long-term debt $ 26,119
---------
---------
</TABLE>
Maturities of long-term debt for the next four years are as follows:
1999 - $8,049; 2000 - $8,782; 2001 - $9,583; and 2002 - $7,754.
4. STOCK SUBSCRIPTION RECEIVABLE
In 1998, the Company sold 475,950 shares of common stock to a director in
exchange for a stock subscription receivable of $500,000. Collections have
been made on the subscription as funds were needed to fund operations
during the initial start-up period of the Company. During 1998,
approximately $91,000 was collected. Through March 18, 1999, a total of
$375,000 was collected, and the remaining balance due was $125,000.
5. RELATED PARTY TRANSACTIONS
The Company has recorded a liability for rent and overhead allocations in
the amount of $18,296 to an entity wholly owned and operated by a major
stockholder of the Company.
The Company has recorded a non-interest bearing cash advance payable in
the amount of $80,000 to an entity wholly owned and operated by a major
stockholder of the Company. The advance was repaid in January 1999.
During 1998, a major stockholder of the Company assigned 4,760 shares of
his stock to an employee of
F-10
<PAGE>
an entity owned and operated by the major stockholder. The employee
provided services to the Company which were invoiced to and expensed by
the Company in the amount of $10,397.
6. DEFERRED OFFERING COSTS
The Company and its stockholders have entered into definitive agreements
with 13 Oklahoma-based telecommunications companies (the "Entities")
pursuant to which the Company will purchase all of the issued and
outstanding common stock or assets of the Entities concurrently with, and
as a condition to, completion of a public or private offering of the
common stock of the Company. All of the issued and outstanding common
stock or assets of the Entities will be exchanged for cash and common
stock of the Company.
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the stockholders effected an increase in
the number of authorized common shares from 1,000 to 4,500,000 and a stock
split that increased the issued and outstanding common shares from 267 to
760,950. The stockholders also authorized 500,000 shares of $.01 par value
preferred stock and changed the name of the Company from Advantage
Business Solutions, Inc. to The Alliance Group, Inc. These changes have
been reflected in the Company's financial statements on a retroactive
basis as though they had been effected on the date of inception of the
Company.
Also subsequent to December 31, 1998, the Company's Chief Executive
Officer ("CEO") resigned his position and directorship of the Company.
Additionally, all 285,000 Shares of Company Stock owned by the CEO, as
adjusted for the stock split, were voluntarily cancelled. The shares
cancelled represented 32.5% of the total shares issued at that time. The
cancellation increased the percent of ownership of the remaining
shareholders incrementally.
* * * * * *
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Access Communications Services, Inc.:
We have audited the accompanying balance sheet of Access Communications
Services, Inc. as of December 31, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the year ended December
31, 1998. The financial statements as of December 31, 1997, and for the year
then ended, were audited by other auditors whose report expressed an
unqualified opinion on those financial statements. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on the 1998 financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 1998 financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all
material respects, the financial position of Access Communications Services,
Inc. at December 31, 1998, and the results of its operations and its cash
flows for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 28, 1999
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Access Communications Services, Inc.:
We have audited the accompanying balance sheet of Access Communications
Services, Inc. as of December 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the year ended December
31, 1997. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on the 1997 financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 1997 financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1997 financial statements present fairly, in all
material respects, the financial position of Access Communications Services,
Inc. at December 31, 1997, and the results of its operations and its cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
/S/ SAXON & KNOL
Oklahoma City, Oklahoma
February 28, 1999
F-13
<PAGE>
ACCESS COMMUNICATIONS SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 187,464 $ 18,922
Accounts receivable 127,953 299,553
Inventory 51,820 38,220
Other current assets 3,864 1,590
----------- -----------
Total current assets 371,101 358,285
PROPERTY AND EQUIPMENT:
Autos and trucks 124,776 114,188
Equipment 69,524 34,744
Leasehold improvements 35,213 35,213
Real estate 15,198 15,198
----------- -----------
244,711 199,343
Less accumulated depreciation (101,667) (72,251)
----------- -----------
Property and equipment, net 143,044 127,092
----------- -----------
RECEIVABLE FROM STOCKHOLDERS 156,577 138,629
OTHER ASSETS 42,400 35,910
----------- -----------
TOTAL $ 713,122 $ 659,916
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Accounts payable $ 191,484 $ 202,220
Deferred income taxes 29,700 -
Other current liabilities 49,895 33,537
Current portion of long-term debt 53,344 40,974
Current portion of capital lease obligations 20,130 11,151
----------- -----------
Total current liabilities 344,553 287,882
Long-term debt, net of current portion 109,680 54,645
Deferred income taxes - 29,700
Capital lease obligations 7,068 27,284
----------- -----------
Total liabilities 461,301 399,511
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 500 shares authorized,
issued and outstanding 500 500
Additional paid in-capital 168,950 168,950
Retained earnings 82,371 90,955
----------- -----------
Total stockholders' equity 251,821 260,405
----------- -----------
TOTAL $ 713,122 $ 659,916
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-14
<PAGE>
ACCESS COMMUNICATIONS SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
SALES $ 1,345,576 $ 1,447,155
COSTS AND EXPENSES:
Cost of sales 551,100 568,732
Salaries and benefits 523,127 502,620
Selling, general and administrative 234,004 243,562
Interest 47,444 28,641
------------ ------------
Total costs and expenses 1,355,675 1,343,555
------------ ------------
INCOME (LOSS) BEFORE TAXES (10,099) 103,600
INCOME TAX BENEFIT (EXPENSE) 1,515 (30,000)
------------ ------------
NET INCOME (LOSS) $ (8,584) $ 73,600
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-15
<PAGE>
ACCESS COMMUNICATIONS SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1997 500 $ 500 $ 168,950 $ 17,355 $ 186,805
Net income - - - 73,600 73,600
----- ----- ----------- --------- -----------
BALANCE,
December 31, 1997 500 500 168,950 90,955 260,405
Net loss - - - (8,584) (8,584)
----- ----- ----------- --------- -----------
BALANCE,
December 31, 1998 500 $ 500 $ 168,950 $ 82,371 $ 251,821
----- ----- ----------- --------- -----------
----- ----- ----------- --------- -----------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
ACCESS COMMUNICATIONS SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,584) $ 73,600
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 27,594 29,459
Loss on sale of assets 4,185 -
Changes in current assets and liabilities:
Accounts receivable 171,600 (188,485)
Inventory (13,600) (7,500)
Other current assets (2,274) 3,244
Other assets (6,490) (1)
Accounts payable (10,736) 39,918
Other current liabilities 16,358 (3,642)
----------- -----------
Net cash provided by (used in) operating activities 178,053 (53,407)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (51,173) (46,991)
Proceeds from sale of property and equipment 3,442 -
Advances to stockholders (150,753) (178,833)
Repayment of receivable from stockholders 132,805 85,064
Collections of accounts receivable, other - 206,380
----------- -----------
Net cash provided by (used in) investing activities (65,679) 65,620
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 181,835 -
Payments on long-term borrowings and capital leases (125,667) (9,862)
----------- -----------
Net cash provided by (used in) financing activities 56,168 (9,862)
----------- -----------
NET INCREASE IN CASH 168,542 2,351
CASH, beginning of year 18,922 16,571
----------- -----------
CASH, end of year $ 187,464 $ 18,922
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 38,027 $ 24,485
Cash paid during the year for income taxes $ 29,503 $ 35,750
</TABLE>
See notes to financial statements.
F-17
<PAGE>
ACCESS COMMUNICATIONS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------
1. ORGANIZATION
Access Communications Services, Inc. (the "Company") was incorporated in
October 1986, under the laws of the State of Oklahoma. The Company sells,
installs and maintains telephone equipment in the state of Oklahoma market
area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATIONS - The Company currently buys most of its telephone
equipment from two manufacturers. Although there are a limited number of
manufacturers of telephone equipment, management believes that other
manufacturers could provide similar equipment on comparable terms. A
change in manufacturers, however, could cause a possible loss of sales,
which would affect operating results adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed or
when maintenance services are rendered. The Company recognizes deferred
revenues for advance payment on agreements to maintain customer telephone
equipment. The deferred revenues are recognized as revenue over the period
the services are provided, which is generally 12 months. Deferred revenues
are not significant as of December 31, 1998 and 1997.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge to
the allowance for doubtful accounts; recoveries of previously written off
amounts are added back to the allowance for doubtful accounts. No
allowances have been established at December 31, 1998 and 1997 as
management believes no material losses will be incurred from receivables.
INVENTORY - Inventory is stated at the lower of cost or market on a
specific identification basis. Cost is determined on a first-in, first-out
method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Major
additions and improvements are capitalized at cost, while maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed. When assets are sold or retired, cost and accumulated
depreciation are removed from the respective accounts. Any gains or losses
resulting from disposal are included in current year operations.
F-18
<PAGE>
Property and equipment owned by the Company are depreciated using an
accelerated method over their estimated useful lives of three to seven
years.
INCOME TAXES - The Company uses an asset and liability approach to account
for income taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences and operating loss and tax credit
carryforwards by applying enacted tax rates applicable to future years to
differences between the financial statement amounts and the tax bases of
existing assets and liabilities. A valuation allowance is established if,
in management's opinion, it is more likely than not that some portion of
the deferred tax asset will not be realized. At December 31, 1998 and
1997, the Company's temporary differences between financial and tax bases
of assets and liabilities consist primarily of timing differences in the
recognition of gain from sale of an asset in a prior period.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty period
is returned by the Company to the manufacturer in exchange for replacement
product or refund.
LONG-LIVED ASSETS - Management of the Company assesses recoverability of
its long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. Recoverability
is assessed and measured on long-lived assets using an estimate of the
undiscounted future cash flows attributable to the asset. Impairment is
measured based on future cash flows discounted at an appropriate rate.
ADVERTISING - Advertising costs incurred by the company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash
and cash equivalents, accounts receivable, receivables from stockholders,
short-term payables, capital lease obligations, and notes payable. The
carrying amounts of cash and cash equivalents, accounts receivable, and
short-term payables approximate fair value due to their short-term nature.
The carrying amounts of receivables from stockholders do not have readily
determinable fair values due to the related party nature of the
transaction (see Note 8). The carrying amounts of capital lease
obligations and notes payable approximate fair value based on borrowing
terms currently available to the Company.
3. OPERATING LEASES
The Company has noncancelable operating leases for equipment and a
noncancelable operating lease with a stockholder for its office space. The
future minimum payments by year for these leases at December 31, 1998, are
as follows:
<TABLE>
<S> <C>
1999 $ 49,223
2000 48,000
----------
$ 97,223
----------
----------
</TABLE>
F-19
<PAGE>
4. LONG-TERM DEBT
The Company's long-term debt at December 31, 1998 and 1997, consisted
of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note payable to bank, due in monthly principal and interest payments;
interest rate of 10.6%; maturing in 2002; secured by all furniture,
fixtures, inventory, equipment, accounts receivable, and 50,000 shares
of Zenex Long Distance, Inc. separately owned by shareholders of the
Company $ 86,949 $ 52,445
Note payable to bank, due in monthly principal and interest payments;
interest rate of 10.6%; maturing in 1999; secured by all furniture,
fixtures, inventory, equipment, accounts receivable, 50,000 shares of
Clear-Line Communications, Inc., and 20,000 shares of Zenex Long
Distance Co., Inc. separately owned by stockholders of the Company 46,533 -
Note payable to credit union, due in monthly principal and interest
payments; interest rate of 8.5%; maturing in 2000; secured by vehicle 9,171 14,537
Note payable to bank, due in monthly principal and interest payments;
interest rate of 10.4%; maturing in 2001; secured by vehicle 8,997 12,174
Note payable to bank, due in monthly principal and interest payments;
interest rate of 9.2%; maturing in 2001; secured by vehicle 6,505 9,213
Note payable to a related party, due on demand, non interest-bearing,
unsecured; settled in 1998 through offset with related party receivable - 7,250
Note payable to bank, due in monthly principal and interest payments;
interest rate of 9.7%; maturing in 2000; secured by vehicle 4,869 -
----------- ---------
163,024 95,619
Less current maturities 53,344 40,974
----------- ---------
Total long-term debt $ 109,680 $ 54,645
----------- ---------
----------- ---------
</TABLE>
F-20
<PAGE>
5. CAPITAL LEASES
Future minimum lease payment obligations for leased assets under capital
leases as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 20,746
2000 7,120
--------
Total minimum lease payments 27,866
Less amount representing interest 668
--------
Present value of minimum lease payments 27,198
Less current portion 20,130
--------
Long-term portion $ 7,068
--------
--------
</TABLE>
6. INCOME TAXES
The income tax provision benefit (expense) consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current benefit (expense) $ 1,515 $ (24,136)
Deferred (expense) - (5,864)
------- ----------
$ 1,515 $ (30,000)
------- ----------
------- ----------
</TABLE>
The difference between the statutory Federal income tax rate of 34% and
the Company's effective Federal rate for the years ended December 31, 1998
and 1997, is due to state taxes and the effect of graduated tax rates.
Deferred tax liabilities at December 31, 1998 and 1997, consist of timing
differences in the recognition of gain from sale of an asset in a prior
period.
7. BENEFIT PLAN
All employees are eligible to participate in the Company's simple 401(k)
plan upon completion of one year of employment. Employees may contribute
up to 15% of base compensation, as defined. All contributions made by
employees are 100% vested at the time the contribution is made. The
Company matches 100% of employee contributions up to 3% of the employee's
base compensation. The Company made contributions totaling $9,470 and
$9,602 during the years ended December 31, 1998 and 1997.
8. MAJOR CUSTOMERS
The Company has an account receivable from an individual customer that
amounts to 16% of the Company's total accounts receivable at December 31,
1998.
9. RELATED PARTY TRANSACTIONS
F-21
<PAGE>
The Company has an investment in Zenex Long Distance, Inc. ("Zenex"), an
affiliate of the Company, of $35,550 at December 31, 1998 and 1997. The
investment is recorded at cost. The Company provides services and sells
equipment to Zenex. Amounts billed by the Company for sales and services
during the years ended December 31, 1998 and 1997, totaled $108,375 and
$204,000, respectively.
The Company has receivables of $156,577 and $138,629 at December 31, 1998
and 1997, respectively, from stockholders. The receivables are non
interest-bearing and unsecured. The Company advanced $150,753 and $178,833
during the years ended December 31, 1998 and 1997, respectively, of which
$132,805 and $85,064 was repaid in 1998 and 1997, respectively (see Note 9
to the financial statements).
During the year ended December 31, 1998, the Company borrowed $78,000 from
an affiliated company. Interest paid during the year totaled $13,000. The
amount was repaid in full during the year.
The Company leases office space from an entity controlled by stockholders
of the Company. Lease payments to this affiliated company were $48,000
during each of the years ended December 31, 1998 and 1997.
10. SUBSEQUENT EVENTS
The Company and its stockholders have entered into a definitive agreement
with The Alliance Group ("Alliance") pursuant to which the Company will be
purchased by Alliance. All of the issued and outstanding common stock of
the Company will be exchanged for cash and common stock of Alliance in
conjunction with the consummation of the initial public offering of the
common stock of Alliance.
In March 1999, the Company exchanged all of its shares of Zenex common
stock for office furniture and equipment from Zenex equal to the Company's
investment in Zenex. No gain or loss was recognized by the Company.
In March 1999, the Company exchanged the receivable from stockholders for
shares of the Company's common stock. The purchase price for the shares of
stock was determined by management to equal the amount receivable by the
Company from stockholders on the transaction date. The transaction
resulted in the elimination of the receivable from stockholders, and the
shares obtained by the Company were retired.
* * * * * *
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
American Telcom, Inc.:
We have audited the accompanying balance sheet of American Telcom, Inc. as of
December 31, 1998, and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1998. The financial
statements as of December 31, 1997, and for the year then ended, were audited
by other auditors whose report expressed an unqualified opinion on those
financial statements. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on the
1998 financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 1998 financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all
material respects, the financial position of American Telcom, Inc. at
December 31, 1998, and the results of its operations and its cash flows for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 19, 1999
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
American Telcom, Inc.:
We have audited the accompanying balance sheet of American Telcom, Inc. as of
December 31, 1997, and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the 1997 financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 1997 financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1997 financial statements present fairly, in all
material respects, the financial position of American Telcom, Inc. at
December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ SAXON & KNOL
Oklahoma City, Oklahoma
February 19, 1999
F-24
<PAGE>
AMERICAN TELCOM, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 82,545 $ 32,428
Accounts receivable, net 230,324 101,645
Inventory 25,484 29,886
Other current assets 2,800 2,800
---------- -----------
Total current assets 341,153 166,759
PROPERTY AND EQUIPMENT:
Autos and trucks 138,258 97,585
Fixtures and equipment 15,327 15,327
---------- -----------
153,585 112,912
Less accumulated depreciation (77,926) (65,211)
---------- -----------
Property and equipment, net 75,659 47,701
---------- -----------
TOTAL $ 416,812 $ 214,460
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Accounts payable $ 50,751 $ 19,680
Accrued compensation 36,849 32,577
Current portion of long-term debt 66,827 25,158
Other current liabilities 50,502 4,216
---------- ----------
Total current liabilities 204,929 81,631
Long-term debt, net of current portion - 6,574
---------- ----------
Total liabilities 204,929 88,205
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 50,000 shares authorized,
1,000 shares issued and outstanding 1,000 1,000
Additional paid in-capital 31,902 31,902
Retained earnings 178,981 93,353
---------- ----------
Total stockholders' equity 211,883 126,255
---------- ----------
TOTAL $ 416,812 $ 214,460
---------- -----------
---------- -----------
</TABLE>
See notes to financial statements.
F-25
<PAGE>
AMERICAN TELCOM, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 1,168,070 $ 901,883
COSTS AND EXPENSES:
Cost of sales 482,278 432,099
Salaries and benefits 365,055 314,712
Selling, general and administrative 200,126 220,183
Interest 3,028 2,161
------------ -----------
Total costs and expenses 1,050,487 969,155
------------ -----------
INCOME (LOSS) BEFORE TAXES 117,583 (67,272)
INCOME TAX (EXPENSE) BENEFIT (31,955) 11,818
------------ -----------
NET INCOME (LOSS) $ 85,628 $ (55,454)
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements.
F-26
<PAGE>
AMERICAN TELCOM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE,
January 1, 1997 1,000 $ 1,000 $ 31,902 $ 148,807 $ 181,709
Net loss - - - (55,454) (55,454)
------- -------- -------- ----------- -----------
BALANCE,
December 31, 1997 1,000 1,000 31,902 93,353 126,255
Net income - - - 85,628 85,628
------- -------- -------- ----------- -----------
BALANCE,
December 31, 1998 1,000 $ 1,000 $ 31,902 $ 178,981 $ 211,883
------- -------- -------- ----------- -----------
------- -------- -------- ----------- -----------
</TABLE>
See notes to financial statements.
F-27
<PAGE>
AMERICAN TELCOM, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 85,628 $ (55,454)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 18,802 23,466
(Gain) loss on sale of assets (8,516) -
Changes in current assets and liabilities:
Accounts receivable (128,679) (7,464)
Inventory 4,402 (897)
Other current assets - 14,221
Accounts payable 31,071 (49,263)
Accrued compensation 4,272 (2,800)
Other current liabilities 46,286 10,928
----------- ----------
Net cash provided by (used in) operating activities 53,266 (67,263)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (66,742) (11,050)
Proceeds from sale of property and equipment 28,498 -
----------- ----------
Net cash used in investing activities (38,244) (11,050)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on long-term debt 83,733 32,076
Payments on long-term borrowings (48,638) (344)
----------- ----------
Net cash provided by financing activities 35,095 31,732
----------- ----------
NET INCREASE (DECREASE) IN CASH 50,117 (46,581)
CASH, beginning of year 32,428 79,009
----------- ----------
CASH, end of year $ 82,545 $ 32,428
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 1,532 $ 2,104
Cash paid during the year for income taxes $ - $ 18,628
</TABLE>
See notes to financial statements.
F-28
<PAGE>
AMERICAN TELCOM, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
1. ORGANIZATION
American Telcom, Inc. (the "Company") was incorporated in January 1987,
under the laws of the State of Oklahoma. The Company sells, installs and
maintains telephone equipment in the greater Oklahoma City area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATIONS - The Company currently buys most of its telephone
equipment from one manufacturer. Although there are a limited number of
manufacturers of telephone equipment, management believes that other
manufacturers could provide similar equipment on comparable terms. A
change in manufacturers, however, could cause a possible loss of sales,
which would affect operating results adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed or
when maintenance services are rendered. The Company defers revenues on
prepaid agreements to maintain customer telephone equipment. The deferred
revenues are recognized as revenue over the period the services are
provided, which is generally 12 months. Deferred revenues are not
significant as of December 31, 1998 and 1997.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge to
the allowance for doubtful accounts; recoveries of previously written off
amounts are added back to the allowance for doubtful accounts.
INVENTORY - Inventory is stated at the lower of cost or market on a
specific identification basis. Cost is determined on a first-in, first-out
method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Major
additions and improvements are capitalized at cost, while maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed. When assets are sold or retired, cost and accumulated
depreciation are removed from the respective accounts. Any gains or losses
resulting from disposal are included in current year operations.
Property and equipment owned by the Company are depreciated using an
accelerated method over three to seven years.
F-29
<PAGE>
INCOME TAXES - The Company uses an asset and liability approach to account
for income taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences and operating loss and tax credit
carryforwards by applying enacted tax rates applicable to future years to
differences between the financial statement amounts and the tax bases of
existing assets and liabilities. A valuation allowance is established if,
in management's opinion, it is more likely than not that some portion of
the deferred tax asset will not be realized. As of December 31, 1998, the
Company's temporary differences between financial and tax bases of assets
and liabilities are not material, and no deferred income taxes have been
recognized.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty period
is returned by the Company to the manufacturer in exchange for replacement
product or refund.
LONG-LIVED ASSETS - Management of the Company assesses recoverability of
its long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. Recoverability
is assessed and measured on long-lived assets using an estimate of the
undiscounted future cash flows attributable to the asset. Impairment is
measured based on future cash flows discounted at an appropriate rate.
ADVERTISING - Advertising costs incurred by the company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash
and cash equivalents, receivables, short-term payables, and notes payable.
The carrying amounts of cash and cash equivalents, receivables, and
short-term payables approximate fair value due to their short-term nature.
The carrying amounts of notes payable approximate fair value based on
borrowing terms currently available to the Company.
3. OPERATING LEASES
The Company has a noncancelable operating lease for its office space with
a related party. The Company expensed and paid $37,060 and $13,850 for
rent during the years ended December 31, 1998 and 1997, respectively. The
future minimum payments by year at December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 $ 33,060
2000 33,060
2001 33,060
--------
$ 99,180
--------
--------
</TABLE>
F-30
<PAGE>
4. LONG-TERM DEBT
The Company's long-term debt at December 31, 1998 and 1997, consisted of
the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Promissory note, balloon payment of principal and interest, interest
rate of 8%, due in February 1999, secured by vehicles. $ 66,827 $ -
Promissory note, due in monthly principal and interest payments,
interest rate of 7.5%, secured by vehicle. - 10,707
Promissory note, due in monthly principal and interest payments,
interest rate of 8%, secured by vehicle and personal guaranties from
Company owners. - 21,025
-------- --------
66,827 31,732
Less current maturities 66,827 25,158
-------- --------
Total long-term debt $ - $ 6,574
-------- --------
-------- --------
</TABLE>
5. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal income tax (expense) benefit $ (29,107) $ 11,818
State income taxes, net of federal benefit (2,848) -
---------- --------
$ (31,955) $ 11,818
---------- --------
---------- --------
</TABLE>
The difference between the statutory Federal income tax rate of 34% and
the Company's effective Federal rate for the years ended December 31, 1998
and 1997, is due to state taxes and the effect of graduated tax rates.
6. BENEFIT PLAN
All employees are eligible to participate in the Company's defined
contribution plan upon completion of two years of employment and reaching
the age of 21. Employees may contribute up to 15% of base compensation, as
defined. All contributions made by employees are 100% vested at the time
the contribution is made. Contributions by the Company are made at the
discretion of management. No contributions were made by the Company during
the years ended December 31, 1998 and 1997.
7. MAJOR CUSTOMERS
Sales to the Company's largest customer amounted to approximately 10% of
net sales for fiscal year 1998. No individual customer in 1997 accounted
for net sales in excess of 10%. The Company has accounts receivable from
two customers that amount to 20% and 36% of the Company's total accounts
receivable at December 31, 1998.
F-31
<PAGE>
8. RELATED PARTY TRANSACTIONS
The Company has recorded a liability to its president and 50% stockholder
of $26,977 at December 31, 1998 and 1997, representing unpaid accrued
compensation.
The Company made rent payments of $37,060 and $13,850 during the years
ended December 31, 1998 and 1997, respectively, for office space to an
entity owned and operated 100% by the owners of the Company.
9. SUBSEQUENT EVENTS
The Company and its stockholders have entered into a definitive agreement
with The Alliance Group ("Alliance") pursuant to which the Company will be
purchased by Alliance. All outstanding shares of the Company will be
exchanged for cash and common stock of Alliance in conjunction with the
consummation of the initial public offering of the common stock of
Alliance.
In February 1999, the Company made a payment of $40,000 on a promissory
note with a bank having a balance totaling $66,827 at December 31, 1998.
The note terms required a balloon payment for the total amount plus
accrued interest in February 1999. The bank extended the due date for the
remaining unpaid amount plus accrued interest and fees until May 1999. All
other note terms remained unchanged.
* * * * * *
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Banner Communications, Inc.:
We have audited the accompanying balance sheet of Banner Communications, Inc.
as of December 31, 1998, and the related statements of earnings,
stockholders' equity, and cash flows for the year ended December 31, 1998.
The financial statements as of December 31, 1997, and for the year then
ended, were audited by other auditors whose report expressed an unqualified
opinion on those financial statements. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on the 1998 financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 1998 financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all
material respects, the financial position of Banner Communications, Inc. at
December 31, 1998, and the results of its operations and its cash flows for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 28, 1999
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Banner Communications, Inc.:
We have audited the accompanying balance sheet of Banner Communications, Inc.
as of December 31, 1997, and the related statements of earnings,
stockholders' equity, and cash flows for the year ended December 31, 1997.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on the 1997 financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1997 financial statements present fairly, in all
material respects, the financial position of Banner Communications, Inc. at
December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/S/ SAXON & KNOL
Oklahoma City, Oklahoma
February 28, 1999
F-34
<PAGE>
BANNER COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 13,486 $ 24,796
Accounts receivable 148,033 101,305
Inventory 68,939 77,094
----------- -----------
Total current assets 230,458 203,195
PROPERTY AND EQUIPMENT:
Autos and trucks 160,053 125,060
Fixtures and equipment 58,651 50,384
----------- -----------
218,704 175,444
Less accumulated depreciation (139,564) (121,905)
----------- -----------
Property and equipment, net 79,140 53,539
----------- -----------
TOTAL $ 309,598 $ 256,734
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion of long-term debt $ 20,073 $ 17,644
Line of credit 30,000 -
Accounts payable 68,432 61,180
Other current liabilities 32,646 5,408
----------- -----------
Total current liabilities 151,151 84,232
Long-term debt, net of current portion 44,807 25,435
----------- -----------
Total liabilities 195,958 109,667
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 10,000 shares authorized,
500 shares issued and outstanding 500 500
Retained earnings 113,140 146,567
----------- -----------
Total stockholders' equity 113,640 147,067
----------- -----------
TOTAL $ 309,598 $ 256,734
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-35
<PAGE>
BANNER COMMUNICATIONS, INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
1998 1997
<S> <C> <C>
NET SALES $ 1,548,874 $ 1,314,544
COSTS AND EXPENSES:
Cost of sales 827,098 610,731
Salaries and benefits 452,068 395,251
Selling, general and administrative expenses 216,801 182,200
Interest expense 6,689 6,624
------------ ------------
Total costs and expenses 1,502,656 1,194,806
------------ ------------
NET INCOME $ 46,218 $ 119,738
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-36
<PAGE>
BANNER COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 500 $ 500 $ 50,355 $ 50,855
Dividends to stockholders (23,526) (23,526)
Net income - - 119,738 119,738
----- ------ ----------- -----------
BALANCE, December 31, 1997 500 500 146,567 147,067
Dividends to stockholders (79,645) (79,645)
Net income - - 46,218 46,218
----- ------ ----------- -----------
BALANCE, December 31, 1998 500 $ 500 $ 113,140 $ 113,640
----- ------ ----------- -----------
----- ------ ----------- -----------
</TABLE>
See notes to financial statements.
F-37
<PAGE>
BANNER COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 46,218 $ 119,738
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 28,837 15,435
Changes in current assets and liabilities:
Accounts receivable (46,728) (22,695)
Inventory 8,155 (2,313)
Accounts payable 7,252 (12,022)
Other current liabilities 27,238 (23,413)
---------- ----------
Net cash provided by operating activities 70,972 74,730
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (10,267) (2,608)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (79,645) (23,526)
Proceeds from borrowings under line of credit 30,000 -
Payments on long-term debt (22,370) (20,861)
---------- ----------
Net cash used in financing activities (72,015) (44,387)
---------- ----------
NET (DECREASE) INCREASE IN CASH (11,310) 27,735
CASH, beginning of year 24,796 (2,939)
---------- ----------
CASH, end of year $ 13,486 $ 24,796
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 6,689 $ 6,688
Purchase of property and equipment through borrowings $ 44,171 $ -
</TABLE>
See notes to financial statements.
F-38
<PAGE>
BANNER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
Banner Communications, Inc. (the "Company") was incorporated in January
1987, under the laws of the State of Oklahoma. The Company sells, installs
and maintains telephone equipment for commercial customers in the greater
Tulsa, Oklahoma market area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATIONS - The Company currently buys most of its telephone
equipment from three manufacturers. Although there are a limited number of
manufacturers of telephone equipment, management believes that other
manufacturers could provide similar equipment on comparable terms. A
change in manufacturers, however, could cause a possible loss of sales,
which would affect operating results adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed or
when maintenance services are rendered. The Company defers revenues for
deposits and advance payments received from customers prior to
installation. Such amounts are immaterial and are included in other
current liabilities in the accompanying financial statements.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts receivable are
established based on historical losses, experience and knowledge of
specific items. No allowances have been established at December 31, 1998
and 1997 as management believes no material losses will be incurred from
receivables.
INVENTORY - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Major
additions and improvements are capitalized at cost, while maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed. When assets are sold or retired, cost and accumulated
depreciation are removed from the respective accounts. Any gains or losses
resulting from disposal are included in current year income or loss.
Property and equipment owned by the Company are depreciated using
accelerated methods over their estimated useful lives of three to five
years.
LONG-LIVED ASSETS - Management of the Company assesses recoverability of
its long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. Recoverability
is assessed and measured on long-lived assets using an estimate of the
undiscounted future cash flows attributable to the asset. Impairment is
measured based on future cash
F-39
<PAGE>
flows discounted at an appropriate rate.
INCOME TAXES - The stockholders of the Company have elected to be taxed as
an S corporation under provisions of the Internal Revenue Code. The items
of income, credit, deduction and loss of the Company pass through to the
stockholders and are includable in their personal income tax returns.
Accordingly, the accompanying financial statements do not reflect a
provision or benefit for income taxes nor deferred tax assets and
liabilities.
Under federal income tax laws, regulations and administrative rulings,
certain types of transactions may be accorded varying interpretations.
Accordingly, the Company's financial statements and tax returns, as well
as the individual tax returns of the stockholders, may be changed to
conform as a result of a review by the Internal Revenue Service.
No such review is presently in process.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty period
is returned by the Company to the manufacturer in exchange for replacement
product or refund.
ADVERTISING - Advertising costs incurred by the Company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash,
receivables, short-term payables, notes payable and borrowings under its
line of credit. The carrying amounts of cash, receivables, and short-term
payables approximate fair value due to their short-term nature. The
carrying amounts of notes payable and borrowings under line of credit
approximate fair value based on borrowing terms currently available to the
Company.
3. DEBT
The Company's long-term debt at December 31, 1998 and 1997, consist of the
following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Notes payable to bank, due in monthly principal and interest payments,
interest rates of 8.5% to 8.95%, maturing in 2002 and 2003, secured by
vehicles $ 39,708 $ -
Note payable to bank, due in monthly principal and interest payments, interest rate
of 9.25%, maturing in December 2001, secured by vehicle 11,291 14,412
Note payable to bank, due in monthly principal and interest payments, interest rate
of 8.75%, maturing in November 2000, secured by vehicle 10,543 15,166
Notes payable to banks, due in monthly principal and interest payments,
interest rates of 8.25 to 10.25%, maturing in July and August 1999,
secured by vehicles 3,338 9,661
Other - 3,840
-------- --------
64,880 43,079
Less current portion of long-term debt 20,073 17,644
-------- --------
Long-term debt $ 44,807 $ 25,435
-------- --------
-------- --------
</TABLE>
F-40
<PAGE>
The Company also has $30,000 outstanding at December 31, 1998 under its
line of credit agreement with a bank. The agreement permits advances up to
$50,000, with interest at Chase Bank Prime plus 1.5% (9.25% at December
31, 1998) and expires March 4, 1999; however, management expects renewal
of the agreement under similar terms. The agreement is collateralized by
accounts receivable, inventory and equipment of the Company.
Maturities of long-term debt and borrowings under the line of credit for
the next five years are as follows: 1999 - $50,073; 2000 - $17,870;
2001 - $14,002; 2002 - $8,149; 2003 - $4,786.
4. LEASES
The Company leases its office space under an operating lease with annual
rentals of $17,776. The lease expired in 1998 and is currently
month-to-month.
5. RETIREMENT PLAN
The Company sponsors a defined contribution plan covering employees who
meet minimum age requirements. Employees may elect to contribute up to 15%
of their eligible compensation. Contributions by the Company are made at
the discretion of management.
The Company made contributions to the plan totaling $9,037 and $10,028 in
1998 and 1997, respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company is involved in suits and claims incidental to its business. In
the opinion of management, the outcome of such matters will not have a
material adverse effect on the Company's business, financial position, or
results of operations.
7. SUBSEQUENT EVENT
The Company and its stockholders have entered into a definitive agreement
with The Alliance Group ("Alliance") pursuant to which the Company will be
purchased by Alliance. All of the issued and outstanding common stock of
the Company will be exchanged for cash and common stock of Alliance in
conjunction with the consummation of the initial public offering of the
common stock of Alliance.
* * * * * *
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Commercial Telecom Systems, Inc.:
We have audited the accompanying balance sheets of Commercial Telecom Systems,
Inc. as of December 31, 1998 and 1997, and the related statements of earnings,
stockholders' equity, and cash flows for the years ended December 31, 1998 and
1997. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Commercial Telecom Systems, Inc. as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ HUNTER, ATKINS & RUSSELL, PLC
February 18, 1999
F-42
<PAGE>
COMMERCIAL TELECOM SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 54,532 $ 18,667
Accounts receivable 72,080 131,811
Inventory 90,902 73,097
-------- --------
Total current assets 217,514 223,575
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Autos and trucks 58,055 58,055
Fixtures and equipment 39,451 39,451
Furniture and fixtures 976 976
Leasehold improvements 1,552 1,552
-------- --------
100,034 100,034
Less accumulated depreciation (85,191) (77,970)
-------- --------
Property and equipment, net 14,843 22,064
-------- --------
OTHER ASSETS 610 610
-------- --------
TOTAL $232,967 $246,249
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $137,590 $ 74,865
Deferred maintenance contracts 64,568 49,042
Other current liabilities 94,773 20,309
Notes payable, current portion 4,044 81,723
-------- --------
Total current liabilities 300,975 225,939
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 7,348 11,393
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 1,000 shares authorized
and outstanding 1,000 1,000
Treasury stock (4,924) (4,924)
Retained earnings (71,432) 12,841
-------- --------
Total stockholders' equity (75,356) 8,917
-------- --------
TOTAL $232,967 $246,249
-------- --------
-------- --------
</TABLE>
See notes to financial statements.
F-43
<PAGE>
COMMERCIAL TELECOM SYSTEMS, INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
SALES $1,437,932 $1,233,316
COSTS AND EXPENSES:
Cost of sales 704,506 631,028
Salaries and benefits 386,413 394,632
Selling, general and administrative expenses 133,253 126,167
Interest expense 5,099 6,316
---------- ----------
Total costs and expenses 1,229,271 1,158,143
---------- ----------
INCOME BEFORE TAXES ON INCOME 208,661 75,173
INCOME TAX EXPENSE (76,316) (11,201)
---------- ----------
NET INCOME $ 132,345 $ 63,972
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
F-44
<PAGE>
COMMERCIAL TELECOM SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
COMMON COMMON TREASURY RETAINED
SHARES STOCK STOCK EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 1,000 $1,000 $(4,924) $ 24,903 $ 20,979
Net income 63,972 63,972
Dividends paid - - - (76,034) (76,034)
----- ------ ------- -------- --------
BALANCE, December 31, 1997 1,000 1,000 (4,924) 12,841 8,917
Net income 132,345 132,345
Dividends paid - - - (216,618) (216,618)
----- ------ ------- -------- --------
BALANCE, December 31, 1998 1,000 $1,000 $(4,924) $(71,432) $(75,356)
----- ------ ------- -------- --------
----- ------ ------- -------- --------
</TABLE>
See notes to financial statements.
F-45
<PAGE>
COMMERCIAL TELECOM SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 132,345 $ 63,972
Adjustments to reconcile net income to net cash
provided by operations-
Depreciation 10,121 9,485
Gain on disposal of property (2,900) -
Changes in current assets and liabilities:
Accounts receivable 59,731 40,176
Inventory (17,805) -
Accounts payable 62,725 (40,181)
Deferred maintenance contracts 15,526 (14,999)
Other current liabilities 74,464 15,870
---------- ----------
Net cash provided by operating activities 334,207 74,323
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (21,556)
---------- ----------
Net cash used in investing activities - (21,556)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 100,900 359,834
Payments on long-term debt (182,624) (345,747)
Dividends paid (216,618) (76,034)
---------- ----------
Net cash used in financing activities (298,342) (61,947)
---------- ----------
NET INCREASE (DECREASE) IN CASH 35,865 (9,180)
CASH, beginning of year 18,667 27,847
---------- ----------
CASH, end of year $ 54,532 $ 18,667
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 5,099 $ 6,297
Cash paid during the year for income taxes $ - $ 3,976
</TABLE>
See notes to financial statements.
F-46
<PAGE>
COMMERCIAL TELECOM SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
1. ORGANIZATION
Commercial Telecom Systems, Inc. (the "Company") was incorporated in
December 1988, under the laws of the State of Oklahoma. The Company
sells, installs and maintains telephone equipment in the state of
Oklahoma.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The financial statements are prepared using the
accrual basis of accounting. Revenues are recognized when earned and
expenses are recognized when a liability is incurred.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS - For purposes of the Statements of Cash
Flows, the Company considers all highly liquid investments with an
original maturity of three months or less to be a cash equivalent.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge
to the allowance for doubtful accounts; recoveries of previously written
off amounts are added back to the allowance for doubtful accounts.
INVENTORY - Inventory is stated at the lower of cost or market on the
first in, first out basis.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Major additions and improvements are capitalized at cost, while
maintenance and repairs which do not extend the useful lives of the
respective assets are expensed. When assets are sold or retired, cost
and accumulated depreciation are removed from the respective accounts.
Any gains or losses resulting from disposal are included in current year
income or loss. For the years ending December 31, 1998 and 1997 the
Company had $-0- and $21,556 of additions to property and equipment,
respectively.
Property and equipment owned by the Company are depreciated using the
straight-line method over the following useful lives: Autos and trucks
-3 to 7 years; fixtures and equipment - 5 to 7 years; furniture and
fixtures - 5 to 7 years; and leasehold improvements - 5 to 20 years.
Depreciation expense for the years ending December 31, 1998 and 1997 was
$10,121 and $9,485, respectively.
F-47
<PAGE>
DEFERRED MAINTENANCE AGREEMENTS - The Company recognizes deferred
revenues for advance payment on agreements to maintain customer
telephone equipment. The deferred revenues are recorded as income in the
period the services are provided, which is generally twelve months.
INCOME TAXES - Temporary differences between financial and tax bases of
assets and liabilities are not material. Accordingly, no deferred income
taxes have been presented.
TREASURY STOCK - Stock held as treasury stock is stated at cost.
ERROR CORRECTIONS - Certain errors resulting in an over and
understatement of balance sheet accounts occurred in calendar year 1996.
These errors resulted in an adjustment of $3,327 to retained earnings
for the year ending December 31, 1997.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty
period is returned by the Company to the manufacturer in exchange for
replacement product or refund.
IMPAIRMENT - Asset impairments are recorded when events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. Impairment is assessed and measured on long-lived assets
using an estimate of the undiscounted future cash flows.
ADVERTISING - Advertising costs incurred by the company are expensed
during the period in which the advertising occurs.
3. OPERATING LEASES
The Company has an operating lease for its office space. The future
minimum payments by year at December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 $6,825
</TABLE>
The lease expires July 31, 1999 and has monthly payments of $975. There
is no imputed interest or current maturities associated with this lease.
4. LONG-TERM DEBT
The Company's long-term debt at December 31, 1998 and 1997, consisted of
the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note payable to a bank, due July 1, 2001, carrying an interest
rate of 9.5% with monthly payments of $413. The loan was for
the purchase of a vehicle that was capitalized at $20,050. $11,392 $16,491
Less current maturities (4,044) (5,098)
------- -------
Long-term portion $ 7,348 $11,393
------- -------
------- -------
</TABLE>
F-48
<PAGE>
Maturities of long-term debt for years subsequent to December 31, 1998 are:
1999 - $4,044; 2000 - $4,445; 2001 - $2,903.
The Company has a line of credit with a local commercial bank. This line
of credit matures March of each year. The line of credit is for $75,000
and carries an interest rate of 2% of Chase Manhattan prime. As of
December 31, 1998 the Company did not owe any monies on this line of
credit. As of December 31, 1997 the Company owed $64,973. This
obligation is secured by bank accounts, inventory, furniture, fixtures,
equipment and the personal guarantee of the majority stockholder.
5. INCOME TAXES
The Company has accrued liabilities for federal and state income taxes
as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Federal $63,907 $ 8,625
State 12,409 2,576
------- -------
$76,316 $11,201
------- -------
------- -------
</TABLE>
The Company has also accrued estimates as to the penalties and interest
owed on the above obligations. Total penalties and interest accrued for
both federal and state is $15,801.
6. SUBSEQUENT EVENT
The Company and its stockholders have entered into a definitive
agreement with The Alliance Group ("Alliance") pursuant to which the
Company will be purchased by Alliance. All outstanding shares of the
Company will be exchanged for cash and common stock of Alliance in
conjunction with the consummation of the initial public offering of the
common stock of Alliance.
* * * * * *
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Communication Services, Inc.:
We have audited the accompanying balance sheet of Communication Services,
Inc. as of December 31, 1998, and the related statements of operations,
stockholder's equity, and cash flows for the year ended December 31, 1998.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Communication Services, Inc. at December
31, 1998, and the results of its operations and its cash flows for the year
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/S/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 9, 1999
F-50
<PAGE>
COMMUNICATION SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 26,440
Accounts receivable, net of allowance for doubtful accounts of $42,000 98,354
Inventory 32,482
----------
Total current assets 157,276
PROPERTY AND EQUIPMENT:
Vehicles 76,140
Equipment 26,689
----------
102,829
Less accumulated depreciation (56,885)
----------
Property and equipment, net 45,944
OTHER ASSETS 200
----------
TOTAL $ 203,420
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 9,410
Line of credit 20,035
Accounts payable 68,511
Other current liabilities 51,813
----------
Total current liabilities 149,769
Long-term debt, net of current portion 28,195
----------
Total liabilities 177,964
----------
COMMITMENTS
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 50,000 shares authorized;
500 shares issued and outstanding 500
Additional paid in-capital 1,774
Retained earnings 23,182
----------
Total stockholder's equity 25,456
----------
TOTAL $ 203,420
----------
----------
</TABLE>
See notes to financial statements.
F-51
<PAGE>
COMMUNICATION SERVICES, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET SALES $ 807,432
COSTS AND EXPENSES:
Cost of sales 367,592
Salaries and benefits 285,823
Selling, general and administrative expenses 156,493
Interest expense 4,335
----------
Total costs and expenses 814,243
----------
NET LOSS $ (6,811)
----------
----------
</TABLE>
See notes to financial statements.
F-52
<PAGE>
COMMUNICATION SERVICES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 500 $ 500 $ 1,774 $ 31,722 $ 33,996
Distribution to stockholder (1,729) (1,729)
Net loss - - - (6,811) (6,811)
----- ------ ------- -------- --------
BALANCE, December 31, 1998
500 $ 500 $ 1,774 $ 23,182 $ 25,456
----- ------ ------- -------- --------
----- ------ ------- -------- --------
</TABLE>
See notes to financial statements.
F-53
<PAGE>
COMMUNICATION SERVICES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,811)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 16,799
Provision for losses on accounts receivable 37,350
Changes in current assets and liabilities:
Accounts receivable (82,208)
Inventory (2,597)
Other assets 1,108
Accounts payable 38,027
Other current liabilities 17,725
----------
Net cash provided by operating activities 19,393
----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (7,524)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit 20,035
Payments on long-term debt (14,361)
Distribution to stockholder (1,729)
----------
Net cash provided by financing activities 3,945
----------
NET INCREASE IN CASH 15,814
CASH, beginning of year 10,626
----------
CASH, end of year $ 26,440
----------
----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 4,335
Purchase of property and equipment through borrowings $ 20,910
</TABLE>
See notes to financial statements.
F-54
<PAGE>
COMMUNICATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
Communication Services, Inc. (the "Company") was incorporated in
January 1992, under the laws of the State of Oklahoma. The Company
sells, installs and maintains telephone, wireless communication and
paging equipment to commercial and individual customers in the state of
Oklahoma.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATIONS - The Company currently buys most of its equipment and
paging services from three manufacturers and providers. Although there are
a limited number of such manufacturers and providers, management believes
that others could provide similar equipment and services on comparable
terms. A change in manufacturers and providers, however, could cause a
possible loss of sales and services, which would affect operating results
adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed or
when paging and maintenance services are provided. The Company defers
revenues for deposits and advance payments received from customers prior
to installation. Such amounts are immaterial and are included in other
current liabilities in the accompanying financial statements.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge to
the allowance for doubtful accounts; recoveries of previously written off
amounts are added back to the allowance for doubtful accounts.
INVENTORY - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Major
additions and improvements are capitalized at cost, while maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed. When assets are sold or retired, cost and accumulated
depreciation are removed from the respective accounts. Any gains or losses
resulting from disposal are included in current year income or loss.
Property and equipment owned by the Company are depreciated using the
straight-line method over their estimated useful lives of three to seven
years.
F-55
<PAGE>
LONG-LIVED ASSETS - Management of the Company assesses recoverability of
its long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. Recoverability
is assessed and measured on long-lived assets using an estimate of the
undiscounted future cash flows attributable to the asset. Impairment is
measured based on future cash flows discounted at an appropriate rate.
INCOME TAXES - The stockholder of the Company has elected to be taxed as
an S corporation under provisions of the Internal Revenue Code. The items
of income, credit, deduction and loss of the Company pass through to the
stockholder and are includable in the stockholder's personal income tax
return. Accordingly, the accompanying financial statements do not reflect
a provision or benefit for income taxes nor deferred tax assets and
liabilities.
Under federal income tax laws, regulations and administrative rulings,
certain types of transactions may be accorded varying interpretations.
Accordingly, the Company's financial statements and tax returns, as well
as the individual tax return of the stockholder, may be changed as a
result of a review by the Internal Revenue Service.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty period
is returned by the Company to the manufacturer in exchange for replacement
product or refund.
ADVERTISING - Advertising costs incurred by the Company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash,
receivables, short-term payables, notes payable and borrowings under its
line of credit. The carrying amounts of cash, receivables, and short-term
payables approximate fair value due to their short-term nature. The
carrying amounts of notes payable and borrowings under line of credit
approximate fair value based on borrowing terms currently available to the
Company.
3. LONG-TERM DEBT
The Company's long-term debt at December 31, 1998, consists of the
following:
<TABLE>
<S> <C>
Notes payable to credit union, due in monthly principal and interest payments,
interest rate of 7.5% and 7.75%, secured by vehicles,
due in 2002 and 2003 $ 37,605
Less current maturities 9,410
--------
Total long-term debt $ 28,195
--------
--------
</TABLE>
The Company also has $20,035 outstanding at December 31, 1998 under its
line of credit agreement with a bank which expires August 20, 1999.
Borrowings under the agreement bear interest at 10.5% and are
collateralized by accounts receivable and inventory of the Company.
Maturities of long-term debt and borrowings under the line of credit for
the next five years are as follows: 1999 - $29,445; 2000 - $10,688;
2001 - $11,534; 2002 - $5,496; 2003 - $477.
F-56
<PAGE>
4. OPERATING LEASES
The Company subleases its retail space under a noncancelable operating
sublease agreement. Minimum future payments under the sublease are $21,000
annually through December 31, 2001.
The Company leases its office space from its stockholder. Rentals for
1998 were $21,000.
5. RETIREMENT PLAN
The Company sponsors a defined contribution plan covering employees who
meet minimum compensation and service requirements. Company contributions
to the plan are made at the discretion of management and totaled $3,009 in
1998.
6. SUBSEQUENT EVENT
The Company and its stockholder have entered into a definitive agreement
with The Alliance Group ("Alliance") pursuant to which the Company will be
purchased by Alliance. All of the issued and outstanding common stock of
the Company will be exchanged for cash and common stock of Alliance in
conjunction with the consummation of the initial public offering of the
common stock of Alliance.
* * * * * *
F-57
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
EIS Communications:
We have audited the accompanying combined balance sheets of the Telephone and
Paging Divisions of EIS Communications as of December 31, 1998, and 1997, and
the related combined statements of operations, division equity, and cash
flows for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Telephone and Paging
Divisions of EIS Communications at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years ended December
31, 1998 and 1997, in conformity with generally accepted accounting
principles.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Telephone and Paging Divisions of EIS
Communications and may not necessarily be indicative of the financial
condition that would have existed or the results of operations if the
divisions had been operated as unaffiliated companies. Expenses of $309,000
and $260,000 included in the accompanying combined financial statements for
1998 and 1997, respectively, represent allocations from EIS Communications.
/S/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 5, 1999
F-58
<PAGE>
TELEPHONE AND PAGING DIVISIONS OF EIS COMMUNICATIONS
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful accounts of
$22,000 and $28,000, respectively $ 239,130 $ 208,051
Inventory 177,340 238,701
----------- -----------
Total current assets 416,470 446,752
PROPERTY AND EQUIPMENT:
Vehicles 34,297 -
Less accumulated depreciation (15,085) -
----------- -----------
Vehicles, net 19,212 -
----------- -----------
TOTAL $ 435,682 $ 446,752
----------- -----------
----------- -----------
LIABILITIES AND DIVISION EQUITY
LIABILITIES:
Current liabilities:
Current portion of long-term debt and notes payable $ 11,064 $ 1,072
Accounts payable 123,327 315,794
Other current liabilities 55,923 19,852
----------- -----------
Total current liabilities 190,314 336,718
Long-term debt, net of current portion 16,581 -
----------- -----------
Total liabilities 206,895 336,718
COMMITMENTS AND CONTINGENCIES
DIVISION EQUITY 228,787 110,034
----------- -----------
TOTAL $ 435,682 $ 446,752
----------- -----------
----------- -----------
</TABLE>
7
See notes to financial statements.
F-59
<PAGE>
TELEPHONE AND PAGING DIVISIONS OF EIS COMMUNICATIONS
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 2,349,845 $ 2,291,546
COSTS AND EXPENSES:
Cost of sales 1,247,829 1,252,849
Salaries and benefits 678,442 575,654
Selling, general and administrative expenses 421,877 402,970
Interest 2,226 -
------------ ------------
Total costs and expenses 2,350,374 2,231,473
------------ ------------
INCOME (LOSS) BEFORE TAXES (529) 60,073
INCOME TAX EXPENSE - 24,000
------------ ------------
NET INCOME (LOSS) $ (529) $ 36,073
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-60
<PAGE>
TELEPHONE AND PAGING DIVISIONS OF EIS COMMUNICATIONS
COMBINED STATEMENTS OF DIVISION EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BALANCE, January 1, 1997 $ 107,214
Distribution to parent (33,253)
Net income 36,073
----------
BALANCE, December 31, 1997 110,034
Contribution from parent 119,282
Net loss (529)
----------
BALANCE, December 31, 1998 $ 228,787
----------
----------
</TABLE>
See notes to financial statements.
F-61
<PAGE>
TELEPHONE AND PAGING DIVISIONS OF EIS COMMUNICATIONS
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (529) $ 36,073
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 15,085 -
Provision for losses on accounts receivable 10,690 27,724
Changes in current assets and liabilities:
Accounts receivable (41,769) (80,791)
Inventory 61,361 (48,227)
Accounts payable (192,467) 134,171
Other current liabilities 36,071 (21,258)
----------- -----------
Net cash provided by (used in) operating activities (111,558) 47,692
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from (distribution to) parent 119,282 (33,253)
Payments on long-term borrowing (7,724) (14,439)
----------- -----------
Net cash provided by (used in) financing activities 111,558 (47,692)
----------- -----------
NET CHANGE IN CASH - -
CASH, beginning of year - -
----------- -----------
CASH, end of year $ - $ -
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 2,226 $ -
Vehicles acquired through borrowings $ 34,297 $ -
</TABLE>
See notes to financial statements.
F-62
<PAGE>
TELEPHONE AND PAGING DIVISIONS OF EIS COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying financial statements present the
combined assets, liabilities, sales and expenses related to the telephone
and paging divisions (the "Divisions") of EIS Communications ("EIS"). EIS
sells, installs and maintains telephone, wireless communication, paging
and radio equipment to commercial and individual customers in the greater
Tulsa, Oklahoma market area. The financial statements have been prepared
from the separate records maintained by the Divisions and may not
necessarily be indicative of the financial conditions that would have
existed or the results of operations if the Divisions had been operated as
unaffiliated companies. Expenses of $309,000 and $260,000 included in the
combined financial statements for 1998 and 1997, respectively, represent
allocations made from EIS. Management is of the opinion that the
allocations used are reasonable and appropriate.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATIONS - The Divisions currently buy most of their equipment and
paging services from four manufacturers and providers. Although there are
a limited number of such manufacturers and providers, management believes
that others could provide similar equipment and services on comparable
terms. A change in manufacturers and providers, however, could cause a
possible loss of sales, which would affect operating results adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed or
when paging and maintenance services are rendered. The Divisions defer
revenues for deposits and advance payments received from customers prior
to installation. Such amounts are immaterial and are included in other
current liabilities in the accompanying financial statements.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge to
the allowance for doubtful accounts; recoveries of previously written off
amounts are added back to the allowance for doubtful accounts.
INVENTORY - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT - Vehicles are stated at cost and are depreciated
using accelerated methods over their estimated useful lives of three
years.
INCOME TAXES - EIS uses the asset and liability approach to account for
income taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences and operating loss and tax credit
carryforwards by applying enacted tax rates applicable to future years to
differences between the financial
F-63
<PAGE>
statement amounts and the tax bases of existing assets and liabilities. A
valuation allowance is established if, in management's opinion, it is more
likely than not that some portion of the deferred tax asset will not be
realized.
For purposes of preparing the combined financial statements of the
Divisions, federal and state income taxes were determined as if the
Divisions filed separate income tax returns. As of December 31, 1998 and
1997, the Divisions' temporary differences between financial and tax bases
of assets and liabilities are not material and no deferred income taxes
have been recognized.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty period
is returned by the Divisions to the manufacturer in exchange for
replacement product or refund.
ADVERTISING - Advertising costs incurred by the Divisions are expensed
during the period in which the advertising occurs.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts for accounts
receivable and accounts payable approximate fair value because of the
short maturity of those instruments. The carrying amount of long-term debt
approximates fair value based on borrowing terms currently available to
EIS.
2. LONG-TERM DEBT
The Divisions' long-term debt at December 31, 1998 consists of four notes
payable to a bank due in monthly installments of principal and interest
through March 2001. The notes bear interest at 9.95% and are secured by
the Divisions' vehicles. Scheduled maturities by year are as follows: 1999
- $11,064; 2000 - $12,216; 2001 - $4,365.
A note payable to an individual with a balance of $1,072 at December 31,
1997 was repaid in 1998.
3. MAJOR CUSTOMERS
At December 31, 1998 and 1997, the Company had an account receivable from
an individual customer that amounted to 17% and 16%, respectively, of the
Company's total accounts receivable.
4. COMMITMENTS AND CONTINGENCIES
EIS is involved in claims and suits incidental to its business. In the
opinion of management, the outcome of such matters will not have a
material adverse effect on the Divisions' business, financial position or
results of operations.
5. SUBSEQUENT EVENT
EIS and its stockholders have entered into a definitive agreement with The
Alliance Group ("Alliance") pursuant to which the telephone and paging
divisions will be purchased by Alliance in exchange for cash and common
stock of Alliance in conjunction with the consummation of the initial
public offering of the common stock of Alliance.
* * * * * *
F-64
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Nobel Systems, Inc.
We have audited the accompanying balance sheet of Nobel Systems, Inc. as of
December 31, 1998, and the related statements of earnings, stockholders'
equity, and cash flows for the year ended December 31, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Nobel Systems, Inc. at December 31, 1998,
and the results of their operations and their cash flows for the year ended
December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ SAXON & KNOL, P. C.
February 28, 1999
F-65
<PAGE>
NOBEL SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1998
- -----------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 85,237
Inventory 51,976
-----------
Total current assets 137,213
PROPERTY AND EQUIPMENT, at cost:
Autos and trucks 53,117
Machinery and equipment 40,062
Furniture and fixtures 11,199
-----------
104,378
Less accumulated depreciation (71,889)
-----------
Property and equipment, net 32,489
-----------
TOTAL $ 169,702
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 46,083
Current portion of long-term debt and notes payable 71,567
Other current liabilities 16,822
-----------
Total current liabilities 134,472
-----------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 17,228
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 5,000 shares authorized,
800 shares issued and outstanding 800
Additional paid in-capital 53,614
Retained earnings (36,412)
-----------
Total stockholders' equity 18,002
-----------
TOTAL $ 169,702
-----------
-----------
</TABLE>
See notes to financial statements.
F-66
<PAGE>
NOBEL SYSTEMS, INC.
STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
<TABLE>
<S> <C>
SALES $ 953,046
COSTS AND EXPENSES:
Cost of sales 454,729
Salaries and benefits 330,795
Selling, general and administrative expenses 166,224
Interest expense 9,729
-----------
Total costs and expenses 961,477
-----------
NET LOSS $ (8,431)
-----------
-----------
</TABLE>
See notes to financial statements.
F-67
<PAGE>
NOBEL SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN CAPITAL RETAINED
SHARES STOCK EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 500 $ 500 $ - $ (27,981) $ (27,481)
Additional investment 300 300 53,614 - 53,914
Net loss - - - (8,431) (8,431)
----- ------ ---------- ---------- ----------
BALANCE, December 31, 1998 800 $ 800 $ 53,614 $ (36,412) $ 18,002
----- ------ ---------- ---------- ----------
----- ------ ---------- ---------- ----------
</TABLE>
See notes to financial statements.
F-68
<PAGE>
NOBEL SYSTEMS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,431)
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 14,926
Loss on sale of assets 374
Changes in current assets and liabilities:
Accounts receivable 72,084
Inventory (25,552)
Other current assets 10,572
Accounts payable (52,613)
Other current liabilities (5,136)
----------
Net cash provided by operating activities 6,224
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,970)
----------
Net cash used in investing activities (6,970)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional investment 53,914
Proceeds from borrowings on long-term debt 10,472
Payments on long-term borrowings (67,163)
----------
Net cash provided by financing activities (2,777)
----------
NET DECREASE IN CASH (3,523)
CASH, beginning of year 3,523
----------
CASH, end of year $ -
----------
----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 25,808
</TABLE>
See notes to financial statements.
F-69
<PAGE>
NOBEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
1. ORGANIZATION
Nobel Systems, Inc. (the "Company") was incorporated in January 1989,
under the laws of the State of Oklahoma. The Company sells, installs
and maintains telephone equipment in the state of Oklahoma market area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
BASIS OF PRESENTATION - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. Actual results
could differ from those estimates.
CONCENTRATIONS - The Company currently buys most of its telephone
equipment from two manufacturers. Although there are a limited number of
manufacturers of telephone equipment, management believes that other
manufacturers could provide similar equipment on comparable terms. A
change in manufacturers, however, could cause a possible loss of sales,
which would affect operating results adversely.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge to
the allowance for doubtful accounts; recoveries of previously written off
amounts are added back to the allowance for doubtful accounts.
INVENTORY - Inventory is stated at the lower of cost or market on a first
in, first out basis.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Major
additions and improvements are capitalized at cost, while maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed. When assets are sold or retired, cost and accumulated
depreciation are removed from the respective accounts. Any gains or
losses resulting from disposal are included in current year income or
loss.
Property and equipment owned by the Company are depreciated over the
estimated useful lives using straight-line and accelerated tax-based
methods.
F-70
<PAGE>
DEFERRED INCOME - The Company recognizes deferred revenues for advance
payment on agreements to maintain customer telephone equipment. The
deferred revenues are recorded as income in the period the services are
provided, which is generally twelve months.
INCOME TAXES - The Company has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. Under those provisions, the
Company does not pay federal corporate income taxes on its taxable
income. Instead, the stockholders are liable for individual federal
income taxes on their respective shares of the company's taxable income.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty
period is returned by the Company to the manufacturer in exchange for
replacement product or refund.
IMPAIRMENT - Asset impairments are recorded when events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. Impairment is assessed and measured on long-lived assets
using an estimate of the undiscounted future cash flows.
ADVERTISING - Advertising costs incurred by the company are expensed
during the period in which the advertising occurs.
3. LONG-TERM DEBT
The Company's long-term debt at December 31, 1998, consisted of the
following:
<TABLE>
<S> <C>
Line of credit, monthly interest payments; interest rate of 11.25%; due
in February 1999, secured by accounts receivable $ 25,000
Note payable to a related party, due in monthly principal and interest
payments; interest rate of 12%; maturing in May 2000; unsecured 22,974
Note payable; due in monthly principal and interest payments; interest
rate of 18%; maturing in January 2000; secured by equipment 9,137
Note payable to a related party, due in monthly principal and interest
payments; interest rate of 12%; maturing in May 2000; unsecured 6,364
Notes payable; due in monthly principal and interest payments; interest
rates from 8.5% to 10.5%; maturing from January 1999 to March 2000;
secured by vehicles 21,021
Note payable, due in monthly principal and interest payments; interest
rate of 14.5%; maturing in July 1999; unsecured 4,299
----------
88,795
Less current maturities (71,567)
----------
$ 17,228
----------
----------
</TABLE>
Maturities of long-term debt for the next five years are as follows:
1999 - $71,567; 2000 - $13,360; 2001 - $2,996; and 2002 - $872.
F-71
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
The transferability of the majority shareholder's stock is subject to the
satisfaction or removal of federal tax liens related to personal income
tax liabilities.
5. CONCENTRATIONS OF CREDIT RISK
Sales to the Company's three largest customers amounted to approximately
20% of net sales for fiscal year 1998. As of December 31, 1998, account
balances due from the Company's three largest customers comprise
approximately 12% of total trade accounts receivable, with the largest
balance comprising approximately 5%.
6. RELATED PARTY TRANSACTIONS
The Company has notes payable to the company's shareholders. The notes
bear interest at the approximate fair value at inception of the note. The
notes are unsecured and mature in 2000.
7. SUBSEQUENT EVENT
The Company and its stockholders have entered into a definitive agreement
with The Alliance Group ("Alliance") pursuant to which the Company will
be purchased by Alliance. All outstanding shares of the Company will be
exchanged for cash and common stock of Alliance in conjunction with the
consummation of the initial public offering of the common stock of
Alliance.
* * * * * *
F-72
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Telkey Communications, Inc.:
We have audited the accompanying balance sheet of Telkey Communications, Inc.
as of September 30, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the year ended September 30, 1998.
The financial statements as of September 30, 1997, and for the year then
ended, were audited by other auditors whose report expressed an unqualified
opinion on those financial statements. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on the 1998 financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 1998 financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all
material respects, the financial position of Telkey Communications, Inc. at
September 30, 1998, and the results of its operations and its cash flows for
the year ended September 30, 1998, in conformity with generally accepted
accounting principles.
/S/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 26, 1999
F-73
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Telkey Communications, Inc.:
We have audited the accompanying balance sheet of Telkey Communications, Inc.
as of September 30, 1997 and the related statements of operations,
stockholders' equity, and cash flows for the year ended September 30, 1997.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Telkey Communications, Inc. at September
30, 1997, and the results of their operations and their cash flows for the
year ended September 30, 1997, in conformity with generally accepted
accounting principles.
/S/ SAXON & KNOL
Oklahoma City, Oklahoma
February 26, 1999
F-74
<PAGE>
TELKEY COMMUNICATIONS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
- ---------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 140,053 $ 57,247
Receivables, net 154,280 193,371
Inventory 88,748 82,164
Notes receivable - current 15,324 -
Other current assets 3,741 905
----------- -----------
Total current assets 402,146 333,687
NOTES RECEIVABLE, net of current portion 16,862 -
PROPERTY AND EQUIPMENT:
Autos and trucks 117,419 128,164
Fixtures and equipment 47,207 37,697
Rental telephone equipment 83,401 64,622
----------- -----------
248,027 230,483
Less accumulated depreciation (174,533) (138,404)
----------- -----------
Property and equipment, net 73,494 92,079
----------- -----------
TOTAL $ 492,502 $ 425,766
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Line of credit $ 30,000 $ -
Accounts payable 31,364 26,015
Deferred income 32,200 46,567
Current portion of long-term debt 29,782 19,683
Other current liabilities 22,501 19,554
----------- -----------
Total current liabilities 145,847 111,819
Long-term debt, net of current portion 24,780 26,823
----------- -----------
Total liabilities 170,627 138,642
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 10,000 shares authorized,
300 shares issued and outstanding 300 300
Retained earnings 321,575 286,824
----------- -----------
Total stockholders' equity 321,875 287,124
----------- -----------
TOTAL $ 492,502 $ 425,766
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-75
<PAGE>
TELKEY COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 1,393,165 $ 1,280,220
COSTS AND EXPENSES:
Cost of sales 613,123 567,813
Salaries and benefits 476,800 447,301
Selling, general and administrative 249,538 185,188
Interest 7,161 5,340
------------ ------------
Total costs and expenses 1,346,622 1,205,642
------------ ------------
INCOME BEFORE TAXES 46,543 74,578
INCOME TAX EXPENSE 11,792 15,527
------------ ------------
NET INCOME $ 34,751 $ 59,051
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-76
<PAGE>
TELKEY COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
<TABLE>
<CAPTION>
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
<S> <C> <C> <C> <C>
BALANCE, October 1, 1996 300 $ 300 $ 227,773 $ 228,073
Net income - - 59,051 59,051
---- ------ ---------- ----------
BALANCE, September 30, 1997 300 300 286,824 287,124
Net income - - 34,751 34,751
---- ------ ---------- ----------
BALANCE, September 30, 1998 300 $ 300 $ 321,575 $ 321,875
---- ------ ---------- ----------
---- ------ ---------- ----------
</TABLE>
See notes to financial statements.
F-77
<PAGE>
TELKEY COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,751 $ 59,051
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 46,874 27,950
Deferred income (14,367) -
(Gain) loss on sale of assets (500) 11,832
Changes in assets and liabilities:
Receivables 39,091 (25,751)
Inventory (6,584) (34,531)
Notes receivable (32,186) -
Other current assets (2,836) (6,517)
Accounts payable 5,349 4,340
Other current liabilities 2,947 8,204
---------- ----------
Net cash provided by operating activities 72,539 44,578
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (28,289) (51,289)
Proceeds from sale of property and equipment 500 -
---------- ----------
Net cash used in investing activities (27,789) (51,289)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 87,839 500
Payments on borrowings (49,783) (22,875)
---------- ----------
Net cash provided by (used in) financing activities 38,056 (22,375)
---------- ----------
NET INCREASE (DECREASE) IN CASH 82,806 (29,086)
CASH, beginning of year 57,247 86,333
---------- ----------
CASH, end of year $ 140,053 $ 57,247
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 5,108 $ 5,281
Cash paid during the year for income taxes $ 14,802 $ 15,527
</TABLE>
See notes to financial statements.
F-78
<PAGE>
TELKEY COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
1. ORGANIZATION
Telkey Communications, Inc. (the "Company") was incorporated in February
1984, under the laws of the State of Oklahoma. The Company sells,
installs and maintains telephone equipment in the greater Tulsa, Oklahoma
market area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ from
those estimates.
CONCENTRATIONS - The Company currently buys most of its telephone
equipment from two manufacturers. Although there are a limited number of
manufacturers of telephone equipment, management believes that other
manufacturers could provide similar equipment on comparable terms. A
change in manufacturers, however, could cause a possible loss of sales,
which would affect operating results adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed or
when maintenance services are rendered. The Company defers revenues on
prepaid agreements to maintain customer telephone equipment. The deferred
revenues are recognized as revenue over the period the services are
provided, which is generally 12 months.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge to
the allowance for doubtful accounts; recoveries of previously written off
amounts are added back to the allowance for doubtful accounts.
INVENTORY - Inventory is stated at the lower of cost or market on a
specific identification basis. Cost is determined on a first-in, first-out
method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Major
additions and improvements are capitalized at cost, while maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed. When assets are sold or retired, cost and accumulated
depreciation are removed from the respective accounts. Any gains or losses
resulting from disposal are included in current year operations.
F-79
<PAGE>
Property and equipment owned by the Company are depreciated using the
straight-line method, which includes amortization of assets under capital
leases over the following useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
IN YEARS
<S> <C>
Autos and trucks 3 - 7
Fixtures and equipment 5 - 7
Rental telephone equipment 5 - 7
</TABLE>
INCOME TAXES - The Company uses an asset and liability approach to account
for income taxes. Deferred income taxes are recognized for the tax
consequences of temporary differences and carryforwards by applying
enacted tax rates applicable to future years to differences between the
financial statement amounts and the tax bases of existing assets and
liabilities. A valuation allowance is established if, in management's
opinion, it is more likely than not that some portion of the deferred tax
asset will not be realized. As of September 30, 1998, the Company's
temporary differences between financial and tax bases of assets and
liabilities are not material, and no deferred income taxes have been
recognized.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty period
is returned by the Company to the manufacturer in exchange for replacement
product or refund.
LONG-LIVED ASSETS - Management of the Company assesses recoverability of
its long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. Recoverability
is assessed and measured on long-lived assets using an estimate of the
undiscounted future cash flows attributable to the asset. Impairment is
measured based on future cash flows discounted at an appropriate rate.
ADVERTISING - Advertising costs incurred by the company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash
and cash equivalents, receivables, notes receivable, short-term payables,
and notes payable. The carrying amounts of cash and cash equivalents,
receivables, and short-term payables approximate fair value due to their
short-term nature. The carrying amounts of notes receivable and notes
payable approximate fair value as rates reflect current market rates.
3. NOTES RECEIVABLE
Notes receivable represent long-term financing of sales to certain
customers. During the year ended September 30, 1998, the Company entered
into an agreement with a bank whereby the bank assumed all servicing
rights and a percentage of interest earned on the notes. In return, the
Company received a cash payment from the bank equal to the principal
balance of the notes on the transfer date. The Company retained all risk
associated with nonpayment of any unpaid principal through a provision in
the agreement requiring full recourse. The Company accounted for this
transaction as a secured borrowing and has recognized the related
liability in current and long-term notes payable. Interest income of
$2,010 has been recognized from notes receivable and interest expense of
$1,730 has been recognized on the corresponding note payable during the
year ended September 30, 1998.
4. OPERATING LEASES
F-80
<PAGE>
The Company has an operating lease with a related party for the Company's
office space. The Company expensed and paid rent totaling $42,000 and
$38,400 for the years ended September 30, 1998 and 1997, respectively. The
future minimum payments by year at September 30, 1998, are as follows:
<TABLE>
<S> <C>
1999 $ 42,000
2000 42,000
---------
$ 84,000
---------
---------
</TABLE>
5. DEBT
The Company's long-term debt at September 30, 1998 and 1997, consisted
of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note payable to former stockholder, due in monthly principal and
interest payments, interest rate of 7.5%, maturing in October 2000,
secured by common stock $ 10,405 $ 14,852
Promissory note, due in monthly principal and interest payments,
interest rate of 9.9%, paid in December 1998, secured by vehicle 3,141 6,984
Promissory note, due in monthly principal and interest payments,
interest rate of 8.5%, maturing in January 2000 8,830 14,808
Notes payable to bank, due in monthly principal and interest payments,
interest at no less than 2% above prime (12.0% at September 30, 1998),
maturing through August 2001, secured by notes receivable 32,186 -
Promissory note to related party, due in monthly principal and interest
payments, interest rate of 6%, paid in September 1998,
secured by vehicle - 9,862
--------- ---------
54,562 46,506
Less current portion of long-term debt 29,782 19,683
--------- ---------
Long-term debt $ 24,780 $ 26,823
--------- ---------
--------- ---------
</TABLE>
Maturities of long-term debt for years subsequent to September 30, 1998
are as follows:
<TABLE>
<S> <C>
1999 $ 29,782
2000 18,252
2001 6,528
---------
Total long-term debt $ 84,562
---------
---------
</TABLE>
F-81
<PAGE>
The Company also has $30,000 outstanding at September 30, 1998, under its
line of credit agreement with a bank. The agreement permitted advances up
to $150,000, with interest at the Chase New York Prime Rate plus 1% (9.5%
at September 30, 1998), and expired November 30. The Company repaid the
entire amount prior to expiration and did not renew the line.
6. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal income tax expense $ 8,542 $ 11,858
State income taxes, net of federal benefit 3,250 3,669
--------- ---------
$ 11,792 $ 15,527
--------- ---------
--------- ---------
</TABLE>
The difference between the statutory Federal income tax rate of 34% and
the Company's effective Federal rate for the years ended September 30,
1998 and 1997, is due to state taxes and the effect of graduated tax
rates.
7. MAJOR CUSTOMERS
Sales to the Company's largest customer amounted to approximately 9% of
net sales for fiscal year 1998. Sales to the Company's two largest
customers amounted to approximately 13% and 11 %, respectively, of net
sales for fiscal year 1997.
8. RELATED PARTY TRANSACTIONS
The Company made principal payments of $9,862 and $9,290 during the years
ended September 30, 1998 and 1997, respectively, to an entity owned 100%
by the Company's owners on a promissory note for the purchase of a
vehicle. The promissory note requires monthly principal and interest
payments of $849 at an interest rate of 6%. Interest expense of $326 and
$898 was recognized on the note for the years ended September 30, 1998 and
1997, respectively. The note was fully repaid in September 1998.
The Company has a note payable to a former owner totaling $10,405 and
$14,852 at September 30, 1998 and 1997, respectively, maturing in October
2000. The note requires monthly principal and interest payments of $450,
at an interest rate of 7.5%. Principal payments of $4,447 and $4,127 were
made during the years ended September 30, 1998 and 1997, respectively.
Interest expense of $953 and $1,273 was recognized on the note during the
years ended September 30, 1998 and 1997, respectively.
The Company made rent payments for office space of $42,000 and $38,400
during the years ended September 30, 1998 and 1997, respectively, to an
entity owned by the Company's stockholders.
9. SUBSEQUENT EVENT
The Company and its stockholders have entered into a definitive agreement
with The Alliance Group ("Alliance") pursuant to which the Company will be
purchased by Alliance. All outstanding shares of the Company will be
exchanged for cash and common stock of Alliance in conjunction with the
consummation of the initial public offering of the common stock of
Alliance.
* * * * * *
F-82
<PAGE>
TELKEY COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31 (UNAUDITED) AND SEPTEMBER 30, 1998
- ----------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 105,626 $ 140,053
Receivables, net 96,647 154,280
Inventory 139,177 88,748
Notes receivable - current 7,188 15,324
Other current assets 6,190 3,741
----------- -----------
Total current assets 354,828 402,146
NOTES RECEIVABLE, net of current portion 11,806 16,862
PROPERTY AND EQUIPMENT:
Autos and trucks 117,419 117,419
Fixtures and equipment 50,200 47,207
Rental telephone equipment 88,385 83,401
----------- -----------
256,004 248,027
Less accumulated depreciation (179,565) (174,533)
----------- -----------
Property and equipment, net 76,439 73,494
----------- -----------
TOTAL $ 443,073 $ 492,502
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Line of credit $ - $ 30,000
Accounts payable 62,611 31,364
Deferred income 17,834 32,200
Current portion of long-term debt 23,146 29,782
Other current liabilities 19,153 22,501
----------- -----------
Total current liabilities 122,744 145,847
Long-term debt, net of current portion 12,340 24,780
----------- -----------
Total liabilities 135,084 170,627
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 10,000 shares authorized,
300 shares issued and outstanding 300 300
Retained earnings 307,689 321,575
----------- -----------
Total stockholders' equity 307,989 321,875
----------- -----------
TOTAL $ 443,073 $ 492,502
----------- -----------
----------- -----------
</TABLE>
See notes to condensed financial statements.
F-83
<PAGE>
TELKEY COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 308,268 $ 278,796
COSTS AND EXPENSES:
Cost of sales 133,797 97,994
Salaries and benefits 136,628 141,088
Selling, general and administrative 52,912 55,574
Interest 1,267 2,005
------------ ------------
Total costs and expenses 324,604 296,661
------------ ------------
LOSS BEFORE TAXES (16,336) (17,865)
INCOME TAX BENEFIT 2,450 2,680
------------ ------------
NET LOSS $ (13,886) $ (15,185)
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements.
F-84
<PAGE>
TELKEY COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,886) $ (15,185)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,451 6,890
Deferred income (14,366) (14,367)
Changes in assets and liabilities:
Receivables 57,633 75,643
Inventory (50,429) (33,773)
Notes receivable 13,192 -
Other current assets (2,449) (2,680)
Accounts payable 31,247 3,082
Other current liabilities (3,348) (2,026)
---------- ----------
Net cash provided by operating activities 25,045 17,584
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (10,396) -
Proceeds from sale of property and equipment - (3,926)
---------- ----------
Net cash used in investing activities (10,396) (3,926)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES -
Payments on borrowings (49,076) (5,865)
---------- ----------
NET (DECREASE) INCREASE IN CASH (34,427) 7,793
CASH, beginning of period 140,053 57,247
---------- ----------
CASH, end of period $ 105,626 $ 65,040
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 796 $ 1,976
Cash paid during the period for income taxes $ - $ -
</TABLE>
See notes to condensed financial statements.
F-85
<PAGE>
TELKEY COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited condensed financial statements and related notes have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with Rule 310 of Regulation S-B of the
Securities Act of 1933. Accordingly, certain information and footnote
disclosures normally included for complete financial statements prepared
in accordance with generally accepted accounting principles have been
omitted. The accompanying condensed financial statements and related notes
should be read in conjunction with the audited financial statements of the
Company, and notes thereto, for the year ended September 30, 1998.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented. Operating
results of the interim period are not necessarily indicative of the
amounts that will be reported for the fiscal year ending September 30,
1999.
2. DEFINITIVE AGREEMENT
The Company and its stockholders have entered into a definitive agreement
with The Alliance Group ("Alliance") pursuant to which the Company will be
purchased by Alliance. All outstanding shares of the Company will be
exchanged for cash and common stock of Alliance in conjunction with the
consummation of the initial public offering of the common stock of
Alliance.
3. DEBT
At September 30, 1998, the Company had $30,000 outstanding under a line of
credit agreement with a bank. The agreement expired November 30, 1998. The
Company repaid the entire amount prior to expiration and did not renew the
line.
* * * * * *
F-86
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Terra Telecom, Inc.:
We have audited the accompanying balance sheet of Terra Telecom, Inc. as of
September 30, 1998, and the related statements of operations, stockholders'
equity, and cash flows for the year ended September 30, 1998. The financial
statements as of September 30, 1997, and for the year then ended, were audited
by other auditors whose report expressed an unqualified opinion on those
financial statements. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on the 1998
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 1998 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all material
respects, the financial position of Terra Telecom, Inc. at September 30, 1998,
and the results of its operations and its cash flows for the year ended
September 30, 1998, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 15, 1999
F-87
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Terra Telecom, Inc.:
We have audited the accompanying balance sheet of Terra Telecom, Inc. as of
September 30, 1997, and the related statements of operations, stockholders'
equity, and cash flows for the year ended September 30, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the 1997 financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Terra Telecom, Inc. at September 30, 1997,
and the results of their operations and their cash flows for the year ended
September 30, 1997, in conformity with generally accepted accounting principles.
/s/ SAXON & KNOL
Oklahoma City, Oklahoma
February 15, 1999
F-88
<PAGE>
TERRA TELECOM, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
- ---------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 20,946 $ 5,364
Accounts receivable, net 118,120 180,082
Inventory 131,035 129,107
--------- ---------
Total current assets 270,101 314,553
PROPERTY AND EQUIPMENT:
Autos and trucks 121,990 102,292
Furniture and fixtures 55,286 34,747
Machinery and equipment 49,836 41,267
--------- ---------
227,112 178,306
Less accumulated depreciation (162,192) (132,733)
--------- ---------
Property and equipment, net 64,920 45,573
OTHER ASSETS 8,096 3,553
--------- ---------
TOTAL $ 343,117 $ 363,679
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion of long-term debt $ 59,143 $ 60,873
Accounts payable 126,585 125,758
Other current liabilities 86,145 55,732
--------- ---------
Total current liabilities 271,873 242,363
Long-term debt, net of current portion 56,362 106,343
--------- ---------
Total liabilities 328,235 348,706
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 25,000 shares authorized;
2,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 82,677 82,677
Accumulated deficit (69,795) (69,704)
--------- ---------
Total stockholders' equity 14,882 14,973
--------- ---------
TOTAL $ 343,117 $ 363,679
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-89
<PAGE>
TERRA TELECOM, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $1,956,623 $1,522,718
COSTS AND EXPENSES:
Cost of sales 1,082,080 825,796
Salaries and benefits 650,889 486,087
Selling, general and administrative 204,014 195,153
Interest 19,747 24,774
---------- ----------
Total costs and expenses 1,956,730 1,531,810
---------- ----------
LOSS BEFORE TAXES (107) (9,092)
INCOME TAX BENEFIT 16 1,364
---------- ----------
NET LOSS $ (91) $ (7,728)
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
F-90
<PAGE>
TERRA TELECOM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE,
October 1, 1996 2,000 $ 2,000 $ 82,677 $ (61,976) $ 22,701
Net loss - - - (7,728) (7,728)
------- -------- -------- ---------- --------
BALANCE,
September 30, 1997 2,000 2,000 82,677 (69,704) 14,973
Net loss - - - (91) (91)
------- -------- -------- ---------- --------
BALANCE,
September 30, 1998 2,000 $ 2,000 $ 82,677 $ (69,795) $ 14,882
------- -------- -------- ---------- --------
------- -------- -------- ---------- --------
</TABLE>
See notes to financial statements.
F-91
<PAGE>
TERRA TELECOM, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (91) $ (7,728)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 29,459 32,360
Loss on disposal - (10,456)
Changes in current assets and liabilities:
Accounts receivable 61,962 (95,583)
Inventory (1,928) 17,218
Other assets (4,543) (1,365)
Accounts payable 827 31,221
Other current liabilities 30,413 38,779
-------- --------
Net cash provided by operating activities 116,099 4,446
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (48,806) (17,003)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 15,786 79,421
Payments on long-term borrowings (67,498) (58,005)
-------- --------
Net cash (used in) provided by financing activities (51,712) 21,416
-------- --------
NET INCREASE IN CASH 15,582 8,859
CASH, beginning of year 5,364 (3,495)
-------- --------
CASH, end of year $ 20,946 $ 5,364
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 11,282 $ 13,877
Cash paid during the year for income taxes $ - $ -
</TABLE>
See notes to financial statements.
F-92
<PAGE>
TERRA TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ---------------------------------------
1. ORGANIZATION
Terra Telecom, Inc. (the "Company") was incorporated in October 1982,
under the laws of the State of Oklahoma. The Company sells, installs
and maintains telephone equipment in the greater Tulsa, Oklahoma market
area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATIONS - The Company currently buys most of its telephone
equipment from two manufacturers. Although there are a limited number of
manufacturers of telephone equipment, management believes that other
manufacturers could provide similar equipment on comparable terms. A
change in manufacturers, however, could cause a possible loss of sales,
which would affect operating results adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed
or when maintenance services are rendered. The Company defers revenues
on prepaid agreements to maintain customer telephone equipment. The
deferred revenues are recognized as revenue over the period the services
are provided, which is generally 12 months. Deferred revenues are not
significant at September 30, 1998 and 1997.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts are established
based on historical losses, experience and knowledge of specific items.
Receivables determined to be uncollectible are written off as a charge
to the allowance for doubtful accounts; recoveries of previously written
off amounts are added back to the allowance for doubtful accounts.
INVENTORY - Inventory is stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Major additions and improvements are capitalized at cost, while
maintenance and repairs which do not extend the useful lives of the
respective assets are expensed. When assets are sold or retired, cost
and accumulated depreciation are removed from the respective accounts.
Any gains or losses resulting from disposal are included in current year
operations.
F-93
<PAGE>
Property and equipment owned by the Company are depreciated using an
accelerated method over the following useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
IN YEARS
<S> <C>
Autos and trucks 3 - 7
Furniture and fixtures 5 - 7
Machinery and equipment 3 - 7
</TABLE>
INCOME TAXES - The Company uses an asset and liability approach to
account for income taxes. Deferred income taxes are recognized for the
tax consequences of temporary differences and operating loss and tax
credit carryforwards by applying enacted tax rates applicable to future
years to differences between the financial statement amounts and the tax
bases of existing assets and liabilities. A valuation allowance is
established if, in management's opinion, it is more likely than not that
some portion of the deferred tax asset will not be realized. As of
September 30, 1998, the Company's temporary differences between
financial and tax bases of assets and liabilities are not material, and
no deferred income taxes have been recognized.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty
period is returned by the Company to the manufacturer in exchange for
replacement product or refund.
LONG-LIVED ASSETS - Management of the Company assesses recoverability of
its long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable.
Recoverability is assessed and measured on long-lived assets using an
estimate of the undiscounted future cash flows attributable to the
asset. Impairment is measured based on future cash flows discounted at
an appropriate rate.
ADVERTISING - Advertising costs incurred by the company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash
and cash equivalents, receivables, short-term payables, and notes
payable. The carrying amounts of cash and cash equivalents, receivables,
and short-term payables approximate fair value due to their short-term
nature. The carrying amounts of long-term debt approximate fair value
based on borrowing terms currently available to the Company.
3. OPERATING LEASES
The Company has an operating lease for the Company's office space. The
Company has expensed and paid rent of $21,514 and $21,634 for the years
ended September 30, 1998 and 1997, respectively. The future minimum
payments by year at September 30, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $23,034
2000 5,807
-------
$28,841
-------
-------
</TABLE>
F-94
<PAGE>
4. LONG-TERM DEBT
The Company's long-term debt at September 30, 1998 and 1997, consisted
of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Notes payable to stockholders, due in monthly principal and interest
payments, interest rate of 10.5%, maturing in April 2001, unsecured $ 54,830 $ 74,274
Promissory note to bank, due in monthly principal and interest payments,
interest rate of 9.25%, maturing in August 1999, secured by all Company
assets 30,588 55,820
Promissory note to bank, due in monthly principal and interest payments,
interest rate of 8.8%, maturing in April 2002, secured by vehicle 11,144 -
Promissory note to credit union, due in monthly principal and interest
payments, interest rate of 7.2%, maturing in June 2002, secured by
vehicle 10,941 14,132
Promissory note to bank, due in monthly principal and interest payments,
interest rate of 10%, maturing in October 1999, secured by vehicle 4,218 7,546
Promissory note to bank, due in monthly principal and interest payments,
interest rate of 11%, maturing in April 1999, secured by vehicle 3,784 7,747
Promissory note to bank, due in monthly principal and interest payments,
interest rate of 8.5%, paid in September 1998, secured by vehicle - 2,985
Promissory note to bank, due in monthly principal and interest payments,
interest rate of 9%, paid in October 1998, secured by vehicle - 4,712
-------- --------
115,505 167,216
Less current maturities 59,143 60,873
-------- --------
$ 56,362 $106,343
-------- --------
-------- --------
</TABLE>
Maturities of long-term debt for years subsequent to September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 59,143
2000 30,356
2001 21,308
2002 4,698
Thereafter -
--------
Total long-term debt $115,505
--------
--------
</TABLE>
F-95
<PAGE>
5. INCOME TAXES
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal income tax benefit $ 16 $1,364
State income taxes, net of federal benefit - -
---- ------
$ 16 $1,364
---- ------
---- ------
</TABLE>
The difference between the statutory Federal income tax rate of 34% and
the Company's effective Federal rate for the years ended September 30,
1998 and 1997, is due to the effect of graduated tax rates.
6. MAJOR CUSTOMERS
Sales to the Company's largest customer amounted to approximately 11% of
net sales for fiscal year 1998. No individual customer in 1997 accounted
for net sales in excess of 10%. The Company has an account receivable
from an individual customer that amounts to 23% of the Company's total
accounts receivable at September 30, 1998.
7. RELATED PARTY TRANSACTIONS
The Company has a note payable to each of its two owners together
totaling $54,830 and $74,274 at September 30, 1998 and 1997,
respectively. The notes are unsecured and require monthly principal and
interest payments totaling $2,050. Interest on the notes is at 10.5%.
Proceeds from the notes were utilized by the Company for operating
capital. Principal payments totaling $19,444 and $7,405 were made on the
notes during the years ended September 30, 1998 and 1997, respectively.
Interest expense totaling $5,156 and $3,870 were recorded on the notes
for each of the years ended September 30, 1998 and 1997, respectively.
The notes are scheduled to mature in April 2001.
8. 401(k) PLAN
In fiscal year 1998, the Company established a 401(k) plan (the "Plan"),
in which substantially all employees of the Company are eligible to
participate. Company contributions to the Plan are made at the
discretion of Company management. Contributions totaling $8,352 were
made by the Company and charged to operations for the year ended
September 30, 1998.
9. SUBSEQUENT EVENT
The Company and its stockholders have entered into a definitive
agreement with The Alliance Group ("Alliance") pursuant to which the
Company will be purchased by Alliance. All outstanding shares of the
Company will be exchanged for cash and common stock of Alliance in
conjunction with the consummation of the initial public offering of the
common stock of Alliance.
* * * * * *
F-96
<PAGE>
TERRA TELECOM, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31 (UNAUDITED) AND SEPTEMBER 30, 1998
- ----------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 44,024 $ 20,946
Accounts receivable, net 146,545 118,120
Inventory 77,557 131,035
--------- ---------
Total current assets 268,126 270,101
PROPERTY AND EQUIPMENT:
Autos and trucks 124,028 121,990
Furniture and fixtures 56,421 55,286
Machinery and equipment 49,836 49,836
--------- ---------
230,285 227,112
Less accumulated depreciation (169,557) (162,192)
--------- ---------
Property and equipment, net 60,728 64,920
OTHER ASSETS 8,096 8,096
--------- ---------
TOTAL $ 336,950 $ 343,117
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion of long-term debt $ 54,416 $ 59,143
Accounts payable 139,937 126,585
Other current liabilities 55,131 86,145
--------- ---------
Total current liabilities 249,484 271,873
Long-term debt, net of current portion 45,575 56,362
--------- ---------
Total liabilities 295,057 328,235
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 25,000 shares authorized;
2,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 82,677 82,677
Accumulated deficit (42,786) (69,795)
--------- ---------
Total stockholders' equity 41,891 14,882
--------- ---------
TOTAL $ 336,950 $ 343,117
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements.
F-97
<PAGE>
TERRA TELECOM, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
NET SALES $ 531,927 $ 488,571
COSTS AND EXPENSES:
Cost of sales 269,420 261,483
Salaries and benefits 171,802 126,988
Selling, general and administrative 56,447 57,404
Interest 2,483 6,817
--------- ---------
Total costs and expenses 500,152 452,692
--------- ---------
INCOME BEFORE TAXES 31,775 35,879
INCOME TAX EXPENSE 4,766 5,382
--------- ---------
NET INCOME $ 27,009 $ 30,497
--------- ---------
--------- ---------
</TABLE>
See notes to condensed financial statements.
F-98
<PAGE>
TERRA TELECOM, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,009 $ 30,497
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,365 8,090
Changes in current assets and liabilities:
Accounts receivable (28,425) 35,262
Inventory 53,478 (37,476)
Other assets - 1,364
Accounts payable 13,352 12,854
Other current liabilities (31,014) 9,231
-------- --------
Net cash provided by operating activities 41,765 59,822
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (3,173) (35,578)
CASH FLOWS FROM FINANCING ACTIVITIES -
Payments on long-term borrowings (15,514) (2,551)
-------- --------
NET INCREASE IN CASH 23,078 21,693
CASH, beginning of period 20,946 5,364
-------- --------
CASH, end of period $ 44,024 $ 27,057
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 11,356 $ 10,484
Cash paid during the period for income taxes $ - $ -
</TABLE>
See notes to condensed financial statements.
F-99
<PAGE>
TERRA TELECOM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
- ----------------------------------------------------
1. UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
The unaudited condensed financial statements and related notes have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with Rule 310 of Regulation S-B of the
Securities Act of 1933. Accordingly, certain information and footnote
disclosures normally included for complete financial statements prepared
in accordance with generally accepted accounting principles have been
omitted. The accompanying condensed financial statements and related
notes should be read in conjunction with the audited financial
statements of the Company, and notes thereto, for the year ended
September 30, 1998.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a
fair presentation of the results of the interim periods presented.
Operating results of the interim period are not necessarily indicative
of the amounts that will be reported for the fiscal year ending
September 30, 1999.
2. DEFINITIVE AGREEMENT
The Company and its stockholders have entered into a definitive
agreement with The Alliance Group ("Alliance") pursuant to which the
Company will be purchased by Alliance. All outstanding shares of the
Company will be exchanged for cash and common stock of Alliance in
conjunction with the consummation of the initial public offering of the
common stock of Alliance.
* * * * * *
F-100
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Travis Business Systems, Inc.:
We have audited the accompanying balance sheet of Travis Business Systems, Inc.
as of December 31, 1998, and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1998. The financial
statements as of December 31, 1997 and for the year then ended were audited by
other auditors whose report expressed an unqualified opinion on those financial
statements. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on the 1998 financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 1998 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all material
respects, the financial position of Travis Business Systems, Inc. at December
31, 1998, and the results of its operations and its cash flows for the year
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
February 19, 1999
F-101
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Travis Business Systems, Inc.:
We have audited the accompanying balance sheet of Travis Business Systems, Inc.
as of December 31, 1997 and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the 1997 financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 1997 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1997 financial statements present fairly, in all material
respects, the financial position of Travis Business Systems, Inc. at December
31, 1997, and the results of its operations and its cash flows for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ SAXON & KNOL
Oklahoma City, Oklahoma
February 19, 1999
F-102
<PAGE>
TRAVIS BUSINESS SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 153,409 $ 57,657
Accounts receivable 381,421 639,498
Inventory 485,695 423,229
Other current assets 46,063 48,277
---------- ----------
Total current assets 1,066,588 1,168,661
PROPERTY AND EQUIPMENT:
Autos and trucks 90,749 62,166
Equipment 66,297 54,715
Furniture and fixtures 60,715 49,147
Leasehold improvements 11,998 11,998
---------- ----------
229,759 178,026
Less accumulated depreciation (111,119) (78,159)
---------- ----------
Property and equipment, net 118,640 99,867
OTHER ASSETS 5,884 5,884
---------- ----------
TOTAL $1,191,112 $1,274,412
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 172,654 $ 154,370
Deferred income 313,846 233,317
Other current liabilities 68,495 129,543
Line of credit - 72,000
---------- ----------
Total current liabilities 554,995 589,230
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 10,000 shares authorized;
588 shares issued and outstanding 588 588
Additional paid-in capital 19,500 19,500
Retained earnings 616,029 665,094
---------- ----------
Total stockholders' equity 636,117 685,182
---------- ----------
TOTAL $1,191,112 $1,274,412
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
F-103
<PAGE>
TRAVIS BUSINESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
SALES $4,198,047 $3,810,617
COSTS AND EXPENSES:
Cost of sales 1,814,852 1,515,984
Salaries and benefits 1,814,593 1,591,483
Selling, general and administrative expenses 618,179 521,818
Interest expense 9,177 3,030
---------- ----------
Total costs and expenses 4,256,801 3,632,315
---------- ----------
INCOME (LOSS) BEFORE TAXES ON INCOME (58,754) 178,302
INCOME TAX BENEFIT (EXPENSE) 9,689 (62,880)
---------- ----------
NET INCOME (LOSS) $ (49,065) $ 115,422
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
F-104
<PAGE>
TRAVIS BUSINESS SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 588 $ 588 $ 19,500 $ 549,672 $ 569,760
Net earnings - - - 115,422 115,422
---- ------ --------- ----------- ----------
BALANCE, December 31, 1997 588 588 19,500 665,094 685,182
Net loss - - - (49,065) (49,065)
---- ------ --------- ----------- ----------
BALANCE, December 31, 1998 588 $ 588 $ 19,500 $ 616,029 $ 636,117
---- ------ --------- ----------- ----------
---- ------ --------- ----------- ----------
</TABLE>
See notes to financial statements.
F-105
<PAGE>
TRAVIS BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (49,065) $ 115,422
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 43,353 23,247
Loss on disposal 3,021 -
Changes in current assets and liabilities:
Accounts receivable 258,077 (10,257)
Inventory (62,466) (17,781)
Other current assets 2,214 (3,636)
Other assets - 4,062
Accounts payable 18,284 (167,336)
Deferred income 80,529 (108,845)
Other current liabilities (61,048) 2,360
--------- ---------
Net cash provided by (used in) operating activities 232,899 (162,764)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (65,147) (38,399)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Utilization of credit line 707,000 72,000
Principal payments on credit line (779,000) -
--------- ---------
Net cash (used in) provided by financing activities (72,000) 72,000
--------- ---------
NET INCREASE (DECREASE) IN CASH 95,752 (129,163)
CASH, beginning of year 57,657 186,820
--------- ---------
CASH, end of year $ 153,409 $ 57,657
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 4,759 $ 452
Cash paid during the year for income taxes $ 83,197 $ 75,107
</TABLE>
See notes to financial statements.
F-106
<PAGE>
TRAVIS BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------
1. ORGANIZATION
Travis Business Systems, Inc. (the "Company") was incorporated in
September 1988, under the laws of the State of Oklahoma. The Company
sells, installs and maintains telephone equipment in the state of
Oklahoma market area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATIONS - The Company currently buys most of its communications
products from two manufacturers. Although there are a limited number of
manufacturers of communications products, management believes that other
manufacturers could provide similar products on comparable terms. A change
in manufacturers, however, could cause a possible loss of sales, which
would affect operating results adversely.
REVENUE RECOGNITION - Revenue is recognized when equipment is installed or
when maintenance services are rendered. The Company defers revenues on
prepaid agreements to maintain customer telephone equipment. The deferred
revenues are recognized as revenue over the period the services are
provided, which is generally 12 months.
ACCOUNTS RECEIVABLE - Allowances for doubtful accounts receivable are
established based on historical losses, experience and knowledge of
specific items. No allowances have been established at December 31, 1998
and 1997 as management believes no material losses will be incurred from
receivables.
INVENTORY - Inventory is stated at the lower of average cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Major additions and improvements are capitalized at cost, while
maintenance and repairs which do not extend the useful lives of the
respective assets are expensed. When assets are sold or retired, cost
and accumulated depreciation are removed from the respective accounts.
Any gains or losses resulting from disposal are included in current year
income or loss.
F-107
<PAGE>
Property and equipment owned by the Company are depreciated using the
straight-line method over the following useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
IN YEARS
<S> <C>
Autos and trucks 3 - 5
Equipment 3 - 7
Furniture and fixtures 3 - 5
Leasehold improvements 15 - 20
</TABLE>
INCOME TAXES - The Company uses an asset and liability approach to
account for income taxes. Deferred income taxes are recognized for the
tax consequences of temporary differences and operating loss and tax
credit carryforwards by applying enacted tax rates applicable to future
years to differences between the financial statement amounts and the tax
bases of existing assets and liabilities. A valuation allowance is
established if, in management's opinion, it is more likely than not that
some portion of the deferred tax asset will not be realized. As of
December 31, 1998, the Company's temporary differences between financial
and tax bases of assets and liabilities are not material, and no
deferred income taxes have been recognized.
PRODUCT RETURNS AND WARRANTY - Product returned by the customer due to
defective manufacture or failure during the manufacturer's warranty
period is returned by the Company to the manufacturer in exchange for
replacement product or refund.
LONG-LIVED ASSETS - Management of the Company assesses recoverability of
its long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable.
Recoverability is assessed and measured on long-lived assets using an
estimate of the undiscounted future cash flows attributable to the
asset. Impairment is measured based on future cash flows discounted at
an appropriate rate.
ADVERTISING - Advertising costs incurred by the company are expensed
during the period in which the advertising occurs.
FAIR VALUE DISCLOSURE - The Company's financial instruments include cash
and cash equivalents, receivables, short-term payables, and notes
payable. The carrying amounts of cash and cash equivalents, receivables,
and short-term payables approximate fair value due to their short-term
nature. The carrying amount of notes payable approximates fair value
based on borrowing terms currently available to the Company.
3. OPERATING LEASES
The Company has operating leases for its office space and certain of its
equipment. Lease expense during the years ended December 31, 1998 and
1997, totaled $84,947 and $86,380, respectively. The future minimum
payments by year at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 83,717
2000 74,400
2001 6,480
--------
$164,597
--------
--------
</TABLE>
F-108
<PAGE>
4. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal income tax benefit (expense) $9,689 $(52,788)
State income taxes, net of federal benefit - (10,092)
------ --------
$9,689 $(62,880)
------ --------
------ --------
</TABLE>
The difference between the statutory Federal income tax rate of 34% and
the Company's effective Federal rate for the years ended December 31,
1998 and 1997, is due to state taxes and the effect of graduated tax
rates.
5. LINE OF CREDIT
The Company has a line of credit agreement with a bank. The agreement
permits advances up to $450,000 with interest at Chase Manhattan Bank
Prime floating (8.5% at December 31, 1998) and expires September 30,
1999; however, management expects renewal of the agreement under similar
terms. The agreement is collateralized by the Company's bank accounts,
accounts receivable, inventory, contract rights, proceeds, goods,
general intangibles and personal guarantee from the Company's majority
shareholder. There was no amount outstanding on the line of credit at
December 31, 1998. At December 31, 1997, the amount outstanding totaled
$72,000.
6. 401(k) RETIREMENT PLAN
The Company sponsors a 401(k) employee pension plan covering employees
who meet minimum age and service requirements. Employees may elect to
contribute up to 15% of their eligible compensation. Contributions by
the Company are made at the discretion of management and vest ratably
after one year over the term of a participant's employment at 20% per
year. The Company made contributions to the plan totaling $15,520 and
$11,447 during the years ended December 31, 1998 and 1997, respectively.
7. MAJOR CUSTOMER
Sales to the Company's largest customer amounted to approximately 11% of
net sales for the year ended December 31, 1998. No individual customer
in 1997 accounted for net sales in excess of 10%.
8. SUBSEQUENT EVENTS
The Company and its stockholders have entered into a definitive
agreement with The Alliance Group, Inc. ("Alliance") pursuant to which
the Company will be purchased by Alliance. All outstanding shares of the
Company will be exchanged for cash and common stock of Alliance in
conjunction with the consummation of the initial public offering of the
common stock of Alliance.
Subsequent to December 31, 1998, the Company recognized a loss of
$161,428 for damaged inventory caused by a fire that occurred in January
1999. The Company has since received insurance proceeds of $205,016
related to the fire.
* * * * * *
F-109
<PAGE>
UNTIL ____________, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[BACK COVER]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated under the laws of the State of Oklahoma.
Section 1031 ("Section 1031") of the Oklahoma General Corporation Act, as the
same exists or may hereafter be amended, inter alia, provides that an
Oklahoma corporation may indemnify any persons who were, are or are
threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit
or preceding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. An Oklahoma
corporation may indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests,
provided that no indemnification is permitted without judicial approval if
the officer, director, employee or agent is adjudged to be liable to the
corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Section 1031 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 1031.
Alliance's Certificate of Incorporation, as amended, eliminates in certain
circumstances the liability of directors for a breach of their fiduciary duty as
directors. These provisions do not eliminate the liability of a director:
- For a breach of the director's duty of loyalty to the Company or its
stockholders;
- For acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law;
- For liability relating to the declaration of dividends and purchase or
redemption of shares in violation of the Oklahoma General Corporation
Act; or
- For any transaction from which the director derived an
improper personal benefit.
The Company's certificate of incorporation provides that the Company shall
indemnify all of its directors and officers to the full extent permitted by the
Oklahoma General Corporation Act. Under such provisions, any director
II-1
<PAGE>
or officer, who in his capacity as such, is made or threatened to be a made a
party to any suit or proceeding, may be indemnified if the board of directors
determines such director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Company. The Certificate and the Oklahoma General Corporation Act further
provide that such indemnification is not exclusive of any other rights to
which such individuals may be entitled under the Certificate, any agreement,
vote of stockholders or disinterested directors or otherwise.
All of the Company's directors and officers will be covered by insurance
policies maintained by it against certain liabilities for actions taken in their
capacities as such.
II-2
<PAGE>
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses, to be paid solely by
the Company, in connection with the distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee $ 4,425
Printing expenses $
Accounting fees and expenses $
Legal fees and expenses $
Miscellaneous expenses $
Total $
</TABLE>
* All amounts are estimated.
RECENT SALES OF UNREGISTERED SECURITIES
On September 4, 1998, Alliance issued 100 shares of common stock, par value
$.01, to David W. Aduddell for aggregate consideration of $1.00 and certain
intangible personal property, including business plans, organizational documents
and economic projections relating to several consolidating company
opportunities. The transaction was exempt from registration under Section 4(2)
of the Securities Act because no public offering was involved.
On September 8, 1998, Alliance issued 167 shares of common stock, par value
$.01, to Ricky Naylor for aggregate consideration of $500,000, which consisted
of $10.00 in cash and a binding agreement to pay Alliance $499,990 on demand.
The transaction was exempt from registration under Section 4(2) of the
Securities Act because no public offering was involved.
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition V Corp., Access
Communications Services, Inc,. David Aduddell and Steve
Aduddell, and form of employment and/or consulting agreement
attached as exhibit thereto.
2.2 Agreement and Plan of Merger, dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition VI Corp.,
American Telecom, Inc., Tony B. Alexander and William R.
Pearson, and form of employment and/or consulting agreement
attached as exhibit thereto.
2.3 Agreement and Plan of Merger, dated March 9, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition VII Corp.
Banner Communications, Inc., Charles O'Toole and Phillip Rodger
Williams, and form of employment and/or consulting agreement
attached as exhibit thereto.
2.4 Agreement and Plan of Merger dated March 9, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition IX Corp.,
Communication Services, Inc. and Steve Williams, and form of
employment and/or consulting agreement attached as exhibit
thereto.
2.5 Agreement and Plan of Merger dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition VII Corp.,
Commercial Telecom Systems, Inc., John Whitten, Mark Whitten
and Jody Slape, and form of employment and/or consulting
agreement attached as exhibit thereto.
2.6 Amendment to Agreement and Plan of Merger dated March 24, 1999,
by and among The Alliance Group, Inc., Alliance Acquisition
XIII Corp., Commercial Telecom Systems, Inc., John Whitten,
Mark Whitten and Jody Slape.
2.7 Agreement and Plan of Merger dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition III Corp.,
Nobel Systems, Ken Blood, David Andres and Jim Pearson, and
form of employment and/or consulting agreement attached as
exhibit thereto.
2.8 Agreement and Plan of Merger dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition II Corp.,
Perkins Office Machines, Inc. and Jack Perkins, and form of
employment and/or consulting agreement attached as exhibit
thereto.
2.9 Agreement and Plan of Merger dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition X Corp., Telkey
Communications, Inc., Michael P. Murphy and Deborah S. Murphy,
and form of employment and/or consulting agreement attached
as exhibit thereto.
2.10 Agreement and Plan of Merger dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition I Corp., Terra
Telecom, Inc., Jerry McCart, Paula L. McCart, Ron Crainshaw
and Lora M. Crainshaw, and form of employment and/or consulting
agreement attached as exhibit thereto.
2.11 Agreement and Plan of Merger dated March 12, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition XI Corp.,
Travis Business Systems, Inc., Wylie Limited Partnership,
Gregory Mantia and Scott McCrory, and form of employment and/or
consulting agreement attached as exhibit thereto.
2.12 Asset Purchase Agreement dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition IV Corp. and
Able Communications Incorporated, and allocation of purchase
price attached as exhibit thereto.
2.13 Asset Purchase Agreement dated March 10, 1999, by and among The
Alliance Group,Inc., Alliance Acquisition XI Corp., Electrical
and Instrument Sales Corp. d/b/a EIS Communications, and
Electronic Information Systems, L.L.C, and allocation of
purchase price and form of employment and/or consulting
agreement attached as exhibits thereto.
2.14 Asset Purchase Agreement dated March 10, 1999, by and among
The Alliance Group, Inc., Alliance Acquisition XIII Corp.
and The Phone Man Sales and Services, Inc., and allocation of
purchase price attached as exhibit thereto.
2.15 Amendment to Agreement and Plan of Merger dated April 5, 1999,
by and among The Alliance Group, Inc., Alliance Acquisition V
Corp., Access Communications Services, Inc., David Aduddell
and Steve Aduddell.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Bylaws of the Registrant.
4.1 Form of Certificate representing Common Stock.
5.1 Opinion of McAfee & Taft A Professional Corporation.
10.1 Form of Warrant to be issued to John Whitten.
10.2 Promissory Note to Ricky Naylor.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Hunter, Atkins & Russell, PLC.
23.3 Consent of Saxon & Knol P.C.
23.4 Consent of McAfee & Taft A Professional Corporation (contained
in Exhibit 5.1).
23.5 Consent of Larry Travis.
24.1 Powers of Attorney (included on the signature page of this
Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
II-4
<PAGE>
UNDERTAKINGS
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer 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 small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business
issuer 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 small business issuer will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat 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 small business issuer under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it
effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Alliance has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State
of Oklahoma, on April 15, 1999.
The Alliance Group, Inc.
By: /s/ WILLIAM J. HARTWIG
------------------------------
William J. Hartwig
President
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints William J. Hartwig and Joseph O. Evans with
full power to act without the other, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (until revoked in writing)
to sign any and all amendments (including post-effective amendments and
amendments thereto) to this registration statement, including any
registration statement filed pursuant to Rule 462 under the Securities Act of
1933, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might do or could do in person thereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons on April 15, 1999,
in the capacities indicated:
SIGNATURE CAPACITY
--------- --------
/s/ Ricky Naylor Chairman of the Board and Director
-----------------------
Ricky Naylor
/s/ William J. Hartwig President and Chief Operating Officer
----------------------- (Principal Executive Officer)
William J. Hartwig
/s/ Joseph O. Evans Chief Financial Officer (Principal Financial
----------------------- Officer)
Joseph O. Evans
/s/ Debra G. Morehead Chief Accounting Officer (Principal
----------------------- Accounting Officer)
Debra G. Morehead
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT METHOD OF
NO. DESCRIPTION FILING
- ------- ----------- ---------
<S> <C>
1.1 Form of Underwriting Agreement. To be filed by Amendment
2.1 Agreement and Plan of Merger, dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition V Corp., Access
Communications Services, Inc,. David Aduddell and Steve
Aduddell, and form of employment and/or consulting agreement
attached as exhibit thereto.
2.2 Agreement and Plan of Merger, dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition VI Corp.,
American Telecom, Inc., Tony B. Alexander and William R.
Pearson, and form of employment and/or consulting agreement
attached as exhibit thereto.
2.3 Agreement and Plan of Merger, dated March 9, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition VII Corp.
Banner Communications, Inc., Charles O'Toole and Phillip Rodger
Williams, and form of employment and/or consulting agreement
attached as exhibit thereto.
2.4 Agreement and Plan of Merger dated March 9, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition IX Corp.,
Communication Services, Inc. and Steve Williams, and form of
employment and/or consulting agreement attached as exhibit
thereto.
2.5 Agreement and Plan of Merger dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition VII Corp.,
Commercial Telecom Systems, Inc., John Whitten, Mark Whitten
and Jody Slape, and form of employment and/or consulting
agreement attached as exhibit thereto.
2.6 Amendment to Agreement and Plan of Merger dated March 24, 1999, Filed herewith Electronically
by and among The Alliance Group, Inc., Alliance Acquisition
XIII Corp., Commercial Telecom Systems, Inc., John Whitten,
Mark Whitten and Jody Slape.
2.7 Agreement and Plan of Merger dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition III Corp.,
Nobel Systems, Ken Blood, David Andres and Jim Pearson, and
form of employment and/or consulting agreement attached as
exhibit thereto.
2.8 Agreement and Plan of Merger dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition II Corp.,
Perkins Office Machines, Inc. and Jack Perkins, and form of
employment and/or consulting agreement attached as exhibit
thereto.
2.9 Agreement and Plan of Merger dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition X Corp., Telkey
Communications, Inc., Michael P. Murphy and Deborah S. Murphy,
and form of employment and/or consulting agreement attached
as exhibit thereto.
2.10 Agreement and Plan of Merger dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition I Corp., Terra
Telecom, Inc., Jerry McCart, Paula L. McCart, Ron Crainshaw
and Lora M. Crainshaw, and form of employment and/or consulting
agreement attached as exhibit thereto.
2.11 Agreement and Plan of Merger dated March 12, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition XI Corp.,
Travis Business Systems, Inc., Wylie Limited Partnership,
Gregory Mantia and Scott McCrory, and form of employment and/or
consulting agreement attached as exhibit thereto.
2.12 Asset Purchase Agreement dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition IV Corp. and
Able Communications Incorporated, and allocation of purchase
price attached as exhibit thereto.
2.13 Asset Purchase Agreement dated March 10, 1999, by and among The Filed herewith Electronically
Alliance Group,Inc., Alliance Acquisition XI Corp., Electrical
and Instrument Sales Corp. d/b/a EIS Communications, and
Electronic Information Systems, L.L.C, and allocation of
purchase price and form of employment and/or consulting
agreement attached as exhibits thereto.
2.14 Asset Purchase Agreement dated March 10, 1999, by and among Filed herewith Electronically
The Alliance Group, Inc., Alliance Acquisition XIII Corp.
and The Phone Man Sales and Services, Inc., and allocation of
purchase price attached as exhibit thereto.
2.15 Amendment to Agreement and Plan of Merger dated April 5, 1999, Filed herewith Electronically
by and among The Alliance Group, Inc., Alliance Acquisition V
Corp., Access Communications Services, Inc., David Aduddell
and Steve Aduddell.
3.1 Amended and Restated Certificate of Incorporation of the Filed herewith Electronically
Registrant.
3.2 Bylaws of the Registrant. Filed herewith Electronically
4.1 Form of Certificate representing Common Stock. To be filed by Amendment
5.1 Opinion of McAfee & Taft A Professional Corporation. To be filed by Amendment
10.1 Form of Warrant to be issued to John Whitten. To be filed by Amendment
10.2 Promissory Note to Ricky Naylor. To be filed by Amendment
21.1 Subsidiaries of the Registrant. Filed herewith Electronically
23.1 Consent of Deloitte & Touche LLP. Filed herewith Electronically
23.2 Consent of Hunter, Atkins & Russell, PLC. Filed herewith Electronically
23.3 Consent of Saxon & Knol P.C. Filed herewith Electronically
23.4 Consent of McAfee & Taft A Professional Corporation (contained To be filed by Amendment
in Exhibit 5.1).
23.5 Consent of Larry Travis. Filed herewith Electronically
24.1 Powers of Attorney (included on the signature page of this Filed herewith Electronically
Registration Statement).
27.1 Financial Data Schedule. Filed herewith Electronically
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION V CORP.
(Newco)
and
ACCESS COMMUNICATIONS SERVICES, INC.
(Company)
and
STEVE ADUDDELL
and
DAVID ADUDDELL
(Stockholders of the Company)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . . . 5
2.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . 5
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
the Surviving Corporation.. . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Certain Information With Respect to the Capital Stock of
Company, Parent and Newco.. . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Release of Personal Guarantees. . . . . . . . . . . . . . . . . . . . . 6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . 8
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 9
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Predecessor Status; etc.. . . . . . . . . . . . . . . . . . . . . . . . 9
6.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 10
6.9 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . 10
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.13 Significant Customers; Material Contracts and Commitments . . . . . . . 12
6.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters . . . . . . . . . . . . . . . . . 13
6.17 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.19 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 15
6.20 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-i-
<PAGE>
6.21 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.22 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.23 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . 19
6.24 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. . . . . . . 20
7.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Election to Put Stock . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.5 Election to Call Stock. . . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 22
8.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 22
8.8 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Parent Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Business; Real Property; Agreements . . . . . . . . . . . . . . . . . . 23
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Access and Cooperation; Due Diligence; Audits . . . . . . . . . . . . . 23
9.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . 24
9.3 Prohibited Activities by the Company. . . . . . . . . . . . . . . . . . 24
9.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . 26
9.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . 26
9.8 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . . . . . 27
10.1 Representations and Warranties; Performance of Obligations. . . . . . . 27
10.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 27
10.5 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 28
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<PAGE>
10.6 Secretary's Certificates. . . . . . . . . . . . . . . . . . . . . . . . 28
10.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Closing of the IPO or the Private Placement . . . . . . . . . . . . . . 28
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . . . . 28
11.1 Representations and Warranties; Performance of Obligations. . . . . . . 28
11.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . 29
11.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 29
11.5 Stockholders' Release . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 Termination of Related Party Agreements . . . . . . . . . . . . . . . . 29
11.7 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 29
11.8 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 29
11.9 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.10 Closing of the IPO or Private Placement . . . . . . . . . . . . . . . . 29
11.11 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 30
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS . . . . . . . . . . . . . . . 30
12.1 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . 30
12.2 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . . . 30
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.1 General Indemnification by the Stockholders . . . . . . . . . . . . . . 31
13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . . . 31
13.3 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . 32
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . . . 33
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.1 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.4 Severability, Reformation . . . . . . . . . . . . . . . . . . . . . . . 35
15.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.6 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 35
16.1 Company and Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 35
16.2 Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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<PAGE>
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
16.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.1 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . 38
18.2 Economic Risk, Sophistication . . . . . . . . . . . . . . . . . . . . . 38
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.1 PiggyBack Registration Rights . . . . . . . . . . . . . . . . . . . . . 38
19.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . 39
19.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 39
19.4 Other Registration Matters. . . . . . . . . . . . . . . . . . . . . . . 42
19.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.6 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.8 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . 48
20.9 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.10 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . 48
20.11 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.13 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.14 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 48
20.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
20.16 338 Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 10th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION V CORP., an Oklahoma corporation
("Newco"), ACCESS COMMUNICATIONS SERVICES, INC., an Oklahoma corporation (the
"Company"), STEVE ADUDDELL and DAVID ADUDDELL, the only stockholders of the
Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Oklahoma, having been incorporated on March 9, 1999,
solely for the purpose of completing the transaction set forth herein, and
Newco is a wholly-owned subsidiary of Parent, a corporation organized and
existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368(a)(1)(A) of the Code; and
WHEREAS, Stockholders are the owners of 75 shares of Common Stock,
$5.00 par value, of Company ("Company Stock"), representing all the issued
and outstanding capital stock of Company outstanding on the date of this
Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into aggregate consideration of $900,000, comprised
of $600,000 in cash and - shares of Common Stock $.01 par value [$300,000
in value], of Parent ("Parent Stock"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
<PAGE>
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
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<PAGE>
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (ii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in this Agreement,
and (ii) the date on which suit for the enforcement of any claims for Taxes
above becomes barred by the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"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.
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<PAGE>
"OGCA" means the Oklahoma General Corporation Act.
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms
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<PAGE>
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person, by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed
as provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of
the Surviving Corporation until they shall thereafter be
further amended;
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of
the Surviving Corporation after the Effective Time until
his successor shall have been elected and
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<PAGE>
qualified; and
(iv) David W. Aduddell, Chief Executive Officer; Steve Aduddell,
President; Joe Evans, Chief Financial Officer and Secretary;
and Jeff Hartwig, Vice President of Operations of Newco
immediately prior to the Effective Time shall continue as
the officers of the Surviving Corporation after the
Effective Time in the same capacity or capacities, until
their successors are duly elected and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of
Company is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of
Parent is as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000
shares of common stock, par value $.01, of which 1,000
shares are issued and outstanding and entitled to one vote
per share on all matters submitted to stockholder.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
2.6 RELEASE OF PERSONAL GUARANTEES. Company and Parent will ensure that
each of the Stockholders will be released from any personal guarantees of the
Indebtedness of the Company.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
As of the Effective Time:
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<PAGE>
(i) all shares of Company Stock issued and outstanding
immediately prior to the Effective Time, by virtue of the
Merger and without any action on the part of the holders
thereof, automatically shall be deemed to represent the
right to receive, in aggregate, (i) - shares of Parent Stock
[$400,000 in value] and (ii) $500,000 in cash, all as more
particularly set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as
treasury stock shall be canceled and retired and no Parent
Stock, cash or other consideration shall be delivered or
paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof,
automatically shall be deemed to represent the right to
receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
------------------- ---------------- --------------- ----
<S> <C> <C> <C>
Steve Aduddell 50 [$100,000 in value] $ 500,000
David Aduddell 25 [$200,000 in value] 100,000
---------------- ------------------- ---------
Total: 75 [$300,000 in value] $ 600,000
---------------- ------------------- ---------
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the Closing
all certificates representing any and all shares of Company Stock, duly endorsed
in blank by Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholders'
expense, affixed and canceled.
-7-
<PAGE>
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii) below
(the "Closing"), the parties to this Agreement shall take all actions necessary
to prepare to (i) effect the Merger (including the filing with the appropriate
state authorities of the Certificate of Merger which shall become effective at
the Effective Time) and (ii) effect the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4; provided, that
such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. On the Closing Date (x) the
Certificate of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 10:00 a.m. Central Standard
Time on the Closing Date, become effective and the Merger shall thereby be
effected and (y) all transactions contemplated by this Agreement, including the
conversion of the shares and delivery of the Parent Stock which the Stockholders
shall be entitled to receive pursuant to the Merger shall occur and be deemed to
be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date. For purposes of this Section
6, the term "Company" shall mean and refer to Company and all of its
Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have an adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise), of
Company taken as a whole (as used herein with respect to Company, or with
respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets forth the
jurisdiction in which Company is incorporated and contains a list of all such
jurisdictions in which Company is authorized or qualified to do business. True,
complete and correct copies of the Charter Documents and Bylaws, each as
amended, of Company are all attached hereto as Schedule 6.1. The stock records
of Company, as heretofore made available to Parent, are correct and complete.
To the knowledge of Company and Stockholders, there are no minutes in the
possession of Company or Stockholders which have not been made available to
Parent, and all of such minutes are correct and complete.
-8-
<PAGE>
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the Stockholders of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholders in
the amounts set forth in Section 4.1 and further, except as set forth on
Schedule 6.3, are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and validly
issued and (ii) are fully paid and nonassessable. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1995. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company has
no Subsidiaries, (ii) 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, and (iii) Company
is not directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are copies of
the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
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accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.7). Except as set forth on
Schedule 6.7, the Balance Sheets referred to in this Section 6.7 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.7 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte & Touche LLP.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a list
(which is set forth on Schedule 6.8) as of the Balance Sheet Date of (i) all
liabilities of Company of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, that are not reflected
on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance Sheet Date
Company has not incurred any liabilities 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. Company has also
disclosed to Parent on Schedule 6.8, in the case of those contingent liabilities
related to pending or threatened litigation or other liabilities which are not
fixed or otherwise accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating
thereto;
(y) amounts claimed and any other action or relief sought;
and
(z) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholders. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories, and such list and such aging report (the "A/R Aging
Report") as of the most practicable date. Except to the extent reflected on
Schedule 6.9 or as disclosed by Company to Parent in a writing accompanying the
A/R Aging Report, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 6.9, and shall be collectible in the
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amounts shown on the A/R Aging Report, net of reserves reflected in the December
Balance Sheet and as of the date of the A/R Aging Report, respectively.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have an Adverse Effect on its business, and Company has delivered to Parent an
accurate list and summary description (which is set forth on Schedule 6.10) of
all such licenses, franchises, permits and other governmental authorizations,
including titles, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by Company (including interests in
software or other technology systems, programs and intellectual property) (it
being understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 6.11). To the knowledge of
Company, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 6.10 and 6.11 are valid in all respects, and 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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) to the knowledge of Company, no
on-site or off-site location to which Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against
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Company, Parent or Newco for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury, including, but not limited to,
any claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) Company has no contingent liability
in connection with any release of any Hazardous Waste or Hazardous Substance
into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.12) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Company
has delivered to Parent an accurate list (which is set forth on Schedule 6.13)
of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
Company has listed on Schedule 6.13 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as of the
Balance Sheet Date and (y) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
Parent. Company has complied with all commitments and obligations pertaining to
it, and is not in default under any contract or agreement listed on Schedule
6.13 and no notice of default under any such contract or agreement has been
received. Company has also indicated on Schedule 6.13 a summary description of
all plans or projects involving the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $5,000 by
Company.
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6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by
Company in the conduct of its business. Company has good and insurable title to
the real property owned by it, including those reflected on Schedule 6.14,
subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing
specified liabilities (with respect to which no default
exists);
(x) Liens for current taxes not yet payable and assessments not
in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County Clerks
in which the properties, assets and leasehold estates are
located which do not adversely affect in any respect the
current use of the property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key
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employees of Company and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date of this
Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
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All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.17 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of Company as of the
Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on Schedule
6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such determination
letters are included as part of Schedule 6.17. Except as disclosed on Schedule
6.17, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or Returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 6.17. Neither
Stockholders, any such plan listed in Schedule 6.17, nor Company has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No employee benefit plan listed on Schedule 6.17 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and Company has not incurred (i) any liability
for excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation (other than for premium
payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to employee
benefit plans listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of
ERISA; and
(z) except as set forth in Schedule 6.17, no circumstances exist
pursuant to which Company could reasonably be expected to
have any direct or indirect liability whatsoever (including,
but not limited to, any liability to any multiemployer plan
or the Pension Benefit Guaranty Corporation under Title IV
of ERISA or to the Internal Revenue Service for any excise
tax or penalty, or being subject to any statutory Lien to
secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any
entity other than Company that is, or at any time was, a
member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes Company ("Controlled
Group").
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The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.19 or 6.11, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have an Adverse Effect; and except to the
extent set forth on Schedule 6.8 or 6.11, there are no claims, actions, suits or
proceedings, commenced or, to the knowledge of Company, threatened, against or
affecting Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Company and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Company or any Stockholder. Company has conducted and is conducting its business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have an Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter C of the Code,
and Company has filed all Tax Returns that it was required
to file. All such Tax Returns filed by Company were correct
and complete in all respects. All Taxes owed by Company
(whether or not shown on any Tax Return) have been paid or
reserved for on its books. Except as set forth on Schedule
6.20, Company is not currently the beneficiary of any
extension of time within which to file any Tax Return.
Since January 1, 1995, no claim with respect to Company has
been made by an authority in a jurisdiction where Company
does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There is no Lien affecting
any of Company's assets that arose in connection with any
failure or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
shareholder or other party.
(iii) Except as set forth in Schedule 6.8, Company does not expect
any authority
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to assess any amount of additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or
claim concerning any Tax liability of Company either claimed
or raised by any authority in writing or as to which Company
has knowledge based upon direct inquiry by any agent of such
authority. Schedule 6.20(iii) lists all Tax Returns
relating to income Tax of Company for taxable periods ended
on or after January 1, 1994, indicates those Returns of
which Company is aware that have been audited and indicates
those Returns that currently are the subject of audit.
Company has provided Parent access to correct and complete
copies of all Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by
Company for any taxable period ended on or after January 1,
1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not
waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. Company has not
made any payments, is not obligated to make any payments and
is not a party to any agreement that under certain
circumstances could obligate it to make any payments that
will not be fully deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any
taxing authority that would, individually or in the
aggregate, apply to the Surviving Corporation after the
Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in default under any (i) Lease, instrument, agreement, license, or permit set
forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other agreement to
which it is a party or by which its properties are bound (collectively, the
"Documents"); and, except as set forth in Schedule 6.21, (i) the rights and
benefits of Company under the Documents will not be adversely affected by the
transactions contemplated hereby and (ii) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach or
constitute a default under, any of the terms or provisions of the Documents or
the Charter Documents. Except as set forth on Schedule 6.21, none of the
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect in all respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or publication by Company, Parent or Newco of
the name of any other party to such Document, and
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none of the Documents prohibits or restricts Company from freely providing
services to any other customer or potential customer of Company, Parent, Newco
or any other Founding Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of
Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the
capital stock of Company;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by Company
to any of its officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance
with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of any
character, adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any assets, property or rights of Company to any person,
including, without limitation, Stockholders and their
Affiliates outside the ordinary course of business of
Company; except distribution of that certain time-share to
Building 5, Unit 7519, Week 32 at The Village Pointe
Condominiums, a 1995 Ford Elgrande and a 1992 Lexus 400SL
(along with any leases or note obligations) to Steve
Aduddell;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to Company, including without
limitation any indebtedness or obligation of any
Stockholder or any Affiliate thereof outside the ordinary
course of business of Company;
(ix) any plan, agreement or arrangement granting any preferential
right to
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purchase or acquire any interest in any of the assets,
property or rights of Company or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or
asset outside of the ordinary course of Company's business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company
is a party;
(xiii) any transaction by Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination date;
or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect.
If political contributions made by Company have exceeded $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
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6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be rendered untrue in any respect by, any other document to which Company
is a party, or to which its properties are subject, or by any other fact or
circumstance regarding Company (which fact or circumstance was, or should
reasonably, after due inquiry, have been known to Company) that is not disclosed
pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26, Company
has not, between the Balance Sheet Date and the date of this Agreement, taken
any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth below
are true as of the date of this Agreement and, subject to Section 9.7, shall be
true at the Closing Date, (ii) that all of the covenants and agreements in this
Section 7 shall be complied with or performed at and as of the Closing Date and
(iii) that by executing this Agreement each Stockholder shall be deemed to have
approved the terms of the Merger as required by the OGCA.
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such Stockholder has or may have had, other than rights of any Stockholder
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any option
granted by Parent.
7.3 OTHER DISTRIBUTIONS. Steve Aduddell shall receive the 1995 Ford
Elgrande automobile and the Lexus 400SL prior to the Merger and Steve Aduddell
will assume all lease or note, insurance and other obligations related to these
vehicles.
7.4 ELECTION TO PUT STOCK. Stockholders may elect to sell all of their
Parent Stock to Parent, and Parent shall purchase all of the Parent Stock, at
the Private Placement offering price if Parent has not completed the IPO on or
before the later of (i) the 12-month anniversary of the Closing Date, or (ii) if
Parent is in registration for its IPO on the 12-month anniversary of the Closing
Date, the cancellation of Parent's registration efforts (the "Put Date").
Stockholders must
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provide written notice of their intent to sell their Parent Stock to Parent
within 30 days after the Put Date. Any sales of Parent Stock by Stockholders to
Parent will be subject to the corporate laws of the State of Oklahoma with
regard to the ability of Parent to repurchase its own stock. The purchase price
for the sale of any Parent Stock to Parent by the Stockholders shall be paid
within 60 days after the Put Date.
7.5 ELECTION TO CALL STOCK. Parent may elect to purchase all of the
Stockholders' Parent Stock, and Stockholders shall sell all of their Parent
Stock to Parent, at the greater of (i) the Private Placement offering price or
(ii) the Parent Stock's then fair market value, if Parent has not completed the
IPO on or before the Put Date. Parent must provide written notice of its intent
to purchase the Stockholders' Parent Stock within 30 days after the Put Date.
Any purchase of Parent Stock by Parent will be subject to the corporate laws of
the State of Oklahoma with regard to the ability of Parent to repurchase its own
stock. The purchase price for the purchase of any Parent Stock by Parent shall
be paid within 60 days after determination of the Parent Stock fair market
value.
For purposes of this Section, the "fair market value" of the Parent Stock
shall be determined by a consultant that is: (i) willing and able to complete
such valuation within sixty (60) days after being retained to make such
valuation (or such other period as the parties participating in the purchase and
sale shall mutually agree upon), and (ii) otherwise reasonably satisfactory to
each party participating in the purchase and sale. If each such party shall not
have agreed upon a consultant within thirty (30) days after the Put Date,
Parent's accountants or auditors shall select a consultant for such purpose.
The determination of the fair market value of the Parent Stock shall be final
and binding upon all parties to the purchase and sale. The fees of the
consultant shall be paid by the Corporation.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite corporate
power and
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authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement by Parent and Newco and their
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Parent and Newco. This Agreement has been
duly executed and delivered by Parent and Newco and is a valid and binding
obligation of Parent and Newco, enforceable against each of them in accordance
with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco is
as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are owned of record and beneficially by the persons set forth on Schedule
2.4(ii) and Parent, respectively, and (iv) were offered, issued, sold and
delivered by Parent and Newco in compliance with all applicable state and
Federal laws concerning the offer, issuance, sale and delivery of securities.
Further, none of such shares was issued in violation of the preemptive rights of
any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no Subsidiaries
except for Newco and each of the other companies identified on Schedule 8.5.
Except as set forth in the preceding sentence, neither Parent nor Newco
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in a Person nor is Parent or Newco, directly or indirectly, a
participant in any joint venture, partnership or other non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement or agreements similar to this Agreement with the Founding Companies
and except for fees incurred in connection with the transactions contemplated
hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and
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no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in September
1998. Neither Parent nor Newco has conducted any business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with the Founding Companies. Except as disclosed on Schedule
8.10, neither Parent nor Newco owns or has at any time owned any real property
or any personal property or is a party to any other agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's sites,
properties, books and records and will furnish Parent with
such additional financial and operating data and other
information as to the business and properties of Company as
Parent may from time to time reasonably request. Company
will cooperate with Parent, its representatives, auditors
and counsel in the preparation of any documents or other
material that may be required in connection with any
documents or materials required by this Agreement. Parent
and Newco will treat all information obtained in connection
with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section
16.
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(ii) Between the date of this Agreement and the Closing, Parent
will afford to the officers and authorized representatives
of Company and Stockholders access to all of the sites,
properties, books and records of Parent, Newco and the other
companies listed on Schedule 9.1(ii) ("Founding Companies")
and will furnish Company and Stockholders with such
additional financial and operating data and other
information as to the business and properties of Parent,
Newco and the Founding Companies as Company and Stockholders
may from time to time reasonably request. Parent and Newco
will cooperate with Company and Stockholders'
representatives, auditors and counsel in the preparation of
any documents or other material which may be required in
connection with any documents or materials required by this
Agreement. Company and Stockholders 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present
key employees and maintain its respective relationships with
suppliers, customers and others having business relations
with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt instruments and Leases and not enter
into new or amended debt instruments or Leases; and
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(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for
employees in accordance with past practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind
other than in connection with the exercise of options or
warrants listed in Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock; except
distribution of that certain time-share to Building 5, Unit
7519, Week 32 at The Village Pointe Condominiums, a 1995
Ford Elgrande and a Lexus 400SL (along with any leases or
note obligations) to Steve Aduddell;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with
past practice), in connection with the transactions
contemplated by this Agreement, or involves an amount not in
excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x)
with respect to purchase money Liens incurred in connection
with the acquisition of equipment with an aggregate cost not
in excess of $5,000 as necessary or desirable for the
conduct of its business, (y) (1) Liens for Taxes either not
yet due or being contested in good faith and by appropriate
proceedings (and for which contested Taxes adequate reserves
have been established and are being maintained) or
(2) materialmen's, mechanic's, worker's, repairmen's,
employee's or other like Liens arising in the ordinary
course of business, or (3) Liens set forth on Schedule 6.8
or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
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(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 6.9 unless specifically
listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or
its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholder agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company or Stockholders contained herein to be untrue or inaccurate
in any respect at or prior to the Closing Date and (ii) any failure of any
Stockholder or Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such Person hereunder as of such
date. Parent and Newco shall give prompt notice to the Company of (i) the
occurrence or non-occurrence
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of any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Parent or Newco contained herein to be untrue or
inaccurate in any respect at or prior to the Closing Date and (ii) any failure
of Parent or Newco to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder as of such date. The
delivery of any notice pursuant to this Section 9.6 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 9.7,
(ii) modify the conditions set forth in Sections 10 and 11, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 11:59 p.m. March 31, 1999
to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have a Adverse Effect may be made unless the
parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with or
performed by Parent and Newco on or before the Closing Date shall have been duly
complied with or performed; and a certificate to the foregoing effect dated the
Closing Date, and
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signed by the President or any Vice President of Parent and of Newco shall have
been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Company as a result of which the management
of Company deems it inadvisable to proceed with the transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of Parent
and of Newco, certifying the completeness and accuracy of the attached copies of
Parent's and Newco's respective Charter Documents (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholders of Parent and Newco approving
Parent's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule 10.7
shall have been afforded an opportunity to enter into an employment agreement,
reasonably acceptable to both parties and substantially in the form of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
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11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholders and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholders and
Company each shall have delivered to Parent a certificate dated the Closing Date
and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Parent as a result of which the management
of Parent deems it inadvisable to proceed with the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), Bylaws (including amendments thereto),
and resolutions of the board of directors and Stockholders approving Company's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to Parent
an instrument dated the Closing Date releasing Company from (i) any and all
claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
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11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good standing and
authorized to do business and that all state franchise and/or income Tax returns
and Taxes for Company for all periods prior to the Closing have been filed and
paid.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Parent
a certificate to the effect that he or she is not a foreign person under Section
1.1445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have received
at least $15,000,000 in gross proceeds from Parent's IPO or Private Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule 10.7
shall have executed an employment agreement, reasonably acceptable to both
parties and substantially in the form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent audited
Balance Sheets as of December 31, 1997 and 1998 and audited Statements of
Income, Retained Earnings and Cash Flows for each of the years in the two-year
period ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state
and local income Tax Returns of Company for all taxable
periods that end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate Returns
of, or that include, Company for all taxable periods ending
after the Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them
reasonably may request in filing any Return, amended Return
or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant
portions of relevant Returns, together with relevant
accompanying schedules and 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
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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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at Company until such time as Parent is able to replace such plan with
a plan that is applicable to Parent and all of its then existing Subsidiaries;
provided that Parent shall have no obligation to provide replacement plans that
have the same terms and provisions as the existing plans; provided, further,
that any new health insurance plan shall provide for coverage for preexisting
conditions. On the Closing Date, the employees of Company will be the employees
of the Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee; and provided further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
Parent to assess workforce needs and make appropriate adjustments as necessary
or desirable within its discretion subject to applicable laws and collective
bargaining agreements).
13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders covenant
and agree that they, severally and not jointly in the case of representations,
warranties covenants and agreements set forth in Section 7, and jointly and
severally in all other cases, will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholders or Company under this Agreement;
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it will
indemnify, defend, protect and hold harmless Stockholders at all times from and
after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement.
13.3 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
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Agreement ("Third Person"), or the commencement of any action or proceeding by a
Third Person, the Indemnified Party shall, as a condition precedent to a claim
with respect thereto being made against any party obligated to provide
indemnification pursuant to Section 13.1 or 13.2 (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 diligently and in good faith; provided that the
Indemnifying Party shall not settle any criminal proceeding without the written
consent of the Indemnified Party. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by Indemnifying Party; provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party shall be responsible for the reasonable
expenses of such counsel. After th Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except to the extent such
participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for any additional costs of
defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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 upon consent of the Indemnifying Party, which consent will
not be unreasonably withheld, 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. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
Anything in this Agreement to the contrary notwithstanding, any amounts owing
from an Indemnifying Party to an
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Indemnified Party under the provisions of this Section 13 shall be reduced to
the extent to which the Indemnified Party, or any other claimant, actually
receives any proceeds of any insurance policy that are paid with respect to the
matter or occurrence that gave rise to the ThirdPerson claim. Submission to
insurance of any insurable claim otherwise giving rise to indemnification under
this Section 13 shall be a condition precedent to seeking indemnification under
this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
13 shall be the exclusive remedy in any action seeking damages or any other form
of monetary relief brought by any party to this Agreement against another party;
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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement. Any indemnification obligation of Stockholders shall be limited to
the value of the consideration paid to such Stockholders pursuant to this
Agreement. The Indemnifying Party's obligation to indemnify pursuant to this
Section 13 will arise if and only if the aggregate amount of any claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) suffered by the Indemnified Party
exceeds $35,000, in which case the Indemnifying Party will be required to
indemnify the Indemnified Party for all such losses.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by Company (acting through its board of directors), on the
one hand, or by Parent (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 May 31, 1999 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;
(iii) by Stockholders or Company, on the one hand, or by Parent,
on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and
timely performance of any of the material covenants,
agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the
Closing Date; or
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(iv) by Company and Stockholders, on the one hand, or by Parent,
on the other hand, if either such party or parties declines
to consent to an amendment or supplement to a Schedule
proposed by the other party or parties pursuant to Section
9.7 because such proposed amendment constitutes or reflects
an event or occurrence that would have a material Adverse
Effect on the party or parties proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of two years following the Closing Date, for any reason whatsoever,
directly or indirectly, for himself or on behalf of or in conjunction with any
other Person:
(i) engage, as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in the sale or
marketing of telecommunication services or interconnect
services within the state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an employee
of Parent (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 Parent (including the Subsidiaries
thereof);
(iii) call upon any Person which is or which has been, within one
year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof) for the purpose of
soliciting or selling products or services in direct
competition with Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of
Parent (including the Subsidiaries thereof) in the
long-distance telephone or interconnect business, which
candidate, to the knowledge of such Stockholder after due
inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to the knowledge of such
Stockholder after due inquiry, Parent (or any Subsidiary
thereof) made an acquisition analysis, for the purpose of
acquiring such entity; or
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(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the
extent that the Company has in the past disclosed such
information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment after the date of this
Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15 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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of two
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set forth
in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
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16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) 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 (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of
this Section 16.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholder from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on each Stockholder's ability
to disseminate confidential information with respect to Company shall become
nugatory and (2) each Stockholder (including his representatives, advisors and
legal counsel) shall within ten business days of the Parent's request, deliver
all copies of the confidential information of Parent in his possession in any
form whatsoever (including, but not limited to, any reports, memoranda, or other
material prepared by such Stockholder or his representatives, advisors or legal
counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge that
they had in the past and currently have and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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 (y), Parent and Newco
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shall, if possible, give immediate prior written notice thereof to Company and
Stockholders and provide Company and Stockholders with the opportunity to
contest such disclosure, or (z) 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 Parent
or Newco of the provisions of this Section 16.2, Company and Stockholders shall
be entitled to an injunction (without the posting of bond or proof of actual
damages) restraining Parent and Newco from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Company and Stockholders 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, Parent and
Newco (including their representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Newco or their representatives, advisors or legal counsel
at the direction of Parent or Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 16.1 and 16.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16 shall
survive the termination of this Agreement for a period of two years from the
Closing Date or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period of
one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholders pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
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EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER -, IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed 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 thereunder and the provisions
of applicable state securities laws and regulations. All the Restricted
Securities shall bear the following legend in addition to the legend required
under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
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18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date of
consummation of the IPO, whenever Parent proposes to register any Parent Stock
for its own or the account of others under the 1933 Act for a public offering,
other than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Parent and (ii) registrations relating
to employee benefit plans, Parent shall give each Stockholder prompt written
notice of its intent to do so. Upon the written request of any Stockholder given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Registerable Securities) which any
Stockholder requests; provided, however, if Parent is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 19.1
that the number of shares to be sold by Persons other than Parent is greater
than the number of such shares which can be offered without adversely affecting
the offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such Person)
to a number deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Stockholders or their permitted transferees or (ii) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing that
Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholders or their permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days of
the receipt of such request, Parent shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after
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notice from the Founding Stockholders requesting such registration, file and use
its best efforts to cause to become effective a registration statement covering
all such shares. Parent shall be obligated to effect only one Demand
Registration for all Founding Stockholders; provided, however, that Parent shall
not be deemed to have satisfied its obligation under this Section 19.2 unless
and until a Demand Registration covering all shares of Parent Stock requested to
be registered has been filed and becomes effective under the 1933 Act and has
remained current and effective for not less than 90 days (or such shorter period
as is required to complete the distribution and sale of all shares registered
thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 19.1 and 19.2, Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Parent Stock and use its best efforts to
cause such registration statement to become and remain
effective; provided that Parent may discontinue any
registration of its securities that is being effected
pursuant to Section 19.1 at any time prior to the effective
date of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration
statement effective for a period as may be requested by the
stockholders holding a majority of the Parent Stock covered
thereby not exceeding 90 days and to comply with the
provisions of the 1933 Act with respect to the disposition
of all securities covered by such registration statement
during such period in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in
such registration statement; provided, that before filing a
registration statement or prospectus
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relating to the sale of Parent Stock, or any amendments or
supplements thereto, Parent will furnish to counsel to each
holder of Parent Stock covered by such registration
statement or prospectus, copies of all documents proposed to
be filed, which documents will be subject to the review of
such counsel, and Parent will give reasonable consideration
in good faith to any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of
such Parent Stock, such number of copies of a preliminary
prospectus and prospectus for delivery in conformity with
the requirements of the 1933 Act, and such other documents,
as such Person may reasonably request, in order to
facilitate the public sale or other disposition of the
Parent Stock.
(iv) Use its best efforts to register or qualify the Parent Stock
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other
acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the
disposition of the Parent Stock owned by such seller, in
such jurisdictions, except that Parent shall not for any
such purpose be required (x) to qualify to do business as a
foreign corporation in any jurisdiction where, but for the
requirements of this Section 19.3(iv), it is not then so
qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject
it to general or unlimited service of process in any such
jurisdiction where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by
such registration statement to be registered with or
approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered by
such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the 1933
Act within the appropriate period mentioned in Section
19.3(ii), if Parent becomes aware that the prospectus
included in such registration statement, as then in effect,
includes 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 in
the light of the circumstances then existing, and, at the
request of any such seller, deliver a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Parents of
such Parent Stock, each prospectus shall not include an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or
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necessary to make the statements therein not misleading in
the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally
available to its security holders, in each case as soon as
practicable, but not later than 45 calendar days after the
close of the period covered thereby (90 calendar days in
case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy
the provisions of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Parent Stock on each securities exchange as they
may reasonably designate.
(ix) In the event the offering is an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from the
independent public accountants for Parent in customary form
and covering such matters of the type customarily covered by
such letters.
(x) Execute and deliver all instruments and documents (including
in an underwritten offering an underwriting agreement in
customary form) and take such other actions and obtain such
certificates and opinions as the stockholders holding a
majority of the shares of Parent Stock covered by the
Registration Statement may reasonably request in order to
effect an underwritten public offering of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent
Stock covered by such registration statement, by any
underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant or other agent retained by any such seller or any
such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of Parent, and
cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion
or opinions from counsel for Parent in customary form and in
form and scope reasonably satisfactory to such underwriter
or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each stockholder holding shares of Parent Stock covered by a
registration statement referred to in this Section 19 will,
upon receipt of any notice from Parent of the happening of
any event of the kind described in Section
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19.3(vi), forthwith discontinue disposition of the Parent
Stock pursuant to the registration statement covering such
Parent Stock until such holder's receipt of the copies of
the supplemented or amended prospectus contemplated by
Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves
an underwritten offering, each of the Stockholders agrees,
whether or not his shares of Parent Stock are included in
such registration, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under
the 1933 Act, of any Parent Stock, or of any security
convertible into or exchangeable or exercisable for any
Parent Stock (other than as part of such underwritten
offering), without the consent of the managing underwriter,
during a period commencing eight calendar days before and
ending 180 calendar days (or such lesser number as the
managing underwriter shall designate) after the effective
date of such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of Parent
under the 1933 Act pursuant to Section 19.1 or 19.2, Parent
will, and it hereby agrees to, indemnify and hold harmless,
to the extent permitted by law, each seller of any Parent
Stock covered by such registration statement, each Affiliate
of such seller and their respective directors, officers,
employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) each
other Person who participates as an underwriter in the
offering or sale of such securities and each other Person,
if any, who controls such seller or any such underwriter
within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an untrue
statement or alleged untrue statement of a material fact
contained in any registration statement (or any amendment or
supplement thereto), including all documents incorporated
therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading,
or arising out of an untrue statement or alleged untrue
statement of a material fact contained in any preliminary
prospectus or prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements
therein not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body,
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commenced or threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is
effected with the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or mission to
the extent that any such expense is not paid under
subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or any
such director, officer, employee, agent, general or limited
partner, investment advisor or agent, underwriter or controlling
Person and shall survive the transfer of such securities by such
seller.
(ii) Parent may require, as a condition to including any Parent
Stock in any registration statement filed in accordance with
Section 19.1 or 19.2, that Parent shall have received an
undertaking reasonably satisfactory to it from the
prospective seller of such Parent Stock or any underwriter,
to indemnify and hold harmless (in the same manner and to
the same extent as set forth in Section 19.5(i)) Parent with
respect to any statement or alleged statement in or omission
or alleged omission from such registration statement, any
preliminary, final or summary prospectus contained therein,
or any amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in
reliance upon and in conformity with written information
furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary,
final or summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of Parent or any
such director, officer or controlling Person and shall
survive the transfer of such securities by such seller. In
that event, the obligations of the Parent and such sellers
pursuant to this Section 19.5 are to be several and not
joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for
the full amount of such claim, and each such seller's
liability under this Section 19.5 shall be limited to an
amount equal to the net proceeds (after deducting the
underwriting discount and expenses) received by such seller
from the sale of Parent Stock held by such seller pursuant
to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or
proceeding involving a claim referred to
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in this Section 19.5, such indemnified party will, if a
claim in respect thereof is to be made against an
indemnifying party, give written notice to such indemnifying
party of the commencement of such action; provided, however,
that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of
its obligations under this Section 19.5, except to the
extent (not including any such notice of an underwriter)
that the indemnifying party is materially prejudiced by such
failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist in
respect of such claim (in which case the indemnifying party
shall not be liable for the fees and expenses of more than
one firm of counsel selected by holders of a majority of the
shares of Parent Stock included in the offering or more than
one firm of counsel for the underwriters in connection with
any one action or separate but similar or related actions),
the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it
may wish with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnifying party in
connection with the defense thereof, provided that the
indemnifying party will not agree to any settlement without
the prior consent of the indemnified party (which consent
shall not be unreasonably withheld) unless such settlement
requires no more than a moneary payment for which the
indemnifying party agrees to indemnify the indemnified party
and includes a full, unconditional and complete release of
the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment
of the indemnifying party's counsel, representation of both
the indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests
between them. In the event that the indemnifying party does
not assume the defense of a claim pursuant to this Section
19.5(iii), the indemnified party will have the right to
defend such claim by all appropriate proceedings, and will
have control of such defense and proceedings, and the
indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying
party. Each indemnified party shall, and shall cause its
legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with
its assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers served
in such proceeding. In the event that an indemnifying party
assumes the defense of an action under this Section
19.5(iii), then such
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indemnifying party shall, subject to the provisions of this
Section 19.5, indemnify and hold harmless the indemnified
party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
(iv) Parent and each seller of Parent Stock shall provide for the
foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required
registration or other qualification of securities under any
federal or state law or regulation of any governmental
authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Parent Stock. For purposes of this
Section 19.6, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as such underwriter, and each director and each officer of Parent who signed the
registration statement, and each Person, if any, who controls Parent or a seller
of Parent Stock within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as Parent or a seller of Parent Stock, as the case
may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144 TRANSACTIONS.
After Parent completes its initial underwritten public offering and for as long
thereafter as Stockholders shall continue to hold any Restricted Securities,
Parent shall use reasonable efforts to file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
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20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law or as permitted by
Section 17), but if assigned by operation of law, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholders. Notwithstanding the foregoing, any Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholders, Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, 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 Stockholders and by Company, Newco and Parent, acting through their
respective officers or representatives, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby; provided that Company shall make a good faith effort to cross
reference disclosures, as necessary or advisable, between related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
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20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their addresses set
forth on Schedule 6.3, with copies to such counsel as is set
forth with respect to each Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
Access Communications Services, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: Steve Aduddell
Telecopy No.: (405) 749-8080
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance with
the laws of the State of Oklahoma.
20.8 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
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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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section 13.4,
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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
20.14 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 Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for
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presentation in lieu of a live appearance, depositions will not be taken. The
parties will be entitled to conduct document discovery by requesting production
of documents. The arbitrators will resolve any discovery disputes by such
prehearing conferences as may be needed. Either party may be entitled to pursue
such remedies for emergency or preliminary injunctive relief in any court of
competent jurisdiction, provided that each party agrees that it will consent to
the stay of such judicial proceedings on the merits of both this Agreement and
the related transactions pending arbitration of all underlying claims between
the parties immediately following the issuance of any such emergency or
injunctive relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company Stock; PROVIDED HOWEVER,
that no election shall be made if, as a result of the election, the Stockholders
would incur any adverse tax or other consequences not otherwise reimbursed by
Parent or Newco to the Stockholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
------------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
------------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
ACCESS COMMUNICATIONS SERVICES, INC.
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BY: Steve Aduddell
------------------------------------------
NAME: Steve Aduddell
TITLE: President
STOCKHOLDERS:
/s/ Steve Aduddell
---------------------------------------------
Steve Aduddell
/s/ David W. Aduddell
---------------------------------------------
David W. Aduddell
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ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION V CORP.
INTO
ACCESS COMMUNICATIONS SERVICES, INC.
Access Communications Services, Inc., an Oklahoma corporation, pursuant to
Section 81 of the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is Access Communications Services, Inc. and Alliance
Acquisition V Corp.
SECOND. That an agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 81 of the Oklahoma General Corporation
Act.
THIRD. That the name of the surviving corporation is Access Communications
Services, Inc.
FOURTH. That the certificate of incorporation of Alliance Acquisition V
Corp. shall be the certificate of incorporation of the surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
SEVENTH. This merger shall be effective at -, Central Standard Time, on
the date this Certificate is filed with the Secretary of State of the State of
Oklahoma.
IN WITNESS WHEREOF, Access Communications Services, Inc. has caused this
certificate to be signed by its President and attested by its Secretary, this -
day of - 1999.
ACCESS COMMUNICATIONS SERVICES, INC.
---------------------------------------------
President
ATTEST:
- -------------
Secretary
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- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION VI CORP.
(Newco)
and
AMERICAN TELCOM, INC.
(Company)
and
TONY B. ALEXANDER
AND
WILLIAM R. PEARSON
(Stockholders of the Company)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . 5
2.1 Delivery and Filing of Articles of Merger. . . . . . . . . . . . 5
2.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . 5
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
the Surviving Corporation. . . . . . . . . . . . . . . . . . . . 5
2.4 Certain Information With Respect to the Capital Stock of
Company, Parent and Newco. . . . . . . . . . . . . . . . . . . . 6
2.5 Effect of Merger.. . . . . . . . . . . . . . . . . . . . . . . . 6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . 7
4.1 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Capital Stock of the Company . . . . . . . . . . . . . . . . . . 9
6.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . . . 9
6.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . 9
6.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . 10
6.9 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . 11
6.11 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . 12
6.13 Significant Customers; Material Contracts and Commitments. . . . 12
6.14 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.15 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters. . . . . . . . . . . . . . 13
6.17 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . 15
6.19 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . 16
6.20 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.21 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . 17
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6.22 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . 18
6.23 Deposit Accounts; Powers of Attorney . . . . . . . . . . . . . . 19
6.24 Relations with Governments . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . 20
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Election to Put Stock. . . . . . . . . . . . . . . . . . . . . . 20
7.4 Election to Call Stock . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . . . 21
8.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . 21
8.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . 21
8.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Parent Securities. . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Business; Real Property; Agreements. . . . . . . . . . . . . . . 22
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . 22
9.1 Access and Cooperation; Due Diligence; Audits. . . . . . . . . . 22
9.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . 23
9.3 Prohibited Activities by the Company . . . . . . . . . . . . . . 24
9.4 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . 25
9.7 Amendment of Schedules . . . . . . . . . . . . . . . . . . . . . 26
9.8 Further Assurance. . . . . . . . . . . . . . . . . . . . . . . . 26
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . . 26
10.1 Representations and Warranties; Performance of Obligations . . . 26
10.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . 27
10.4 Good Standing Certificates . . . . . . . . . . . . . . . . . . . 27
10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . 27
10.6 Secretary's Certificates . . . . . . . . . . . . . . . . . . . . 27
10.7 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . 27
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10.8 Closing of the IPO or the Private Placement. . . . . . . . . . . 27
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . 27
11.1 Representations and Warranties; Performance of Obligations . . . 27
11.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . 28
11.4 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . 28
11.5 Stockholders' Release. . . . . . . . . . . . . . . . . . . . . . 28
11.6 Termination of Related Party Agreements. . . . . . . . . . . . . 28
11.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . 28
11.8 Good Standing Certificates . . . . . . . . . . . . . . . . . . . 28
11.9 FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . . . 29
11.10 Closing of the IPO or Private Placement. . . . . . . . . . . . . 29
11.11 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . 29
11.12 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 29
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS . . . . . . . . . . . . 29
12.1 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . 29
12.2 Preservation of Employee Benefit Plans . . . . . . . . . . . . . 29
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 General Indemnification by the Stockholders. . . . . . . . . . . 30
13.2 Indemnification by Parent. . . . . . . . . . . . . . . . . . . . 30
13.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . 30
13.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . 32
13.5 Limitations on Indemnification . . . . . . . . . . . . . . . . . 32
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . 32
14.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . 32
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . 33
15.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.3 Reasonable Restraint . . . . . . . . . . . . . . . . . . . . . . 34
15.4 Severability, Reformation. . . . . . . . . . . . . . . . . . . . 34
15.5 Independent Covenant . . . . . . . . . . . . . . . . . . . . . . 34
15.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . 34
16.1 Company and Stockholders . . . . . . . . . . . . . . . . . . . . 34
16.2 Parent and Newco . . . . . . . . . . . . . . . . . . . . . . . . 35
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-iii-
<PAGE>
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 36
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . 36
18.1 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . 37
18.2 Economic Risk, Sophistication. . . . . . . . . . . . . . . . . . 37
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 37
19.1 PiggyBack Registration Rights. . . . . . . . . . . . . . . . . . 37
19.2 Demand Registration Rights . . . . . . . . . . . . . . . . . . . 38
19.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . 38
19.4 Other Registration Matters . . . . . . . . . . . . . . . . . . . 41
19.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 41
19.6 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 44
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 45
20.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 45
20.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.5 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . 46
20.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.8 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . 47
20.9 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.10 Reformation and Severability . . . . . . . . . . . . . . . . . . 47
20.11 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . 47
20.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.13 Public Statements. . . . . . . . . . . . . . . . . . . . . . . . 48
20.14 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 48
20.15 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.16 338 Election . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 10th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION VI CORP., an Oklahoma corporation
("Newco"), AMERICAN TELCOM, INC., an Oklahoma corporation (the "Company"), and
TONY B. ALEXANDER AND WILLIAM R. PEARSON, the only stockholders of the Company
(collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Oklahoma, having been incorporated on March 9,
1999, solely for the purpose of completing the transaction set forth
herein, and Newco is a wholly-owned subsidiary of Parent, a corporation
organized and existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368(a)(1)(A) of the Code; and
WHEREAS, Stockholders are the owners of 1,000 shares of Common
Stock, $1.00 par value, of Company ("Company Stock"), representing all the
issued and outstanding capital stock of Company outstanding on the date of
this Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into aggregate consideration of $1,100,000,
comprised of (a) $850,000 in cash and - shares of Common Stock $.01 par
value, of Parent ("Parent Stock") [an amount equal to $250,000] and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
<PAGE>
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
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<PAGE>
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"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.
"OGCA" means the Oklahoma General Corporation Act.
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<PAGE>
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar
-4-
<PAGE>
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person, by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed as
provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of the
Surviving Corporation until they shall thereafter be further
amended;
(iii) David W. Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of the
Surviving Corporation after the Effective Time until his
successor shall have been elected and qualified; and
-5-
<PAGE>
(iv) David W. Aduddell, Chief Executive Officer; Tony B. Alexander,
President; Joe Evans, Chief Financial Officer and Secretary; and
Jeff Hartwig, Vice President of Operations of Newco immediately
prior to the Effective Time shall continue as the officers of the
Surviving Corporation after the Effective Time in the same
capacity or capacities, until their successors are duly elected
and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of Company
is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of Parent is
as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000 shares of
common stock, par value $.01, of which 1,000 shares are issued
and outstanding and entitled to one vote per share on all matters
submitted to stockholders.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holders thereof, automatically
shall be deemed to represent the right to receive, in aggregate,
(i) - [an amount equal to $250,000] shares of Parent Stock and
(ii) $850,000 in cash, all as more particularly set forth in
Section 4.1;
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<PAGE>
(ii) all shares of Company Stock that are held by Company as treasury
stock shall be canceled and retired and no Parent Stock, cash or
other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, automatically shall
be deemed to represent the right to receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
- -------------------- ----------------- --------------- ----
<S> <C> <C> <C>
500 [an amount equal $ 375,000
Tony B. Alexander to $175,000]
William R. Pearson 500 [an amount equal $ 475,000
to $75,000]
----- ---------------- ---------
1,000 [an amount equal
to $250,000] $ 850,000
----- ---------------- ---------
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the Closing
all certificates representing any and all shares of Company Stock, duly endorsed
in blank by Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholders'
expense, affixed and canceled.
-7-
<PAGE>
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii) below
(the "Closing"), the parties to this Agreement shall take all actions necessary
to prepare to (i) effect the Merger (including the filing with the appropriate
state authorities of the Certificate of Merger which shall become effective at
the Effective Time) and (ii) effect the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4; provided, that
such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. On the Closing Date (x) the
Certificate of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 10:00 a.m. Central Standard
Time on the Closing Date, become effective and the Merger shall thereby be
effected and (y) all transactions contemplated by this Agreement, including the
conversion of the shares and delivery of the Parent Stock which the Stockholders
shall be entitled to receive pursuant to the Merger shall occur and be deemed to
be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, jointly and severally represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date. For purposes of this Section
6, the term "Company" shall mean and refer to Company and all of its
Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have an adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise), of
Company taken as a whole (as used herein with respect to Company, or with
respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets forth the
jurisdiction in which Company is incorporated and contains a list of all such
jurisdictions in which Company is authorized or qualified to do business. True,
complete and correct copies of the Charter Documents and Bylaws, each as
amended, of Company are all attached hereto as Schedule 6.1. The stock records
of Company, as heretofore made available to Parent, are correct and complete.
To the knowledge of Company and Stockholders, there are no minutes in the
possession of Company or Stockholders which have not been made available to
Parent, and all of such minutes are correct and complete.
-8-
<PAGE>
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the stockholders of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholders in
the amounts set forth in Section 4.1 and further, except as set forth on
Schedule 6.3, are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and validly
issued and (ii) are fully paid and nonassessable. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1995. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company has
no Subsidiaries, (ii) 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, and (iii) Company
is not directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are copies of
the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
-9-
<PAGE>
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.7). Except as set forth on
Schedule 6.7, the Balance Sheets referred to in this Section 6.7 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.7 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte & Touche LLP.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a list
(which is set forth on Schedule 6.8) as of the Balance Sheet Date of (i) all
liabilities of Company of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, that are not reflected
on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance Sheet Date
Company has not incurred any liabilities 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. Company has also
disclosed to Parent on Schedule 6.8, in the case of those contingent liabilities
related to pending or threatened litigation or other liabilities which are not
fixed or otherwise accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholders. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories, and such list and such aging report (the "A/R Aging
Report") as of the most practicable date. Except to the extent reflected on
Schedule 6.9 or as disclosed by Company to Parent in a writing accompanying the
A/R Aging Report, such accounts, notes and other receivables arose from the sale
of inventory or services to persons not affiliated with the
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Stockholders or the Company and in the ordinary course of business consistent
with past practice and constitute or will constitute, as the case may be, valid
accounts and notes receivable, and to the knowledge of Stockholders such
accounts and notes receivable are undisputed claims of the Company not subject
to valid claims of set-off or other defenses or counterclaims and all accounts
and notes receivable reflected on the December Balance Sheet are or will be good
and have been collected or as reflected on Schedule 6.9 will be collectible in
the amounts shown on the A/R Aging Report, net of reserves reflected in the
December Balance Sheet and as of the date of the A/R Aging Report, respectively,
through the utilization of collection efforts in the ordinary course of business
consistent with past practice.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have an Adverse Effect on its business, and Company has delivered to Parent an
accurate list and summary description (which is set forth on Schedule 6.10) of
all such licenses, franchises, permits and other governmental authorizations,
including titles, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by Company (including interests in
software or other technology systems, programs and intellectual property) (it
being understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 6.11). To the knowledge of
Company, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 6.10 and 6.11 are valid in all respects, and 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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or
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Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) to the knowledge of Company, no
on-site or off-site location to which Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against Company, Parent or Newco for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; and
(v) Company has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.12) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Company
has delivered to Parent an accurate list (which is set forth on Schedule 6.13)
of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
Company has listed on Schedule 6.13 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as of the
Balance
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Sheet Date and (y) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to Parent.
Company has complied with all commitments and obligations pertaining to it, and
is not in default under any contract or agreement listed on Schedule 6.13 and no
notice of default under any such contract or agreement has been received.
Company has also indicated on Schedule 6.13 a summary description of all plans
or projects involving the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $5,000 by Company.
6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by
Company in the conduct of its business. Company has good and insurable title to
the real property owned by it, including those reflected on Schedule 6.14,
subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing
specified liabilities (with respect to which no default
exists);
(x) Liens for current taxes not yet payable and assessments not
in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County Clerks
in which the properties, assets and leasehold estates are
located which do not adversely affect in any respect the
current use of the property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance
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policies are currently in full force and effect in all respects and shall remain
in full force and effect in all respects through the Closing Date. Except as
otherwise specified in Schedule 6.15, no insurance carried by Company has been
canceled by the insurer and the Company has never been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Balance Sheet
Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or
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to any multiemployer employee pension benefit plan under the provisions of Title
IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.17 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of Company as of the
Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on
Schedule 6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such
determination letters are included as part of Schedule 6.17. Except as
disclosed on Schedule 6.17, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or
Returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 6.17. Neither Stockholders, any such plan listed in
Schedule 6.17, nor Company has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No employee
benefit plan listed on Schedule 6.17 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and Company has not incurred (i) any liability for excise tax or penalty
payable to the Internal Revenue Service or (ii) any liability to the Pension
Benefit Guaranty Corporation (other than for premium payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to employee
benefit plans listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of
ERISA; and
(z) except as set forth in Schedule 6.17, no circumstances exist
pursuant to which Company could reasonably be expected to
have any direct or indirect liability whatsoever (including,
but not limited to, any liability to any multiemployer plan
or the Pension Benefit Guaranty Corporation under Title IV
of ERISA or to the Internal Revenue Service for any excise
tax or
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penalty, or being subject to any statutory Lien to secure
payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity
other than Company that is, or at any time was, a member of
a "controlled group" (as defined in Section 412(n)(6)(B) of
the Code) that includes Company ("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.19 or 6.11, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have an Adverse Effect; and except to the
extent set forth on Schedule 6.8 or 6.11, there are no claims, actions, suits or
proceedings, commenced or, to the knowledge of Company, threatened, against or
affecting Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Company and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Company or any Stockholder. Company has conducted and is conducting its business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have an Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter C of the Code, and
Company has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Company were correct and complete
in all respects. All Taxes owed by Company (whether or not shown
on any Tax Return) have been paid or reserved for on its books.
Except as set forth on Schedule 6.20, Company is not currently
the beneficiary of any extension of time within which to file any
Tax Return. Since January 1, 1995, no claim with respect to
Company has been made by an authority in a jurisdiction where
Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There is no Lien affecting any of
Company's assets that arose in connection with any failure or
alleged failure to pay any Tax.
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(ii) Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other
party.
(iii) Except as set forth in Schedule 6.8, Company does not expect any
authority to assess any amount of additional Taxes for any period
for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax liability of Company either claimed or
raised by any authority in writing or as to which Company has
knowledge based upon direct inquiry by any agent of such
authority. Schedule 6.20(iii) lists all Tax Returns relating to
income Tax of Company for taxable periods ended on or after
January 1, 1994, indicates those Returns of which Company is
aware that have been audited and indicates those Returns that
currently are the subject of audit. Company has provided Parent
access to correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed
against or agreed to by Company for any taxable period ended on
or after January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not waived
any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Company has not made any
payments, is not obligated to make any payments and is not a
party to any agreement that under certain circumstances could
obligate it to make any payments that will not be fully
deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority or
entered into any agreement regarding Taxes with any taxing
authority that would, individually or in the aggregate, apply to
the Surviving Corporation after the Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter
Documents. Neither Company nor, to the knowledge of the Company, any other party
thereto, is in default under any (i) Lease, instrument, agreement, license, or
permit set forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other
agreement to which it is a party or by which its properties are bound
(collectively, the "Documents"); and, except as set forth in Schedule 6.21,
(i) the rights and benefits of Company under the Documents will not be adversely
affected by the transactions contemplated hereby and (ii) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any violation or
breach or constitute a default under, any of the terms or provisions of the
Documents or the Charter Documents. Except as set forth on Schedule 6.21, none
of the Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the
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transactions contemplated hereby in order to remain in full force and effect in
all respects, and consummation of the transactions contemplated hereby will not
give rise to any right to termination, cancellation or acceleration or loss of
any right or benefit. Except as set forth on Schedule 6.21, to the knowledge of
Company none of the Documents prohibits the use or publication by Company,
Parent or Newco of the name of any other party to such Document, and none of the
Documents prohibits or restricts Company from freely providing services to any
other customer or potential customer of Company, Parent, Newco or any other
Founding Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of
Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital
stock of Company;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Company to any of its
officers, directors, stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
excluding the distribution of (i) a 1999 Z71 truck and a 1999
Denali (and all related lease or note obligations), (ii) notes
payable to the Stockholders in the aggregate principal amount of
$26,977, and (iii) certificates of deposit and all cash held in
certain savings accounts not to exceed $72,500;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character,
adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
assets, property or rights of Company to any person, including,
without limitation, Stockholders and their Affiliates outside the
ordinary course of business of Company;
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(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation
any indebtedness or obligation of any Stockholders or any
Affiliate thereof outside the ordinary course of business of
Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets,
property or rights of Company or requiring consent of any party
to the transfer and assignment of any such assets, property or
rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of
the ordinary course of Company's business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract, agreement,
license, permit or other right to which Company is a party;
(xiii) any transaction by Company outside the ordinary course of its
business;
(xiv) any cancellation or termination of a contract with a customer or
client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company outside
the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $5,000 per year for
each year in which any
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Stockholder has been a stockholder of Company, Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause Company to be in violation of the Foreign Corrupt Practices Act of
1977, as amended, or any law of similar effect. If political contributions made
by Company have exceeded $5,000 per year for each year in which any Stockholder
has been a stockholder of Company, each contribution shall be described on
Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be rendered untrue in any respect by, any other document to which Company
is a party, or to which its properties are subject, or by any other fact or
circumstance regarding Company (which fact or circumstance was, or should
reasonably, after due inquiry, have been known to Company) that is not disclosed
pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26,
Company has not, between the Balance Sheet Date and the date of this Agreement,
taken any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth below
are true as of the date of this Agreement and, subject to Section 9.7, shall be
true at the Closing Date, (ii) that all of the covenants and agreements in this
Section 7 shall be complied with or performed at and as of the Closing Date and
(iii) that by executing this Agreement each Stockholder shall be deemed to have
approved the terms of the Merger as required by the OGCA.
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or
Parent Stock that such Stockholder has or may have had, other than rights of any
Stockholder to acquire Parent Stock pursuant to (i) this Agreement or (ii) any
option granted by Parent.
7.3 ELECTION TO PUT STOCK. Stockholders may elect to sell all of their
Parent Stock to Parent, and Parent shall purchase all of the Parent Stock, at
the Private Placement offering price if Parent has not completed the IPO on or
before the later of (i) the 12-month anniversary of the
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Closing Date, or (ii) if Parent is in registration for its IPO on the 12-month
anniversary of the Closing Date, the cancellation of Parent's registration
efforts (the "Put Date"). Stockholders must provide written notice of their
intent to sell their Parent Stock to Parent within 30 days after the Put Date.
Any sales of Parent Stock by Stockholders to Parent will be subject to the
corporate laws of the State of Oklahoma with regard to the ability of Parent to
repurchase its own stock. The purchase price for the sale of any Parent Stock
to Parent by the Stockholders shall be paid within 60 days after the Put Date.
7.4 ELECTION TO CALL STOCK. Parent may elect to purchase all of the
Stockholders' Parent Stock, and Stockholders shall sell all of their Parent
Stock to Parent, at the greater of (i) the Private Placement offering price or
(ii) the Parent Stock's then fair market value, if Parent has not completed the
IPO on or before the Put Date. Parent must provide written notice of its intent
to purchase the Stockholders' Parent Stock within 30 days after the Put Date.
Any purchase of Parent Stock by Parent will be subject to the corporate laws of
the State of Oklahoma with regard to the ability of Parent to repurchase its own
stock. The purchase price for the purchase of any Parent Stock by Parent shall
be paid within 60 days after determination of the Parent Stock fair market
value.
For purposes of this Section, the "fair market value" of the Parent Stock
shall be determined by a consultant that is: (i) willing and able to complete
such valuation within sixty (60) days after being retained to make such
valuation (or such other period as the parties participating in the purchase and
sale shall mutually agree upon), and (ii) otherwise reasonably satisfactory to
each party participating in the purchase and sale. If each such party shall not
have agreed upon a consultant within thirty (30) days after the Put Date,
Parent's accountants or auditors shall select a consultant for such purpose.
The determination of the fair market value of the Parent Stock shall be final
and binding upon all parties to the purchase and sale. The fees of the
consultant shall be paid by the Corporation.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
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8.2 AUTHORIZATION. Parent and Newco each has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Newco and
their consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Parent and Newco. This
Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco is
as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are owned of record and beneficially by the persons set forth on Schedule
2.4(ii) and Parent, respectively, and (iv) were offered, issued, sold and
delivered by Parent and Newco in compliance with all applicable state and
Federal laws concerning the offer, issuance, sale and delivery of securities.
Further, none of such shares was issued in violation of the preemptive rights of
any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no
Subsidiaries except for Newco and each of the other companies identified on
Schedule 8.5. Except as set forth in the preceding sentence, neither Parent nor
Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in a Person nor is Parent or Newco, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement or agreements similar to this Agreement with the Founding Companies
and except for fees incurred in connection with the transactions contemplated
hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco,
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at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them and no notice of any claim, action, suit
or proceeding, whether pending or threatened, has been received. Parent and
Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in September
1998. Neither Parent nor Newco has conducted any business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with the Founding Companies. Except as disclosed on Schedule
8.10, neither Parent nor Newco owns or has at any time owned any real property
or any personal property or is a party to any other agreement.
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9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date, Company
will afford to the officers and authorized representatives of
Parent access to all of Company's sites, properties, books and
records and will furnish Parent with such additional financial
and operating data and other information as to the business and
properties of Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its representatives,
auditors and counsel in the preparation of any documents or other
material that may be required in connection with any documents or
materials required by this Agreement. Parent and Newco will
treat all information obtained in connection with the negotiation
and performance of this Agreement as confidential in accordance
with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing, Parent will
afford to the officers and authorized representatives of Company
and Stockholders access to all of the sites, properties, books
and records of Parent, Newco and the other companies listed on
Schedule 9.1(ii) ("Founding Companies") and will furnish Company
and Stockholders with such additional financial and operating
data and other information as to the business and properties of
Parent, Newco and the Founding Companies as Company and
Stockholders may from time to time reasonably request. Parent
and Newco will cooperate with Company and Stockholders'
representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection
with any documents or materials required by this Agreement.
Company and Stockholders 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets,
properties or rights;
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(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key
employees and maintain its respective relationships with
suppliers, customers and others having business relations with
it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt instruments and Leases and not enter into
new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels for all
officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance
with past practices; excluding the distribution of (i) a 1999 Z71
truck and a 1999 Denali (and all related lease or note
obligations), (ii) notes payable to the Stockholders in the
aggregate principal amount of $26,977, and (iii) certificates of
deposit and all cash held in certain savings accounts not to
exceed $72,500.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than
in connection with the exercise of options or warrants listed in
Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any
shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is
in the normal course of business (consistent with past practice),
in connection with the transactions contemplated by this
Agreement, or involves an amount not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with
respect to
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purchase money Liens incurred in connection with the acquisition
of equipment with an aggregate cost not in excess of $5,000 as
necessary or desirable for the conduct of its business, (y)
(1) Liens for Taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested
Taxes adequate reserves have been established and are being
maintained) or (2) materialmen's, mechanic's, worker's,
repairmen's, employee's or other like Liens arising in the
ordinary course of business, or (3) Liens set forth on Schedule
6.8 or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included
in Schedule 6.9 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
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9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company shall
give prompt notice to Parent of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Company or Stockholders contained herein to be
untrue or inaccurate in any respect at or prior to the Closing Date and (ii) any
failure of any Stockholder or Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such Person hereunder
as of such date. Parent and Newco shall give prompt notice to the Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would likely cause any representation or warranty of
Parent or Newco contained herein to be untrue or inaccurate in any respect at or
prior to the Closing Date and (ii) any failure of Parent or Newco to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder as of such date. The delivery of any notice pursuant to this
Section 9.6 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 9.7, (ii) modify the conditions set forth in Sections
10 and 11, or (iii) limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 11:59 p.m. March 31, 1999
to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have a Adverse Effect may be made unless the
parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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
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reasonably necessary or convenient to carry out the transactions contemplated by
this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with or
performed by Parent and Newco on or before the Closing Date shall have been duly
complied with or performed; and a certificate to the foregoing effect dated the
Closing Date, and signed by the President or any Vice President of Parent and of
Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Company as a result of which the management
of Company deems it inadvisable to proceed with the transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of Parent
and of Newco, certifying the completeness and accuracy of the attached copies of
Parent's and Newco's respective Charter Documents (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholders of Parent and Newco approving
Parent's and Newco's entering into this Agreement and the consummation of the
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transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule 10.7
shall have been afforded an opportunity to enter into an employment agreement,
reasonably acceptable to both parties and substantially in the form of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholders and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholders and
Company each shall have delivered to Parent a certificate dated the Closing Date
and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Parent as a result of which the management
of Parent deems it inadvisable to proceed with the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), Bylaws (including amendments thereto),
and resolutions of the board of directors and Stockholders approving Company's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
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11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to Parent
an instrument dated the Closing Date releasing Company from (i) any and all
claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good standing and
authorized to do business and that all state franchise and/or income Tax returns
and Taxes for Company for all periods prior to the Closing have been filed and
paid.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Parent
a certificate to the effect that he or she is not a foreign person under Section
111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have received
at least $15,000,000 in gross proceeds from Parent's IPO or Private Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule 10.7
shall have executed an employment agreement, reasonably acceptable to both
parties and substantial form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent audited
Balance Sheets as of December 31, 1997 and 1998 and audited Statements of
Income, Retained Earnings and Cash Flows for each of the years in the two-year
period ended December 31, 1998.
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12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state and
local income Tax Returns of Company for all taxable periods that
end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate Returns of,
or that include, Company for all taxable periods ending after the
Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request
in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes
or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together
with relevant accompanying schedules and 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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing
Date, Parent shall not terminate any health insurance, life insurance or 401(k)
plan in effect at Company until such time as Parent is able to replace such plan
with a plan that is applicable to Parent and all of its then existing
Subsidiaries; provided that Parent shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans;
provided, further, that any new health insurance plan shall provide for coverage
for preexisting conditions. On the Closing Date, the employees of Company will
be the employees of the Surviving Corporation (provided that this provision is
for purposes of clarifying that the Merger, in and of itself, will not have any
impact on the employment status of any employee; and provided further that this
provision shall not in any way limit the management rights of the Surviving
Corporation or Parent to assess workforce needs and make appropriate adjustments
as necessary or desirable within its discretion subject to applicable laws and
collective bargaining agreements).
13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants that are
applicable to them, respectively:
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13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders covenant
and agree that they, severally and not jointly in the case of representations,
warranties, covenants and agreements set forth in Section 7, and jointly and
severally in all other cases, will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholders or Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it will
indemnify, defend, protect and hold harmless Stockholders at all times from and
after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 13.1 or 13.2
(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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After th Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
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any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for any additional costs of
defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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 upon consent of the Indemnifying Party, which consent will
not be unreasonably withheld, 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. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
Anything in this Agreement to the contrary notwithstanding, any amounts owing
from an Indemnifying Party to an Indemnified Party under the provisions of this
Section 13 shall be reduced to the extent to which the Indemnified Party, or any
other claimant, actually receives any proceeds of any insurance policy that are
paid with respect to the matter or occurrence that gave rise to the ThirdPerson
claim. Submission to insurance of any insurable claim otherwise giving rise to
indemnification under this Section 13 shall be a condition precedent to seeking
indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
13 shall be the exclusive remedy in any action seeking damages or any other form
of monetary relief brought by any party to this Agreement against another party;
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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
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(ii) by Company (acting through its board of directors), on the one
hand, or by Parent (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 May 31, 1999 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;
(iii) by Stockholders or Company, on the one hand, or by Parent, on the
other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely
performance of any of the material covenants, agreements or
conditions contained herein, and the curing of such default shall
not have been made on or before the Closing Date; or
(iv) by Company and Stockholders, on the one hand, or by Parent, on
the other hand, if either such party or parties declines to
consent to an amendment or supplement to a Schedule proposed by
the other party or parties pursuant to Section 9.7 because such
proposed amendment constitutes or reflects an event or occurrence
that would have a material Adverse Effect on the party or parties
proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of three years following the Closing Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other Person:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a
sales representative, in the sale or marketing of
telecommunication services or interconnect services within the
state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an employee of
Parent (including the Subsidiaries thereof) in a sales
representative or managerial
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capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of Parent (including the
Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date, a customer of Parent (including the
Subsidiaries thereof) for the purpose of soliciting or selling
products or services in direct competition with Parent (or its
Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Parent
(including the Subsidiaries thereof) in the long-distance
telephone or interconnect business, which candidate, to the
knowledge of such Stockholder after due inquiry, was called upon
by Parent (including the Subsidiaries thereof) or for which, to
the knowledge of such Stockholder after due inquiry, Parent (or
any Subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to
the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment after the date of this
Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
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15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15 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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set forth
in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) 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 (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of
this Section 16.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on each Stockholder's ability
to disseminate confidential information with respect to Company shall become
nugatory and (2) each Stockholder (including his representatives, advisors and
legal counsel) shall within ten business days of the Parent's request, deliver
all copies of the confidential information of Parent in his possession in any
form whatsoever (including, but not limited to, any
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reports, memoranda, or other material prepared by such Stockholder or his
representatives, advisors or legal counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge that
they had in the past and currently have and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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 (y), Parent and Newco shall,
if possible, give immediate prior written notice thereof to Company and
Stockholders and provide Company and Stockholders with the opportunity to
contest such disclosure, or (z) 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 Parent
or Newco of the provisions of this Section 16.2, Company and Stockholders shall
be entitled to an injunction (without the posting of bond or proof of actual
damages) restraining Parent and Newco from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Company and Stockholders 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, Parent and
Newco (including their representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Newco or their representatives, advisors or legal counsel
at the direction of Parent or Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 16.1 and 16.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 14.
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17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period of
one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholders pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER -, IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed 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 thereunder and the provisions
of applicable state securities laws and regulations. All the Restricted
Securities shall bear the following legend in addition to the legend required
under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
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APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS
SECURITY SHALL HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE
SHARES REPRESENTED BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT
THE PROPOSED DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY
BE REASONABLY SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date of
consummation of the IPO, whenever Parent proposes to register any Parent Stock
for its own or the account of others under the 1933 Act for a public offering,
other than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Parent and (ii) registrations relating
to employee benefit plans, Parent shall give each Stockholder prompt written
notice of its intent to do so. Upon the written request of any Stockholder given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Registerable Securities) which any
Stockholder requests; provided, however, if Parent is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 19.1
that the number of shares to be sold by Persons other than Parent is greater
than the number of such shares which can be offered without adversely affecting
the offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such Person)
to a number deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the
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IPO, the holders ("Founding Stockholders") of a majority of the shares of Parent
Stock (i) representing Registerable Securities owned by Stockholders or their
permitted transferees or (ii) acquired by other stockholders of Parent on or
prior to the closing of the IPO in connection with the acquisition of their
companies by Parent pursuant to an agreement, similar to this Agreement, which
shares have not been previously registered or sold and which shares are not
entitled to be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act, may request in writing that Parent file a
registration statement under the 1933 Act covering the registration of the
shares of Parent Stock issued to and held by the Founding Stockholders or their
permitted transferees (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Parent Stock) (a "Demand Registration"). Within ten days of the receipt of such
request, Parent shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from the Founding Stockholders requesting such registration,
file and use its best efforts to cause to become effective a registration
statement covering all such shares. Parent shall be obligated to effect only
one Demand Registration for all Founding Stockholders; provided, however, that
Parent shall not be deemed to have satisfied its obligation under this Section
19.2 unless and until a Demand Registration covering all shares of Parent Stock
requested to be registered has been filed and becomes effective under the 1933
Act and has remained current and effective for not less than 90 days (or such
shorter period as is required to complete the distribution and sale of all
shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 19.1 and 19.2, Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Parent Stock and use its best efforts to cause
such registration statement to become and remain effective;
provided that Parent may discontinue any registration of its
securities that is being effected pursuant to Section 19.1 at any
time prior to the effective date of the registration statement
relating
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thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a
period as may be requested by the stockholders holding a majority
of the Parent Stock covered thereby not exceeding 90 days and to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by the seller or sellers thereof set forth
in such registration statement; provided, that before filing a
registration statement or prospectus relating to the sale of
Parent Stock, or any amendments or supplements thereto, Parent
will furnish to counsel to each holder of Parent Stock covered by
such registration statement or prospectus, copies of all
documents proposed to be filed, which documents will be subject
to the review of such counsel, and Parent will give reasonable
consideration in good faith to any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of such
Parent Stock, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the requirements
of the 1933 Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or
other disposition of the Parent Stock.
(iv) Use its best efforts to register or qualify the Parent Stock
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition of the Parent Stock
owned by such seller, in such jurisdictions, except that Parent
shall not for any such purpose be required (x) to qualify to do
business as a foreign corporation in any jurisdiction where, but
for the requirements of this Section 19.3(iv), it is not then so
qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to
general or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by such
registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the
disposition of such Parent Stock.
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(vi) Immediately notify each seller of Parent Stock covered by such
registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 19.3(ii), if Parent
becomes aware that the prospectus included in such registration
statement, as then in effect, includes 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 in the light of the circumstances then existing, and,
at the request of any such seller, deliver a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Parents of such
Parent Stock, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to
its security holders, in each case as soon as practicable, but
not later than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Parent), an earnings
statement of Parent which will satisfy the provisions of Section
11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to list
such Parent Stock on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the
independent public accountants for Parent in customary form and
covering such matters of the type customarily covered by such
letters.
(x) Execute and deliver all instruments and documents (including in
an underwritten offering an underwriting agreement in customary
form) and take such other actions and obtain such certificates
and opinions as the stockholders holding a majority of the shares
of Parent Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten public
offering of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent Stock
covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other
agent retained by any such seller or any such underwriter, all
pertinent financial and other records, pertinent corporate
documents and properties of Parent, and cause all of Parent's
officers, directors and employees to supply all information
reasonably requested by
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any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form
and scope reasonably satisfactory to such underwriter or agent
and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each Stockholder holding shares of Parent Stock covered by a
registration statement referred to in this Section 19 will, upon
receipt of any notice from Parent of the happening of any event
of the kind described in Section 19.3(vi), forthwith discontinue
disposition of the Parent Stock pursuant to the registration
statement covering such Parent Stock until such holder's receipt
of the copies of the supplemented or amended prospectus
contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves an
underwritten offering, each of the Stockholders agrees, whether
or not his shares of Parent Stock are included in such
registration, not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the 1933 Act, of
any Parent Stock, or of any security convertible into or
exchangeable or exercisable for any Parent Stock (other than as
part of such underwritten offering), without the consent of the
managing underwriter, during a period commencing eight calendar
days before and ending 180 calendar days (or such lesser number
as the managing underwriter shall designate) after the effective
date of such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of Parent
under the 1933 Act pursuant to Section 19.1 or 19.2, Parent will,
and it hereby agrees to, indemnify and hold harmless, to the
extent permitted by law, each seller of any Parent Stock covered
by such registration statement, each Affiliate of such seller and
their respective directors, officers, employees and agents or
general and limited partners (and directors, officers, employees
and agents thereof) each other Person who participates as an
underwriter in the offering or sale of such securities and each
other Person, if any, who controls such seller or any such
underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (or any amendment
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or supplement thereto), including all documents incorporated
therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus or
prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein not misleading;
(y) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if
such settlement is effected with the written consent of Parent;
and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or mission to the extent that any such
expense is not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such seller or any such
director, officer, employee, agent, general or limited partner,
investment advisor or agent, underwriter or controlling Person and
shall survive the transfer of such securities by such seller.
(ii) Parent may require, as a condition to including any Parent Stock
in any registration statement filed in accordance with Section
19.1 or 19.2, that Parent shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such
Parent Stock or any underwriter, to indemnify and hold harmless
(in the same manner and to the same extent as set forth in
Section 19.5(i)) Parent with respect to any statement or alleged
statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or
summary prospectus or amendment or supplement. Such indemnity
shall remain in full force and effect regardless of any
investigation made by or on behalf of Parent or any
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such director, officer or controlling Person and shall survive
the transfer of such securities by such seller. In that event,
the obligations of the Parent and such sellers pursuant to this
Section 19.5 are to be several and not joint; provided, however,
that, with respect to each claim pursuant to this Section 19.5,
Parent shall be liable for the full amount of such claim, and
each such seller's liability under this Section 19.5 shall be
limited to an amount equal to the net proceeds (after deducting
the underwriting discount and expenses) received by such seller
from the sale of Parent Stock held by such seller pursuant to
this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding
involving a claim referred to in this Section 19.5, such
indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to such
indemnifying party of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of
its obligations under this Section 19.5, except to the extent
(not including any such notice of an underwriter) that the
indemnifying party is materially prejudiced by such failure to
give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim (in which
case the indemnifying party shall not be liable for the fees and
expenses of more than one firm of counsel selected by holders of
a majority of the shares of Parent Stock included in the offering
or more than one firm of counsel for the underwriters in
connection with any one action or separate but similar or related
actions), the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently
incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not
agree to any settlement without the prior consent of the
indemnified party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a moneary
payment for which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and complete
release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment of
the indemnifying party's counsel, representation of both the
indemnifying party
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and the indemnified party would be inappropriate under the
applicable standards of professional conduct due to actual or
potential differing interests between them. In the event that the
indemnifying party does not assume the defense of a claim
pursuant to this Section 19.5(iii), the indemnified party will
have the right to defend such claim by all appropriate
proceedings, and will have control of such defense and
proceedings, and the indemnified party shall have the right to
agree to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall, and shall cause
its legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with its
assuming the defense of any claim, including the furnishing of
the indemnifying party with all papers served in such proceeding.
In the event that an indemnifying party assumes the defense of an
action under this Section 19.5(iii), then such indemnifying party
shall, subject to the provisions of this Section 19.5, indemnify
and hold harmless the indemnified party from any and all losses,
claims, damages or liabilities by reason of such settlement or
judgment.
(iv) Parent and each seller of Parent Stock shall provide for the
foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration
or other qualification of securities under any federal or state
law or regulation of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the ParentStock. For purposes of this
Section 19.6, each Person, if any, who controls an underwriter
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within the meaning of Section 15 of the 1933 Act shall have the same rights
to contribution as such underwriter, and each director nad each officer of
Parent who signed the registration statement, and each Person, if any, who
controls Parent or a seller of Parent Stock within the meaning of Section 15
of the 1933 Act shall have the same rights to contribution as Parent or a
seller of Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144 TRANSACTIONS.
After Parent completes its initial underwritten public offering and for as long
thereafter as any Stockholder shall continue to hold any Restricted Securities,
Parent shall use reasonable efforts to file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law or as
permitted by Section 17), but if assigned by operation of law, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholders. Notwithstanding the foregoing, any Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholders, Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, 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 Stockholders and by Company, Newco and Parent, acting through their
respective officers or representatives, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby; provided that Company shall make a good faith effort to cross
reference disclosures, as necessary or advisable, between related Schedules.
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20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damage or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their addresses set
forth on Schedule 6.3, with copies to such counsel as is set
forth with respect to each Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
American Telcom, Inc.
4412 S.E. 29th, Suite 200
Oklahoma City, Oklahoma 73115
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Attn: Tony B. Alexander
Telecopy No.: (405) 672-3610
with a copy to:
Robert C. Thompson, Esq.
1100 North Shartel
Oklahoma City, Oklahoma 73103
Telecopy No.: (405) 236-1814
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance with
the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section 13.4,
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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from
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legal counsel that a public announcement or statement is required by applicable
law.
20.14 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 Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may be entitled to pursue such remedies for
emergency or preliminary injunctive relief in any court of competent
jurisdiction, provided that each party agrees that it will consent to the stay
of such judicial proceedings on the merits of both this Agreement and the
related transactions pending arbitration of all underlying claims between the
parties immediately following the issuance of any such emergency or injunctive
relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company Stock; PROVIDED HOWEVER,
that no election shall be made if, as a result of the election, the Stockholders
would incur any adverse tax or other consequences not otherwise reimbursed by
Parent or Newco to the Stockholders.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
----------------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
----------------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
AMERICAN TELCOM, INC.
BY: /s/ Tony B. Alexander
----------------------------------------------
NAME: Tony B. Alexander
TITLE: President
STOCKHOLDERS:
/s/ Tony B. Alexander
-------------------------------------------------
Tony B. Alexander
/s/ William R. Pearson
-------------------------------------------------
William R. Pearson
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ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION VI CORP.
INTO
AMERICAN TELCOM, INC.
American Telcom, Inc., an Oklahoma corporation, pursuant to Section 81 of
the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is American Telcom, Inc. and Alliance Acquisition VI
Corp.
SECOND. That an agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 81 of the Oklahoma General Corporation
Act.
THIRD. That the name of the surviving corporation is American Telcom, Inc.
FOURTH. That the certificate of incorporation of Alliance Acquisition VI
Corp. shall be the certificate of incorporation of the surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
SEVENTH. This merger shall be effective at - , Central Standard Time, on
the date this Certificate is filed with the Secretary of State of the State of
Oklahoma.
IN WITNESS WHEREOF, American Telcom, Inc. has caused this certificate to be
signed by its President and attested by its Secretary, this - day of - 1999.
AMERICAN TELCOM, INC.
----------------------------------
Tony B. Alexander, President
ATTEST:
- ----------------
William R. Pearson, Secretary
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 9th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION VII CORP.
(Newco)
and
BANNER COMMUNICATIONS, INC.
(Company)
and
CHARLES O'TOOLE
AND
PHILLIP RODGER WILLIAMS
(Stockholders of the Company)
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . . . 5
2.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . 5
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Certain Information With Respect to the Capital Stock of Company,
Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . 8
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 9
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Predecessor Status; etc.. . . . . . . . . . . . . . . . . . . . . . . . 9
6.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 9
6.9 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . 10
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.13 Significant Customers; Material Contracts and Commitments . . . . . . . 12
6.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters . . . . . . . . . . . . . . . . . 13
6.17 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.19 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 15
6.20 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.21 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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6.22 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.23 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . 19
6.24 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 19
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Election to Put Stock . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.5 Election to Call Stock. . . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 21
8.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 22
8.8 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Parent Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Business; Real Property; Agreements . . . . . . . . . . . . . . . . . . 23
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Access and Cooperation; Due Diligence; Audits . . . . . . . . . . . . . 23
9.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . 23
9.3 Prohibited Activities by the Company. . . . . . . . . . . . . . . . . . 24
9.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . 26
9.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . 26
9.8 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . . . . . 27
10.1 Representations and Warranties; Performance of Obligations. . . . . . . 27
10.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 27
10.5 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 28
10.6 Secretary's Certificates. . . . . . . . . . . . . . . . . . . . . . . . 28
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10.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Closing of the IPO or the Private Placement . . . . . . . . . . . . . . 28
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . . . . 28
11.1 Representations and Warranties; Performance of Obligations. . . . . . . 28
11.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . 28
11.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 29
11.5 Stockholders' Release . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 Termination of Related Party Agreements . . . . . . . . . . . . . . . . 29
11.7 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 29
11.8 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 29
11.9 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.10 Closing of the IPO or Private Placement . . . . . . . . . . . . . . . . 29
11.11 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 29
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS . . . . . . . . . . . . . . . 30
12.1 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . 30
12.2 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . . . 30
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 General Indemnification by the Stockholders . . . . . . . . . . . . . . 30
13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . . . 31
13.3 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . 32
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . . . 33
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.1 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.4 Severability, Reformation . . . . . . . . . . . . . . . . . . . . . . . 34
15.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.6 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 35
16.1 Company and Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 35
16.2 Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-iii-
<PAGE>
16.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.1 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.2 Economic Risk, Sophistication . . . . . . . . . . . . . . . . . . . . . 38
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.1 PiggyBack Registration Rights . . . . . . . . . . . . . . . . . . . . . 38
19.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . 38
19.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 39
19.4 Other Registration Matters. . . . . . . . . . . . . . . . . . . . . . . 41
19.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.6 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.8 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . 48
20.9 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.10 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . 48
20.11 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.13 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.14 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 48
20.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.16 338 Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 9th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION VII CORP., an Oklahoma corporation
("Newco"), BANNER COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"),
and CHARLES O'TOOLE AND PHILLIP RODGER WILLIAMS, the only stockholders of the
Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Oklahoma, having been incorporated on March 9, 1999,
solely for the purpose of completing the transaction set forth herein, and
Newco is a wholly-owned subsidiary of Parent, a corporation organized and
existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368(a)(1)(A) of the Code; and
WHEREAS, Stockholders are the owners of 500 shares of Common Stock,
$1.00 par value, of Company ("Company Stock"), representing all the issued
and outstanding capital stock of Company outstanding on the date of this
Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into aggregate consideration of $1,500,000,
comprised of $1,275,000 in cash and - shares of Common Stock $.01 par value
of Parent ("Parent Stock") (which amount shall be equal to $225,000); and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
<PAGE>
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
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<PAGE>
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
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<PAGE>
"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.
"OGCA" means the Oklahoma General Corporation Act.
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization,
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<PAGE>
whether incorporated or unincorporated, of which (i) such Person or any other
Subsidiary of such Person is a general partner (excluding partnerships, the
general partnership interests of which held by such Person or any Subsidiary of
such Person do not have a majority of the voting interest in such partnership)
or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person, by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed
as provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of
the Surviving Corporation until they shall thereafter be
further amended;
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall
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<PAGE>
be the only member of the Board of Directors of the
Surviving Corporation after the Effective Time until his
successor shall have been elected and qualified; and
(iv) David W. Aduddell, Chief Executive Officer; Phillip Rodger
Williams, President; Joe Evans, Chief Financial Officer and
Secretary; and Jeff Hartwig, Vice President of Operations of
Newco immediately prior to the Effective Time shall continue
as the officers of the Surviving Corporation after the
Effective Time in the same capacity or capacities, until
their successors are duly elected and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of
Company is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of
Parent is as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000
shares of common stock, par value $.01, of which 1,000
shares are issued and outstanding and entitled to one vote
per share on all matters submitted to stockholders.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding
immediately prior to the Effective Time, by virtue of the
Merger and without any action on the
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<PAGE>
part of the holders thereof, automatically shall be deemed
to represent the right to receive, in aggregate, (i) -
shares of Parent Stock (which shall be an amount equal to
$225,000) and (ii) $1,275,000 in cash, all as more
particularly set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as
treasury stock shall be canceled and retired and no Parent
Stock, cash or other consideration shall be delivered or
paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof,
automatically shall be deemed to represent the right to
receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
- ------------------- ---------------- ---------------- ----
<S> <C> <C> <C>
Charles O'Toole 350 0 $1,050,000
Phillip Rodger Williams 150 [an amount equal $ 225,000
to $225,000]
---------------- ---------------- ----------
500 [an amount equal $1,275,000
to $225,000]
---------------- ---------------- ----------
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the Closing
all certificates representing any and all shares of Company Stock, duly endorsed
in blank by Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholders'
expense, affixed and canceled.
-7-
<PAGE>
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii) below
(the "Closing"), the parties to this Agreement shall take all actions necessary
to prepare to (i) effect the Merger (including the filing with the appropriate
state authorities of the Certificate of Merger which shall become effective at
the Effective Time) and (ii) effect the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4; provided, that
such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. On the Closing Date (x) the
Certificate of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 10:00 a.m. Central Standard
Time on the Closing Date, become effective and the Merger shall thereby be
effected and (y) all transactions contemplated by this Agreement, including the
conversion of the shares and delivery of the Parent Stock which the Stockholders
shall be entitled to receive pursuant to the Merger shall occur and be deemed to
be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, jointly and severally represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date. For purposes of this Section
6, the term "Company" shall mean and refer to Company and all of its
Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have an adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise), of
Company taken as a whole (as used herein with respect to Company, or with
respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets forth the
jurisdiction in which Company is incorporated and contains a list of all such
jurisdictions in which Company is authorized or qualified to do business. True,
complete and correct copies of the Charter Documents and Bylaws, each as
amended, of Company are all attached hereto as Schedule 6.1. The stock records
of Company, as heretofore made available to Parent, are correct and complete.
To the knowledge of Company and Stockholders, there are no minutes in the
possession of Company or Stockholders which have not been made available to
Parent, and all of such minutes are correct and complete.
-8-
<PAGE>
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the stockholders of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholders in
the amounts set forth in Section 4.1 and further, except as set forth on
Schedule 6.3, are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and validly
issued and (ii) are fully paid and nonassessable. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1995. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company has
no Subsidiaries, (ii) 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, and (iii) Company
is not directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are copies of
the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
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<PAGE>
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.7). Except as set forth on
Schedule 6.7, the Balance Sheets referred to in this Section 6.7 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.7 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte & Touche LLP.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a list
(which is set forth on Schedule 6.8) as of the Balance Sheet Date of (i) all
liabilities of Company of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, that are not reflected
on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance Sheet Date
Company has not incurred any liabilities 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. Company has also
disclosed to Parent on Schedule 6.8, in the case of those contingent liabilities
related to pending or threatened litigation or other liabilities which are not
fixed or otherwise accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholders. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories, and such list and such aging report (the "A/R Aging
Report") as of the most practicable date. Except to the extent reflected on
Schedule 6.9 or as disclosed by Company to Parent in a writing accompanying the
A/R Aging Report, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 6.9, and shall be collectible in the
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<PAGE>
amounts shown on the A/R Aging Report, net of reserves reflected in the December
Balance Sheet and as of the date of the A/R Aging Report, respectively.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have an Adverse Effect on its business, and Company has delivered to Parent an
accurate list and summary description (which is set forth on Schedule 6.10) of
all such licenses, franchises, permits and other governmental authorizations,
including titles, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by Company (including interests in
software or other technology systems, programs and intellectual property) (it
being understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 6.11). To the knowledge of
Company, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 6.10 and 6.11 are valid in all respects, and 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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) to the knowledge of Company, no
on-site or off-site location to which Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against
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Company, Parent or Newco for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury, including, but not limited to,
any claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) Company has no contingent liability
in connection with any release of any Hazardous Waste or Hazardous Substance
into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.12) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Company
has delivered to Parent an accurate list (which is set forth on Schedule 6.13)
of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
Company has listed on Schedule 6.13 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as of the
Balance Sheet Date and (y) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
Parent. Company has complied with all commitments and obligations pertaining to
it, and is not in default under any contract or agreement listed on Schedule
6.13 and no notice of default under any such contract or agreement has been
received. Company has also indicated on Schedule 6.13 a summary description of
all plans or projects involving the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $5,000 by
Company.
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6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by
Company in the conduct of its business. Company has good and insurable title to
the real property owned by it, including those reflected on Schedule 6.14,
subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing specified
liabilities (with respect to which no default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do
not adversely affect in any respect the current use of the
property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to
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salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan
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listed on Schedule 6.17 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of Company as of the Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on Schedule
6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such determination
letters are included as part of Schedule 6.17. Except as disclosed on Schedule
6.17, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or Returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 6.17. Neither
Stockholders, any such plan listed in Schedule 6.17, nor Company has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No employee benefit plan listed on Schedule 6.17 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and Company has not incurred (i) any liability
for excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation (other than for premium
payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify under
Section 401(a) of the Code without notice to and approval by the
Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans
listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of ERISA;
and
(z) except as set forth in Schedule 6.17, no circumstances exist
pursuant to which Company could reasonably be expected to have
any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the
Pension Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory Lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained
or contributed to by any entity other than Company that is, or at
any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes Company
("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in
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payments to "disqualified individuals" (as defined in Section 280G(c) of the
Code) of Company or any member of the Controlled Group which, individually or in
the aggregate will constitute "excess parachute payments" (as defined in
Section 280G(b) of the Code) resulting in the imposition of the excise tax under
Section 4999 of the Code or the disallowance of deductions under Section 280G of
the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.19 or 6.11, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have an Adverse Effect; and except to the
extent set forth on Schedule 6.8 or 6.11, there are no claims, actions, suits or
proceedings, commenced or, to the knowledge of Company, threatened, against or
affecting Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Company and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Company or any Stockholder. Company has conducted and is conducting its business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have an Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter S of the Code,
and Company has filed all Tax Returns that it was required
to file. All such Tax Returns filed by Company were correct
and complete in all respects. All Taxes owed by Company
(whether or not shown on any Tax Return) have been paid or
reserved for on its books. Except as set forth on Schedule
6.20, Company is not currently the beneficiary of any
extension of time within which to file any Tax Return.
Since January 1, 1995, no claim with respect to Company has
been made by an authority in a jurisdiction where Company
does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There is no Lien affecting
any of Company's assets that arose in connection with any
failure or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
shareholder or other party.
(iii) Except as set forth in Schedule 6.8, Company does not expect
any authority to assess any amount of additional Taxes for
any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax liability of Company
either claimed or raised by any authority in writing or
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as to which Company has knowledge based upon direct inquiry
by any agent of such authority. Schedule 6.20(iii) lists
all Tax Returns relating to income Tax of Company for
taxable periods ended on or after January 1, 1994, indicates
those Returns of which Company is aware that have been
audited and indicates those Returns that currently are the
subject of audit. Company has provided Parent access to
correct and complete copies of all Tax Returns, examination
reports and statements of deficiencies assessed against or
agreed to by Company for any taxable period ended on or
after January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not
waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. Company has not
made any payments, is not obligated to make any payments and
is not a party to any agreement that under certain
circumstances could obligate it to make any payments that
will not be fully deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any
taxing authority that would, individually or in the
aggregate, apply to the Surviving Corporation after the
Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in default under any (i) Lease, instrument, agreement, license, or permit set
forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other agreement to
which it is a party or by which its properties are bound (collectively, the
"Documents"); and, except as set forth in Schedule 6.21, (i) the rights and
benefits of Company under the Documents will not be adversely affected by the
transactions contemplated hereby and (ii) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach or
constitute a default under, any of the terms or provisions of the Documents or
the Charter Documents. Except as set forth on Schedule 6.21, none of the
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect in all respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or publication by Company, Parent or Newco of
the name of any other party to such Document, and none of the Documents
prohibits or restricts Company from freely providing services to any other
customer or potential customer of Company, Parent, Newco or any other Founding
Company.
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6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of
Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the
capital stock of Company; except (a) cash distributions to
Stockholders not to exceed their individual tax liability
resulting from the operations of Company, and (b)
distribution of a 1995 Suburban and a Silverado pick-up
truck (along with any leases or note obligations) to Charles
O'Toole;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by Company
to any of its officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance
with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of any
character, adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any assets, property or rights of Company to any person,
including, without limitation, Stockholders and their
Affiliates outside the ordinary course of business of
Company;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to Company, including without
limitation any indebtedness or obligation of any
Stockholders or any Affiliate thereof outside the ordinary
course of business of Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the
assets, property or rights of Company or requiring consent
of any party to the transfer and assignment of
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any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or
asset outside of the ordinary course of Company's business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company
is a party;
(xiii) any transaction by Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination date;
or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect.
If political contributions made by Company have exceeded $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together
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with all other documents and information made available to Parent and its
representatives in writing pursuant hereto, present fairly the business and
operations of Company for the time periods with respect to which such
information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be rendered untrue in any respect by, any other document to which Company
is a party, or to which its properties are subject, or by any other fact or
circumstance regarding Company (which fact or circumstance was, or should
reasonably, after due inquiry, have been known to Company) that is not disclosed
pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26, Company
has not, between the Balance Sheet Date and the date of this Agreement, taken
any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth below
are true as of the date of this Agreement and, subject to Section 9.7, shall be
true at the Closing Date, (ii) that all of the covenants and agreements in this
Section 7 shall be complied with or performed at and as of the Closing Date and
(iii) that by executing this Agreement each Stockholder shall be deemed to have
approved the terms of the Merger as required by the OGCA.
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such Stockholder has or may have had, other than rights of any Stockholder
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any option
granted by Parent.
7.3 OTHER DISTRIBUTIONS. Charles O'Toole shall receive the 1995 Suburban
automobile and the Silverado pick-up truck prior to the Merger and Charles
O'Toole will assume all lease, insurance or other obligations related to these
vehicles.
7.4 ELECTION TO PUT STOCK. Stockholders may elect to sell all of their
Parent Stock to Parent, and Parent shall purchase all of the Parent Stock, at
the Private Placement offering price if Parent has not completed the IPO on or
before the later of (i) the 12-month anniversary of the Closing Date, or (ii) if
Parent is in registration for its IPO on the 12-month anniversary of the Closing
Date, the cancellation of Parent's registration efforts (the "Put Date").
Stockholders must provide written notice of their intent to sell their Parent
Stock to Parent within 30 days after the Put Date. Any sales of Parent Stock by
Stockholders to Parent will be subject to the corporate laws of the State of
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Oklahoma with regard to the ability of Parent to repurchase its own stock. The
purchase price for the sale of any Parent Stock to Parent by the Stockholders
shall be paid within 60 days after the Put Date.
7.5 ELECTION TO CALL STOCK. Parent may elect to purchase all of the
Stockholders' Parent Stock, and Stockholders shall sell all of their Parent
Stock to Parent, at the greater of (i) the Private Placement offering price or
(ii) the Parent Stock's then fair market value, if Parent has not completed the
IPO on or before the Put Date. Parent must provide written notice of its intent
to purchase the Stockholders' Parent Stock within 30 days after the Put Date.
Any purchase of Parent Stock by Parent will be subject to the corporate laws of
the State of Oklahoma with regard to the ability of Parent to repurchase its own
stock. The purchase price for the purchase of any Parent Stock by Parent shall
be paid within 60 days after determination of the Parent Stock fair market
value.
For purposes of this Section, the "fair market value" of the Parent Stock
shall be determined by a consultant that is: (i) willing and able to complete
such valuation within sixty (60) days after being retained to make such
valuation (or such other period as the parties participating in the purchase and
sale shall mutually agree upon), and (ii) otherwise reasonably satisfactory to
each party participating in the purchase and sale. If each such party shall not
have agreed upon a consultant within thirty (30) days after the Put Date,
Parent's accountants or auditors shall select a consultant for such purpose.
The determination of the fair market value of the Parent Stock shall be final
and binding upon all parties to the purchase and sale. The fees of the
consultant shall be paid by the Corporation.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Newco and
their consummation of the transactions
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contemplated hereby have been duly authorized by all necessary corporate action
of Parent and Newco. This Agreement has been duly executed and delivered by
Parent and Newco and is a valid and binding obligation of Parent and Newco,
enforceable against each of them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco is
as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are owned of record and beneficially by the persons set forth on Schedule
2.4(ii) and Parent, respectively, and (iv) were offered, issued, sold and
delivered by Parent and Newco in compliance with all applicable state and
Federal laws concerning the offer, issuance, sale and delivery of securities.
Further, none of such shares was issued in violation of the preemptive rights of
any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no Subsidiaries
except for Newco and each of the other companies identified on Schedule 8.5.
Except as set forth in the preceding sentence, neither Parent nor Newco
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in a Person nor is Parent or Newco, directly or indirectly, a
participant in any joint venture, partnership or other non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement or agreements similar to this Agreement with the Founding Companies
and except for fees incurred in connection with the transactions contemplated
hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Newco have no operations.
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8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in September
1998. Neither Parent nor Newco has conducted any business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with the Founding Companies. Except as disclosed on Schedule
8.10, neither Parent nor Newco owns or has at any time owned any real property
or any personal property or is a party to any other agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's sites,
properties, books and records and will furnish Parent with
such additional financial and operating data and other
information as to the business and properties of Company as
Parent may from time to time reasonably request. Company
will cooperate with Parent, its representatives, auditors
and counsel in the preparation of any documents or other
material that may be required in connection with any
documents or materials required by this Agreement. Parent
and Newco will treat all information obtained in connection
with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section
16.
(ii) Between the date of this Agreement and the Closing, Parent
will afford to the officers and authorized representatives
of Company and Stockholders
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access to all of the sites, properties, books and records of
Parent, Newco and the other companies listed on Schedule
9.1(ii) ("Founding Companies") and will furnish Company and
Stockholders with such additional financial and operating
data and other information as to the business and properties
of Parent, Newco and the Founding Companies as Company and
Stockholders may from time to time reasonably request.
Parent and Newco will cooperate with Company and
Stockholders' representatives, auditors and counsel in the
preparation of any documents or other material which may be
required in connection with any documents or materials
required by this Agreement. Company and Stockholders 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
16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present
key employees and maintain its respective relationships with
suppliers, customers and others having business relations
with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt instruments and Leases and not enter
into new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for
ordinary and customary bonus
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and salary increases for employees in accordance with past
practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind
other than in connection with the exercise of options or
warrants listed in Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock; except (a)
cash distributions to Stockholders not to exceed their
individual tax liability resulting from the operations of
Company, and (b) distribution of a 1995 Suburban and a
Silverado pick-up truck (along with any leases or note
obligations) to Charles O'Toole;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with
past practice), in connection with the transactions
contemplated by this Agreement, or involves an amount not in
excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x)
with respect to purchase money Liens incurred in connection
with the acquisition of equipment with an aggregate cost not
in excess of $5,000 as necessary or desirable for the
conduct of its business, (y) (1) Liens for Taxes either not
yet due or being contested in good faith and by appropriate
proceedings (and for which contested Taxes adequate reserves
have been established and are being maintained) or
(2) materialmen's, mechanic's, worker's, repairmen's,
employee's or other like Liens arising in the ordinary
course of business, or (3) Liens set forth on Schedule 6.8
or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
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(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 6.9 unless specifically
listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or
its authorized agents relating to any acquisition or
purchase of all or a material amount of the assets of, or
any equity interest in, Company, or merger, consolidation or
business combination of Company.
9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company or Stockholders contained herein to be untrue or inaccurate
in any respect at or prior to the Closing Date and (ii) any failure of any
Stockholder or Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such Person hereunder as of such
date. Parent and Newco shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would likely cause any representation or warranty of Parent or Newco
contained herein to be untrue or inaccurate in any respect at or prior to the
Closing Date and (ii) any failure of Parent or Newco to comply with or satisfy
any covenant,
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condition or agreement to be complied with or satisfied by it hereunder as of
such date. The delivery of any notice pursuant to this Section 9.6 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
9.7, (ii) modify the conditions set forth in Sections 10 and 11, or (iii) limit
or otherwise affect the remedies available hereunder to the party receiving such
notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 11:59 p.m. March 31, 1999
to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have a Adverse Effect may be made unless the
parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with or
performed by Parent and Newco on or before the Closing Date shall have been duly
complied with or performed; and a certificate to the foregoing effect dated the
Closing Date, and signed by the President or any Vice President of Parent and of
Newco shall have been delivered to Company.
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10.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Company as a result of which the management
of Company deems it inadvisable to proceed with the transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of Parent
and of Newco, certifying the completeness and accuracy of the attached copies of
Parent's and Newco's respective Charter Documents (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholders of Parent and Newco approving
Parent's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule 10.7
shall have entered into an employment or consulting agreementas applicable, in
the form of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this
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Agreement to be complied with or performed by Stockholders and Company on or
before the Closing Date shall have been duly complied with or performed; and
Stockholders and Company each shall have delivered to Parent a certificate dated
the Closing Date and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Parent as a result of which the management
of Parent deems it inadvisable to proceed with the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), Bylaws (including amendments thereto),
and resolutions of the board of directors and Stockholders approving Company's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to Parent
an instrument dated the Closing Date releasing Company from (i) any and all
claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business.
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11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Parent
a certificate to the effect that he or she is not a foreign person under Section
111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have received
at least $15,000,000 in gross proceeds from Parent's IPO or Private Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule 10.7
shall have executed an employment agreement or consulting agreement, as
applicable, in the form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent audited
Balance Sheets as of December 31, 1997 and 1998 and audited Statements of
Income, Retained Earnings and Cash Flows for each of the years in the two-year
period ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state
and local income Tax Returns of Company for all taxable
periods that end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate Returns
of, or that include, Company for all taxable periods ending
after the Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them
reasonably may request in filing any Return, amended Return
or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant
portions of relevant Returns, together with relevant
accompanying schedules and 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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at Company until such time as Parent is able to replace such plan with
a plan that is applicable to Parent and all of its then existing Subsidiaries;
provided that Parent shall have no obligation to provide replacement plans
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that have the same terms and provisions as the existing plans; provided,
further, that any new health insurance plan shall provide for coverage for
preexisting conditions. On the Closing Date, the employees of Company will be
the employees of the Surviving Corporation (provided that this provision is for
purposes of clarifying that the Merger, in and of itself, will not have any
impact on the employment status of any employee; and provided further that this
provision shall not in any way limit the management rights of the Surviving
Corporation or Parent to assess workforce needs and make appropriate adjustments
as necessary or desirable within its discretion subject to applicable laws and
collective bargaining agreements).
13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders covenant
and agree that they, severally and not jointly in the case of representations,
warranties, covenants and agreements set forth in Section 7, and jointly and
severally in all other cases, will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholders or Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it will
indemnify, defend, protect and hold harmless Stockholders at all times from and
after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 13.1 or 13.2
(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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party.
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If the Indemnifying Party undertakes to defend or settle, it shall promptly
notify the Indemnified Party of its intention to do so, and the Indemnified
Party shall cooperate with the Indemnifying Party and its counsel in the
defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with
any books, records or information reasonably requested by the Indemnifying
Party that are in the Indemnified Party's possession or control. All
Indemnified Parties shall use the same counsel, which shall be the counsel
selected by Indemnifying Party; provided that if counsel to the Indemnifying
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of
its own choosing and the Indemnifying Party shall be responsible for the
reasonable expenses of such counsel. After the Indemnifying Party has
notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable
for any additional legal expenses incurred by the Indemnified Party in
connection with any defense or settlement of such asserted liability, except
to the extent such participation is requested by the Indemnifying Party, in
which event the Indemnified Party shall be reimbursed by the Indemnifying
Party for reasonable additional legal expenses and out-of-pocket expenses.
If the Indemnifying Party desires to accept a final and complete settlement
of any such Third Person claim and the Indemnified Party refuses to consent
to such settlement, then the Indemnifying Party's liability under this
Section 13.3 with respect to such Third Person claim shall be limited to the
amount so offered in settlement by such Third Person. Upon agreement as to
such settlement between such Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to
in such settlement and the Indemnified Party shall, from that moment on, bear
full responsibility for any additional costs of defense which it subsequently
incurs with respect to such claim and all additional costs of settlement or
judgment. 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 upon
consent of the Indemnifying Party, which consent will not be unreasonably
withheld, 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. All settlements
hereunder shall effect a complete release of the Indemnified Party, unless
the Indemnified Party otherwise agrees in writing. Anything in this
Agreement to the contrary notwithstanding, any amounts owing from an
Indemnifying Party to an Indemnified Party under the provisions of this
Section 13 shall be reduced to the extent to which the Indemnified Party, or
any other claimant, actually receives any proceeds of any insurance policy
that are paid with respect to the matter or occurrence that gave rise to the
Third Person claim. Submission to insurance of any insurable claim otherwise
giving rise to indemnification under this Section 13 shall be a condition
precedent to seeking indemnification under this Section.
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13.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
13 shall be the exclusive remedy in any action seeking damages or any other form
of monetary relief brought by any party to this Agreement against another party;
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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by Company (acting through its board of directors), on the
one hand, or by Parent (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 May 31, 1999 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;
(iii) by Stockholders or Company, on the one hand, or by Parent,
on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and
timely performance of any of the material covenants,
agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the
Closing Date; or
(iv) by Company and Stockholders, on the one hand, or by Parent,
on the other hand, if either such party or parties declines
to consent to an amendment or supplement to a Schedule
proposed by the other party or parties pursuant to Section
9.7 because such proposed amendment constitutes or reflects
an event or occurrence that would have a material Adverse
Effect on the party or parties proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
9.7, 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.
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15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of three years following the Closing Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other Person:
(i) engage, as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in the sale or
marketing of telecommunication services or interconnect
services within the state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an employee
of Parent (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 Parent (including the Subsidiaries
thereof);
(iii) call upon any Person which is or which has been, within one
year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof) for the purpose of
soliciting or selling products or services in direct
competition with Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of
Parent (including the Subsidiaries thereof) in the
long-distance telephone or interconnect business, which
candidate, to the knowledge of such Stockholder after due
inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to the knowledge of such
Stockholder after due inquiry, Parent (or any Subsidiary
thereof) made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the
extent that the Company has in the past disclosed such
information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment after the date of this
Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a
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result of a breach of the foregoing covenants, and because of the immediate and
irreparable damage that could be caused to Parent for which it would have no
other adequate remedy, each Stockholder agrees that the foregoing covenants may
be enforced by Parent in the event of breach by such Stockholder, by injunction
and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15 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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set forth
in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such
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information becomes known to the public generally through no fault of
Stockholders, (y) 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 (y), Stockholders, if possible, shall give immediate
prior written notice thereof to Parent and provide Parent with the opportunity
to contest such disclosure, or (z) 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
Stockholder of the provisions of this Section 16.1, Parent shall be entitled to
an injunction (without the posting of bond or proof of actual damages)
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Parent 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, (1) the above mentioned
restrictions on each Stockholder's ability to disseminate confidential
information with respect to Company shall become nugatory and (2) each
Stockholder (including his representatives, advisors and legal counsel) shall
within ten business days of the Parent's request, deliver all copies of the
confidential information of Parent in his possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other material
prepared by such Stockholder or his representatives, advisors or legal counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge that
they had in the past and currently have and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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 (y), Parent and Newco shall,
if possible, give immediate prior written notice thereof to Company and
Stockholders and provide Company and Stockholders with the opportunity to
contest such disclosure, or (z) 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 Parent
or Newco of the provisions of this Section 16.2, Company and Stockholders shall
be entitled to an injunction (without the posting of bond or proof of actual
damages) restraining Parent and Newco from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Company and Stockholders 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, Parent and
Newco (including their representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Newco or their representatives, advisors or legal counsel
at the direction of Parent or
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Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 16.1 and 16.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period of
one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholders pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER - , IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
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18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed 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 thereunder and the provisions
of applicable state securities laws and regulations. All the Restricted
Securities shall bear the following legend in addition to the legend required
under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date of
consummation of the IPO, whenever Parent proposes to register any Parent Stock
for its own or the account of others under the 1933 Act for a public offering,
other than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Parent and (ii) registrations relating
to employee benefit plans, Parent shall give each Stockholder prompt written
notice of its intent to do so. Upon the written request of any Stockholder given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange
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for, or in replacement of such Registerable Securities) which any Stockholder
requests; provided, however, if Parent is advised in writing in good faith by
any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 19.1 that the
number of shares to be sold by Persons other than Parent is greater than the
number of such shares which can be offered without adversely affecting the
offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such Person)
to a number deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Stockholders or their permitted transferees or (ii) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing that
Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholders or their permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days of
the receipt of such request, Parent shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from the Founding Stockholders requesting
such registration, file and use its best efforts to cause to become effective a
registration statement covering all such shares. Parent shall be obligated to
effect only one Demand Registration for all Founding Stockholders; provided,
however, that Parent shall not be deemed to have satisfied its obligation under
this Section 19.2 unless and until a Demand Registration covering all shares of
Parent Stock requested to be registered has been filed and becomes effective
under the 1933 Act and has remained current and effective for not less than 90
days (or such shorter period as is required to complete the distribution and
sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations
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under this Section 19 (including all registration, filing, qualification, legal,
printing and accounting fees, but excluding underwriting commissions and
discounts), shall be borne by Parent. In connection with registrations under
Sections 19.1 and 19.2, Parent will, as expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Parent Stock and use its best efforts to
cause such registration statement to become and remain
effective; provided that Parent may discontinue any
registration of its securities that is being effected
pursuant to Section 19.1 at any time prior to the effective
date of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration
statement effective for a period as may be requested by the
stockholders holding a majority of the Parent Stock covered
thereby not exceeding 90 days and to comply with the
provisions of the 1933 Act with respect to the disposition
of all securities covered by such registration statement
during such period in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in
such registration statement; provided, that before filing a
registration statement or prospectus relating to the sale of
Parent Stock, or any amendments or supplements thereto,
Parent will furnish to counsel to each holder of Parent
Stock covered by such registration statement or prospectus,
copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel, and
Parent will give reasonable consideration in good faith to
any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of
such Parent Stock, such number of copies of a preliminary
prospectus and prospectus for delivery in conformity with
the requirements of the 1933 Act, and such other documents,
as such Person may reasonably request, in order to
facilitate the public sale or other disposition of the
Parent Stock.
(iv) Use its best efforts to register or qualify the Parent Stock
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other
acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the
disposition of the Parent Stock owned by such seller, in
such jurisdictions, except that Parent shall not for any
such purpose be required (x) to qualify to do business as a
foreign corporation in any jurisdiction where, but for the
requirements of this Section 19.3(iv), it is
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not then so qualified, or (y) to subject itself to taxation
in any such jurisdiction, or (z) to take any action which
would subject it to general or unlimited service of process
in any such jurisdiction where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by
such registration statement to be registered with or
approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered by
such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the 1933
Act within the appropriate period mentioned in Section
19.3(ii), if Parent becomes aware that the prospectus
included in such registration statement, as then in effect,
includes 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 in
the light of the circumstances then existing, and, at the
request of any such seller, deliver a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Parents of
such Parent Stock, each prospectus shall not include an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of
the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally
available to its security holders, in each case as soon as
practicable, but not later than 45 calendar days after the
close of the period covered thereby (90 calendar days in
case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy
the provisions of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Parent Stock on each securities exchange as they
may reasonably designate.
(ix) In the event the offering is an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from the
independent public accountants for Parent in customary form
and covering such matters of the type customarily covered by
such letters.
(x) Execute and deliver all instruments and documents (including
in an underwritten offering an underwriting agreement in
customary form) and take such other actions and obtain such
certificates and opinions as the stockholders holding a
majority of the shares of Parent Stock covered by the
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Registration Statement may reasonably request in order to
effect an underwritten public offering of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent
Stock covered by such registration statement, by any
underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant or other agent retained by any such seller or any
such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of Parent, and
cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion
or opinions from counsel for Parent in customary form and in
form and scope reasonably satisfactory to such underwriter
or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each Stockholder holding shares of Parent Stock covered by a
registration statement referred to in this Section 19 will,
upon receipt of any notice from Parent of the happening of
any event of the kind described in Section 19.3(vi),
forthwith discontinue disposition of the Parent Stock
pursuant to the registration statement covering such Parent
Stock until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section
19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves
an underwritten offering, each of the Stockholders agrees,
whether or not his shares of Parent Stock are included in
such registration, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under
the 1933 Act, of any Parent Stock, or of any security
convertible into or exchangeable or exercisable for any
Parent Stock (other than as part of such underwritten
offering), without the consent of the managing underwriter,
during a period commencing eight calendar days before and
ending 180 calendar days (or such lesser number as the
managing underwriter shall designate) after the effective
date of such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of Parent
under the 1933 Act pursuant to Section 19.1 or 19.2, Parent
will, and it hereby agrees to, indemnify and hold harmless,
to the extent permitted by law, each seller of any Parent
Stock covered by such registration statement, each Affiliate
of
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such seller and their respective directors, officers,
employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) each
other Person who participates as an underwriter in the
offering or sale of such securities and each other Person,
if any, who controls such seller or any such underwriter
within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an untrue
statement or alleged untrue statement of a material fact
contained in any registration statement (or any amendment or
supplement thereto), including all documents incorporated
therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading,
or arising out of an untrue statement or alleged untrue
statement of a material fact contained in any preliminary
prospectus or prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements
therein not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with
the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or mission to
the extent that any such expense is not paid under
subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such seller or any such
director, officer, employee, agent, general or limited partner,
investment advisor or agent, underwriter or controlling Person and
shall survive the transfer of such securities by such seller.
(ii) Parent may require, as a condition to including any Parent
Stock in any registration statement filed in accordance with
Section 19.1 or 19.2, that Parent shall have received an
undertaking reasonably satisfactory to it from the
prospective seller of such Parent Stock or any underwriter,
to indemnify and hold harmless (in the same manner and to
the same extent as set forth in
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Section 19.5(i)) Parent with respect to any statement or
alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or
supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and
in conformity with written information furnished to Parent
by or on behalf of such seller or underwriter specifically
stating that it is for use in the preparation of such
registration statement, preliminary, final or summary
prospectus or amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any
investigation made by or on behalf of Parent or any such
director, officer or controlling Person and shall survive
the transfer of such securities by such seller. In that
event, the obligations of the Parent and such sellers
pursuant to this Section 19.5 are to be several and not
joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for
the full amount of such claim, and each such seller's
liability under this Section 19.5 shall be limited to an
amount equal to the net proceeds (after deducting the
underwriting discount and expenses) received by such seller
from the sale of Parent Stock held by such seller pursuant
to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or
proceeding involving a claim referred to in this Section
19.5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the
commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its
obligations under this Section 19.5, except to the extent
(not including any such notice of an underwriter) that the
indemnifying party is materially prejudiced by such failure
to give notice. In case any such action is brought against
an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of
such claim (in which case the indemnifying party shall not
be liable for the fees and expenses of more than one firm of
counsel selected by holders of a majority of the shares of
Parent Stock included in the offering or more than one firm
of counsel for the underwriters in connection with any one
action or separate but similar or related actions), the
indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it
may wish with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnifying party in
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<PAGE>
connection with the defense thereof, provided that the
indemnifying party will not agree to any settlement without
the prior consent of the indemnified party (which consent
shall not be unreasonably withheld) unless such settlement
requires no more than a moneary payment for which the
indemnifying party agrees to indemnify the indemnified party
and includes a full, unconditional and complete release of
the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment
of the indemnifying party's counsel, representation of both
the indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests
between them. In the event that the indemnifying party does
not assume the defense of a claim pursuant to this Section
19.5(iii), the indemnified party will have the right to
defend such claim by all appropriate proceedings, and will
have control of such defense and proceedings, and the
indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying
party. Each indemnified party shall, and shall cause its
legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with
its assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers served
in such proceeding. In the event that an indemnifying party
assumes the defense of an action under this Section
19.5(iii), then such indemnifying party shall, subject to
the provisions of this Section 19.5, indemnify and hold
harmless the indemnified party from any and all losses,
claims, damages or liabilities by reason of such settlement
or judgment.
(iv) Parent and each seller of Parent Stock shall provide for the
foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required
registration or other qualification of securities under any
federal or state law or regulation of any governmental
authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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
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<PAGE>
under the circumstances. Parent and each Person selling securities agree with
each other that no seller of Parent Stock shall be required to contribute any
amount in excess of the amount such seller would have been required to pay to an
indemnified party if the indemnity under Section 19.5(ii) were available. Parent
and each such seller agree with each other and the underwriters of the Parent
Stock, if requested by such underwriters, that it would not be equitable if the
amount of such contribution were determined by pro rata or per capita allocation
(even if the underwriters were treated as one entity for such purpose) or for
the underwriters' portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the
Parent Stock. For purposes of this Section 19.6, each Person, if any, who
controls an underwriter within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as such underwriter, and each director and
each officer of Parent who signed the registration statement, and each Person,
if any, who controls Parent or a seller of Parent Stock within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as Parent
or a seller of Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144 TRANSACTIONS.
After Parent completes its initial underwritten public offering and for as long
thereafter as any Stockholder shall continue to hold any Restricted Securities,
Parent shall use reasonable efforts to file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law or as permitted by
Section 17), but if assigned by operation of law, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholders. Notwithstanding the foregoing, any Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholders, Company, Newco and Parent and
supersede any prior agreement and understanding
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relating to the subject matter of this Agreement. This Agreement, upon execution
and delivery, 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 Stockholders and by Company, Newco and Parent,
acting through their respective officers or representatives, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby; provided that Company shall make a good
faith effort to cross reference disclosures, as necessary or advisable, between
related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their addresses set
forth on Schedule 6.3, with copies to such counsel as is set
forth with respect to each
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<PAGE>
Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
Banner Communications, Inc.
5 West 22nd Street, Suite 360
Tulsa, Oklahoma 74114
Attn: Charles O'Toole
Telecopy No.: (918) 583-8450
with a copy to:
Doyle & Harris
2431 East 61st Street
Suite 260
Tulsa, Oklahoma
Attn: Stanley P. Doyle
Telecopy No.: (918) 748-8215
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance with
the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section 13.4,
no right, remedy or election given by any term of this Agreement shall be deemed
exclusive but each shall be cumulative with all other rights, remedies and
elections available at law or in equity.
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<PAGE>
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
20.14 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 Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may be entitled to pursue such remedies for
emergency or preliminary injunctive relief in any court of competent
jurisdiction, provided that each party agrees that it will consent to the stay
of such judicial proceedings on the merits of both this Agreement and the
related transactions pending arbitration of all underlying claims between the
parties immediately following the issuance of any such emergency or injunctive
relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company Stock; PROVIDED HOWEVER,
that no election shall be made if, as a result of the election, the Stockholders
would incur any adverse tax or other consequences not otherwise reimbursed by
Parent or Newco to the Stockholders.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
------------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
------------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
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BANNER COMMUNICATIONS, INC.
BY: /s/ Charles O'Toole
------------------------------------------
NAME: Charles O'Toole
TITLE: President
STOCKHOLDERS:
/s/ Charles O'Toole
---------------------------------------------
Charles O'Toole
/s/ Phillip Rodger Williams
---------------------------------------------
Phillip Rodger Williams
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<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION VII CORP.
INTO
BANNER COMMUNICATIONS, INC.
Banner Communications, Inc., an Oklahoma corporation, pursuant to Section
81 of the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is Banner Communications, Inc. and Alliance Acquisition
VII Corp.
SECOND. That an agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 81 of the Oklahoma General Corporation
Act.
THIRD. That the name of the surviving corporation is Banner
Communications, Inc.
FOURTH. That the certificate of incorporation of - shall be the
certificate of incorporation of the surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
SEVENTH. This merger shall be effective at -, Central Standard Time, on
the date this Certificate is filed with the Secretary of State of the State of
Oklahoma.
IN WITNESS WHEREOF, Banner Communications, Inc. has caused this certificate
to be signed by its President and attested by its Secretary, this - day of -
1999.
BANNER COMMUNICATIONS, INC.
------------------------------------------
President
ATTEST:
- ---------------------------
Secretary
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- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 9th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION IX CORP.
(Newco)
and
COMMUNICATION SERVICES, INC.
(Company)
and
STEVE WILLIAMS
(Stockholder of the Company)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Delivery and Filing of Articles of Merger. . . . . . . . . . . . . . . 5
2.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . 5
2.3 Certificate of Incorporation, Bylaws and Board of Directors
of the Surviving Corporation.. . . . . . . . . . . . . . . . . . . . . 5
2.4 Certain Information With Respect to the Capital Stock of Company,
Parent and Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Effect of Merger.. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Contribution of Building . . . . . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Capital Stock of the Company . . . . . . . . . . . . . . . . . . . . . 8
6.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . . . . . . 9
6.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . . . . . . 9
6.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . 9
6.9 Accounts and Notes Receivable. . . . . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles. . . . . . . . . . . . . . . . . . . . . . . . 10
6.11 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.13 Significant Customers; Material Contracts and Commitments. . . . . . . 12
6.14 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters. . . . . . . . . . . . . . . . . 13
6.17 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 14
6.19 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . 15
6.20 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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6.21 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.22 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.23 Deposit Accounts; Powers of Attorney . . . . . . . . . . . . . . . . . 19
6.24 Relations with Governments . . . . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . 19
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . . . . . . 21
8.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . . . 21
8.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . . . 21
8.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 Parent Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Business; Real Property; Agreements. . . . . . . . . . . . . . . . . . 22
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Access and Cooperation; Due Diligence; Audits. . . . . . . . . . . . . 22
9.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . . . 23
9.3 Prohibited Activities by the Company . . . . . . . . . . . . . . . . . 23
9.4 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . 25
9.7 Amendment of Schedules . . . . . . . . . . . . . . . . . . . . . . . . 25
9.8 Further Assurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND COMPANY. . . . . . . . 26
10.1 Representations and Warranties; Performance of Obligations . . . . . . 26
10.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . 26
10.4 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . 26
10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . 27
10.6 Secretary's Certificates . . . . . . . . . . . . . . . . . . . . . . . 27
10.7 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 27
10.8 Closing of the IPO or the Private Placement. . . . . . . . . . . . . . 27
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11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . . . . 27
11.1 Representations and Warranties; Performance of Obligations . . . . . . 27
11.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . 28
11.4 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . 28
11.5 Stockholder Release. . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.6 Termination of Related Party Agreements. . . . . . . . . . . . . . . . 28
11.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . 28
11.8 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . 28
11.9 FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.10 Closing of the IPO or Private Placement. . . . . . . . . . . . . . . . 28
11.11 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.12 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 29
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDER. . . . . . . . . . . . . . . . 29
12.1 Preparation and Filing of Tax Returns. . . . . . . . . . . . . . . . . 29
12.2 Preservation of Employee Benefit Plans . . . . . . . . . . . . . . . . 29
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 General Indemnification by the Stockholder . . . . . . . . . . . . . . 30
13.2 Indemnification by Parent. . . . . . . . . . . . . . . . . . . . . . . 30
13.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.5 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . 31
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . . . 32
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . . . 32
15.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.3 Reasonable Restraint . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.4 Severability, Reformation. . . . . . . . . . . . . . . . . . . . . . . 33
15.5 Independent Covenant . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 34
16.1 Company and Stockholder. . . . . . . . . . . . . . . . . . . . . . . . 34
16.2 Parent and Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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<PAGE>
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 36
18.1 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . . . . 36
18.2 Economic Risk, Sophistication. . . . . . . . . . . . . . . . . . . . . 37
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
19.1 PiggyBack Registration Rights. . . . . . . . . . . . . . . . . . . . . 37
19.2 Demand Registration Rights . . . . . . . . . . . . . . . . . . . . . . 37
19.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . 38
19.4 Other Registration Matters . . . . . . . . . . . . . . . . . . . . . . 41
19.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
19.6 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
19.7 Undertaking to File Reports and Cooperate in Rule 144 Transactions . . 45
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 45
20.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.5 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.8 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . . . 47
20.9 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.10 Reformation and Severability . . . . . . . . . . . . . . . . . . . . . 47
20.11 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.13 Public Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.14 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 47
20.15 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.16 338 Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 9th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION IX CORP., an Oklahoma corporation
("Newco"), COMMUNICATION SERVICES, INC., an Oklahoma corporation (the
"Company"), and STEVE WILLIAMS, the only stockholder of the Company (the
"Stockholder").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Oklahoma, having been incorporated on March 9,
1999, solely for the purpose of completing the transaction set forth
herein, and Newco is a wholly-owned subsidiary of Parent, a corporation
organized and existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368(a)(1)(A) of the Code; and
WHEREAS, Stockholder is the owner of 500 shares of Common Stock,
$1.00 par value, of Company ("Company Stock"), representing all the issued
and outstanding capital stock of Company outstanding on the date of this
Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into aggregate consideration of $475,000, comprised
of $200,000 in cash and shares of Common Stock [representing $275,000]
$.01 par value, of Parent ("Parent Stock"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
"Adverse Effect" has the meaning set forth in Section 6.1.
<PAGE>
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.11.
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<PAGE>
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"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.
"OGCA" means the Oklahoma General Corporation Act.
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<PAGE>
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholder" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar
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<PAGE>
functions with respect to such corporation or other organization is directly
or indirectly owned or controlled by such Person, by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed
as provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of
the Surviving Corporation until they shall thereafter be
further amended;
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of
the Surviving Corporation after the Effective Time until
his successor shall have been elected and qualified; and
(iv) David W. Aduddell, Chief Executive Officer; Steve Williams,
President; Joe
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<PAGE>
Evans, Chief Financial Officer and Secretary;
and Jeff Hartwig, Vice President of Operations of Newco
immediately prior to the Effective Time shall continue as
the officers of the Surviving Corporation after the
Effective Time in the same capacity or capacities, until
their successors are duly elected and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of
Company is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of
Parent is as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000
shares of common stock, par value $.01, of which 1,000
shares are issued and outstanding and entitled to one vote
per share on all matters submitted to stockholder.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of
the Merger and shall continue in existence under the laws of the State of
Oklahoma. The Merger will have the effects set forth in the OGCA. Without
limiting the generality of the foregoing, at the Effective Time, all the
properties, rights, privileges, powers and franchises of Company and Newco will
vest in the Surviving Corporation, and all debts, liabilities and duties of
Company and Newco shall become the debts, liabilities and duties of the
Surviving Corporation.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding
immediately prior to the Effective Time, by virtue of the
Merger and without any action on the part of the holders
thereof, automatically shall be deemed to represent the
right to receive, in aggregate, (i) - shares of Parent Stock
[representing $275,000] and (ii) $200,000 in cash, all as
more particularly set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as
treasury stock
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<PAGE>
shall be canceled and retired and no Parent Stock, cash or
other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof,
automatically shall be deemed to represent the right to
receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholder shall, upon
surrender of his certificates representing the shares of Company Stock set forth
below, receive the number of shares of Parent Stock and cash set forth opposite
his name below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
- ------------------- ---------------- ---------------- -----
<S> <C> <C> <C>
Steve Williams 500 [stock representing $200,000
$275,000]
</TABLE>
4.2 CERTIFICATES. Stockholder shall present to Parent at the
Closing all certificates representing any and all shares of Company Stock, duly
endorsed in blank by Stockholder, or accompanied by blank stock powers, and with
all necessary transfer tax and other revenue stamps, acquired at Stockholder
expense, affixed and canceled.
4.3 CONTRIBUTION OF BUILDING. On or before three (3) business days
prior to the Closing Date, Stockholder will, and if applicable, will cause
Eileen Williams to, contribute that certain real estate located at 115 South
Oklahoma, Shawnee, Oklahoma to Company by Warranty Deed, subject to any and all
outstanding indebtedness of Stockholder and, if applicable, Eileen Williams, to
1st State Bank, Shawnee, Oklahoma, related to the real estate.
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<PAGE>
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii)
below (the "Closing"), the parties to this Agreement shall take all actions
necessary to prepare to (i) effect the Merger (including the filing with the
appropriate state authorities of the Certificate of Merger which shall become
effective at the Effective Time) and (ii) effect the conversion of the shares
and the delivery of the Parent Stock referred to in Sections 3 and 4; provided,
that such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. On the Closing Date (x) the
Certificate of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 10:00 a.m. Central Standard
Time on the Closing Date, become effective and the Merger shall thereby be
effected and (y) all transactions contemplated by this Agreement, including the
conversion of the shares and delivery of the Parent Stock which the Stockholder
shall be entitled to receive pursuant to the Merger shall occur and be deemed to
be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDER
Company and Stockholder represent, warrant, covenant and agree
(i) that all of the following representations and warranties in this Section 6
are materially true at the date of this Agreement and, subject to Section 9.7,
shall be materially true at the Closing Date and (ii) that all of the covenants
and agreements in this Section 6 shall be materially complied with or performed
at and as of the Closing Date. For purposes of this Section 6, the term
"Company" shall mean and refer to Company and all of its Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business and is in
good standing under the laws of each jurisdiction where such qualification is
required except (i) as set forth on Schedule 6.1 or (ii) where the failure to be
so authorized or qualified would not have an adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial or
otherwise), of Company taken as a whole (as used herein with respect to Company,
or with respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets
forth the jurisdiction in which Company is incorporated and contains a list of
all such jurisdictions in which Company is authorized or qualified to do
business. True, complete and correct copies of the Charter Documents and
Bylaws, each as amended, of Company are all attached hereto as Schedule 6.1.
The stock records of Company, as heretofore made available to Parent, are
correct and complete. To the knowledge of Company and Stockholder, there are no
minutes in the possession of Company or Stockholder which have not been made
available to Parent, and all of such minutes are correct and complete.
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<PAGE>
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by Stockholder, and is a valid and binding
obligation of Company, enforceable against Company in accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholder in the
amounts set forth in Section 4.1 and further, except as set forth on Schedule
6.3, are owned free and clear of all mortgages, liens, security interests,
pledges, voting trusts, restrictions, encumbrances and claims of every kind
(collectively, the "Liens"). All of the issued and outstanding shares of the
capital stock of Company (i) have been duly authorized and validly issued and
(ii) are fully paid and nonassessable. Further, none of such shares was issued
in violation of the preemptive rights of any past or present stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
6.4, Company has not acquired any Company Stock since January 1, 1995. Except
as set forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company
has no Subsidiaries, (ii) 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, and
(iii) Company is not directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a
listing of all names of all predecessor companies of Company, including the
names of any entities acquired by Company (by stock purchase, merger or
otherwise) or owned by Company or from whom the Company previously acquired
assets in excess of $25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are
copies of the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
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<PAGE>
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.7). Except as set forth on
Schedule 6.7, the Balance Sheets referred to in this Section 6.7 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.7 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte & Touche LLP.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a
list (which is set forth on Schedule 6.8) as of the Balance Sheet Date of
(i) all liabilities of Company of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, that are not
reflected on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance
Sheet Date Company has not incurred any liabilities 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.
Company has also disclosed to Parent on Schedule 6.8, in the case of those
contingent liabilities related to pending or threatened litigation or other
liabilities which are not fixed or otherwise accrued or reserved, the following
information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholder. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories, and such list and such aging report (the "A/R Aging
Report") as of the most practicable date. Except to the extent reflected on
Schedule 6.9 or as disclosed by Company to Parent in a writing accompanying the
A/R Aging Report, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 6.9, and shall be collectible in the
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<PAGE>
amounts shown on the A/R Aging Report, net of reserves reflected in the
December Balance Sheet and as of the date of the A/R Aging Report,
respectively.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have an Adverse Effect on its business, and Company has delivered to
Parent an accurate list and summary description (which is set forth on Schedule
6.10) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by Company (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 6.11). To the
knowledge of Company, the licenses, franchises, permits and other governmental
authorizations listed on Schedules 6.10 and 6.11 are valid in all respects, and
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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) to the knowledge of Company, no
on-site or off-site location to which Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against
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Company, Parent or Newco for any clean-up cost, remedial work, damage to
natural resources, property damage or personal injury, including, but not
limited to, any claim under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) Company has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate
list (which is set forth on Schedule 6.12) of (i) all personal property included
(or that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
Company has delivered to Parent an accurate list (which is set forth on Schedule
6.13) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
Company has listed on Schedule 6.13 all material contracts,
commitments and similar agreements to which the Company is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as
of the Balance Sheet Date and (y) entered into since the Balance Sheet Date, and
in each case has delivered true, complete and correct copies of such agreements
to Parent. Company has complied with all commitments and obligations pertaining
to it, and is not in default under any contract or agreement listed on Schedule
6.13 and no notice of default under any such contract or agreement has been
received. Company has also indicated on Schedule 6.13 a summary description of
all plans or projects involving the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $5,000 by
Company.
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6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real
property owned or leased by Company (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other real property, if any,
used by Company in the conduct of its business. Company has good and insurable
title to the real property owned by it, including those reflected on Schedule
6.14, subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing
specified liabilities (with respect to which no default
exists);
(x) Liens for current taxes not yet payable and assessments
not in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County
Clerks in which the properties, assets and leasehold
estates are located which do not adversely affect in any
respect the current use of the property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on
and attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date
of all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered
to Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to
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salary, bonus and other compensation, respectively) of each of such persons
as of (i) the Balance Sheet Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholder has delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the
administration thereof are in substantial compliance with their terms and all
applicable provisions of ERISA and the regulations issued thereunder, as well as
with all other applicable Federal, state and local statutes, ordinances and
regulations.
All accrued contribution obligations of Company or any Subsidiary
with respect to any plan
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listed on Schedule 6.17 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of Company as of the Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on
Schedule 6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such
determination letters are included as part of Schedule 6.17. Except as
disclosed on Schedule 6.17, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or
Returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 6.17. Neither Stockholder, any such plan listed in Schedule
6.17, nor Company has engaged in any transaction prohibited under the provisions
of Section 4975 of the Code or Section 406 of ERISA. No employee benefit plan
listed on Schedule 6.17 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and Company
has not incurred (i) any liability for excise tax or penalty payable to the
Internal Revenue Service or (ii) any liability to the Pension Benefit Guaranty
Corporation (other than for premium payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to employee
benefit plans listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of
ERISA; and
(z) except as set forth in Schedule 6.17, no circumstances
exist pursuant to which Company could reasonably be
expected to have any direct or indirect liability
whatsoever (including, but not limited to, any liability
to any multiemployer plan or the Pension Benefit Guaranty
Corporation under Title IV of ERISA or to the Internal
Revenue Service for any excise tax or penalty, or being
subject to any statutory Lien to secure payment of any
such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than
Company that is, or at any time was, a member of a
"controlled group" (as defined in Section 412(n)(6)(B) of
the Code) that includes Company ("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in
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payments to "disqualified individuals" (as defined in Section 280G(c) of the
Code) of Company or any member of the Controlled Group which, individually or
in the aggregate will constitute "excess parachute payments" (as defined in
Section 280G(b) of the Code) resulting in the imposition of the excise tax
under Section 4999 of the Code or the disallowance of deductions under
Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 6.19 or 6.11, Company is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over Company which would have an Adverse Effect; and except
to the extent set forth on Schedule 6.8 or 6.11, there are no claims, actions,
suits or proceedings, commenced or, to the knowledge of Company, threatened,
against or affecting Company, at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over Company and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by Company or Stockholder. Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have an Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter C of the Code,
and Company has filed all Tax Returns that it was required
to file. All such Tax Returns filed by Company were
correct and complete in all respects. All Taxes owed by
Company (whether or not shown on any Tax Return) have been
paid or reserved for on its books. Except as set forth on
Schedule 6.20, Company is not currently the beneficiary of
any extension of time within which to file any Tax Return.
Since January 1, 1995, no claim with respect to Company
has been made by an authority in a jurisdiction where
Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There is no
Lien affecting any of Company's assets that arose in
connection with any failure or alleged failure to pay any
Tax.
(ii) Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
shareholder or other party.
(iii) Except as set forth in Schedule 6.8, Company does not
expect any authority to assess any amount of additional
Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax
liability of Company either claimed or raised by any
authority in writing or
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as to which Company has knowledge based upon direct
inquiry by any agent of such authority. Schedule 6.20(iii)
lists all Tax Returns relating to income Tax of Company
for taxable periods ended on or after January 1, 1994,
indicates those Returns of which Company is aware that
have been audited and indicates those Returns that
currently are the subject of audit. Company has provided
Parent access to correct and complete copies of all Tax
Returns, examination reports and statements of
deficiencies assessed against or agreed to by Company for
any taxable period ended on or after January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not
waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of
the Code concerning collapsible corporations. Company has
not made any payments, is not obligated to make any
payments and is not a party to any agreement that under
certain circumstances could obligate it to make any
payments that will not be fully deductible under Section
280G of the Code.
(vi) Company has not received a ruling from any taxing
authority or entered into any agreement regarding Taxes
with any taxing authority that would, individually or in
the aggregate, apply to the Surviving Corporation after
the Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter
Documents. Neither Company nor, to the knowledge of the Company, any other party
thereto, is in default under any (i) Lease, instrument, agreement, license, or
permit set forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other
agreement to which it is a party or by which its properties are bound
(collectively, the "Documents"); and, except as set forth in Schedule 6.21,
(i) the rights and benefits of Company under the Documents will not be adversely
affected by the transactions contemplated hereby and (ii) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any violation or
breach or constitute a default under, any of the terms or provisions of the
Documents or the Charter Documents. Except as set forth on Schedule 6.21, none
of the Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect in all respects,
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or publication by Company, Parent or Newco of
the name of any other party to such Document, and none of the Documents
prohibits or restricts Company from freely providing services to any other
customer or potential customer of Company, Parent, Newco or any other Founding
Company.
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6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business
of Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business
of Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the
capital stock of Company;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by Company
to any of its officers, directors, stockholders,
employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of
any character, adversely affecting the business of
Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any assets, property or rights of Company to any
person, including, without limitation, Stockholder and his
Affiliates outside the ordinary course of business of
Company;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to Company, including without
limitation any indebtedness or obligation of Stockholder
or any Affiliate thereof outside the ordinary course of
business of Company;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in
any of the assets, property or rights of Company or
requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or
asset outside of the ordinary
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course of Company's business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company
is a party;
(xiii) any transaction by Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company
has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions
made in a lawful manner which, in the aggregate, do not exceed $5,000 per year
for each year in which Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect.
If political contributions made by Company have exceeded $5,000 per year for
each year in which Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and
Annexes hereto, together with all other documents and information made available
to Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be
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rendered untrue in any respect by, any other document to which Company
is a party, or to which its properties are subject, or by any other fact or
circumstance regarding Company (which fact or circumstance was, or should
reasonably, after due inquiry, have been known to Company) that is not disclosed
pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26,
Company has not, between the Balance Sheet Date and the date of this Agreement,
taken any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDER
Stockholder further represents, warrants, covenants and agrees
(i) that the representations and warranties set forth below are true as of the
date of this Agreement and, subject to Section 9.7, shall be true at the Closing
Date, (ii) that all of the covenants and agreements in this Section 7 shall be
complied with or performed at and as of the Closing Date and (iii) that by
executing this Agreement Stockholder shall be deemed to have approved the terms
of the Merger as required by the OGCA.
7.1 AUTHORITY. Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by Stockholder and constitutes a legal, valid and binding obligation
of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or
Parent Stock that such Stockholder has or may have had, other than rights of
Stockholder to acquire Parent Stock pursuant to (i) this Agreement or (ii) any
option granted by Parent.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO
Parent and Newco, jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 8 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 8 shall be materially complied
with or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
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8.2 AUTHORIZATION. Parent and Newco each has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Parent
and Newco and their consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action of Parent and Newco.
This Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and
Newco is as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively.
All of the issued and outstanding shares of the capital stock of Parent and
Newco (i) have been duly authorized and validly issued, (ii) are fully paid and
nonassessable, (iii) are owned of record and beneficially by the persons set
forth on Schedule 2.4(ii) and Parent, respectively, and (iv) were offered,
issued, sold and delivered by Parent and Newco in compliance with all applicable
state and Federal laws concerning the offer, issuance, sale and delivery of
securities. Further, none of such shares was issued in violation of the
preemptive rights of any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no
Subsidiaries except for Newco and each of the other companies identified on
Schedule 8.5. Except as set forth in the preceding sentence, neither Parent
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in a Person nor is Parent or Newco, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement or agreements similar to this Agreement with the Founding
Companies and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is
in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them which would
have a Adverse Effect; and there are no claims, actions, suits or proceedings,
pending or, to the knowledge of Parent or Newco, threatened, against or
affecting Parent or Newco,
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at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them and no notice of any claim, action,
suit or proceeding, whether pending or threatened, has been received. Parent
and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to
the Stockholder pursuant to this Agreement will have been duly authorized prior
to the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in
September 1998. Neither Parent nor Newco has conducted any business since the
date of its inception, except raising capital and in connection with this
Agreement and similar agreements with the Founding Companies. Except as
disclosed on Schedule 8.10, neither Parent nor Newco owns or has at any time
owned any real property or any personal property or is a party to any other
agreement.
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9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's
sites, properties, books and records and will furnish
Parent with such additional financial and operating data
and other information as to the business and properties of
Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its
representatives, auditors and counsel in the preparation
of any documents or other material that may be required in
connection with any documents or materials required by
this Agreement. Parent and Newco will treat all
information obtained in connection with the negotiation
and performance of this Agreement as confidential in
accordance with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing, Parent
will afford to the officers and authorized representatives
of Company and Stockholder access to all of the sites,
properties, books and records of Parent, Newco and the
other companies listed on Schedule 9.1(ii) ("Founding
Companies") and will furnish Company and Stockholder with
such additional financial and operating data and other
information as to the business and properties of Parent,
Newco and the Founding Companies as Company and
Stockholder may from time to time reasonably request.
Parent and Newco will cooperate with Company and
Stockholder representatives, auditors and counsel in the
preparation of any documents or other material which may
be required in connection with any documents or materials
required by this Agreement. Company and Stockholder 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved
in writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as
it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its properties and facilities, including those
held under lease, in as good working order and condition
as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
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(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its respective
present key employees and maintain its respective
relationships with suppliers, customers and others having
business relations with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and
similar governmental authorities;
(vii) maintain present debt instruments and Leases and not enter
into new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except
for ordinary and customary bonus and salary increases for
employees in accordance with past practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any
kind other than in connection with the exercise of options
or warrants listed in Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures,
except if it is in the normal course of business
(consistent with past practice), in connection with the
transactions contemplated by this Agreement, or involves
an amount not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset
or property whether now owned or hereafter acquired,
except (x) with respect to purchase money Liens incurred
in connection with the acquisition of equipment with an
aggregate cost not in excess of $5,000 as necessary or
desirable for the conduct of its business, (y) (1) Liens
for Taxes either not
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yet due or being contested in good faith and by
appropriate proceedings (and for which contested Taxes
adequate reserves have been established and are being
maintained) or (2) materialmen's, mechanic's, worker's,
repairmen's, employee's or other like Liens arising in the
ordinary course of business, or (3) Liens set forth on
Schedule 6.8 or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall
not be deemed to be included in Schedule 6.9 unless
specifically listed thereon;
(x) commit a material breach or amend or terminate any
material agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or
its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholder and Company shall terminate (i) any
stockholder agreements, voting agreements, voting trusts, options, warrants and
employment agreements
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between the Company and any employee listed on Schedule 6.16 and (ii) any
existing agreement between Company and Stockholder, on or prior to the
Closing Date, except as otherwise set forth on Schedule 9.5. Copies of such
termination agreements are listed on Schedule 9.5 and copies thereof are
attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholder and Company
shall give prompt notice to Parent of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Company or Stockholder contained herein to be
untrue or inaccurate in any respect at or prior to the Closing Date and (ii)
any failure of Stockholder or Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such Person
hereunder as of such date. Parent and Newco shall give prompt notice to the
Company of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would likely cause any representation or warranty
of Parent or Newco contained herein to be untrue or inaccurate in any respect
at or prior to the Closing Date and (ii) any failure of Parent or Newco to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder as of such date. The delivery of any
notice pursuant to this Section 9.6 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 9.7, (ii) modify the
conditions set forth in Sections 10 and 11, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 11:59 p.m.
March 31, 1999 to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have a Adverse Effect may be made unless the
parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
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10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND COMPANY
The obligations of Stockholder and Company with respect to actions
to be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of Parent and Newco contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Parent and Newco on or before the Closing Date
shall have been duly complied with or performed; and a certificate to the
foregoing effect dated the Closing Date, and signed by the President or any Vice
President of Parent and of Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Company as a result of which the
management of Company deems it inadvisable to proceed with the transactions
hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of Parent and of Newco, certifying the completeness and accuracy of the attached
copies of Parent's and Newco's respective Charter Documents (including
amendments thereto), Bylaws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of Parent and Newco
approving Parent's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
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10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule
10.7 shall have been afforded an opportunity to enter into an employment
agreement, reasonably acceptable to both parties and substantially in the form
of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All the representations and warranties of Stockholder and Company contained in
this Agreement shall be true and correct as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholder and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholder and
Company each shall have delivered to Parent a certificate dated the Closing Date
and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a
certificate, dated the Closing Date and signed by the Secretary of the Company,
certifying the completeness and accuracy of the attached copies of Company's
Charter Documents (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and Stockholder approving
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDER RELEASE. Stockholder shall have delivered to
Parent an instrument dated the Closing Date releasing Company from (i) any and
all claims of Stockholder against
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Company and Parent and (ii) obligations of Company and Parent to Stockholder,
except for (x) items specifically identified on Schedules 6.8 and 6.13 as
being claims of or obligations to Stockholder and (y) obligations arising
under this Agreement or the transactions contemplated hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 11.6, all existing agreements between Company and Stockholder shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered
to Parent a certificate, dated as of a date no earlier than ten days prior to
the Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and, unless waived by Parent, in each state in
which Company is authorized to do business, showing Company is in good standing
and authorized to do business and that all state franchise and/or income Tax
returns and Taxes for Company for all periods prior to the Closing have been
filed and paid.
11.9 FIRPTA CERTIFICATE. Stockholder shall have delivered to Parent
a certificate to the effect that he or she is not a foreign person under Section
111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule
10.7 shall have executed an employment agreement, reasonably acceptable to
both parties and substantially in the form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent
audited Balance Sheets as of December 31, 1997 and 1998 and audited
Statements of Income, Retained Earnings and Cash Flows for each of the years
in the two-year period ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDER
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state
and local income Tax Returns of Company for all taxable
periods that end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate
Returns of, or that include,
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Company for all taxable periods ending after the Closing
Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them
reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies
of all relevant portions of relevant Returns, together
with relevant accompanying schedules and 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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing
Date, Parent shall not terminate any health insurance, life insurance or 401(k)
plan in effect at Company until such time as Parent is able to replace such plan
with a plan that is applicable to Parent and all of its then existing
Subsidiaries; provided that Parent shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans;
provided, further, that any new health insurance plan shall provide for coverage
for preexisting conditions. On the Closing Date, the employees of Company will
be the employees of the Surviving Corporation (provided that this provision is
for purposes of clarifying that the Merger, in and of itself, will not have any
impact on the employment status of any employee; and provided further that this
provision shall not in any way limit the management rights of the Surviving
Corporation or Parent to assess workforce needs and make appropriate adjustments
as necessary or desirable within its discretion subject to applicable laws and
collective bargaining agreements).
13. INDEMNIFICATION
Stockholder, Parent and Newco each make the following covenants that
are applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER. Stockholder
covenants and agrees that he will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholder or Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it
will indemnify,
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defend, protect and hold harmless Stockholder at all times from and after the
Closing Date 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 expenses of investigation) incurred by Stockholder as a
result of or arising from any breach of any representation, warranty,
covenant or agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge of
any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 13.1
or 13.2 (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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for any additional costs of
defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend
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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 upon consent of the Indemnifying Party, which consent will not be
unreasonably withheld, 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. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
Anything in this Agreement to the contrary notwithstanding, any amounts owing
from an Indemnifying Party to an Indemnified Party under the provisions of
this Section 13 shall be reduced to the extent to which the Indemnified
Party, or any other claimant, actually receives any proceeds of any insurance
policy that are paid with respect to the matter or occurrence that gave rise
to the Third Person claim. Submission to insurance of any insurable claim
otherwise giving rise to indemnification under this Section 13 shall be a
condition precedent to seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 13 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party; 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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by Company (acting through its board of directors), on the
one hand, or by Parent (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 May 31, 1999
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;
(iii) by Stockholder or Company, on the one hand, or by Parent,
on the other hand, if a material breach or default shall
be made by the other party in the observance or in the due
and timely performance of any of the material
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covenants, agreements or conditions contained herein, and
the curing of such default shall not have been made on or
before the Closing Date; or
(iv) by Company and Stockholder, on the one hand, or by Parent,
on the other hand, if either such party or parties
declines to consent to an amendment or supplement to a
Schedule proposed by the other party or parties pursuant
to Section 9.7 because such proposed amendment constitutes
or reflects an event or occurrence that would have a
material Adverse Effect on the party or parties proposing
the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of three years following the Closing Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other Person:
(i) engage, as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in the sale or
marketing of telecommunication services or interconnect
services within the state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an
employee of Parent (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 Parent (including the
Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within
one year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof) for the purpose of
soliciting or selling products or services in direct
competition with Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on
Stockholder's own behalf or on behalf of any competitor of
Parent (including the Subsidiaries thereof) in the
long-distance telephone or interconnect business, which
candidate, to the knowledge of such Stockholder after due
inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to
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the knowledge of such Stockholder after due inquiry, Parent
(or any Subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to
any Person for any reason or purpose whatsoever except to
the extent that the Company has in the past disclosed such
information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be
deemed to prohibit Stockholder from acquiring as an investment after the date of
this Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic
losses to Parent as a result of a breach of the foregoing covenants, and because
of the immediate and irreparable damage that could be caused to Parent for which
it would have no other adequate remedy, Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholder in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15
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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15
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 Stockholder
against Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 15, during which the agreements
and covenants of Stockholder made in this Section 15 shall be effective, shall
be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
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15.6 MATERIALITY. Stockholder hereby agree that the covenants set
forth in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDER. Company and Stockholder recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholder agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholder as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholder, (y) 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 (y), Stockholder, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of this
Section 16.1, Parent shall be entitled to an injunction (without the posting of
bond or proof of actual damages) restraining such Stockholder from disclosing,
in whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting Parent 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,
(1) the above mentioned restrictions on Stockholder's ability to disseminate
confidential information with respect to Company shall become nugatory and (2)
Stockholder (including his representatives, advisors and legal counsel) shall
within ten business days of the Parent's request, deliver all copies of the
confidential information of Parent in his possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other material
prepared by such Stockholder or his representatives, advisors or legal counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge
that they had in the past and currently have and in the future may have, prior
to the Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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 (y), Parent and Newco
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shall, if possible, give immediate prior written notice thereof to Company
and Stockholder and provide Company and Stockholder with the opportunity to
contest such disclosure, or (z) 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 Parent or Newco of the provisions of this Section 16.2, Company and
Stockholder shall be entitled to an injunction (without the posting of bond
or proof of actual damages) restraining Parent and Newco from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting Company and Stockholder 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, Parent and Newco (including their representatives, advisors
and legal counsel) shall within ten business days after Company's request,
deliver all copies of the confidential information of Company in their
possession in any form whatsoever (including, but not limited to, any
reports, memoranda, or other materials prepared by Parent or Newco or their
representatives, advisors or legal counsel at the direction of Parent or
Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 16.1 and
16.2 and because of the immediate and irreparable damage that would be caused
for which no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16
shall survive the termination of this Agreement for a period of three years from
the Closing Date or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be
bound by the restrictions set forth in this Section 17 (or trusts for the
benefit of Stockholder or family members, the trustees of which so agree), for a
period of one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, Stockholder shall
not sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholder pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
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EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER , IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholder acknowledges that the Parent Stock to be delivered to
Stockholder pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholder solely for his own account, for investment purposes only, and not
with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholder represents, warrants,
covenants and agrees that none of the Restricted Securities will be offered,
sold, assigned, exchanged, transferred, encumbered, distributed, appointed 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 thereunder
and the provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
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18.2 ECONOMIC RISK, SOPHISTICATION. Stockholder is able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that he is capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholder has had an adequate
opportunity to ask questions and receive answers from the officers of Parent
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 Parent, the plans for the operations of the
business of Parent and any plans for additional acquisitions and the like.
Stockholder has asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date
of consummation of the IPO, whenever Parent proposes to register any Parent
Stock for its own or the account of others under the 1933 Act for a public
offering, other than (i) any shelf registration of shares to be used as
consideration for acquisitions of additional businesses by Parent and
(ii) registrations relating to employee benefit plans, Parent shall give
Stockholder prompt written notice of its intent to do so. Upon the written
request of Stockholder given within 15 business days after receipt of such
notice, Parent shall cause to be included in such registration all Registerable
Securities (including any shares of Parent Stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Registerable Securities) which Stockholder requests; provided, however, if
Parent is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 19.1 that the number of shares to be
sold by Persons other than Parent is greater than the number of such shares
which can be offered without adversely affecting the offering, Parent may reduce
pro rata the number of shares offered for the accounts of such Persons (based
upon the number of shares held by such Person) to a number deemed satisfactory
by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Stockholder or his permitted transferees or (ii) acquired by other stockholders
of Parent on or prior to the closing of the IPO in connection with the
acquisition of their companies by Parent pursuant to an agreement, similar to
this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing that
Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholder or his permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days of
the receipt of such request, Parent shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from the Founding Stockholders requesting
such registration, file and use its best efforts to
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cause to become effective a registration statement covering all such shares.
Parent shall be obligated to effect only one Demand Registration for all
Founding Stockholders; provided, however, that Parent shall not be deemed to
have satisfied its obligation under this Section 19.2 unless and until a
Demand Registration covering all shares of Parent Stock requested to be
registered has been filed and becomes effective under the 1933 Act and has
remained current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a
majority of the disinterested directors of Parent (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Section 19 (including all registration,
filing, qualification, legal, printing and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Parent. In
connection with registrations under Sections 19.1 and 19.2, Parent will, as
expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such Parent Stock and use its best efforts
to cause such registration statement to become and remain
effective; provided that Parent may discontinue any
registration of its securities that is being effected
pursuant to Section 19.1 at any time prior to the
effective date of the registration statement relating
thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for a period as may be
requested by the stockholders holding a majority of the
Parent Stock covered thereby not exceeding 90 days and to
comply with the provisions of the 1933 Act with respect to
the disposition of all securities covered by such
registration statement during such period in accordance
with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement;
provided, that before filing a registration statement or
prospectus relating to the sale of Parent Stock, or any
amendments or supplements
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thereto, Parent will furnish to counsel to each holder
of Parent Stock covered by such registration statement or
prospectus, copies of all documents proposed to be filed,
which documents will be subject to the review of such
counsel, and Parent will give reasonable consideration in
good faith to any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of
such Parent Stock, such number of copies of a preliminary
prospectus and prospectus for delivery in conformity with
the requirements of the 1933 Act, and such other
documents, as such Person may reasonably request, in order
to facilitate the public sale or other disposition of the
Parent Stock.
(iv) Use its best efforts to register or qualify the Parent
Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as
each seller shall reasonably request, and do any and all
other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the
disposition of the Parent Stock owned by such seller, in
such jurisdictions, except that Parent shall not for any
such purpose be required (x) to qualify to do business as
a foreign corporation in any jurisdiction where, but for
the requirements of this Section 19.3(iv), it is not then
so qualified, or (y) to subject itself to taxation in any
such jurisdiction, or (z) to take any action which would
subject it to general or unlimited service of process in
any such jurisdiction where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by
such registration statement to be registered with or
approved by such other governmental agencies or
authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such
Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered by
such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the
1933 Act within the appropriate period mentioned in
Section 19.3(ii), if Parent becomes aware that the
prospectus included in such registration statement, as
then in effect, includes 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 in the light of the circumstances then
existing, and, at the request of any such seller, deliver
a reasonable number of copies of an amended or
supplemental prospectus as may be necessary so that, as
thereafter delivered to the Parents of such Parent Stock,
each prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein not misleading in the light of the
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circumstances then existing.
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make
generally available to its security holders, in each case
as soon as practicable, but not later than 45 calendar
days after the close of the period covered thereby (90
calendar days in case the period covered corresponds to a
fiscal year of the Parent), an earnings statement of
Parent which will satisfy the provisions of Section 11 (a)
of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters
to list such Parent Stock on each securities exchange as
they may reasonably designate.
(ix) In the event the offering is an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from
the independent public accountants for Parent in customary
form and covering such matters of the type customarily
covered by such letters.
(x) Execute and deliver all instruments and documents
(including in an underwritten offering an underwriting
agreement in customary form) and take such other actions
and obtain such certificates and opinions as the
stockholders holding a majority of the shares of Parent
Stock covered by the Registration Statement may reasonably
request in order to effect an underwritten public offering
of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent
Stock covered by such registration statement, by any
underwriter participating in any disposition to be
effected pursuant to such registration statement and by
any attorney, accountant or other agent retained by any
such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents
and properties of Parent, and cause all of Parent's
officers, directors and employees to supply all
information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection
with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion
or opinions from counsel for Parent in customary form and
in form and scope reasonably satisfactory to such
underwriter or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each stockholder holding shares of Parent Stock covered by
a registration statement referred to in this Section 19
will, upon receipt of any notice from Parent of the
happening of any event of the kind described in Section
19.3(vi), forthwith discontinue disposition of the Parent
Stock pursuant to
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the registration statement covering such Parent Stock
until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by
Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2
involves an underwritten offering, Stockholder agrees,
whether or not his shares of Parent Stock are included in
such registration, not to effect any public sale or
distribution, including any sale pursuant to Rule 144
under the 1933 Act, of any Parent Stock, or of any
security convertible into or exchangeable or exercisable
for any Parent Stock (other than as part of such
underwritten offering), without the consent of the
managing underwriter, during a period commencing eight
calendar days before and ending 180 calendar days (or such
lesser number as the managing underwriter shall designate)
after the effective date of such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of
Parent under the 1933 Act pursuant to Section 19.1 or
19.2, Parent will, and it hereby agrees to, indemnify and
hold harmless, to the extent permitted by law, each seller
of any Parent Stock covered by such registration
statement, each Affiliate of such seller and their
respective directors, officers, employees and agents or
general and limited partners (and directors, officers,
employees and agents thereof) each other Person who
participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who
controls such seller or any such underwriter within the
meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an untrue
statement or alleged untrue statement of a material fact
contained in any registration statement (or any amendment
or supplement thereto), including all documents
incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements
therein not misleading, or arising out of an untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or prospectus (or
any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in
order to make the statements therein not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced
or threatened, or of any claim whatsoever based upon any
such
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untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is
effected with the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened,
or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense
is not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or any
such director, officer, employee, agent, general or limited
partner, investment advisor or agent, underwriter or
controlling Person and shall survive the transfer of such
securities by such seller.
(ii) Parent may require, as a condition to including any Parent
Stock in any registration statement filed in accordance
with Section 19.1 or 19.2, that Parent shall have received
an undertaking reasonably satisfactory to it from the
prospective seller of such Parent Stock or any
underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section
19.5(i)) Parent with respect to any statement or alleged
statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or
supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and
in conformity with written information furnished to Parent
by or on behalf of such seller or underwriter specifically
stating that it is for use in the preparation of such
registration statement, preliminary, final or summary
prospectus or amendment or supplement. Such indemnity
shall remain in full force and effect regardless of any
investigation made by or on behalf of Parent or any such
director, officer or controlling Person and shall survive
the transfer of such securities by such seller. In that
event, the obligations of the Parent and such sellers
pursuant to this Section 19.5 are to be several and not
joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for
the full amount of such claim, and each such seller's
liability under this Section 19.5 shall be limited to an
amount equal to the net proceeds (after deducting the
underwriting discount and expenses) received by such
seller from the sale of Parent Stock held by such seller
pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder
of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section
19.5, such indemnified party will, if a claim in respect
thereof
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is to be made against an indemnifying party, give
written notice to such indemnifying party of the
commencement of such action; provided, however, that the
failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party
of its obligations under this Section 19.5, except to the
extent (not including any such notice of an underwriter)
that the indemnifying party is materially prejudiced by
such failure to give notice. In case any such action is
brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties
may exist in respect of such claim (in which case the
indemnifying party shall not be liable for the fees and
expenses of more than one firm of counsel selected by
holders of a majority of the shares of Parent Stock
included in the offering or more than one firm of counsel
for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish with
counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in
connection with the defense thereof, provided that the
indemnifying party will not agree to any settlement
without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such
settlement requires no more than a monetary payment for
which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided,
however, that the indemnified party shall be entitled to
take control of the defense of any claim as to which, in
the reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying party and
the indemnified party would be inappropriate under the
applicable standards of professional conduct due to actual
or potential differing interests between them. In the
event that the indemnifying party does not assume the
defense of a claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such claim
by all appropriate proceedings, and will have control of
such defense and proceedings, and the indemnified party
shall have the right to agree to any settlement without
the prior consent of the indemnifying party. Each
indemnified party shall, and shall cause its legal counsel
to, provide reasonable cooperation to the indemnifying
party and its legal counsel in connection with its
assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers
served in such proceeding. In the event that an
indemnifying party assumes the defense of an action under
this Section 19.5(iii), then such indemnifying party
shall, subject to the provisions of this Section 19.5,
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indemnify and hold harmless the indemnified party from any
and all losses, claims, damages or liabilities by reason
of such settlement or judgment.
(iv) Parent and each seller of Parent Stock shall provide for
the foregoing indemnity (with appropriate modifications)
in any underwriting agreement with respect to any required
registration or other qualification of securities under
any federal or state law or regulation of any governmental
authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Parent Stock. For purposes of this
Section 19.6, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as such underwriter, and each director and each officer of Parent who signed the
registration statement, and each Person, if any, who controls Parent or a seller
of Parent Stock within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as Parent or a seller of Parent Stock, as the case
may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. After Parent completes its initial underwritten public offering
and for as long thereafter as Stockholder shall continue to hold any Restricted
Securities, Parent shall use reasonable efforts to file, on a timely basis, all
annual, quarterly and other reports required to be filed by it under Sections 13
and 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
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<PAGE>
20. GENERAL
20.1 COOPERATION. Company, Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholder will cooperate and use his reasonable
efforts to have the present officers, directors and employees of Company
cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law or as
permitted by Section 17), but if assigned by operation of law, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholder. Notwithstanding the foregoing, Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholder, Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, 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 Stockholder and by Company, Newco and Parent, acting through their respective
officers or representatives, duly authorized by their respective Boards of
Directors. Any disclosure made on any Schedule delivered pursuant hereto shall
be deemed to have been disclosed for purposes of any other Schedule required
hereby; provided that Company shall make a good faith effort to cross reference
disclosures, as necessary or advisable, between related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damage or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
-46-
<PAGE>
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholder, addressed to him at his address set
forth on Schedule 6.3, with copies to such counsel as is
set forth with respect to Stockholder on such Schedule
6.3;
(z) If to the Company, addressed to it at:
Communication Services, Inc.
115 S. Oklahoma
Shawnee, Oklahoma 74801
Attn: Steve Williams
Telecopy No.: (405) 275-8260
with a copy to:
Attn:
Telecopy No.:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6
-47-
<PAGE>
from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in
accordance with the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section
13.4, 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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each
other and no party shall issue any public announcement or statement with respect
to the transactions contemplated hereby without the consent of the other
parties, unless the party desiring to make such announcement or statement, after
seeking such consent from the other parties, obtains advice from legal counsel
that a public announcement or statement is required by applicable law.
20.14 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 Parent, Newco, Company and Stockholder. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of
or relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be
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<PAGE>
final, binding, and enforceable in any court of competent jurisdiction. In
any dispute in which a party seeks in excess of $50,000 in damages, three
arbitrators shall be employed. Otherwise, a single arbitrator shall be
employed. All costs relating to the arbitration shall be borne equally by
the parties, other than their own attorneys' and experts' fees. The parties
will bear their own attorneys' and experts' fees. The arbitrators will not
award punitive, consequential or indirect damages. Each party hereby waives
the right to such damages and agrees to receive only those actual damages
directly resulting from the claim asserted. In resolving all disputes
between the parties, the arbitrators will apply the laws of the State of
Oklahoma. Except as needed for presentation in lieu of a live appearance,
depositions will not be taken. The parties will be entitled to conduct
document discovery by requesting production of documents. The arbitrators
will resolve any discovery disputes by such prehearing conferences as may be
needed. Either party may be entitled to pursue such remedies for emergency
or preliminary injunctive relief in any court of competent jurisdiction,
provided that each party agrees that it will consent to the stay of such
judicial proceedings on the merits of both this Agreement and the related
transactions pending arbitration of all underlying claims between the parties
immediately following the issuance of any such emergency or injunctive relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed
by Parent, to join with Parent and Newco in making an election under Section
338(h) of the Code (and any corresponding elections under state, local, or
foreign tax law) with respect to a purchase and sale of the Company Stock;
PROVIDED HOWEVER, that no election shall be made if, as a result of the
election, the Stockholders would incur any adverse tax or other consequences not
otherwise reimbursed by Parent or Newco to the Stockholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
--------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
--------------------------------
NAME: David W. Aduddell
-49-
<PAGE>
TITLE: Chief Executive Officer
-50-
<PAGE>
COMMUNICATION SERVICES, INC.
BY: /s/ Steve Williams
-------------------------
NAME: Steve Williams
TITLE: President
STOCKHOLDER:
/s/ Steve Williams
----------------------------
Steve Williams
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<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION IX CORP.
INTO
COMMUNICATION SERVICES, INC.
Communication Services, Inc., an Oklahoma corporation, pursuant to
Section 81 of the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which
are Oklahoma corporations, is Communication Services, Inc. and Alliance
Acquisition IX Corp.
SECOND. That an agreement and plan of merger has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with the provisions of Section 81 of the Oklahoma
General Corporation Act.
THIRD. That the name of the surviving corporation is Communication
Services, Inc..
FOURTH. That the certificate of incorporation of Alliance
Acquisition IX Corp. shall be the certificate of incorporation of the surviving
corporation.
FIFTH. That the executed agreement and plan of merger is on file at
the principal place of business of the surviving corporation, which is located
at 12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be
furnished by the surviving corporation, on request and without cost, to any
shareholder of any constituent corporation.
SEVENTH. This merger shall be effective at - , Central Standard
Time, on the date this Certificate is filed with the Secretary of State of the
State of Oklahoma.
IN WITNESS WHEREOF, Communication Services, Inc. has caused this
certificate to be signed by its President and attested by its Secretary, this
- - day of - 1999.
COMMUNICATION SERVICES, INC.
--------------------------------
President
ATTEST:
- ----------------------
Secretary
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<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION VIII CORP.
(Newco)
and
COMMERCIAL TELECOM SYSTEMS, INC.
(Company)
and
JOHN WHITTEN
AND
MARK WHITTEN
AND
JODY SLAPE
(Stockholders of the Company)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . . . .5
2.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . .5
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
the Surviving Corporation.. . . . . . . . . . . . . . . . . . . . . . . .5
2.4 Certain Information With Respect to the Capital Stock of
Company, Parent and Newco.. . . . . . . . . . . . . . . . . . . . . . . .6
2.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . .7
4.1 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.2 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
COMPANY AND STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . .9
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . .9
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.6 Predecessor Status; etc.. . . . . . . . . . . . . . . . . . . . . . . . .9
6.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.8 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 10
6.9 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . 11
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.13 Significant Customers; Material Contracts and Commitments . . . . . . . 12
6.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters . . . . . . . . . . . . . . . . . 13
6.17 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 14
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<PAGE>
6.19 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 16
6.20 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.21 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.22 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.23 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . 19
6.24 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PARENT AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 22
8.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 22
8.8 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Parent Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Business; Real Property; Agreements . . . . . . . . . . . . . . . . . . 23
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Access and Cooperation; Due Diligence; Audits . . . . . . . . . . . . . 23
9.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . 24
9.3 Prohibited Activities by the Company. . . . . . . . . . . . . . . . . . 24
9.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . 26
9.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Representations and Warranties; Performance of Obligations. . . . . . . 27
10.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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<PAGE>
10.3 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 28
10.5 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 28
10.6 Secretary's Certificates. . . . . . . . . . . . . . . . . . . . . . . . 28
10.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Closing of the IPO or the Private Placement . . . . . . . . . . . . . . 28
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . . . . 28
11.1 Representations and Warranties; Performance of Obligations. . . . . . . 28
11.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . 29
11.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 29
11.5 Stockholders' Release . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 Termination of Related Party Agreements . . . . . . . . . . . . . . . . 29
11.7 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 29
11.8 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 29
11.9 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.10 Closing of the IPO or Private Placement . . . . . . . . . . . . . . . . 30
11.11 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 30
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS . . . . . . . . . . . . . . . 30
12.1 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . 30
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 General Indemnification by the Stockholders . . . . . . . . . . . . . . 31
13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . . . 31
13.3 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . 32
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . . . 33
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.1 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.4 Severability, Reformation . . . . . . . . . . . . . . . . . . . . . . . 35
15.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.6 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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<PAGE>
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 35
16.1 Company and Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 35
16.2 Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.1 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.2 Economic Risk, Sophistication . . . . . . . . . . . . . . . . . . . . . 38
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.1 PiggyBack Registration Rights . . . . . . . . . . . . . . . . . . . . . 38
19.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . 39
19.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 39
19.4 Other Registration Matters. . . . . . . . . . . . . . . . . . . . . . . 42
19.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.6 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.8 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . 48
20.9 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.10 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . 49
20.11 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 49
20.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
20.13 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
20.14 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 49
20.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
20.16 338 Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 10th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION VIII CORP., an Oklahoma corporation
("Newco"), COMMERCIAL TELECOM SYSTEMS, INC., an Oklahoma corporation (the
"Company"), and JOHN WHITTEN MARK WHITTEN AND JODY SLAPE, the only stockholders
of the Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Oklahoma, having been incorporated on March 9, 1999,
solely for the purpose of completing the transaction set forth herein, and
Newco is a wholly-owned subsidiary of Parent, a corporation organized and
existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368A(a)(1)(A) of the Code; and
WHEREAS, Stockholders are the owners of 1,000 shares of Common Stock,
$1.00 par value, of Company ("Company Stock"), representing all the issued
and outstanding capital stock of Company outstanding on the date of this
Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into aggregate consideration of $1,400,000,
comprised of $1,300,000 in cash and - shares of Common Stock [representing
$100,000 of value] $.01 par value, of Parent ("Parent Stock"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
<PAGE>
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
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<PAGE>
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"Newco" has the meaning set forth in the first paragraph of this Agreement.
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<PAGE>
"Newco Stock" means the common stock, par value $.01 per share of Newco.
"OGCA" means the Oklahoma General Corporation Act.
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
-4-
<PAGE>
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person, by any one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed
as provided by law;
-5-
<PAGE>
(ii) the Bylaws of Newco then in effect shall be the Bylaws of
the Surviving Corporation until they shall thereafter be
further amended;
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of
the Surviving Corporation after the Effective Time until his
successor shall have been elected and qualified; and
(iv) David W. Aduddell, Chief Executive Officer and President;
Joe Evans, Chief Financial Officer and Secretary; and Jeff
Hartwig, Vice President of Operations of Newco immediately
prior to the Effective Time shall continue as the officers
of the Surviving Corporation after the Effective Time in the
same capacity or capacities, until their successors are duly
elected and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of
Company is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of
Parent is as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000
shares of common stock, par value $.01, of which 1,000
shares are issued and outstanding and entitled to one vote
per share on all matters submitted to stockholders.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
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<PAGE>
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding
immediately prior to the Effective Time, by virtue of the
Merger and without any action on the part of the holders
thereof, automatically shall be deemed to represent the
right to receive, in aggregate, (i) - shares of Parent Stock
[representing $100,000 of value] and (ii) $1,300,000 in
cash, all as more particularly set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as
treasury stock shall be canceled and retired and no Parent
Stock, cash or other consideration shall be delivered or
paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof,
automatically shall be deemed to represent the right to
receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
------------------- ---------------- --------------- ----
<S> <C> <C> <C>
John Whitten 700 - $ 910,000
Mark Whitten 250 [$100,000 of $ 325,000
value]
Jody Slape 50 - $ 65,000
---------------- ---------------- -----------
1,000 [$100,000 of $ 1,300,000
value]
---------------- ---------------- -----------
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the Closing all
certificates representing any and all shares of Company Stock, duly endorsed in
blank by Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholders'
expense, affixed and canceled.
-7-
<PAGE>
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii) below
(the "Closing"), the parties to this Agreement shall take all actions necessary
to prepare to (i) effect the Merger (including the filing with the appropriate
state authorities of the Certificate of Merger which shall become effective at
the Effective Time) and (ii) effect the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4; provided, that
such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. The Closing will occur prior
to the closing of the acquisition of all other Founding Companies. On the
Closing Date (x) the Certificate of Merger shall be or shall have been filed
with the appropriate state authorities so that they shall be or, as of 10:00
a.m. Central Standard Time on the Closing Date, become effective and the Merger
shall thereby be effected and (y) all transactions contemplated by this
Agreement, including the conversion of the shares and delivery of the Parent
Stock which the Stockholders shall be entitled to receive pursuant to the Merger
shall occur and be deemed to be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
COMPANY AND STOCKHOLDERS
Company and each Stockholder, jointly and severally represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date.
6.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have an adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise), of
Company taken as a whole (as used herein with respect to Company, or with
respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets forth the
jurisdiction in which Company is incorporated and contains a list of all such
jurisdictions in which Company is authorized or qualified to do business. True,
complete and correct copies of the Charter Documents and Bylaws, each as
amended, of Company are all attached hereto as Schedule 6.1. The stock records
of Company, as heretofore made available to Parent, are correct and complete.
To the knowledge of Company and Stockholders, there are no minutes in the
possession of Company or Stockholders which have not been made available to
Parent, and all of such minutes are correct and complete.
-8-
<PAGE>
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the stockholders of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholders in
the amounts set forth in Section 4.1 and further, except as set forth on
Schedule 6.3, are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and validly
issued and (ii) are fully paid and nonassessable. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1995. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company has
no Subsidiaries, (ii) 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, and (iii) Company
is not directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are copies of
the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998
-9-
<PAGE>
(December 31, 1998 being hereinafter referred to as the "Balance Sheet Date").
The audited Company Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted thereon or on Schedule 6.7).
Except as set forth on Schedule 6.7, the Balance Sheets referred to in this
Section 6.7 present fairly the financial position of Company as of the dates
indicated thereon, and the Statements of Income, Retained Earnings and Cash
Flows referred to in this Section 6.7 present fairly the results of operations
for the periods indicated thereon in accordance with generally accepted
accounting principles. Company Financial Statements at and for the years ended
December 31, 1997 and 1998 have been examined and reported on by Hunter, Atkins
& Russell, PLC.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a list
(which is set forth on Schedule 6.8) as of the Balance Sheet Date of (i) all
liabilities of Company of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, that are not reflected
on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance Sheet Date
Company has not incurred any liabilities 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. Company has also
disclosed to Parent on Schedule 6.8, in the case of those contingent liabilities
related to pending or threatened litigation or other liabilities which are not
fixed or otherwise accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought;
and
(z) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholders. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day
-10-
<PAGE>
aging categories, and such list and such aging report (the "A/R Aging Report")
as of the most practicable date. Except to the extent reflected on Schedule 6.9
or as disclosed by Company to Parent in a writing accompanying the A/R Aging
Report, such accounts, notes and other receivables arose from the sale of
inventory or services to persons not affiliated with the Stockholders or the
Company and in the ordinary course of business consistent with past practice and
constitute or will constitute, as the case may be, valid accounts and notes
receivable, and to the knowledge of Stockholders such accounts and notes
receivable are undisputed claims of the Company not subject to valid claims of
set-off or other defenses or counterclaims and all accounts and notes receivable
reflected on the December Balance Sheet are or will be good and have been
collected or as reflected on Schedule 6.9 will be collectible in the amounts
shown on the A/R Aging Report, net of reserves reflected in the December Balance
Sheet and as of the date of the A/R Aging Report, respectively, through the
utilization of collection efforts in the ordinary course of business consistent
with past practice.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have an Adverse Effect on its business, and Company has delivered to Parent an
accurate list and summary description (which is set forth on Schedule 6.10) of
all such licenses, franchises, permits and other governmental authorizations,
including titles, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by Company (including interests in
software or other technology systems, programs and intellectual property) (it
being understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 6.11). To the knowledge of
Company, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 6.10 and 6.11 are valid in all respects, and 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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
-11-
<PAGE>
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) to the knowledge of Company, no
on-site or off-site location to which Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against Company, Parent or Newco for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; and
(v) Company has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.12) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Company
has delivered to Parent an accurate list (which is set forth on Schedule 6.13)
of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
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Company has listed on Schedule 6.13 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as of the
Balance Sheet Date and (y) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
Parent. Company has complied with all commitments and obligations pertaining to
it, and is not in default under any contract or agreement listed on Schedule
6.13 and no notice of default under any such contract or agreement has been
received. Company has also indicated on Schedule 6.13 a summary description of
all plans or projects involving the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $5,000 by
Company.
6.14 REAL PROPERTY. Company owns no real property. Schedule 6.14
includes a list of all real property leased by Company (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date, and all other real
property, if any, used by Company in the conduct of its business.
Schedule 6.14 contains, without limitation, true, complete and correct copies of
all Leases and agreements in respect of such real property leased by Company
(which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to
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salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
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All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.17 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of Company as of the
Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on Schedule
6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such determination
letters are included as part of Schedule 6.17. Except as disclosed on Schedule
6.17, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or Returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 6.17. Neither
Stockholders, any such plan listed in Schedule 6.17, nor Company has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No employee benefit plan listed on Schedule 6.17 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and Company has not incurred (i) any liability
for excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation (other than for premium
payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to
employee benefit plans listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062
of ERISA; and
(z) except as set forth in Schedule 6.17, no circumstances
exist pursuant to which Company could reasonably be
expected to have any direct or indirect liability
whatsoever (including, but not limited to, any
liability to any multiemployer plan or the Pension
Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or
penalty, or being subject to any statutory Lien to
secure payment of any such liability) with respect to
any plan now or heretofore maintained or contributed to
by any entity other than Company that is, or at any
time was, a member of a
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"controlled group" (as defined in Section 412(n)(6)(B)
of the Code) that includes Company ("Controlled
Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. To the actual knowledge of the
Company, except to the extent set forth on Schedule 6.19 or 6.11, Company is not
in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over Company which would have an
Adverse Effect; and except to the extent set forth on Schedule 6.8 or 6.11,
there are no claims, actions, suits or proceedings, commenced or, to the
knowledge of Company, threatened, against or affecting Company, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by Company or any
Stockholder. Company has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on Schedules 6.10
and 6.11, and is not in violation of any of the foregoing which might have an
Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter C of the Code,
and Company has filed all Tax Returns that it was required
to file. All such Tax Returns filed by Company were correct
and complete in all respects. All Taxes owed by Company
(whether or not shown on any Tax Return) have been paid or
reserved for on its books. Except as set forth on Schedule
6.20, Company is not currently the beneficiary of any
extension of time within which to file any Tax Return.
Since January 1, 1995, no claim with respect to Company has
been made by an authority in a jurisdiction where Company
does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There is no Lien affecting
any of Company's assets that arose in connection with any
failure or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee,
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independent contractor, creditor, shareholder or other
party.
(iii) Except as set forth in Schedule 6.8, Company does not expect
any authority to assess any amount of additional Taxes for
any period for which Tax Returns have been filed. There is
no dispute or claim concerning any Tax liability of Company
either claimed or raised by any authority in writing or as
to which Company has knowledge based upon direct inquiry by
any agent of such authority. Schedule 6.20(iii) lists all
Tax Returns relating to income Tax of Company for taxable
periods ended on or after January 1, 1994, indicates those
Returns of which Company is aware that have been audited and
indicates those Returns that currently are the subject of
audit. Company has provided Parent access to correct and
complete copies of all Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by
Company for any taxable period ended on or after January 1,
1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not
waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. Company has not
made any payments, is not obligated to make any payments and
is not a party to any agreement that under certain
circumstances could obligate it to make any payments that
will not be fully deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority
or entered into any agreement regarding Taxes with any
taxing authority that would, individually or in the
aggregate, apply to the Surviving Corporation after the
Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in default under any (i) Lease, instrument, agreement, license, or permit set
forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other agreement to
which it is a party or by which its properties are bound (collectively, the
"Documents"); and, except as set forth in Schedule 6.21, (i) the rights and
benefits of Company under the Documents will not experience any Adverse Effect
from by the transactions contemplated hereby and (ii) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any violation or
breach or constitute a default under, any of the terms or provisions of the
Documents or the Charter Documents. Except as set forth on Schedule 6.21, none
of the Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect in all respects,
and
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consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or publication by Company, Parent or Newco of
the name of any other party to such Document, and none of the Documents
prohibits or restricts Company from freely providing services to any other
customer or potential customer of Company, Parent, Newco or any other Founding
Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of
Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the
capital stock of Company;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by Company
to any of its officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance
with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of any
character, adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any assets, property or rights of Company to any person,
including, without limitation, Stockholders and their
Affiliates outside the ordinary course of business of
Company;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to Company, including without
limitation any indebtedness or obligation of any
Stockholders or any Affiliate thereof outside the ordinary
course of business of Company;
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<PAGE>
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the
assets, property or rights of Company or requiring consent
of any party to the transfer and assignment of any such
assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or
asset outside of the ordinary course of Company's business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company
is a party;
(xiii) any transaction by Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination date;
or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign
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Corrupt Practices Act of 1977, as amended, or any law of similar effect. If
political contributions made by Company have exceeded $5,000 per year for each
year in which any Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be rendered untrue in any respect by, any other document to which Company
is a party, or to which its properties are subject, or by any other fact or
circumstance regarding Company (which fact or circumstance was, or should
reasonably, after due inquiry, have been known to Company) that is not disclosed
pursuant hereto or thereto.
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth below
are true as of the date of this Agreement and, subject to Section 9.7, shall be
true at the Closing Date, (ii) that all of the covenants and agreements in this
Section 7 shall be complied with or performed at and as of the Closing Date and
(iii) that by executing this Agreement each Stockholder shall be deemed to have
approved the terms of the Merger as required by this Agreement.
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such Stockholder has or may have had, other than rights of any Stockholder
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any option
granted by Parent. Stockholders of Newco and Parent do not have preemptive
rights.
7.3 RESIGNATION. Each officer and director of Company will, immediately
prior to the Closing Date, resign his position with the Company effective on the
Closing Date.
7.4 NET WORTH. Notwithstanding Sections 9.2 and 9.3, Company,
Stockholders, Parent and Newco acknowledge that, as of the Balance Sheet Date,
Company had a net worth, as determined in accordance with generally accepted
accounting principles ("Net Worth"), as set forth in the Company's December
Balance Sheet. Company may make distributions to Stockholders in amounts equal
to any increase in Net Worth from the Balance Sheet Date to the Closing Date.
For
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purposes of distributions, the Company reasonably may estimate the amount of any
increase in Net Worth. Company will provide Parent, at Closing, a schedule of
and the amount of any distributions made and the basis therefore. Within 90
days of the Closing Date, Parent will issue a certificate of the amount of the
increase or decrease in Net Worth between the Balance Sheet Date and the Closing
Date, showing any amounts owing to or receivable from Stockholders.
Stockholders shall have fifteen days to review and approve the amounts set forth
in the certificate. If Stockholders disagree with the amounts set forth in the
certificate, such amounts will be audited by Hunter, Atkins & Russell PLC or
another mutually acceptable independent accounting firm. All costs of audit
will be borne one-half by the Company and one-half by the Stockholders. Any
amounts due to or from the Stockholders will be paid on the tenth day following
a final determination of such amounts.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Newco and
their consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Parent and Newco. This
Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco is
as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are owned of record and beneficially by the persons set forth on Schedule
2.4(ii) and Parent, respectively, and (iv) were offered, issued, sold and
delivered by Parent and Newco in compliance with all applicable state and
Federal laws concerning the offer, issuance,
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sale and delivery of securities. Further, none of such shares was issued in
violation of the preemptive rights of any past or present stockholder of Parent
or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no Subsidiaries
except for Newco and each of the other companies identified on Schedule 8.5.
Except as set forth in the preceding sentence, neither Parent nor Newco
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in a Person nor is Parent or Newco, directly or indirectly, a
participant in any joint venture, partnership or other non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement or agreements similar to this Agreement with the Founding Companies
and except for fees incurred in connection with the transactions contemplated
hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or
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constitute a default under, any of the terms or provisions of the Parent
Documents or the Parent Charter Documents. Except as set forth on Schedule 8.8,
none of the Parent Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in September
1998. Neither Parent nor Newco has conducted any business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with the Founding Companies. Except as disclosed on Schedule
8.10, neither Parent nor Newco owns or has at any time owned any real property
or any personal property or is a party to any other agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's sites,
properties, books and records and will furnish Parent with
such additional financial and operating data and other
information as to the business and properties of Company as
Parent may from time to time reasonably request. Company
will cooperate with Parent, its representatives, auditors
and counsel in the preparation of any documents or other
material that may be required in connection with any
documents or materials required by this Agreement. Parent
and Newco will treat all information obtained in connection
with the negotiation and performance of this Agreement as
confidential in accordance with the provisions of Section
16.
(ii) Between the date of this Agreement and the Closing, Parent
will afford to the officers and authorized representatives
of Company and Stockholders access to all of the sites,
properties, books and records of Parent, Newco and the other
companies listed on Schedule 9.1(ii) ("Founding Companies")
and will furnish Company and Stockholders with such
additional financial and operating data and other
information as to the business and properties of Parent,
Newco and the Founding Companies as Company and Stockholders
may from time to time reasonably request. Parent and Newco
will cooperate with Company and Stockholders'
representatives, auditors and counsel in the
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preparation of any documents or other material which may be
required in connection with any documents or materials
required by this Agreement. Company and Stockholders 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
16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved in
writing by Parent or except as otherwise provided in Section 7.4, between the
date of this Agreement and the Closing Date, Company will:
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present
key employees and maintain its respective relationships with
suppliers, customers and others having business relations
with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt instruments and Leases and not enter
into new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for
employees in accordance with past practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Except as otherwise provided
in Section 7.4, between the date of this Agreement and the Closing Date, Company
will not, without prior written consent of Parent:
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(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind
other than in connection with the exercise of options or
warrants listed in Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except
if it is in the normal course of business (consistent with
past practice), in connection with the transactions
contemplated by this Agreement, or involves an amount not in
excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x)
with respect to purchase money Liens incurred in connection
with the acquisition of equipment with an aggregate cost not
in excess of $5,000 as necessary or desirable for the
conduct of its business, (y) (1) Liens for Taxes either not
yet due or being contested in good faith and by appropriate
proceedings (and for which contested Taxes adequate reserves
have been established and are being maintained) or
(2) materialmen's, mechanic's, worker's, repairmen's,
employee's or other like Liens arising in the ordinary
course of business, or (3) Liens set forth on Schedule 6.8
or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not
be deemed to be included in Schedule 6.9 unless specifically
listed thereon;
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(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or
its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company or Stockholders contained herein to be untrue or inaccurate
in any respect at or prior to the Closing Date and (ii) any failure of any
Stockholder or Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such Person hereunder as of such
date. Parent and Newco shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would likely cause any representation or warranty of Parent or Newco
contained herein to be untrue or inaccurate in any respect at or prior to the
Closing Date and (ii) any failure of Parent or Newco to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder as of such date. The delivery of any notice pursuant to this Section
9.6 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 9.7, (ii) modify the conditions set forth in Sections
10 and 11, or (iii) limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
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9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the 11:59 p.m. March 31,
1999 to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have a Adverse Effect may be made unless the
parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of Stockholders and Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with or
performed by Parent and Newco on or before the Closing Date shall have been duly
complied with or performed; and a certificate to the foregoing effect dated the
Closing Date, and signed by the President or any Vice President of Parent and of
Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Company as
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a result of which the management of Company deems it inadvisable to proceed with
the transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of Parent
and of Newco, certifying the completeness and accuracy of the attached copies of
Parent's and Newco's respective Charter Documents (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholders of Parent and Newco approving
Parent's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule 10.7
shall have been afforded an opportunity to enter into an employment or
consulting agreement substantially in the form of Annex II or Annex III.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $1,300,000 in net proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholders and Company on or before the
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Closing Date shall have been duly complied with or performed; and Stockholders
and Company each shall have delivered to Parent a certificate dated the Closing
Date and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Parent as a result of which the management
of Parent deems it inadvisable to proceed with the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), Bylaws (including amendments thereto),
and resolutions of the board of directors and Stockholders approving Company's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to Parent
an instrument dated the Closing Date releasing Company from (i) any and all
claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good
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standing and authorized to do business and that all state franchise and/or
income Tax returns and Taxes for Company for all periods prior to the Closing
have been filed and paid.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Parent
a certificate, reasonably acceptable to all parties, to the effect that he or
she is not a foreign person under Section 1.1445-2(b) of the Treasury
regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have received
at least $1,300,000 in net proceeds from Parent's IPO or Private Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule 10.7
shall have executed an employment or consulting agreement substantially in the
form of Annex II or Annex III.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent audited
Balance Sheets as of December 31, 1997 and 1998 and audited Statements of
Income, Retained Earnings and Cash Flows for each of the years in the two-year
period ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state
and local income Tax Returns of Company for all taxable
periods that end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate Returns
of, or that include, Company for all taxable periods ending
after the Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them
reasonably may request in filing any Return, amended Return
or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant
portions of relevant Returns, together with relevant
accompanying schedules and 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.
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13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders covenant
and agree that they, severally and not jointly in the case of representations,
warranties, covenants and agreements set forth in Section 7, and jointly and
severally in all other cases, will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholders or Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it will
indemnify, defend, protect and hold harmless Stockholders at all times from and
after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 13.1 or 13.2
(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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the
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Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party shall
be responsible for the reasonable expenses of such counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section 13.3 with respect to such Third Person claim shall be limited
to the amount so offered in settlement by such Third Person. Upon agreement as
to such settlement between such Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
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 upon consent of the Indemnifying
Party, which consent will not be unreasonably withheld, 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. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. Anything in this Agreement to the contrary
notwithstanding, any amounts owing from an Indemnifying Party to an Indemnified
Party under the provisions of this Section 13 shall be reduced to the extent to
which the Indemnified Party, or any other claimant, actually receives any
proceeds of any insurance policy that are paid with respect to the matter or
occurrence that gave rise to the Third Person claim. Submission to insurance of
any insurable claim otherwise giving rise to indemnification under this Section
13 shall be a condition precedent to seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
13 shall be the exclusive remedy in any action seeking damages or any other form
of monetary relief brought by any party to this Agreement against another party;
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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement. Any indemnification obligation of a Stockholder shall be limited to
the value of the consideration paid to such Stockholder pursuant to this
Agreement.
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14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(iv) by mutual consent of the boards of directors of Parent and
Company;
(v) by Company (acting through its board of directors), on the
one hand, or by Parent (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 May 31, 1999 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;
(vi) by Stockholders or Company, on the one hand, or by Parent,
on the other hand, if a material breach or default shall be
made by the other party in the observance or in the due and
timely performance of any of the material covenants,
agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the
Closing Date; or
(vii) by Company and Stockholders, on the one hand, or by Parent,
on the other hand, if either such party or parties declines
to consent to an amendment or supplement to a Schedule
proposed by the other party or parties pursuant to Section
9.7 because such proposed amendment constitutes or reflects
an event or occurrence that would have a material Adverse
Effect on the party or parties proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of two years following the Closing Date, for any reason whatsoever,
directly or indirectly, for himself or on behalf of or in conjunction with any
other Person:
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(i) engage, as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in the sale or
marketing of telecommunication services or interconnect
services within the state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an employee
of Parent (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 Parent (including the Subsidiaries
thereof);
(ii) call upon any Person which is or which has been, within one
year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof) for the purpose of
soliciting or selling products or services in direct
competition with Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of
Parent (including the Subsidiaries thereof) in the
long-distance telephone or interconnect business, which
candidate, to the knowledge of such Stockholder after due
inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to the knowledge of such
Stockholder after due inquiry, Parent (or any Subsidiary
thereof) made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the
extent that the Company has in the past disclosed such
information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment after the date of this
Agreement not more than five percent of the capital stock of a company that
conducts the same business as the business of Parent on a consolidated basis as
exists on the date of the alleged competition, and whose stock is traded on a
national securities exchange or the National Association of Securities Dealers
Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
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15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15 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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of two
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set forth
in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) 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 (y), Stockholders, if
possible, shall give
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immediate prior written notice thereof to Parent and provide Parent with the
opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of this Section 16.1, Parent shall
be entitled to an injunction (without the posting of bond or proof of actual
damages) restraining such Stockholders from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
Parent 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, (1) the above mentioned
restrictions on each Stockholder's ability to disseminate confidential
information with respect to Company shall become nugatory and (2) each
Stockholder (including his representatives, advisors and legal counsel) shall
within ten business days of the Parent's request, deliver all copies of the
confidential information of Parent in his possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other material
prepared by such Stockholder or his representatives, advisors or legal counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge that
they had in the past and currently have and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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 (y), Parent and Newco shall,
if possible, give immediate prior written notice thereof to Company and
Stockholders and provide Company and Stockholders with the opportunity to
contest such disclosure, or (z) 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 Parent
or Newco of the provisions of this Section 16.2, Company and Stockholders shall
be entitled to an injunction (without the posting of bond or proof of actual
damages) restraining Parent and Newco from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Company and Stockholders 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, Parent and
Newco (including their representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Newco or their representatives, advisors or legal counsel
at the direction of Parent or Newco).
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16.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 16.1 and 16.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16 shall
survive the termination of this Agreement for a period of two years from the
Closing Date or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period of
one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholders pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER - , IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
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18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed 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 thereunder and the provisions
of applicable state securities laws and regulations. All the Restricted
Securities shall bear the following legend in addition to the legend required
under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date of
consummation of the IPO, whenever Parent proposes to register any Parent Stock
for its own or the account of others under the 1933 Act for a public offering,
other than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Parent and (ii) registrations relating
to employee benefit plans, Parent shall give each Stockholder prompt written
notice of its intent to do so. Upon the written request of any Stockholder given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including
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any shares of Parent Stock issued as a dividend or other distribution with
respect to, or in exchange for, or in replacement of such Registerable
Securities) which any Stockholder requests; provided, however, if Parent is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 19.1 that the number of shares to be sold by Persons other
than Parent is greater than the number of such shares which can be offered
without adversely affecting the offering, Parent may reduce pro rata the number
of shares offered for the accounts of such Persons (based upon the number of
shares held by such Person) to a number deemed satisfactory by such managing
underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Stockholders or their permitted transferees or (ii) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing that
Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholders or their permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days of
the receipt of such request, Parent shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from the Founding Stockholders requesting
such registration, file and use its best efforts to cause to become effective a
registration statement covering all such shares. Parent shall be obligated to
effect only one Demand Registration for all Founding Stockholders; provided,
however, that Parent shall not be deemed to have satisfied its obligation under
this Section 19.2 unless and until a Demand Registration covering all shares of
Parent Stock requested to be registered has been filed and becomes effective
under the 1933 Act and has remained current and effective for not less than 90
days (or such shorter period as is required to complete the distribution and
sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
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19.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 19.1 and 19.2, Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Parent Stock and use its best efforts to
cause such registration statement to become and remain
effective; provided that Parent may discontinue any
registration of its securities that is being effected
pursuant to Section 19.1 at any time prior to the effective
date of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration
statement effective for a period as may be requested by the
stockholders holding a majority of the Parent Stock covered
thereby not exceeding 90 days and to comply with the
provisions of the 1933 Act with respect to the disposition
of all securities covered by such registration statement
during such period in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in
such registration statement; provided, that before filing a
registration statement or prospectus relating to the sale of
Parent Stock, or any amendments or supplements thereto,
Parent will furnish to counsel to each holder of Parent
Stock covered by such registration statement or prospectus,
copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel, and
Parent will give reasonable consideration in good faith to
any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of
such Parent Stock, such number of copies of a preliminary
prospectus and prospectus for delivery in conformity with
the requirements of the 1933 Act, and such other documents,
as such Person may reasonably request, in order to
facilitate the public sale or other disposition of the
Parent Stock.
(iv) Use its best efforts to register or qualify the Parent Stock
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other
acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the
disposition of the Parent Stock owned by
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such seller, in such jurisdictions, except that Parent shall
not for any such purpose be required (x) to qualify to do
business as a foreign corporation in any jurisdiction where,
but for the requirements of this Section 19.3(iv), it is not
then so qualified, or (y) to subject itself to taxation in
any such jurisdiction, or (z) to take any action which would
subject it to general or unlimited service of process in any
such jurisdiction where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by
such registration statement to be registered with or
approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof
to consummate the disposition of such Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered by
such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the 1933
Act within the appropriate period mentioned in Section
19.3(ii), if Parent becomes aware that the prospectus
included in such registration statement, as then in effect,
includes 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 in
the light of the circumstances then existing, and, at the
request of any such seller, deliver a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Parents of
such Parent Stock, each prospectus shall not include an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of
the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally
available to its security holders, in each case as soon as
practicable, but not later than 45 calendar days after the
close of the period covered thereby (90 calendar days in
case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy
the provisions of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to
list such Parent Stock on each securities exchange as they
may reasonably designate.
(ix) In the event the offering is an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from the
independent public accountants for Parent in customary form
and covering such matters of the type customarily covered by
such letters.
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(x) Execute and deliver all instruments and documents (including
in an underwritten offering an underwriting agreement in
customary form) and take such other actions and obtain such
certificates and opinions as the stockholders holding a
majority of the shares of Parent Stock covered by the
Registration Statement may reasonably request in order to
effect an underwritten public offering of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent
Stock covered by such registration statement, by any
underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant or other agent retained by any such seller or any
such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of Parent, and
cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion
or opinions from counsel for Parent in customary form and in
form and scope reasonably satisfactory to such underwriter
or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each Stockholder holding shares of Parent Stock covered by a
registration statement referred to in this Section 19 will,
upon receipt of any notice from Parent of the happening of
any event of the kind described in Section 19.3(vi),
forthwith discontinue disposition of the Parent Stock
pursuant to the registration statement covering such Parent
Stock until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section
19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves
an underwritten offering, each of the Stockholders agrees,
whether or not his shares of Parent Stock are included in
such registration, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under
the 1933 Act, of any Parent Stock, or of any security
convertible into or exchangeable or exercisable for any
Parent Stock (other than as part of such underwritten
offering), without the consent of the managing underwriter,
during a period commencing eight calendar days before and
ending 180 calendar days (or such lesser number as the
managing underwriter shall designate) after the effective
date of such registration.
19.5 INDEMNIFICATION.
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(i) In the event of any registration of any securities of Parent
under the 1933 Act pursuant to Section 19.1 or 19.2, Parent
will, and it hereby agrees to, indemnify and hold harmless,
to the extent permitted by law, each seller of any Parent
Stock covered by such registration statement, each Affiliate
of such seller and their respective directors, officers,
employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) each
other Person who participates as an underwriter in the
offering or sale of such securities and each other Person,
if any, who controls such seller or any such underwriter
within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an untrue
statement or alleged untrue statement of a material fact
contained in any registration statement (or any amendment or
supplement thereto), including all documents incorporated
therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading,
or arising out of an untrue statement or alleged untrue
statement of a material fact contained in any preliminary
prospectus or prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements
therein not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with
the written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or mission to
the extent that any such expense is not paid under
subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling Person and shall survive the transfer of
such securities by such seller.
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(ii) Parent may require, as a condition to including any Parent
Stock in any registration statement filed in accordance with
Section 19.1 or 19.2, that Parent shall have received an
undertaking reasonably satisfactory to it from the
prospective seller of such Parent Stock or any underwriter,
to indemnify and hold harmless (in the same manner and to
the same extent as set forth in Section 19.5(i)) Parent with
respect to any statement or alleged statement in or omission
or alleged omission from such registration statement, any
preliminary, final or summary prospectus contained therein,
or any amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in
reliance upon and in conformity with written information
furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary,
final or summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of Parent or any
such director, officer or controlling Person and shall
survive the transfer of such securities by such seller. In
that event, the obligations of the Parent and such sellers
pursuant to this Section 19.5 are to be several and not
joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for
the full amount of such claim, and each such seller's
liability under this Section 19.5 shall be limited to an
amount equal to the net proceeds (after deducting the
underwriting discount and expenses) received by such seller
from the sale of Parent Stock held by such seller pursuant
to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or
proceeding involving a claim referred to in this Section
19.5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the
commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its
obligations under this Section 19.5, except to the extent
(not including any such notice of an underwriter) that the
indemnifying party is materially prejudiced by such failure
to give notice. In case any such action is brought against
an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of
such claim (in which case the indemnifying party shall not
be liable for the fees and expenses of more than one firm of
counsel selected by holders of a majority of the shares of
Parent Stock included in the offering or more than one firm
of counsel for the underwriters in connection with any one
action or separate but similar or related actions), the
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indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it
may wish with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnifying party in
connection with the defense thereof, provided that the
indemnifying party will not agree to any settlement without
the prior consent of the indemnified party (which consent
shall not be unreasonably withheld) unless such settlement
requires no more than a monetary payment for which the
indemnifying party agrees to indemnify the indemnified party
and includes a full, unconditional and complete release of
the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment
of the indemnifying party's counsel, representation of both
the indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests
between them. In the event that the indemnifying party does
not assume the defense of a claim pursuant to this Section
19.5(iii), the indemnified party will have the right to
defend such claim by all appropriate proceedings, and will
have control of such defense and proceedings, and the
indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying
party. Each indemnified party shall, and shall cause its
legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with
its assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers served
in such proceeding. In the event that an indemnifying party
assumes the defense of an action under this Section
19.5(iii), then such indemnifying party shall, subject to
the provisions of this Section 19.5, indemnify and hold
harmless the indemnified party from any and all losses,
claims, damages or liabilities by reason of such settlement
or judgment.
(iv) Parent and each seller of Parent Stock shall provide for the
foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required
registration or other qualification of securities under any
federal or state law or regulation of any governmental
authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of
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the nature contemplated by such indemnity agreement incurred by Parent, any
seller of Parent Stock and one or more of the underwriters, except to the extent
that contribution is not permitted under Section 11 (f) of the 1933 Act. In
determining the amounts which the respective parties shall contribute, there
shall be considered the relative benefits received by each party from the
offering of the Parent Stock by taking into account the portion of the proceeds
of the offering realized by each, and the relative fault of each party by taking
into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Parent Stock. For purposes of this
Section 19.6, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as such underwriter, and each director and each officer of Parent who signed the
registration statement, and each Person, if any, who controls Parent or a seller
of Parent Stock within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as Parent or a seller of Parent Stock, as the case
may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144 TRANSACTIONS.
After Parent completes its initial underwritten public offering and for as long
thereafter as any Stockholder shall continue to hold any Restricted Securities,
Parent shall use reasonable efforts to file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law or as permitted by
Section 17), but if assigned by
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operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of Parent, Newco and Company, and
the heirs and legal representatives of Stockholders. Notwithstanding the
foregoing, any Stockholder may assign his shares of Parent Stock and rights
thereunder, to a family or children's trust; provided that the assignee agrees
to be bound by the terms of this Agreement to the same extent as his or its
assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholders, Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, 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 Stockholders and by Company, Newco and Parent, acting through their
respective officers or representatives, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby; provided that Company shall make a good faith effort to cross
reference disclosures, as necessary or advisable, between related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
-47-
<PAGE>
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their addresses set
forth on Schedule 6.3, with copies to such counsel as is set
forth with respect to each Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
Commercial Telecom Systems, Inc.
3500 Lakeside Drive
Oklahoma City, Oklahoma 73179
Attn: John Whitten
Telecopy No.:
with a copy to:
DeBee & Gilchrist
100 North Broadway Avenue
Suite 1500
Oklahoma City, Oklahoma 73102
Attn: H. Edward DeBee III
Telecopy No.: (405) 232-9898
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance with
the laws of the State of Oklahoma.
20.8 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.
-48-
<PAGE>
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section 13.4,
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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
20.14 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 Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may
-49-
<PAGE>
be entitled to pursue such remedies for emergency or preliminary injunctive
relief in any court of competent jurisdiction, provided that each party agrees
that it will consent to the stay of such judicial proceedings on the merits of
both this Agreement and the related transactions pending arbitration of all
underlying claims between the parties immediately following the issuance of any
such emergency or injunctive relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company Stock; PROVIDED HOWEVER,
that no election shall be made if, as a result of the election, the Stockholders
would incur any adverse tax or other consequences not otherwise reimbursed by
Parent or Newco to the Stockholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
----------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
----------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
COMMERCIAL TELECOM SYSTEMS, INC.
BY: /s/ John Whitten
----------------------------------------
NAME: John Whitten
TITLE: President
-50-
<PAGE>
STOCKHOLDERS:
/s/ John Whitten
---------------------------------------------
John Whitten
/s/ Mark Whitten
---------------------------------------------
Mark Whitten
/s/ Jody Slape
---------------------------------------------
Jody Slape
-51-
<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION VIII CORP.
INTO
COMMERCIAL TELECOM SYSTEMS, INC.
Commercial Telecom Systems, Inc., an Oklahoma corporation, pursuant to
Section 81 of the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is Commercial Telecom Systems, Inc. and Alliance
Acquisition VIII Corp.
SECOND. That an agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 81 of the Oklahoma General Corporation
Act.
THIRD. That the name of the surviving corporation is Commercial Telecom
Systems, Inc.
FOURTH. That the certificate of incorporation of Alliance Acquisition VIII
Corp. shall be the certificate of incorporation of the surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
SEVENTH. This merger shall be effective at - , Central Standard Time, on
the date this Certificate is filed with the Secretary of State of the State of
Oklahoma.
<PAGE>
IN WITNESS WHEREOF, Commercial Telecom Systems, Inc. has caused this
certificate to be signed by its President and attested by its Secretary, - this
day of - , 1999.
COMMERCIAL TELECOM SYSTEMS, INC.
---------------------------------------------
President
ATTEST:
- ---------------
Secretary
-2-
<PAGE>
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
dated as of the 24th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION VIII CORP.
(Newco)
and
COMMERCIAL TELECOM SYSTEMS, INC.
(Company)
and
JOHN WHITTEN
AND
MARK WHITTEN
AND
JODY SLAPE
(Stockholders of the Company)
<PAGE>
AMENDMENT TO AGREEMENT
This Amendment to Agreement ("Amendment") is made and entered into as of
the 24th day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION VIII CORP., an Oklahoma corporation
("Newco"), COMMERCIAL TELECOM SYSTEMS, INC., an Oklahoma corporation (the
"Company"), and JOHN WHITTEN, MARK WHITTEN AND JODY SLAPE, the only stockholders
of the Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Parent, Newco, the Company and the Stockholders executed that
certain Agreement and Plan of Merger dated March 10, 1999 (the "Merger
Agreement"); and
WHEREAS, Parent, Newco, the Company and the Stockholders desire to
amend the Merger Agreement to reflect that Jody Slape will not be a
shareholder of the Company at Closing, and that Parent will issue, at
Closing, to John Whitten warrants to purchase 10,000 shares of Parent
Stock;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency whereof are hereby acknowledged, it is mutually agreed
as follows:
1. Parent and Newco acknowledge and agree that John Whitten will acquire,
prior to Closing, all the issued and outstanding Company Stock owned by Jody
Slape as reflected in the Merger Agreement. As a result, Jody Slape will not be
bound by the Merger Agreement and will not be liable for any breach of any
representation, warranty, covenant or agreement set forth in the Merger
Agreement. Likewise, Jody Slape will have no rights under, nor will Parent or
Newco have any obligations to Jody Slape pursuant to, the Merger Agreement. Any
and all representations and warranties made by Jody Slape, or any covenants and
agreements to be performed by Jody Slape, in the Merger Agreement will be made
or performed by John Whitten. Any and all rights of Jody Slape under, or
obligations of Parent or Newco to Jody Slape under, the Merger Agreement will
become rights of John Whitten or obligations of Parent and Newco to John
Whitten. This Section 1 is effective only upon the acquisition of Jody Slape's
Company Stock by John Whitten.
2. In addition to the merger consideration set forth in Sections 3 and 4
of the Merger Agreement, Parent will issue to John Whitten, at Closing, warrants
to purchase 10,000 shares of Parent Stock. The warrants will be exercisable at
the offering price of the Parent Stock in either the IPO or the Private
Placement, as applicable, and will have substantially the same terms and
conditions as warrants issued by Parent to its underwriters in the IPO or
Private Placement.
3. All terms of the Merger Agreement continue to apply, except as
otherwise specified above, and if any conflict exists between the Merger
Agreement and this Amendment, the terms of this Amendment shall control. Any
terms not otherwise defined herein are defined as set forth in
-1-
<PAGE>
the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION VIII CORP.
BY: /s/ David W. Aduddell
------------------------------------
NAME: David W. Aduddell
TITLE: President
-2-
<PAGE>
COMMERCIAL TELECOM SYSTEMS, INC.
BY: /s/ John Whitten
------------------------------------
NAME: John Whitten
TITLE: President
STOCKHOLDERS:
/s/ John Whitten
---------------------------------------
John Whitten
/s/ Mark Whitten
---------------------------------------
Mark Whitten
/s/ Jody Slape
---------------------------------------
Jody Slape
-3-
231,<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION III CORP.
(Newco)
and
NOBEL SYSTEMS, INC.
(Company)
and
KEN BLOOD
AND
DAVID ANDRES
AND
JIM PEARSON
(Stockholders of the Company)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . 5
2.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . 5
2.3 Certificate of Incorporation, Bylaws and Board of
Directors of the Surviving Corporation. . . . . . . . . . . . . . . 5
2.4 Certain Information With Respect to the Capital Stock of
Company, Parent and Newco.. . . . . . . . . . . . . . . . . . . . . 6
2.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . 7
4.1 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY
AND STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . 8
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . 9
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Predecessor Status; etc.. . . . . . . . . . . . . . . . . . . . . . 9
6.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . 9
6.9 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . 10
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.13 Significant Customers; Material Contracts and Commitments . . . . . 12
6.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters . . . . . . . . . . . . . . . 13
6.17 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . 14
6.19 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . 15
6.20 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.21 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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<PAGE>
6.22 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . 17
6.23 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . 19
6.24 Relations with Governments. . . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . 19
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . 21
8.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . 21
8.7 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . 21
8.8 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 Parent Securities . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Business; Real Property; Agreements . . . . . . . . . . . . . . . . 22
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . 22
9.1 Access and Cooperation; Due Diligence; Audits . . . . . . . . . . . 22
9.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . 23
9.3 Prohibited Activities by the Company. . . . . . . . . . . . . . . . 23
9.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Notification of Certain Matters . . . . . . . . . . . . . . . . . . 25
9.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . 25
9.8 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . 26
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . . . . 26
10.1 Representations and Warranties; Performance of
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.3 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . 26
10.4 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . 26
10.5 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . 27
10.6 Secretary's Certificates. . . . . . . . . . . . . . . . . . . . . . 27
10.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . 27
10.8 Closing of the IPO or the Private Placement . . . . . . . . . . . . 27
-ii-
<PAGE>
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . . . 27
11.1 Representations and Warranties; Performance of
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . 28
11.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . 28
11.5 Stockholders' Release . . . . . . . . . . . . . . . . . . . . . . . 28
11.6 Termination of Related Party Agreements . . . . . . . . . . . . . . 28
11.7 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . 28
11.8 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . 28
11.9 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 28
11.10 Closing of the IPO or Private Placement . . . . . . . . . . . . . . 28
11.11 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . 29
11.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 29
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS . . . . . . . . . . . . . . 29
12.1 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . 29
12.2 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . 29
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 General Indemnification by the Stockholders . . . . . . . . . . . . 30
13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . 30
13.3 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . 30
13.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . 31
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 31
14.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . 32
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . 32
15.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . 33
15.4 Severability, Reformation . . . . . . . . . . . . . . . . . . . . . 33
15.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . 34
15.6 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . 34
16.1 Company and Stockholders. . . . . . . . . . . . . . . . . . . . . . 34
16.2 Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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<PAGE>
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 36
18.1 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . 36
18.2 Economic Risk, Sophistication . . . . . . . . . . . . . . . . . . . 37
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
19.1 PiggyBack Registration Rights . . . . . . . . . . . . . . . . . . . 37
19.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . 37
19.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . 38
19.4 Other Registration Matters. . . . . . . . . . . . . . . . . . . . . 40
19.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 41
19.6 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 46
20.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.8 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . 48
20.9 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.10 Reformation and Severability. . . . . . . . . . . . . . . . . . . . 48
20.11 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 48
20.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.13 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.14 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . 48
20.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.16 338 Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the
10th day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION III CORP., an Oklahoma corporation
("Newco"), NOBEL SYSTEMS, INC., an Oklahoma corporation (the "Company"), KEN
BLOOD, DAVID ANDRES AND JIM PEARSON, the only stockholders of the Company
(collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing
under the laws of the State of Oklahoma, having been incorporated on
March 9, 1999, solely for the purpose of completing the transaction set
forth herein, and Newco is a wholly-owned subsidiary of Parent, a
corporation organized and existing under the laws of the State of
Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of
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
Newco merge with and into Company, as set forth in Annex I, pursuant to
this Agreement and the applicable provisions of the laws of the State of
Oklahoma ("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368(a)(1)(A) of the Code; and
WHEREAS, Stockholders are the owners of 800 shares of Common
Stock, $1.00 par value, of Company ("Company Stock"), representing all
the issued and outstanding capital stock of Company outstanding on the
date of this Agreement;
WHEREAS, in the Merger the issued and outstanding shares of
Company Stock will be converted into aggregate consideration of
$710,000, comprised of $385,000 in cash - shares of Common Stock $.01
par value, of Parent ("Parent Stock") having a value at Closing of
$325,000; and assumption of all Company debts, liabilities and
obligations.
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, covenants, and agreements herein
contained, the parties hereto hereby agree as follows:
<PAGE>
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with,
the Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to
the Merger substantially in the form attached as Annex I, with such other
changes therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
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<PAGE>
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes
effective, which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set
forth in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service
of the Department of the Treasury.
"Leases" means all real and personal property leased by Company and
used, useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this
Agreement.
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<PAGE>
"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.
"OGCA" means the Oklahoma General Corporation Act.
"Other Stockholders" means the persons and entities that receive shares
of Parent Stock and/or cash upon the acquisition by Parent of assets or
businesses in which such persons and entities owned an interest on or prior to
the closing date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a joint stock company, a trust, or
other unincorporated organization.
"Private Placement" means the Parent's private placement of Parent
Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory
paragraph to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
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<PAGE>
"Subsidiaries" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person, by any one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Upon payment and
delivery of all consideration due to Stockholders at Closing under this
Agreement, the Constituent Corporations will cause (i) the Certificate of Merger
to be signed, verified and filed with the Secretary of State of the State of
Oklahoma and (ii) photocopies of stamped receipt copies of such filing to be
delivered to Parent on the Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the
Merger, Newco shall be merged with and into Company, in accordance with the
Certificate of Merger, the separate existence of Newco shall cease, and Company
shall be the surviving party in the Merger. Company is sometimes hereinafter
referred to as the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF
THE SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be
the Charter Documents of the Surviving Corporation until
changed as provided by law;
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<PAGE>
(ii) the Bylaws of Newco then in effect shall be the Bylaws
of the Surviving Corporation until they shall thereafter
be further amended;
(iii) David Aduddell, the only member of the Board of
Directors of Newco, shall be the only member of the
Board of Directors of the Surviving Corporation after
the Effective Time until his successor shall have been
elected and qualified; and
(iv) David W. Aduddell, Chief Executive Officer; Ken Blood,
President; Joe Evans, Chief Financial Officer and
Secretary; and Jeff Hartwig, Vice President of
Operations of Newco immediately prior to the Effective
Time shall continue as the officers of the Surviving
Corporation after the Effective Time in the same
capacity or capacities, until their successors are duly
elected and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF
COMPANY, PARENT AND NEWCO. The respective designations and numbers of
outstanding shares and voting rights of each class of outstanding capital stock
of Company, Parent and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of
Company is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of
Parent is as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000
shares of common stock, par value $.01, of which 1,000
shares are issued and outstanding and entitled to one
vote per share on all matters submitted to stockholders.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of
the Merger and shall continue in existence under the laws of the State of
Oklahoma. The Merger will have the effects set forth in the OGCA. Without
limiting the generality of the foregoing, at the Effective Time, all the
properties, rights, privileges, powers and franchises of Company and Newco will
vest in the Surviving Corporation, and all debts, liabilities and duties of
Company and Newco shall become the debts, liabilities and duties of the
Surviving Corporation.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
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<PAGE>
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding
immediately prior to the Effective Time, by virtue of
the Merger and without any action on the part of the
holders thereof, automatically shall be deemed to
represent the right to receive, in aggregate, (i) -
shares of Parent Stock and (ii) $385,000 in cash, all as
more particularly set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as
treasury stock shall be canceled and retired and no
Parent Stock, cash or other consideration shall be
delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding
immediately prior to the Effective Time, by virtue of
the Merger and without any action on the part of the
holder thereof, automatically shall be deemed to
represent the right to receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their name below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
- --------------------- ---------------- ---------------- -----
<S> <C> <C> <C>
Ken Blood 480 - $ 231,000
David Andres 280 0 134,750
Jim Pearson 40 0 19,250
---- -------- ---------
800 - 385,000
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the
Closing all certificates representing any and all shares of Company Stock, duly
endorsed in blank by Stockholders, or accompanied by blank stock powers, and
with all necessary transfer tax and other revenue stamps, acquired at
Stockholders' expense, affixed and canceled.
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<PAGE>
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii)
below (the "Closing"), the parties to this Agreement shall take all actions
necessary to prepare to (i) effect the Merger (including the filing with the
appropriate state authorities of the Certificate of Merger which shall become
effective at the Effective Time) and (ii) effect the conversion of the shares
and the delivery of the Parent Stock referred to in Sections 3 and 4; provided,
that such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. On the Closing Date (x) the
Certificate of Merger shall be or shall have been filed with the appropriate
state authorities after payment and delivery of all consideration due to
Stockholders at Closing under this Agreement so that they shall be or, as of
10:00 a.m. Central Standard Time on the Closing Date, become effective and the
Merger shall thereby be effected and (y) all transactions contemplated by this
Agreement, including the conversion of the shares and delivery of the Parent
Stock which the Stockholders shall be entitled to receive pursuant to the Merger
shall occur and be deemed to be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, jointly and severally represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date. For purposes of this Section
6, the term "Company" shall mean and refer to Company and all of its
Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business and is in
good standing under the laws of each jurisdiction where such qualification is
required except (i) as set forth on Schedule 6.1 or (ii) where the failure to be
so authorized or qualified would not have an adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial or
otherwise), of Company taken as a whole (as used herein with respect to Company,
or with respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets
forth the jurisdiction in which Company is incorporated and contains a list of
all such jurisdictions in which Company is authorized or qualified to do
business. True, complete and correct copies of the Charter Documents and
Bylaws, each as amended, of Company are all attached hereto as Schedule 6.1.
The stock records of Company, as heretofore made available to Parent, are
correct and complete. To the knowledge of Company and Stockholders, there are
no minutes in the possession of Company or Stockholders which have not been made
available to
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<PAGE>
Parent, and all of such minutes are correct and complete.
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by Company of this Agreement and its
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Company. This Agreement has
been duly executed and delivered by Company, and approved by all the
Stockholders of Company, and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholders in
the amounts set forth in Section 4.1 and further, except as set forth on
Schedule 6.3, are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and validly
issued and (ii) are fully paid and nonassessable. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
6.4, Company has not acquired any Company Stock since January 1, 1995. Except
as set forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company
has no Subsidiaries, (ii) 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, and
(iii) Company is not directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing
of all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are
copies of the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1998 ("December
Balance Sheet"), and audited Statements of Income, Retained Earnings and Cash
Flows and any related notes thereto for the year ended
-9-
<PAGE>
December 31, 1998 (December 31, 1998 being hereinafter referred to as the
"Balance Sheet Date"). The audited Company Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 6.7). Except as set forth on Schedule 6.7, the Balance Sheets
referred to in this Section 6.7 present fairly the financial position of Company
as of the dates indicated thereon, and the Statements of Income, Retained
Earnings and Cash Flows referred to in this Section 6.7 present fairly the
results of operations for the periods indicated thereon in accordance with
generally accepted accounting principles. Company Financial Statements at and
for the year ended December 31, 1998 have been examined and reported on by Saxon
& Knol P.C. All parties acknowledge that final schedules will be added after
the date of execution of this Agreement.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a
list (which is set forth on Schedule 6.8) as of the Balance Sheet Date of
(i) all liabilities of Company of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, that are not
reflected on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance
Sheet Date Company has not incurred any liabilities 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.
Company has also disclosed to Parent on Schedule 6.8, in the case of those
contingent liabilities related to pending or threatened litigation or other
liabilities which are not fixed or otherwise accrued or reserved, the following
information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating
thereto;
(y) amounts claimed and any other action or relief
sought; and
(z) name of claimant and all other parties to the
claim, suit or proceeding;
(ii) the name of each court or agency before which such
claim, suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholders. Company shall
-10-
<PAGE>
also provide Parent an aging of all accounts and notes receivable showing
amounts due in 30 day aging categories, and such list and such aging report (the
"A/R Aging Report") as of the most practicable date. Except to the extent
reflected on Schedule 6.9 or as disclosed by Company to Parent in a writing
accompanying the A/R Aging Report, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 6.9, and shall be collectible
in the amounts shown on the A/R Aging Report, net of reserves reflected in the
December Balance Sheet and as of the date of the A/R Aging Report, respectively.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have an Adverse Effect on its business, and Company has delivered to
Parent an accurate list and summary description (which is set forth on Schedule
6.10) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by Company (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 6.11). To the
knowledge of Company, the licenses, franchises, permits and other governmental
authorizations listed on Schedules 6.10 and 6.11 are valid in all respects, and
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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have
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<PAGE>
been no releases or threats of releases (as defined in Environmental Laws) at,
from, in or on any property owned or operated by Company except as permitted by
Environmental Laws; (iv) to the knowledge of Company, no on-site or off-site
location to which Company has transported or disposed of Hazardous Wastes and
Hazardous Substances or arranged for the transportation of Hazardous Wastes and
Hazardous Substances, which site is the subject of any Federal, state, local or
foreign enforcement action or any other investigation which could lead to any
claim against Company, Parent or Newco for any clean-up cost, remedial work,
damage to natural resources, property damage or personal injury, including, but
not limited to, any claim under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; and (v) Company has no
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate
list (which is set forth on Schedule 6.12) of (i) all personal property included
(or that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
Company has delivered to Parent an accurate list (which is set forth on Schedule
6.13) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company=s revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
Company has listed on Schedule 6.13 all material contracts, commitments
and similar agreements to which the Company is a party or by which it or any of
its properties are bound (including, but not limited to, contracts with
significant customers, joint venture or partnership agreements, contracts with
any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as
of the Balance
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Sheet Date and (y) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to Parent.
Company has complied with all commitments and obligations pertaining to it, and
is not in default under any contract or agreement listed on Schedule 6.13 and no
notice of default under any such contract or agreement has been received.
Company has also indicated on Schedule 6.13 a summary description of all plans
or projects involving the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $5,000 by Company.
6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real
property owned or leased by Company (i) as of the Balance Sheet Date and
(ii) acquired since the Balance Sheet Date, and all other real property, if any,
used by Company in the conduct of its business. Company has good and insurable
title to the real property owned by it, including those reflected on Schedule
6.14, subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing
specified liabilities (with respect to which no default
exists);
(x) Liens for current taxes not yet payable and assessments
not in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the
County Clerks in which the properties, assets and
leasehold estates are located which do not adversely
affect in any respect the current use of the property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
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risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered
to Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Balance Sheet
Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
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Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the
administration thereof are in substantial compliance with their terms and all
applicable provisions of ERISA and the regulations issued thereunder, as well as
with all other applicable Federal, state and local statutes, ordinances and
regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.17 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of Company as of the
Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on
Schedule 6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such
determination letters are included as part of Schedule 6.17. Except as
disclosed on Schedule 6.17, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or
Returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 6.17. Neither Stockholders, any such plan listed in
Schedule 6.17, nor Company has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No employee
benefit plan listed on Schedule 6.17 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and Company has not incurred (i) any liability for excise tax or penalty
payable to the Internal Revenue Service or (ii) any liability to the Pension
Benefit Guaranty Corporation (other than for premium payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to
employee benefit plans listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of
ERISA; and
(z) except as set forth in Schedule 6.17, no circumstances
exist pursuant to which Company could reasonably be
expected to have any direct or indirect
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liability whatsoever (including, but not limited to, any
liability to any multiemployer plan or the Pension
Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or
penalty, or being subject to any statutory Lien to
secure payment of any such liability) with respect to
any plan now or heretofore maintained or contributed to
by any entity other than Company that is, or at any time
was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes Company
("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth
on Schedule 6.19 or 6.11, Company is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have an Adverse Effect; and except to the
extent set forth on Schedule 6.8 or 6.11, there are no claims, actions, suits or
proceedings, commenced or, to the knowledge of Company, threatened, against or
affecting Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Company and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Company or any Stockholder. Company has conducted and is conducting its business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have an Adverse Effect.
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6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter S of the
Code, and Company has filed all Tax Returns that it was
required to file. All such Tax Returns filed by Company
were correct and complete in all respects. All Taxes
owed by Company (whether or not shown on any Tax Return)
have been paid or reserved for on its books. Except as
set forth on Schedule 6.20, Company is not currently the
beneficiary of any extension of time within which to
file any Tax Return. Since January 1, 1995, no claim
with respect to Company has been made by an authority in
a jurisdiction where Company does not file Tax Returns
that it is or may be subject to taxation by that
jurisdiction. There is no Lien affecting any of
Company's assets that arose in connection with any
failure or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid
or owing to any employee, independent contractor,
creditor, shareholder or other party.
(iii) Except as set forth in Schedule 6.8, Company does not
expect any authority to assess any amount of additional
Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax
liability of Company either claimed or raised by any
authority in writing or as to which Company has
knowledge based upon direct inquiry by any agent of such
authority. Schedule 6.20(iii) lists all Tax Returns
relating to income Tax of Company for taxable periods
ended on or after January 1, 1994, indicates those
Returns of which Company is aware that have been audited
and indicates those Returns that currently are the
subject of audit. Company has provided Parent access to
correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies
assessed against or agreed to by Company for any taxable
period ended on or after January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has
not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of
the Code concerning collapsible corporations. Company
has not made any payments, is not obligated to make any
payments and is not a party to any agreement that under
certain circumstances could obligate it to make any
payments that will not be fully deductible under Section
280G of the Code.
(vi) Company has not received a ruling from any taxing
authority or entered into
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any agreement regarding Taxes with any taxing authority
that would, individually or in the aggregate, apply to
the Surviving Corporation after the Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter
Documents. Neither Company nor, to the knowledge of the Company, any other party
thereto, is in default under any (i) Lease, instrument, agreement, license, or
permit set forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other
agreement to which it is a party or by which its properties are bound
(collectively, the "Documents"); and, except as set forth in Schedule 6.21,
(i) the rights and benefits of Company under the Documents will not be adversely
affected by the transactions contemplated hereby and (ii) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any violation or
breach or constitute a default under, any of the terms or provisions of the
Documents or the Charter Documents. Except as set forth on Schedule 6.21, none
of the Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect in all respects,
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or publication by Company, Parent or Newco of
the name of any other party to such Document, and none of the Documents
prohibits or restricts Company from freely providing services to any other
customer or potential customer of Company, Parent, Newco or any other Founding
Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or
business of Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered
by insurance) adversely affecting the properties or
business of Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any
direct or indirect redemption, purchase or other
acquisition of any of the capital stock of Company;
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become
payable by Company to any of its officers, directors,
stockholders, employees, consultants or agents, except
for
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ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of
any character, adversely affecting the business of
Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any assets, property or rights of Company to
any person, including, without limitation, Stockholders
and their Affiliates outside the ordinary course of
business of Company;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to Company,
including without limitation any indebtedness or
obligation of any Stockholder or any Affiliate thereof
outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest
in any of the assets, property or rights of Company or
requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right
or asset outside of the ordinary course of Company's
business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which
Company is a party;
(xiii) any transaction by Company outside the ordinary course
of its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company
has accounts or
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safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions
made in a lawful manner which, in the aggregate, do not exceed $5,000 per year
for each year in which any Stockholder has been a stockholder of Company,
Company has not made, offered or agreed to offer anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would cause Company to be in violation
of the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect. If political contributions made by Company have exceeded $5,000 per year
for each year in which any Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be rendered untrue in any respect by, any other document to which Company
is a party, or to which its properties are subject, or by any other fact or
circumstance regarding Company (which fact or circumstance was, or should
reasonably, after due inquiry, have been known to Company) that is not disclosed
pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26,
Company has not, between the Balance Sheet Date and the date of this Agreement,
taken any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents,
warrants, covenants and agrees (i) that the representations and warranties set
forth below are true as of the date of this Agreement and, subject to Section
9.7, shall be true at the Closing Date, (ii) that all of the covenants and
agreements in this Section 7 shall be complied with or performed at and as of
the Closing Date and (iii) that by executing this Agreement each Stockholder
shall be deemed to have approved the terms of the Merger as required by the
OGCA.
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<PAGE>
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholders enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or
Parent Stock that such Stockholder has or may have had, other than rights of any
Stockholder to acquire Parent Stock pursuant to (i) this Agreement or (ii) any
option granted by Parent.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant
and agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Parent
and Newco and their consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action of Parent and Newco.
This Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco
is as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of
the issued and outstanding shares of the capital stock of Parent and Newco
(i) have been duly authorized and validly issued, (ii) are fully paid and
nonassessable, (iii) are owned of record and beneficially by the persons set
forth on Schedule 2.4(ii) and Parent, respectively, and (iv) were offered,
issued, sold and delivered by Parent and Newco in compliance with all applicable
state and Federal laws concerning the offer, issuance, sale and delivery of
securities. Further, none of such shares was issued in violation of the
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preemptive rights of any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no
Subsidiaries except for Newco and each of the other companies identified on
Schedule 8.5. Except as set forth in the preceding sentence, neither Parent nor
Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in a Person nor is Parent or Newco, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement or agreements similar to this Agreement with the Founding
Companies and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires
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notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby in
order to remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to
the Stockholders pursuant to this Agreement will have been duly authorized prior
to the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in
September 1998. Neither Parent nor Newco has conducted any business since the
date of its inception, except raising capital and in connection with this
Agreement and similar agreements with the Founding Companies. Except as
disclosed on Schedule 8.10, neither Parent nor Newco owns or has at any time
owned any real property or any personal property or is a party to any other
agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's
sites, properties, books and records and will furnish
Parent with such additional financial and operating data
and other information as to the business and properties
of Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its
representatives, auditors and counsel in the preparation
of any documents or other material that may be required
in connection with any documents or materials required
by this Agreement. Parent and Newco will treat all
information obtained in connection with the negotiation
and performance of this Agreement as confidential in
accordance with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing,
Parent will afford to the officers and authorized
representatives of Company and Stockholders access to
all of the sites, properties, books and records of
Parent, Newco and the other companies listed on Schedule
9.1(ii) ("Founding Companies") and will furnish Company
and Stockholders with such additional financial and
operating data and other information as to the business
and properties of Parent, Newco and the Founding
Companies as Company and Stockholders may from time to
time reasonably request. Parent and Newco will
cooperate with Company and Stockholders'
representatives, auditors and counsel in the preparation
of any documents or other material which may be required
in connection with any documents or materials required
by this Agreement.
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Company and Stockholders 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved
in writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner
as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its properties and facilities, including those
held under lease, in as good working order and condition
as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects
the present insurance policies or other comparable
insurance coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its respective
present key employees and maintain its respective
relationships with suppliers, customers and others
having business relations with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(vii) maintain present debt instruments and Leases and not
enter into new or amended debt instruments or Leases;
and
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents
except for ordinary and customary bonus and salary
increases for employees in accordance with past
practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls,
conversion rights or
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commitments relating to its securities of any kind other
than in connection with the exercise of options or
warrants listed in Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures,
except if it is in the normal course of business
(consistent with past practice), in connection with the
transactions contemplated by this Agreement, or involves
an amount not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any
asset or property whether now owned or hereafter
acquired, except (x) with respect to purchase money
Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $5,000
as necessary or desirable for the conduct of its
business, (y) (1) Liens for Taxes either not yet due or
being contested in good faith and by appropriate
proceedings (and for which contested Taxes adequate
reserves have been established and are being maintained)
or (2) materialmen's, mechanic's, worker's, repairmen's,
employee's or other like Liens arising in the ordinary
course of business, or (3) Liens set forth on Schedule
6.8 or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall
not be deemed to be included in Schedule 6.9 unless
specifically listed thereon;
(x) commit a material breach or amend or terminate any
material agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary
course of its business or
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prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending with
the earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent
or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholder agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company shall
give prompt notice to Parent of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Company or Stockholders contained herein to be
untrue or inaccurate in any respect at or prior to the Closing Date and (ii) any
failure of any Stockholder or Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such Person hereunder
as of such date. Parent and Newco shall give prompt notice to the Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would likely cause any representation or warranty of
Parent or Newco contained herein to be untrue or inaccurate in any respect at or
prior to the Closing Date and (ii) any failure of Parent or Newco to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder as of such date. The delivery of any notice pursuant to this
Section 9.6 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 9.7, (ii) modify the conditions set forth in Sections
10 and 11, or (iii) limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 11:59 p.m.
March 31, 1999 to supplement or amend promptly the
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Schedules 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. Notwithstanding the foregoing
sentence, no amendment or supplement to a Schedule prepared by Company or Parent
that constitutes or reflects an event or occurrence that would have a Adverse
Effect may be made unless the parties not making the amendment or supplement
consent to such amendment or supplement. For all purposes of this Agreement,
including without limitation for purposes of determining whether the conditions
set forth in Sections 10.1 and 11.1 have been fulfilled, the Schedules shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
9.7. Except as otherwise specified in Section 16.3, no party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of Section 14.1(iv). Neither the entry by Parent
into any other agreement, such as this Agreement, after the date hereof for the
acquisition of one or more companies nor the performance by Parent of its
obligations thereunder shall be deemed to require the amendment to or a
supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of Parent and Newco contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Parent and Newco on or before the Closing Date
shall have been duly complied with or performed; and a certificate to the
foregoing effect dated the Closing Date, and signed by the President or any Vice
President of Parent and of Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Company as a result of which the
management of Company deems it inadvisable to proceed with the transactions
hereunder.
10.3 CONSENTS AND APPROVALS. All necessary consents of and filings
with any governmental authority or agency relating to the consummation of the
transactions contemplated
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herein shall have been obtained and made.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect on Stockholders or the Company.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of Parent and of Newco, certifying the completeness and accuracy of the attached
copies of Parent's and Newco's respective Charter Documents (including
amendments thereto), Bylaws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of Parent and Newco
approving Parent's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule
10.7 shall have been afforded an opportunity to enter into an employment
agreement, reasonably acceptable to both parties and substantially in the form
of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholders and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholders and
Company each shall have delivered to Parent a certificate dated the Closing Date
and signed by them to such effect.
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11.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a
certificate, dated the Closing Date and signed by the Secretary of the Company,
certifying the completeness and accuracy of the attached copies of Company's
Charter Documents (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and Stockholders approving
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect on Newco or Parent, and 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 Company to conduct its business.
11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to
Parent an instrument dated the Closing Date releasing Company from (i) any and
all claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good standing and
authorized to do business and that all state franchise and/or income Tax returns
and Taxes for Company for all periods prior to the Closing have been filed and
paid.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to
Parent a certificate to
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the effect that he or she is not a foreign person under Section 111445-2(b) of
the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule
10.7 shall have executed an employment agreement, reasonably acceptable to both
parties and substantially in the form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent an
audited Balance Sheet as of December 31, 1998 and an audited Statement of
Income, Retained Earnings and Cash Flows for the year ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal,
state and local income Tax Returns of Company for all
taxable periods that end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate
Returns of, or that include, Company for all taxable
periods ending after the Closing Date.
(iii) Each party hereto shall, and shall cause its
Subsidiaries and Affiliates to, provide to each of the
other parties hereto such cooperation and information as
any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include
providing copies of all relevant portions of relevant
Returns, together with relevant accompanying schedules
and 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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing
Date, Parent shall not terminate any health insurance, life insurance or 401(k)
plan in effect at Company until such time as Parent is able to replace such plan
with a plan that is applicable to Parent and all of its then existing
Subsidiaries; provided that Parent shall have no obligation to provide
replacement plans
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that have the same terms and provisions as the existing plans; provided,
further, that any new health insurance plan shall provide for coverage for
preexisting conditions. On the Closing Date, the employees of Company will be
the employees of the Surviving Corporation (provided that this provision is for
purposes of clarifying that the Merger, in and of itself, will not have any
impact on the employment status of any employee; and provided further that this
provision shall not in any way limit the management rights of the Surviving
Corporation or Parent to assess workforce needs and make appropriate adjustments
as necessary or desirable within its discretion subject to applicable laws and
collective bargaining agreements).
13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants that
are applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders
covenant and agree that they, severally and not jointly in the case of
representations, warranties, covenants and agreements set forth in Section 7,
and jointly and severally in all other cases, will indemnify, defend, protect
and hold harmless Parent, Newco, Company and the Surviving Corporation at all
times, from and after the Closing Date 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 expenses of investigation) incurred by Parent,
Newco, Company or the Surviving Corporation as a result of or arising from any
breach of any representation, warranty, covenant or agreement on the part
of Stockholders or Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it
will indemnify, defend, protect and hold harmless Stockholders at all times from
and after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement. Further,
Parent covenants and agrees that it will indemnify each Stockholder against any
and all disclosed obligations, liabilities and debts of the Company existing as
of the time of Closing, EXCEPT for claims based in fraud, or specifically and
expressly excluded herein, BUT INCLUDING AND NOT LIMITED TO all obligations,
liabilities and debts of the Company being assumed by the successor by merger
with the Company under this Agreement, any claims under any Company warranty
related to sales of services or products, known or unknown, disclosed bank debt
or payables to Company vendors. Parent specifically agrees that as soon as
reasonably possible after Closing, it, along with the successor by Merger to the
Company, shall take any and all steps reasonably necessary to secure the
termination, release or cancellation of any guaranty agreements given by Ken
Blood on any indebtedness or financial arrangement of the Company, including,
but not limited to, giving appropriate replacement guarantees. In any event,
Parent and Company shall at all times fully indemnify and protect Ken
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Blood from any and all claims and liability under any such guaranty, from and
after Closing hereunder.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge of
any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 13.1
or 13.2 (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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for any additional costs of
defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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
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may settle such matter upon consent of the Indemnifying Party, which consent
will not be unreasonably withheld, 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. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
Anything in this Agreement to the contrary notwithstanding, any amounts owing
from an Indemnifying Party to an Indemnified Party under the provisions of this
Section 13 shall be reduced to the extent to which the Indemnified Party, or any
other claimant, actually receives any proceeds of any insurance policy that are
paid with respect to the matter or occurrence that gave rise to the ThirdPerson
claim. Submission to insurance of any insurable claim otherwise giving rise to
indemnification under this Section 13 shall be a condition precedent to seeking
indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 13 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party; 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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 if and to the extent that such person's
claim for indemnification is directly or indirectly related to a material breach
by such person of any representation, warranty, covenant or agreement set forth
in this Agreement.
Notwithstanding any other provisions in this Agreement, under no
circumstances shall the total cost, loss or liability of any Stockholder under
any indemnity provision herein ever exceed the amount of value of the cash and
stock provided to that Shareholder as of the time of Closing.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent
and Company;
(ii) by Company (acting through its board of directors), on
the one hand, or by Parent (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 May 31, 1999
unless the failure of such transactions to be
consummated is due to the willful failure of the party
seeking to terminate this Agreement to perform any of
its obligations under this Agreement to the extent
required to be performed by it prior to or on the
Closing Date;
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(iii) by Stockholders or Company, on the one hand, or by
Parent, on the other hand, if a material breach or
default shall be made by the other party in the
observance or in the due and timely performance of any
of the material covenants, agreements or conditions
contained herein, and the curing of such default shall
not have been made on or before the Closing Date; or
(iv) by Company and Stockholders, on the one hand, or by
Parent, on the other hand, if either such party or
parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or
parties pursuant to Section 9.7 because such proposed
amendment constitutes or reflects an event or occurrence
that would have a material Adverse Effect on the party
or parties proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any
Stockholder subject to an employment agreement listed in Schedule 10.7, each of
which is expressly excepted from the obligations imposed by this Section 15)
will not, for a period of one year following the Closing Date, if not employed
by the Company after Closing, or if employed by the Company after Closing, for a
period of one year after the date of termination of employment if such
termination occurs within twelve months after the Closing Date for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other Person:
(i) engage in sales or marketing, as an officer, director,
stockholder, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales
representative, in the sale or marketing of
telecommunication services or interconnect services, at
the retail, commercial or consumer level, within an area
which is 30 miles from Oklahoma City, as defined by the
map and milage tables of the Official State Map of the
State of Oklahoma, which territory includes Oklahoma
City, Edmond, Norman, El Reno, Choctaw, Harrah, Newalla,
Jones, Piedmont, Okarche, Arcadia and Luther (but
excludes Guthrie, Kingfisher, Purcell and Chickasha)
(the "Territory");
(ii) call upon any person within the Territory who is an
employee of Parent (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 Parent (including the
Subsidiaries thereof);
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(iii) call upon any Person which is or which has been, within
one year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof) for the purpose of
soliciting or selling products or services in direct
competition with Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor
of Parent (including the Subsidiaries thereof) in the
long-distance telephone or interconnect business, which
candidate, to the knowledge of such Stockholder after
due inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to the knowledge of
such Stockholder after due inquiry, Parent (or any
Subsidiary thereof) made an acquisition analysis, for
the purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to
any Person for any reason or purpose whatsoever except
to the extent that the Company has in the past disclosed
such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed
to prohibit any Stockholder from acquiring as an investment after the date of
this Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses
to Parent as a result of a material breach of the foregoing covenants, and
because of the immediate and irreparable damage that could be caused to Parent
for which it would have no other adequate remedy, each Stockholder agrees that
the foregoing covenants may be enforced by Parent in the event of breach by such
Stockholder, by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
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15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15
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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set
forth in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize
and acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) 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 (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of
this Section 16.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholder from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on each Stockholder's ability
to disseminate confidential information with respect to Company shall become
nugatory and (2) each Stockholder (including his representatives, advisors and
legal counsel) shall within ten business days of the Parent's request, deliver
all copies of the confidential information of Parent in his possession in any
form whatsoever (including, but not limited to, any
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reports, memoranda, or other material prepared by such Stockholder or his
representatives, advisors or legal counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge
that they had in the past and currently have and in the future may have, prior
to the Closing, access to certain confidential information of Company, such as
customer lists, financial information, operational policies, and pricing and
cost policies that are valuable, special and unique assets of Company. Parent
and Newco agree that, prior to the Closing, or if the transactions contemplated
by this Agreement are not consummated, they will not disclose such confidential
information to any person for any purpose or reason whatsoever, except (i) to
authorized representatives of Company; and (ii) to counsel and other advisers;
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 16.2, unless (x) such information becomes known to
the public generally through no fault of Parent or Newco, (y) 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 (y),
Parent and Newco shall, if possible, give immediate prior written notice thereof
to Company and Stockholders and provide Company and Stockholders with the
opportunity to contest such disclosure, or (z) 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 Parent or Newco of the provisions of this Section 16.2, Company and
Stockholders shall be entitled to an injunction (without the posting of bond or
proof of actual damages) restraining Parent and Newco from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting Company and Stockholders 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,
Parent and Newco (including their representatives, advisors and legal counsel)
shall within ten business days after Company's request, deliver all copies of
the confidential information of Company in their possession in any form
whatsoever (including, but not limited to, any reports, memoranda, or other
materials prepared by Parent or Newco or their representatives, advisors or
legal counsel at the direction of Parent or Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 16.1 and 16.2
and because of the immediate and irreparable damage that would be caused for
which no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16
shall survive the termination of this Agreement for a period of three years from
the Closing Date or the termination of this Agreement pursuant to Section 14.
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17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound
by the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period of
one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholders pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER=S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER , IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own account, for investment purposes only, and not
with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant
and agree that none of the Restricted Securities will be offered, sold,
assigned, exchanged, transferred, encumbered, distributed, appointed 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 thereunder
and the provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED
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UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE
STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS
SECURITY SHALL HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE
SHARES REPRESENTED BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT
THE PROPOSED DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY
BE REASONABLY SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear
the economic risk of an investment in the Restricted Securities and can afford
to sustain a total loss of such investment and have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks of the proposed investment in Parent. Stockholders have
had an adequate opportunity to ask questions and receive answers from the
officers of Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date
of consummation of the IPO, whenever Parent proposes to register any Parent
Stock for its own or the account of others under the 1933 Act for a public
offering, other than (i) any shelf registration of shares to be used as
consideration for acquisitions of additional businesses by Parent and
(ii) registrations relating to employee benefit plans, Parent shall give each
Stockholder prompt written notice of its intent to do so. Upon the written
request of any Stockholder given within 15 business days after receipt of such
notice, Parent shall cause to be included in such registration all Registerable
Securities (including any shares of Parent Stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Registerable Securities) which any Stockholder requests; provided, however, if
Parent is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 19.1 that the number of shares to be
sold by Persons other than Parent is greater than the number of such shares
which can be offered without adversely affecting the offering, Parent may reduce
pro rata the number of shares offered for the accounts of such Persons (based
upon the number of shares held by such Person) to a number deemed satisfactory
by such managing underwriter.
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19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Stockholders or their permitted transferees or (ii) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing that
Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholders or their permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days of
the receipt of such request, Parent shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from the Founding Stockholders requesting
such registration, file and use its best efforts to cause to become effective a
registration statement covering all such shares. Parent shall be obligated to
effect only one Demand Registration for all Founding Stockholders; provided,
however, that Parent shall not be deemed to have satisfied its obligation under
this Section 19.2 unless and until a Demand Registration covering all shares of
Parent Stock requested to be registered has been filed and becomes effective
under the 1933 Act and has remained current and effective for not less than 90
days (or such shorter period as is required to complete the distribution and
sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a
majority of the disinterested directors of Parent (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Section 19 (including all registration,
filing, qualification, legal, printing and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Parent. In
connection with registrations under Sections 19.1 and 19.2, Parent will, as
expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such Parent Stock and use its best
efforts to cause such registration statement to
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become and remain effective; provided that Parent may
discontinue any registration of its securities that is
being effected pursuant to Section 19.1 at any time
prior to the effective date of the registration
statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for a period as may be
requested by the stockholders holding a majority of the
Parent Stock covered thereby not exceeding 90 days and
to comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by
such registration statement during such period in
accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such
registration statement; provided, that before filing a
registration statement or prospectus relating to the
sale of Parent Stock, or any amendments or supplements
thereto, Parent will furnish to counsel to each holder
of Parent Stock covered by such registration statement
or prospectus, copies of all documents proposed to be
filed, which documents will be subject to the review of
such counsel, and Parent will give reasonable
consideration in good faith to any comments of such
counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any,
of such Parent Stock, such number of copies of a
preliminary prospectus and prospectus for delivery in
conformity with the requirements of the 1933 Act, and
such other documents, as such Person may reasonably
request, in order to facilitate the public sale or other
disposition of the Parent Stock.
(iv) Use its best efforts to register or qualify the Parent
Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions
as each seller shall reasonably request, and do any and
all other acts and things which may be reasonably
necessary or advisable to enable such seller to
consummate the disposition of the Parent Stock owned by
such seller, in such jurisdictions, except that Parent
shall not for any such purpose be required (x) to
qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this
Section 19.3(iv), it is not then so qualified, or (y) to
subject itself to taxation in any such jurisdiction, or
(z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered
by such registration
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statement to be registered with or approved by such
other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to
consummate the disposition of such Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered
by such registration statement, at any time when a
prospectus relating thereto is required to be delivered
under the 1933 Act within the appropriate period
mentioned in Section 19.3(ii), if Parent becomes aware
that the prospectus included in such registration
statement, as then in effect, includes 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 in the
light of the circumstances then existing, and, at the
request of any such seller, deliver a reasonable number
of copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the
Parents of such Parent Stock, each prospectus shall not
include an untrue statement of a material fact or omit
to state a material fact required to be stated therein
or necessary to make the statements therein not
misleading in the light of the circumstances then
existing.
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make
generally available to its security holders, in each
case as soon as practicable, but not later than 45
calendar days after the close of the period covered
thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Parent), an earnings
statement of Parent which will satisfy the provisions of
Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the
underwriters to list such Parent Stock on each
securities exchange as they may reasonably designate.
(ix) In the event the offering is an underwritten offering,
use its best efforts to obtain a "cold comfort" letter
from the independent public accountants for Parent in
customary form and covering such matters of the type
customarily covered by such letters.
(x) Execute and deliver all instruments and documents
(including in an underwritten offering an underwriting
agreement in customary form) and take such other actions
and obtain such certificates and opinions as the
stockholders holding a majority of the shares of Parent
Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten
public offering of such Parent Stock.
(xi) Make available for inspection by the seller of such
Parent Stock covered by such registration statement, by
any underwriter participating in any
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disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all
pertinent financial and other records, pertinent
corporate documents and properties of Parent, and cause
all of Parent's officers, directors and employees to
supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in
connection with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an
opinion or opinions from counsel for Parent in customary
form and in form and scope reasonably satisfactory to
such underwriter or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each stockholder holding shares of Parent Stock covered
by a registration statement referred to in this Section
19 will, upon receipt of any notice from Parent of the
happening of any event of the kind described in Section
19.3(vi), forthwith discontinue disposition of the
Parent Stock pursuant to the registration statement
covering such Parent Stock until such holder's receipt
of the copies of the supplemented or amended prospectus
contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2
involves an underwritten offering, each of the
Stockholders agrees, whether or not his shares of Parent
Stock are included in such registration, not to effect
any public sale or distribution, including any sale
pursuant to Rule 144 under the 1933 Act, of any Parent
Stock, or of any security convertible into or
exchangeable or exercisable for any Parent Stock (other
than as part of such underwritten offering), without the
consent of the managing underwriter, during a period
commencing eight calendar days before and ending 180
calendar days (or such lesser number as the managing
underwriter shall designate) after the effective date of
such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of
Parent under the 1933 Act pursuant to Section 19.1 or
19.2, Parent will, and it hereby agrees to, indemnify
and hold harmless, to the extent permitted by law, each
seller of any Parent Stock covered by such registration
statement, each Affiliate of such seller and their
respective directors, officers, employees and agents or
general and limited partners (and directors, officers,
employees and agents thereof) each other Person who
participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who
controls such
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seller or any such underwriter within the meaning of the
1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an
untrue statement or alleged untrue statement of a
material fact contained in any registration statement
(or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of
an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or
prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein
not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation
or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such
settlement is effected with the written consent of
Parent; and
(z) against any and all expense reasonably incurred by them
in connection with investigating, preparing or defending
against any litigation, or investigation or proceeding
by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense
is not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or any
such director, officer, employee, agent, general or limited
partner, investment advisor or agent, underwriter or controlling
Person and shall survive the transfer of such securities by such
seller.
(ii) Parent may require, as a condition to including any
Parent Stock in any registration statement filed in
accordance with Section 19.1 or 19.2, that Parent shall
have received an undertaking reasonably satisfactory to
it from the prospective seller of such Parent Stock or
any underwriter, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in
Section 19.5(i)) Parent with respect to any statement or
alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final
or summary prospectus contained therein, or any
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amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in
reliance upon and in conformity with written information
furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in
the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or
supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on
behalf of Parent or any such director, officer or
controlling Person and shall survive the transfer of
such securities by such seller. In that event, the
obligations of the Parent and such sellers pursuant to
this Section 19.5 are to be several and not joint;
provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable
for the full amount of such claim, and each such
seller's liability under this Section 19.5 shall be
limited to an amount equal to the net proceeds (after
deducting the underwriting discount and expenses)
received by such seller from the sale of Parent Stock
held by such seller pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder
of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section
19.5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party,
give written notice to such indemnifying party of the
commencement of such action; provided, however, that the
failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party
of its obligations under this Section 19.5, except to
the extent (not including any such notice of an
underwriter) that the indemnifying party is materially
prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim
(in which case the indemnifying party shall not be
liable for the fees and expenses of more than one firm
of counsel selected by holders of a majority of the
shares of Parent Stock included in the offering or more
than one firm of counsel for the underwriters in
connection with any one action or separate but similar
or related actions), the indemnifying party will be
entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish with
counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnifying
party in connection with the defense thereof, provided
that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified
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party (which consent shall not be unreasonably withheld)
unless such settlement requires no more than a monetary
payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full,
unconditional and complete release of the indemnified
party; provided, however, that the indemnified party
shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the
indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be
inappropriate under the applicable standards of
professional conduct due to actual or potential
differing interests between them. In the event that the
indemnifying party does not assume the defense of a
claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such
claim by all appropriate proceedings, and will have
control of such defense and proceedings, and the
indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying
party. Each indemnified party shall, and shall cause its
legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection
with its assuming the defense of any claim, including
the furnishing of the indemnifying party with all papers
served in such proceeding. In the event that an
indemnifying party assumes the defense of an action
under this Section 19.5(iii), then such indemnifying
party shall, subject to the provisions of this Section
19.5, indemnify and hold harmless the indemnified party
from any and all losses, claims, damages or liabilities
by reason of such settlement or judgment.
(iv) Parent and each seller of Parent Stock shall provide for
the foregoing indemnity (with appropriate modifications)
in any underwriting agreement with respect to any
required registration or other qualification of
securities under any federal or state law or regulation
of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no
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seller of Parent Stock shall be required to contribute any amount in excess of
the amount such seller would have been required to pay to an indemnified party
if the indemnity under Section 19.5(ii) were available. Parent and each such
seller agree with each other and the underwriters of the Parent Stock, if
requested by such underwriters, that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation (even if
the underwriters were treated as one entity for such purpose) or for the
underwriters' portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the
Parent Stock. For purposes of this Section 19.6, each Person, if any, who
controls an underwriter within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as such underwriter, and each director and
each officer of Parent who signed the registration statement, and each Person,
if any, who controls Parent or a seller of Parent Stock within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as Parent
or a seller of Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. After Parent completes its initial underwritten public offering
and for as long thereafter as any Stockholder shall continue to hold any
Restricted Securities, Parent shall use reasonable efforts to file, on a timely
basis, all annual, quarterly and other reports required to be filed by it under
Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder, as amended from time to time.
20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law or as
permitted by Section 17), but if assigned by operation of law, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholders. Notwithstanding the foregoing, any Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholders, Company, Newco and Parent and
supersede any prior agreement and understanding
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<PAGE>
relating to the subject matter of this Agreement. This Agreement, upon execution
and delivery, 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 Stockholders and by Company, Newco and Parent,
acting through their respective officers or representatives, duly authorized by
their respective Boards of Directors. Any disclosure made on any Schedule
delivered pursuant hereto shall be deemed to have been disclosed for purposes of
any other Schedule required hereby; provided that Company shall make a good
faith effort to cross reference disclosures, as necessary or advisable, between
related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damage or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their address
set forth on Schedule
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<PAGE>
6.3, with copies to such counsel as is set forth with
respect to each Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
Nobel Systems, Inc.
3013 N.W. 59th Street
Oklahoma City, Oklahoma 73112
Attn: Ken Blood
Telecopy No.: (405) 843-8847
with a copy to:
Pate, Kempf & Knarr
Two Leadership Square
211 North Robinson
Suite 418
Oklahoma City, Oklahoma 73102
Attn: John Frederick Kempf, Jr.
Telecopy No.: (405) 232-3930
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance
with the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
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<PAGE>
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section
13.4, 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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each
other and no party shall issue any public announcement or statement with respect
to the transactions contemplated hereby without the consent of the other
parties, unless the party desiring to make such announcement or statement, after
seeking such consent from the other parties, obtains advice from legal counsel
that a public announcement or statement is required by applicable law.
20.14 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 Parent, Newco, Company and Stockholders. Any amendment
or waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of
or relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may be entitled to pursue such remedies for
emergency or preliminary injunctive relief in any court of competent
jurisdiction, provided that each party agrees that it will consent to the stay
of such judicial proceedings on the merits of both this Agreement and the
related transactions pending arbitration of all underlying claims between the
parties immediately following the issuance of any such emergency or injunctive
relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company
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<PAGE>
Stock; PROVIDED HOWEVER, that no election shall be made if, as a result of the
election, the Stockholders would incur any adverse tax or other consequences not
otherwise reimbursed by Parent or Newco to the Stockholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
--------------------------
NAME: David W. Aduddell
TITLE: President/Chief
Executive Officer
ALLIANCE ACQUISITION III CORP.
BY: /s/ David W. Aduddell
--------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
NOBEL SYSTEMS, INC.
BY: /s/ Kenneth Blood
--------------------------
NAME: Kenneth Blood
TITLE: President
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<PAGE>
STOCKHOLDERS:
/s/ Kenneth Blood
-------------------------------
Ken Blood
/s/ David Andres
-------------------------------
David Andres
/s/ Jim Pearson
-------------------------------
Jim Pearson
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<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION III CORP.
INTO
NOBEL SYSTEMS, INC.
Nobel Systems, Inc., an Oklahoma corporation, pursuant to Section 81 of
the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is Nobel Systems, Inc. and Alliance Acquisition III Corp.
SECOND. That an agreement and plan of merger has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with the provisions of Section 81 of the Oklahoma
General Corporation Act.
THIRD. That the name of the surviving corporation is Nobel Systems,
Inc..
FOURTH. That the certificate of incorporation of Alliance Acquisition
III Corp. shall be the certificate of incorporation of the surviving
corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be
furnished by the surviving corporation, on request and without cost, to any
shareholder of any constituent corporation.
SEVENTH. This merger shall be effective at - , Central Standard
Time, on the date this Certificate is filed with the Secretary of State of
the State of Oklahoma.
IN WITNESS WHEREOF, Nobel Systems, Inc. has caused this certificate to
be signed by its President and attested by its Secretary, this ____ day of March
1999.
NOBEL SYSTEMS, INC.
----------------------
President
ATTEST:
- ------------------------------
Secretary
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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION II CORP.
(Newco)
and
PERKINS OFFICE MACHINES, INC.
(Company)
and
JACK PERKINS
(Stockholder of the Company)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . 5
2.1 Delivery and Filing of Articles of Merger. . . . . . . . . . 5
2.2 Effective Time of the Merger . . . . . . . . . . . . . . . . 5
2.3 Certificate of Incorporation, Bylaws and Board of Directors
of the Surviving Corporation . . . . . . . . . . . . . . . . 5
2.4 Certain Information With Respect to the Capital Stock of
Company, Parent and Newco. . . . . . . . . . . . . . . . . . 6
2.5 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . 6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . 6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . 7
4.1 Effective Time . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Capital Stock of the Company . . . . . . . . . . . . . . . . 8
6.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . 8
6.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Predecessor Status; etc. . . . . . . . . . . . . . . . . . . 9
6.7 Financial Statements . . . . . . . . . . . . . . . . . . . . 9
6.8 Liabilities and Obligations. . . . . . . . . . . . . . . . . 9
6.9 Accounts and Notes Receivable. . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles. . . . . . . . . . . . . . . . . . . 10
6.11 Environmental Matters. . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property. . . . . . . . . . . . . . . . . . . . . . 11
6.13 Significant Customers; Material Contracts and Commitments. . 11
6.14 Real Property. . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters. . . . . . . . . . . . 13
6.17 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . 13
6.18 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . 14
6.19 Conformity with Law; Litigation. . . . . . . . . . . . . . . 15
6.20 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . 15
6.21 No Violations. . . . . . . . . . . . . . . . . . . . . . . . 17
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<PAGE>
6.22 Absence of Changes. . . . . . . . . . . . . . . . . . . . . 17
6.23 Deposit Accounts; Powers of Attorney . . . . . . . . . . . . 18
6.24 Relations with Governments . . . . . . . . . . . . . . . . . 19
6.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities. . . . . . . . . . . . . . . . . . . . 19
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . 20
8.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . 21
8.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . 21
8.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 Parent Securities. . . . . . . . . . . . . . . . . . . . . . 21
8.10 Business; Real Property; Agreements. . . . . . . . . . . . . 22
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . 22
9.1 Access and Cooperation; Due Diligence; Audits. . . . . . . . 22
9.2 Conduct of Business Pending Closing. . . . . . . . . . . . . 22
9.3 Prohibited Activities by the Company . . . . . . . . . . . . 23
9.4 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . 24
9.5 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Notification of Certain Matters. . . . . . . . . . . . . . . 25
9.7 Amendment of Schedules . . . . . . . . . . . . . . . . . . . 25
9.8 Further Assurance. . . . . . . . . . . . . . . . . . . . . . 26
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND COMPANY. . . 26
10.1 Representations and Warranties; Performance of Obligations . 26
10.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . 26
10.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . 26
10.4 Good Standing Certificates . . . . . . . . . . . . . . . . . 26
10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . 26
10.6 Secretary's Certificates . . . . . . . . . . . . . . . . . . 26
10.7 Employment Agreements. . . . . . . . . . . . . . . . . . . . 27
10.8 Closing of the IPO or the Private Placement. . . . . . . . . 27
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<PAGE>
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . 27
11.1 Representations and Warranties; Performance of Obligations . 27
11.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . 27
11.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . 27
11.4 No Material Adverse Effect . . . . . . . . . . . . . . . . . 27
11.5 Stockholder' Release . . . . . . . . . . . . . . . . . . . . 28
11.6 Termination of Related Party Agreements. . . . . . . . . . . 28
11.7 Consents and Approvals . . . . . . . . . . . . . . . . . . . 28
11.8 Good Standing Certificates . . . . . . . . . . . . . . . . . 28
11.9 FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . 28
11.10 Closing of the IPO or Private Placement. . . . . . . . . . . 28
11.11 Employment Agreement . . . . . . . . . . . . . . . . . . . . 28
11.12 Financial Statements . . . . . . . . . . . . . . . . . . . . 28
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDER. . . . . . . . . . . 28
12.1 Preparation and Filing of Tax Returns. . . . . . . . . . . . 28
12.2 Preservation of Employee Benefit Plans . . . . . . . . . . . 29
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13.1 General Indemnification by the Stockholder . . . . . . . . . 29
13.2 Indemnification by Parent. . . . . . . . . . . . . . . . . . 30
13.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . 30
13.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . 31
13.5 Limitations on Indemnification . . . . . . . . . . . . . . . 31
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . 31
14.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . 31
14.2 Liabilities in Event of Termination. . . . . . . . . . . . . 32
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . 32
15.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.3 Reasonable Restraint . . . . . . . . . . . . . . . . . . . . 33
15.4 Severability, Reformation. . . . . . . . . . . . . . . . . . 33
15.5 Independent Covenant . . . . . . . . . . . . . . . . . . . . 33
15.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . 34
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . 34
16.1 Company and Stockholder. . . . . . . . . . . . . . . . . . . 34
16.2 Parent and Newco . . . . . . . . . . . . . . . . . . . . . . 34
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 35
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . 35
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<PAGE>
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . 36
18.1 Compliance With Law. . . . . . . . . . . . . . . . . . . . . 36
18.2 Economic Risk, Sophistication. . . . . . . . . . . . . . . . 36
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 37
19.1 PiggyBack Registration Rights. . . . . . . . . . . . . . . . 37
19.2 Demand Registration Rights . . . . . . . . . . . . . . . . . 37
19.3 Registration Procedures. . . . . . . . . . . . . . . . . . . 38
19.4 Other Registration Matters . . . . . . . . . . . . . . . . . 40
19.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 41
19.6 Contribution . . . . . . . . . . . . . . . . . . . . . . . . 43
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions . . . . . . . . . . . . . . . . . . . . . . . . 44
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
20.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . 44
20.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 44
20.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 45
20.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 45
20.5 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . 45
20.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 46
20.8 Exercise of Rights and Remedies. . . . . . . . . . . . . . . 46
20.9 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.10 Reformation and Severability . . . . . . . . . . . . . . . . 47
20.11 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . 47
20.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.13 Public Statements. . . . . . . . . . . . . . . . . . . . . . 47
20.14 Amendments and Waivers . . . . . . . . . . . . . . . . . . . 47
20.15 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . 47
20.16 338 Election . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 10th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION II CORP., an Oklahoma corporation
("Newco"), PERKINS OFFICE MACHINES, INC., an Oklahoma corporation (the
"Company"), and JACK PERKINS, the only stockholder of the Company (the
"Stockholder").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the laws
of the State of Oklahoma, having been incorporated on March 9, 1999, solely for
the purpose of completing the transaction set forth herein, and Newco is a
wholly-owned subsidiary of Parent, a corporation organized and existing under
the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 stockholder that Newco merge with and into Company, as set
forth in Annex I, pursuant to this Agreement and the applicable provisions of
the laws of the State of Oklahoma ("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section 368(a)(1)(A)
of the Code; and
WHEREAS, Stockholder is the owner of 100 shares of Common Stock, $10.00 par
value, of Company ("Company Stock"), representing all the issued and outstanding
capital stock of Company outstanding on the date of this Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company Stock
will be converted into aggregate consideration of $312,000, comprised of
$187,000 in cash and - shares [equal to $125,000] of Common Stock $.01 par
value, of Parent ("Parent Stock"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained, the
parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
<PAGE>
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
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"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholder" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"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.
"OGCA" means the Oklahoma General Corporation Act.
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"Other Stockholder" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholder" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar
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functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person, by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed as
provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of the
Surviving Corporation until they shall thereafter be further
amended;
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of the
Surviving Corporation after the Effective Time until his
successor shall have been elected and qualified; and
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(iv) David W. Aduddell, Chief Executive Officer; Jack Perkins,
President; Joe Evans, Chief Financial Officer and Secretary; and
Jeff Hartwig, Vice President of Operations of Newco immediately
prior to the Effective Time shall continue as the officers of the
Surviving Corporation after the Effective Time in the same
capacity or capacities, until their successors are duly elected
and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of Company
is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of Parent is
as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000 shares of
common stock, par value $.01, of which 1,000 shares are issued
and outstanding and entitled to one vote per share on all matters
submitted to stockholder.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holders thereof, automatically
shall be deemed to represent the right to receive, in aggregate,
(i) - shares [equal to $125,000] of Parent Stock and (ii)
$187,000 in cash, all as more particularly set forth in Section
4.1;
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(ii) all shares of Company Stock that are held by Company as treasury
stock shall be canceled and retired and no Parent Stock, cash or
other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, automatically shall
be deemed to represent the right to receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholder shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
- ------------------- ----------------- ---------------- ----
<S> <C> <C> <C>
Jack Perkins 100 - [equal to $ 187,000
$125,000]
</TABLE>
4.2 CERTIFICATES. Stockholder shall present to Parent at the Closing all
certificates representing any and all shares of Company Stock, duly endorsed in
blank by Stockholder, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholder'
expense, affixed and canceled.
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5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii) below
(the "Closing"), the parties to this Agreement shall take all actions necessary
to prepare to (i) effect the Merger (including the filing with the appropriate
state authorities of the Certificate of Merger which shall become effective at
the Effective Time) and (ii) effect the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4; provided, that
such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. On the Closing Date (x) the
Certificate of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 10:00 a.m. Central Standard
Time on the Closing Date, become effective and the Merger shall thereby be
effected and (y) all transactions contemplated by this Agreement, including the
conversion of the shares and delivery of the Parent Stock which the Stockholder
shall be entitled to receive pursuant to the Merger shall occur and be deemed to
be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDER
Company and each Stockholder, jointly and severally represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date. For purposes of this Section
6, the term "Company" shall mean and refer to Company and all of its
Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have an adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise), of
Company taken as a whole (as used herein with respect to Company, or with
respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets forth the
jurisdiction in which Company is incorporated and contains a list of all such
jurisdictions in which Company is authorized or qualified to do business. True,
complete and correct copies of the Charter Documents and Bylaws, each as
amended, of Company are all attached hereto as Schedule 6.1. The stock records
of Company, as heretofore made available to Parent, are correct and complete.
To the knowledge of Company and Stockholder, there are no minutes in the
possession of Company or Stockholder which have not been made available to
Parent, and all of such minutes are correct and complete.
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6.2 AUTHORIZATION. Company has all requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by Company of this Agreement and its consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the stockholder of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of Company
is as set forth in Schedule 2.4(i). All of the issued and outstanding shares of
the capital stock of Company are owned of record by Stockholder in the amounts
set forth in Section 4.1 and further, except as set forth on Schedule 6.3, are
owned free and clear of all mortgages, liens, security interests, pledges,
voting trusts, restrictions, encumbrances and claims of every kind
(collectively, the "Liens"). All of the issued and outstanding shares of the
capital stock of Company (i) have been duly authorized and validly issued and
(ii) are fully paid and nonassessable. Further, none of such shares was issued
in violation of the preemptive rights of any past or present stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1995. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company has no
Subsidiaries, (ii) 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, and (iii) Company is
not directly or indirectly, a participant in any joint venture, partnership or
other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are copies of
the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
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accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.7). Except as set forth on
Schedule 6.7, the Balance Sheets referred to in this Section 6.7 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.7 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte & Touche LLP.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a list
(which is set forth on Schedule 6.8) as of the Balance Sheet Date of (i) all
liabilities of Company of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, that are not reflected
on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance Sheet Date
Company has not incurred any liabilities 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. Company has also
disclosed to Parent on Schedule 6.8, in the case of those contingent liabilities
related to pending or threatened litigation or other liabilities which are not
fixed or otherwise accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholder. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories, and such list and such aging report (the "A/R Aging
Report") as of the most practicable date. Except to the extent reflected on
Schedule 6.9 or as disclosed by Company to Parent in a writing accompanying the
A/R Aging Report, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 6.9, and shall be collectible in the amounts shown
on the A/R Aging Report, net of reserves reflected in the December Balance Sheet
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and as of the date of the A/R Aging Report, respectively.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have an Adverse Effect on its business, and Company has delivered to Parent an
accurate list and summary description (which is set forth on Schedule 6.10) of
all such licenses, franchises, permits and other governmental authorizations,
including titles, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by Company (including interests in
software or other technology systems, programs and intellectual property) (it
being understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 6.11). To the knowledge of
Company, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 6.10 and 6.11 are valid in all respects, and 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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) to the knowledge of Company, no
on-site or off-site location to which Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against Company, Parent or Newco for any clean-up
cost, remedial work, damage to natural resources,
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property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) Company has no contingent liability in connection
with any release of any Hazardous Waste or Hazardous Substance into the
environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.12) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Company
has delivered to Parent an accurate list (which is set forth on Schedule 6.13)
of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
Company has listed on Schedule 6.13 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as of the
Balance Sheet Date and (y) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
Parent. Company has complied with all commitments and obligations pertaining to
it, and is not in default under any contract or agreement listed on Schedule
6.13 and no notice of default under any such contract or agreement has been
received. Company has also indicated on Schedule 6.13 a summary description of
all plans or projects involving the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $5,000 by
Company.
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6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by
Company in the conduct of its business. Company has good and insurable title to
the real property owned by it, including those reflected on Schedule 6.14,
subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing specified
liabilities (with respect to which no default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do
not adversely affect in any respect the current use of the
property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Balance
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Sheet Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholder have delivered to Parent an accurate
list (which is set forth on Schedule 6.17) showing all employee benefit plans of
Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.17 have either been fulfilled in their
entirety or are fully reflected on the
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balance sheet of Company as of the Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on Schedule
6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such determination
letters are included as part of Schedule 6.17. Except as disclosed on Schedule
6.17, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or Returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 6.17. Neither
Stockholder, any such plan listed in Schedule 6.17, nor Company has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No employee benefit plan listed on Schedule 6.17 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and Company has not incurred (i) any liability
for excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation (other than for premium
payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify under
Section 401(a) of the Code without notice to and approval by the
Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans
listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of ERISA;
and
(z) except as set forth in Schedule 6.17, no circumstances exist
pursuant to which Company could reasonably be expected to have
any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the
Pension Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory Lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained
or contributed to by any entity other than Company that is, or at
any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes Company
("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or
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any member of the Controlled Group which, individually or in the aggregate will
constitute "excess parachute payments" (as defined in Section 280G(b) of the
Code) resulting in the imposition of the excise tax under Section 4999 of the
Code or the disallowance of deductions under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.19 or 6.11, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have an Adverse Effect; and except to the
extent set forth on Schedule 6.8 or 6.11, there are no claims, actions, suits or
proceedings, commenced or, to the knowledge of Company, threatened, against or
affecting Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Company and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Company or any Stockholder. Company has conducted and is conducting its business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have an Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter S of the Code, and
Company has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Company were correct and complete
in all respects. All Taxes owed by Company (whether or not shown
on any Tax Return) have been paid or reserved for on its books.
Except as set forth on Schedule 6.20, Company is not currently
the beneficiary of any extension of time within which to file any
Tax Return. Since January 1, 1995, no claim with respect to
Company has been made by an authority in a jurisdiction where
Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There is no Lien affecting any of
Company's assets that arose in connection with any failure or
alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other
party.
(iii) Except as set forth in Schedule 6.8, Company does not expect any
authority to assess any amount of additional Taxes for any period
for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax liability of Company either claimed or
raised by any authority in writing or as to which Company has
knowledge based upon direct inquiry by any agent
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of such authority. Schedule 6.20(iii) lists all Tax Returns
relating to income Tax of Company for taxable periods ended on or
after January 1, 1994, indicates those Returns of which Company
is aware that have been audited and indicates those Returns that
currently are the subject of audit. Company has provided Parent
access to correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed
against or agreed to by Company for any taxable period ended on
or after January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not waived
any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Company has not made any
payments, is not obligated to make any payments and is not a
party to any agreement that under certain circumstances could
obligate it to make any payments that will not be fully
deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority or
entered into any agreement regarding Taxes with any taxing
authority that would, individually or in the aggregate, apply to
the Surviving Corporation after the Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in default under any (i) Lease, instrument, agreement, license, or permit set
forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other agreement to
which it is a party or by which its properties are bound (collectively, the
"Documents"); and, except as set forth in Schedule 6.21, (i) the rights and
benefits of Company under the Documents will not be adversely affected by the
transactions contemplated hereby and (ii) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach or
constitute a default under, any of the terms or provisions of the Documents or
the Charter Documents. Except as set forth on Schedule 6.21, none of the
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect in all respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or publication by Company, Parent or Newco of
the name of any other party to such Document, and none of the Documents
prohibits or restricts Company from freely providing services to any other
customer or potential customer of Company, Parent, Newco or any other Founding
Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on
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Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of
Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital
stock of Company;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Company to any of its
officers, directors, stockholder, employees, consultants or
agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character,
adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
assets, property or rights of Company to any person, including,
without limitation, Stockholder and their Affiliates outside the
ordinary course of business of Company;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation
any indebtedness or obligation of any Stockholder or any
Affiliate thereof outside the ordinary course of business of
Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets,
property or rights of Company or requiring consent of any party
to the transfer and assignment of any such assets, property or
rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of
the ordinary course of Company's business;
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(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract, agreement,
license, permit or other right to which Company is a party;
(xiii) any transaction by Company outside the ordinary course of its
business;
(xiv) any cancellation or termination of a contract with a customer or
client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company outside
the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.23) as of the date of the
Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect.
If political contributions made by Company have exceeded $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be rendered untrue in any respect by, any other document to which Company
is a party, or to which its
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properties are subject, or by any other fact or circumstance regarding Company
(which fact or circumstance was, or should reasonably, after due inquiry, have
been known to Company) that is not disclosed pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26, Company
has not, between the Balance Sheet Date and the date of this Agreement, taken
any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDER
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth below
are true as of the date of this Agreement and, subject to Section 9.7, shall be
true at the Closing Date, (ii) that all of the covenants and agreements in this
Section 7 shall be complied with or performed at and as of the Closing Date and
(iii) that by executing this Agreement each Stockholder shall be deemed to have
approved the terms of the Merger as required by the OGCA.
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such Stockholder has or may have had, other than rights of any Stockholder
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any option
granted by Parent.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
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8.2 AUTHORIZATION. Parent and Newco each has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Newco and
their consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Parent and Newco. This
Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco is as
set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are owned of record and beneficially by the persons set forth on Schedule
2.4(ii) and Parent, respectively, and (iv) were offered, issued, sold and
delivered by Parent and Newco in compliance with all applicable state and
Federal laws concerning the offer, issuance, sale and delivery of securities.
Further, none of such shares was issued in violation of the preemptive rights of
any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no Subsidiaries
except for Newco and each of the other companies identified on Schedule 8.5.
Except as set forth in the preceding sentence, neither Parent nor Newco
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in a Person nor is Parent or Newco, directly or indirectly, a
participant in any joint venture, partnership or other non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement or agreements similar to this Agreement with the Founding Companies
and except for fees incurred in connection with the transactions contemplated
hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco,
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at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them and no notice of any claim, action, suit
or proceeding, whether pending or threatened, has been received. Parent and
Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any Parent
Charter Document. None of Parent, Newco, or, to the knowledge of Parent and
Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to the
Stockholder pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in September
1998. Neither Parent nor Newco has conducted any business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with the Founding Companies. Except as disclosed on Schedule
8.10, neither Parent nor Newco owns or has at any time owned any real property
or any personal property or is a party to any other agreement.
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9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date, Company
will afford to the officers and authorized representatives of
Parent access to all of Company's sites, properties, books and
records and will furnish Parent with such additional financial
and operating data and other information as to the business and
properties of Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its representatives,
auditors and counsel in the preparation of any documents or other
material that may be required in connection with any documents or
materials required by this Agreement. Parent and Newco will
treat all information obtained in connection with the negotiation
and performance of this Agreement as confidential in accordance
with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing, Parent will
afford to the officers and authorized representatives of Company
and Stockholder access to all of the sites, properties, books and
records of Parent, Newco and the other companies listed on
Schedule 9.1(ii) ("Founding Companies") and will furnish Company
and Stockholder with such additional financial and operating data
and other information as to the business and properties of
Parent, Newco and the Founding Companies as Company and
Stockholder may from time to time reasonably request. Parent and
Newco will cooperate with Company and Stockholder'
representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection
with any documents or materials required by this Agreement.
Company and Stockholder 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets,
properties or rights;
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(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key
employees and maintain its respective relationships with
suppliers, customers and others having business relations with
it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt instruments and Leases and not enter into
new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels for all
officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance
with past practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than
in connection with the exercise of options or warrants listed in
Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any
shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is
in the normal course of business (consistent with past practice),
in connection with the transactions contemplated by this
Agreement, or involves an amount not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with
respect to purchase money Liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of
$5,000 as necessary or desirable for the conduct of its business,
(y) (1) Liens for Taxes either not yet due or being contested in
good faith and by appropriate proceedings (and
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for which contested Taxes adequate reserves have been established
and are being maintained) or (2) materialmen's, mechanic's,
worker's, repairmen's, employee's or other like Liens arising in
the ordinary course of business, or (3) Liens set forth on
Schedule 6.8 or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included
in Schedule 6.9 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholder and Company shall terminate (i) any
stockholder agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement
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between Company and any Stockholder, on or prior to the Closing Date, except as
otherwise set forth on Schedule 9.5. Copies of such termination agreements are
listed on Schedule 9.5 and copies thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholder and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company or Stockholder contained herein to be untrue or inaccurate
in any respect at or prior to the Closing Date and (ii) any failure of any
Stockholder or Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such Person hereunder as of such
date. Parent and Newco shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would likely cause any representation or warranty of Parent or Newco
contained herein to be untrue or inaccurate in any respect at or prior to the
Closing Date and (ii) any failure of Parent or Newco to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder as of such date. The delivery of any notice pursuant to this Section
9.6 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 9.7, (ii) modify the conditions set forth in Sections
10 and 11, or (iii) limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 11:59 p.m. March 31, 1999
to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have a Adverse Effect may be made unless the
parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
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10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND COMPANY
The obligations of Stockholder and Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with or
performed by Parent and Newco on or before the Closing Date shall have been duly
complied with or performed; and a certificate to the foregoing effect dated the
Closing Date, and signed by the President or any Vice President of Parent and of
Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Company as a result of which the management
of Company deems it inadvisable to proceed with the transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of Parent
and of Newco, certifying the completeness and accuracy of the attached copies of
Parent's and Newco's respective Charter Documents (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholder of Parent and Newco approving
Parent's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
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10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule 10.7
shall have been afforded an opportunity to enter into an employment agreement,
reasonably acceptable to both parties and substantially in the form of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholder and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholder and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholder and
Company each shall have delivered to Parent a certificate dated the Closing Date
and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Parent as a result of which the management
of Parent deems it inadvisable to proceed with the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), Bylaws (including amendments thereto),
and resolutions of the board of directors and Stockholder approving Company's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDER' RELEASE. Stockholder shall have delivered to Parent an
instrument dated the Closing Date releasing Company from (i) any and all claims
of Stockholder against Company and Parent and (ii) obligations of Company and
Parent to Stockholder, except for (x)
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items specifically identified on Schedules 6.8 and 6.13 as being claims of or
obligations to Stockholder and (y) obligations arising under this Agreement or
the transactions contemplated hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholder shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good standing and
authorized to do business and that all state franchise and/or income Tax returns
and Taxes for Company for all periods prior to the Closing have been filed and
paid.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Parent a
certificate to the effect that he or she is not a foreign person under Section
111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule 10.7
shall have executed an employment agreement, reasonably acceptable to both
parties and substantially in the form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent audited
Balance Sheets as of December 31, 1997 and 1998 and audited Statements of
Income, Retained Earnings and Cash Flows for each of the years in the two-year
period ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDER
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state and
local income Tax Returns of Company for all taxable periods that
end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate Returns of,
or that include,
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Company for all taxable periods ending after the Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request
in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes
or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together
with relevant accompanying schedules and 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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at Company until such time as Parent is able to replace such plan with
a plan that is applicable to Parent and all of its then existing Subsidiaries;
provided that Parent shall have no obligation to provide replacement plans that
have the same terms and provisions as the existing plans; provided, further,
that any new health insurance plan shall provide for coverage for preexisting
conditions. On the Closing Date, the employees of Company will be the employees
of the Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee; and provided further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
Parent to assess workforce needs and make appropriate adjustments as necessary
or desirable within its discretion subject to applicable laws and collective
bargaining agreements).
13. INDEMNIFICATION
Stockholder, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER. Stockholder covenant and
agree that they, severally and not jointly in the case of representations,
warranties, covenants and agreements set forth in Section 7, and jointly and
severally in all other cases, will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholder or Company under this Agreement.
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13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it will
indemnify, defend, protect and hold harmless Stockholder at all times from and
after the Closing Date 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 expenses of investigation) incurred by Stockholder as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 13.1 or 13.2
(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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for
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any additional costs of defense which it subsequently incurs with respect to
such claim and all additional costs of settlement or judgment. 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 upon consent of the Indemnifying
Party, which consent will not be unreasonably withheld, 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. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. Anything in this Agreement to the contrary
notwithstanding, any amounts owing from an Indemnifying Party to an Indemnified
Party under the provisions of this Section 13 shall be reduced to the extent to
which the Indemnified Party, or any other claimant, actually receives any
proceeds of any insurance policy that are paid with respect to the matter or
occurrence that gave rise to the Third Person claim. Submission to insurance of
any insurable claim otherwise giving rise to indemnification under this Section
13 shall be a condition precedent to seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 13
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party;
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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by Company (acting through its board of directors), on the one
hand, or by Parent (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 May 31, 1999 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;
(iii) by Stockholder or Company, on the one hand, or by Parent, on the
other
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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 material covenants, agreements or conditions contained
herein, and the curing of such default shall not have been made
on or before the Closing Date; or
(iv) by Company and Stockholder, on the one hand, or by Parent, on the
other hand, if either such party or parties declines to consent
to an amendment or supplement to a Schedule proposed by the other
party or parties pursuant to Section 9.7 because such proposed
amendment constitutes or reflects an event or occurrence that
would have a material Adverse Effect on the party or parties
proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of three years following the Closing Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other Person:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a
sales representative, in the sale or marketing of
telecommunication services or interconnect services within the
state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an employee of
Parent (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 Parent (including the Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date, a customer of Parent (including the
Subsidiaries thereof) for the purpose of soliciting or selling
products or services in direct competition with Parent (or its
Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Parent
(including the Subsidiaries thereof) in the long-distance
telephone or interconnect business, which
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candidate, to the knowledge of such Stockholder after due
inquiry, was called upon by Parent (including the Subsidiaries
thereof) or for which, to the knowledge of such Stockholder after
due inquiry, Parent (or any Subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to
the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment after the date of this
Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholder in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15 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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement
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are not consummated.
15.6 MATERIALITY. Stockholder hereby agree that the covenants set forth in
this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDER. Company and Stockholder recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholder agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholder as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholder, (y) 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 (y), Stockholder, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of
this Section 16.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholder from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on each Stockholder's ability
to disseminate confidential information with respect to Company shall become
nugatory and (2) each Stockholder (including his representatives, advisors and
legal counsel) shall within ten business days of the Parent's request, deliver
all copies of the confidential information of Parent in his possession in any
form whatsoever (including, but not limited to, any reports, memoranda, or other
material prepared by such Stockholder or his representatives, advisors or legal
counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge that
they had in the past and currently have and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless
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(x) such information becomes known to the public generally through no fault of
Parent or Newco, (y) 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 (y), Parent and Newco shall, if
possible, give immediate prior written notice thereof to Company and Stockholder
and provide Company and Stockholder with the opportunity to contest such
disclosure, or (z) 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 Parent or Newco of the
provisions of this Section 16.2, Company and Stockholder shall be entitled to an
injunction (without the posting of bond or proof of actual damages) restraining
Parent and Newco from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Company and
Stockholder 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, Parent and
Newco (including their representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Newco or their representatives, advisors or legal counsel
at the direction of Parent or Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 16.1 and 16.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholder or family members, the trustees of which so agree), for a period of
one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholder pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
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EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER -, IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholder acknowledge that the Parent Stock to be delivered to
Stockholder pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholder solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholder represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed 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 thereunder and the provisions
of applicable state securities laws and regulations. All the Restricted
Securities shall bear the following legend in addition to the legend required
under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
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18.2 ECONOMIC RISK, SOPHISTICATION. Stockholder is able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholder have had an
adequate opportunity to ask questions and receive answers from the officers of
Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholder have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date of
consummation of the IPO, whenever Parent proposes to register any Parent Stock
for its own or the account of others under the 1933 Act for a public offering,
other than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Parent and (ii) registrations relating
to employee benefit plans, Parent shall give each Stockholder prompt written
notice of its intent to do so. Upon the written request of any Stockholder given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Registerable Securities) which any
Stockholder requests; provided, however, if Parent is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 19.1
that the number of shares to be sold by Persons other than Parent is greater
than the number of such shares which can be offered without adversely affecting
the offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such Person)
to a number deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholder") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Stockholder or their permitted transferees or (ii) acquired by other stockholder
of Parent on or prior to the closing of the IPO in connection with the
acquisition of their companies by Parent pursuant to an agreement, similar to
this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing that
Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholder or their permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days of
the receipt of such request, Parent shall give written notice of such request to
all other Founding Stockholder and shall, as soon as practicable but in no event
later than 45 days after
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notice from the Founding Stockholder requesting such registration, file and use
its best efforts to cause to become effective a registration statement covering
all such shares. Parent shall be obligated to effect only one Demand
Registration for all Founding Stockholder; provided, however, that Parent shall
not be deemed to have satisfied its obligation under this Section 19.2 unless
and until a Demand Registration covering all shares of Parent Stock requested to
be registered has been filed and becomes effective under the 1933 Act and has
remained current and effective for not less than 90 days (or such shorter period
as is required to complete the distribution and sale of all shares registered
thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholder the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 19.1 and 19.2, Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Parent Stock and use its best efforts to cause
such registration statement to become and remain effective;
provided that Parent may discontinue any registration of its
securities that is being effected pursuant to Section 19.1 at any
time prior to the effective date of the registration statement
relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a
period as may be requested by the stockholder holding a majority
of the Parent Stock covered thereby not exceeding 90 days and to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by the seller or sellers thereof set forth
in such registration statement; provided, that before filing a
registration statement or prospectus
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relating to the sale of Parent Stock, or any amendments or
supplements thereto, Parent will furnish to counsel to each
holder of Parent Stock covered by such registration statement or
prospectus, copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel, and
Parent will give reasonable consideration in good faith to any
comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of such
Parent Stock, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the requirements
of the 1933 Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or
other disposition of the Parent Stock.
(iv) Use its best efforts to register or qualify the Parent Stock
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition of the Parent Stock
owned by such seller, in such jurisdictions, except that Parent
shall not for any such purpose be required (x) to qualify to do
business as a foreign corporation in any jurisdiction where, but
for the requirements of this Section 19.3(iv), it is not then so
qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to
general or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by such
registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the
disposition of such Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered by such
registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 19.3(ii), if Parent
becomes aware that the prospectus included in such registration
statement, as then in effect, includes 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 in the light of the circumstances then existing, and,
at the request of any such seller, deliver a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Parents of such
Parent Stock, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or
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necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to
its security holders, in each case as soon as practicable, but
not later than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Parent), an earnings
statement of Parent which will satisfy the provisions of Section
11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to list
such Parent Stock on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the
independent public accountants for Parent in customary form and
covering such matters of the type customarily covered by such
letters.
(x) Execute and deliver all instruments and documents (including in
an underwritten offering an underwriting agreement in customary
form) and take such other actions and obtain such certificates
and opinions as the stockholder holding a majority of the shares
of Parent Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten public
offering of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent Stock
covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other
agent retained by any such seller or any such underwriter, all
pertinent financial and other records, pertinent corporate
documents and properties of Parent, and cause all of Parent's
officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration
statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form
and scope reasonably satisfactory to such underwriter or agent
and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each Stockholder holding shares of Parent Stock covered by a
registration statement referred to in this Section 19 will, upon
receipt of any notice from
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Parent of the happening of any event of the kind described in
Section 19.3(vi), forthwith discontinue disposition of the Parent
Stock pursuant to the registration statement covering such Parent
Stock until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section
19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves an
underwritten offering, each of the Stockholder agrees, whether or
not his shares of Parent Stock are included in such registration,
not to effect any public sale or distribution, including any sale
pursuant to Rule 144 under the 1933 Act, of any Parent Stock, or
of any security convertible into or exchangeable or exercisable
for any Parent Stock (other than as part of such underwritten
offering), without the consent of the managing underwriter,
during a period commencing eight calendar days before and ending
180 calendar days (or such lesser number as the managing
underwriter shall designate) after the effective date of such
registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of Parent
under the 1933 Act pursuant to Section 19.1 or 19.2, Parent will,
and it hereby agrees to, indemnify and hold harmless, to the
extent permitted by law, each seller of any Parent Stock covered
by such registration statement, each Affiliate of such seller and
their respective directors, officers, employees and agents or
general and limited partners (and directors, officers, employees
and agents thereof) each other Person who participates as an
underwriter in the offering or sale of such securities and each
other Person, if any, who controls such seller or any such
underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or arising out of an untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus or prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements
therein not misleading;
(y) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or
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investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with the
written consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or mission to the extent that any such
expense is not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such
director, officer, employee, agent, general or limited partner,
investment advisor or agent, underwriter or controlling Person and
shall survive the transfer of such securities by such seller.
(ii) Parent may require, as a condition to including any Parent Stock
in any registration statement filed in accordance with Section
19.1 or 19.2, that Parent shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such
Parent Stock or any underwriter, to indemnify and hold harmless
(in the same manner and to the same extent as set forth in
Section 19.5(i)) Parent with respect to any statement or alleged
statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or
summary prospectus or amendment or supplement. Such indemnity
shall remain in full force and effect regardless of any
investigation made by or on behalf of Parent or any such
director, officer or controlling Person and shall survive the
transfer of such securities by such seller. In that event, the
obligations of the Parent and such sellers pursuant to this
Section 19.5 are to be several and not joint; provided, however,
that, with respect to each claim pursuant to this Section 19.5,
Parent shall be liable for the full amount of such claim, and
each such seller's liability under this Section 19.5 shall be
limited to an amount equal to the net proceeds (after deducting
the underwriting discount and expenses) received by such seller
from the sale of Parent Stock held by such seller pursuant to
this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of
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the commencement of any action or proceeding involving a claim
referred to in this Section 19.5, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying
party, give written notice to such indemnifying party of the
commencement of such action; provided, however, that the failure
of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under this
Section 19.5, except to the extent (not including any such notice
of an underwriter) that the indemnifying party is materially
prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in
respect of such claim (in which case the indemnifying party shall
not be liable for the fees and expenses of more than one firm of
counsel selected by holders of a majority of the shares of Parent
Stock included in the offering or more than one firm of counsel
for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party
will be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly
notified, to the extent that it may wish with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection
with the defense thereof, provided that the indemnifying party
will not agree to any settlement without the prior consent of the
indemnified party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a monetary
payment for which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and complete
release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment of
the indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between
them. In the event that the indemnifying party does not assume
the defense of a claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such claim by all
appropriate proceedings, and will have control of such defense
and proceedings, and the indemnified party shall have the right
to agree to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall, and shall cause
its legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with its
assuming the defense of any claim, including the furnishing of
the indemnifying party with all papers served in such proceeding.
In the event that an indemnifying
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party assumes the defense of an action under this Section
19.5(iii), then such indemnifying party shall, subject to the
provisions of this Section 19.5, indemnify and hold harmless
the indemnified party from any and all losses, claims, damages
or liabilities by reason of such settlement or judgment.
(iv) Parent and each seller of Parent Stock shall provide for the
foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration
or other qualification of securities under any federal or state
law or regulation of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Parent Stock. For purposes of this
Section 19.6, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as such underwriter, and each director and each officer of Parent who signed the
registration statement, and each Person, if any, who controls Parent or a seller
of Parent Stock within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as Parent or a seller of Parent Stock, as the case
may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144 TRANSACTIONS.
After Parent completes its initial underwritten public offering and for as long
thereafter as any Stockholder shall continue to hold any Restricted Securities,
Parent shall use reasonable efforts to file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
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20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholder will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law or as permitted by
Section 17), but if assigned by operation of law, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholder. Notwithstanding the foregoing, any Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholder, Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, 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 Stockholder and by Company, Newco and Parent, acting through their respective
officers or representatives, duly authorized by their respective Boards of
Directors. Any disclosure made on any Schedule delivered pursuant hereto shall
be deemed to have been disclosed for purposes of any other Schedule required
hereby; provided that Company shall make a good faith effort to cross reference
disclosures, as necessary or advisable, between related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
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20.6 NOTICES. All notices of communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered or
certified with return receipt requested, (ii) by telecopying the same if receipt
thereof is confirmed or (iii) by delivering the same in person to an officer or
agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholder, addressed to them at their addresses set forth
on Schedule 6.3, with copies to such counsel as is set forth with
respect to each Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
Perkins Office Machines, Inc.
805 S.W. 'F' Avenue
Lawton, Oklahoma 73502
Attn: Jack Perkins
Telecopy No.: (580) 355-3130
with a copy to:
Attn:
Telecopy No.:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6
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from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance with
the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section
13.4, 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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each
other and no party shall issue any public announcement or statement with respect
to the transactions contemplated hereby without the consent of the other
parties, unless the party desiring to make such announcement or statement, after
seeking such consent from the other parties, obtains advice from legal counsel
that a public announcement or statement is required by applicable law.
20.14 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 Parent, Newco, Company and Stockholder. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be
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final, binding, and enforceable in any court of competent jurisdiction. In any
dispute in which a party seeks in excess of $50,000 in damages, three
arbitrators shall be employed. Otherwise, a single arbitrator shall be
employed. All costs relating to the arbitration shall be borne equally by the
parties, other than their own attorneys' and experts' fees. The parties will
bear their own attorneys' and experts' fees. The arbitrators will not award
punitive, consequential or indirect damages. Each party hereby waives the right
to such damages and agrees to receive only those actual damages directly
resulting from the claim asserted. In resolving all disputes between the
parties, the arbitrators will apply the laws of the State of Oklahoma. Except
as needed for presentation in lieu of a live appearance, depositions will not be
taken. The parties will be entitled to conduct document discovery by requesting
production of documents. The arbitrators will resolve any discovery disputes by
such prehearing conferences as may be needed. Either party may be entitled to
pursue such remedies for emergency or preliminary injunctive relief in any court
of competent jurisdiction, provided that each party agrees that it will consent
to the stay of such judicial proceedings on the merits of both this Agreement
and the related transactions pending arbitration of all underlying claims
between the parties immediately following the issuance of any such emergency or
injunctive relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company Stock; PROVIDED HOWEVER,
that no election shall be made if, as a result of the election, the Stockholders
would incur any adverse tax or other consequences not otherwise reimbursed by
Parent or Newco to the Stockholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
----------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
----------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
-49-
<PAGE>
PERKINS OFFICE MACHINES, INC.
BY: Jackie D. Perkins
----------------------------------------
NAME: Jackie D. Perkins
TITLE: President
STOCKHOLDER:
/s/ Jackie D. Perkins
----------------------------------------
Jackie D. Perkins
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<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION II CORP.
INTO
PERKINS OFFICE MACHINES, INC.
Perkins Office Machines, Inc., an Oklahoma corporation, pursuant to Section
81 of the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is Perkins Office Machines, Inc. and Alliance Acquisition
II Corp.
SECOND. That an agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 81 of the Oklahoma General Corporation
Act.
THIRD. That the name of the surviving corporation is Perkin Office
Machines, Inc.
FOURTH. That the certificate of incorporation of Alliance Acquisition II
Corp. shall be the certificate of incorporation of the surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
SEVENTH. This merger shall be effective at -, Central Standard Time, on
the date this Certificate is filed with the Secretary of State of the State of
Oklahoma.
IN WITNESS WHEREOF, Perkins Office Machines, Inc. has caused this
certificate to be signed by its President and attested by its Secretary, this -
day of - 1999.
PERKINS OFFICE MACHINES, INC.
----------------------------------------
President
ATTEST:
- -----------------------
Secretary
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<PAGE>
AGREEMENT AND PLAN OF MERGER
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION X CORP.
(Newco)
and
TELKEY COMMUNICATIONS, INC.
(Company)
and
MICHAEL P. MURPHY
AND
DEBORAH S. MURPHY
(Stockholders of the Company)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS 1
2. THE MERGER AND OTHER MATTERS 5
2.1 Delivery and Filing of Articles of Merger 5
2.2 Effective Time of the Merger 5
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
the Surviving Corporation. 5
2.4 Certain Information With Respect to the Capital Stock of
Company, Parent and Newco. 6
2.5 Effect of Merger. 6
3. CONVERSION OF STOCK 6
4. DELIVERY OF MERGER CONSIDERATION 7
4.1 Effective Time 7
4.2 Certificates 7
5. CLOSING 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS 8
6.1 Due Organization 8
6.2 Authorization 8
6.3 Capital Stock of the Company 8
6.4 Transactions in Capital Stock 9
6.5 Subsidiaries 9
6.6 Predecessor Status; etc. 9
6.7 Financial Statements 9
6.8 Liabilities and Obligations 9
6.9 Accounts and Notes Receivable 10
6.10 Permits and Intangibles 10
6.11 Environmental Matters 11
6.12 Personal Property 11
6.13 Significant Customers; Material Contracts and Commitments 12
6.14 Real Property 12
6.15 Insurance 13
6.16 Compensation; Organized Labor Matters 13
6.17 Employee Plans 14
6.18 Compliance with ERISA 14
6.19 Conformity with Law; Litigation 15
6.20 Tax Matters 16
6.21 No Violations 17
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<PAGE>
6.22 Absence of Changes 17
6.23 Deposit Accounts; Powers of Attorney 19
6.24 Relations with Governments 19
6.25 Disclosure 19
6.26 Prohibited Activities 19
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS 19
7.1 Authority 20
7.2 Preemptive Rights 20
7.3 Lease Agreement 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO 20
8.1 Due Organization 20
8.2 Authorization 20
8.3 Capital Stock 20
8.4 Transactions in Capital Stock 21
8.5 Subsidiaries 21
8.6 Liabilities and Obligations 21
8.7 Conformity with Law; Litigation 21
8.8 No Violations 21
8.9 Parent Securities 22
8.10 Business; Real Property; Agreements 22
9. OTHER COVENANTS PRIOR TO CLOSING 22
9.1 Access and Cooperation; Due Diligence; Audits 22
9.2 Conduct of Business Pending Closing 23
9.3 Prohibited Activities by the Company 23
9.4 Exclusivity 25
9.5 Agreements 25
9.6 Notification of Certain Matters 25
9.7 Amendment of Schedules 25
9.8 Further Assurance 26
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY 26
10.1 Representations and Warranties; Performance of Obligations 26
10.2 No Litigation 26
10.3 Consents and Approvals 26
10.4 Good Standing Certificates 26
10.5 No Material Adverse Effect 27
10.6 Secretary's Certificates 27
10.7 Employment Agreements 27
10.8 Closing of the IPO or the Private Placement 27
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<PAGE>
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO 27
11.1 Representations and Warranties; Performance of Obligations 27
11.2 No Litigation 27
11.3 Secretary's Certificate 28
11.4 No Material Adverse Effect 28
11.5 Stockholders' Release 28
11.6 Termination of Related Party Agreements 28
11.7 Consents and Approvals 28
11.8 Good Standing Certificates 28
11.9 FIRPTA Certificate 28
11.10 Closing of the IPO or Private Placement 28
11.11 Employment Agreement 29
11.12 Financial Statements 29
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS 29
12.1 Preparation and Filing of Tax Returns 29
12.2 Preservation of Employee Benefit Plans 29
13. INDEMNIFICATION 30
13.1 General Indemnification by the Stockholders 30
13.2 Indemnification by Parent 30
13.3 Third Person Claims 30
13.4 Exclusive Remedy 31
13.5 Limitations on Indemnification 31
14. TERMINATION OF AGREEMENT 31
14.1 Termination 32
14.2 Liabilities in Event of Termination 32
15. NONCOMPETITION 32
15.1 Prohibited Activities 32
15.2 Damages 33
15.3 Reasonable Restraint 33
15.4 Severability, Reformation 33
15.5 Independent Covenant 34
15.6 Materiality 34
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION 34
16.1 Company and Stockholders 34
16.2 Parent and Newco 35
16.3 Damages 35
16.4 Survival 35
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<PAGE>
17. TRANSFER RESTRICTIONS 35
18. INVESTMENT REPRESENTATIONS 36
18.1 Compliance With Law 36
18.2 Economic Risk, Sophistication 37
19. REGISTRATION RIGHTS 37
19.1 PiggyBack Registration Rights 37
19.2 Demand Registration Rights 37
19.3 Registration Procedures 38
19.4 Other Registration Matters 40
19.5 Indemnification 41
19.6 Contribution 44
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions 44
20. GENERAL 45
20.1 Cooperation 45
20.2 Successors and Assigns 45
20.3 Entire Agreement 45
20.4 Counterparts 45
20.5 Brokers and Agents 45
20.6 Notices 46
20.7 Governing Law 47
20.8 Exercise of Rights and Remedies 47
20.9 Time 47
20.10 Reformation and Severability 47
20.11 Remedies Cumulative 47
20.12 Captions 47
20.13 Public Statements 47
20.14 Amendments and Waivers 47
20.15 Arbitration 47
20.16 338 Election 48
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the
10th day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION X CORP., an Oklahoma corporation
("Newco"), TELKEY COMMUNICATIONS, INC., an Oklahoma corporation (the
"Company"), and MICHAEL P. MURPHY AND DEBORAH S. MURPHY, the only
stockholders of the Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Oklahoma, having been incorporated on March 9, 1999,
solely for the purpose of completing the transaction set forth herein, and
Newco is a wholly-owned subsidiary of Parent, a corporation organized and
existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368(a)(1)(A) of the Code; and
WHEREAS, Stockholders are the owners of 300 shares of Common Stock,
$1.00 par value, of Company ("Company Stock"), representing all the issued
and outstanding capital stock of Company outstanding on the date of this
Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into aggregate consideration of $1,000,000,
comprised of $650,000 in cash and - shares of Common Stock $.01 par value,
of Parent ("Parent Stock"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings
<PAGE>
for all purposes of this Agreement.
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
-7-
<PAGE>
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"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.
-8-
<PAGE>
"OGCA" means the Oklahoma General Corporation Act.
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of
-9-
<PAGE>
such Person is a general partner (excluding partnerships, the general
partnership interests of which held by such Person or any Subsidiary of such
Person do not have a majority of the voting interest in such partnership) or
(ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person, by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified
and filed with the Secretary of State of the State of Oklahoma and (ii)
photocopies of stamped receipt copies of such filing to be delivered to
Parent on the Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the
Certificate of Merger, the separate existence of Newco shall cease, and
Company shall be the surviving party in the Merger. Company is sometimes
hereinafter referred to as the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed as
provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of the
Surviving Corporation until they shall thereafter be further
amended;
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<PAGE>
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of the
Surviving Corporation after the Effective Time until his
successors shall have been elected and qualified; and
(iv) David W. Aduddell, Chief Executive Officer; Michael P. Murphy,
President; Joe Evans, Chief Financial Officer and Secretary; and
Jeff Hartwig, Vice President of Operations of Newco immediately
prior to the Effective Time shall continue as the officers of the
Surviving Corporation after the Effective Time in the same
capacity or capacities, until their successors are duly elected
and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of Company
is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of Parent is
as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000 shares of
common stock, par value $.01, of which 1,000 shares are issued
and outstanding and entitled to one vote per share on all matters
submitted to stockholders.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding immediately
prior to
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<PAGE>
the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, automatically shall
be deemed to represent the right to receive, in aggregate,
(i) - shares of Parent Stock and (ii) $650,000 in cash, all as
more particularly set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as treasury
stock shall be canceled and retired and no Parent Stock, cash or
other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, automatically shall
be deemed to represent the right to receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
- ------------------- ---------------- ---------------- --------
<S> <C> <C> <C>
Michael P. Murphy 150 - $325,000
Deborah Murphy 150 - $325,000
---------------- ---------------- --------
300 - $650,000
---------------- ---------------- --------
---------------- ---------------- --------
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the Closing
all certificates representing any and all shares of Company Stock, duly
endorsed in blank by Stockholders, or accompanied by blank stock powers, and
with all necessary transfer tax and other revenue stamps, acquired at
Stockholders' expense, affixed and canceled.
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii)
below (the "Closing"), the parties to this Agreement shall take all actions
necessary to prepare to (i) effect the Merger (including the filing with the
appropriate state authorities of the Certificate of Merger which shall become
effective at the Effective Time) and (ii) effect the conversion of the shares
and the delivery of the Parent Stock referred to in Sections 3 and 4;
provided, that such actions shall not include the actual completion of the
Merger or the conversion of the shares and the delivery of the Parent Stock
referred to in Sections 3 and 4, each of which actions shall only be taken
upon the Closing Date as herein provided. The Closing shall take place on May
31, 1999, or such
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<PAGE>
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in
Oklahoma City, Oklahoma, as the parties may mutually agree. On the Closing
Date (x) the Certificate of Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be or, as of 10:00 a.m.
Central Standard Time on the Closing Date, become effective and the Merger
shall thereby be effected and (y) all transactions contemplated by this
Agreement, including the conversion of the shares and delivery of the Parent
Stock which the Stockholders shall be entitled to receive pursuant to the
Merger shall occur and be deemed to be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, jointly and severally represent,
warrant, covenant and agree (i) that all of the following representations and
warranties in this Section 6 are materially true at the date of this
Agreement and, subject to Section 9.7, shall be materially true at the
Closing Date and (ii) that all of the covenants and agreements in this
Section 6 shall be materially complied with or performed at and as of the
Closing Date. For purposes of this Section 6, the term "Company" shall mean
and refer to Company and all of its Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business and is in
good standing under the laws of each jurisdiction where such qualification is
required except (i) as set forth on Schedule 6.1 or (ii) where the failure to
be so authorized or qualified would not have an adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of Company taken as a whole (as used herein with
respect to Company, or with respect to any other Person, an "Adverse
Effect"). Schedule 6.1 sets forth the jurisdiction in which Company is
incorporated and contains a list of all such jurisdictions in which Company
is authorized or qualified to do business. True, complete and correct copies
of the Charter Documents and Bylaws, each as amended, of Company are all
attached hereto as Schedule 6.1. The stock records of Company, as heretofore
made available to Parent, are correct and complete. To the knowledge of
Company and Stockholders, there are no minutes in the possession of Company
or Stockholders which have not been made available to Parent, and all of such
minutes are correct and complete.
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by Company of this Agreement and its
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Company. This Agreement has
been duly executed and delivered by Company, and approved by all the
stockholders of Company, and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock
of Company is as set forth in Schedule 2.4(i). All of the issued and
outstanding shares of the capital stock of
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<PAGE>
Company are owned of record by Stockholders in the amounts set forth in
Section 4.1 and further, except as set forth on Schedule 6.3, are owned free
and clear of all mortgages, liens, security interests, pledges, voting
trusts, restrictions, encumbrances and claims of every kind (collectively,
the "Liens"). All of the issued and outstanding shares of the capital stock
of Company (i) have been duly authorized and validly issued and (ii) are
fully paid and nonassessable. Further, none of such shares was issued in
violation of the preemptive rights of any past or present stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on
Schedule 6.4, Company has not acquired any Company Stock since January 1,
1995. Except as set forth on Schedule 6.4, (i) no option, warrant, call,
conversion right or commitment of any kind exists which obligates Company to
issue any of its authorized but unissued capital stock; and (ii) Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights
to acquire shares of Company Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i)
Company has no Subsidiaries, (ii) 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, and (iii) Company is not directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a
listing of all names of all predecessor companies of Company, including the
names of any entities acquired by Company (by stock purchase, merger or
otherwise) or owned by Company or from whom the Company previously acquired
assets in excess of $25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are
copies of the following financial statements of Company (the "Company
Financial Statements"): Company's audited Balance Sheet as of December 31,
1997 and its audited Balance Sheet as of December 31, 1998 ("December Balance
Sheet"), and audited Statements of Income, Retained Earnings and Cash Flows
and any related notes thereto for the years ended December 31, 1997 and 1998
(December 31, 1998 being hereinafter referred to as the "Balance Sheet
Date"). The audited Company Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 6.7). Except as set forth on Schedule 6.7, the Balance Sheets
referred to in this Section 6.7 present fairly the financial position of
Company as of the dates indicated thereon, and the Statements of Income,
Retained Earnings and Cash Flows referred to in this Section 6.7 present
fairly the results of operations for the periods indicated thereon in
accordance with generally accepted accounting principles. Company Financial
Statements at and for the years ended December 31, 1997 and 1998 have been
examined and reported on by Deloitte & Touche LLP.
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6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent
a list (which is set forth on Schedule 6.8) as of the Balance Sheet Date of
(i) all liabilities of Company of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, that are
not reflected on the December Balance Sheet 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. Except as set forth on Schedule 6.8,
since the Balance Sheet Date Company has not incurred any liabilities 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. Company has also disclosed to Parent on Schedule
6.8, in the case of those contingent liabilities related to pending or
threatened litigation or other liabilities which are not fixed or otherwise
accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.9) of the accounts
and notes receivable of Company, as of the most practicable date, including
any such amounts which are not reflected in the December Balance Sheet, and
including receivables from and advances to employees and Stockholders.
Company shall also provide Parent an aging of all accounts and notes
receivable showing amounts due in 30 day aging categories, and such list and
such aging report (the "A/R Aging Report") as of the most practicable date.
Except to the extent reflected on Schedule 6.9 or as disclosed by Company to
Parent in a writing accompanying the A/R Aging Report, such accounts, notes
and other receivables are collectible in the amounts shown on Schedule 6.9,
and shall be collectible in the amounts shown on the A/R Aging Report, net of
reserves reflected in the December Balance Sheet and as of the date of the
A/R Aging Report, respectively.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses,
franchises, permits and other governmental authorizations the absence of any
of which could have an Adverse Effect on its business, and Company has
delivered to Parent an accurate list and summary description (which is set
forth on Schedule 6.10) of all such licenses, franchises, permits and other
governmental authorizations, including titles, certificates, trademarks,
trade names, patents, patent applications and copyrights owned or held by
Company (including interests in software or other technology systems,
programs and intellectual property) (it being understood and
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agreed that a list of all environmental permits and other environmental
approvals is set forth on Schedule 6.11). To the knowledge of Company, the
licenses, franchises, permits and other governmental authorizations listed on
Schedules 6.10 and 6.11 are valid in all respects, and 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. 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 6.10 and 6.11 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have an Adverse Effect on Company. Except as specifically
provided in Schedule 6.10, the transactions contemplated by this Agreement
will not result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded to Company (and to the Surviving
Corporation after the Effective Time of the Merger) by, any such license,
franchise, permit or government authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and
decrees applicable to it or any of its properties, assets, operations and
businesses relating to environmental protection (collectively "Environmental
Laws") including, without limitation, Environmental Laws relating to air,
water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes and Hazardous Substances including
petroleum and petroleum products (as such terms are defined in any applicable
Environmental Law); (ii) Company has obtained and substantially adhered to
all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 6.11, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by Company where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from,
in or on any property owned or operated by Company except as permitted by
Environmental Laws; (iv) to the knowledge of Company, no on-site or off-site
location to which Company has transported or disposed of Hazardous Wastes and
Hazardous Substances or arranged for the transportation of Hazardous Wastes
and Hazardous Substances, which site is the subject of any Federal, state,
local or foreign enforcement action or any other investigation which could
lead to any claim against Company, Parent or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended;
and (v) Company has no contingent liability in connection with any release of
any Hazardous Waste or Hazardous Substance into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.12) of (i) all personal
property included (or that will be included) in "depreciable plant, property
and equipment" on the balance sheet of Company, (ii) all other personal
property owned by Company with a value in excess of $5,000 (x) as of the
Balance
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Sheet Date and (y) acquired since the Balance Sheet Date and (iii) all
written Leases in respect of personal property, including, in the case of
each of (i), (ii) and (iii), true, complete and correct copies of all such
Leases. Except as set forth on Schedule 6.12, (a) all personal property used
by Company in its business is either owned by Company or leased by Company
pursuant to a Lease included on Schedule 6.12, (b) all of the personal
property listed on Schedule 6.12 is in good working order and condition,
ordinary wear and tear excepted and (c) all leases and agreements included on
Schedule 6.12 are in full force and effect in all respects and to the
knowledge of Company constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
Company has delivered to Parent an accurate list (which is set forth on
Schedule 6.13) of all significant customers, or persons or entities that are
sources of a significant number of customers, it being understood and agreed
that a "significant customer," for purposes of this Section 6.13, means a
customer (or person or entity) (i) representing 5% or more of Company's
annual revenues as of the Balance Sheet Date or (ii) reasonably expected to
represent 5% or more of Company's revenues during the twelve-month period
ending December 31, 1998. Except to the extent set forth on Schedule 6.13,
none of Company's significant customers (or persons or entities that are
sources of a significant number of customers) have canceled or substantially
reduced or, to the knowledge of Company, are currently attempting or
threatening to cancel a contract or substantially reduce utilization of the
services provided by Company.
Company has listed on Schedule 6.13 all material contracts,
commitments and similar agreements to which the Company is a party or by
which it or any of its properties are bound (including, but not limited to,
contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land), other than agreements listed on Schedule 6.8, 6.12
or 6.14, (x) in existence as of the Balance Sheet Date and (y) entered into
since the Balance Sheet Date, and in each case has delivered true, complete
and correct copies of such agreements to Parent. Company has complied with
all commitments and obligations pertaining to it, and is not in default under
any contract or agreement listed on Schedule 6.13 and no notice of default
under any such contract or agreement has been received. Company has also
indicated on Schedule 6.13 a summary description of all plans or projects
involving the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $5,000 by Company.
6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real
property owned or leased by Company (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any,
used by Company in the conduct of its business. Company has good and
insurable title to the real property owned by it, including those reflected
on Schedule 6.14, subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing
specified liabilities (with respect to which no default
exists);
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(x) Liens for current taxes not yet payable and assessments
not in default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County
Clerks in which the properties, assets and leasehold
estates are located which do not adversely affect in any
respect the current use of the property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of Company with respect to real property owned by Company, and (2)
true, complete and correct copies of all Leases and agreements in respect of
such real property leased by Company (which copies are attached to Schedule
6.14).
Except as set forth on Schedule 6.14, all of such Leases included
on Schedule 6.14 are in full force and effect in all respects and to the
knowledge of Company constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on
and attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet
Date of all insurance policies carried by Company, (ii) an accurate list of
all insurance loss runs on workers compensation claims received for the past
three policy years and (iii) true, complete and correct copies of all
insurance policies currently in effect. Such insurance policies evidence all
of the insurance that Company is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws or that
management of Company otherwise believes is prudent and appropriate to insure
against the risks inherent in Company's business in accordance with industry
practice. All of such insurance policies are currently in full force and
effect in all respects and shall remain in full force and effect in all
respects through the Closing Date. Except as otherwise specified in Schedule
6.15, no insurance carried by Company has been canceled by the insurer and
the Company has never been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has
delivered to Parent an accurate list (which is set forth on Schedule 6.16)
showing all officers, directors and other key employees of Company and the
rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by
or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any
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labor union, (x) no employees of Company are represented by any labor union
or covered by any collective bargaining agreement, (y) to the knowledge of
Company, no campaign to establish such representation is in progress and (z)
there is no pending or, to the best of Company's knowledge, threatened labor
dispute involving Company and any group of its employees nor has Company
experienced any labor interruption over the past three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee
benefit plans of Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true,
complete and correct copies of such plans, agreements and any trusts related
thereto, and classifications of employees covered thereby as of the Balance
Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 6.17, the Company does not sponsor, maintain or contribute to any
plan program, fund or arrangement that constitutes an "employee pension
benefit plan," and Company does not have any obligation to contribute to or
accrue or pay any benefits under any deferred compensation or retirement
funding arrangement on behalf of any employee or employees (such as, for
example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of
the Employee Retirement Income Security Act of 1974, as amended "ERISA") or
any non-qualified deferred compensation arrangement). For the purposes of
this Agreement, the term "employee pension benefit plan" shall have the same
meaning as is given that term in Section 3(2) of ERISA. Company has not
sponsored, maintained or contributed to any employee pension benefit plan
other than the plans set forth on Schedule 6.17, nor is the Company required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer
employee pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the
administration thereof are in substantial compliance with their terms and all
applicable provisions of ERISA and the regulations issued thereunder, as well
as with all other applicable Federal, state and local statutes, ordinances
and regulations.
All accrued contribution obligations of Company or any Subsidiary
with respect to any plan listed on Schedule 6.17 have either been fulfilled
in their entirety or are fully reflected on the balance sheet of Company as
of the Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on
Schedule 6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of
such determination letters are included as part of Schedule 6.17. Except
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as disclosed on Schedule 6.17, all reports and other documents required to be
filed with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or
Returns) have been timely filed or distributed, and copies thereof are
included as part of Schedule 6.17. Neither Stockholders, any such plan
listed in Schedule 6.17, nor Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No employee benefit plan listed on Schedule 6.17 has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and Company has not incurred (i) any liability for
excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation (other than for premium
payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify
under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the
provisions of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to employee
benefit plans listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of
ERISA; and
(z) except as set forth in Schedule 6.17, no circumstances
exist pursuant to which Company could reasonably be
expected to have any direct or indirect liability
whatsoever (including, but not limited to, any liability
to any multiemployer plan or the Pension Benefit Guaranty
Corporation under Title IV of ERISA or to the Internal
Revenue Service for any excise tax or penalty, or being
subject to any statutory Lien to secure payment of any
such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than
Company that is, or at any time was, a member of a
"controlled group" (as defined in Section 412(n)(6)(B) of
the Code) that includes Company ("Controlled Group").
The transactions contemplated by this Agreement together with any amounts
paid or payable by Company or any member of the Controlled Group have not
resulted in and will not result in payments to "disqualified individuals" (as
defined in Section 280G(c) of the Code) of Company or any member of the
Controlled Group which, individually or in the aggregate will constitute
"excess parachute payments" (as defined in Section 280G(b) of the Code)
resulting in the imposition of the excise tax under Section 4999 of the Code
or the disallowance of deductions under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set
forth on Schedule 6.19 or 6.11, Company is not in violation of any law or
regulation or any order of any court or
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Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over Company
which would have an Adverse Effect; and except to the extent set forth on
Schedule 6.8 or 6.11, there are no claims, actions, suits or proceedings,
commenced or, to the knowledge of Company, threatened, against or affecting
Company, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Company and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received
by Company or any Stockholder. Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 6.10 and 6.11, and is not in
violation of any of the foregoing which might have an Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter C of the Code,
and Company has filed all Tax Returns that it was required
to file. All such Tax Returns filed by Company were
correct and complete in all respects. All Taxes owed by
Company (whether or not shown on any Tax Return) have been
paid or reserved for on its books. Except as set forth on
Schedule 6.20, Company is not currently the beneficiary of
any extension of time within which to file any Tax Return.
Since January 1, 1995, no claim with respect to Company
has been made by an authority in a jurisdiction where
Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There is no
Lien affecting any of Company's assets that arose in
connection with any failure or alleged failure to pay any
Tax.
(ii) Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
shareholder or other party.
(iii) Except as set forth in Schedule 6.8, Company does not
expect any authority to assess any amount of additional
Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax
liability of Company either claimed or raised by any
authority in writing or as to which Company has knowledge
based upon direct inquiry by any agent of such authority.
Schedule 6.20(iii) lists all Tax Returns relating to
income Tax of Company for taxable periods ended on or
after January 1, 1994, indicates those Returns of which
Company is aware that have been audited and indicates
those Returns that currently are the subject of audit.
Company has provided Parent access to correct and complete
copies of all Tax Returns, examination reports and
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statements of deficiencies assessed against or agreed to
by Company for any taxable period ended on or after
January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not
waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of
the Code concerning collapsible corporations. Company has
not made any payments, is not obligated to make any
payments and is not a party to any agreement that under
certain circumstances could obligate it to make any
payments that will not be fully deductible under Section
280G of the Code.
(vi) Company has not received a ruling from any taxing
authority or entered into any agreement regarding Taxes
with any taxing authority that would, individually or in
the aggregate, apply to the Surviving Corporation after
the Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter
Documents. Neither Company nor, to the knowledge of the Company, any other
party thereto, is in default under any (i) Lease, instrument, agreement,
license, or permit set forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or
(ii) any other agreement to which it is a party or by which its properties
are bound (collectively, the "Documents"); and, except as set forth in
Schedule 6.21, (i) the rights and benefits of Company under the Documents
will not be adversely affected by the transactions contemplated hereby and
(ii) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will
not result in any violation or breach or constitute a default under, any of
the terms or provisions of the Documents or the Charter Documents. Except as
set forth on Schedule 6.21, none of the Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect in all respects, and consummation of the transactions
contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. Except as set
forth on Schedule 6.21, to the knowledge of Company none of the Documents
prohibits the use or publication by Company, Parent or Newco of the name of
any other party to such Document, and none of the Documents prohibits or
restricts Company from freely providing services to any other customer or
potential customer of Company, Parent, Newco or any other Founding Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business
of Company taken as a whole;
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(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business
of Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the
capital stock of Company;
(v) any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by Company
to any of its officers, directors, stockholders,
employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of
any character, adversely affecting the business of
Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any assets, property or rights of Company to any
person, including, without limitation, Stockholders and
their Affiliates outside the ordinary course of business
of Company;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to Company, including without
limitation any indebtedness or obligation of any
Stockholders or any Affiliate thereof outside the ordinary
course of business of Company;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest in
any of the assets, property or rights of Company or
requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right or
asset outside of the ordinary course of Company's
business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company
is a party;
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(xiii) any transaction by Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company
has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and
a description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political
contributions made in a lawful manner which, in the aggregate, do not exceed
$5,000 per year for each year in which any Stockholder has been a stockholder
of Company, Company has not made, offered or agreed to offer anything of
value to any governmental official, political party or candidate for
government office nor has it otherwise taken any action which would cause
Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect. If political contributions made by
Company have exceeded $5,000 per year for each year in which any Stockholder
has been a stockholder of Company, each contribution shall be described on
Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and
Annexes hereto, together with all other documents and information made
available to Parent and its representatives in writing pursuant hereto,
present fairly the business and operations of Company for the time periods
with respect to which such information was requested. Company's rights under
the documents delivered pursuant hereto would not be adversely affected by,
and no statement made herein would be rendered untrue in any respect by, any
other document to which Company is a party, or to which its properties are
subject, or by any other fact or circumstance regarding Company (which fact
or circumstance was, or should
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reasonably, after due inquiry, have been known to Company) that is not
disclosed pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26,
Company has not, between the Balance Sheet Date and the date of this
Agreement, taken any of the actions set forth in Section 9.3 ("Prohibited
Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents,
warrants, covenants and agrees (i) that the representations and warranties set
forth below are true as of the date of this Agreement and, subject to Section
9.7, shall be true at the Closing Date, (ii) that all of the covenants and
agreements in this Section 7 shall be complied with or performed at and as of
the Closing Date and (iii) that by executing this Agreement each Stockholder
shall be deemed to have approved the terms of the Merger as required by the
OGCA.
7.1 AUTHORITY. Each Stockholder has the full legal right, power
and authority to enter into this Agreement. This Agreement has been executed
and delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or
Parent Stock that such Stockholder has or may have had, other than rights of any
Stockholder to acquire Parent Stock pursuant to (i) this Agreement or (ii) any
option granted by Parent.
7.3 LEASE AGREEMENT. Prior to the Merger, Parent and the
Stockholders will execute a lease for the building currently owned by the
Stockholders pursuant to terms mutually agreeable to the parties, including (i)
a three year term with annual renewals; (ii) lease payments of $2,900 monthly,
including Parent's cost of insurance; and (iii) Parent shall have an option to
purchase the leased building at fair market value after the expiration of the
first year of the lease.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO
Parent and Newco, jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 8 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 8 shall be materially complied
with or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly
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authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on their
respective business in the places and in the manner as now conducted, except
where the failure to be so authorized or qualified would not have an Adverse
Effect. True, complete and correct copies of the Charter Documents and
Bylaws, each as amended, of Parent and Newco (the "Parent Charter Documents")
are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by
Parent and Newco and their consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of Parent
and Newco. This Agreement has been duly executed and delivered by Parent and
Newco and is a valid and binding obligation of Parent and Newco, enforceable
against each of them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and
Newco is as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively.
All of the issued and outstanding shares of the capital stock of Parent and
Newco (i) have been duly authorized and validly issued, (ii) are fully paid
and nonassessable, (iii) are owned of record and beneficially by the persons
set forth on Schedule 2.4(ii) and Parent, respectively, and (iv) were
offered, issued, sold and delivered by Parent and Newco in compliance with
all applicable state and Federal laws concerning the offer, issuance, sale
and delivery of securities. Further, none of such shares was issued in
violation of the preemptive rights of any past or present stockholder of
Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on
Schedule 2.4(ii), (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Parent or Newco to issue any of
its authorized but unissued capital stock and (ii) neither Parent nor Newco
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 2.4(ii) also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list, accurate as of the date hereof, of all outstanding
options, warrants or other rights to acquire shares of capital stock of
Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no
Subsidiaries except for Newco and each of the other companies identified on
Schedule 8.5. Except as set forth in the preceding sentence, neither Parent
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in a Person nor is Parent or Newco, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no
liabilities, contingent or otherwise, except as set forth in or contemplated
by this Agreement or agreements similar to this Agreement with the Founding
Companies and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
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8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is
in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them which would
have a Adverse Effect; and there are no claims, actions, suits or proceedings,
pending or, to the knowledge of Parent or Newco, threatened, against or
affecting Parent or Newco, at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them and no notice
of any claim, action, suit or proceeding, whether pending or threatened, has
been received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to
the Stockholders pursuant to this Agreement will have been duly authorized prior
to the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in
September 1998. Neither Parent nor Newco has conducted any business since the
date of its inception, except raising capital and in connection with this
Agreement and similar agreements with the Founding Companies. Except as
disclosed on Schedule 8.10, neither Parent nor Newco owns or has at any time
owned any real property or any personal property or is a party to any other
agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's
sites, properties, books and records and will furnish
Parent
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with such additional financial and operating data and
other information as to the business and properties of
Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its
representatives, auditors and counsel in the preparation
of any documents or other material that may be required in
connection with any documents or materials required by
this Agreement. Parent and Newco will treat all
information obtained in connection with the negotiation
and performance of this Agreement as confidential in
accordance with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing, Parent
will afford to the officers and authorized representatives
of Company and Stockholders access to all of the sites,
properties, books and records of Parent, Newco and the
other companies listed on Schedule 9.1(ii) ("Founding
Companies") and will furnish Company and Stockholders with
such additional financial and operating data and other
information as to the business and properties of Parent,
Newco and the Founding Companies as Company and
Stockholders may from time to time reasonably request.
Parent and Newco will cooperate with Company and
Stockholders' representatives, auditors and counsel in the
preparation of any documents or other material which may
be required in connection with any documents or materials
required by this Agreement. Company and Stockholders 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved
in writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as
it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its properties and facilities, including those
held under lease, in as good working order and condition
as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve
its business
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organization intact, retain its respective present key
employees and maintain its respective relationships with
suppliers, customers and others having business relations
with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all other
orders of applicable courts, regulatory agencies and
similar governmental authorities;
(vii) maintain present debt instruments and Leases and not enter
into new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except
for ordinary and customary bonus and salary increases for
employees in accordance with past practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any
kind other than in connection with the exercise of options
or warrants listed in Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures,
except if it is in the normal course of business
(consistent with past practice), in connection with the
transactions contemplated by this Agreement, or involves
an amount not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset
or property whether now owned or hereafter acquired,
except (x) with respect to purchase money Liens incurred
in connection with the acquisition of equipment with an
aggregate cost not in excess of $5,000 as necessary or
desirable for the conduct of its business, (y) (1) Liens
for Taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which
contested Taxes adequate reserves have been established
and are being maintained) or (2) materialmen's,
mechanic's, worker's, repairmen's, employee's or other
like Liens arising in the ordinary course
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of business, or (3) Liens set forth on Schedule 6.8 or
6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall
not be deemed to be included in Schedule 6.9 unless
specifically listed thereon;
(x) commit a material breach or amend or terminate any
material agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any
agent, officer, director, trustee or any representative of any of the foregoing
will, during the period commencing on the date of this Agreement and ending with
the earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or
its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
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9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company
shall give prompt notice to Parent of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would likely cause any
representation or warranty of Company or Stockholders contained herein to be
untrue or inaccurate in any respect at or prior to the Closing Date and (ii)
any failure of any Stockholder or Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such
Person hereunder as of such date. Parent and Newco shall give prompt notice
to the Company of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation
or warranty of Parent or Newco contained herein to be untrue or inaccurate in
any respect at or prior to the Closing Date and (ii) any failure of Parent or
Newco to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder as of such date. The delivery of
any notice pursuant to this Section 9.6 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 9.7, (ii) modify the
conditions set forth in Sections 10 and 11, or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 11:59 p.m.
March 31, 1999 to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or
supplement to a Schedule prepared by Company or Parent that constitutes or
reflects an event or occurrence that would have a Adverse Effect may be made
unless the parties not making the amendment or supplement consent to such
amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set
forth in Sections 10.1 and 11.1 have been fulfilled, the Schedules shall be
deemed to be the Schedules as amended or supplemented pursuant to this
Section 9.7. Except as otherwise specified in Section 16.3, no party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of Section 14.1(iv). Neither the entry
by Parent into any other agreement, such as this Agreement, after the date
hereof for the acquisition of one or more companies nor the performance by
Parent of its obligations thereunder shall be deemed to require the amendment
to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and Company with respect to actions
to be taken on the
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Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of Parent and Newco contained in this
Agreement shall be true and correct as of the Closing Date with the same
effect as though such representations and warranties had been made on and as
of such date; all of the terms, covenants and conditions of this Agreement to
be complied with or performed by Parent and Newco on or before the Closing
Date shall have been duly complied with or performed; and a certificate to
the foregoing effect dated the Closing Date, and signed by the President or
any Vice President of Parent and of Newco shall have been delivered to
Company.
10.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Company as a result of which
the management of Company deems it inadvisable to proceed with the
transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to
do business and that all state franchise and/or income tax returns and taxes
for Parent and Newco, respectively, for all periods prior to the Closing Date
have been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to Parent or Newco that would constitute a
material Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a
certificate or certificates, dated the Closing Date and signed by the
Secretary of Parent and of Newco, certifying the completeness and accuracy of
the attached copies of Parent's and Newco's respective Charter Documents
(including amendments thereto), Bylaws (including amendments thereto), and
resolutions of the boards of directors and, if required, the stockholders of
Parent and Newco approving Parent's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in
Schedule 10.7 shall have been afforded an opportunity to enter into an
employment agreement, reasonably acceptable to both parties and substantially
in the form of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least
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$15,000,000 in gross proceeds from Parent's IPO or Private Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All the representations and warranties of Stockholders and Company contained in
this Agreement shall be true and correct as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholders and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholders and
Company each shall have delivered to Parent a certificate dated the Closing Date
and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Merger and no governmental agency or body shall have
taken any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a
certificate, dated the Closing Date and signed by the Secretary of the Company,
certifying the completeness and accuracy of the attached copies of Company's
Charter Documents (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and Stockholders approving
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to
Parent an instrument dated the Closing Date releasing Company from (i) any and
all claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth
on Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective
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prior to or as of the Closing Date.
11.7 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
6.21 shall have been obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have
delivered to Parent a certificate, dated as of a date no earlier than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in Company's state of incorporation and, unless waived by Parent,
in each state in which Company is authorized to do business, showing Company
is in good standing and authorized to do business and that all state
franchise and/or income Tax returns and Taxes for Company for all periods
prior to the Closing have been filed and paid.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered
to Parent a certificate to the effect that he or she is not a foreign person
under Section 111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule
10.7 shall have executed an employment agreement, reasonably acceptable to
both parties and substantially in the form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent
audited Balance Sheets as of December 31, 1997 and 1998 and audited
Statements of Income, Retained Earnings and Cash Flows for each of the years
in the two-year period ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state
and local income Tax Returns of Company for all taxable
periods that end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate
Returns of, or that include, Company for all taxable
periods ending after the Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries
and Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them
reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in
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respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying
schedules and 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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing
Date, Parent shall not terminate any health insurance, life insurance or 401(k)
plan in effect at Company until such time as Parent is able to replace such plan
with a plan that is applicable to Parent and all of its then existing
Subsidiaries; provided that Parent shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans;
provided, further, that any new health insurance plan shall provide for coverage
for preexisting conditions. On the Closing Date, the employees of Company will
be the employees of the Surviving Corporation (provided that this provision is
for purposes of clarifying that the Merger, in and of itself, will not have any
impact on the employment status of any employee; and provided further that this
provision shall not in any way limit the management rights of the Surviving
Corporation or Parent to assess workforce needs and make appropriate adjustments
as necessary or desirable within its discretion subject to applicable laws and
collective bargaining agreements).
13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants
that are applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders
covenant and agree that they, severally and not jointly in the case of
representations, warranties, covenants and agreements set forth in Section 7,
and jointly and severally in all other cases, will indemnify, defend, protect
and hold harmless Parent, Newco, Company and the Surviving Corporation at all
times, from and after the Closing Date 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 expenses of investigation) incurred by Parent,
Newco, Company or the Surviving Corporation as a result of or arising from any
breach of any representation, warranty, covenant or agreement on the part of
Stockholders or Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it
will indemnify, defend, protect and hold harmless Stockholders at all times from
and after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on
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the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge of
any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 13.1
or 13.2 (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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for any additional costs of
defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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 upon consent of the Indemnifying Party, which consent will
not be unreasonably withheld, and the Indemnifying
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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. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. Anything in this Agreement to the contrary
notwithstanding, any amounts owing from an Indemnifying Party to an
Indemnified Party under the provisions of this Section 13 shall be reduced to
the extent to which the Indemnified Party, or any other claimant, actually
receives any proceeds of any insurance policy that are paid with respect to
the matter or occurrence that gave rise to the Third Person claim.
Submission to insurance of any insurable claim otherwise giving rise to
indemnification under this Section 13 shall be a condition precedent to
seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 13 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party; 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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by Company (acting through its board of directors), on the
one hand, or by Parent (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 May 31, 1999
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;
(iii) by Stockholders or Company, on the one hand, or by Parent,
on the other hand, if a material breach or default shall
be made by the other party in the observance or in the due
and timely performance of any of the material covenants,
agreements or conditions contained herein, and the curing
of such default shall not have been made on or before the
Closing Date; or
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(iv) by Company and Stockholders, on the one hand, or by
Parent, on the other hand, if either such party or parties
declines to consent to an amendment or supplement to a
Schedule proposed by the other party or parties pursuant
to Section 9.7 because such proposed amendment constitutes
or reflects an event or occurrence that would have a
material Adverse Effect on the party or parties proposing
the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any
Stockholder subject to an employment agreement listed in Schedule 10.7, each of
which is expressly excepted from the obligations imposed by this Section 15)
will not, for a period of three years following the Closing Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other Person:
(i) engage, as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in the sale or
marketing of telecommunication services or interconnect
services within the state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an
employee of Parent (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 Parent (including the
Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within
one year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof) for the purpose of
soliciting or selling products or services in direct
competition with Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of
Parent (including the Subsidiaries thereof) in the
long-distance telephone or interconnect business, which
candidate, to the knowledge of such Stockholder after due
inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to the knowledge of
such Stockholder after due inquiry, Parent (or any
Subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity; or
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(v) disclose existing or prospective customers of Company to
any Person for any reason or purpose whatsoever except to
the extent that the Company has in the past disclosed such
information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be
deemed to prohibit any Stockholder from acquiring as an investment after the
date of this Agreement not more than five percent of the capital stock of a
competing business whose stock is traded on a national securities exchange or
the National Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic
losses to Parent as a result of a breach of the foregoing covenants, and because
of the immediate and irreparable damage that could be caused to Parent for which
it would have no other adequate remedy, each Stockholder agrees that the
foregoing covenants may be enforced by Parent in the event of breach by such
Stockholder, by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15
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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15
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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set
forth in this Section 15 are a material and substantial part of the transactions
contemplated by this
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Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize
and acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) 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 (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of
this Section 16.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on each Stockholder's ability
to disseminate confidential information with respect to Company shall become
nugatory and (2) each Stockholder (including his representatives, advisors and
legal counsel) shall within ten business days of the Parent's request, deliver
all copies of the confidential information of Parent in his possession in any
form whatsoever (including, but not limited to, any reports, memoranda, or other
material prepared by such Stockholder or his representatives, advisors or legal
counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge
that they had in the past and currently have and in the future may have, prior
to the Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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
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clause (y), Parent and Newco shall, if possible, give immediate prior written
notice thereof to Company and Stockholders and provide Company and
Stockholders with the opportunity to contest such disclosure, or (z) 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 Parent or Newco of the
provisions of this Section 16.2, Company and Stockholders shall be entitled
to an injunction (without the posting of bond or proof of actual damages)
restraining Parent and Newco from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Company and Stockholders 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, Parent
and Newco (including their representatives, advisors and legal counsel) shall
within ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form
whatsoever (including, but not limited to, any reports, memoranda, or other
materials prepared by Parent or Newco or their representatives, advisors or
legal counsel at the direction of Parent or Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 16.1 and
16.2 and because of the immediate and irreparable damage that would be caused
for which no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16
shall survive the termination of this Agreement for a period of three years from
the Closing Date or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be
bound by the restrictions set forth in this Section 17 (or trusts for the
benefit of Stockholders or family members, the trustees of which so agree), for
a period of one year from the consummation of the IPO (unless the IPO shall not
be consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholders pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO
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THE FIRST ANNIVERSARY OF THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN
PUBLIC OFFERING ("IPO"). UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY
STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE OR
AFTER - , IF THE IPO HAS NOT BEEN CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant
and agree that none of the Restricted Securities will be offered, sold,
assigned, exchanged, transferred, encumbered, distributed, appointed 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 thereunder
and the provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear
the economic risk of an investment in the Restricted Securities and can afford
to sustain a total loss of such investment and have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks of the proposed investment in Parent. Stockholders have
had an adequate opportunity to ask questions and receive answers from the
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officers of Parent 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 Parent,
the plans for the operations of the business of Parent and any plans for
additional acquisitions and the like. Stockholders have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
date of consummation of the IPO, whenever Parent proposes to register any
Parent Stock for its own or the account of others under the 1933 Act for a
public offering, other than (i) any shelf registration of shares to be used
as consideration for acquisitions of additional businesses by Parent and (ii)
registrations relating to employee benefit plans, Parent shall give each
Stockholder prompt written notice of its intent to do so. Upon the written
request of any Stockholder given within 15 business days after receipt of
such notice, Parent shall cause to be included in such registration all
Registerable Securities (including any shares of Parent Stock issued as a
divi 19.1dend or other distribution with respect to, or in exchange for, or
in replacement of such Registerable Securities) which any Stockholder
requests; provided, however, if Parent is advised in writing in good faith by
any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 19.1 that
the number of shares to be sold by Persons other than Parent is greater than
the number of such shares which can be offered without adversely affecting
the offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such
Person) to a number deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority
of the shares of Parent Stock (i) representing Registerable Securities owned
by Stockholders or their permitted transferees or (ii) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection
with the acquisition of their companies by Parent pursuant to an agreement,
similar to this Agreement, which shares have not been previously registered
or sold and which shares are not entitled to be sold under Rule 144(k) (or
any similar or successor provision) promulgated under the 1933 Act, may
request in writing that Parent file a registration statement under the 1933
Act covering the registration of the shares of Parent Stock issued to and
held by the Founding Stockholders or their permitted transferees (including
any stock issued as a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) (a "Demand
Registration"). Within ten days of the receipt of such request, Parent shall
give written notice of such request to all other Founding Stockholders and
shall, as soon as practicable but in no event later than 45 days after notice
from the Founding Stockholders requesting such registration, file and use its
best efforts to cause to become effective a registration statement covering
all such shares. Parent shall be obligated to effect only one Demand
Registration for all Founding Stockholders; provided, however, that Parent
shall not be deemed to have satisfied its obligation under this Section 19.2
unless and until a Demand Registration covering all shares of Parent Stock
requested to be registered has been filed and
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becomes effective under the 1933 Act and has remained current and effective
for not less than 90 days (or such shorter period as is required to complete
the distribution and sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a
majority of the disinterested directors of Parent (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Section 19 (including all registration,
filing, qualification, legal, printing and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Parent. In
connection with registrations under Sections 19.1 and 19.2, Parent will, as
expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such Parent Stock and use its best efforts
to cause such registration statement to become and remain
effective; provided that Parent may discontinue any
registration of its securities that is being effected
pursuant to Section 19.1 at any time prior to the
effective date of the registration statement relating
thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for a period as may be
requested by the stockholders holding a majority of the
Parent Stock covered thereby not exceeding 90 days and to
comply with the provisions of the 1933 Act with respect to
the disposition of all securities covered by such
registration statement during such period in accordance
with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement;
provided, that before filing a registration statement or
prospectus relating to the sale of Parent Stock, or any
amendments or supplements thereto, Parent will furnish to
counsel to each holder of Parent Stock covered by such
registration statement or prospectus, copies of all
documents proposed to be filed, which documents will be
subject to the review of such counsel, and Parent will
give reasonable consideration
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in good faith to any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of
such Parent Stock, such number of copies of a preliminary
prospectus and prospectus for delivery in conformity with
the requirements of the 1933 Act, and such other
documents, as such Person may reasonably request, in order
to facilitate the public sale or other disposition of the
Parent Stock.
(iv) Use its best efforts to register or qualify the Parent
Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as
each seller shall reasonably request, and do any and all
other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the
disposition of the Parent Stock owned by such seller, in
such jurisdictions, except that Parent shall not for any
such purpose be required (x) to qualify to do business as
a foreign corporation in any jurisdiction where, but for
the requirements of this Section 19.3(iv), it is not then
so qualified, or (y) to subject itself to taxation in any
such jurisdiction, or (z) to take any action which would
subject it to general or unlimited service of process in
any such jurisdiction where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by
such registration statement to be registered with or
approved by such other governmental agencies or
authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such
Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered by
such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the
1933 Act within the appropriate period mentioned in
Section 19.3(ii), if Parent becomes aware that the
prospectus included in such registration statement, as
then in effect, includes 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 in the light of the circumstances then
existing, and, at the request of any such seller, deliver
a reasonable number of copies of an amended or
supplemental prospectus as may be necessary so that, as
thereafter delivered to the Parents of such Parent Stock,
each prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances
then existing.
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make
generally available to its security
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holders, in each case as soon as practicable, but not
later than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the period
covered corresponds to a fiscal year of the Parent), an
earnings statement of Parent which will satisfy the
provisions of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters
to list such Parent Stock on each securities exchange as
they may reasonably designate.
(ix) In the event the offering is an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from
the independent public accountants for Parent in customary
form and covering such matters of the type customarily
covered by such letters.
(x) Execute and deliver all instruments and documents
(including in an underwritten offering an underwriting
agreement in customary form) and take such other actions
and obtain such certificates and opinions as the
stockholders holding a majority of the shares of Parent
Stock covered by the Registration Statement may reasonably
request in order to effect an underwritten public offering
of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent
Stock covered by such registration statement, by any
underwriter participating in any disposition to be
effected pursuant to such registration statement and by
any attorney, accountant or other agent retained by any
such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents
and properties of Parent, and cause all of Parent's
officers, directors and employees to supply all
information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection
with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion
or opinions from counsel for Parent in customary form and
in form and scope reasonably satisfactory to such
underwriter or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each Stockholder holding shares of Parent Stock covered by
a registration statement referred to in this Section 19
will, upon receipt of any notice from Parent of the
happening of any event of the kind described in Section
19.3(vi), forthwith discontinue disposition of the Parent
Stock pursuant to the registration statement covering such
Parent Stock until such holder's receipt of the copies of
the supplemented or
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amended prospectus contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2
involves an underwritten offering, each of the
Stockholders agrees, whether or not his shares of Parent
Stock are included in such registration, not to effect any
public sale or distribution, including any sale pursuant
to Rule 144 under the 1933 Act, of any Parent Stock, or of
any security convertible into or exchangeable or
exercisable for any Parent Stock (other than as part of
such underwritten offering), without the consent of the
managing underwriter, during a period commencing eight
calendar days before and ending 180 calendar days (or such
lesser number as the managing underwriter shall designate)
after the effective date of such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of
Parent under the 1933 Act pursuant to Section 19.1 or
19.2, Parent will, and it hereby agrees to, indemnify and
hold harmless, to the extent permitted by law, each seller
of any Parent Stock covered by such registration
statement, each Affiliate of such seller and their
respective directors, officers, employees and agents or
general and limited partners (and directors, officers,
employees and agents thereof) each other Person who
participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who
controls such seller or any such underwriter within the
meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an untrue
statement or alleged untrue statement of a material fact
contained in any registration statement (or any amendment
or supplement thereto), including all documents
incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements
therein not misleading, or arising out of an untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or prospectus (or
any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in
order to make the statements therein not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced
or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is
effected with the written consent of Parent; and
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(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened,
or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense
is not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or any
such director, officer, employee, agent, general or limited
partner, investment advisor or agent, underwriter or
controlling Person and shall survive the transfer of such
securities by such seller.
(ii) Parent may require, as a condition to including any Parent
Stock in any registration statement filed in accordance
with Section 19.1 or 19.2, that Parent shall have received
an undertaking reasonably satisfactory to it from the
prospective seller of such Parent Stock or any
underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section
19.5(i)) Parent with respect to any statement or alleged
statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or
supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and
in conformity with written information furnished to Parent
by or on behalf of such seller or underwriter specifically
stating that it is for use in the preparation of such
registration statement, preliminary, final or summary
prospectus or amendment or supplement. Such indemnity
shall remain in full force and effect regardless of any
investigation made by or on behalf of Parent or any such
director, officer or controlling Person and shall survive
the transfer of such securities by such seller. In that
event, the obligations of the Parent and such sellers
pursuant to this Section 19.5 are to be several and not
joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for
the full amount of such claim, and each such seller's
liability under this Section 19.5 shall be limited to an
amount equal to the net proceeds (after deducting the
underwriting discount and expenses) received by such
seller from the sale of Parent Stock held by such seller
pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder
of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section
19.5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give
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written notice to such indemnifying party of the
commencement of such action; provided, however, that the
failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party
of its obligations under this Section 19.5, except to the
extent (not including any such notice of an underwriter)
that the indemnifying party is materially prejudiced by
such failure to give notice. In case any such action is
brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties
may exist in respect of such claim (in which case the
indemnifying party shall not be liable for the fees and
expenses of more than one firm of counsel selected by
holders of a majority of the shares of Parent Stock
included in the offering or more than one firm of counsel
for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish with
counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in
connection with the defense thereof, provided that the
indemnifying party will not agree to any settlement
without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such
settlement requires no more than a monetary payment for
which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided,
however, that the indemnified party shall be entitled to
take control of the defense of any claim as to which, in
the reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying party and
the indemnified party would be inappropriate under the
applicable standards of professional conduct due to actual
or potential differing interests between them. In the
event that the indemnifying party does not assume the
defense of a claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such claim
by all appropriate proceedings, and will have control of
such defense and proceedings, and the indemnified party
shall have the right to agree to any settlement without
the prior consent of the indemnifying party. Each
indemnified party shall, and shall cause its legal counsel
to, provide reasonable cooperation to the indemnifying
party and its legal counsel in connection with its
assuming the defense of any claim, including the
furnishing of the indemnifying party with all papers
served in such proceeding. In the event that an
indemnifying party assumes the defense of an action under
this Section 19.5(iii), then such indemnifying party
shall, subject to the provisions of this Section 19.5,
indemnify and hold
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harmless the indemnified party from any and all losses,
claims, damages or liabilities by reason of such settlement
or judgment.
(iv) Parent and each seller of Parent Stock shall provide for
the foregoing indemnity (with appropriate modifications)
in any underwriting agreement with respect to any required
registration or other qualification of securities under
any federal or state law or regulation of any governmental
authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by
Section 19.5 is for any reason not available or insufficient for any reason
to hold harmless an indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, the parties required to indemnify
by the terms thereof shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by Parent, any seller of Parent Stock and one or more of
the underwriters, except to the extent that contribution is not permitted
under Section 11 (f) of the 1933 Act. In determining the amounts which the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of the Parent Stock by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the
parties' relative knowledge and 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 under the circumstances. Parent and each Person selling
securities agree with each other that no seller of Parent Stock shall be
required to contribute any amount in excess of the amount such seller would
have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if
the underwriters were treated as one entity for such purpose) or for the
underwriters' portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the
Parent Stock. For purposes of this Section 19.6, each Person, if any, who
controls an underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such underwriter, and each
director and each officer of Parent who signed the registration statement,
and each Person, if any, who controls Parent or a seller of Parent Stock
within the meaning of Section 15 of the 1933 Act shall have the same rights
to contribution as Parent or a seller of Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. After Parent completes its initial underwritten public
offering and for as long thereafter as any Stockholder shall continue to hold
any Restricted Securities, Parent shall use reasonable efforts to file, on a
timely basis, all annual, quarterly and other reports required to be filed by
it under Sections 13 and 15(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder, as amended from
time to time.
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20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco
shall 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 any of the others may reasonably request for the
purpose of carrying out this Agreement. Stockholders will cooperate and use
their reasonable efforts to have the present officers, directors and
employees of Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law or as
permitted by Section 17), but if assigned by operation of law, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto,
the successors of Parent, Newco and Company, and the heirs and legal
representatives of Stockholders. Notwithstanding the foregoing, any
Stockholder may assign his shares of Parent Stock and rights thereunder, to a
family or children's trust; provided that the assignee agrees to be bound by
the terms of this Agreement to the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Annexes) and the documents delivered pursuant hereto constitute the
entire agreement and understanding among Stockholders, Company, Newco and
Parent and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution and
delivery, 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 Stockholders and by Company, Newco and
Parent, acting through their respective officers or representatives, duly
authorized by their respective Boards of Directors. Any disclosure made on
any Schedule delivered pursuant hereto shall be deemed to have been disclosed
for purposes of any other Schedule required hereby; provided that Company
shall make a good faith effort to cross reference disclosures, as necessary
or advisable, between related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damage or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by
such indemnifying party.
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20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their addresses
set forth on Schedule 6.3, with copies to such counsel as
is set forth with respect to each Stockholder on such
Schedule 6.3;
(z) If to the Company, addressed to it at:
Telkey Communications, Inc.
3803 S. 79th East Avenue
Tulsa, Oklahoma 74145
Attn: Michael P. Murphy
Telecopy No.: (918) 622-4517
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance
with the laws of the State of Oklahoma.
20.8 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
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<PAGE>
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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of
this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in
Section 13.4, 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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult
with each other and no party shall issue any public announcement or statement
with respect to the transactions contemplated hereby without the consent of
the other parties, unless the party desiring to make such announcement or
statement, after seeking such consent from the other parties, obtains advice
from legal counsel that a public announcement or statement is required by
applicable law.
20.14 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 Parent, Newco, Company and Stockholders.
Any amendment or waiver effected in accordance with this Section 20.14 be
binding upon each of the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising
out of or relating to this Agreement, except as set forth herein, shall be
settled by arbitration in Oklahoma City, Oklahoma, in accordance with the
rules for arbitration in Oklahoma City, Oklahoma, in accordance with the
rules for arbitration of the American Arbitration Association. Any
arbitration shall be undertaken pursuant to the Federal Arbitration Act,
where possible, and the decision of the arbitrators shall be final, binding,
and enforceable in any court of competent jurisdiction. In any dispute in
which a party seeks in excess of $50,000 in damages, three arbitrators shall
be employed. Otherwise, a single arbitrator shall be employed. All costs
relating to the arbitration shall be borne equally by the parties, other than
their own attorneys' and experts' fees. The parties will bear their own
attorneys' and experts' fees. The arbitrators will not award punitive,
consequential or indirect damages. Each party hereby waives the right to such
damages and agrees to receive only those actual damages directly resulting
from the claim asserted. In resolving all disputes between the parties, the
arbitrators will apply the laws
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<PAGE>
of the State of Oklahoma. Except as needed for presentation in lieu of a
live appearance, depositions will not be taken. The parties will be entitled
to conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing
conferences as may be needed. Either party may be entitled to pursue such
remedies for emergency or preliminary injunctive relief in any court of
competent jurisdiction, provided that each party agrees that it will consent
to the stay of such judicial proceedings on the merits of both this Agreement
and the related transactions pending arbitration of all underlying claims
between the parties immediately following the issuance of any such emergency
or injunctive relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so
directed by Parent, to join with Parent and Newco in making an election under
Section 338(h) of the Code (and any corresponding elections under state,
local, or foreign tax law) with respect to a purchase and sale of the Company
Stock; PROVIDED HOWEVER, that no election shall be made if, as a result of
the election, the Stockholders would incur any adverse tax or other
consequences not otherwise reimbursed by Parent or Newco to the Stockholders.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
-----------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
-----------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
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<PAGE>
TELKEY COMMUNICATIONS, INC.
BY: /s/ Michael P. Murphy
-----------------------
NAME: Michael P. Murphy
TITLE: President
STOCKHOLDERS:
/s/ Michael P. Murphy
----------------------
Michael P. Murphy
/s/ Deborah S. Murphy
----------------------
Deborah S. Murphy
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<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION X CORP.
INTO
TELKEY COMMUNICATIONS, INC.
Telkey Communications, Inc., an Oklahoma corporation, pursuant to
Section 81 of the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations,
which are Oklahoma corporations, is Telkey Communications, Inc. and Alliance
Acquisition X Corp.
SECOND. That an agreement and plan of merger has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with the provisions of Section 81 of the Oklahoma
General Corporation Act.
THIRD. That the name of the surviving corporation is Telkey
Communications, Inc.
FOURTH. That the certificate of incorporation of Alliance
Acquisition X Corp. shall be the certificate of incorporation of the
surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file
at the principal place of business of the surviving corporation, which is
located at 12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be
furnished by the surviving corporation, on request and without cost, to any
shareholder of any constituent corporation.
SEVENTH. This merger shall be effective at -, Central Standard
Time, on the date this Certificate is filed with the Secretary of State of
the State of Oklahoma.
IN WITNESS WHEREOF, Telkey Communications, Inc. has caused this
certificate to be signed by its President and attested by its Secretary, this
- - day of - 1999.
TELKEY COMMUNICATIONS, INC.
President
ATTEST:
- -----------------------
Secretary
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION I CORP.
(Newco)
and
TERRA TELECOM, INC.
(Company)
and
JERRY MCCART
AND
PAULA L. MCCART
AND
RON CRAINSHAW
AND
LORA M. CRAINSHAW
(Stockholders of the Company)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . . . .5
2.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . .5
2.3 Certificate of Incorporation, Bylaws and Board of
Directors of the Surviving Corporation. . . . . . . . . . . . . . . . . .5
2.4 Certain Information With Respect to the Capital Stock
of Company, Parent and Newco. . . . . . . . . . . . . . . . . . . . . . .6
2.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.6 Release of Personal Guarantees. . . . . . . . . . . . . . . . . . . . . .6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . .7
4.1 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.2 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF COMPANY AND STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . .8
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . .9
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . .9
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.6 Predecessor Status; etc.. . . . . . . . . . . . . . . . . . . . . . . . .9
6.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.8 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 10
6.9 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . 11
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.13 Significant Customers; Material Contracts and Commitments . . . . . . . 12
6.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters . . . . . . . . . . . . . . . . . 13
6.17 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.19 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 16
6.20 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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6.21 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.22 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.23 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . 19
6.24 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. ADDITIONAL REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . 20
7.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.3 Election to Put Stock . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Election to Call Stock. . . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF PARENT AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 21
8.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 22
8.7 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 22
8.8 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Parent Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Business; Real Property; Agreements . . . . . . . . . . . . . . . . . . 23
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Access and Cooperation; Due Diligence; Audits . . . . . . . . . . . . . 23
9.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . 24
9.3 Prohibited Activities by the Company. . . . . . . . . . . . . . . . . . 24
9.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . 26
9.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . 26
9.8 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Representations and Warranties; Performance of Obligations. . . . . . . 27
10.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 27
10.5 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 27
10.6 Secretary's Certificates. . . . . . . . . . . . . . . . . . . . . . . . 28
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10.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Closing of the IPO or the Private Placement . . . . . . . . . . . . . . 28
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.1 Representations and Warranties; Performance of Obligations. . . . . . . 28
11.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . 28
11.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 29
11.5 Stockholders' Release . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 Termination of Related Party Agreements . . . . . . . . . . . . . . . . 29
11.7 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 29
11.8 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 29
11.9 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.10 Closing of the IPO or Private Placement . . . . . . . . . . . . . . . . 29
11.11 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 29
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS . . . . . . . . . . . . . . . 30
12.1 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . 30
12.2 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . . . 30
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 General Indemnification by the Stockholders . . . . . . . . . . . . . . 31
13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . . . 31
13.3 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . 32
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . . . 33
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.1 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.4 Severability, Reformation . . . . . . . . . . . . . . . . . . . . . . . 34
15.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.6 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 35
16.1 Company and Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 35
16.2 Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-iii-
<PAGE>
16.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.1 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.2 Economic Risk, Sophistication . . . . . . . . . . . . . . . . . . . . . 38
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.1 PiggyBack Registration Rights . . . . . . . . . . . . . . . . . . . . . 38
19.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . 38
19.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 39
19.4 Other Registration Matters. . . . . . . . . . . . . . . . . . . . . . . 42
19.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.6 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.8 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . 48
20.9 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.10 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . 48
20.11 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.13 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.14 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 49
20.15 Arbitration.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
20.16 338 Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 10th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION I CORP., an Oklahoma corporation
("Newco"), TERRA TELECOM, INC., an Oklahoma corporation (the "Company"), and
JERRY MCCART, PAULA L. MCCART, RON CRAINSHAW, AND LORA M. CRAINSHAW, the only
stockholders of the Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Oklahoma, having been incorporated on March 9, 1999,
solely for the purpose of completing the transaction set forth herein, and
Newco is a wholly-owned subsidiary of Parent, a corporation organized and
existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, this Merger is being effectuated pursuant to Section
368(a)(1)(A) of the Code; and
WHEREAS, Stockholders are the owners of 2,000 shares of Common Stock,
$1.00 par value, of Company ("Company Stock"), representing all the issued
and outstanding capital stock of Company outstanding on the date of this
Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into aggregate consideration of $1,500,000,
comprised of $1,050,000 in cash and -- shares of Common Stock $.01 par
value, of Parent ("Parent Stock"); and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
<PAGE>
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
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<PAGE>
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6, 7
and 8 of this Agreement, (ii) the 36th monthly anniversary of the Closing Date
when used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws, or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"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.
"OGCA" means the Oklahoma General Corporation Act.
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<PAGE>
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar
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<PAGE>
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person, by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed as
provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of the
Surviving Corporation until they shall thereafter be further
amended;
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of the
Surviving Corporation after the Effective Time until his
successor shall have been elected and qualified; and
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<PAGE>
(iv) David W. Aduddell, Chief Executive Officer; Jerry McCart,
President, Joe Evans, Chief Financial Officer and Secretary; and
Jeff Hartwig, Vice President of Operations of Newco immediately
prior to the Effective Time shall continue as the officers of the
Surviving Corporation after the Effective Time in the same
capacity or capacities, until their successors are duly elected
and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement are as follows:
(i) the authorized, issued and outstanding capital stock of Company
is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of Parent is
as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000 shares of
common stock, par value $.01, of which 1,000 shares are issued
and outstanding and entitled to one vote per share on all matters
submitted to stockholders.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
2.6 RELEASE OF PERSONAL GUARANTEES. Company and Parent will ensure that
each of the Stockholders will be released from any personal guarantees of the
indebtedness of Company, and that Company will assume all obligations under
(i) those certain promissory notes dated March 7, 1997 issued by Jerry and
Paula McCart in favor of Harry and R.B. Smith in the original principal
amount of $10,000 and $30,303.62, and (ii) that certain promissory note dated
March 24, 1997 issued by Ron Crainshaw in favor of Tulsa National Bank in the
original principal amount of $39,610.50.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
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<PAGE>
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holders thereof, automatically
shall be deemed to represent the right to receive, in aggregate,
(i) -- shares of Parent Stock and (ii) $1,050,000 in cash, all as
more particularly set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as treasury
stock shall be canceled and retired and no Parent Stock, cash or
other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, automatically shall
be deemed to represent the right to receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
------------------- ---------------- --------------- ----
<S> <C> <C> <C>
Jerry and Paula L. McCart 1,000 -- $ 450,000
Ron and Lora M. Crainshaw 1,000 -- $ 600,000
---------------- --------------- ----------
2,000 -- $1,050,000
---------------- --------------- ----------
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the Closing
all certificates representing any and all shares of Company Stock, duly endorsed
in blank by Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholders'
expense, affixed and canceled.
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<PAGE>
5. CLOSING
Prior to the taking of the actions described in clauses (i) and (ii) below
(the "Closing"), the parties to this Agreement shall take all actions necessary
to prepare to (i) effect the Merger (including the filing with the appropriate
state authorities of the Certificate of Merger which shall become effective at
the Effective Time) and (ii) effect the conversion of the shares and the
delivery of the Parent Stock referred to in Sections 3 and 4; provided, that
such actions shall not include the actual completion of the Merger or the
conversion of the shares and the delivery of the Parent Stock referred to in
Sections 3 and 4, each of which actions shall only be taken upon the Closing
Date as herein provided. The Closing shall take place on May 31, 1999, or such
other date as the parties hereto may designate (the "Closing Date"), at the
offices of McAfee & Taft A Professional Corporation or at such place in Oklahoma
City, Oklahoma, as the parties may mutually agree. On the Closing Date (x) the
Certificate of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 10:00 a.m. Central Standard
Time on the Closing Date, become effective and the Merger shall thereby be
effected and (y) all transactions contemplated by this Agreement, including the
conversion of the shares and delivery of the Parent Stock which the Stockholders
shall be entitled to receive pursuant to the Merger shall occur and be deemed to
be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, jointly and severally represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are materially true at the date of this Agreement and, subject
to Section 9.7, shall be materially true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date. For purposes of this Section
6, the term "Company" shall mean and refer to Company and all of its
Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have an adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise), of
Company taken as a whole (as used herein with respect to Company, or with
respect to any other Person, an "Adverse Effect"). Schedule 6.1 sets forth the
jurisdiction in which Company is incorporated and contains a list of all such
jurisdictions in which Company is authorized or qualified to do business. True,
complete and correct copies of the Charter Documents and Bylaws, each as
amended, of Company are all attached hereto as Schedule 6.1. The stock records
of Company, as heretofore made available to Parent, are correct and complete.
To the knowledge of Company and Stockholders, there are no minutes in the
possession of Company or Stockholders which have not been made available to
Parent, and all of such minutes are correct and complete.
-8-
<PAGE>
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the stockholders of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholders in
the amounts set forth in Section 4.1 and further, except as set forth on
Schedule 6.3, are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and validly
issued and (ii) are fully paid and nonassessable. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1995. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company has
no Subsidiaries, (ii) 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, and (iii) Company
is not directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are copies of
the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
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<PAGE>
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.7). Except as set forth on
Schedule 6.7, the Balance Sheets referred to in this Section 6.7 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.7 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte & Touche LLP.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a list
(which is set forth on Schedule 6.8) as of the Balance Sheet Date of (i) all
liabilities of Company of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, that are not reflected
on the December Balance Sheet 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. Except as set forth on Schedule 6.8, since the Balance Sheet Date
Company has not incurred any liabilities 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. Company has also
disclosed to Parent on Schedule 6.8, in the case of those contingent liabilities
related to pending or threatened litigation or other liabilities which are not
fixed or otherwise accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholders. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories, and such list and such aging report (the "A/R Aging
Report") as of the most practicable date. Except to the extent reflected on
Schedule 6.9 or as disclosed by Company to Parent in a writing accompanying the
A/R Aging Report, such accounts, notes and other receivables are collectible in
the amounts shown on Schedule 6.9, and shall be collectible in the
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<PAGE>
amounts shown on the A/R Aging Report, net of reserves reflected in the December
Balance Sheet and as of the date of the A/R Aging Report, respectively.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have an Adverse Effect on its business, and Company has delivered to Parent an
accurate list and summary description (which is set forth on Schedule 6.10) of
all such licenses, franchises, permits and other governmental authorizations,
including titles, certificates, trademarks, trade names, patents, patent
applications and copyrights owned or held by Company (including interests in
software or other technology systems, programs and intellectual property) (it
being understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 6.11). To the knowledge of
Company, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 6.10 and 6.11 are valid in all respects, and 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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have an
Adverse Effect on Company. Except as specifically provided in Schedule 6.10, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to Company (and to the Surviving Corporation after the Effective Time
of the Merger) by, any such license, franchise, permit or government
authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) to the knowledge of Company, no
on-site or off-site location to which Company has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
Federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against
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Company, Parent or Newco for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury, including, but not limited to,
any claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) Company has no contingent liability
in connection with any release of any Hazardous Waste or Hazardous Substance
into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.12) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Company
has delivered to Parent an accurate list (which is set forth on Schedule 6.13)
of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.13, means a customer (or
person or entity) (i) representing 5% or more of Company's annual revenues as of
the Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers) have canceled or substantially reduced or, to the knowledge of
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by Company.
Company has listed on Schedule 6.13 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.8, 6.12 or 6.14, (x) in existence as of the
Balance Sheet Date and (y) entered into since the Balance Sheet Date, and in
each case has delivered true, complete and correct copies of such agreements to
Parent. Company has complied with all commitments and obligations pertaining to
it, and is not in default under any contract or agreement listed on Schedule
6.13 and no notice of default under any such contract or agreement has been
received. Company has also indicated on Schedule 6.13 a summary description of
all plans or projects involving the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $5,000 by
Company.
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6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by
Company in the conduct of its business. Company has good and insurable title to
the real property owned by it, including those reflected on Schedule 6.14,
subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing specified
liabilities (with respect to which no default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do
not adversely affect in any respect the current use of the
property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to
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salary, bonus and other compensation, respectively) of each of such persons as
of (i) the Balance Sheet Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan
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listed on Schedule 6.17 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of Company as of the Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on Schedule
6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such determination
letters are included as part of Schedule 6.17. Except as disclosed on Schedule
6.17, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or Returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 6.17. Neither
Stockholders, any such plan listed in Schedule 6.17, nor Company has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No employee benefit plan listed on Schedule 6.17 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and Company has not incurred (i) any liability
for excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation (other than for premium
payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify under
Section 401(a) of the Code without notice to and approval by the
Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans
listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of ERISA;
and
(z) except as set forth in Schedule 6.17, no circumstances exist
pursuant to which Company could reasonably be expected to have
any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the
Pension Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory Lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained
or contributed to by any entity other than Company that is, or at
any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes Company
("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by
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Company or any member of the Controlled Group have not resulted in and will not
result in payments to "disqualified individuals" (as defined in Section 280G(c)
of the Code) of Company or any member of the Controlled Group which,
individually or in the aggregate will constitute "excess parachute payments" (as
defined in Section 280G(b) of the Code) resulting in the imposition of the
excise tax under Section 4999 of the Code or the disallowance of deductions
under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.19 or 6.11, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have an Adverse Effect; and except to the
extent set forth on Schedule 6.8 or 6.11, there are no claims, actions, suits or
proceedings, commenced or, to the knowledge of Company, threatened, against or
affecting Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over Company and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
Company or any Stockholder. Company has conducted and is conducting its business
in substantial compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have an Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter C of the Code, and
Company has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Company were correct and complete
in all respects. All Taxes owed by Company (whether or not shown
on any Tax Return) have been paid or reserved for on its books.
Except as set forth on Schedule 6.20, Company is not currently
the beneficiary of any extension of time within which to file any
Tax Return. Since January 1, 1995, no claim with respect to
Company has been made by an authority in a jurisdiction where
Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There is no Lien affecting any of
Company's assets that arose in connection with any failure or
alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other
party.
(iii) Except as set forth in Schedule 6.8, Company does not expect any
authority to assess any amount of additional Taxes for any period
for which Tax
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Returns have been filed. There is no dispute or claim concerning
any Tax liability of Company either claimed or raised by any
authority in writing or as to which Company has knowledge based
upon direct inquiry by any agent of such authority. Schedule
6.20(iii) lists all Tax Returns relating to income Tax of Company
for taxable periods ended on or after January 1, 1994, indicates
those Returns of which Company is aware that have been audited
and indicates those Returns that currently are the subject of
audit. Company has provided Parent access to correct and
complete copies of all Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by
Company for any taxable period ended on or after January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not waived
any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Company has not made any
payments, is not obligated to make any payments and is not a
party to any agreement that under certain circumstances could
obligate it to make any payments that will not be fully
deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority or
entered into any agreement regarding Taxes with any taxing
authority that would, individually or in the aggregate, apply to
the Surviving Corporation after the Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in default under any (i) Lease, instrument, agreement, license, or permit set
forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other agreement to
which it is a party or by which its properties are bound (collectively, the
"Documents"); and, except as set forth in Schedule 6.21, (i) the rights and
benefits of Company under the Documents will not be adversely affected by the
transactions contemplated hereby and (ii) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach or
constitute a default under, any of the terms or provisions of the Documents or
the Charter Documents. Except as set forth on Schedule 6.21, none of the
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect in all respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or publication by Company, Parent or Newco of
the name of any other party to such Document, and none of the Documents
prohibits or restricts Company from freely providing services to any other
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customer or potential customer of Company, Parent, Newco or any other Founding
Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 6.22, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of
Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital
stock of Company;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Company to any of its
officers, directors, stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character,
adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
assets, property or rights of Company to any person, including,
without limitation, Stockholders and their Affiliates outside the
ordinary course of business of Company;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation
any indebtedness or obligation of any Stockholders or any
Affiliate thereof outside the ordinary course of business of
Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets,
property or rights of Company or requiring consent of any party
to the transfer and assignment of any such assets, property or
rights;
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<PAGE>
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of
the ordinary course of Company's business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract, agreement,
license, permit or other right to which Company is a party;
(xiii) any transaction by Company outside the ordinary course of its
business;
(xiv) any cancellation or termination of a contract with a customer or
client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company outside
the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect.
If political contributions made by Company have exceeded $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing
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pursuant hereto, present fairly the business and operations of Company for the
time periods with respect to which such information was requested. Company's
rights under the documents delivered pursuant hereto would not be adversely
affected by, and no statement made herein would be rendered untrue in any
respect by, any other document to which Company is a party, or to which its
properties are subject, or by any other fact or circumstance regarding Company
(which fact or circumstance was, or should reasonably, after due inquiry, have
been known to Company) that is not disclosed pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26, Company
has not, between the Balance Sheet Date and the date of this Agreement, taken
any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth below
are true as of the date of this Agreement and, subject to Section 9.7, shall be
true at the Closing Date, (ii) that all of the covenants and agreements in this
Section 7 shall be complied with or performed at and as of the Closing Date and
(iii) that by executing this Agreement each Stockholder shall be deemed to have
approved the terms of the Merger as required by the OGCA.
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such Stockholder has or may have had, other than rights of any Stockholder
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any option
granted by Parent.
7.3 ELECTION TO PUT STOCK. Stockholders may elect to sell all of their
Parent Stock to Parent, and Parent shall purchase all of the Parent Stock, at
the IPO price if Parent has not completed the IPO on or before the later of (i)
the 18-month anniversary of the Closing Date, or (ii) if Parent is in
registration for its IPO on the 18-month anniversary of the Closing Date, the
cancellation of Parent's registration efforts (the "Put Date"). Stockholders
must provide written notice of their intent to sell their Parent Stock to Parent
within 30 days after the Put Date. Any sales of Parent Stock by Stockholders to
Parent will be subject to the corporate laws of the State of Oklahoma with
regard to the ability of Parent to repurchase its own stock. The purchase price
for the sale of any Parent Stock to Parent by the Stockholders shall be paid, at
the election of Parent, either (i) within 90 days after the Put Date, or (ii) by
issuance of a promissory note payable over 7 years at an interest rate equal to
the Prime Rate listed in the Wall Street Journal on the date of issuance, which
issuance shall be no later than 90 days after the Put Date.
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7.4 ELECTION TO CALL STOCK. Parent may elect to purchase all of the
Stockholders' Parent Stock, and Stockholders shall sell all of their Parent
Stock to Parent, at the IPO price if Parent has not completed the IPO on or
before the Put Date. Parent must provide written notice of its intent to
purchase the Stockholders' Parent Stock within 30 days after the Put Date. Any
purchase of Parent Stock by Parent will be subject to the corporate laws of the
State of Oklahoma with regard to the ability of Parent to repurchase its own
stock. The purchase price for the purchase of any Parent Stock by Parent shall
be paid, at the election of Parent, either (i) within 90 days after the Put
Date, or (ii) by issuance of a promissory note payable over 7 years at an
interest rate equal to the Prime Rate listed in the Wall Street Journal on the
date of issuance, which issuance shall be no later than 90 days after the Put
Date.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Newco and
their consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Parent and Newco. This
Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco is
as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are owned of record and beneficially by the persons set forth on Schedule
2.4(ii) and Parent, respectively, and (iv) were offered, issued, sold and
delivered by Parent and Newco in compliance with all applicable state and
Federal laws concerning the offer, issuance, sale and delivery of securities.
Further, none of such shares was issued in violation of the
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preemptive rights of any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no Subsidiaries
except for Newco and each of the other companies identified on Schedule 8.5.
Except as set forth in the preceding sentence, neither Parent nor Newco
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in a Person nor is Parent or Newco, directly or indirectly, a
participant in any joint venture, partnership or other non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement or agreements similar to this Agreement with the Founding Companies
and except for fees incurred in connection with the transactions contemplated
hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect
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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 right or benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in September
1998. Neither Parent nor Newco has conducted any business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with the Founding Companies. Except as disclosed on Schedule
8.10, neither Parent nor Newco owns or has at any time owned any real property
or any personal property or is a party to any other agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date, Company
will afford to the officers and authorized representatives of
Parent access to all of Company's sites, properties, books and
records and will furnish Parent with such additional financial
and operating data and other information as to the business and
properties of Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its representatives,
auditors and counsel in the preparation of any documents or other
material that may be required in connection with any documents or
materials required by this Agreement. Parent and Newco will
treat all information obtained in connection with the negotiation
and performance of this Agreement as confidential in accordance
with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing, Parent will
afford to the officers and authorized representatives of Company
and Stockholders access to all of the sites, properties, books
and records of Parent, Newco and the other companies listed on
Schedule 9.1(ii) ("Founding Companies") and will furnish Company
and Stockholders with such additional financial and operating
data and other information as to the business and properties of
Parent, Newco and the Founding Companies as Company and
Stockholders may from time to time reasonably request. Parent
and Newco will cooperate with Company and Stockholders'
representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection
with any documents or materials required by this Agreement.
Company and Stockholders will cause all information obtained in
connection with the negotiation and performance of this Agreement
to be
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treated as confidential in accordance with the provisions of
Section 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets,
properties or rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key
employees and maintain its respective relationships with
suppliers, customers and others having business relations with
it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt instruments and Leases and not enter into
new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels for all
officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance
with past practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than
in connection with the exercise of options or warrants listed in
Schedule 6.4;
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(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any
shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is
in the normal course of business (consistent with past practice),
in connection with the transactions contemplated by this
Agreement, or involves an amount not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with
respect to purchase money Liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of
$5,000 as necessary or desirable for the conduct of its business,
(y) (1) Liens for Taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which
contested Taxes adequate reserves have been established and are
being maintained) or (2) materialmen's, mechanic's, worker's,
repairmen's, employee's or other like Liens arising in the
ordinary course of business, or (3) Liens set forth on Schedule
6.8 or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included
in Schedule 6.9 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing
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on the date of this Agreement and ending with the earlier to occur of the
Closing Date or the termination of this Agreement in accordance with its terms,
directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to any acquisition or purchase of all
or a material amount of the assets of, or any equity interest in,
Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company or Stockholders contained herein to be untrue or inaccurate
in any respect at or prior to the Closing Date and (ii) any failure of any
Stockholder or Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such Person hereunder as of such
date. Parent and Newco shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would likely cause any representation or warranty of Parent or Newco
contained herein to be untrue or inaccurate in any respect at or prior to the
Closing Date and (ii) any failure of Parent or Newco to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder as of such date. The delivery of any notice pursuant to this Section
9.6 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 9.7, (ii) modify the conditions set forth in Sections
10 and 11, or (iii) limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 11:59 p.m.
March 31, 1999 to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or
supplement to a Schedule prepared by Company or Parent that constitutes or
reflects an event or occurrence that would have a Adverse Effect may be made
unless the parties not making the amendment or supplement consent to such
amendment or supplement. For all purposes of this Agreement, including
without limitation for
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purposes of determining whether the conditions set forth in Sections 10.1 and
11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with or
performed by Parent and Newco on or before the Closing Date shall have been duly
complied with or performed; and a certificate to the foregoing effect dated the
Closing Date, and signed by the President or any Vice President of Parent and of
Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Company as a result of which the management
of Company deems it inadvisable to proceed with the transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed
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and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of Parent
and of Newco, certifying the completeness and accuracy of the attached copies of
Parent's and Newco's respective Charter Documents (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholders of Parent and Newco approving
Parent's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule 10.8
shall have been afforded an opportunity to enter into an employment agreement,
or nonexclusive interconnect acquisition representation agreement, as applicable
reasonably acceptable to both parties and substantially in the form of Annex II
or III.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholders and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholders and
Company each shall have delivered to Parent a certificate dated the Closing Date
and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Parent as a result of which the management
of Parent deems it inadvisable to proceed with the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the
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attached copies of Company's Charter Documents (including amendments thereto),
Bylaws (including amendments thereto), and resolutions of the board of directors
and Stockholders approving Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to Parent
an instrument dated the Closing Date releasing Company from (i) any and all
claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21 shall have been
obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good standing and
authorized to do business.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Parent
a certificate to the effect that he or she is not a foreign person under Section
111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have received
at least $15,000,000 in gross proceeds from Parent's IPO or Private Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed in Schedule 10.8
shall have been afforded an opportunity to enter into an employment agreement,
or nonexclusive interconnect acquisition representation agreement, as
applicable, reasonably acceptable to both parties and
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substantially in the form of Annex II or III.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent audited
Balance Sheets as of December 31, 1997 and 1998 and audited Statements of
Income, Retained Earnings and Cash Flows for each of the years in the two-year
period ended December 31, 1998.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state and
local income Tax Returns of Company for all taxable periods that
end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate Returns of,
or that include, Company for all taxable periods ending after the
Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request
in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes
or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together
with relevant accompanying schedules and 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.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at Company until such time as Parent is able to replace such plan with
a plan that is applicable to Parent and all of its then existing Subsidiaries;
provided that Parent shall have no obligation to provide replacement plans that
have the same terms and provisions as the existing plans; provided, further,
that any new health insurance plan shall provide for coverage for preexisting
conditions. On the Closing Date, the employees of Company will be the employees
of the Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee; and provided further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
Parent to assess workforce needs and make appropriate adjustments as necessary
or desirable within its discretion subject to applicable laws and collective
bargaining agreements).
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13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders covenant
and agree that they, severally and not jointly in the case of representations,
warranties, covenants and agreements set forth in Section 7, and jointly and
severally in all other cases, will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholders or Company under this Agreement. Stockholders' obligation under
this Section 13.1 shall not exceed the dollar value, determined as of the
Effective Time, of the Parent Stock and Cash received by Stockholders pursuant
to this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it will
indemnify, defend, protect and hold harmless Stockholders at all times from and
after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 13.1 or 13.2
(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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall
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have a conflict of interest that prevents counsel for the Indemnifying Party
from representing the Indemnified Party, the Indemnified Party shall have the
right to participate in such matter through counsel of its own choosing and the
Indemnifying Party shall be responsible for the reasonable expenses of such
counsel. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except to the extent such participation is requested
by the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section 13.3 with respect to such Third Person claim shall be limited
to the amount so offered in settlement by such Third Person. Upon agreement as
to such settlement between such Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
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 upon consent of the Indemnifying
Party, which consent will not be unreasonably withheld, 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. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. Anything in this Agreement to the contrary
notwithstanding, any amounts owing from an Indemnifying Party to an Indemnified
Party under the provisions of this Section 13 shall be reduced to the extent to
which the Indemnified Party, or any other claimant, actually receives any
proceeds of any insurance policy that are paid with respect to the matter or
occurrence that gave rise to the Third Person claim. Submission to insurance of
any insurable claim otherwise giving rise to indemnification under this Section
13 shall be a condition precedent to seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
13 shall be the exclusive remedy in any action seeking damages or any other form
of monetary relief brought by any party to this Agreement against another party;
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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
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14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by Company (acting through its board of directors), on the one
hand, or by Parent (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 May 31, 1999 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;
(iii) by Stockholders or Company, on the one hand, or by Parent, on the
other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely
performance of any of the material covenants, agreements or
conditions contained herein, and the curing of such default shall
not have been made on or before the Closing Date; or
(iv) by Company and Stockholders, on the one hand, or by Parent, on
the other hand, if either such party or parties declines to
consent to an amendment or supplement to a Schedule proposed by
the other party or parties pursuant to Section 9.7 because such
proposed amendment constitutes or reflects an event or occurrence
that would have a material Adverse Effect on the party or parties
proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of two years following the Closing Date, for any reason whatsoever,
directly or indirectly, for himself or on behalf of or in conjunction with any
other Person:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or
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in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative,
in the sale or marketing of telecommunication services or
interconnect services within the city of Tulsa, Oklahoma or 150
miles radius thereof (the "Territory");
(ii) call upon any person within the Territory who is an employee of
Parent (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 Parent (including the Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date, a customer of Parent (including the
Subsidiaries thereof) for the purpose of soliciting or selling
products or services in direct competition with Parent (or its
Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Parent
(including the Subsidiaries thereof) in the long-distance
telephone or interconnect business, which candidate, to the
knowledge of such Stockholder after due inquiry, was called upon
by Parent (including the Subsidiaries thereof) or for which, to
the knowledge of such Stockholder after due inquiry, Parent (or
any Subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the extent
that the Company has in the past disclosed such information to
the public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment after the date of this
Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
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15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15 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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set forth
in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) 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 (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of
this Section 16.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
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shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on each Stockholder's ability
to disseminate confidential information with respect to Company shall become
nugatory and (2) each Stockholder (including his representatives, advisors and
legal counsel) shall within ten business days of the Parent's request, deliver
all copies of the confidential information of Parent in his possession in any
form whatsoever (including, but not limited to, any reports, memoranda, or other
material prepared by such Stockholder or his representatives, advisors or legal
counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge that
they had in the past and currently have and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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 (y), Parent and Newco shall,
if possible, give immediate prior written notice thereof to Company and
Stockholders and provide Company and Stockholders with the opportunity to
contest such disclosure, or (z) 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 Parent
or Newco of the provisions of this Section 16.2, Company and Stockholders shall
be entitled to an injunction (without the posting of bond or proof of actual
damages) restraining Parent and Newco from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Company and Stockholders 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, Parent and
Newco (including their representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Newco or their representatives, advisors or legal counsel
at the direction of Parent or Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 16.1 and 16.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16 shall
survive the
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termination of this Agreement for a period of three years from the Closing Date
or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period of
one year from the consummation of the IPO (unless the IPO shall not be
consummated by May 31, 1999), except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock received by such Stockholder in the
Merger. The Parent Stock delivered to the Stockholders pursuant to Section 4 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER --, IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed 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 thereunder and the provisions
of applicable state securities laws and regulations. All the Restricted
Securities shall bear the following legend in addition to the legend required
under Section 17 of this Agreement:
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THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date of
consummation of the IPO, whenever Parent proposes to register any Parent Stock
for its own or the account of others under the 1933 Act for a public offering,
other than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Parent and (ii) registrations relating
to employee benefit plans, Parent shall give each Stockholder prompt written
notice of its intent to do so. Upon the written request of any Stockholder given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Registerable Securities) which any
Stockholder requests; provided, however, if Parent is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 19.1
that the number of shares to be sold by Persons other than Parent is greater
than the number of such shares which can be offered without adversely affecting
the offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such Person)
to a number deemed satisfactory by such managing underwriter.
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19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Stockholders or their permitted transferees or (ii) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing that
Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholders or their permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days of
the receipt of such request, Parent shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from the Founding Stockholders requesting
such registration, file and use its best efforts to cause to become effective a
registration statement covering all such shares. Parent shall be obligated to
effect only one Demand Registration for all Founding Stockholders; provided,
however, that Parent shall not be deemed to have satisfied its obligation under
this Section 19.2 unless and until a Demand Registration covering all shares of
Parent Stock requested to be registered has been filed and becomes effective
under the 1933 Act and has remained current and effective for not less than 90
days (or such shorter period as is required to complete the distribution and
sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by Parent. In connection with
registrations under Sections 19.1 and 19.2, Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Parent Stock and use its best efforts to cause
such registration statement to become and remain effective;
provided that Parent may discontinue any
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registration of its securities that is being effected pursuant to
Section 19.1 at any time prior to the effective date of the
registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a
period as may be requested by the stockholders holding a majority
of the Parent Stock covered thereby not exceeding 90 days and to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by the seller or sellers thereof set forth
in such registration statement; provided, that before filing a
registration statement or prospectus relating to the sale of
Parent Stock, or any amendments or supplements thereto, Parent
will furnish to counsel to each holder of Parent Stock covered by
such registration statement or prospectus, copies of all
documents proposed to be filed, which documents will be subject
to the review of such counsel, and Parent will give reasonable
consideration in good faith to any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of such
Parent Stock, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the requirements
of the 1933 Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or
other disposition of the Parent Stock.
(iv) Use its best efforts to register or qualify the Parent Stock
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition of the Parent Stock
owned by such seller, in such jurisdictions, except that Parent
shall not for any such purpose be required (x) to qualify to do
business as a foreign corporation in any jurisdiction where, but
for the requirements of this Section 19.3(iv), it is not then so
qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to
general or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by such
registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to
enable the seller or sellers
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thereof to consummate the disposition of such Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered by such
registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 19.3(ii), if Parent
becomes aware that the prospectus included in such registration
statement, as then in effect, includes 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 in the light of the circumstances then existing, and,
at the request of any such seller, deliver a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Parents of such
Parent Stock, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to
its security holders, in each case as soon as practicable, but
not later than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Parent), an earnings
statement of Parent which will satisfy the provisions of Section
11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to list
such Parent Stock on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the
independent public accountants for Parent in customary form and
covering such matters of the type customarily covered by such
letters.
(x) Execute and deliver all instruments and documents (including in
an underwritten offering an underwriting agreement in customary
form) and take such other actions and obtain such certificates
and opinions as the stockholders holding a majority of the shares
of Parent Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten public
offering of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent Stock
covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other
agent retained by any such seller or any such underwriter, all
pertinent financial and other records, pertinent corporate
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documents and properties of Parent, and cause all of Parent's
officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration
statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form
and scope reasonably satisfactory to such underwriter or agent
and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each Stockholder holding shares of Parent Stock covered by a
registration statement referred to in this Section 19 will, upon
receipt of any notice from Parent of the happening of any event
of the kind described in Section 19.3(vi), forthwith discontinue
disposition of the Parent Stock pursuant to the registration
statement covering such Parent Stock until such holder's receipt
of the copies of the supplemented or amended prospectus
contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves an
underwritten offering, each of the Stockholders agrees, whether
or not his shares of Parent Stock are included in such
registration, not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the 1933 Act, of
any Parent Stock, or of any security convertible into or
exchangeable or exercisable for any Parent Stock (other than as
part of such underwritten offering), without the consent of the
managing underwriter, during a period commencing eight calendar
days before and ending 180 calendar days (or such lesser number
as the managing underwriter shall designate) after the effective
date of such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of Parent
under the 1933 Act pursuant to Section 19.1 or 19.2, Parent will,
and it hereby agrees to, indemnify and hold harmless, to the
extent permitted by law, each seller of any Parent Stock covered
by such registration statement, each Affiliate of such seller and
their respective directors, officers, employees and agents or
general and limited partners (and directors, officers, employees
and agents thereof) each other Person who participates as an
underwriter in the offering or sale of such securities and each
other Person, if any, who controls such seller or any such
underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever
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arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or arising out of an untrue statement or alleged
untrue statement of a material fact contained in any preliminary
prospectus or prospectus (or any amendment or supplement thereto)
or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein not misleading;
(y) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if
such settlement is effected with the written consent of Parent;
and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or mission to the extent that any such
expense is not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such seller or any such
director, officer, employee, agent, general or limited partner,
investment advisor or agent, underwriter or controlling Person and
shall survive the transfer of such securities by such seller.
(ii) Parent may require, as a condition to including any Parent Stock
in any registration statement filed in accordance with Section
19.1 or 19.2, that Parent shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such
Parent Stock or any underwriter, to indemnify and hold harmless
(in the same manner and to the same extent as set forth in
Section 19.5(i)) Parent with respect to any statement or alleged
statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or
summary prospectus or
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amendment or supplement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on
behalf of Parent or any such director, officer or controlling
Person and shall survive the transfer of such securities by such
seller. In that event, the obligations of the Parent and such
sellers pursuant to this Section 19.5 are to be several and not
joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for the
full amount of such claim, and each such seller's liability under
this Section 19.5 shall be limited to an amount equal to the net
proceeds (after deducting the underwriting discount and expenses)
received by such seller from the sale of Parent Stock held by
such seller pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding
involving a claim referred to in this Section 19.5, such
indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to such
indemnifying party of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of
its obligations under this Section 19.5, except to the extent
(not including any such notice of an underwriter) that the
indemnifying party is materially prejudiced by such failure to
give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim (in which
case the indemnifying party shall not be liable for the fees and
expenses of more than one firm of counsel selected by holders of
a majority of the shares of Parent Stock included in the offering
or more than one firm of counsel for the underwriters in
connection with any one action or separate but similar or related
actions), the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently
incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not
agree to any settlement without the prior consent of the
indemnified party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a monetary
payment for which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and complete
release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment of
the
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<PAGE>
indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between
them. In the event that the indemnifying party does not assume
the defense of a claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such claim by all
appropriate proceedings, and will have control of such defense
and proceedings, and the indemnified party shall have the right
to agree to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall, and shall cause
its legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with its
assuming the defense of any claim, including the furnishing of
the indemnifying party with all papers served in such proceeding.
In the event that an indemnifying party assumes the defense of an
action under this Section 19.5(iii), then such indemnifying party
shall, subject to the provisions of this Section 19.5, indemnify
and hold harmless the indemnified party from any and all losses,
claims, damages or liabilities by reason of such settlement or
judgment.
(iv) Parent and each seller of Parent Stock shall provide for the
foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration
or other qualification of securities under any federal or state
law or regulation of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the
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Parent Stock. For purposes of this Section 19.6, each Person, if any, who
controls an underwriter within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as such underwriter, and each director and
each officer of Parent who signed the registration statement, and each Person,
if any, who controls Parent or a seller of Parent Stock within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as Parent
or a seller of Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144 TRANSACTIONS.
After Parent completes its initial underwritten public offering and for as long
thereafter as any Stockholder shall continue to hold any Restricted Securities,
Parent shall use reasonable efforts to file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law or as permitted by
Section 17), but if assigned by operation of law, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholders. Notwithstanding the foregoing, any Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholders, Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, 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 Stockholders and by Company, Newco and Parent, acting through their
respective officers or representatives, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby; provided that Company shall make a good faith effort to cross
reference disclosures, as necessary or advisable, between related Schedules.
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20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their addresses set
forth on Schedule 6.3, with copies to such counsel as is set
forth with respect to each Stockholder on such Schedule 6.3;
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(z) If to the Company, addressed to it at:
Terra Telecom, Inc.
9902-A East 43rd Street
Tulsa, Oklahoma 74146
Attn: Jerry McCart
Telecopy No.: (918) 622-2827
with a copy to:
Attn:
Telecopy No.:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance with
the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section 13.4,
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.
20.12 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.
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<PAGE>
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
20.14 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 Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may be entitled to pursue such remedies for
emergency or preliminary injunctive relief in any court of competent
jurisdiction, provided that each party agrees that it will consent to the stay
of such judicial proceedings on the merits of both this Agreement and the
related transactions pending arbitration of all underlying claims between the
parties immediately following the issuance of any such emergency or injunctive
relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company Stock; PROVIDED HOWEVER,
that no election shall be made if, as a result of the election, the Stockholders
would incur any adverse tax or other consequences not otherwise reimbursed by
Parent or Newco to the Stockholders.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
------------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
------------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
TERRA TELECOM, INC.
BY: /s/ Jerry McCart
------------------------------------------
NAME: Jerry McCart
TITLE: President
BY: Ron Crainshaw
------------------------------------------
NAME: Ron Crainshaw
TITLE: Vice President
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<PAGE>
STOCKHOLDERS:
/s/ Jerry McCart
---------------------------------------------
Jerry McCart
/s/ Paula L. McCart
---------------------------------------------
Paula L. McCart
/s/ Ron Crainshaw
---------------------------------------------
Ron Crainshaw
/s/ Lora M. Crainshaw
---------------------------------------------
Lora M. Crainshaw
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<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION I CORP.
INTO
TERRA TELECOM, INC.
Terra Telecom, Inc., an Oklahoma corporation, pursuant to Section 81 of the
Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is Terra Telecom, Inc. and Alliance Acquisition I Corp.
SECOND. That an agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 81 of the Oklahoma General Corporation
Act.
THIRD. That the name of the surviving corporation is Terra Telecom, Inc.
FOURTH. That the certificate of incorporation of Alliance Acquisition I
Corp. shall be the certificate of incorporation of the surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
SEVENTH. This merger shall be effective at - , Central Standard Time, on
the date this Certificate is filed with the Secretary of State of the State of
Oklahoma.
IN WITNESS WHEREOF, Terra Telecom, Inc. has caused this certificate to be
signed by its President and attested by its Secretary, this - day of - 1999.
TERRA TELECOM, INC.
---------------------------------------------
President
ATTEST:
- ---------------------------
Secretary
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of the 12th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION XII CORP.
(Newco)
and
TRAVIS BUSINESS SYSTEMS, INC.
(Company)
and
WYLIE LIMITED PARTNERSHIP
AND
GREGORY MANTIA
AND
SCOTT MCCRORY
(Stockholders of the Company)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE MERGER AND OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Delivery and Filing of Articles of Merger . . . . . . . . . . . . . . . 5
2.2 Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . 5
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
the Surviving Corporation.. . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Certain Information With Respect to the Capital Stock of
Company, Parent and Newco.. . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. CONVERSION OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. DELIVERY OF MERGER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Capital Stock of the Company. . . . . . . . . . . . . . . . . . . . . . 8
6.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 9
6.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Predecessor Status; etc.. . . . . . . . . . . . . . . . . . . . . . . . 9
6.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 9
6.9 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . 10
6.10 Permits and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . 10
6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.13 Significant Customers; Material Contracts and Commitments . . . . . . . 12
6.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.16 Compensation; Organized Labor Matters . . . . . . . . . . . . . . . . . 13
6.17 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.18 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.19 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 16
6.20 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.21 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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6.22 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.23 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . . . . . . . 19
6.24 Relations with Governments. . . . . . . . . . . . . . . . . . . . . . . 19
6.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.26 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 20
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . 21
8.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . 21
8.7 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . 21
8.8 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Parent Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Business; Real Property; Agreements . . . . . . . . . . . . . . . . . . 22
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Access and Cooperation; Due Diligence; Audits . . . . . . . . . . . . . 22
9.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . 23
9.3 Prohibited Activities by the Company. . . . . . . . . . . . . . . . . . 24
9.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . 26
9.7 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . 26
9.8 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.9 Withdrawal of Guarantees. . . . . . . . . . . . . . . . . . . . . . . . 27
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY . . . . . . . 27
10.1 Representations and Warranties; Performance of Obligations. . . . . . . 27
10.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 27
10.5 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 27
10.6 Secretary's Certificates. . . . . . . . . . . . . . . . . . . . . . . . 27
10.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Closing of the IPO or the Private Placement . . . . . . . . . . . . . . 28
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<PAGE>
10.9 Release of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 28
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . . . . 28
11.1 Representations and Warranties; Performance of Obligations. . . . . . . 28
11.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . 28
11.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . 29
11.5 Stockholders' Release . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 Termination of Related Party Agreements . . . . . . . . . . . . . . . . 29
11.7 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 29
11.8 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . . . 29
11.9 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.10 Closing of the IPO or Private Placement . . . . . . . . . . . . . . . . 29
11.11 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.13 Release of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 30
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS . . . . . . . . . . . . . . . 30
12.1 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . 30
12.2 Preservation of Employee Benefit Plans. . . . . . . . . . . . . . . . . 30
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.1 General Indemnification by the Stockholders . . . . . . . . . . . . . . 31
13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . . . 31
13.3 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . . . 32
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . . . 33
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.1 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.4 Severability, Reformation . . . . . . . . . . . . . . . . . . . . . . . 35
15.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.6 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . 35
16.1 Company and Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 35
16.2 Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-iii-
<PAGE>
16.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
17. [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.1 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . 37
18.2 Economic Risk, Sophistication . . . . . . . . . . . . . . . . . . . . . 37
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.1 PiggyBack Registration Rights . . . . . . . . . . . . . . . . . . . . . 38
19.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . . . 38
19.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 39
19.4 Other Registration Matters. . . . . . . . . . . . . . . . . . . . . . . 41
19.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
20.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 46
20.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
20.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20.8 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . . . 48
20.9 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.10 Reformation and Severability. . . . . . . . . . . . . . . . . . . . . . 48
20.11 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.13 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.14 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 48
20.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20.16 338 Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
20.17 Larry Travis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the 12th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION XII CORP., an Oklahoma corporation
("Newco"), TRAVIS BUSINESS SYSTEMS, INC. D/B/A TRAVIS LANIER BUSINESS PRODUCTS
OF OKLAHOMA, an Oklahoma corporation (the "Company"), and WYLIE LIMITED
PARTNERSHIP, GREGORY MANTIA AND SCOTT MCCRORY, the only stockholders of the
Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under the
laws of the State of Oklahoma, having been incorporated on March 9, 1999,
solely for the purpose of completing the transaction set forth herein, and
Newco is a wholly-owned subsidiary of Parent, a corporation organized and
existing under the laws of the State of Oklahoma; and
WHEREAS, the respective Boards of Directors of Newco and of 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 Newco merge
with and into Company, as set forth in Annex I, pursuant to this Agreement
and the applicable provisions of the laws of the State of Oklahoma
("Merger"); and
WHEREAS, Stockholders are the owners of 588.23 shares of Common
Stock, $1.00 par value, of Company ("Company Stock"), representing all the
issued and outstanding capital stock of Company outstanding on the date of
this Agreement;
WHEREAS, in the Merger the issued and outstanding shares of Company
Stock will be converted into the consideration set forth herein; and
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
"Material Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Company.
<PAGE>
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.9.
"Balance Sheet Date" has the meaning set forth in Section 6.7.
"Certificate of Merger" means the Certificate of Merger with respect to the
Merger substantially in the form attached as Annex I, with such other changes
therein as may be required by applicable state law.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.7.
"Company Stock" has the meaning set forth in the third recital of this
Agreement.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Controlled Group" has the meaning set forth in Section 6.18.
"Demand Registration" has the meaning set forth in Section 19.2.
"Documents" has the meaning set forth in Section 6.21.
"Effective Time" means the time as of which the Merger becomes effective,
which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.11.
"ERISA" has the meaning set forth in Section 6.17.
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<PAGE>
"Expiration Date" means (i) except as set forth in (ii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement of this Agreement, and
(iii) the date on which suit for the enforcement of any claims for Taxes becomes
barred by the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"Indemnification Threshold" has the meaning set forth in Section 13.5.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
"Merger" has the meaning set forth in the second recital of this Agreement.
"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.
"OGCA" means the Oklahoma General Corporation Act.
"Other Stockholders" means the persons and entities that receive shares of
Parent Stock and/or cash upon the acquisition by Parent of assets or businesses
in which such persons and entities owned an interest on or prior to the closing
date of the IPO or Private Placement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
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<PAGE>
"Parent Stock" means the $.01 par value common stock of Parent.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust, or other
unincorporated organization.
"Private Placement" means the Parent's private placement of Parent Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.26.
"Qualified Plans" has the meaning set forth in Section 6.18.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Shares" has the meaning set forth in Section 3(i).
"December Balance Sheet" has the meaning set forth in Section 6.7.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such Person
or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person, by any one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries.
"Surviving Corporation" shall mean Company as the surviving party in the
Merger.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental
-4-
<PAGE>
or other taxes or assessments, whether disputed or not, together with any
interest, penalties, additions to tax or additional amounts with respect
thereto.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE MERGER AND OTHER MATTERS
2.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause (i) the Certificate of Merger to be signed, verified and
filed with the Secretary of State of the State of Oklahoma and (ii) photocopies
of stamped receipt copies of such filing to be delivered to Parent on the
Closing Date.
2.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into Company, in accordance with the Certificate
of Merger, the separate existence of Newco shall cease, and Company shall be the
surviving party in the Merger. Company is sometimes hereinafter referred to as
the Surviving Corporation.
2.3 CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(i) the Charter Documents of Newco then in effect shall be the
Charter Documents of the Surviving Corporation until changed as
provided by law;
(ii) the Bylaws of Newco then in effect shall be the Bylaws of the
Surviving Corporation until they shall thereafter be further
amended;
(iii) David Aduddell, the only member of the Board of Directors of
Newco, shall be the only member of the Board of Directors of the
Surviving Corporation after the Effective Time until his
successor shall have been elected and qualified; and
(iv) David W. Aduddell, Chief Executive Officer; Larry E. Travis,
President; Joe Evans, Chief Financial Officer and Secretary; and
Jeff Hartwig, Vice President of Operations of Newco immediately
prior to the Effective Time shall continue as the officers of the
Surviving Corporation after the Effective Time in the same
capacity or capacities, until their successors are duly elected
and qualified.
2.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF COMPANY,
PARENT AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of Company, Parent
and Newco as of the date of this Agreement
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<PAGE>
are as follows:
(i) the authorized, issued and outstanding capital stock of Company
is as set forth on Schedule 2.4(i);
(ii) the authorized, issued and outstanding capital stock of Parent is
as set forth in Schedule 2.4(ii); and
(iii) the authorized capital stock of Newco consists of 1,000 shares of
common stock, par value $.01, of which 1,000 shares are issued
and outstanding and entitled to one vote per share on all matters
submitted to stockholders.
2.5 EFFECT OF MERGER. Company shall be the Surviving Corporation of the
Merger and shall continue in existence under the laws of the State of Oklahoma.
The Merger will have the effects set forth in the OGCA. Without limiting the
generality of the foregoing, at the Effective Time, all the properties, rights,
privileges, powers and franchises of Company and Newco will vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
2.6 RELEASE OF PERSONAL GUARANTEES. Company and Parent will ensure that
each of the Stockholders will be released from any personal guarantees of
Company indebtedness.
3. CONVERSION OF STOCK
The manner of converting the shares of (i) outstanding Company Stock and
(ii) the Newco Stock issued and outstanding immediately prior to the Effective
Time into (x) shares of Parent Stock and (y) shares of common stock of the
Surviving Corporation, shall be as follows:
As of the Effective Time:
(i) all shares of Company Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holders thereof, automatically
shall be deemed to represent the right to receive, in aggregate,
(i) such number of shares of Parent Stock equal to either (i)
$1,200,000 divided by the price per share to the public reflected
in the final prospectus of Parent relating to the IPO, if the IPO
is consummated, or (ii) $1,400,000 divided by the price per share
reflected in the final offering circular of Parent relating to a
Private Placement, if a Private Placement is consummated (the
"Shares") and (ii) $2,400,000 in cash, all as more particularly
set forth in Section 4.1;
(ii) all shares of Company Stock that are held by Company as treasury
stock shall be canceled and retired and no Parent Stock, cash or
other consideration shall be delivered or paid in exchange
therefor; and
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<PAGE>
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, automatically shall
be deemed to represent the right to receive 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.
4. DELIVERY OF MERGER CONSIDERATION
4.1 EFFECTIVE TIME. At the Effective Time, Stockholders shall, upon
surrender of their certificates representing the shares of Company Stock set
forth below, receive the number of shares of Parent Stock and cash set forth
opposite their names below:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Name of Stockholder of Company Stock of Parent Stock Cash
------------------- ---------------- --------------- ----
<S> <C> <C> <C>
Wylie Limited Partnership 500 the number of $ 2,040,000
Shares multiplied
by .85
Gregory Mantia 58.82 the number of $ 240,000
Shares multiplied
by .10
Scott McCrory 29.41 the number of $ 120,000
Shares multiplied
by .05
---------------- ----------------- -----------
588.23 the number of $ 2,400,000
Shares
---------------- ----------------- -----------
</TABLE>
4.2 CERTIFICATES. Stockholders shall present to Parent at the Closing
all certificates representing any and all shares of Company Stock, duly endorsed
in blank by Stockholders, or accompanied by blank stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholders'
expense, affixed and canceled.
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<PAGE>
5. CLOSING
The Closing shall take place on May 31, 1999, or such other date as the
parties hereto may designate (the "Closing Date"), at the offices of McAfee &
Taft A Professional Corporation or at such place in Oklahoma City, Oklahoma, as
the parties may mutually agree. On the Closing Date (x) the Certificate of
Merger shall be or shall have been filed with the appropriate state authorities
so that they shall be or, as of 10:00 a.m. Central Standard Time on the Closing
Date, become effective and the Merger shall thereby be effected and (y) all
transactions contemplated by this Agreement, including the conversion of the
shares and delivery of the Parent Stock and $2,400,000 in cash which the
Stockholders shall be entitled to receive pursuant to the Merger and as set
forth in Section 3, shall occur and be deemed to be completed.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder, jointly and severally represent, warrant,
covenant and agree (i) that all of the following representations and warranties
in this Section 6 are true at the date of this Agreement (subject to the
furnishing of applicable schedules thereto, which the parties acknowledge and
agree are not being furnished contemporaneously with the execution hereof, but
shall be furnished on or before March 31, 1999 in accordance with Section 9.7),
and, subject to Section 9.7, shall be true at the Closing Date and (ii) that all
of the covenants and agreements in this Section 6 shall be materially complied
with or performed at and as of the Closing Date. For purposes of this Section
6, the term "Company" shall mean and refer to Company and all of its
Subsidiaries, if any.
6.1 DUE ORGANIZATION. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
(i) as set forth on Schedule 6.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial or
otherwise), of Company taken as a whole (as used herein with respect to Company,
or with respect to any other Person, a "Material Adverse Effect"). Schedule 6.1
sets forth the jurisdiction in which Company is incorporated and contains a list
of all such jurisdictions in which Company is authorized or qualified to do
business. True, complete and correct copies of the Charter Documents and
Bylaws, each as amended, of Company are all attached hereto as Schedule 6.1.
The stock records of Company, as heretofore made available to Parent, are
correct and complete. To the knowledge of Company and Stockholders, there are
no minutes in the possession of Company or Stockholders which have not been made
available to Parent, and all of such minutes are correct and complete.
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed
-8-
<PAGE>
and delivered by Company, and approved by all the stockholders of Company, and
is a valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
Company is as set forth in Schedule 2.4(i). All of the issued and outstanding
shares of the capital stock of Company are owned of record by Stockholders in
the amounts set forth in Section 4.1 and further, except as set forth on
Schedule 6.3, are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and validly
issued and (ii) are fully paid and nonassessable. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1995. Except as set
forth on Schedule 6.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates Company to issue any of its
authorized but unissued capital stock; and (ii) Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of Company
Stock.
6.5 SUBSIDIARIES. Except as set forth in Schedule 6.5, (i) Company has
no Subsidiaries, (ii) 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, and (iii) Company
is not directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 PREDECESSOR STATUS; ETC. Set forth in Schedule 6.6 is a listing of
all names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired assets in excess of
$25,000, in any case, since January 1, 1995.
6.7 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.7 are copies of
the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows and any related
notes thereto for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.7). Except as set forth on
Schedule 6.7, the Balance Sheets referred to in this Section 6.7 present fairly
the financial position of Company as of the dates indicated
-9-
<PAGE>
thereon, and the Statements of Income, Retained Earnings and Cash Flows referred
to in this Section 6.7 present fairly the results of operations for the periods
indicated thereon in accordance with generally accepted accounting principles.
Company Financial Statements at and for the years ended December 31, 1997 and
1998 have been examined and reported on by Deloitte & Touche LLP.
6.8 LIABILITIES AND OBLIGATIONS. Company has delivered to Parent a list
(which is set forth on Schedule 6.8) as of the Balance Sheet Date which to the
Company's best knowledge sets forth (i) all liabilities of Company of any kind,
character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, that are not reflected on the December Balance Sheet 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. Except as set forth on
Schedule 6.8, since the Balance Sheet Date Company has not incurred any
liabilities 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. Company has also disclosed to Parent on
Schedule 6.8, in the case of those contingent liabilities related to pending or
threatened litigation or other liabilities which are not fixed or otherwise
accrued or reserved, the following information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
6.9 ACCOUNTS AND NOTES RECEIVABLE. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.9) of the accounts and notes
receivable of Company, as of the most practicable date, including any such
amounts which are not reflected in the December Balance Sheet, and including
receivables from and advances to employees and Stockholders. Company shall also
provide Parent an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories, and such list and such aging report (the "A/R Aging
Report") as of the most practicable date. Except to the extent reflected on
Schedule 6.9 or as disclosed by Company to Parent in a writing accompanying the
A/R Aging Report, such accounts, notes and other receivables arose from the sale
of inventory or services to persons not affiliated with the Stockholders or the
Company and in the ordinary course of business consistent with past practice and
constitute or will constitute, as the case may be, valid accounts and notes
receivable, and to the knowledge of Stockholders such accounts and notes
receivable are undisputed claims of the
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<PAGE>
Company not subject to valid claims of set-off or other defenses or
counterclaims and all accounts and notes receivable reflected on the December
Balance Sheet are or will be good and have been collected or as reflected on
Schedule 6.9 will be collectible in the amounts shown on the A/R Aging Report,
net of reserves reflected in the December Balance Sheet and as of the date of
the A/R Aging Report, respectively, through the utilization of collection
efforts in the ordinary course of business consistent with past practice.
6.10 PERMITS AND INTANGIBLES. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and Company has delivered to
Parent an accurate list and summary description (which is set forth on Schedule
6.10) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by Company (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 6.11). To the
knowledge of Company, the licenses, franchises, permits and other governmental
authorizations listed on Schedules 6.10 and 6.11 are valid in all respects, and
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. 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 6.10 and 6.11 and is not in violation of any of the
foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on Company. Except as specifically provided in Schedule
6.10, the transactions contemplated by this Agreement will not result in a
default under or a breach or violation of, or adversely affect the rights and
benefits afforded to Company (and to the Surviving Corporation after the
Effective Time of the Merger) by, any such license, franchise, permit or
government authorization.
6.11 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.11,
(i) Company has substantially complied with and is in substantial compliance
with all Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) Company has obtained and substantially adhered to all necessary
permits and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Wastes and Hazardous Substances, a list of all of
which permits and approvals is set forth on Schedule 6.11, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by Company where Hazardous Wastes
or Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws;
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(iv) to the knowledge of Company, no on-site or off-site location to which
Company has transported or disposed of Hazardous Wastes and Hazardous Substances
or arranged for the transportation of Hazardous Wastes and Hazardous Substances,
which site is the subject of any Federal, state, local or foreign enforcement
action or any other investigation which could lead to any claim against Company,
Parent or Newco for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury, including, but not limited to,
any claim under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; and (v) Company has no contingent liability
in connection with any release of any Hazardous Waste or Hazardous Substance
into the environment.
6.12 PERSONAL PROPERTY. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.12) of (i) all personal property included (or
that will be included) in "depreciable plant, property and equipment" on the
balance sheet of Company, (ii) all other personal property owned by Company with
a value in excess of $5,000 (x) as of the Balance Sheet Date and (y) acquired
since the Balance Sheet Date and (iii) all written Leases in respect of personal
property, including, in the case of each of (i), (ii) and (iii), true, complete
and correct copies of all such Leases. Except as set forth on Schedule 6.12,
(a) all personal property used by Company in its business is either owned by
Company or leased by Company pursuant to a Lease included on Schedule 6.12,
(b) all of the personal property listed on Schedule 6.12 is in good working
order and condition, ordinary wear and tear excepted and (c) all leases and
agreements included on Schedule 6.12 are in full force and effect in all
respects and to the knowledge of Company constitute valid and binding agreements
of the parties (and their successors) thereto in accordance with their
respective terms.
6.13 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. Company
and Parent mutually agree Schedule 6.13 contains an accurate list of all
significant customers, or persons or entities that are sources of a significant
number of customers, it being understood and agreed that a "significant
customer," for purposes of this Section 6.13, means a customer (or person or
entity) (i) representing 5% or more of Company's annual revenues as of the
Balance Sheet Date or (ii) reasonably expected to represent 5% or more of
Company's revenues during the twelve-month period ending December 31, 1998.
Except to the extent set forth on Schedule 6.13, to Company's best knowledge,
none of Company's significant customers (or persons or entities that are sources
of a significant number of customers) have canceled or substantially reduced or,
to the knowledge of Company, are currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by
Company.
Company and Parent mutually agree Schedule 6.13 contains an accurate list
of all material contracts, commitments and similar agreements to which the
Company is a party or by which it or any of its properties are bound (including,
but not limited to, contracts with significant customers, joint venture or
partnership agreements, contracts with any labor organizations, strategic
alliances and options to purchase land), other than agreements listed on
Schedule 6.8, 6.12 or 6.14, (x) in existence as of the Balance Sheet Date and
(y) entered into since the Balance Sheet Date, and in each case has delivered
true, complete and correct copies of such agreements to Parent. Company has
complied with all commitments and obligations pertaining to it, and is not in
default under any
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contract or agreement listed on Schedule 6.13 and no notice of default under any
such contract or agreement has been received. Company has also indicated on
Schedule 6.13 a summary description of all plans or projects involving the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $5,000 by Company.
6.14 REAL PROPERTY. Schedule 6.14 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by
Company in the conduct of its business. Company has good and insurable title to
the real property owned by it, including those reflected on Schedule 6.14,
subject to no Liens except for:
(w) Liens reflected on Schedules 6.8 or 6.13 as securing specified
liabilities (with respect to which no default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do
not adversely affect in any respect the current use of the
property.
Schedule 6.14 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in possession
of Company with respect to real property owned by Company, and (2) true,
complete and correct copies of all Leases and agreements in respect of such real
property leased by Company (which copies are attached to Schedule 6.14).
Except as set forth on Schedule 6.14, all of such Leases included on
Schedule 6.14 are in full force and effect in all respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.15 INSURANCE. Company has delivered to Parent, as set forth on and
attached to Schedule 6.15, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts and
other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
respects and shall remain in full force and effect in all respects through the
Closing Date. Except as otherwise specified in Schedule 6.15, no insurance
carried by Company has been canceled by the insurer and the Company has never
been denied coverage.
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6.16 COMPENSATION; ORGANIZED LABOR MATTERS. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.16) showing all
officers, directors and other key employees of Company and the rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Balance Sheet
Date and (ii) the date of this Agreement. 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 6.16, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group of
its employees nor has Company experienced any labor interruption over the past
three years.
6.17 EMPLOYEE PLANS. The Stockholders have delivered to Parent an
accurate list (which is set forth on Schedule 6.17) showing all employee benefit
plans of Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 6.17, the
Company does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," and Company
does not have any obligation to contribute to or accrue or pay any benefits
under any deferred compensation or retirement funding arrangement on behalf of
any employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended "ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Company has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 6.17, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.17 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations
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issued thereunder, as well as with all other applicable Federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.17 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of Company as of the
Balance Sheet Date.
6.18 COMPLIANCE WITH ERISA. All employee benefit plans listed on Schedule
6.17 that are intended to qualify (the "Qualified Plans") 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, and copies of such determination
letters are included as part of Schedule 6.17. Except as disclosed on Schedule
6.17, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or Returns) have been timely filed or
distributed, and copies thereof are included as part of Schedule 6.17. Neither
Stockholders, any such plan listed in Schedule 6.17, nor Company has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No employee benefit plan listed on Schedule 6.17 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and Company has not incurred (i) any liability
for excise tax or penalty payable to the Internal Revenue Service or (ii) any
liability to the Pension Benefit Guaranty Corporation (other than for premium
payments). In addition:
(v) there have been no terminations or discontinuance of
contributions to any Qualified Plan intended to qualify under
Section 401(a) of the Code without notice to and approval by the
Internal Revenue Service;
(w) no plan listed on Schedule 6.17 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans
listed in Schedule 6.17;
(y) Company has not incurred liability under Section 4062 of ERISA;
and
(z) except as set forth in Schedule 6.17, no circumstances exist
pursuant to which Company could reasonably be expected to have
any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the
Pension Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory Lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained
or contributed to by any entity other than Company that is, or at
any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the
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Code) that includes Company ("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted in
and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.19 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.19 or 6.11, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have a Material Adverse Effect; and except
to the extent set forth on Schedule 6.8 or 6.11, there are no claims, actions,
suits or proceedings, commenced or, to the knowledge of Company, threatened,
against or affecting Company, at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over Company and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by Company or any Stockholder. Company has conducted and is conducting
its business in substantial compliance with the requirements, standards,
criteria and conditions set forth in applicable Federal, state and local
statutes, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 6.10 and 6.11, and is not in violation of any
of the foregoing which might have a Material Adverse Effect.
6.20 TAX MATTERS.
(i) Company is currently taxed under Subchapter C of the Code, and
Company has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Company were correct and complete
in all respects. All Taxes owed by Company (whether or not shown
on any Tax Return) have been paid or reserved for on its books.
Except as set forth on Schedule 6.20, Company is not currently
the beneficiary of any extension of time within which to file any
Tax Return. Since January 1, 1995, no claim with respect to
Company has been made by an authority in a jurisdiction where
Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There is no Lien affecting any of
Company's assets that arose in connection with any failure or
alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other
party.
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(iii) Except as set forth in Schedule 6.8, Company does not expect any
authority to assess any amount of additional Taxes for any period
for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax liability of Company either claimed or
raised by any authority in writing or as to which Company has
knowledge based upon direct inquiry by any agent of such
authority. Schedule 6.20(iii) lists all Tax Returns relating to
income Tax of Company for taxable periods ended on or after
January 1, 1994, indicates those Returns of which Company is
aware that have been audited and indicates those Returns that
currently are the subject of audit. Company has provided Parent
access to correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed
against or agreed to by Company for any taxable period ended on
or after January 1, 1994.
(iv) Except as set forth on Schedule 6.20(iv), Company has not waived
any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Company has not made any
payments, is not obligated to make any payments and is not a
party to any agreement that under certain circumstances could
obligate it to make any payments that will not be fully
deductible under Section 280G of the Code.
(vi) Company has not received a ruling from any taxing authority or
entered into any agreement regarding Taxes with any taxing
authority that would, individually or in the aggregate, apply to
the Surviving Corporation after the Closing Date.
6.21 NO VIOLATIONS. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in default under any (i) Lease, instrument, agreement, license, or permit set
forth on Schedule 6.10, 6.11, 6.12, 6.13 or 6.14, or (ii) any other agreement to
which it is a party or by which its properties are bound (collectively, the
"Documents"); and, except as set forth in Schedule 6.21, (i) the rights and
benefits of Company under the Documents will not be adversely affected by the
transactions contemplated hereby and (ii) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach or
constitute a default under, any of the terms or provisions of the Documents or
the Charter Documents. Except as set forth on Schedule 6.21, none of the
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect in all respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 6.21, to the knowledge of Company none
of the Documents prohibits the use or
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publication by Company, Parent or Newco of the name of any other party to such
Document, and none of the Documents prohibits or restricts Company from freely
providing services to any other customer or potential customer of Company,
Parent, Newco or any other Founding Company.
6.22 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 6.22, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of
Company taken as a whole;
(ii) any damage, destruction or loss (whether or not covered by
insurance) having a Material Adverse Effect on the properties or
business of Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests
or any grant of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital
stock of Company;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Company to any of its
officers, directors, stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character,
adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
assets, property or rights of Company to any person, including,
without limitation, Stockholders and their Affiliates outside the
ordinary course of business of Company;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation
any indebtedness or obligation of any Stockholders or any
Affiliate thereof outside the ordinary course of business of
Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets,
property or rights of Company or requiring consent of any party
to the transfer and assignment of
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any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of
the ordinary course of Company's business;
(xi) any waiver of any rights or claims of Company having a Material
Adverse Effect;
(xii) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which Company is a
party;
(xiii) any transaction by Company outside the ordinary course of its
business;
(xiv) any cancellation or termination of a contract with a customer or
client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company outside
the ordinary course of Company's business.
6.23 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Company has delivered to
Parent an accurate list (which is set forth on Schedule 6.23) as of the date of
the Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 6.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.24 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in a lawful manner which, in the aggregate, do not exceed $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar effect.
If political contributions made by Company have exceeded $5,000 per year for
each year in which any Stockholder has been a stockholder of Company, each
contribution shall be described on Schedule 6.24.
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6.25 DISCLOSURE. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with respect to which
such information was requested. Company's rights under the documents delivered
pursuant hereto would not be adversely affected by, and no statement made herein
would be rendered untrue in any respect by, any other document to which Company
is a party, or to which its properties are subject, or by any other fact or
circumstance regarding Company (which fact or circumstance was, or should
reasonably, after due inquiry, have been known to Company) that is not disclosed
pursuant hereto or thereto.
6.26 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.26, Company
has not, between the Balance Sheet Date and the date of this Agreement, taken
any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth below
are true as of the date of this Agreement and, subject to Section 9.7, shall be
true at the Closing Date, (ii) that all of the covenants and agreements in this
Section 7 shall be complied with or performed at and as of the Closing Date and
(iii) that by executing this Agreement each Stockholder shall be deemed to have
approved the terms of the Merger as required by the OGCA.
7.1 AUTHORITY. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder enforceable in accordance with its terms.
7.2 PREEMPTIVE RIGHTS. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such Stockholder has or may have had, other than rights of any Stockholder
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any option
granted by Parent.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant and
agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.7, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
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8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete and correct copies of the
Charter Documents and Bylaws, each as amended, of Parent and Newco (the "Parent
Charter Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by Parent and Newco and
their consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Parent and Newco. This
Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco is
as set forth in Schedule 2.4(ii) and Section 2.4(iii), respectively. All of the
issued and outstanding shares of the capital stock of Parent and Newco (i) have
been duly authorized and validly issued, (ii) are fully paid and nonassessable,
(iii) are owned of record and beneficially by the persons set forth on Schedule
2.4(ii) and Parent, respectively, and (iv) were offered, issued, sold and
delivered by Parent and Newco in compliance with all applicable state and
Federal laws concerning the offer, issuance, sale and delivery of securities.
Further, none of such shares was issued in violation of the preemptive rights of
any past or present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
2.4(ii), (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 2.4(ii) also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no Subsidiaries
except for Newco and each of the other companies identified on Schedule 8.5.
Except as set forth in the preceding sentence, neither Parent nor Newco
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in a Person nor is Parent or Newco, directly or indirectly, a
participant in any joint venture, partnership or other non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no liabilities,
contingent or otherwise, except as set forth in or contemplated by this
Agreement or agreements similar to this
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Agreement with the Founding Companies and except for fees incurred in connection
with the transactions contemplated hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Material Adverse Effect; and there are no claims, actions, suits or proceedings,
pending or, to the knowledge of Parent or Newco, threatened, against or
affecting Parent or Newco, at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them and no notice
of any claim, action, suit or proceeding, whether pending or threatened, has
been received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license, or permit to which Parent or Newco is a party, or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to the
Stockholders pursuant to this Agreement will have been duly authorized prior to
the Closing, and upon consummation of the Merger in accordance with this
Agreement, will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in September
1998. Neither Parent nor Newco has conducted any business since the date of its
inception, except raising capital and in connection with this Agreement and
similar agreements with the Founding Companies. Except as disclosed on Schedule
8.10, neither Parent nor Newco owns or has at any time owned any real property
or any personal property or is a party to any other agreement.
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9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and April 1, 1999, Company
will afford to the officers and authorized representatives of
Parent reasonable access to all of Company's sites, properties,
books and records and will furnish Parent with such additional
financial and operating data and other information as to the
business and properties of Company as Parent may from time to
time reasonably request. Company will cooperate with Parent, its
representatives, auditors and counsel in the preparation of any
documents or other material that may be required in connection
with any documents or materials required by this Agreement.
Parent and Newco will treat all information obtained in
connection with the negotiation and performance of this Agreement
as confidential in accordance with the provisions of Section 16.
(ii) Between the date of this Agreement and April 1, 1999, Parent will
afford to the officers and authorized representatives of Company
and Stockholders reasonable access to all of the sites,
properties, books and records of Parent, Newco and the other
companies listed on Schedule 9.1(ii) ("Founding Companies") and
will furnish Company and Stockholders with such additional
financial and operating data and other information as to the
business and properties of Parent, Newco and the Founding
Companies as Company and Stockholders may from time to time
reasonably request. Parent and Newco will cooperate with Company
and Stockholders' representatives, auditors and counsel in the
preparation of any documents or other material which may be
required in connection with any documents or materials required
by this Agreement. Company and Stockholders 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements
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relating to or affecting its respective assets, properties or
rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance
coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key
employees and maintain its respective relationships with
suppliers, customers and others having business relations with
it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt instruments and Leases and not enter into
new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels for all
officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance
with past practices; provided, however, that Company may
distribute its 1995 Yukon and 1999 GMC pickup to Larry Travis and
its 1995 Chevrolet pickup to Scott McCrory.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Except as set forth in Section
9.9, between the date of this Agreement and the Closing Date, Company will not,
without prior written consent of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than
in connection with the exercise of options or warrants listed in
Schedule 6.4;
(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any
shares of Company Stock; provided, however, that Company may
complete the spin-off DTS prior to the Closing Date;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is
(x) in the normal course of business (consistent with past
practice), (y) in connection with the transactions contemplated
by this Agreement, or (z) involves an amount not
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in excess of $5,000; provided, however, the Company may pay
attorneys' fees incurred in connection with this Agreement.
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with
respect to purchase money Liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of
$5,000 as necessary or desirable for the conduct of its business,
(y) (1) Liens for Taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which
contested Taxes adequate reserves have been established and are
being maintained) or (2) materialmen's, mechanic's, worker's,
repairmen's, employee's or other like Liens arising in the
ordinary course of business, or (3) Liens set forth on Schedule
6.8 or 6.13;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
provided, however, that Company may distribute its 1995 Yukon and
1999 GMC pickup to Larry Travis and its 1995 Chevrolet pickup to
Scott McCrory;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included
in Schedule 6.9 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
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(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 AGREEMENTS. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
6.16 and (ii) any existing agreement between Company and any Stockholder, on or
prior to the Closing Date, except as otherwise set forth on Schedule 9.5.
Copies of such termination agreements are listed on Schedule 9.5 and copies
thereof are attached thereto.
9.6 NOTIFICATION OF CERTAIN MATTERS. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company or Stockholders contained herein to be untrue or inaccurate
in any respect at or prior to the Closing Date and (ii) any failure of any
Stockholder or Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such Person hereunder as of such
date. Parent and Newco shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would likely cause any representation or warranty of Parent or Newco
contained herein to be untrue or inaccurate in any respect at or prior to the
Closing Date and (ii) any failure of Parent or Newco to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder as of such date. The delivery of any notice pursuant to this Section
9.6 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 9.7, (ii) modify the conditions set forth in Sections
10 and 11, or (iii) limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
9.7 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 11:59 p.m. March 31, 1999
to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect may be made unless
the parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.7. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant
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to the provisions of Section 14.1(iv). Neither the entry by Parent into any
other agreement, such as this Agreement, after the date hereof for the
acquisition of one or more companies nor the performance by Parent of its
obligations thereunder shall be deemed to require the amendment to or a
supplementation of any Schedule hereto.
9.8 FURTHER ASSURANCE. 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 by this Agreement.
9.9 Withdrawal of Guarantees. ALL PARTIES HERETO ACKNOWLEDGE THAT LARRY
TRAVIS HAS PERSONALLY GUARANTEED CERTAIN INDEBTEDNESS OWED BY THE COMPANY TO
THIRD PARTY LENDERS. THE PARTIES HERETO STIPULATE AND AGREE THAT LARRY TRAVIS
SHALL HAVE THE RIGHT TO WITHDRAW HIS GUARANTEE OF THE COMPANY'S INDEBTEDNESS
EFFECTIVE ON THE CLOSING DATE; PROVIDED, HOWEVER, IN THE EVENT THE WITHDRAWAL OF
SUCH GUARANTEE AGREEMENT CAUSES ANY LENDER TO DECLARE THE OBLIGATION IN DEFAULT
OR TO ACCELERATE THE MATURITY THEREOF, LARRY TRAVIS AGREES NOT TO WITHDRAW THE
GUARANTEE UNTIL SUCH TIME AS THE COMPANY HAS PAID THE INDEBTEDNESS IN FULL
ACCORDING TO ITS TERMS. IN THE EVENT LARRY TRAVIS IS PROHIBITED FROM
WITHDRAWING HIS GUARANTEE BY REASON OF THE FOREGOING PROVISION COMPANY WARRANTS
AND REPRESENTS IT WILL TIMELY PAY SAID INDEBTEDNESS ACCORDING TO ITS TERMS, AND
NOT EXTEND, RENEW OR MAKE FURTHER ADVANCES AGAINST THE SAME.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date; all of
the terms, covenants and conditions of this Agreement to be complied with or
performed by Parent and Newco on or before the Closing Date shall have been duly
complied with or performed; and a certificate to the foregoing effect dated the
Closing Date, and signed by the President or any Vice President of Parent and of
Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Company as a result of which the management
of Company deems it inadvisable to proceed with the transactions hereunder.
10.3 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated
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herein shall have been obtained and made.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a Material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a certificate
or certificates, dated the Closing Date and signed by the Secretary of Parent
and of Newco, certifying the completeness and accuracy of the attached copies of
Parent's and Newco's respective Charter Documents (including amendments
thereto), Bylaws (including amendments thereto), and resolutions of the boards
of directors and, if required, the stockholders of Parent and Newco approving
Parent's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule 10.7
shall have been afforded an opportunity to enter into an employment agreement,
reasonably acceptable to both parties and substantially in the form of Annex II.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
10.9 RELEASE OF OBLIGATIONS. All Liens, guarantees or other obligations
by DTS for the indebtedness or obligations of Company, and all Liens, guarantees
or other obligations by Company for the indebtedness or obligations of DTS,
shall have been terminated, removed or released.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Stockholders and Company on or before the Closing
Date shall have been duly complied with or performed; and Stockholders and
Company
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each shall have delivered to Parent a certificate dated the Closing Date and
signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Parent as a result of which the management
of Parent deems it inadvisable to proceed with the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), Bylaws (including amendments thereto),
and resolutions of the board of directors and Stockholders approving Company's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a Material Adverse
Effect, and 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 Company to conduct
its business.
11.5 STOCKHOLDERS' RELEASE. Stockholders shall have delivered to Parent
an instrument dated the Closing Date releasing Company from (i) any and all
claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically identified
on Schedules 6.8 and 6.13 as being claims of or obligations to Stockholders and
(y) obligations arising under this Agreement or the transactions contemplated
hereby.
11.6 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.6, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.7 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 6.21, including the
consent of Lanier Worldwide Incorporated, Healthcare Division, to the assignment
of Voice Products Dealer Contract to Company, shall have been obtained.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good standing and
authorized to do business and that all state franchise and/or income Tax returns
and
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Taxes for Company for all periods prior to the Closing have been filed and paid.
11.9 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Parent
a certificate to the effect that he or she is not a foreign person under Section
1.1445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have received
at least $15,000,000 in gross proceeds from Parent's IPO or Private Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule 10.7
shall have executed an employment agreement, reasonably acceptable to both
parties and substantially in the form of Annex II.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent audited
Balance Sheets as of December 31, 1997 and 1998 and audited Statements of
Income, Retained Earnings and Cash Flows for each of the years in the two-year
period ended December 31, 1998.
11.13 RELEASE OF OBLIGATIONS. All Liens, guarantees or other obligations
by DTS for the indebtedness or obligations of Company, and all Liens, guarantees
or other obligations by Company for the indebtedness or obligations of DTS,
shall have been terminated, removed or released.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS
12.1 PREPARATION AND FILING OF TAX RETURNS.
(i) Company shall file or cause to be filed all Federal, state and
local income Tax Returns of Company for all taxable periods that
end on or before the Closing Date.
(ii) Parent shall file or cause to be filed all separate Returns of,
or that include, Company for all taxable periods ending after the
Closing Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request
in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes
or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together
with relevant accompanying schedules and 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
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convenient basis at its cost to provide explanation of any
documents or information so provided.
12.2 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at Company until such time as Parent is able to replace such plan with
a plan that is applicable to Parent and all of its then existing Subsidiaries;
provided that Parent shall have no obligation to provide replacement plans that
have the same terms and provisions as the existing plans; provided, further,
that any new health insurance plan shall provide for coverage for preexisting
conditions. On the Closing Date, the employees of Company will be the employees
of the Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee; and provided further that this provision
shall not in any way limit the management rights of the Surviving Corporation or
Parent to assess workforce needs and make appropriate adjustments as necessary
or desirable within its discretion subject to applicable laws and collective
bargaining agreements).
13. INDEMNIFICATION
Stockholders, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Stockholders covenant
and agree that they, severally and not jointly in the case of representations,
warranties, covenants and agreements set forth in Section 7, and jointly and
severally in all other cases, will indemnify, defend, protect and hold harmless
Parent, Newco, Company and the Surviving Corporation at all times, from and
after the Closing Date 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 expenses of investigation) incurred by Parent, Newco,
Company or the Surviving Corporation as a result of or arising from any breach
of any representation, warranty, covenant or agreement on the part of
Stockholders or Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it will
indemnify, defend, protect and hold harmless Stockholders at all times from and
after the Closing Date 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 expenses of investigation) incurred by Stockholders as a
result of or arising from any breach of any representation, warranty, covenant
or agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made
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against any party obligated to provide indemnification pursuant to Section 13.1
or 13.2 (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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable
additional legal expenses and out-of-pocket expenses. If the Indemnifying Party
desires to accept a final and complete settlement of any such Third Person claim
and the Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for any additional costs of
defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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 upon consent of the Indemnifying Party, which consent will
not be unreasonably withheld, 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. All settlements hereunder shall effect a complete release of the
Indemnified Party, unless the Indemnified Party otherwise agrees in writing.
Anything in this Agreement to the contrary notwithstanding, any amounts owing
from an Indemnifying Party to an Indemnified Party under the provisions of this
Section 13 shall be reduced to the extent to which the Indemnified Party, or any
other claimant, actually receives any proceeds of any insurance policy
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that are paid with respect to the matter or occurrence that gave rise to the
Third Person claim. Submission to insurance of any insurable claim otherwise
giving rise to indemnification under this Section 13 shall be a condition
precedent to seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
13 shall be the exclusive remedy in any action seeking damages or any other form
of monetary relief brought by any party to this Agreement against another party;
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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement. Any indemnification obligation of Stockholders shall be limited to
the value of the consideration paid to such Stockholder pursuant to this
Agreement. The Indemnifying Party's obligation to indemnify pursuant to this
Section 13 will arise if and only if the aggregate amount of any claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) suffered by the Indemnified Party
exceeds $100,000; in which case the Indemnifying Party will be required to
indemnify the Indemnified Party for all such losses.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by Company (acting through its board of directors), on the one
hand, or by Parent (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 May 31, 1999, 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;
(iii) by Stockholders or Company, on the one hand, or by Parent, on the
other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely
performance of any of the material covenants, agreements or
conditions contained herein, and the curing of such default shall
not have been made on or before the Closing Date; or
(iv) by Company and Stockholders, on the one hand, or by Parent, on
the other hand, if either such party or parties declines to
consent to an amendment or
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supplement to a Schedule proposed by the other party or parties
pursuant to Section 9.7 because such proposed amendment
constitutes or reflects an event or occurrence that would have a
Material Adverse Effect on the party or parties proposing the
same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
9.7, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each Stockholder (other than any Stockholder
subject to an employment agreement listed in Schedule 10.7, each of which is
expressly excepted from the obligations imposed by this Section 15) will not,
for a period of two years following the Closing Date, for any reason whatsoever,
directly or indirectly, for himself or on behalf of or in conjunction with any
other Person:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a
sales representative, in the sale or marketing of
telecommunication services or interconnect services within the
state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an employee of
Parent (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 Parent (including the Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date, a customer of Parent (including the
Subsidiaries thereof) for the purpose of soliciting or selling
products or services in direct competition with Parent (or its
Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Parent
(including the Subsidiaries thereof) in the long-distance
telephone or interconnect business, which candidate, to the
knowledge of such Stockholder after due inquiry, was called upon
by Parent (including the Subsidiaries thereof) or for which, to
the knowledge of such Stockholder after due inquiry, Parent (or
any Subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for
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any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public
for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment after the date of this
Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY, REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15 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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of two
years stated at the beginning of this Section 15, during which the agreements
and covenants of each Stockholder made in this Section 15 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 15. The covenants
contained in Section 15 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set forth
in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
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16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize and
acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or the Surviving
Corporation; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) 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 (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Stockholder of the provisions of
this Section 16.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on each Stockholder's ability
to disseminate confidential information with respect to Company shall become
nugatory and (2) each Stockholder (including his representatives, advisors and
legal counsel) shall within ten business days of the Parent's request, deliver
all copies of the confidential information of Parent in his possession in any
form whatsoever (including, but not limited to, any reports, memoranda, or other
material prepared by such Stockholder or his representatives, advisors or legal
counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge that
they had in the past and currently have and in the future may have, prior to the
Closing, access to certain confidential information of Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except (i) to authorized representatives
of Company; and (ii) to counsel and other advisers; provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
16.2, unless (x) such information becomes known to the public generally through
no fault of Parent or Newco, (y) 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 (y), Parent and Newco shall,
if possible, give immediate prior written notice thereof to Company and
Stockholders and provide Company and Stockholders with the opportunity to
contest such disclosure, or (z) the disclosing party reasonably believes that
such disclosure is required in connection with the defense
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of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by Parent or Newco of the provisions of this Section 16.2,
Company and Stockholders shall be entitled to an injunction (without the posting
of bond or proof of actual damages) restraining Parent and Newco from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Company and Stockholders 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, Parent and Newco (including their
representatives, advisors and legal counsel) shall within ten business days
after Company's request, deliver all copies of the confidential information of
Company in their possession in any form whatsoever (including, but not limited
to, any reports, memoranda, or other materials prepared by Parent or Newco or
their representatives, advisors or legal counsel at the direction of Parent or
Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 16.1 and 16.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 14.
17. [INTENTIONALLY OMITTED]
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock to be delivered to
Stockholders pursuant to this Agreement (the "Restricted Securities") have not
been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the requirements of the 1933 Act and applicable
state securities laws. All of the Restricted Securities are being acquired by
Stockholders solely for their own respective accounts, for investment purposes
only, and not with a view to or in connection with a distribution thereof.
18.1 COMPLIANCE WITH LAW. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed 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 thereunder and the provisions
of applicable state securities laws and regulations. All the Restricted
Securities shall bear the following legend:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY
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NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED
BY THIS SECURITY SHALL HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF
THE SHARES REPRESENTED BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN
UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM
AND SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT
THAT THE PROPOSED DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY
BE REASONABLY SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK, SOPHISTICATION. Stockholders are able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and have such knowledge and experience
in financial and business matters that they are capable of evaluating the merits
and risks of the proposed investment in Parent. Stockholders have had an
adequate opportunity to ask questions and receive answers from the officers of
Parent 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 Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date of
consummation of the IPO, whenever Parent proposes to register any Parent Stock
for its own or the account of others under the 1933 Act for a public offering,
other than (i) any shelf registration of shares to be used as consideration for
acquisitions of additional businesses by Parent and (ii) registrations relating
to employee benefit plans, Parent shall give each Stockholder prompt written
notice of its intent to do so. Upon the written request of any Stockholder given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Registerable Securities) which any
Stockholder requests; provided, however, if Parent is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 19.1
that the number of shares to be sold by Persons other than Parent is greater
than the number of such shares which can be offered without adversely affecting
the offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such Person)
to a number deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the
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IPO, the holders ("Founding Stockholders") of a majority of the shares of Parent
Stock (i) representing Registerable Securities owned by Stockholders or their
permitted transferees or (ii) acquired by other stockholders of Parent on or
prior to the closing of the IPO in connection with the acquisition of their
companies by Parent pursuant to an agreement, similar to this Agreement, which
shares have not been previously registered or sold and which shares are not
entitled to be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act, may request in writing that Parent file a
registration statement under the 1933 Act covering the registration of the
shares of Parent Stock issued to and held by the Founding Stockholders or their
permitted transferees (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Parent Stock) (a "Demand Registration"). Within ten days of the receipt of such
request, Parent shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from the Founding Stockholders requesting such registration,
file and use its best efforts to cause to become effective a registration
statement covering all such shares. Parent shall be obligated to effect only
one Demand Registration for all Founding Stockholders; provided, however, that
Parent shall not be deemed to have satisfied its obligation under this Section
19.2 unless and until a Demand Registration covering all shares of Parent Stock
requested to be registered has been filed and becomes effective under the 1933
Act and has remained current and effective for not less than 90 days (or such
shorter period as is required to complete the distribution and sale of all
shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees) shall be borne by Parent.
Parent shall also bear all underwriting commissions and discounts incurred to
sell Stockholders' stock pursuant to an effective registration statement under
this Section 19 in excess of the brokerage fee which would have been charged by
the underwriter or its affiliate to sell Stockholder's stock had such stock been
publicly tradeable immediately prior to the sale. In connection with
registrations under Sections 19.1 and 19.2, Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Parent Stock and use its best efforts to cause
such registration statement to
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become and remain effective; provided that Parent may discontinue
any registration of its securities that is being effected
pursuant to Section 19.1 at any time prior to the effective date
of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective
for a period as may be requested by the stockholders holding a
majority of the Parent Stock covered thereby not exceeding 90
days and to comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with
the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement; provided,
that before filing a registration statement or prospectus
relating to the sale of Parent Stock, or any amendments or
supplements thereto, Parent will furnish to counsel to each
holder of Parent Stock covered by such registration statement
or prospectus, copies of all documents proposed to be filed,
which documents will be subject to the review of such counsel,
and Parent will give reasonable consideration in good faith to
any comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any, of such
Parent Stock, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the requirements
of the 1933 Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or
other disposition of the Parent Stock.
(iv) Use its best efforts to register or qualify the Parent Stock
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition of the Parent Stock
owned by such seller, in such jurisdictions, except that Parent
shall not for any such purpose be required (x) to qualify to do
business as a foreign corporation in any jurisdiction where, but
for the requirements of this Section 19.3(iv), it is not then so
qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to
general or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered by such
registration statement to be registered with or approved by such
other governmental
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agencies or authorities as may be necessary to enable the seller
or sellers thereof to consummate the disposition of such Parent
Stock.
(vi) Immediately notify each seller of Parent Stock covered by such
registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 19.3(ii), if Parent
becomes aware that the prospectus included in such registration
statement, as then in effect, includes 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 in the light of the circumstances then existing, and,
at the request of any such seller, deliver a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the Parents of such
Parent Stock, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to
its security holders, in each case as soon as practicable, but
not later than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Parent), an earnings
statement of Parent which will satisfy the provisions of Section
11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the underwriters to list
such Parent Stock on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the
independent public accountants for Parent in customary form and
covering such matters of the type customarily covered by such
letters.
(x) Execute and deliver all instruments and documents (including in
an underwritten offering an underwriting agreement in customary
form) and take such other actions and obtain such certificates
and opinions as the stockholders holding a majority of the shares
of Parent Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten public
offering of such Parent Stock.
(xi) Make available for inspection by the seller of such Parent Stock
covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other
agent retained by any such seller or any such
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underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of Parent, and cause all of
Parent's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such
registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form
and scope reasonably satisfactory to such underwriter or agent
and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each Stockholder holding shares of Parent Stock covered by a
registration statement referred to in this Section 19 will, upon
receipt of any notice from Parent of the happening of any event
of the kind described in Section 19.3(vi), forthwith discontinue
disposition of the Parent Stock pursuant to the registration
statement covering such Parent Stock until such holder's receipt
of the copies of the supplemented or amended prospectus
contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves an
underwritten offering, each of the Stockholders agrees, whether
or not his shares of Parent Stock are included in such
registration, not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the 1933 Act, of
any Parent Stock, or of any security convertible into or
exchangeable or exercisable for any Parent Stock (other than as
part of such underwritten offering), without the consent of the
managing underwriter, during a period commencing eight calendar
days before and ending 180 calendar days (or such lesser number
as the managing underwriter shall designate) after the effective
date of such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of Parent
under the 1933 Act pursuant to Section 19.1 or 19.2, Parent will,
and it hereby agrees to, indemnify and hold harmless, to the
extent permitted by law, each seller of any Parent Stock covered
by such registration statement, each Affiliate of such seller and
their respective directors, officers, employees and agents or
general and limited partners (and directors, officers, employees
and agents thereof) each other Person who participates as an
underwriter in the offering or sale of such securities and each
other Person, if any, who controls such seller or any such
underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever
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arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or arising out of an untrue statement or alleged
untrue statement of a material fact contained in any preliminary
prospectus or prospectus (or any amendment or supplement thereto)
or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein not misleading;
(y) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if
such settlement is effected with the written consent of Parent;
and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or mission to the extent that any such
expense is not paid under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such seller or any such
director, officer, employee, agent, general or limited partner,
investment advisor or agent, underwriter or controlling Person and
shall survive the transfer of such securities by such seller.
(ii) Parent may require, as a condition to including any Parent Stock
in any registration statement filed in accordance with Section
19.1 or 19.2, that Parent shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such
Parent Stock or any underwriter, to indemnify and hold harmless
(in the same manner and to the same extent as set forth in
Section 19.5(i)) Parent with respect to any statement or alleged
statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or
summary prospectus or
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amendment or supplement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on
behalf of Parent or any such director, officer or controlling
Person and shall survive the transfer of such securities by such
seller. In that event, the obligations of the Parent and such
sellers pursuant to this Section 19.5 are to be several and not
joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for the
full amount of such claim, and each such seller's liability under
this Section 19.5 shall be limited to an amount equal to the net
proceeds (after deducting the underwriting discount and expenses
paid by seller) received by such seller from the sale of Parent
Stock held by such seller pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding
involving a claim referred to in this Section 19.5, such
indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to such
indemnifying party of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of
its obligations under this Section 19.5, except to the extent
(not including any such notice of an underwriter) that the
indemnifying party is materially prejudiced by such failure to
give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim (in which
case the indemnifying party shall not be liable for the fees and
expenses of more than one firm of counsel selected by holders of
a majority of the shares of Parent Stock included in the offering
or more than one firm of counsel for the underwriters in
connection with any one action or separate but similar or related
actions), the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently
incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not
agree to any settlement without the prior consent of the
indemnified party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a monetary
payment for which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and complete
release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment of
the
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indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between
them. In the event that the indemnifying party does not assume
the defense of a claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such claim by all
appropriate proceedings, and will have control of such defense
and proceedings, and the indemnified party shall have the right
to agree to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall, and shall cause
its legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection with its
assuming the defense of any claim, including the furnishing of
the indemnifying party with all papers served in such proceeding.
In the event that an indemnifying party assumes the defense of an
action under this Section 19.5(iii), then such indemnifying party
shall, subject to the provisions of this Section 19.5, indemnify
and hold harmless the indemnified party from any and all losses,
claims, damages or liabilities by reason of such settlement or
judgment.
(iv) Parent and each seller of Parent Stock shall provide for the
foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration
or other qualification of securities under any federal or state
law or regulation of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11(f) of the 1933
Act. In determining the amounts which the respective parties shall contribute,
there shall be considered the relative benefits received by each party from the
offering of the Parent Stock by taking into account the portion of the proceeds
of the offering realized by each, and the relative fault of each party by taking
into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or capita allocation (even if the underwriters were
treated as one entity for such purpose) or for the underwriters' portion of such
contribution to exceed the percentage that the underwriting discount bears to
the initial public offering price of the Parent
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Stock. For purposes of the Section 19.6, each Person, if any, who controls an
underwriter within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as such underwriter, and each director and each officer
of Parent who signed the registration statement, and each Person, if any, who
controls Parent or a seller of Parent Stock within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as Parent or a seller of
Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144 TRANSACTIONS.
After Parent completes its initial underwritten public offering and for as long
thereafter as any Stockholder shall continue to hold any Restricted Securities,
Parent shall use reasonable efforts to file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as amended from time to time.
20. GENERAL
20.1 COOPERATION. Company, each Stockholder, Parent and Newco shall
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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Stockholders will cooperate and use their
reasonable efforts to have the present officers, directors and employees of
Company cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law or as permitted by
Section 17), but if assigned by operation of law, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company, and the heirs and legal representatives
of Stockholders. Notwithstanding the foregoing, any Stockholder may assign his
shares of Parent Stock and rights thereunder, to a family or children's trust;
provided that the assignee agrees to be bound by the terms of this Agreement to
the same extent as his or its assignor.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Stockholders, Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution and delivery, 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 Stockholders and by Company, Newco and Parent, acting through their
respective officers or representatives, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby; provided that Company shall make a good faith effort to cross
reference disclosures, as necessary or advisable, between related Schedules.
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<PAGE>
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to Stockholders, addressed to them at their addresses set
forth on Schedule 6.3, with copies to such counsel as is set
forth with respect to each Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
Travis Business Systems, Inc.
4200 Perimeter Center Drive
Suite 100
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<PAGE>
Oklahoma City, Oklahoma 73112
Attn: Larry E. Travis
Telecopy No.:
with a copy to:
George E. Nelson, Esq.
2837 N.W. 58th Street
Oklahoma City, Oklahoma 73112
Telecopy No.: 405-843-9661
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance with
the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section 13.4,
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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from
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<PAGE>
legal counsel that a public announcement or statement is required by applicable
law.
20.14 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 Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may be entitled to pursue such remedies for
emergency or preliminary injunctive relief in any court of competent
jurisdiction, provided that each party agrees that it will consent to the stay
of such judicial proceedings on the merits of both this Agreement and the
related transactions pending arbitration of all underlying claims between the
parties immediately following the issuance of any such emergency or injunctive
relief.
20.16 338 ELECTION. Each of the Stockholders agree, if so directed by
Parent, to join with Parent and Newco in making an election under Section 338(h)
of the Code (and any corresponding elections under state, local, or foreign tax
law) with respect to a purchase and sale of the Company Stock; PROVIDED HOWEVER,
that no election shall be made if, as a result of the election, the Stockholders
would incur any adverse tax or other consequences not otherwise reimbursed by
Parent or Newco to the Stockholders.
20.17. LARRY TRAVIS. Larry Travis will be deemed a "Stockholder" as
defined herein for all intents and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
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<PAGE>
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
-----------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
------------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
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<PAGE>
TRAVIS BUSINESS SYSTEMS, INC.
BY: Larry E. Travis
------------------------------------------
NAME: Larry E. Travis
TITLE: President
STOCKHOLDERS:
WYLIE LIMITED PARTNERSHIP
BY: MANARD MANAGEMENT ASSOCIATES,
INC., GENERAL PARTNER
/s/ Larry E. Travis
---------------------------------------------
BY: LARRY E. TRAVIS, PRESIDENT
/s/ Gregory Mantia
---------------------------------------------
GREGORY MANTIA
/s/ Scott McCrory
---------------------------------------------
SCOTT MCCRORY
Acknowledged and Agreed.
/s/ Larry E. Travis
---------------------------------------------
LARRY E. TRAVIS
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<PAGE>
ANNEX I
CERTIFICATE OF MERGER
MERGING
ALLIANCE ACQUISITION XII CORP.
INTO
TRAVIS BUSINESS SYSTEMS, INC.
Travis Business Systems, Inc., an Oklahoma corporation, pursuant to Section
81 of the Oklahoma General Corporation Act, DOES HEREBY CERTIFY:
FIRST. That the name of each of the constituent corporations, which are
Oklahoma corporations, is Travis Business Systems, Inc. and Alliance Acquisition
XII Corp.
SECOND. That an agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 81 of the Oklahoma General Corporation
Act.
THIRD. That the name of the surviving corporation is Travis Business
Systems, Inc..
FOURTH. That the certificate of incorporation of Alliance Acquisition XII
Corp. shall be the certificate of incorporation of the surviving corporation.
FIFTH. That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation, which is located at
12101 North Meridian, Oklahoma City, Oklahoma 73120.
SIXTH. That a copy of the agreement and plan of merger will be furnished
by the surviving corporation, on request and without cost, to any shareholder of
any constituent corporation.
SEVENTH. This merger shall be effective at --, Central Standard Time, on
the date this Certificate is filed with the Secretary of State of the State of
Oklahoma.
IN WITNESS WHEREOF, Travis Business Systems, Inc. has caused this
certificate to be signed by its President and attested by its Secretary, this --
day of -- 1999.
TRAVIS BUSINESS SYSTEMS, INC.
------------------------------------------
President
ATTEST:
- --------------
Secretary
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- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION IV CORP.
(Newco)
and
ABLE COMMUNICATION INCORPORATED
(Company)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 The Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Acquired Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . 6
3. INSTRUMENTS OF TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. PURCHASE PRICE; ALLOCATION. . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . 7
4.3 Allocation of Purchase Price. . . . . . . . . . . . . . . . . . . . 7
5. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY. . . . . . 8
6.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Title to Acquired Assets; Condition of Acquired Assets. . . . . . . 8
6.5 Real Property - Owned . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Real and Personal Property - Leased . . . . . . . . . . . . . . . . 9
6.7 Existing Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Governmental Licenses . . . . . . . . . . . . . . . . . . . . . . . 9
6.9 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 9
6.10 No Violation of Existing Agreements . . . . . . . . . . . . . . . . 10
6.11 Litigation and Legal Proceedings. . . . . . . . . . . . . . . . . . 10
6.12 Environmental Compliance. . . . . . . . . . . . . . . . . . . . . . 10
6.13 Employee Benefits and Employees . . . . . . . . . . . . . . . . . . 11
6.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.15 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.17 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.18 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . 12
6.19 Pricing of Services . . . . . . . . . . . . . . . . . . . . . . . . 12
6.20 Proprietary Rights. . . . . . . . . . . . . . . . . . . . . . . . . 12
6.21 Accounts Receivable and Bad Debts . . . . . . . . . . . . . . . . . 12
6.22 Certain Business Relationships with Company . . . . . . . . . . . . 12
6.23 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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6.24 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . 13
6.25 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . 14
7. [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . 15
8.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.6 Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . 15
8.7 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . 15
8.8 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.9 Parent Securities . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.10 Business; Real Property; Agreements . . . . . . . . . . . . . . . . 16
9. OTHER COVENANTS PRIOR TO CLOSING. . . . . . . . . . . . . . . . . . . . . . 16
9.1 Access and Cooperation; Due Diligence; Audits . . . . . . . . . . . 16
9.2 Conduct of Business Pending Closing . . . . . . . . . . . . . . . . 17
9.3 Prohibited Activities by the Company. . . . . . . . . . . . . . . . 18
9.4 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . 19
9.6 Amendment of Schedules. . . . . . . . . . . . . . . . . . . . . . . 19
9.7 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.8 Distributions Prior to Closing. . . . . . . . . . . . . . . . . . . . 20
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY. . . . . . . . . . . . . . . 20
10.1 Representations and Warranties; Performance of
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.3 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . 20
10.4 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . 21
10.5 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . 21
10.6 Secretary's Certificates. . . . . . . . . . . . . . . . . . . . . . 21
10.7 Closing of the IPO or the Private Placement . . . . . . . . . . . . 21
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO . . . . . . . . . . 21
11.1 Representations and Warranties; Performance of
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.2 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.3 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . 21
11.4 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . 22
11.5 Termination of Related Party Agreements . . . . . . . . . . . . . . 22
11.6 Third Party Consents. . . . . . . . . . . . . . . . . . . . . . . . 22
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11.7 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.8 Good Standing Certificates. . . . . . . . . . . . . . . . . . . . . 22
11.9 FIRPTA Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 22
11.10 Closing of the IPO or Private Placement . . . . . . . . . . . . . . 23
11.11 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 23
11.12 Operation of Business . . . . . . . . . . . . . . . . . . . . . . . 23
12. CASUALTY LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.1 General Indemnification by Company. . . . . . . . . . . . . . . . . 23
13.2 Indemnification by Parent . . . . . . . . . . . . . . . . . . . . . 23
13.3 Third Person Claims . . . . . . . . . . . . . . . . . . . . . . . . 24
13.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.5 Limitations on Indemnification. . . . . . . . . . . . . . . . . . . 25
14. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.2 Liabilities in Event of Termination . . . . . . . . . . . . . . . . 26
15. NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.1 Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . 26
15.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.3 Reasonable Restraint. . . . . . . . . . . . . . . . . . . . . . . . 27
15.4 Severability; Reformation . . . . . . . . . . . . . . . . . . . . . 27
15.5 Independent Covenant. . . . . . . . . . . . . . . . . . . . . . . . 27
15.6 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . 27
16.1 Company and Stockholders. . . . . . . . . . . . . . . . . . . . . . 27
16.2 Parent and Newco. . . . . . . . . . . . . . . . . . . . . . . . . . 28
16.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
16.4 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17. TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
18. INVESTMENT REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 29
18.1 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . 30
18.2 Economic Risk; Sophistication . . . . . . . . . . . . . . . . . . . 30
19. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
19.1 PiggyBack Registration Rights . . . . . . . . . . . . . . . . . . . 30
19.2 Demand Registration Rights. . . . . . . . . . . . . . . . . . . . . 31
19.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . 32
19.4 Other Registration Matters. . . . . . . . . . . . . . . . . . . . . 34
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19.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19.6 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
20. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
20.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
20.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 38
20.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 38
20.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
20.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . . . . . 39
20.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
20.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
20.8 Exercise of Rights and Remedies . . . . . . . . . . . . . . . . . . 40
20.9 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
20.10 Reformation and Severability. . . . . . . . . . . . . . . . . . . . 40
20.11 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 40
20.12 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
20.13 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . 41
20.14 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . 41
20.15 Collection Procedures . . . . . . . . . . . . . . . . . . . . . . . 41
20.16 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the 10th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION IV CORP., an Oklahoma corporation
("Newco"), and ABLE COMMUNICATION INCORPORATED, an Oklahoma corporation (the
"Company").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing
under the laws of the State of Oklahoma, having been incorporated on
March 9, 1999, solely for the purpose of completing the transaction set
forth herein, and Newco is a wholly-owned subsidiary of Parent, a
corporation organized and existing under the laws of the State of
Oklahoma; and
WHEREAS, Company is and has been engaged in the interconnect and
paging business (the "Business") and owns certain equipment, inventory
and other personal property used in the Business.
WHEREAS, Company desires to sell to Newco, and Newco desires to
purchase from Company, Company's equipment, inventory, accounts
receivable and certain other assets which are owned by Company and
associated with the ownership and operation of the Business (the
"Sale").
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
"Acquired Assets" has the meaning set forth in Section 2.2.
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with,
the Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
<PAGE>
"Assumed Liabilities" has the meaning set forth in Section 2.4.
"Authorizations" has the meaning set forth in Section 6.8.
"Balance Sheet Date" has the meaning set forth in Section 6.3.
"Cash Payment' has the meaning set forth in Section 4.1.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation, partnership
or other business entity that is a signatory to this Agreement was formed or
organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in Section 6.3.
"Company Stock" means the Company's $1.00 par value common stock.
"December Balance Sheet" has the meaning set forth in Section 6.3.
"Demand Registration" has the meaning set forth in Section 19.2.
"Effective Time" means the time as of which the Merger becomes
effective, which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.12.
"Expiration Date" means (i) except as set forth in (iii) below, the 24th
monthly anniversary of the Closing Date when used in connection with a breach of
any representation, warranty, covenant or agreement set forth in Sections 6 or 8
of this Agreement, (ii) the 36th monthly anniversary of the Closing Date when
used in connection with the failure to observe the terms of Section 15 and
(iii) the date on which suit for the enforcement of any claims for Taxes, claims
under Environmental Laws or claims under any other covenant or agreement set
forth in this Agreement and not specified in (i) or (ii) above becomes barred by
the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
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<PAGE>
"Governmental Authorities" has the meaning set forth in Section 2.2(b).
"Hazardous Substance" has the meaning set forth in Section 6.12.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service
of the Department of the Treasury.
"Leases" means all real and personal property leased by Company and
used, useful or held for use in connection with Company's Business.
"Liens" has the meaning set forth in Section 2.1.
"Net Current Assets" has the meaning set forth in Section 4.4.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" means Parent's $.01 par value common stock.
"Permitted Liens" has the meaning set forth in Section 2.1.
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a joint stock company, a trust or
other unincorporated organization.
"Private Placement" means the Parent's private placement of Parent
Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.25.
"Purchase Price" has the meaning set forth in Section 4.1.
"Registerable Securities" means the shares of Parent Stock registerable
pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory
paragraph to Section 18.
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<PAGE>
"Sale" has the meaning set forth in the third recital of this Agreement.
"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, covenants
and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Stock Payment" has the meaning set forth in Section 4.1.
"Stockholders" has the meaning set forth in Section 15.1.
"Subsidiaries" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person, by any one or more of its Subsidiaries or by such Person and one
or more of its Subsidiaries.
"Tax" or "Taxes" have the meaning set forth in Section 6.14.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. PURCHASE AND SALE
2.1 THE SALE. Subject to the terms and conditions set forth in this
Agreement, Company agrees to sell, convey, assign, transfer and deliver to
Newco, and Newco agrees to purchase from Company at Closing, all of Company's
right, title and interest in and to the Acquired Assets, free and clear of all
debts, liabilities, obligations and taxes other than Assumed Liabilities, and
free and clear of all security interests, liens, pledges, charges, rights of
third parties and encumbrances of every kind (collectively, "Liens"), other than
Permitted Liens. As used herein, the term "Permitted Liens" means (i) any Lien
for taxes and assessments not yet past due or otherwise being contested in good
faith and for which appropriate reserves have been established, (ii) any Lien
arising out of deposits made to secure leases or other obligations of a like
nature arising in the ordinary course of business, (iii) any Lien affecting real
property that does not materially interfere with the use by Company of the
property subject thereto or affected thereby, (iv) as to leaseholds, interest of
the lessors thereof and Liens affecting the interests of such lessors and (v)
any Lien set
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<PAGE>
forth on Schedule 2.1 attached hereto.
2.2 ACQUIRED ASSETS. The assets to be conveyed to Newco shall
include all of Company's right, title and interest of whatever description which
relate in any way to the ownership, use or operation of the Business, as owned,
acquired or obtained by Company from the date hereof through the date of Closing
(collectively, the "Acquired Assets"). The Acquired Assets shall include, but
not be limited to, all of the rights, interests and benefits of Company in:
(a) All operating agreements, interconnection agreements,
transit agreements, resale agreements, other agreements with telecommunication
companies, leases, Authorizations to the extent such Authorizations may be
transferred under applicable law, instruments, commitments, guarantees, consents
and revenue sharing agreements; all easements, appurtenances, rights-of-way and
construction permits, if any, related to the Acquired Assets; all right, title
and interest, if any, in and to all streets, roads and public places, open or
proposed; all agreements between Company and any suppliers, telecommunication
equipment or service companies and customers, and all other similar rights and
agreements, including all applications therefor, which in any way may relate to
or concern the operation by Company of the Business.
(b) Originals or copies of all of Company's files of
correspondence, lists, records and reports concerning (i) customers, prospective
customers of the Business and customer service records related to the Acquired
Assets and (ii) all dealings with any federal, state, county, municipal or
foreign government agency, authority, utility instrumentality, including without
limitation, any agency, court, tribunal, department, bureau, commission or board
of competent jurisdiction ("Governmental Authorities") with respect to the
Acquired Assets.
(c) All of Company's right, title and interest in and to
machinery, equipment, motor vehicles, office equipment, computers and related
software, furniture and fixtures, supplies, inventory, spare parts and other
physical assets, if any, used in or relating to the Acquired Assets, and all
modifications, additions, restorations or replacements of the whole or any part
thereof.
(d) All of Company's right, title and interest in and to
agreements and contracts for: (i) paging, long-distance and local telephone
customers; (ii) Internet services including, without limitation, Company's
registered addresses; (iii) PIC and CIC codes, tariffs and certifications, to
the extent transferrable; (iv) agency agreements; and (v) sale and service of
telephone equipment.
(e) All of Company's right, title and interest to
engineering records, files, data, drawings, blueprints, schematics, maps,
reports, lists and plans and processes intended for use in connection with the
Acquired Assets provided that Company may retain a copy thereof.
(f) All of the following, along with all related income,
royalties, damages and payments, if any, due or payable as of the Closing Date
or thereafter: inventions, trademarks, service marks, trade dress, trade names,
logos and registrations and applications for a registration thereof together
with all of the goodwill associated therewith, copyrights and copyrightable
works and registrations and applications for the registration thereof, computer
software, data, data bases, documentation thereof, trade secrets and other
confidential information, other intellectual property
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<PAGE>
rights and intangible embodiments thereof (in whatever form or medium); all
data and records, wherever located, including books and records, customer
lists, call records, usage schedules, advertising materials, credit
information and correspondence, manuals, contract rights (including, without
limitation, letters of authority and other customer subscription/acquisition
contracts), together with all books, records, drawings and other indicia,
however evidenced.
(g) All electrical, mechanical, plumbing and other building
systems, security and surveillance systems and wiring and cable installations
owned by Company and located on the property leased by Company.
(h) All deposits, prepayments and prepaid expenses.
(i) All claims, causes of action, choses in action, rights
of recovery and rights of set-off of any kind.
(j) The right to receive and retain mail, accounts
receivable payments and other communications.
(k) The right to bill and receive payment for products
shipped or delivered and/or services performed but unbilled or unpaid as of the
Closing.
(l) The advertising, marketing and promotional materials and
all other related printing or written materials.
(m) All notes receivable, accounts receivable and related
records for such receivables (including customer receivables for customers to be
acquired by Newco).
(n) All 800 and 888 telephone numbers of Company.
(o) All goodwill associated with the Acquired Assets.
(p) Any assets of the type described above which are
acquired after the date hereof but prior to the Closing.
2.3 ASSUMPTION OF LIABILITIES. At Closing, Newco shall assume and
perform and discharge the following to the extent not previously performed or
discharged as of the Closing: (i) Company's obligations after the Closing under
the contracts being assigned to Newco and all other obligations of Company
related to the Business entered into during the period from the date hereof to
the Closing by Company in the ordinary course of its business in accordance with
the provisions of Sections 9.2 and 9.3 below that were identified to and
consented in writing by Newco; and (ii) all accounts payable, notes payable and
other indebtedness reflected on the December Balance Sheet related to the
Business (collectively, the "Assumed Liabilities"). Newco shall not be liable
for any other liabilities, debts, contracts or agreements, including, without
limitation, any liabilities or obligations related to other obligations of
Company of any nature whatsoever other than the Assumed Liabilities.
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<PAGE>
3. INSTRUMENTS OF TRANSFER
At the Closing, Company will deliver to Newco (i) one or more Bills of
Sale in substantially the form attached hereto as Annex I ("Bill of Sale"), (ii)
all such other good and sufficient instruments of sale, transfer and conveyance,
including, without limitation, assignments of leases in such form and including
such matters as Newco shall reasonably request and as shall be reasonably
acceptable to Company, as shall be effective to vest in Newco all of Company's
right and title to, and interest in, the Acquired Assets; and (iii) all
contracts and commitments, instruments, books and records and other data
included in the Acquired Assets.
4. PURCHASE PRICE; ALLOCATION
4.1 PURCHASE PRICE. The total purchase price for the Acquired
Assets shall be (i) $15,000 in cash (the "Cash Payment"), (ii) $35,000 for
assumption of debt relating to note held by Imogene Whitaker and (iii) $50,000
of Alliance common stock (the "Stock Payment") (collectively the "Purchase
Price").
4.2 PAYMENT OF PURCHASE PRICE. The Cash Payment shall be payable by
wire transfer of immediately available funds to Company at Closing. The Stock
Payment shall be issued to Company at Closing.
4.3 ALLOCATION OF PURCHASE PRICE. Attached hereto as Annex II is
the allocation of the Purchase Price in accordance with the respective fair
market value of the Acquired Assets being purchased and as provided for under
Section 1060 of the Code. Newco and Company each agree to file their income tax
returns and their other tax returns and IRS Form 8594 reflecting the allocation
as determined in this Section 4.3 unless otherwise required by applicable legal
requirements.
5. CLOSING
Subject to the terms and conditions hereof, the closing (the "Closing")
shall take place at the offices of McAfee & Taft A Professional Corporation,
10th Floor, Two Leadership Square, Oklahoma City, Oklahoma 73102, on May 31,
1999, or such other date as the parties hereto may designate (the "Closing
Date"). At Closing, each party shall deliver or cause to be delivered to the
other party the instruments of transfer referenced in Section 3 of this
Agreement and the other deliveries required by Section 10 (for Company) and
Section 11 (for Newco) of this Agreement, and Newco shall deliver to Company the
Cash Payment and the Stock Payment as required pursuant to Section 4.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY
Company represents, warrants, covenants and agrees (i) that all of the
following representations and warranties in this Section 6 are materially true
at the date of this Agreement and, subject to Section 9.6, shall be materially
true at the Closing Date and (ii) that all of the covenants and agreements in
this Section 6 shall be materially complied with or performed at and
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<PAGE>
as of the Closing Date.
6.1 DUE ORGANIZATION. Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business and is in
good standing under the laws of each jurisdiction where such qualification is
required except (i) as set forth on Schedule 6.1 or (ii) where the failure to be
so authorized or qualified would not have an adverse effect on the business,
operations, affairs, prospects, properties, assets or condition (financial or
otherwise) of Company taken as a whole (as used herein with respect to Company,
or with respect to any other Person, an "Adverse Effect").
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery by Company of this Agreement and its consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of Company. This Agreement has been duly executed and
delivered by Company, and approved by all the stockholders of Company, and is a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms.
6.3 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.3 are
copies of the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows, and any related
notes thereto, for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.3). Except as set forth on
Schedule 6.3, the Balance Sheets referred to in this Section 6.3 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.3 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte and Touche, LLP.
6.4 TITLE TO ACQUIRED ASSETS; CONDITION OF ACQUIRED ASSETS. Company
has, and will convey to Newco at Closing, good and marketable title to the
Acquired Assets, free and clear of all Liens other than Permitted Liens. All
Liens in effect on the date hereof which are to be discharged at Closing, other
than those to be discharged by Newco, are listed on Schedule 6.4 hereto. The
tangible property included among the Acquired Assets is in good working order
and repair, reasonable wear and tear excepted, and is technically sufficient and
capable for use in the Business. Except as disclosed on Schedule 6.22, no
officer, director, stockholder or employee of Company or any other Person other
than the Company owns, leases or has any right in any property, license or other
assets related to the Acquired Assets.
6.5 REAL PROPERTY - OWNED. Company owns no real property and the
real property leased by Company related to the Business has never been owned by
Company.
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<PAGE>
6.6 REAL AND PERSONAL PROPERTY - LEASED. Company shall retain all
of its rights and obligations under all leased real and personal property.
6.7 EXISTING CONTRACTS. Schedule 6.7 sets forth all contracts,
commitments and agreements included as Acquired Assets in effect on the date
hereof (the "Existing Contracts"). Except as disclosed on Schedule 6.22, no
officer, director or employee of Company or any Person (other than Company)
controlling, controlled by or affiliated with or family member of any such
officer, director or employee has any contractual relationship relating to the
ownership or use of the Acquired Assets. Company has heretofore delivered to
Newco true and correct copies of the Existing Contracts. Except as disclosed on
Schedule 6.7, Company has no knowledge of any breach or anticipated breach by
the other parties to any Existing Contracts. The Existing Contracts are in full
force and effect and Company is in compliance with its obligations under such
Existing Contracts. Except for the Existing Contracts, Company has not entered
into any other contract, commitment or agreement relating to the ownership or
use of the Acquired Assets, including, but not limited to, right-of-way, rights
of entry, licenses, easements, leases, or guaranty agreements. There are no
claims by third parties that Company is required to enter into other agreements
to enable it to continue to own or use the Acquired Assets.
6.8 GOVERNMENTAL LICENSES. Except as set forth on Schedule 6.8,
Company holds all licenses, consents, permits, approvals, tariffs and
authorizations of Governmental Authorities which are required in connection with
the ownership of the Acquired Assets and operation of the Business (collectively
referred to as the "Authorizations"). All Authorizations are in full force and
effect. Company has complied with the terms of the Authorizations which it
holds and there are no pending modifications, amendments or revocations of the
Authorizations which would adversely affect the ownership of the Acquired Assets
or the operation of the Business. All fees due and payable from Company to
Governmental Authorities pursuant to the Authorizations have been timely filed
and are accurate and complete. True and correct copies of the Authorizations,
and all amendments thereto to the date hereof, have been delivered by Company to
Newco.
6.9 COMPLIANCE WITH LAWS. Company is currently complying with and
has so complied with, and is not in default under or in violation of, and
neither the Business nor any of the Acquired Assets nor the operation or
maintenance thereof, contravenes any statute, law (including environmental or
employment laws), ordinance, decree, order, rule or regulation of any
Governmental Authority applicable to the Acquired Assets or the Business.
6.10 NO VIOLATION OF EXISTING AGREEMENTS. Subject to the consents
for the Existing Contracts identified in Schedule 6.10, the execution, delivery
and performance of this Agreement by Company and Company's transfer of the
Acquired Assets to Newco (i) will not violate any provisions of any law, (ii)
will not, with or without the giving of notice or the passage of time, or both,
conflict with or result in any breach of any of the terms or conditions of, or
constitute a default under any Existing Contracts, and (iii) will not result in
the creation of any Lien upon the Acquired Assets or the Business other than
Permitted Liens.
6.11 LITIGATION AND LEGAL PROCEEDINGS. Except as set forth on
Schedule 6.11, there is no outstanding judgment against Company or any director,
officer or stockholder of Company
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<PAGE>
affecting the Business or the Acquired Assets or which questions the validity
of any action taken or to be taken by Company pursuant to or in connection
with the provisions of this Agreement and there is no litigation, proceeding
or investigation pending, or, to Company's knowledge, threatened, against
Company or any director, officer or stockholder of Company affecting the
Business or the Acquired Assets or which questions the validity of any action
taken or to be taken by Company pursuant to or in connection with the
provisions of this Agreement. Except as set forth on Schedule 6.11, there
are no proceedings pending to which Company or any director, officer or
stockholder of Company is a party or, to Company's knowledge, threatened, nor
has Company received written notice of any demands by any Governmental
Authority, utility or other party, to terminate, modify or adversely change
the terms and conditions of Company's rights with respect to the
Authorizations or Existing Contracts.
6.12 ENVIRONMENTAL COMPLIANCE. (i) Except as set forth on Schedule
6.12 hereto, (w) Company has not generated, used, transported, treated, stored,
released or disposed of, or suffered or permitted anyone else to generate, use,
transport, treat, store, release or dispose of any Hazardous Substance (as
hereinafter defined) with respect to the Acquired Assets or the Business in
violation of any Environmental Laws (as hereinafter defined); (x) there has not
been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with Company's ownership or
use of the Acquired Assets, the conduct of the Business or on, in or under any
property or facility used, owned or leased by Company or any adjacent properties
or facilities, which has created or might reasonably be expected to create any
liability under any Environmental Laws or which would require reporting to or
notification of any governmental entity; (y) no friable asbestos or
polychlorinated biphenyl, and no underground storage tank, is contained in or
located on or under any property or facility owned, used or leased by Company;
and (z) any Hazardous Substance handled or dealt with in any way with respect to
the Acquired Assets or the Business by Company, or during Company's ownership or
use of the Acquired Assets or the Business, has been and is being handled or
dealt with in compliance with all Environmental Laws.
(ii) For purposes of this Agreement, the term "Hazardous
Substance" shall mean any substance which, as of the date of this Agreement, is
listed as hazardous or toxic in the regulations implementing the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), the Response Compensation and Liability Act ("RCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), or listed as a
hazardous substance under any applicable state environmental laws, or any
substance which has been determined by regulation, ruling or otherwise by any
agency or court to be a hazardous or toxic substance regulated under federal or
state law, and shall include petroleum and petroleum products.
(iii) For purposes of this Agreement, the term "Environmental
Laws" shall mean CERCLA, RCRA, RCLA and any applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, orders, approvals, plans,
authorizations, concessions, franchises and similar items of all Governmental
Authorities and all applicable judicial, administrative and regulatory decrees,
judgments and orders, any of which relate to the protection of human health or
the environment from the effects of Hazardous Substances, including but not
limited to, those pertaining to reporting, licensing, permitting, investigating
and remediating emissions, discharges, releases or threatened releases of
Hazardous Substances into the air, surface water, groundwater or land, or
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relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
6.13 EMPLOYEE BENEFITS AND EMPLOYEES. Newco shall have no obligation
to any employee of Company for any reason.
6.14 TAX MATTERS. Except as set forth on Schedule 6.14 attached
hereto, (i) Company has timely filed all Tax (as defined below) returns and
statements which it is required to file; (ii) all such returns are complete and
accurate and disclose all Taxes required to be paid for the periods covered
thereby; (iii) Company has not waived any statute of limitations in respect of
Taxes or agreed to an extension of time with respect to a Tax assessment or
deficiency; (iv) no assessment of any additional Taxes for periods for which
returns have been filed has been asserted and no basis exists therefor; (v) to
Company's knowledge, there are no unresolved questions or claims raised by any
Taxing authority concerning the Tax liability of Company; and (vi) all Taxes
which Company is required by law to withhold or to collect for payment have been
duly withheld or collected and have been paid. Company has paid all Taxes due
prior to the date hereof and will pay when due (or contest in good faith by
appropriate proceedings) all Taxes which may become due on or before the Closing
Date. For purposes of this Section 6.14, the term "Tax" or "Taxes" means all
taxes, charges, fees, levies, imposts and other assessments including all
income, sales, use, goods and services, value added, capital, capital gains,
alternative net worth, transfer, profits, withholding, payroll, employer health,
excise, real property and personal property taxes, and any other taxes, customs
duties, stamp duties, fees, assessments or similar charges in the nature of a
tax, together with any interest, fines and penalties imposed by any Governmental
Authority, and whether disputed or not.
6.15 CUSTOMERS. Company shall, by electronic transfer, deliver to
Newco a schedule of all relevant customer records on Company's computer storage
records.
6.16 INSURANCE. Prior to Closing, Company shall maintain policies of
title, liability, fire, worker's compensation and other forms of insurance
(including bonds) which insure against risks and liabilities to an extent and in
a customary industry manner and which are adequate to provide coverage against
risks of a nature to which Company would normally be exposed in the operation of
the Business. All such insurance policies and binders are in full force and
effect at the date of Closing. Company has complied in all material respects
with each of such insurance policies and binders and has not failed to give any
notice or present any claim thereunder in a due and timely manner.
6.17 BROKERS. Company has not engaged any agent, broker or other
person acting pursuant to the express or implied authority of Company which is
or may be entitled to a commission or broker or finder's fee in connection with
the transactions contemplated by this Agreement or otherwise with respect to the
sale of the Acquired Assets or the Business.
6.18 UNDISCLOSED LIABILITIES. Company has no liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not reflected or reserved against the December Balance Sheet except
for liabilities and obligations that have arisen in the ordinary and usual
course of business and consistent with past practice (none of which results
from, arises out of,
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relates to, is in the nature of, or caused by any breach of contract, breach
of warranty, tort, infringement or violation of law) and except for
liabilities and obligations directly related to the transactions contemplated
hereby.
6.19 PRICING OF SERVICES. Schedule 6.19 sets forth a description of
all rate plans currently offered to customers of the Business.
6.20 PROPRIETARY RIGHTS. Company lawfully possesses, and the
Acquired Assets will include, all intellectual property rights that are
necessary to the conduct of the Business.
6.21 ACCOUNTS RECEIVABLE AND BAD DEBTS. All notes and accounts
receivable of Company which are Acquired Assets and shown on the December
Balance Sheet or thereafter acquired were or (to the extent not heretofore
collected) are valid and genuine, were acquired in the ordinary course of
business and are subject to no asserted counterclaims, defenses or setoffs.
Schedule 6.21 attached hereto sets forth a true, complete and accurate list, as
of the end of the most recent normal billing cycle of the Business, listing the
total amounts of customer receivables and the aging of such customer receivables
based on the following Schedule: 0-30 days, 31-60 days, 61-90 days and over 90
days, from the date thereof.
6.22 CERTAIN BUSINESS RELATIONSHIPS WITH COMPANY. Except as set
forth in Schedule 6.22 attached hereto, none of the officers or directors of the
Company and its affiliates or family members have been involved in any business
arrangement or relationship with Company within the past 12 months.
6.23 DISCLOSURE. No provision of this Agreement relating to Company,
the Business or the Acquired Assets or any other document, Schedule, Annex or
other information furnished by Company to Newco in connection with the
execution, delivery and performance of this Agreement, or the consummation of
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated in order to make the statement, in light of the
circumstances in which it is made, not misleading. In connection with the
preparation of this Agreement and the documents, descriptions, opinions,
certificates, Annexes, Schedules or written material prepared by Company and
appended hereto or delivered or to be delivered hereunder, Company agrees it
will disclose to Newco any fact known to Company which Company knows or believes
would affect Newco's decision to proceed with the execution of this Agreement.
All Schedules attached hereto are accurate and complete as of the date hereof.
There is no fact now known to Company relating to the Business or Acquired
Assets which in Company's reasonable opinion adversely affects the condition of
the Acquired Assets, the status of the Authorizations or the ownership,
operation, financial condition or prospects of the Business which has not been
disclosed to Newco or set forth in the Exhibits or Schedules attached hereto.
6.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 6.24, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent
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or otherwise), income or business of Company
taken as a whole;
(ii) any damage, destruction or loss (whether or not covered
by insurance) adversely affecting the properties or
business of Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any
direct or indirect redemption, purchase or other
acquisition of any of the capital stock of Company;
except distribution of a 1994 Ford Ranger (along with
any lease or note obligation) to Johnny Mansfield;
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become
payable by Company to any of its officers, directors,
stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases
for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of
any character, adversely affecting the business of
Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any assets, property or rights of Company to
any person outside the ordinary course of business of
Company;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to Company
outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest
in any of the assets, property or rights of Company or
requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right
or asset outside of the ordinary course of Company's
business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which
Company is a party;
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(xiii) any transaction by Company outside the ordinary course
of its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company=s business.
6.25 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.25,
Company has not, between the Balance Sheet Date and the date of this Agreement,
taken any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. [INTENTIONALLY OMITTED]
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant
and agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.6, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent Charter
Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Parent
and Newco and their consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action of Parent and Newco.
This Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco
is as set forth in Schedule 8.3. All of the issued and outstanding shares of
the capital stock of Parent and Newco (i) have been duly authorized and validly
issued, (ii) are fully paid and nonassessable, (iii) are owned of record and
beneficially by the persons set forth on Schedule 8.3 and Parent, respectively,
and (iv) were offered, issued, sold and delivered by Parent and Newco in
compliance with all
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applicable state and Federal laws concerning the offer, issuance, sale and
delivery of securities. Further, none of such shares was issued in violation
of the preemptive rights of any past or present stockholder of Parent or
Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
8.4, (i) no option, warrant, call, conversion right or commitment of any kind
exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 8.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no
Subsidiaries except for Newco and each of the other companies identified on
Schedule 8.5. Except as set forth in the preceding sentence, neither Parent
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in a Person nor is Parent or Newco, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement or agreements similar to this Agreement with the Founding
Companies and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license or permit to which Parent or Newco is a party or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under any of the terms or provisions of the Parent Documents or the
Parent Charter Documents. Except as set forth on Schedule 8.8, none of the
Parent Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect
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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 right or benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to
Company pursuant to this Agreement will have been duly authorized prior to the
Closing and, upon consummation of the Sale in accordance with this Agreement,
will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in
September 1998. Neither Parent nor Newco has conducted any business since the
date of its inception, except raising capital and in connection with this
Agreement and similar agreements with the Founding Companies. Except as
disclosed on Schedule 8.10, neither Parent nor Newco owns or has at any time
owned any real property or any personal property or is a party to any other
agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's
sites, properties, books and records and will furnish
Parent with such additional financial and operating data
and other information as to the business and properties
of Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its
representatives, auditors and counsel in the preparation
of any documents or other material that may be required
in connection with any documents or materials required
by this Agreement. Parent and Newco will treat all
information obtained in connection with the negotiation
and performance of this Agreement as confidential in
accordance with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing,
Parent will afford to the officers and authorized
representatives of Company access to all of the sites,
properties, books and records of Parent, Newco and the
other companies listed on Schedule 9.1(ii) ("Founding
Companies") and will furnish Company with such
additional financial and operating data and other
information as to the business and properties of Parent,
Newco and the Founding Companies as Company may from
time to time reasonably request. Parent and Newco will
cooperate with Company, representatives, auditors and
counsel in the preparation of any documents or other
material which may be required in connection with any
documents or materials required by this Agreement.
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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise approved
in writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
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(i) carry on its business in substantially the same manner
as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its properties and facilities, including those
held under lease, in as good of working order and
condition as at present, ordinary wear and tear
excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects
the present insurance policies or other comparable
insurance coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its respective
present key employees and maintain its respective
relationships with suppliers, customers and others
having business relations with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies
and similar Governmental Authorities;
(vii) maintain present debt instruments and Leases and not
enter into new or amended debt instruments or Leases;
and
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents
except for ordinary and customary bonus and salary
increases for employees in accordance with past
practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of this
Agreement and the Closing Date, Company will not, without prior written consent
of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its
securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock; except
distribution of a 1994 Ford Ranger (along with any lease
or note obligation) to Johnny Mansfield;
(iv) enter into any contract or commitment or incur or agree
to incur any liability
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or make any capital expenditures, except if it is in
the normal course of business (consistent with past
practice), in connection with the transactions
contemplated by this Agreement, or involves an amount
not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any
asset or property whether now owned or hereafter
acquired, except (x) with respect to purchase money
Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $5,000
as necessary or desirable for the conduct of its
business, and (y) (1) Liens for Taxes either not yet due
or being contested in good faith and by appropriate
proceedings (and for which contested Taxes adequate
reserves have been established and are being maintained)
or (2) materialmen's, mechanic's, worker's, repairmen's,
employee's or other like Liens arising in the ordinary
course of business, or (3) Liens set forth on
appropriate schedules hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice;
(x) commit a material breach or amend or terminate any
material agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither Company, nor any agent, officer, director,
trustee or any representative of Company will, during the period commencing on
the date of this Agreement and ending with the earlier to occur of the Closing
Date or the termination of this Agreement in accordance with its terms,
directly/or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent
or its authorized agents relating to,
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any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 NOTIFICATION OF CERTAIN MATTERS. Company shall give prompt
notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company contained herein to be untrue or inaccurate in any respect
at or prior to the Closing Date and (ii) any failure of Company to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such Person hereunder as of such date. Parent and Newco shall give prompt
notice to the Company of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Parent or Newco contained herein to be untrue or inaccurate in any
respect at or prior to the Closing Date and (ii) any failure of Parent or Newco
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder as of such date. The delivery of any notice
pursuant to this Section 9.5 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 9.6, (ii) modify the
conditions set forth in Sections 10 and 11 or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
9.6 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 11:59 p.m.
March 31, 1999 to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or supplement
to a Schedule prepared by Company or Parent that constitutes or reflects an
event or occurrence that would have an Adverse Effect may be made unless the
parties not making the amendment or supplement consent to such amendment or
supplement. For all purposes of this Agreement, including, without limitation,
for purposes of determining whether the conditions set forth in Sections 10.1
and 11.1 have been fulfilled, the Schedules shall be deemed to be the Schedules
as amended or supplemented pursuant to this Section 9.6. Except as otherwise
specified in Section 16.3, no party to this Agreement shall be liable to any
other party if this Agreement shall be terminated pursuant to the provisions of
Section 14.1(iv). Neither the entry by Parent into any other agreement, such as
this Agreement, after the date hereof for the acquisition of one or more
companies nor the performance by Parent of its obligations thereunder shall be
deemed to require the amendment to or a supplementation of any Schedule hereto.
9.7 FURTHER ASSURANCE. 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 by this Agreement.
9.8 DISTRIBUTIONS PRIOR TO CLOSING. Johnny Mansfield shall receive
the 1994 Ford Ranger prior to the Closing Date and Johnny Mansfield will assume
all lease or note, insurance or other obligations related to this vehicle.
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10. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY
The obligations of Company with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of Parent and Newco contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Parent and Newco on or before the Closing Date
shall have been duly complied with or performed; and a certificate to the
foregoing effect dated the Closing Date, and signed by the President or any Vice
President of Parent and of Newco shall have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Sale and no governmental agency or body shall have
taken any other action or made any request of Company as a result of which the
management of Company deems it inadvisable to proceed with the transactions
hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a
certificate or certificates, dated the Closing Date and signed by the Secretary
of Parent and of Newco, certifying the completeness and accuracy of the attached
copies of Parent's and Newco's respective Charter Documents (including
amendments thereto), Bylaws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of Parent and Newco
approving Parent's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
10.7 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
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11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be taken
on the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of Company contained in this Agreement shall
be true and correct as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by Company on or before the Closing Date shall have been duly complied
with or performed; and Company each shall have delivered to Parent a certificate
dated the Closing Date and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Sale and no governmental agency or body shall have
taken any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a
certificate, dated the Closing Date and signed by the Secretary of the Company,
certifying the completeness and accuracy of the attached copies of Company's
Charter Documents (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and stockholders approving
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.5, all existing agreements between Company and its stockholders
shall have been canceled effective prior to or as of the Closing Date.
11.6 THIRD PARTY CONSENTS. Company shall have delivered to Newco
such instruments, consents and approvals of third parties (the form and
substance of which shall be reasonably satisfactory to Newco) as are
necessary to assign to Newco without modification thereof, as of the Closing,
the Acquired Assets and the Assumed Liabilities and Newco shall have obtained
all Authorizations necessary for the consummation of the transactions
contemplated by this Agreement. Prior to the Closing Date, each applicable
governmental authority shall have granted its necessary consent to the
assignment of the Authorizations to Newco and each such consent shall have
become final and non-appealable and all applicable waiting periods shall have
expired. Anything herein contrary notwithstanding, Newco shall have the
right (in its sole discretion) to
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waive the requirement set forth in the preceding sentence by delivery to
Company of a written notice to such effect.
11.7 DUE DILIGENCE. Newco and its agents and representative shall
have conducted a satisfactory legal, tax, accounting, engineering, regulatory
and business due diligence review of the Acquired Assets and the Business, the
results of which shall be satisfactory to Newco. Without limiting the
generality of the foregoing, Newco shall be satisfied that the Acquired Assets
constitute all assets, licenses and property necessary to the operation of the
Business as contemplated to be conducted by Newco, and that the customer lists
and customer composition previously provided to Newco by Company is
substantially similar to such information found by Newco pursuant to its
subsequent due diligence review.
11.8 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in Company's
state of incorporation and, unless waived by Parent, in each state in which
Company is authorized to do business, showing Company is in good standing and
authorized to do business and that all state franchise and/or income Tax returns
and Taxes for Company for all periods prior to the Closing have been filed and
paid.
11.9 FIRPTA CERTIFICATE. If required, Company shall have delivered
to Parent a certificate to the effect that it is not a foreign person under
Section 111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11.11 OPERATION OF BUSINESS. Company shall have continued to operate
the Business and market the services of the Business in the normal course of
business and in accordance with past practice.
12. CASUALTY LOSSES
In the event that there shall have been suffered between the date hereof
and the Closing any casualty loss relating to the Acquired Assets that becomes
known to Company, Company will promptly notify Newco of such event. Company
shall, at its option, (i) repair, rebuild or replace the portion of the Acquired
Assets damaged, destroyed or lost prior to the Closing Date, or (ii) assign to
Newco at Closing all claims to insurance proceeds or other rights of Company
against third parties arising from such casualty loss (the "Claims"); PROVIDED,
HOWEVER that if such insurance proceeds are or will not be sufficient in Newco's
reasonable judgment to cover the entire casualty loss, then the Company shall
pay the difference at Closing. To the extent any Claim is not assignable, such
claim may be pursued by Newco, for its own account and benefit, in the name of
Company.
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13. INDEMNIFICATION
Company, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY COMPANY. Company covenants and
agrees that it will indemnify, defend, protect and hold harmless Parent and
Newco at all times, from and after the Closing Date 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 expenses of investigation)
incurred by Parent or Newco as a result of or arising from any breach of any
representation, warranty, covenant or agreement on the part of Company under
this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it
will indemnify, defend, protect and hold harmless Company at all times from and
after the Closing Date 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 expenses of investigation) incurred by Company as a result
of or arising from any breach of any representation, warranty, covenant or
agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge of
any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 13.1
or 13.2 (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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After the Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or
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settlement of such asserted liability, except to the extent such
participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any
such Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section 13.3
with respect to such Third Person claim shall be limited to the amount so
offered in settlement by such Third Person. Upon agreement as to such
settlement between such Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to
in such settlement and the Indemnified Party shall, from that moment on, bear
full responsibility for any additional costs of defense which it subsequently
incurs with respect to such claim and all additional costs of settlement or
judgment. 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 upon
consent of the Indemnifying Party, which consent will not be unreasonably
withheld, 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. All settlements
hereunder shall effect a complete release of the Indemnified Party, unless
the Indemnified Party otherwise agrees in writing. Anything in this Agreement
to the contrary notwithstanding, any amounts owing from an Indemnifying Party
to an Indemnified Party under the provisions of this Section 13 shall be
reduced to the extent to which the Indemnified Party, or any other claimant,
actually receives any proceeds of any insurance policy that are paid with
respect to the matter or occurrence that gave rise to the Third Person claim.
Submission to insurance of any insurable claim otherwise giving rise to
indemnification under this Section 13 shall be a condition precedent to
seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 13 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party; 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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent
and Company;
(ii) by Company (acting through its board of directors), on
the one hand, or by
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Parent (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 May 31, 1999 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;
(iii) by Company, on the one hand, or by Parent, on the other
hand, if a material breach or default shall be made by
the other party in the observance or in the due and
timely performance of any of the material covenants,
agreements or conditions contained herein, and the
curing of such default shall not have been made on or
before the Closing Date; or
(iv) by Company, on the one hand, or by Parent, on the other
hand, if either such party or parties declines to
consent to an amendment or supplement to a Schedule
proposed by the other party or parties pursuant to
Section 9.6 because such proposed amendment constitutes
or reflects an event or occurrence that would have a
material Adverse Effect on the party or parties
proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 9.6, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Except as set forth in the Letter of
Employment Agreement dated March 10, 1999, each stockholder of the Company (a
"Stockholder") will not, for a period of one year following the Closing Date,
for any reason whatsoever, directly or indirectly, for himself or on behalf of
or in conjunction with any other Person:
(i) engage, as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor,
consultant or advisor, or as a sales representative, in
the sale or marketing of telecommunication services or
interconnect services within the state of Oklahoma (the
"Territory");
(ii) call upon any person within the Territory who is an
employee of Parent (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 Parent (including the
Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within
one year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof)
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for the purpose of soliciting or selling products or
services in direct competition with Parent (or its
Subsidiaries);
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor
of Parent (including the Subsidiaries thereof) in the
long-distance telephone or interconnect business, which
candidate, to the knowledge of such Stockholder after
due inquiry, was called upon by Parent (including the
Subsidiaries thereof) or for which, to the knowledge of
such Stockholder after due inquiry, Parent (or any
Subsidiary thereof) made an acquisition analysis for the
purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to
any Person for any reason or purpose whatsoever except
to the extent that the Company has in the past disclosed
such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed
to prohibit any Stockholder from acquiring as an investment after the date of
this Agreement not more than five percent of the capital stock of a competing
business whose stock is traded on a national securities exchange or the National
Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses
to Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent, in the event of breach by such Stockholder,
by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 15 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
15.4 SEVERABILITY; REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15
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 Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of one year
stated at the beginning of this Section 15, during which the agreements and
covenants of each Stockholder
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made in this Section 15 shall be effective, shall be computed by excluding
from such computation any time during which such Stockholder is in violation
of any provision of this Section 15. The covenants contained in Section 15
shall not be affected by any breach of any other provision hereof by any
party hereto and shall become nugatory if the transactions contemplated by
this Agreement are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants set
forth in this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize
and acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the Founding
Companies and/or Parent. Company and Stockholders agree that they will not
disclose such confidential information to any Person for any purpose or reason
whatsoever, except (i) to authorized representatives of Parent; (ii) following
the Closing, such information may be disclosed by Company and Stockholders as is
required in the course of performing their duties for Parent or Newco; and
(iii) to counsel and other advisers; provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 16.1, unless
(x) such information becomes known to the public generally through no fault of
Company or Stockholders, (y) 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 (y), Company or Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) 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 Company or any Stockholder of the
provisions of this Section 16.1, Parent shall be entitled to an injunction
(without the posting of bond or proof of actual damages) restraining Company or
Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Parent 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, (1) the above mentioned restrictions on
Company or Stockholders' ability to disseminate confidential information with
respect to Company shall become nugatory and (2) Company and Stockholders
(including representatives, advisors and legal counsel) shall within ten
business days of the Parent's request, deliver all copies of the confidential
information of Parent in its or his possession in any form whatsoever
(including, but not limited to, any reports, memoranda or other material
prepared by Company or Stockholders or their representatives, advisors or legal
counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge
that they had in the past and currently have and in the future may have, prior
to the Closing, access to certain confidential information of Company, such as
operational policies and pricing and cost policies that are valuable, special
and unique assets of Company. Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person
for any purpose or reason whatsoever, except
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(i) to authorized representatives of Company and (ii) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 16.2, unless (x) such information
becomes known to the public generally through no fault of Parent or Newco;
(y) 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 (y); Parent and Newco shall, if possible, give
immediate prior written notice thereof to Company and Stockholders and
provide Company and Stockholders with the opportunity to contest such
disclosure; or (z) 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
Parent or Newco of the provisions of this Section 16.2, Company and
Stockholders shall be entitled to an injunction (without the posting of bond
or proof of actual damages) restraining Parent and Newco from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting Company and Stockholders 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, Parent and Newco (including their representatives, advisors
and legal counsel) shall within ten business days after Company=s request,
deliver all copies of the confidential information of Company in their
possession in any form whatsoever (including, but not limited to, any
reports, memoranda, or other materials prepared by Parent or Newco or their
representatives, advisors or legal counsel at the direction of Parent or
Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 16.1 and 16.2
and because of the immediate and irreparable damage that would be caused for
which no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16
shall survive the termination of this Agreement for a period of three years from
the Closing Date or the termination of this Agreement pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to Stockholders who agree to be bound by the
restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders, the trustees of which so agree), for a period of one year from the
consummation of the IPO (unless the IPO shall not be consummated by May 31,
1999), except pursuant to Section 19, the Company shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of any Parent Stock received by the Company in the Sale. The Parent Stock
delivered to the Company pursuant to Section 4 of this Agreement will bear a
legend substantially in the form set forth below and containing such other
information as Parent may deem necessary or appropriate:
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EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER=S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER - , IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Company acknowledges that the Parent Stock to be delivered to Company
pursuant to this Agreement (the "Restricted Securities") has not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the requirements of the 1933 Act and applicable state securities
laws. All of the Restricted Securities are being acquired by Company solely for
its own account, for investment purposes only and not with a view to, or in
connection with, a distribution thereof.
18.1 COMPLIANCE WITH LAW. Company represents, warrants, covenants
and agrees that none of the Restricted Securities will be offered, sold,
assigned, exchanged, transferred, encumbered, distributed, appointed 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 thereunder
and the provisions of applicable state securities laws and regulations. All of
the Restricted Securities shall bear the following legend in addition to the
legend required under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY SHALL
HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES REPRESENTED
BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF
LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE
REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACTS.
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18.2 ECONOMIC RISK; SOPHISTICATION. Company is able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the proposed investment in Parent. Company has had an adequate
opportunity to ask questions and receive answers from the officers of Parent
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 Parent, the plans for the operations of the
business of Parent and any plans for additional acquisitions and the like.
Company has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date
of consummation of the IPO, whenever Parent proposes to register any Parent
Stock for its own or the account of others under the 1933 Act for a public
offering, other than (i) any shelf registration of shares to be used as
consideration for acquisitions of additional businesses by Parent and
(ii) registrations relating to employee benefit plans, Parent shall give Company
prompt written notice of its intent to do so. Upon the written request of
Company given within 15 business days after receipt of such notice, Parent shall
cause to be included in such registration all Registerable Securities (including
any shares of Parent Stock issued as a dividend or other distribution with
respect to, or in exchange for, or in replacement of such Registerable
Securities) which any Company requests; provided, however, if Parent is advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 19.1 that the number of shares to be sold by Persons other than
Parent is greater than the number of such shares which can be offered without
adversely affecting the offering, Parent may reduce pro rata the number of
shares offered for the accounts of such Persons (based upon the number of shares
held by such Person) to a number deemed satisfactory by such managing
underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority of
the shares of Parent Stock (i) representing Registerable Securities owned by
Company or its permitted transferees or (ii) acquired by other stockholders of
Parent on or prior to the closing of the IPO in connection with the acquisition
of their companies by Parent pursuant to an agreement similar to this Agreement,
which shares have not been previously registered or sold and which shares are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, may request in writing that Parent
file a registration statement under the 1933 Act covering the registration of
the shares of Parent Stock issued to and held by the Founding Stockholders or
their permitted transferees (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Parent Stock) (a "Demand Registration"). Within ten days of the receipt of such
request, Parent shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from the Founding Stockholders requesting such registration,
file and use its best efforts to cause to become effective a registration
statement covering all such shares. Parent shall be
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obligated to effect only one Demand Registration for all Founding
Stockholders; provided, however, that Parent shall not be deemed to have
satisfied its obligation under this Section 19.2 unless and until a Demand
Registration covering all shares of Parent Stock requested to be registered
has been filed and becomes effective under the 1933 Act and has remained
current and effective for not less than 90 days (or such shorter period as is
required to complete the distribution and sale of all shares registered
thereunder).
Notwithstanding the foregoing paragraph, following such a demand, a
majority of the disinterested directors of Parent (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 30 day period.
If, at the time of any request for a Demand Registration, Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Section 19 (including all registration,
filing, qualification, legal, printing and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Parent. In
connection with registrations under Sections 19.1 and 19.2, Parent will, as
expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such Parent Stock and use its best
efforts to cause such registration statement to become
and remain effective, provided that Parent may
discontinue any registration of its securities that is
being effected pursuant to Section 19.1 at any time
prior to the effective date of the registration
statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary (x) to keep
such registration statement effective for a period as
may be requested by the stockholders holding a majority
of the Parent Stock covered thereby not exceeding 90
days and (y) to comply with the provisions of the 1933
Act with respect to the disposition of all securities
covered by such registration statement during such
period in accordance with the intended methods of
disposition by the seller or sellers thereof set forth
in such registration statement; provided, that before
filing a registration statement or prospectus relating
to the sale of Parent Stock, or any amendments or
supplements thereto, Parent will furnish to counsel of
each holder of Parent Stock covered by such registration
statement or prospectus, copies of all documents
proposed to be filed, which documents will be subject to
the
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review of such counsel, and Parent will give reasonable
consideration in good faith to any comments of such
counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any,
of such Parent Stock, such number of copies of a
preliminary prospectus and prospectus for delivery in
conformity with the requirements of the 1933 Act, and
such other documents, as such Person may reasonably
request, in order to facilitate the public sale or other
disposition of the Parent Stock.
(iv) Use its best efforts to register or qualify the Parent
Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions
as each seller shall reasonably request, and do any and
all other acts and things which may be reasonably
necessary or advisable to enable such seller to
consummate the disposition of the Parent Stock owned by
such seller in such jurisdictions, except that Parent
shall not for any such purpose be required (x) to
qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this
Section 19.3(iv), it is not then so qualified, (y) to
subject itself to taxation in any such jurisdiction, or
(z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered
by such registration statement to be registered with or
approved by such other governmental agencies or
authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such
Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered
by such registration statement, at any time when a
prospectus relating thereto is required to be delivered
under the 1933 Act within the appropriate period
mentioned in Section 19.3(ii), if Parent becomes aware
that the prospectus included in such registration
statement, as then in effect, includes 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 in the
light of the circumstances then existing, and, at the
request of any such seller, deliver a reasonable number
of copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the
Parents of such Parent Stock, each prospectus shall not
include an untrue statement of a material fact or omit
to state a material fact required to be stated therein
or necessary to make the statements therein not
misleading in the light of the circumstances then
existing.
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make
generally available to its security holders, in each
case as soon as practicable, but not later than 45
calendar days after the close of the period covered
thereby (90 calendar days in case the period
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covered corresponds to a fiscal year of the Parent),
an earnings statement of Parent which will satisfy
the provisions of Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the
underwriters to list such Parent Stock on each
securities exchange as they may reasonably designate.
(ix) In the event the offering is an underwritten offering,
use its best efforts to obtain a "cold comfort" letter
from the independent public accountants for Parent in
customary form and covering such matters of the type
customarily covered by such letters.
(x) Execute and deliver all instruments and documents
(including in an underwritten offering an underwriting
agreement in customary form) and take such other actions
and obtain such certificates and opinions as the
stockholders holding a majority of the shares of Parent
Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten
public offering of such Parent Stock.
(xi) Make available for inspection by the seller of such
Parent Stock covered by such registration statement, by
any underwriter participating in any disposition to be
effected pursuant to such registration statement and by
any attorney, accountant or other agent retained by any
such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate
documents and properties of Parent, and cause all of
Parent's officers, directors and employees to supply all
information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection
with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an
opinion or opinions from counsel for Parent in customary
form and in form and scope reasonably satisfactory to
such underwriter or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each stockholder holding shares of Parent Stock covered
by a registration statement referred to in this Section
19 will, upon receipt of any notice from Parent of the
happening of any event of the kind described in Section
19.3(vi), forthwith discontinue disposition of the
Parent Stock pursuant to the registration statement
covering such Parent Stock until such holder's receipt
of the copies of the supplemented or amended prospectus
contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2
involves an underwritten offering, each of the
stockholders agrees, whether or not his shares of Parent
Stock are included in such registration, not to effect
any public sale or distribution, including any sale
pursuant to Rule 144 under the 1933 Act, of
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any Parent Stock, or of any security convertible into or
exchangeable or exercisable for any Parent Stock (other
than as part of such underwritten offering), without the
consent of the managing underwriter, during a period
commencing eight calendar days before and ending 180
calendar days (or such lesser number as the managing
underwriter shall designate) after the effective date of
such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of
Parent under the 1933 Act pursuant to Section 19.1 or
19.2, Parent will, and it hereby agrees to, indemnify
and hold harmless, to the extent permitted by law, each
seller of any Parent Stock covered by such registration
statement, each Affiliate of such seller and their
respective directors, officers, employees and agents or
general and limited partners (and directors, officers,
employees and agents thereof) each other Person who
participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who
controls such seller or any such underwriter within the
meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim,
damage or expense whatsoever arising out of or
based upon an untrue statement or alleged untrue
statement of a material fact contained in any
registration statement (or any amendment or
supplement thereto), including all documents
incorporated therein by reference, or the
omission or alleged omission therefrom of a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, or arising out of an untrue
statement or alleged untrue statement of a
material fact contained in any preliminary
prospectus or prospectus (or any amendment or
supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary
in order to make the statements therein not
misleading;
(y) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of
the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by
any governmental agency or body, commenced or
threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or
any such alleged untrue statement or omission,
if such settlement is effected with the written
consent of Parent; and
(z) against any and all expense reasonably incurred
by them in connection with investigating,
preparing or defending against any litigation,
or investigation or proceeding by any
governmental agency or body, commenced or
threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any
such
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alleged untrue statement or mission to the
extent that any such expense is not paid under
subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or any
such director, officer, employee, agent, general or limited
partner, investment advisor or agent, underwriter or controlling
Person and shall survive the transfer of such securities by such
seller.
(ii) Parent may require, as a condition to including any
Parent Stock in any registration statement filed in
accordance with Section 19.1 or 19.2, that Parent shall
have received an undertaking reasonably satisfactory to
it from the prospective seller of such Parent Stock or
any underwriter, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in
Section 19.5(i)) Parent with respect to any statement or
alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final
or summary prospectus contained therein, or any
amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in
reliance upon and in conformity with written information
furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in
the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or
supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on
behalf of Parent or any such director, officer or
controlling Person and shall survive the transfer of
such securities by such seller. In that event, the
obligations of the Parent and such sellers pursuant to
this Section 19.5 are to be several and not joint;
provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable
for the full amount of such claim, and each such
seller's liability under this Section 19.5 shall be
limited to an amount equal to the net proceeds (after
deducting the underwriting discount and expenses)
received by such seller from the sale of Parent Stock
held by such seller pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder
of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section
19.5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party,
give written notice to such indemnifying party of the
commencement of such action; provided, however, that the
failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party
of its obligations under this Section 19.5, except to
the extent (not including any such notice of an
underwriter) that the indemnifying party is materially
prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim
(in which case the indemnifying party shall not
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be liable for the fees and expenses of more than one
firm of counsel selected by holders of a majority of the
shares of Parent Stock included in the offering or more
than one firm of counsel for the underwriters in
connection with any one action or separate but similar
or related actions), the indemnifying party will be
entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish with
counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnifying
party in connection with the defense thereof, provided
that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified
party (which consent shall not be unreasonably withheld)
unless such settlement requires no more than a moneary
payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full,
unconditional and complete release of the indemnified
party; provided, however, that the indemnified party
shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the
indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be
inappropriate under the applicable standards of
professional conduct due to actual or potential
differing interests between them. In the event that the
indemnifying party does not assume the defense of a
claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such
claim by all appropriate proceedings, and will have
control of such defense and proceedings, and the
indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying
party. Each indemnified party shall, and shall cause its
legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection
with its assuming the defense of any claim, including
the furnishing of the indemnifying party with all papers
served in such proceeding. In the event that an
indemnifying party assumes the defense of an action
under this Section 19.5(iii), then such indemnifying
party shall, subject to the provisions of this Section
19.5, indemnify and hold harmless the indemnified party
from any and all losses, claims, damages or liabilities
by reason of such settlement or judgment.
(iv) Parent and each seller of Parent Stock shall provide for
the foregoing indemnity (with appropriate modifications)
in any underwriting agreement with respect to any
required registration or other qualification of
securities under any federal or state law or regulation
of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any
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losses, claims, damages or liabilities referred to therein, the parties
required to indemnify by the terms thereof shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated
by such indemnity agreement incurred by Parent, any seller of Parent Stock
and one or more of the underwriters, except to the extent that contribution
is not permitted under Section 11 (f) of the 1933 Act. In determining the
amounts which the respective parties shall contribute, there shall be
considered the relative benefits received by each party from the offering of
the Parent Stock by taking into account the portion of the proceeds of the
offering realized by each, and the relative fault of each party by taking
into account the parties' relative knowledge and 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 under the circumstances. Parent and
each Person selling securities agree with each other that no seller of Parent
Stock shall be required to contribute any amount in excess of the amount such
seller would have been required to pay to an indemnified party if the
indemnity under Section 19.5(ii) were available. Parent and each such seller
agree with each other and the underwriters of the Parent Stock, if requested
by such underwriters, that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if
the underwriters were treated as one entity for such purpose) or for the
underwriters' portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the
ParentStock. For purposes of this Section 19.6, each Person, if any, who
controls an underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such underwriter, and each
director and each officer of Parent who signed the registration statement,
and each Person, if any, who controls Parent or a seller of Parent Stock
within the meaning of Section 15 of the 1933 Act shall have the same rights
to contribution as Parent or a seller of Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. After Parent completes its initial underwritten public offering
and for as long thereafter as any stockholder shall continue to hold any
Restricted Securities, Parent shall use reasonable efforts to file, on a timely
basis, all annual, quarterly and other reports required to be filed by it under
Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder, as amended from time to time.
20. GENERAL
20.1 COOPERATION. Company, Parent and Newco shall 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 any of
the others may reasonably request for the purpose of carrying out this
Agreement. Company will cooperate and use its reasonable efforts to have its
officers, directors and employees cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law or as
permitted by Section 17), but if assigned by operation of law, this Agreement
shall be binding upon and shall inure to the benefit of the parties
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hereto, the successors of Parent, Newco and Company.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Company, Newco and Parent and supersede any
prior agreement and understanding relating to the subject matter of this
Agreement. This Agreement, upon execution and delivery, 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 Company,
Newco and Parent, acting through their respective officers or representatives,
duly authorized by their respective Boards of Directors. Any disclosure made on
any Schedule delivered pursuant hereto shall be deemed to have been disclosed
for purposes of any other Schedule required hereby; provided that Company shall
make a good faith effort to cross reference disclosures, as necessary or
advisable, between related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damage or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
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<PAGE>
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to the Company, addressed to it at:
Able Communication Incorporated
722 North Broadway
Suite 301
Oklahoma City, Oklahoma 73102
Attn: Johnny Mansfield
Telephone No.: (405) 235-5050
with a copy to:
Attn:
Telecopy No.:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance
with the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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
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in any way be affected or impaired thereby.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section
13.4, 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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each
other and no party shall issue any public announcement or statement with respect
to the transactions contemplated hereby without the consent of the other
parties, unless the party desiring to make such announcement or statement, after
seeking such consent from the other parties, obtains advice from legal counsel
that a public announcement or statement is required by applicable law.
20.14 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 Parent, Newco and Company. Any amendment or waiver
effected in accordance with this Section 20.14 be binding upon each of the
parties hereto.
20.15 COLLECTION PROCEDURES. From and after the Closing, Newco shall
have the right and authority, at its expense, to collect for its account all
items to which it is entitled as provided in this Agreement and to endorse with
the name of the Company any checks or drafts received on account of any such
items.
20.16 ARBITRATION. Any claim, controversy or dispute arising out of
or relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts' fees. The parties will bear their own attorneys' and experts' fees.
The arbitrators will not award punitive, consequential or indirect damages.
Each party hereby waives the right to such damages and agrees to receive only
those actual damages directly resulting from the claim asserted. In resolving
all disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing conferences
as may be needed. Either party may be entitled to pursue such remedies for
emergency or preliminary injunctive relief in any court of competent
jurisdiction, provided that each party agrees that it will consent to the stay
of such judicial proceedings on the merits of both this Agreement and the
related transactions pending arbitration of all underlying claims between the
parties immediately following the issuance of any such emergency or injunctive
relief.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
ABLE COMMUNICATION INCORPORATED
BY: /s/ Johnny Mansfield
------------------------------
NAME: Johnny Mansfield
TITLE: President
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- ------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION XI CORP.
(Newco)
and
ELECTRICAL AND INSTRUMENT SALES CORP.
d/b/a EIS COMMUNICATIONS
(Company)
and
ELECTRONIC INFORMATION SYSTEMS, L.L.C.
(LLC)
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 The Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Acquired Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . . 7
2.5 Transfer of Aquired Assets and Assumption of Assumed
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. INSTRUMENTS OF TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. PURCHASE PRICE; ALLOCATION . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Payment of Purchase Price. . . . . . . . . . . . . . . . . . . . . 8
4.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . 8
4.4 Calculation of the Incremental Payment . . . . . . . . . . . . . . 8
5. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY . . . . . 9
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 9
6.4 Title to Acquired Assets; Condition of Acquired Assets. . . . . . 10
6.5 Real Property - Owned. . . . . . . . . . . . . . . . . . . . . . . 10
6.6 Real and Personal Property - Leased. . . . . . . . . . . . . . . . 10
6.7 Existing Contracts . . . . . . . . . . . . . . . . . . . . . . . . 10
6.8 Governmental Licenses. . . . . . . . . . . . . . . . . . . . . . . 10
6.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 10
6.10 No Violation of Existing Agreements. . . . . . . . . . . . . . . . 11
6.11 Litigation and Legal Proceedings . . . . . . . . . . . . . . . . . 11
6.12 Environmental Compliance.. . . . . . . . . . . . . . . . . . . . . 11
6.13 Employee Benefits and Employees. . . . . . . . . . . . . . . . . . 12
6.14 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.15 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.17 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.18 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . 13
6.19 Pricing of Services. . . . . . . . . . . . . . . . . . . . . . . . 13
6.20 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<TABLE>
<S> <C>
6.21 Accounts Receivable and Bad Debts. . . . . . . . . . . . . . . . . 13
6.22 Certain Business Relationships with Company. . . . . . . . . . . . 13
6.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.24 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . 14
6.25 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . 15
7. [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . . . . . . 15
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT
AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . . . . 16
8.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . . 16
8.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . . 17
8.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.9 Parent Securities. . . . . . . . . . . . . . . . . . . . . . . . . 17
8.10 Business; Real Property; Agreements. . . . . . . . . . . . . . . . 17
9. OTHER COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . 17
9.1 Access and Cooperation; Due Diligence; Audits. . . . . . . . . . . 17
9.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . . 18
9.3 Prohibited Activities by the Company . . . . . . . . . . . . . . . 19
9.4 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.5 Notification of Certain Matters. . . . . . . . . . . . . . . . . . 20
9.6 Amendment of Schedules . . . . . . . . . . . . . . . . . . . . . . 21
9.7 Further Assurance. . . . . . . . . . . . . . . . . . . . . . . . . 21
9.8 Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.9 Vehicles Agreement . . . . . . . . . . . . . . . . . . . . . . . . 21
9.10 Transition Agreement . . . . . . . . . . . . . . . . . . . . . . . 22
9.11 Sales Agency Agreement . . . . . . . . . . . . . . . . . . . . . . 22
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY . . . . . . . . . . . . . . 22
10.1 Representations and Warranties; Performance of
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . 22
10.4 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . 22
10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . 22
10.6 Secretary's Certificates . . . . . . . . . . . . . . . . . . . . . 23
10.7 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . 23
10.8 Closing of the IPO or the Private Placement. . . . . . . . . . . . 23
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
</TABLE>
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<TABLE>
<S> <C>
NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.1 Representations and Warranties; Performance of Obligations . . . . 23
11.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . 23
11.4 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . 23
11.5 Termination of Related Party Agreements. . . . . . . . . . . . . . 24
11.6 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . 24
11.7 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.8 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . 24
11.9 FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . . . . 24
11.10 Closing of the IPO or Private Placement. . . . . . . . . . . . . . 24
11.11 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . 25
11.12 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 25
11.13 Operation of Business. . . . . . . . . . . . . . . . . . . . . . . 25
12. CASUALTY LOSSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.1 General Indemnification by Company . . . . . . . . . . . . . . . . 25
13.2 Indemnification by Parent. . . . . . . . . . . . . . . . . . . . . 25
13.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . . 26
13.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.5 Limitations on Indemnification . . . . . . . . . . . . . . . . . . 27
14. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
14.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . . 28
15. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
15.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . . 28
15.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
15.3 Reasonable Restraint . . . . . . . . . . . . . . . . . . . . . . . 29
15.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . . 29
15.5 Independent Covenant . . . . . . . . . . . . . . . . . . . . . . . 29
15.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . 30
16.1 Company and Stockholders . . . . . . . . . . . . . . . . . . . . . 30
16.2 Parent and Newco . . . . . . . . . . . . . . . . . . . . . . . . . 30
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
16.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
17. TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
18. INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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<TABLE>
<S> <C>
18.1 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . . 32
18.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . . 32
19. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
19.1 PiggyBack Registration Rights. . . . . . . . . . . . . . . . . . . 33
19.2 Demand Registration Rights . . . . . . . . . . . . . . . . . . . . 33
19.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . 34
19.4 Other Registration Matters . . . . . . . . . . . . . . . . . . . . 36
19.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 37
19.6 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
20. GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
20.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
20.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 41
20.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 41
20.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
20.5 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . . 41
20.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
20.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
20.8 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . . 43
20.9 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
20.10 Reformation and Severability . . . . . . . . . . . . . . . . . . . 43
20.11 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . 43
20.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
20.13 Public Statements. . . . . . . . . . . . . . . . . . . . . . . . . 44
20.14 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 44
20.15 Collection Procedures. . . . . . . . . . . . . . . . . . . . . . . 44
20.16 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the 10th
day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION XI CORP., an Oklahoma corporation
("Newco"), and ELECTRICAL AND INSTRUMENT SALES CORP. d/b/a EIS COMMUNICATIONS,
an Oklahoma corporation (the "Company") and Electronic Information Systems,
L.L.C. (the "LLC").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing
under the laws of the State of Oklahoma, having been incorporated on
March 9, 1999, solely for the purpose of completing the transaction
set forth herein, and Newco is a wholly-owned subsidiary of Parent, a
corporation organized and existing under the laws of the State of
Oklahoma; and
WHEREAS, Company is and has been engaged in the interconnect and
paging business (the "Business") and owns certain equipment, inventory
and other personal property used in the Business.
WHEREAS, Company desires to sell to Newco, and Newco desires to
purchase from Company (or LLC, if Company has transferred the
specified assets to LLC as permitted herein), Company's equipment,
inventory, accounts receivable and certain other assets which are
presently owned by Company and associated with the ownership and
operation of the Business (the "Sale").
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule or annex attached hereto and not otherwise defined
shall have the following meanings for all purposes of this Agreement.
"Acquired Assets" has the meaning set forth in Section 2.2.
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with,
the Company.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
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"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"Assumed Liabilities" has the meaning set forth in Section 2.4.
"Authorizations" has the meaning set forth in Section 6.8.
"Balance Sheet Date" has the meaning set forth in Section 6.3.
"Cash Payment' has the meaning set forth in Section 4.1.
"Charter Documents" means the Certificate of Incorporation,
Articles of Incorporation, Articles of Organization or other instrument
pursuant to which any corporation, partnership or other business entity that
is a signatory to this Agreement was formed or organized in accordance with
applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in
Section 6.3.
"Company Stock" means the Company's $1.00 par value common stock.
"December Balance Sheet" has the meaning set forth in Section 6.3.
"Demand Registration" has the meaning set forth in Section 19.2.
"Effective Time" means the time as of which the Merger becomes
effective, which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.12.
"Expiration Date" means (i) except as set forth in (iii) below, the
24th monthly anniversary of the Closing Date when used in connection with a
breach of any representation, warranty, covenant or agreement set forth in
Sections 6 or 8 of this Agreement, (ii) the 36th monthly anniversary of the
Closing Date when used in connection with the failure to observe the terms of
Section 15 and (iii) the date on which suit for the enforcement of any claims
for Taxes, claims under Environmental Laws or claims under any other covenant
or agreement set forth in this Agreement and not specified in (i) or (ii)
above becomes barred by the applicable statute of limitation.
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"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
"Governmental Authorities" has the meaning set forth in
Section 2.2(b).
"Hazardous Substance" has the meaning set forth in Section 6.12.
"Incremental Payment" has the meaning set forth in Section 4.1.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service
of the Department of the Treasury.
"Leases" means all real and personal property leased by Company and
used, useful or held for use in connection with Company=s Business.
"Liens" has the meaning set forth in Section 2.1.
"LLC" has the meaning set forth in the first paragraph of this
Agreement.
"Net Current Assets" has the meaning set forth in Section 4.4.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" means Parent's $.01 par value common stock.
"Permitted Liens" has the meaning set forth in Section 2.1.
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a joint stock company, a trust or
other unincorporated organization.
"Private Placement" means the Parent's private placement of Parent
Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.25.
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"Purchase Price" has the meaning set forth in Section 4.1.
"Registerable Securities" means the shares of Parent Stock
registerable pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory
paragraph to Section 18.
"Sale" has the meaning set forth in the third recital of this
Agreement.
"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,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Stock Payment" has the meaning set forth in Section 4.1.
"Stockholders" has the meaning set forth in Section 15.1.
"Subsidiaries" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner (excluding
partnerships, the general partnership interests of which held by such Person or
any Subsidiary of such Person do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person, by any one or more of its Subsidiaries or by such Person and one
or more of its Subsidiaries.
"Tax" or "Taxes" have the meaning set forth in Section 6.14.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"Transfer" has the meaning set forth in Section 2.5.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
2. PURCHASE AND SALE
2.1 THE SALE. Subject to the terms and conditions set forth in this
Agreement, Company agrees to sell, convey, assign, transfer and deliver to
Newco, and Newco agrees to purchase from Company at Closing, all of Company's
right, title and interest in and to the Acquired
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Assets, free and clear of all debts, liabilities, obligations and taxes other
than Assumed Liabilities, and free and clear of all security interests,
liens, pledges, charges, rights of third parties and encumbrances of every
kind (collectively, "Liens"), other than Permitted Liens. As used herein,
the term "Permitted Liens" means (i) any Lien for taxes and assessments not
yet past due or otherwise being contested in good faith and for which
appropriate reserves have been established, (ii) any Lien arising out of
deposits made to secure leases or other obligations of a like nature arising
in the ordinary course of business, (iii) any Lien affecting real property
that does not materially interfere with the use by Company of the property
subject thereto or affected thereby, (iv) as to leaseholds, interest of the
lessors thereof and Liens affecting the interests of such lessors and (v) any
Lien set forth on Schedule 2.1 attached hereto.
2.2 ACQUIRED ASSETS. The assets to be conveyed to Newco shall
include all of Company's right, title and interest of whatever description which
relate in any way to the ownership, use or operation of the Business, as owned,
acquired or obtained by Company from the date hereof through the date of Closing
(collectively, the "Acquired Assets"). The Acquired Assets shall include, but
not be limited to, all of the rights, interests and benefits of Company in:
(a) All operating agreements, interconnection agreements,
transit agreements, resale agreements, other agreements with
telecommunication companies, leases, Authorizations to the extent such
Authorizations may be transferred under applicable law, instruments,
commitments, guarantees, consents and revenue sharing agreements; all
easements, appurtenances, rights-of-way and construction permits, if any,
related to the Acquired Assets; all right, title and interest, if any, in and
to all streets, roads and public places, open or proposed; all agreements
between Company and any suppliers, telecommunication equipment or service
companies and customers, and all other similar rights and agreements,
including all applications therefor, which in any way may relate to or
concern the operation by Company of the Business.
(b) Originals or copies of all of Company's files of
correspondence, lists, records and reports concerning (i) customers,
prospective customers of the Business and customer service records related to
the Acquired Assets and (ii) all dealings with any federal, state, county,
municipal or foreign government agency, authority, utility instrumentality,
including without limitation, any agency, court, tribunal, department,
bureau, commission or board of competent jurisdiction ("Governmental
Authorities") with respect to the Acquired Assets.
(c) All of Company's right, title and interest in and to
machinery, equipment, motor vehicles, office equipment, computers and related
software, furniture and fixtures, supplies, inventory, spare parts and other
physical assets, if any, used in or relating to the Acquired Assets, and all
modifications, additions, restorations or replacements of the whole or any
part thereof.
(d) All of Company's right, title and interest in and to
agreements and contracts for: (i) paging, long-distance and local telephone
customers; (ii) Internet services including, without limitation, Company's
registered addresses; (iii) PIC and CIC codes, tariffs and certifications, to
the extent transferrable; (iv) agency agreements; and (v) sale and service of
telephone equipment.
(e) All of Company's right, title and interest to
engineering records, files, data,
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<PAGE>
drawings, blueprints, schematics, maps, reports, lists and plans and
processes intended for use in connection with the Acquired Assets provided
that Company may retain a copy thereof.
(f) All of the following, along with all related income,
royalties, damages and payments, if any, due or payable as of the Closing
Date or thereafter: inventions, trademarks, service marks, trade dress,
trade names, logos and registrations and applications for a registration
thereof together with all of the goodwill associated therewith, copyrights
and copyrightable works and registrations and applications for the
registration thereof, computer software, data, data bases, documentation
thereof, trade secrets and other confidential information, other intellectual
property rights and intangible embodiments thereof (in whatever form or
medium); all data and records, wherever located, including books and records,
customer lists, call records, usage schedules, advertising materials, credit
information and correspondence, manuals, contract rights (including, without
limitation, letters of authority and other customer subscription/acquisition
contracts), together with all books, records, drawings and other indicia,
however evidenced.
(g) All electrical, mechanical, plumbing and other building
systems, security and surveillance systems and wiring and cable installations
owned by Company and located on the property leased by Company.
(h) All deposits, prepayments and prepaid expenses.
(i) All claims, causes of action, choses in action, rights
of recovery and rights of set-off of any kind.
(j) The right to receive and retain mail, accounts
receivable payments and other communications.
(k) The right to bill and receive payment for products
shipped or delivered and/or services performed but unbilled or unpaid as of the
Closing.
(l) The advertising, marketing and promotional materials and
all other related printing or written materials.
(m) All notes receivable, accounts receivable and related
records for such receivables (including customer receivables for customers to be
acquired by Newco).
(n) All 800 and 888 telephone numbers of Company.
(o) All goodwill associated with the Acquired Assets.
(p) Any assets of the type described above which are
acquired after the date hereof but prior to the Closing.
2.3 EXCLUDED ASSETS. The properties and assets described in
Schedule 2.3 shall not be included in the Acquired Assets, shall be retained by
Company and shall not be sold, assigned or transferred to Newco (the "Excluded
Assets").
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<PAGE>
2.4 ASSUMPTION OF LIABILITIES. At Closing, Newco shall assume and
perform and discharge the following to the extent not previously performed or
discharged as of the Closing: (i) Company's obligations after the Closing under
the contracts being assigned to Newco, and all other obligations of Company
related to the Business entered into during the period from the date hereof to
the Closing by Company in the ordinary course of its business in accordance with
the provisions of Sections 9.2 and 9.3 below that were identified to and
consented in writing by Newco; and (ii) all accounts payable, notes payable and
other indebtedness reflected on the December Balance Sheet related to the
Business (collectively, the "Assumed Liabilities"). Newco shall not be liable
for any (i) liabilities, debts or obligations arising from Company's pending
litigation with NationsBank, N.A., as set forth on Schedule 2.4 or (ii) any
other liabilities, debts, contracts or agreements, including without limitation,
any liabilities or obligations related to the Excluded Assets or other
obligations of Company of any nature whatsoever other than the Assumed
Liabilities.
2.5 TRANSFER OF ACQUIRED ASSETS AND ASSUMPTION OF ASSUMED
LIABILITIES. Newco and Parent acknowledge and agree that Company may
transfer and assign the Acquired Assets to LLC, and LLC may assume the
Assumed Liabilites of Company, on or before March 31, 1999 (the "Transfer").
Company and LLC agree that, upon consummation of the Transfer, (i) LLC will
become liable for all obligations, covenants and agreements of Company, and
responsible for the accuracy of the representations and warranties of
Company, under this Agreement. Consummation of the Transfer will not release
Company from its duty to perform its obligations or fulfill its agreements
and covenants, or to ensure the accuracy of its representations or
warranties, under this Agreement. However, if an obligation, agreement or
convenant of Company can only be performed by LLC following the Transfer, the
text of this Agreement shall be deemed modified to so reflect, and Company's
obligation, agreement or covenant will be automatically converted into an
obligation to ensure that LLC performs the specific obligation, agreement or
covenant. If the Transfer is consummated, LLC shall make the same
representations and warranties as Company, but such representations and
warranties will deemed modified to the extent necessary to reflect that it is
a limited liability company and not a corporation.
3. INSTRUMENTS OF TRANSFER
At the Closing, Company will deliver to Newco (i) one or more Bills of
Sale in substantially the form attached hereto as Annex I ("Bill of Sale"), (ii)
all such other good and sufficient instruments of sale, transfer and conveyance,
including, without limitation, assignments of leases in such form and including
such matters as Newco shall reasonably request and as shall be reasonably
acceptable to Company, as shall be effective to vest in Newco all of Company's
right and title to, and interest in, the Acquired Assets; and (iii) all
contracts and commitments, instruments, books and records and other data
included in the Acquired Assets.
4. PURCHASE PRICE; ALLOCATION
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4.1 PURCHASE PRICE. The total purchase price for the Acquired
Assets shall be (i) $900,000 in cash (the "Cash Payment"), (ii) up to $150,000
in cash for net current assets, (iii) $50,000 in cash or $100,000 in stock for
paging services, and (iv) $500,000 of Alliance common stock (the "Stock
Payment") (collectively the "Purchase Price"). Notwithstanding the foregoing,
the Cash Payment shall be increased by (i) the amount of Net Current Assets,
provided that the increase will not exceed $150,000, plus (ii) $150,000 if the
Company's gross revenues from the Business exceed $2,350,000 for the 12 months
ended May 31, 1999 (collectively, the "Incremental Payment").
4.2 PAYMENT OF PURCHASE PRICE. The Cash Payment shall be payable by
wire transfer of immediately available funds to Company at Closing. The Stock
Payment shall be issued to Company at Closing. The Incremental Payment, if any,
will be paid by wire transfer of immediately available funds to Company on the
one month anniversary of the Closing.
4.3 ALLOCATION OF PURCHASE PRICE. Attached hereto as Annex II is
the allocation of the Purchase Price in accordance with the respective fair
market value of the Acquired Assets being purchased and as provided for under
Section 1060 of the Code. Newco and Company each agree to file their income tax
returns and their other tax returns and IRS Form 8594 reflecting the allocation
as determined in this Section 4.3 unless otherwise required by applicable legal
requirements.
4.4 CALCULATION OF THE INCREMENTAL PAYMENT. For purposes of
calculating the Incremental Payment, the term "Net Current Assets" shall mean
the current assets of the Company minus the current liabilities of the
Company as exist on the Closing Date. Company and Newco shall, in good
faith, mutually agree as to the amount of current assets and current
liabilities existing on the Closing Date. For purposes of calculating the
current assets, accounts receivable shall include only accounts receivable
aged less than 60 days, and then this amount will be multiplied by the
Company's historic realization rate for accounts receivable aged less than 60
days based on the period from January 1, 1997 to January 1, 1999. Newco may
consider any actions taken outside of the ordinary course of business,
including, but not limited to, the depletion of inventory levels or the
incurrance of long term debt, in calculating and, if applicable, reducing the
Incremental Payment.
5. CLOSING
Subject to the terms and conditions hereof, the closing (the
"Closing") shall take place at the offices of McAfee & Taft A Professional
Corporation, 10th Floor, Two Leadership Square, Oklahoma City, Oklahoma
73102, on May 31, 1999, or such other date as the parties hereto may
designate (the "Closing Date"). At Closing, each party shall deliver or
cause to be delivered to the other party the instruments of transfer
referenced in Section 3 of this Agreement and the other deliveries required
by Section 10 (for Company) and Section 11 (for Newco) of this Agreement, and
Newco shall deliver to Company the Cash Payment and the Stock Payment as
required pursuant to Section 4.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY
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Company represents, warrants, covenants and agrees (i) that all of
the following representations and warranties in this Section 6 are materially
true at the date of this Agreement and, subject to Section 9.6, shall be
materially true at the Closing Date and (ii) that all of the covenants and
agreements in this Section 6 shall be materially complied with or performed
at and as of the Closing Date.
6.1 DUE ORGANIZATION. Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business and is in
good standing under the laws of each jurisdiction where such qualification is
required except (i) as set forth on Schedule 6.1 or (ii) where the failure to
be so authorized or qualified would not have an adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise) of Company taken as a whole (as used herein with
respect to Company, or with respect to any other Person, an "Adverse Effect").
6.2 AUTHORIZATION. Company has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by Company of this Agreement and its
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Company. This Agreement has
been duly executed and delivered by Company, and approved by all the
stockholders of Company, and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms.
6.3 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.3 are
copies of the following financial statements of Company (the "Company Financial
Statements"): Company's audited Balance Sheet as of December 31, 1997 and its
audited Balance Sheet as of December 31, 1998 ("December Balance Sheet"), and
audited Statements of Income, Retained Earnings and Cash Flows, and any related
notes thereto, for the years ended December 31, 1997 and 1998 (December 31, 1998
being hereinafter referred to as the "Balance Sheet Date"). The audited Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.3). Except as set forth on
Schedule 6.3, the Balance Sheets referred to in this Section 6.3 present fairly
the financial position of Company as of the dates indicated thereon, and the
Statements of Income, Retained Earnings and Cash Flows referred to in this
Section 6.3 present fairly the results of operations for the periods indicated
thereon in accordance with generally accepted accounting principles. Company
Financial Statements at and for the years ended December 31, 1997 and 1998 have
been examined and reported on by Deloitte and Touche, LLP.
6.4 TITLE TO ACQUIRED ASSETS; CONDITION OF ACQUIRED ASSETS. Company
has, and will convey to Newco at Closing, good and marketable title to the
Acquired Assets, free and clear of all Liens other than Permitted Liens. All
Liens in effect on the date hereof which are to be discharged at Closing, other
than those to be discharged by Newco, are listed on Schedule 6.4 hereto. The
tangible property included among the Acquired Assets is in good working order
and repair, reasonable wear and tear excepted, and is technically sufficient and
capable for use in the Business. Except as disclosed on Schedule 6.22, no
officer, director, stockholder or employee of Company or
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any other Person other than the Company owns, leases or has any right in any
property, license or other assets related to the Acquired Assets.
6.5 REAL PROPERTY - OWNED. Company owns no real property and the
real property leased by Company related to the Business has never been owned by
Company.
6.6 REAL AND PERSONAL PROPERTY - LEASED. Company shall retain all
of its rights and obligations under all leased real and personal property.
6.7 EXISTING CONTRACTS. Schedule 6.7 sets forth all contracts,
commitments and agreements included as Acquired Assets in effect on the date
hereof (the "Existing Contracts"). Except as disclosed on Schedule 6.22, no
officer, director or employee of Company or any Person (other than Company)
controlling, controlled by or affiliated with or family member of any such
officer, director or employee has any contractual relationship relating to
the ownership or use of the Acquired Assets. Company has heretofore
delivered to Newco true and correct copies of the Existing Contracts. Except
as disclosed on Schedule 6.7, Company has no knowledge of any breach or
anticipated breach by the other parties to any Existing Contracts. The
Existing Contracts are in full force and effect and Company is in compliance
with its obligations under such Existing Contracts. Except for the Existing
Contracts, Company has not entered into any other contract, commitment or
agreement relating to the ownership or use of the Acquired Assets, including,
but not limited to, right-of-way, rights of entry, licenses, easements,
leases, or guaranty agreements. There are no claims by third parties that
Company is required to enter into other agreements to enable it to continue
to own or use the Acquired Assets.
6.8 GOVERNMENTAL LICENSES. Except as set forth on Schedule 6.8,
Company holds all licenses, consents, permits, approvals, tariffs and
authorizations of Governmental Authorities which are required in connection
with the ownership of the Acquired Assets and operation of the Business
(collectively referred to as the "Authorizations"). All Authorizations are
in full force and effect. Company has complied with the terms of the
Authorizations which it holds and there are no pending modifications,
amendments or revocations of the Authorizations which would adversely affect
the ownership of the Acquired Assets or the operation of the Business. All
fees due and payable from Company to Governmental Authorities pursuant to the
Authorizations have been timely filed and are accurate and complete. True
and correct copies of the Authorizations, and all amendments thereto to the
date hereof, have been delivered by Company to Newco.
6.9 COMPLIANCE WITH LAWS. Company is currently complying with and
has so complied with, and is not in default under or in violation of, and
neither the Business nor any of the Acquired Assets nor the operation or
maintenance thereof, contravenes any statute, law (including environmental or
employment laws), ordinance, decree, order, rule or regulation of any
Governmental Authority applicable to the Acquired Assets or the Business.
6.10 NO VIOLATION OF EXISTING AGREEMENTS. Subject to the consents
for the Existing Contracts identified in Schedule 6.10, the execution, delivery
and performance of this Agreement by Company and Company's transfer of the
Acquired Assets to Newco (i) will not violate any provisions of any law, (ii)
will not, with or without the giving of notice or the passage of time, or both,
conflict with or result in any breach of any of the terms or conditions of, or
constitute a
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default under any Existing Contracts, and (iii) will not result in the
creation of any Lien upon the Acquired Assets or the Business other than
Permitted Liens.
6.11 LITIGATION AND LEGAL PROCEEDINGS. Except as set forth on
Schedule 6.11, there is no outstanding judgment against Company or any
director, officer or stockholder of Company affecting the Business or the
Acquired Assets or which questions the validity of any action taken or to be
taken by Company pursuant to or in connection with the provisions of this
Agreement and there is no litigation, proceeding or investigation pending,
or, to Company's knowledge, threatened, against Company or any director,
officer or stockholder of Company affecting the Business or the Acquired
Assets or which questions the validity of any action taken or to be taken by
Company pursuant to or in connection with the provisions of this Agreement.
Except as set forth on Schedule 6.11, there are no proceedings pending to
which Company or any director, officer or stockholder of Company is a party
or, to Company's knowledge, threatened, nor has Company received written
notice of any demands by any Governmental Authority, utility or other party,
to terminate, modify or adversely change the terms and conditions of
Company's rights with respect to the Authorizations or Existing Contracts.
6.12 ENVIRONMENTAL COMPLIANCE. (i) Except as set forth on Schedule
6.12 hereto, (w) Company has not generated, used, transported, treated, stored,
released or disposed of, or suffered or permitted anyone else to generate, use,
transport, treat, store, release or dispose of any Hazardous Substance (as
hereinafter defined) with respect to the Acquired Assets or the Business in
violation of any Environmental Laws (as hereinafter defined); (x) there has not
been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance in connection with Company ownership or use
of the Acquired Assets, the conduct of the Business or on, in or under any
property or facility used, owned or leased by Company or any adjacent properties
or facilities, which has created or might reasonably be expected to create any
liability under any Environmental Laws or which would require reporting to or
notification of any governmental entity; (y) no friable asbestos or
polychlorinated biphenyl, and no underground storage tank, is contained in or
located on or under any property or facility owned, used or leased by Company;
and (z) any Hazardous Substance handled or dealt with in any way with respect to
the Acquired Assets or the Business by Company, or during Company's ownership or
use of the Acquired Assets or the Business, has been and is being handled or
dealt with in compliance with all Environmental Laws.
(ii) For purposes of this Agreement, the term "Hazardous
Substance" shall mean any substance which, as of the date of this Agreement,
is listed as hazardous or toxic in the regulations implementing the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended ("CERCLA"), the Response Compensation and Liability Act ("RCLA"),
the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), or
listed as a hazardous substance under any applicable state environmental
laws, or any substance which has been determined by regulation, ruling or
otherwise by any agency or court to be a hazardous or toxic substance
regulated under federal or state law, and shall include petroleum and
petroleum products.
(iii) For purposes of this Agreement, the term "Environmental
Laws" shall mean CERCLA, RCRA, RCLA and any applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, orders, approvals, plans,
authorizations, concessions, franchises and similar items
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of all Governmental Authorities and all applicable judicial, administrative
and regulatory decrees, judgments and orders, any of which relate to the
protection of human health or the environment from the effects of Hazardous
Substances, including but not limited to, those pertaining to reporting,
licensing, permitting, investigating and remediating emissions, discharges,
releases or threatened releases of Hazardous Substances into the air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances.
6.13 EMPLOYEE BENEFITS AND EMPLOYEES. Newco shall have no obligation
to any employee of Company for any reason.
6.14 TAX MATTERS. Except as set forth on Schedule 6.14 attached
hereto, (i) Company has timely filed all Tax (as defined below) returns and
statements which it is required to file; (ii) all such returns are complete and
accurate and disclose all Taxes required to be paid for the periods covered
thereby; (iii) Company has not waived any statute of limitations in respect of
Taxes or agreed to an extension of time with respect to a Tax assessment or
deficiency; (iv) no assessment of any additional Taxes for periods for which
returns have been filed has been asserted and no basis exists therefor; (v) to
Company's knowledge, there are no unresolved questions or claims raised by any
Taxing authority concerning the Tax liability of Company, and (vi) all Taxes
which Company is required by law to withhold or to collect for payment have been
duly withheld or collected and have been paid. Company has paid all Taxes due
prior to the date hereof and will pay when due (or contest in good faith by
appropriate proceedings) all Taxes which may become due on or before the Closing
Date. For purposes of this Section 6.14, the term "Tax" or "Taxes" means all
taxes, charges, fees, levies, imposts and other assessments including all
income, sales, use, goods and services, value added, capital, capital gains,
alternative net worth, transfer, profits, withholding, payroll, employer health,
excise, real property and personal property taxes, and any other taxes, customs
duties, stamp duties, fees, assessments or similar charges in the nature of a
tax, together with any interest, fines and penalties imposed by any Governmental
Authority, and whether disputed or not.
6.15 CUSTOMERS. Company shall, by electronic transfer, deliver to
Newco a schedule of all relevant customer records on Company's computer storage
records.
6.16 INSURANCE. Prior to Closing, Company shall maintain policies of
title, liability, fire, worker's compensation and other forms of insurance
(including bonds) which insure against risks and liabilities to an extent and in
a customary industry manner and which are adequate to provide coverage against
risks of a nature to which Company would normally be exposed in the operation of
the Business. All such insurance policies and binders are in full force and
effect at the date of Closing. Company has complied in all material respects
with each of such insurance policies and binders and has not failed to give any
notice or present any claim thereunder in a due and timely manner.
6.17 BROKERS. Company has not engaged any agent, broker or other
person acting pursuant to the express or implied authority of Company which is
or may be entitled to a commission or broker or finder's fee in connection with
the transactions contemplated by this Agreement or otherwise with respect to the
sale of the Acquired Assets or the Business.
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6.18 UNDISCLOSED LIABILITIES. Company has no liabilities or
obligations of any nature, whether absolute, accrued, contingent or
otherwise, which are not reflected or reserved against the December Balance
Sheet except for liabilities and obligations that have arisen in the ordinary
and usual course of business and consistent with past practice (none of which
results from, arises out of, relates to, is in the nature of, or caused by
any breach of contract, breach of warranty, tort, infringement or violation
of law) and except for liabilities and obligations directly related to the
transactions contemplated hereby.
6.19 PRICING OF SERVICES. Schedule 6.19 sets forth a description of
all rate plans currently offered to customers of the Business.
6.20 PROPRIETARY RIGHTS. Company lawfully possesses, and the
Acquired Assets will include, all intellectual property rights that are
necessary to the conduct of the Business.
6.21 ACCOUNTS RECEIVABLE AND BAD DEBTS. All notes and accounts
receivable of Company which are Acquired Assets and shown on the December
Balance Sheet or thereafter acquired were or (to the extent not heretofore
collected) are valid and genuine, were acquired in the ordinary course of
business and are subject to no asserted counterclaims, defenses or setoffs.
Schedule 6.21 attached hereto sets forth a true, complete and accurate list, as
of the end of the most recent normal billing cycle of the Business, listing the
total amounts of customer receivables and the aging of such customer receivables
based on the following Schedule: 0-30 days, 31-60 days, 61-90 days and over 90
days, from the date thereof.
6.22 CERTAIN BUSINESS RELATIONSHIPS WITH COMPANY. Except as set
forth in Schedule 6.22 attached hereto, none of the officers or directors of the
Company and its Affiliates or family members have been involved in any business
arrangement or relationship with Company within the past 12 months.
6.23 DISCLOSURE. No provision of this Agreement relating to
Company, the Business or the Acquired Assets or any other document, Schedule,
Annex or other information furnished by Company to Newco in connection with
the execution, delivery and performance of this Agreement, or the
consummation of the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated in order to make the statement,
in light of the circumstances in which it is made, not misleading. In
connection with the preparation of this Agreement and the documents,
descriptions, opinions, certificates, Annexes, Schedules or written material
prepared by Company and appended hereto or delivered or to be delivered
hereunder, Company agrees it will disclose to Newco any fact known to Company
which Company knows or believes would affect Newco's decision to proceed with
the execution of this Agreement. All Schedules attached hereto are accurate
and complete as of the date hereof. There is no fact now known to Company
relating to the Business or Acquired Assets which in Company's reasonable
opinion adversely affects the condition of the Acquired Assets, the status of
the Authorizations or the ownership, operation, financial condition or
prospects of the Business which has not been disclosed to Newco or set forth
in the Exhibits or Schedules attached hereto.
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6.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
set forth on Schedule 6.24, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or
business of Company, taken as a whole;
(ii) any damage, destruction or loss (whether or not covered
by insurance) adversely affecting the properties or
business of Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any
direct or indirect redemption, purchase or other
acquisition of any of the capital stock of Company;
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become
payable by Company to any of its officers, directors,
stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases
for employees in accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims
filed, or any other similar labor event or condition of
any character, adversely affecting the business of
Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any assets, property or rights of Company to
any person outside the ordinary course of business of
Company, with the exception of the Transfer;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to Company
outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest
in any of the assets, property or rights of Company or
requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, right
or asset outside of the ordinary course of Company's
business;
(xi) any waiver of any rights or claims of Company;
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(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which
Company is a party;
(xiii) any transaction by Company outside the ordinary course of
its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by Company
outside the ordinary course of Company=s business.
6.25 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.25,
Company has not, between the Balance Sheet Date and the date of this Agreement,
taken any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. [INTENTIONALLY OMITTED]
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO
Parent and Newco, jointly and severally, represent, warrant, covenant
and agree (i) that all of the following representations and warranties in this
Section 8 are materially true at the date of this Agreement and, subject to
Section 9.6, shall be materially true at the Closing Date and (ii) that all of
the covenants and agreements in this Section 8 shall be materially complied with
or performed at and as of the Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State
of Oklahoma, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would
not have an Adverse Effect. True, complete and correct copies of the Charter
Documents and By-laws, each as amended, of Parent and Newco (the "Parent
Charter Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Parent
and Newco and their consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action of Parent and Newco.
This Agreement has been duly executed and delivered by Parent and Newco and is a
valid and binding obligation of Parent and Newco, enforceable against each of
them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and Newco
is as set forth in Schedule 8.3. All of the issued and outstanding shares of
the capital stock of Parent and Newco
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(i) have been duly authorized and validly issued, (ii) are fully paid and
nonassessable, (iii) are owned of record and beneficially by the persons set
forth on Schedule 8.3 and Parent, respectively, and (iv) were offered,
issued, sold and delivered by Parent and Newco in compliance with all
applicable state and Federal laws concerning the offer, issuance, sale and
delivery of securities. Further, none of such shares was issued in violation
of the preemptive rights of any past or present stockholder of Parent or
Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule
8.4, (i) no option, warrant, call, conversion right or commitment of any kind
exists which obligates Parent or Newco to issue any of its authorized but
unissued capital stock and (ii) neither Parent nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 8.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no
Subsidiaries except for Newco and each of the other companies identified on
Schedule 8.5. Except as set forth in the preceding sentence, neither Parent
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in a Person nor is Parent or Newco, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no
liabilities, contingent or otherwise, except as set forth in or contemplated by
this Agreement or agreements similar to this Agreement with the Founding
Companies and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco is in
violation of any law or regulation or any order of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Adverse Effect; and there are no claims, actions, suits or proceedings, pending
or, to the knowledge of Parent or Newco, threatened, against or affecting Parent
or Newco, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Newco have no operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of any
Parent Charter Document. None of Parent, Newco, or, to the knowledge of Parent
and Newco, any other party thereto, is in default under any lease, instrument,
agreement, license or permit to which Parent or Newco is a party or by which
Parent or Newco, or any of their respective properties, are bound (collectively,
the "Parent Documents"); and (i) the rights and benefits of Parent and Newco
under the Parent Documents will not be adversely affected by the transactions
contemplated hereby and (ii) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or
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constitute a default under any of the terms or provisions of the Parent
Documents or the Parent Charter Documents. Except as set forth on Schedule
8.8, none of the Parent Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any
of the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not
give rise to any right to termination, cancellation or acceleration or loss
of any right or benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable to
Company pursuant to this Agreement will have been duly authorized prior to the
Closing and, upon consummation of the Sale in accordance with this Agreement,
will be validly issued, fully paid and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in
September 1998. Neither Parent nor Newco has conducted any business since
the date of its inception, except raising capital and in connection with this
Agreement and similar agreements with the Founding Companies. Except as
disclosed on Schedule 8.10, neither Parent nor Newco owns or has at any time
owned any real property or any personal property or is a party to any other
agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing Date,
Company will afford to the officers and authorized
representatives of Parent access to all of Company's
sites, properties, books and records and will furnish
Parent with such additional financial and operating data
and other information as to the business and properties
of Company as Parent may from time to time reasonably
request. Company will cooperate with Parent, its
representatives, auditors and counsel in the preparation
of any documents or other material that may be required
in connection with any documents or materials required
by this Agreement. Parent and Newco will treat all
information obtained in connection with the negotiation
and performance of this Agreement as confidential in
accordance with the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing,
Parent will afford to the officers and authorized
representatives of Company access to all of the sites,
properties, books and records of Parent, Newco and the
other companies listed on Schedule 9.1(ii) ("Founding
Companies") and will furnish Company with such
additional financial and operating data and other
information as to the business and properties of Parent,
Newco and the Founding Companies as Company may from
time to time reasonably request. Parent and Newco will
cooperate with Company, representatives, auditors and
counsel in the preparation of any documents or other
material which may be required in connection with any
documents or materials required by this Agreement.
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 16.
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9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise
approved in writing by Parent, between the date of this Agreement and the
Closing Date, Company will:
(i) carry on its business in substantially the same manner
as it has heretofore and not introduce any material new
method of management, operation or accounting;
(ii) maintain its properties and facilities, including those
held under lease, in as good of working order and
condition as at present, ordinary wear and tear
excepted;
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its respective
assets, properties or rights;
(iv) keep in full force and effect in all material respects
the present insurance policies or other comparable
insurance coverage;
(v) use its reasonable best efforts to maintain and preserve
its business organization intact, retain its respective
present key employees and maintain its respective
relationships with suppliers, customers and others
having business relations with it;
(vi) maintain material compliance with all material permits,
laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies
and similar Governmental Authorities;
(vii) maintain present debt instruments and Leases and not
enter into new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents
except for ordinary and customary bonus and salary
increases for employees in accordance with past
practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Except for the Transfer,
etween the date of this Agreement and the Closing Date, Company will not,
without prior written consent of Parent:
(i) make any change in its Charter Documents, Bylaws or
Operating Agreements;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its
securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of Company Stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or
retire for value any shares of Company Stock;
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(iv) enter into any contract or commitment or incur or agree
to incur any liability or make any capital expenditures,
except if it is in the normal course of business
(consistent with past practice), in connection with the
transactions contemplated by this Agreement, or involves
an amount not in excess of $5,000;
(v) create, assume or permit to exist any Lien upon any
asset or property whether now owned or hereafter
acquired, except (x) with respect to purchase money
Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $5,000
as necessary or desirable for the conduct of its
business and (y) (1) Liens for Taxes either not yet due
or being contested in good faith and by appropriate
proceedings (and for which contested Taxes adequate
reserves have been established and are being maintained)
or (2) materialmen's, mechanic's, worker's, repairmen's,
employee's or other like Liens arising in the ordinary
course of business, or (3) Liens set forth on
appropriate schedules hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of
business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim; provided that it may
negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past
practice;
(x) commit a material breach or amend or terminate any
material agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither Company, nor any agent, officer, director,
trustee or any representative of Company will, during the period commencing on
the date of this Agreement and ending with the earlier to occur of the Closing
Date or the termination of this Agreement in accordance with its terms,
directly/or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
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(iii) furnish any information to any person other than Parent
or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, Company, or merger, consolidation or business combination of
Company.
9.5 NOTIFICATION OF CERTAIN MATTERS. Company shall give prompt
notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Company contained herein to be untrue or inaccurate in any respect
at or prior to the Closing Date and (ii) any failure of Company to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such Person hereunder as of such date. Parent and Newco shall give prompt
notice to the Company of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation or
warranty of Parent or Newco contained herein to be untrue or inaccurate in any
respect at or prior to the Closing Date and (ii) any failure of Parent or Newco
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder as of such date. The delivery of any notice
pursuant to this Section 9.5 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 9.6, (ii) modify the
conditions set forth in Sections 10 and 11 or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
9.6 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 11:59 p.m.
March 31, 1999 to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or
supplement to a Schedule prepared by Company or Parent that constitutes or
reflects an event or occurrence that would have an Adverse Effect may be made
unless the parties not making the amendment or supplement consent to such
amendment or supplement. For all purposes of this Agreement, including,
without limitation, for purposes of determining whether the conditions set
forth in Sections 10.1 and 11.1 have been fulfilled, the Schedules shall be
deemed to be the Schedules as amended or supplemented pursuant to this
Section 9.6. Except as otherwise specified in Section 16.3, no party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of Section 14.1(iv). Neither the entry
by Parent into any other agreement, such as this Agreement, after the date
hereof for the acquisition of one or more companies nor the performance by
Parent of its obligations thereunder shall be deemed to require the amendment
to or a supplementation of any Schedule hereto.
9.7 FURTHER ASSURANCE. 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 by this Agreement.
9.8 OTHER MATTERS. Each of Parent and Newco acknowledges that one
of Company's primary businesses after the Sale will be cellular/PCS service
provided through its Southwestern
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Bell ("SWB") full service agency agreement. Each of Parent and Newco agrees
to take appropriate steps after the Closing to alter Parent's agreement (or
if held by a Subsidiary, the Subsidiary's agreement) with SWB from a full
service agent to a business agent. Each of Parent, Newco and Company further
agrees to execute a mutually agreeable contract whereby (i) Parent and Newco
will utilize Company's wireless division, Advance Wireless, as its primary
PCS provider in the Tulsa market, as defined in Schedule 9.8, and (ii)
Company and its Affiliates will utilize Parent and Newco as its primary
interconnect equipment and service provider, provided in each case that the
services or equipment to be provided are at least equal to (from a quality
and price perspective) those provided by a competitor. Each of Parent, Newco
and Company acknowledge that the proposed agreement is subject to approval by
SWB and that no party to this Agreement will discuss the proposed agreement
with SWB or any other party until after the Closing.
9.9 VEHICLES AGREEMENT. Parent and Newco hereby grant Company a
right of first refusal to purchase any and all automobiles, vehicles, and
trucks, (the "Vehicles") that are a part of the Acquired Assets in the event
Parent or Newco offer such Vehicles for sale. The right of first refusal will
be exercisable at each Vehicles' fair market value.
9.10 TRANSITION AGREEMENT. Company hereby agrees to continue to
operate the Business on behalf of Newco and Parent for a minimum of 60 days
following the Closing Date on a basis consistent with past practice, which
will include but not limited to maintanence of the Acquired Assets,
warehousing, purchasing, accounting and other administrative support. Newco
may, at its option, continue to utilize the services of Company pursuant to
this Section 9.10 for additional 30-day periods, which periods will not
extend beyond December 31, 1999. Newco will pay Company $20,000 plus direct
out-of-pocket expenses for the initial 60-day term and $10,000 plus direct
out-of-pocket expenses for each 30-day extension.
9.11 SALES AGENCY AGREEMENT. Parent agrees to extend a Sales Agency
Agreement to Company which allows Company to sell Parent's telecom products,
primarily through its retail establishments, and receive a commission which will
be defined in the Sales Agency Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY
The obligations of Company with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of Parent and Newco contained in this
Agreement shall be true and correct as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Parent and Newco on or before the Closing Date
shall have been duly complied with or performed; and a certificate to the
foregoing effect dated the Closing Date, and signed by the President or any Vice
President of Parent and of Newco shall have been delivered to Company.
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10.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Sale and no governmental agency or body shall have
taken any other action or made any request of Company as a result of which the
management of Company deems it inadvisable to proceed with the transactions
hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall have
delivered to Company a certificate, dated as of a date no later than ten days
prior to the Closing Date, duly issued by the Oklahoma Secretary of State,
showing that each of Parent and Newco is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
Parent and Newco, respectively, for all periods prior to the Closing Date have
been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a
certificate or certificates, dated the Closing Date and signed by the
Secretary of Parent and of Newco, certifying the completeness and accuracy of
the attached copies of Parent's and Newco's respective Charter Documents
(including amendments thereto), Bylaws (including amendments thereto), and
resolutions of the boards of directors and, if required, the stockholders of
Parent and Newco approving Parent's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
10.7 EMPLOYMENT AGREEMENTS. Each of the persons listed in Schedule
10.7 shall have been afforded an opportunity to enter into an employment or
consulting agreement, reasonably acceptable to both parties and substantially in
the form of Annex III and Annex IV.
10.8 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of Company contained in this Agreement shall
be true and correct as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be
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complied with or performed by Company on or before the Closing Date shall
have been duly complied with or performed; and Company shall have delivered
to Parent a certificate dated the Closing Date and signed by them to such
effect.
11.2 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the Sale and no governmental agency or body shall have
taken any other action or made any request of Parent as a result of which the
management of Parent deems it inadvisable to proceed with the transactions
hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a
certificate, dated the Closing Date and signed by the Secretary of the Company,
certifying the completeness and accuracy of the attached copies of Company's
Charter Documents (including amendments thereto), Bylaws (including amendments
thereto), and resolutions of the board of directors and stockholders approving
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Company which would constitute a material Adverse
Effect, and 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 Company to conduct
its business.
11.5 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 11.5, all existing agreements between Company and its stockholders
shall have been canceled effective prior to or as of the Closing Date.
11.6 THIRD PARTY CONSENTS. Company shall have delivered to Newco
such instruments, consents and approvals of third parties (the form and
substance of which shall be reasonably satisfactory to Newco) as are
necessary to assign to Newco without modification thereof, as of the Closing,
the Acquired Assets and the Assumed Liabilities and Newco shall have obtained
all Authorizations necessary for the consummation of the transactions
contemplated by this Agreement. Prior to the Closing Date, each applicable
governmental authority shall have granted its necessary consent to the
assignment of the Authorizations to Newco and each such consent shall have
become final and non-appealable and all applicable waiting periods shall have
expired. Anything herein contrary notwithstanding, Newco shall have the
right (in its sole discretion) to waive the requirement set forth in the
preceding sentence by delivery to Company of a written notice to such effect.
11.7 DUE DILIGENCE. Newco and its agents and representative shall
have conducted a satisfactory legal, tax, accounting, engineering, regulatory
and business due diligence review of the Acquired Assets and the Business, the
results of which shall be satisfactory to the Newco. Without limiting the
generality of the foregoing, Newco shall be satisfied that the Acquired Assets
constitute all assets, licenses and property necessary to the operation of the
Business as contemplated to be conducted by Newco, and that the customer lists
and customer composition previously provided to Newco by Company is
substantially similar to such information found by Newco pursuant to its
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subsequent due diligence review.
11.8 GOOD STANDING CERTIFICATES. The Company shall have
delivered to Parent a certificate, dated as of a date no earlier than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in Company's and state of incorporation and, unless waived by
Parent, in each state in which Company is authorized to do business, showing
Company is in good standing and authorized to do business and that all state
franchise and/or income Tax returns and Taxes for Company for all periods
prior to the Closing have been filed and paid.
11.9 FIRPTA CERTIFICATE. If required, Company shall have delivered
to Parent a certificate to the effect that it is not a foreign person under
Section 1.1445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11.11 EMPLOYMENT AGREEMENT. Each of the persons listed on Schedule
10.7 shall have executed an employment or consulting agreement, reasonably
acceptable to both parties and substantially in the form of Annex III or Annex
IV.
11.12 FINANCIAL STATEMENTS. Company shall have provided Parent
audited Balance Sheets as of December 31, 1997 and 1998 and audited
Statements of Income, Retained Earnings and Cash Flows for each of the years
in the two-year period ended December 31, 1998.
11.13 OPERATION OF BUSINESS. Company shall have continued to operate
the Business and market the services of the Business in the normal course of
business and in accordance with past practice.
12. CASUALTY LOSSES
In the event that there shall have been suffered between the date
hereof and the Closing any casualty loss relating to the Acquired Assets that
becomes known to Company, Company will promptly notify Newco of such event.
Company shall, at its option, (i) repair, rebuild or replace the portion of
the Acquired Assets damaged, destroyed or lost prior to the Closing Date, or
(ii) assign to Newco at Closing all claims to insurance proceeds or other
rights of Company against third parties arising from such casualty loss (the
"Claims"); PROVIDED, HOWEVER that if such insurance proceeds are or will not
be sufficient in Newco's reasonable judgment to cover the entire casualty
loss, then the Company shall pay the difference at Closing. To the extent
any Claim is not assignable, such claim may be pursued by Newco, for its own
account and benefit, in the name of Company.
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13. INDEMNIFICATION
Company, Parent and Newco each make the following covenants that are
applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY COMPANY. Company covenants and
agrees that it will indemnify, defend, protect and hold harmless Parent and
Newco at all times, from and after the Closing Date 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 expenses of investigation)
incurred by Parent or Newco as a result of or arising from any breach of any
representation, warranty, covenant or agreement on the part of Company under
this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees that it
will indemnify, defend, protect and hold harmless Company at all times from and
after the Closing Date 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 expenses of investigation) incurred by Company as a result
of or arising from any breach of any representation, warranty, covenant or
agreement on the part of Parent or Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge of
any claim by a person not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 13.1
or 13.2 (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 diligently and in good faith;
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party shall be
responsible for the reasonable expenses of such counsel. After th Indemnifying
Party has notified the Indemnified Party of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or
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settlement of such asserted liability, except to the extent such
participation is requested by the Indemnifying Party, in which event the
Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any
such Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section 13.3
with respect to such Third Person claim shall be limited to the amount so
offered in settlement by such Third Person. Upon agreement as to such
settlement between such Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to
in such settlement and the Indemnified Party shall, from that moment on, bear
full responsibility for any additional costs of defense which it subsequently
incurs with respect to such claim and all additional costs of settlement or
judgment. 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 upon
consent of the Indemnifying Party, which consent will not be unreasonably
withheld, 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. All settlements
hereunder shall effect a complete release of the Indemnified Party, unless
the Indemnified Party otherwise agrees in writing. Anything in this Agreement
to the contrary notwithstanding, any amounts owing from an Indemnifying Party
to an Indemnified Party under the provisions of this Section 13 shall be
reduced to the extent to which the Indemnified Party, or any other claimant,
actually receives any proceeds of any insurance policy that are paid with
respect to the matter or occurrence that gave rise to the ThirdPerson claim.
Submission to insurance of any insurable claim otherwise giving rise to
indemnification under this Section 13 shall be a condition precedent to
seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 13 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party; 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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be entitled to
indemnification under this Section 13 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 agreement set forth in this
Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent
and Company;
(ii) by Company (acting through its board of directors), on
the one hand, or by
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Parent (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 May 31, 1999 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;
(iii) by Company, on the one hand, or by Parent, on the other
hand, if a material breach or default shall be made by
the other party in the observance or in the due and
timely performance of any of the material covenants,
agreements or conditions contained herein, and the
curing of such default shall not have been made on or
before the Closing Date; or
(iv) by Company, on the one hand, or by Parent, on the other
hand, if either such party or parties declines to
consent to an amendment or supplement to a Schedule
proposed by the other party or parties pursuant to
Section 9.6 because such proposed amendment constitutes
or reflects an event or occurrence that would have a
material Adverse Effect on the party or parties
proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 9.6, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. With the exception of the ability of
Company to engage in the sale of PCS services, the Company and each stockholder
of the Company (a "Stockholder") (other than any Stockholder subject to an
employment agreement listed in Schedule 10.7, each of which is expressly
excepted from the obligations imposed by this Section 15) will not, for a period
of three years following the Closing Date, for any reason whatsoever, directly
or indirectly, for himself or on behalf of or in conjunction with any other
Person:
(i) engage, as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor,
consultant or advisor, or as a sales representative, in
the sale or marketing of telecommunication services or
interconnect services within the state of Oklahoma (the
"Territory"), except that Company may sell telecom
equipment pursuant to the Sales Agency Agreement set
forth in Section 9.11 of this Agreement;
(ii) call upon any person within the Territory who is an
employee of Parent (including the Subsidiaries thereof)
in a sales representative or managerial capacity for the
purpose or with the intent of enticing such employee
away
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from or out of the employ of Parent (including the
Subsidiaries thereof);
(iii) call upon any Person which is or which has been, within
one year prior to the Closing Date, a customer of Parent
(including the Subsidiaries thereof) for the purpose of
soliciting or selling products or services in direct
competition with Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on
Company's or any Stockholder's own behalf or on behalf
of any competitor of Parent (including the Subsidiaries
thereof) in the long-distance telephone or interconnect
business, which candidate, to the knowledge of Company
or such Stockholder after due inquiry, was called upon
by Parent (including the Subsidiaries thereof) or for
which, to the knowledge of Company or such Stockholder
after due inquiry, Parent (or any Subsidiary thereof)
made an acquisition analysis for the purpose of
acquiring such entity; or
(v) disclose existing or prospective customers of Company to
any Person for any reason or purpose whatsoever except
to the extent that the Company has in the past disclosed
such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed
to prohibit Company or any Stockholder from acquiring as an investment after the
date of this Agreement not more than five percent of the capital stock of a
competing business whose stock is traded on a national securities exchange or
the National Association of Securities Dealers= Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic losses
to Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, Company and each Stockholder agrees that
the foregoing covenants may be enforced by Parent, in the event of breach by
Company or such Stockholder, by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that
the foregoing covenants in this Section 15 impose a reasonable restraint on
Company and the Stockholders in light of the activities and business of Parent
(including the Subsidiaries thereof) on the date of the execution of this
Agreement and the reasonably foreseeable plans of Parent.
15.4 SEVERABILITY; REFORMATION. The covenants in this Section 15 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 the court
deems reasonable, and the Agreement shall thereupon be automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this Section 15
shall be construed
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as an agreement independent of any other provision in this Agreement and the
existence of any claim or cause of action of Company or any Stockholder
against Parent (including the Subsidiaries thereof), whether predicated on
this Agreement or otherwise, shall not constitute a defense to the
enforcement by Parent of such covenants. It is specifically agreed that the
period of three years stated at the beginning of this Section 15, during
which the agreements and covenants of Company and each Stockholder made in
this Section 15 shall be effective, shall be computed by excluding from such
computation any time during which Company or such Stockholder is in violation
of any provision of this Section 15. The covenants contained in Section 15
shall not be affected by any breach of any other provision hereof by any
party hereto and shall become nugatory if the transactions contemplated by
this Agreement are not consummated.
15.6 MATERIALITY. Company and Stockholders hereby agree that the
covenants set forth in this Section 15 are a material and substantial part of
the transactions contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize
and acknowledge that they had in the past, currently have, and in the future
may have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the
Founding Companies and/or Parent. Company and Stockholders agree that they
will not disclose such confidential information to any Person for any purpose
or reason whatsoever, except (i) to authorized representatives of Parent;
(ii) following the Closing, such information may be disclosed by Company and
Stockholders as is required in the course of performing their duties for
Parent or Newco; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public
generally through no fault of Company or Stockholders, (y) 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 (y), Company or Stockholders, if possible, shall give immediate prior
written notice thereof to Parent and provide Parent with the opportunity to
contest such disclosure, or (z) 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 Company or any Stockholder of the provisions of this Section 16.1, Parent
shall be entitled to an injunction (without the posting of bond or proof of
actual damages) restraining Company or Stockholders from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed
as prohibiting Parent 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, (1) the
above mentioned restrictions on Company or Stockholders' ability to
disseminate confidential information with respect to Company shall become
nugatory and (2) Company and Stockholders (including representatives,
advisors and legal counsel) shall within ten business days of the Parent=s
request, deliver all copies of the confidential information of Parent in its
or his possession in any form whatsoever (including, but not limited to, any
reports, memoranda or other material prepared by Company or Stockholders or
their representatives, advisors or legal counsel).
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16.2 PARENT AND NEWCO. Parent and Newco recognize and acknowledge
that they had in the past and currently have and in the future may have,
prior to the Closing, access to certain confidential information of Company,
such as operational policies and pricing and cost policies that are valuable,
special and unique assets of Company. Parent and Newco agree that, prior to
the Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any
person for any purpose or reason whatsoever, except (i) to authorized
representatives of Company and (ii) to counsel and other advisers, provided
that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 16.2, unless (x) such information becomes known to
the public generally through no fault of Parent or Newco; (y) 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 (y); Parent and Newco shall, if possible, give immediate prior written
notice thereof to Company and Stockholders and provide Company and
Stockholders with the opportunity to contest such disclosure; or (z) 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 Parent or Newco of the
provisions of this Section 16.2, Company and Stockholders shall be entitled
to an injunction (without the posting of bond or proof of actual damages)
restraining Parent and Newco from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Company and Stockholders 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, Parent
and Newco (including their representatives, advisors and legal counsel) shall
within ten business days after Company=s request, deliver all copies of the
confidential information of Company in their possession in any form
whatsoever (including, but not limited to, any reports, memoranda, or other
materials prepared by Parent or Newco or their representatives, advisors or
legal counsel at the direction of Parent or Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic losses
as a result of the breach of the foregoing covenants in Section 16.1 and 16.2
and because of the immediate and irreparable damage that would be caused for
which no other adequate remedy exists, 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 injunction and restraining order.
16.4 SURVIVAL. The obligations of the parties under this Section 16
shall survive the termination of this Agreement for a period of three years from
the Closing Date or the termination of this Agreement pursuant to Section 14.
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17. TRANSFER RESTRICTIONS
Except for transfers to Stockholders who agree to be bound by the
restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders, the trustees of which so agree), for a period of one year from the
consummation of the IPO (unless the IPO shall not be consummated by May 31,
1999), except pursuant to Section 19, the Company shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of any Parent Stock received by the Company in the Sale. The Parent Stock
delivered to the Company pursuant to Section 4 of this Agreement will bear a
legend substantially in the form set forth below and containing such other
information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO"). UPON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER -, IF THE IPO HAS NOT BEEN
CONSUMMATED BY THAT DATE.
18. INVESTMENT REPRESENTATIONS
Company acknowledges that the Parent Stock to be delivered to Company
pursuant to this Agreement (the "Restricted Securities") has not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the requirements of the 1933 Act and applicable state securities
laws. All of the Restricted Securities are being acquired by Company solely for
its own account, for investment purposes only and not with a view to, or in
connection with, a distribution thereof.
18.1 COMPLIANCE WITH LAW. Company represents, warrants, covenants
and agrees that none of the Restricted Securities will be offered, sold,
assigned, exchanged, transferred, encumbered, distributed, appointed 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
thereunder and the provisions of applicable state securities laws and
regulations. All of the Restricted Securities shall bear the following
legend in addition to the legend required under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES
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REPRESENTED BY THIS SECURITY SHALL HAVE BEEN REGISTERED UNDER THE ACTS OR (B)
THE HOLDER OF THE SHARES REPRESENTED BY THIS SECURITY PROVIDES THE ISSUER
WITH (X) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND
OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE
ISSUER, TO THE EFFECT THAT THE PROPOSED DISPOSITION OF THE SHARES REPRESENTED
BY THIS SECURITY MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y)
SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE ISSUER THAT THE
PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK; SOPHISTICATION. Company is able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the proposed investment in Parent. Company has had an adequate
opportunity to ask questions and receive answers from the officers of Parent
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 Parent, the plans for the operations of the
business of Parent and any plans for additional acquisitions and the like.
Company has asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to its satisfaction.
19. REGISTRATION RIGHTS
19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the date
of consummation of the IPO, whenever Parent proposes to register any Parent
Stock for its own or the account of others under the 1933 Act for a public
offering, other than (i) any shelf registration of shares to be used as
consideration for acquisitions of additional businesses by Parent and (ii)
registrations relating to employee benefit plans, Parent shall give Company
prompt written notice of its intent to do so. Upon the written request of
Company given within 15 business days after receipt of such notice, Parent
shall cause to be included in such registration all Registerable Securities
(including any shares of Parent Stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Registerable Securities) which Company requests; provided, however, if Parent
is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 19.1 that the number of shares to
be sold by Persons other than Parent is greater than the number of such
shares which can be offered without adversely affecting the offering, Parent
may reduce pro rata the number of shares offered for the accounts of such
Persons (based upon the number of shares held by such Person) to a number
deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority
of the shares of Parent Stock (i) representing Registerable Securities owned
by Company or its permitted transferees or (ii) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection
with the acquisition of their companies by Parent pursuant to an agreement
similar to this Agreement,
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which shares have not been previously registered or sold and which shares are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act, may request in writing that Parent
file a registration statement under the 1933 Act covering the registration of
the shares of Parent Stock issued to and held by the Founding Stockholders or
their permitted transferees (including any stock issued as a dividend or
other distribution with respect to, or in exchange for, or in replacement of
such Parent Stock) (a "Demand Registration"). Within ten days of the receipt
of such request, Parent shall give written notice of such request to all
other Founding Stockholders and shall, as soon as practicable but in no event
later than 45 days after notice from the Founding Stockholders requesting
such registration, file and use its best efforts to cause to become effective
a registration statement covering all such shares. Parent shall be obligated
to effect only one Demand Registration for all Founding Stockholders;
provided, however, that Parent shall not be deemed to have satisfied its
obligation under this Section 19.2 unless and until a Demand Registration
covering all shares of Parent Stock requested to be registered has been filed
and becomes effective under the 1933 Act and has remained current and
effective for not less than 90 days (or such shorter period as is required to
complete the distribution and sale of all shares registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand, a
majority of the disinterested directors of Parent (i.e. directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 30 day period.
If, at the time of any request for a Demand Registration, Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement, provided that Parent shall provide
the Founding Stockholders the right to participate in such public offering
pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in connection
with the registrations under this Section 19 (including all registration,
filing, qualification, legal, printing and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by Parent. In
connection with registrations under Sections 19.1 and 19.2, Parent will, as
expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such Parent Stock and use its best
efforts to cause such registration statement to become
and remain effective, provided that Parent may
discontinue any registration of its securities that is
being effected pursuant to Section 19.1 at any time
prior to the effective date of the registration
statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary (x) to keep
such registration statement effective for a period as
may be requested by the
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stockholders holding a majority of the Parent Stock
covered thereby not exceeding 90 days and (y) to
comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by
such registration statement during such period in
accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such
registration statement; provided, that before
filing a registration statement or prospectus relating
to the sale of Parent Stock, or any amendments or
supplements thereto, Parent will furnish to counsel of
each holder of Parent Stock covered by such registration
statement or prospectus, copies of all documents
proposed to be filed, which documents will be subject to
the review of such counsel, and Parent will give
reasonable consideration in good faith to any comments
of such counsel.
(iii) Furnish to each holder of Parent Stock covered by the
registration statement and to each underwriter, if any,
of such Parent Stock, such number of copies of a
preliminary prospectus and prospectus for delivery in
conformity with the requirements of the 1933 Act, and
such other documents, as such Person may reasonably
request, in order to facilitate the public sale or other
disposition of the Parent Stock.
(iv) Use its best efforts to register or qualify the Parent
Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions
as each seller shall reasonably request, and do any and
all other acts and things which may be reasonably
necessary or advisable to enable such seller to
consummate the disposition of the Parent Stock owned by
such seller in such jurisdictions, except that Parent
shall not for any such purpose be required (x) to
qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this
Section 19.3(iv), it is not then so qualified, (y) to
subject itself to taxation in any such jurisdiction, or
(z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction
where it is not then so subject.
(v) Use its best efforts to cause the Parent Stock covered
by such registration statement to be registered with or
approved by such other governmental agencies or
authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such
Parent Stock.
(vi) Immediately notify each seller of Parent Stock covered
by such registration statement, at any time when a
prospectus relating thereto is required to be delivered
under the 1933 Act within the appropriate period
mentioned in Section 19.3(ii), if Parent becomes aware
that the prospectus included in such registration
statement, as then in effect, includes 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 in the
light of the circumstances then existing, and, at the
request of any such seller, deliver a reasonable number
of copies of an amended or supplemental prospectus as
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may be necessary so that, as thereafter delivered to
the Parents of such Parent Stock, each prospectus shall
not include an untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in the light of the circumstances then
existing.
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and make
generally available to its security holders, in each
case as soon as practicable, but not later than 45
calendar days after the close of the period covered
thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Parent), an earnings
statement of Parent which will satisfy the provisions of
Section 11 (a) of the 1933 Act.
(viii) Use its best efforts in cooperation with the
underwriters to list such Parent Stock on each
securities exchange as they may reasonably designate.
(ix) In the event the offering is an underwritten offering,
use its best efforts to obtain a "cold comfort" letter
from the independent public accountants for Parent in
customary form and covering such matters of the type
customarily covered by such letters.
(x) Execute and deliver all instruments and documents
(including in an underwritten offering an underwriting
agreement in customary form) and take such other actions
and obtain such certificates and opinions as the
stockholders holding a majority of the shares of Parent
Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten
public offering of such Parent Stock.
(xi) Make available for inspection by the seller of such
Parent Stock covered by such registration statement, by
any underwriter participating in any disposition to be
effected pursuant to such registration statement and by
any attorney, accountant or other agent retained by any
such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate
documents and properties of Parent, and cause all of
Parent's officers, directors and employees to supply all
information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection
with such registration statement.
(xii) Obtain for delivery to the underwriter or agent an
opinion or opinions from counsel for Parent in customary
form and in form and scope reasonably satisfactory to
such underwriter or agent and its counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each stockholder holding shares of Parent Stock covered
by a registration statement referred to in this Section
19 will, upon receipt of any notice from
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Parent of the happening of any event of the kind
described in Section 19.3(vi), forthwith discontinue
disposition of the Parent Stock pursuant to the
registration statement covering such Parent Stock
until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by
Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2
involves an underwritten offering, each of the
stockholders agrees, whether or not his shares of Parent
Stock are included in such registration, not to effect
any public sale or distribution, including any sale
pursuant to Rule 144 under the 1933 Act, of any Parent
Stock, or of any security convertible into or
exchangeable or exercisable for any Parent Stock (other
than as part of such underwritten offering), without the
consent of the managing underwriter, during a period
commencing eight calendar days before and ending 180
calendar days (or such lesser number as the managing
underwriter shall designate) after the effective date of
such registration.
19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities of
Parent under the 1933 Act pursuant to Section 19.1 or
19.2, Parent will, and it hereby agrees to, indemnify
and hold harmless, to the extent permitted by law, each
seller of any Parent Stock covered by such registration
statement, each Affiliate of such seller and their
respective directors, officers, employees and agents or
general and limited partners (and directors, officers,
employees and agents thereof) each other Person who
participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who
controls such seller or any such underwriter within the
meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim,
damage or expense whatsoever arising out of or
based upon an untrue statement or alleged untrue
statement of a material fact contained in any
registration statement (or any amendment or
supplement thereto), including all documents
incorporated therein by reference, or the
omission or alleged omission therefrom of a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, or arising out of an untrue
statement or alleged untrue statement of a
material fact contained in any preliminary
prospectus or prospectus (or any amendment or
supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary
in order to make the statements therein not
misleading;
(y) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of
the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by
any governmental
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agency or body, commenced or threatened, or of
any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
statement or omission, if such settlement is
effected with the written consent of Parent; and
(z) against any and all expense reasonably incurred
by them in connection with investigating,
preparing or defending against any litigation,
or investigation or proceeding by any
governmental agency or body, commenced or
threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any
such alleged untrue statement or mission to the
extent that any such expense is not paid under
subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or any
such director, officer, employee, agent, general or limited
partner, investment advisor or agent, underwriter or controlling
Person and shall survive the transfer of such securities by such
seller.
(ii) Parent may require, as a condition to including any
Parent Stock in any registration statement filed in
accordance with Section 19.1 or 19.2, that Parent shall
have received an undertaking reasonably satisfactory to
it from the prospective seller of such Parent Stock or
any underwriter, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in
Section 19.5(i)) Parent with respect to any statement or
alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final
or summary prospectus contained therein, or any
amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in
reliance upon and in conformity with written information
furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in
the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or
supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on
behalf of Parent or any such director, officer or
controlling Person and shall survive the transfer of
such securities by such seller. In that event, the
obligations of the Parent and such sellers pursuant to
this Section 19.5 are to be several and not joint;
provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable
for the full amount of such claim, and each such
seller's liability under this Section 19.5 shall be
limited to an amount equal to the net proceeds (after
deducting the underwriting discount and expenses)
received by such seller from the sale of Parent Stock
held by such seller pursuant to this Agreement.
(iii) Promptly after receipt by an indemnified party hereunder
of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section
19.5, such indemnified party will, if a claim in respect
thereof
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is to be made against an indemnifying party,
give written notice to such indemnifying party of the
commencement of such action; provided, however, that the
failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party
of its obligations under this Section 19.5, except to
the extent (not including any such notice of an
underwriter) that the indemnifying party is materially
prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim
(in which case the indemnifying party shall not be
liable for the fees and expenses of more than one firm
of counsel selected by holders of a majority of the
shares of Parent Stock included in the offering or more
than one firm of counsel for the underwriters in
connection with any one action or separate but similar
or related actions), the indemnifying party will be
entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish with
counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnifying
party in connection with the defense thereof, provided
that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified
party (which consent shall not be unreasonably withheld)
unless such settlement requires no more than a moneary
payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full,
unconditional and complete release of the indemnified
party; provided, however, that the indemnified party
shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the
indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be
inappropriate under the applicable standards of
professional conduct due to actual or potential
differing interests between them. In the event that the
indemnifying party does not assume the defense of a
claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend such
claim by all appropriate proceedings, and will have
control of such defense and proceedings, and the
indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying
party. Each indemnified party shall, and shall cause its
legal counsel to, provide reasonable cooperation to the
indemnifying party and its legal counsel in connection
with its assuming the defense of any claim, including
the furnishing of the indemnifying party with all papers
served in such proceeding. In the event that an
indemnifying party assumes the defense of an action
under this Section 19.5(iii), then such indemnifying
party shall, subject to the provisions of this Section
19.5, indemnify and hold harmless the indemnified party
from any and all losses, claims, damages or liabilities
by reason of such settlement or judgment.
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(iv) Parent and each seller of Parent Stock shall provide for
the foregoing indemnity (with appropriate modifications)
in any underwriting agreement with respect to any
required registration or other qualification of
securities under any federal or state law or regulation
of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
19.5 is for any reason not available or insufficient for any reason to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Parent Stock and one or more of the underwriters, except
to the extent that contribution is not permitted under Section 11 (f) of the
1933 Act. In determining the amounts which the respective parties shall
contribute, there shall be considered the relative benefits received by each
party from the offering of the Parent Stock by taking into account the portion
of the proceeds of the offering realized by each, and the relative fault of each
party by taking into account the parties' relative knowledge and 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 under the circumstances. Parent and each
Person selling securities agree with each other that no seller of Parent Stock
shall be required to contribute any amount in excess of the amount such seller
would have been required to pay to an indemnified party if the indemnity under
Section 19.5(ii) were available. Parent and each such seller agree with each
other and the underwriters of the Parent Stock, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the ParentStock. For purposes of this
Section 19.6, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as such underwriter, and each director and each officer of Parent who signed the
registration statement, and each Person, if any, who controls Parent or a seller
of Parent Stock within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as Parent or a seller of Parent Stock, as the case
may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. After Parent completes its initial underwritten public
offering and for as long thereafter as any stockholder shall continue to hold
any Restricted Securities, Parent shall use reasonable efforts to file, on a
timely basis, all annual, quarterly and other reports required to be filed by
it under Sections 13 and 15(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder, as amended from
time to time.
20. GENERAL
20.1 COOPERATION. Company, Parent and Newco shall 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 any of
the others may reasonably request for the purpose of carrying
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out this Agreement. Company will cooperate and use its reasonable efforts to
have its officers, directors and employees cooperate with Parent 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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law or as
permitted by Section 17), but if assigned by operation of law, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, Newco and Company.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Annexes) and the documents delivered pursuant hereto constitute the entire
agreement and understanding among Company, Newco and Parent and supersede any
prior agreement and understanding relating to the subject matter of this
Agreement. This Agreement, upon execution and delivery, 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 Company,
Newco and Parent, acting through their respective officers or representatives,
duly authorized by their respective Boards of Directors. Any disclosure made on
any Schedule delivered pursuant hereto shall be deemed to have been disclosed
for purposes of any other Schedule required hereby; provided that Company shall
make a good faith effort to cross reference disclosures, as necessary or
advisable, between related Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damage or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
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20.6 NOTICES. All notices of communication required or permitted
hereunder shall be in writing, addressed to the party to be notified, and may be
given by (i) depositing the same in United States mail, postage prepaid and
registered or certified with return receipt requested, (ii) by telecopying the
same if receipt thereof is confirmed or (iii) by delivering the same in person
to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to the Company, addressed to it at:
EIS Communications
4159 S. 88th E. Ave.
Tulsa, Oklahoma 74145
Attn: Gary Stuart
Telecopy No.: (918) 621-4204
with a copy to:
Attn:
Telecopy No.:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in accordance
with the laws of the State of Oklahoma.
20.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay
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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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in Section
13.4, 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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with each
other and no party shall issue any public announcement or statement with respect
to the transactions contemplated hereby without the consent of the other
parties, unless the party desiring to make such announcement or statement, after
seeking such consent from the other parties, obtains advice from legal counsel
that a public announcement or statement is required by applicable law.
20.14 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 Parent, Newco and Company. Any amendment or waiver
effected in accordance with this Section 20.14 be binding upon each of the
parties hereto.
20.15 COLLECTION PROCEDURES. From and after the Closing, Newco shall
have the right and authority, at its expense, to collect for its account all
items to which it is entitled as provided in this Agreement and to endorse with
the name of the Company any checks or drafts received on account of any such
items.
20.16 ARBITRATION. Any claim, controversy or dispute arising out of
or relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
arbitration of the American Arbitration Association. Any arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where possible, and the
decision of the arbitrators shall be final, binding, and enforceable in any
court of competent jurisdiction. In any dispute in which a party seeks in
excess of $50,000 in damages, three arbitrators shall be employed. Otherwise, a
single arbitrator shall be employed. All costs relating to the arbitration
shall be borne equally by the parties, other than their own attorneys' and
experts'
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fees. The parties will bear their own attorneys' and experts' fees. The
arbitrators will not award punitive, consequential or indirect damages, but
may award prevailing parties attorneys fees up to $10,000. Each party hereby
waives the right to such damages and agrees to receive only those actual
damages directly resulting from the claim asserted. In resolving all
disputes between the parties, the arbitrators will apply the laws of the
State of Oklahoma. Except as needed for presentation in lieu of a live
appearance, depositions will not be taken. The parties will be entitled to
conduct document discovery by requesting production of documents. The
arbitrators will resolve any discovery disputes by such prehearing
conferences as may be needed. Either party may be entitled to pursue such
remedies for emergency or preliminary injunctive relief in any court of
competent jurisdiction, provided that each party agrees that it will consent
to the stay of such judicial proceedings on the merits of both this Agreement
and the related transactions pending arbitration of all underlying claims
between the parties immediately following the issuance of any such emergency
or injunctive relief.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
---------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
---------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
ELECTRICAL AND INSTRUMENT SALES
CORP. d/b/a EIS COMMUNICATIONS
BY: Gary J. Stuart
---------------------------------------
NAME: Gary J. Stuart
TITLE: President/Chief Executive Officer
ELECTRONIC INFORMATION SYSTEMS,
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<PAGE>
L.L.C.
BY: /s/ Gary J. Stuart
---------------------------------------
NAME: Gary J. Stuart
TITLE: President
-44-
<PAGE>
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
dated as of the 10th day of March, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION XIII CORP.
(Newco)
and
THE PHONE MAN SALES AND SERVICES, INC.
(Company)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 The Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Acquired Assets. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . 7
3. INSTRUMENTS OF TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . 7
4. PURCHASE PRICE; ALLOCATION . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Payment of Purchase Price. . . . . . . . . . . . . . . . . . . . 7
4.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . 7
5. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY . . . . 8
6.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 9
6.4 Title to Acquired Assets; Condition of Acquired Assets. . . . . 9
6.5 Real Property - Owned. . . . . . . . . . . . . . . . . . . . . . 9
6.6 Real and Personal Property - Leased. . . . . . . . . . . . . . . 9
6.7 Existing Contracts . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 Governmental Licenses. . . . . . . . . . . . . . . . . . . . . . 10
6.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 10
6.10 No Violation of Existing Agreements. . . . . . . . . . . . . . . 10
6.11 Litigation and Legal Proceedings . . . . . . . . . . . . . . . . 10
6.12 Environmental Compliance.. . . . . . . . . . . . . . . . . . . . 10
6.13 Employee Benefits and Employees. . . . . . . . . . . . . . . . . 11
6.14 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.15 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.17 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.18 Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . 12
6.19 Pricing of Services. . . . . . . . . . . . . . . . . . . . . . . 12
6.20 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . 12
6.21 Accounts Receivable and Bad Debts. . . . . . . . . . . . . . . . 12
6.22 Certain Business Relationships with Company. . . . . . . . . . . 13
6.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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<PAGE>
6.24 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . 13
6.25 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . 14
7. [INTENTIONALLY OMITTED]. . . . . . . . . . . . . . . . . . . . . . . . . 15
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT
AND NEWCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Transactions in Capital Stock. . . . . . . . . . . . . . . . . . 15
8.5 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 Liabilities and Obligations. . . . . . . . . . . . . . . . . . . 16
8.7 Conformity with Law; Litigation. . . . . . . . . . . . . . . . . 16
8.8 No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.9 Parent Securities. . . . . . . . . . . . . . . . . . . . . . . . 16
8.10 Business; Real Property; Agreements. . . . . . . . . . . . . . . 16
9. OTHER COVENANTS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . 17
9.1 Access and Cooperation; Due Diligence; Audits. . . . . . . . . . 17
9.2 Conduct of Business Pending Closing. . . . . . . . . . . . . . . 17
9.3 Prohibited Activities by the Company . . . . . . . . . . . . . . 18
9.4 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.5 Notification of Certain Matters. . . . . . . . . . . . . . . . . 19
9.6 Amendment of Schedules . . . . . . . . . . . . . . . . . . . . . 20
9.7 Further Assurance. . . . . . . . . . . . . . . . . . . . . . . . 20
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY . . . . . . . . . . . . . 20
10.1 Representations and Warranties; Performance of
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . 21
10.4 Good Standing Certificates . . . . . . . . . . . . . . . . . . . 21
10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . 21
10.6 Secretary's Certificates . . . . . . . . . . . . . . . . . . . . 21
10.7 Closing of the IPO or the Private Placement. . . . . . . . . . . 21
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO. . . . . . . . . 21
11.1 Representations and Warranties; Performance of
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.2 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.3 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . 22
11.4 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . 22
11.5 Termination of Related Party Agreements. . . . . . . . . . . . . 22
11.6 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . 22
11.7 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . 22
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<PAGE>
11.8 Good Standing Certificates . . . . . . . . . . . . . . . . . . . 23
11.9 FIRPTA Certificate . . . . . . . . . . . . . . . . . . . . . . . 23
11.10 Closing of the IPO or Private Placement. . . . . . . . . . . . . 23
11.11 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 23
11.12 Operation of Business. . . . . . . . . . . . . . . . . . . . . . 23
12. CASUALTY LOSSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.1 General Indemnification by Company . . . . . . . . . . . . . . . 24
13.2 Indemnification by Parent. . . . . . . . . . . . . . . . . . . . 24
13.3 Third Person Claims. . . . . . . . . . . . . . . . . . . . . . . 24
13.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . 25
13.5 Limitations on Indemnification . . . . . . . . . . . . . . . . . 25
14. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 25
14.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.2 Liabilities in Event of Termination. . . . . . . . . . . . . . . 26
15. NONCOMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.1 Prohibited Activities. . . . . . . . . . . . . . . . . . . . . . 26
15.2 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.3 Reasonable Restraint . . . . . . . . . . . . . . . . . . . . . . 27
15.4 Severability; Reformation. . . . . . . . . . . . . . . . . . . . 27
15.5 Independent Covenant . . . . . . . . . . . . . . . . . . . . . . 27
15.6 Materiality. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . 28
16.1 Company and Stockholders . . . . . . . . . . . . . . . . . . . . 28
16.2 Parent and Newco . . . . . . . . . . . . . . . . . . . . . . . . 28
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
16.4 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17. TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 29
18. INVESTMENT REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 30
18.1 Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . 30
18.2 Economic Risk; Sophistication. . . . . . . . . . . . . . . . . . 31
19. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.1 PiggyBack Registration Rights. . . . . . . . . . . . . . . . . . 31
19.2 Demand Registration Rights . . . . . . . . . . . . . . . . . . . 31
19.3 Registration Procedures. . . . . . . . . . . . . . . . . . . . . 32
19.4 Other Registration Matters . . . . . . . . . . . . . . . . . . . 34
19.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 35
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<PAGE>
19.6 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19.7 Undertaking to File Reports and Cooperate in Rule 144
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 38
20. GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
20.1 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
20.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 39
20.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 39
20.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 39
20.5 Brokers and Agents . . . . . . . . . . . . . . . . . . . . . . . 39
20.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
20.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 40
20.8 Exercise of Rights and Remedies. . . . . . . . . . . . . . . . . 40
20.9 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
20.10 Reformation and Severability . . . . . . . . . . . . . . . . . . 41
20.11 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . 41
20.12 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
20.13 Public Statements. . . . . . . . . . . . . . . . . . . . . . . . 41
20.14 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 41
20.15 Collection Procedures. . . . . . . . . . . . . . . . . . . . . . 41
20.16 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of the
10th day of March, 1999, by and among THE ALLIANCE GROUP, INC., an Oklahoma
corporation ("Parent"), ALLIANCE ACQUISITION XIII CORP., an Oklahoma
corporation ("Newco"), and THE PHONE MAN SALES AND SERVICES, INC., an
Oklahoma corporation (the "Company").
RECITALS
WHEREAS, Newco is a corporation duly organized and existing
under the laws of the State of Oklahoma, having been incorporated on
March 9, 1999, solely for the purpose of completing the transaction
set forth herein, and Newco is a wholly-owned subsidiary of Parent, a
corporation organized and existing under the laws of the State of
Oklahoma; and
WHEREAS, Company is and has been engaged in the interconnect
and paging business (the "Business") and owns certain equipment,
inventory and other personal property used in the Business.
WHEREAS, Company desires to sell to Newco, and Newco desires
to purchase from Company, Company's equipment, inventory, accounts
receivable and certain other assets which are owned by Company and
associated with the ownership and operation of the Business (the
"Sale").
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in
this Agreement or in any schedule or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this Agreement.
"Acquired Assets" has the meaning set forth in Section 2.2.
"Adverse Effect" has the meaning set forth in Section 6.1.
"Affiliates" means a Person who directly or indirectly through one
or more intermediaries controls, is controlled by, or is under common control
with, the Company.
"Agreement" has the meaning set forth in the first paragraph of
this Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
<PAGE>
"Assumed Liabilities" has the meaning set forth in Section 2.4.
"Authorizations" has the meaning set forth in Section 6.8.
"Balance Sheet Date" has the meaning set forth in Section 6.3.
"Cash Payment' has the meaning set forth in Section 4.1.
"Charter Documents" means the Certificate of Incorporation,
Articles of Incorporation or other instrument pursuant to which any
corporation, partnership or other business entity that is a signatory to this
Agreement was formed or organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Financial Statements" has the meaning set forth in
Section 6.3.
"Company Stock" means the Company's $1.00 par value common stock.
"December Balance Sheet" has the meaning set forth in Section 6.3.
"Demand Registration" has the meaning set forth in Section 19.2.
"Effective Time" means the time as of which the Merger becomes
effective, which shall, in any case, occur on the Closing Date.
"Environmental Laws" has the meaning set forth in Section 6.12.
"Expiration Date" means (i) except as set forth in (iii) below, the
24th monthly anniversary of the Closing Date when used in connection with a
breach of any representation, warranty, covenant or agreement set forth in
Sections 6 or 8 of this Agreement, (ii) the 36th monthly anniversary of the
Closing Date when used in connection with the failure to observe the terms of
Section 15 and (iii) the date on which suit for the enforcement of any claims
for Taxes, claims under Environmental Laws or claims under any other covenant
or agreement set forth in this Agreement and not specified in (i) or (ii) above
becomes barred by the applicable statute of limitation.
"Founding Companies" has the meaning set forth in Section 9.1(ii).
"Founding Stockholders" has the meaning set forth in Section 19.2.
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<PAGE>
"Governmental Authorities" has the meaning set forth in
Section 2.2(b).
"Hazardous Substance" has the meaning set forth in Section 6.12.
"Indemnified Party" has the meaning set forth in Section 13.3.
"Indemnifying Party" has the meaning set forth in Section 13.3.
"IPO" means the Parent's initial public offering of Parent Stock.
"IRS" or "Internal Revenue Service" means the Internal Revenue
Service of the Department of the Treasury.
"Leases" means all real and personal property leased by Company and
used, useful or held for use in connection with Company's Business.
"Liens" has the meaning set forth in Section 2.1.
"Net Current Assets" has the meaning set forth in Section 4.4.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.8.
"Parent Stock" means Parent's $.01 par value common stock.
"Permitted Liens" has the meaning set forth in Section 2.1.
"Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a joint stock company, a trust or
other unincorporated organization.
"Private Placement" means the Parent's private placement of Parent
Stock.
"Prohibited Activities" has the meaning set forth in Paragraph 6.25.
"Purchase Price" has the meaning set forth in Section 4.1.
"Registerable Securities" means the shares of Parent Stock
registerable pursuant to Section 19.
"Restricted Securities" has the meaning set forth in introductory
paragraph to Section 18.
-3-
<PAGE>
"Sale" has the meaning set forth in the third recital of this
Agreement.
"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,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Stock Payment" has the meaning set forth in Section 4.1.
"Stockholders" has the meaning set forth in Section 15.1.
"Subsidiaries" means, with respect to any Person, any corporation
or other organization, whether incorporated or unincorporated, of which
(i) such Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly
or indirectly owned or controlled by such Person, by any one or more of its
Subsidiaries or by such Person and one or more of its Subsidiaries.
"Tax" or "Taxes" have the meaning set forth in Section 6.14.
"Territory" has the meaning set forth in Section 15.1(i).
"Third Person" has the meaning set forth in Section 13.3.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
2. PURCHASE AND SALE
2.1 THE SALE. Subject to the terms and conditions set forth in
this Agreement, Company agrees to sell, convey, assign, transfer and deliver
to Newco, and Newco agrees to purchase from Company at Closing, all of
Company's right, title and interest in and to the Acquired Assets, free and
clear of all debts, liabilities, obligations and taxes other than Assumed
Liabilities, and free and clear of all security interests, liens, pledges,
charges, rights of third parties and encumbrances of every kind
(collectively, "Liens"), other than Permitted Liens. As used herein, the
term "Permitted Liens" means (i) any Lien for taxes and assessments not yet
past due or otherwise being contested in good faith and for which appropriate
reserves have been established, (ii) any Lien arising out of deposits made to
secure leases or other obligations of a like nature arising in the ordinary
course of business, (iii) any Lien affecting real property that does not
materially interfere with the use by Company of the property subject thereto
or affected thereby, (iv) as to leaseholds, interest of the lessors thereof
and Liens affecting the interests of such lessors and (v) any Lien set
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<PAGE>
forth on Schedule 2.1 attached hereto.
2.2 ACQUIRED ASSETS. The assets to be conveyed to Newco shall
include all of Company's right, title and interest of whatever description
which relate in any way to the ownership, use or operation of the Business,
as owned, acquired or obtained by Company from the date hereof through the
date of Closing (collectively, the "Acquired Assets"). The Acquired Assets
shall include, but not be limited to, all of the rights, interests and
benefits of Company in:
(a) All operating agreements, interconnection
agreements, transit agreements, resale agreements, other agreements with
telecommunication companies, leases, Authorizations to the extent such
Authorizations may be transferred under applicable law, instruments,
commitments, guarantees, consents and revenue sharing agreements; all
easements, appurtenances, rights-of-way and construction permits, if any,
related to the Acquired Assets; all right, title and interest, if any, in and
to all streets, roads and public places, open or proposed; all agreements
between Company and any suppliers, telecommunication equipment or service
companies and customers, and all other similar rights and agreements,
including all applications therefor, which in any way may relate to or
concern the operation by Company of the Business.
(b) Originals or copies of all of Company's files of
correspondence, lists, records and reports concerning (i) customers,
prospective customers of the Business and customer service records related to
the Acquired Assets and (ii) all dealings with any federal, state, county,
municipal or foreign government agency, authority, utility instrumentality,
including without limitation, any agency, court, tribunal, department,
bureau, commission or board of competent jurisdiction ("Governmental
Authorities") with respect to the Acquired Assets.
(c) All of Company's right, title and interest in and
to machinery, equipment, motor vehicles, office equipment, computers and
related software, furniture and fixtures, supplies, inventory, spare parts
and other physical assets, if any, used in or relating to the Acquired
Assets, and all modifications, additions, restorations or replacements of the
whole or any part thereof.
(d) All of Company's right, title and interest in and
to agreements and contracts for: (i) paging, long-distance and local
telephone customers; (ii) Internet services including, without limitation,
Company's registered addresses; (iii) PIC and CIC codes, tariffs and
certifications, to the extent transferrable; (iv) agency agreements; and
(v) sale and service of telephone equipment.
(e) All of Company's right, title and interest to
engineering records, files, data, drawings, blueprints, schematics, maps,
reports, lists and plans and processes intended for use in connection with
the Acquired Assets provided that Company may retain a copy thereof.
(f) All of the following, along with all related
income, royalties, damages and payments, if any, due or payable as of the
Closing Date or thereafter: inventions, trademarks, service marks, trade
dress, trade names, logos and registrations and applications for a
registration thereof together with all of the goodwill associated therewith,
copyrights and copyrightable works and registrations and applications for the
registration thereof, computer software, data, data bases, documentation
thereof, trade secrets and other confidential information, other intellectual
property
-5-
<PAGE>
rights and intangible embodiments thereof (in whatever form or medium); all
data and records, wherever located, including books and records, customer
lists, call records, usage schedules, advertising materials, credit
information and correspondence, manuals, contract rights (including, without
limitation, letters of authority and other customer subscription/acquisition
contracts), together with all books, records, drawings and other indicia,
however evidenced.
(g) All electrical, mechanical, plumbing and other
building systems, security and surveillance systems and wiring and cable
installations owned by Company and located on the property leased by Company.
(h) All deposits, prepayments and prepaid expenses.
(i) All claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind.
(j) The right to receive and retain mail, accounts
receivable payments and other communications.
(k) The right to bill and receive payment for products
shipped or delivered and/or services performed but unbilled or unpaid as of
the Closing.
(l) The advertising, marketing and promotional
materials and all other related printing or written materials.
(m) All notes receivable, accounts receivable and
related records for such receivables (including customer receivables for
customers to be acquired by Newco).
(n) All 800 and 888 telephone numbers of Company.
(o) All goodwill associated with the Acquired Assets.
(p) Any assets of the type described above which are
acquired after the date hereof but prior to the Closing.
2.3 ASSUMPTION OF LIABILITIES. At Closing, Newco shall assume
and perform and discharge the following to the extent not previously
performed or discharged as of the Closing: (i) Company's obligations after
the Closing under the contracts being assigned to Newco and all other
obligations of Company related to the Business entered into during the period
from the date hereof to the Closing by Company in the ordinary course of its
business in accordance with the provisions of Sections 9.2 and 9.3 below that
were identified to and consented in writing by Newco; and (ii) all accounts
payable, notes payable and other indebtedness reflected on the December
Balance Sheet related to the Business (collectively, the "Assumed
Liabilities"). Newco shall not be liable for any other liabilities, debts,
contracts or agreements, including, without limitation, any liabilities or
obligations related to other obligations of Company of any nature whatsoever
other than the Assumed Liabilities.
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3. INSTRUMENTS OF TRANSFER
At the Closing, Company will deliver to Newco (i) one or more Bills
of Sale in substantially the form attached hereto as Annex I ("Bill of
Sale"), (ii) all such other good and sufficient instruments of sale, transfer
and conveyance, including, without limitation, assignments of leases in such
form and including such matters as Newco shall reasonably request and as
shall be reasonably acceptable to Company, as shall be effective to vest in
Newco all of Company's right and title to, and interest in, the Acquired
Assets; and (iii) all contracts and commitments, instruments, books and
records and other data included in the Acquired Assets.
4. PURCHASE PRICE; ALLOCATION
4.1 PURCHASE PRICE. The total purchase price for the Acquired
Assets shall be (i) $37,500 in cash (the "Cash Payment") and (ii) $37,500 of
Alliance common stock (the "Stock Payment") (collectively the "Purchase
Price").
4.2 PAYMENT OF PURCHASE PRICE. The Cash Payment shall be
payable by wire transfer of immediately available funds to Company at
Closing. The Stock Payment shall be issued to Company at Closing.
4.3 ALLOCATION OF PURCHASE PRICE. Attached hereto as Annex II
is the allocation of the Purchase Price in accordance with the respective
fair market value of the Acquired Assets being purchased and as provided for
under Section 1060 of the Code. Newco and Company each agree to file their
income tax returns and their other tax returns and IRS Form 8594 reflecting
the allocation as determined in this Section 4.3 unless otherwise required by
applicable legal requirements.
5. CLOSING
Subject to the terms and conditions hereof, the closing (the
"Closing") shall take place at the offices of McAfee & Taft A Professional
Corporation, 10th Floor, Two Leadership Square, Oklahoma City, Oklahoma 73102,
on May 31, 1999, or such other date as the parties hereto may designate (the
"Closing Date"). At Closing, each party shall deliver or cause to be
delivered to the other party the instruments of transfer referenced in
Section 3 of this Agreement and the other deliveries required by Section 10
(for Company) and Section 11 (for Newco) of this Agreement, and Newco shall
deliver to Company the Cash Payment and the Stock Payment as required
pursuant to Section 4.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY
Company represents, warrants, covenants and agrees (i) that all of
the following representations and warranties in this Section 6 are materially
true at the date of this Agreement and, subject to Section 9.6, shall be
materially true at the Closing Date and (ii) that all of the covenants and
agreements in this Section 6 shall be materially complied with or performed
at and as of the Closing Date.
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6.1 DUE ORGANIZATION. Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business and is in
good standing under the laws of each jurisdiction where such qualification is
required except (i) as set forth on Schedule 6.1 or (ii) where the failure to
be so authorized or qualified would not have an adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise) of Company taken as a whole (as used herein with
respect to Company, or with respect to any other Person, an "Adverse Effect").
6.2 AUTHORIZATION. Company has all requisite corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery by Company of this Agreement and its
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Company. This Agreement has
been duly executed and delivered by Company, and approved by all the
stockholders of Company, and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms.
6.3 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.3 are
copies of the following financial statements of Company (the "Company
Financial Statements"): Company's audited Balance Sheet as of December 31,
1997 and its audited Balance Sheet as of December 31, 1998 ("December Balance
Sheet"), and audited Statements of Income, Retained Earnings and Cash Flows,
and any related notes thereto, for the years ended December 31, 1997 and 1998
(December 31, 1998 being hereinafter referred to as the "Balance Sheet
Date"). The audited Company Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 6.3). Except as set forth on Schedule 6.3, the Balance Sheets
referred to in this Section 6.3 present fairly the financial position of
Company as of the dates indicated thereon, and the Statements of Income,
Retained Earnings and Cash Flows referred to in this Section 6.3 present
fairly the results of operations for the periods indicated thereon in
accordance with generally accepted accounting principles. Company Financial
Statements at and for the years ended December 31, 1997 and 1998 have been
examined and reported on by Deloitte and Touche, LLP.
6.4 TITLE TO ACQUIRED ASSETS; CONDITION OF ACQUIRED ASSETS.
Company has, and will convey to Newco at Closing, good and marketable title
to the Acquired Assets, free and clear of all Liens other than Permitted
Liens. All Liens in effect on the date hereof which are to be discharged at
Closing, other than those to be discharged by Newco, are listed on Schedule 6.4
hereto. The tangible property included among the Acquired Assets is in good
working order and repair, reasonable wear and tear excepted, and is
technically sufficient and capable for use in the Business. Except as
disclosed on Schedule 6.22, no officer, director, stockholder or employee of
Company or any other Person other than the Company owns, leases or has any
right in any property, license or other assets related to the Acquired Assets.
6.5 REAL PROPERTY - OWNED. Company owns no real property and
the real property leased by Company related to the Business has never been
owned by Company.
6.6 REAL AND PERSONAL PROPERTY - LEASED. Company shall retain
all of its rights and
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obligations under all leased real and personal property.
6.7 EXISTING CONTRACTS. Schedule 6.7 sets forth all contracts,
commitments and agreements included as Acquired Assets in effect on the date
hereof (the "Existing Contracts"). Except as disclosed on Schedule 6.22, no
officer, director or employee of Company or any Person (other than Company)
controlling, controlled by or affiliated with or family member of any such
officer, director or employee has any contractual relationship relating to
the ownership or use of the Acquired Assets. Company has heretofore
delivered to Newco true and correct copies of the Existing Contracts. Except
as disclosed on Schedule 6.7, Company has no knowledge of any breach or
anticipated breach by the other parties to any Existing Contracts. The
Existing Contracts are in full force and effect and Company is in compliance
with its obligations under such Existing Contracts. Except for the Existing
Contracts, Company has not entered into any other contract, commitment or
agreement relating to the ownership or use of the Acquired Assets, including,
but not limited to, right-of-way, rights of entry, licenses, easements,
leases, or guaranty agreements. There are no claims by third parties that
Company is required to enter into other agreements to enable it to continue
to own or use the Acquired Assets.
6.8 GOVERNMENTAL LICENSES. Except as set forth on Schedule 6.8,
Company holds all licenses, consents, permits, approvals, tariffs and
authorizations of Governmental Authorities which are required in connection
with the ownership of the Acquired Assets and operation of the Business
(collectively referred to as the "Authorizations"). All Authorizations are
in full force and effect. Company has complied with the terms of the
Authorizations which it holds and there are no pending modifications,
amendments or revocations of the Authorizations which would adversely affect
the ownership of the Acquired Assets or the operation of the Business. All
fees due and payable from Company to Governmental Authorities pursuant to the
Authorizations have been timely filed and are accurate and complete. True
and correct copies of the Authorizations, and all amendments thereto to the
date hereof, have been delivered by Company to Newco.
6.9 COMPLIANCE WITH LAWS. Company is currently complying with
and has so complied with, and is not in default under or in violation of, and
neither the Business nor any of the Acquired Assets nor the operation or
maintenance thereof, contravenes any statute, law (including environmental or
employment laws), ordinance, decree, order, rule or regulation of any
Governmental Authority applicable to the Acquired Assets or the Business.
6.10 NO VIOLATION OF EXISTING AGREEMENTS. Subject to the
consents for the Existing Contracts identified in Schedule 6.10, the
execution, delivery and performance of this Agreement by Company and
Company's transfer of the Acquired Assets to Newco (i) will not violate any
provisions of any law, (ii) will not, with or without the giving of notice or
the passage of time, or both, conflict with or result in any breach of any of
the terms or conditions of, or constitute a default under any Existing
Contracts, and (iii) will not result in the creation of any Lien upon the
Acquired Assets or the Business other than Permitted Liens.
6.11 LITIGATION AND LEGAL PROCEEDINGS. Except as set forth on
Schedule 6.11, there is no outstanding judgment against Company or any
director, officer or stockholder of Company affecting the Business or the
Acquired Assets or which questions the validity of any action taken or to be
taken by Company pursuant to or in connection with the provisions of this
Agreement and
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there is no litigation, proceeding or investigation pending, or, to Company's
knowledge, threatened, against Company or any director, officer or
stockholder of Company affecting the Business or the Acquired Assets or which
questions the validity of any action taken or to be taken by Company pursuant
to or in connection with the provisions of this Agreement. Except as set
forth on Schedule 6.11, there are no proceedings pending to which Company or
any director, officer or stockholder of Company is a party or, to Company's
knowledge, threatened, nor has Company received written notice of any demands
by any Governmental Authority, utility or other party, to terminate, modify
or adversely change the terms and conditions of Company's rights with respect
to the Authorizations or Existing Contracts.
6.12 ENVIRONMENTAL COMPLIANCE. (i) Except as set forth on
Schedule 6.12 hereto, (w) Company has not generated, used, transported,
treated, stored, released or disposed of, or suffered or permitted anyone
else to generate, use, transport, treat, store, release or dispose of any
Hazardous Substance (as hereinafter defined) with respect to the Acquired
Assets or the Business in violation of any Environmental Laws (as hereinafter
defined); (x) there has not been any generation, use, transportation,
treatment, storage, release or disposal of any Hazardous Substance in
connection with Company's ownership or use of the Acquired Assets, the
conduct of the Business or on, in or under any property or facility used,
owned or leased by Company or any adjacent properties or facilities, which
has created or might reasonably be expected to create any liability under any
Environmental Laws or which would require reporting to or notification of any
governmental entity; (y) no friable asbestos or polychlorinated biphenyl, and
no underground storage tank, is contained in or located on or under any
property or facility owned, used or leased by Company; and (z) any Hazardous
Substance handled or dealt with in any way with respect to the Acquired
Assets or the Business by Company, or during Company's ownership or use of
the Acquired Assets or the Business, has been and is being handled or dealt
with in compliance with all Environmental Laws.
(ii) For purposes of this Agreement, the term "Hazardous
Substance" shall mean any substance which, as of the date of this Agreement,
is listed as hazardous or toxic in the regulations implementing the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended ("CERCLA"), the Response Compensation and Liability Act ("RCLA"),
the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), or
listed as a hazardous substance under any applicable state environmental
laws, or any substance which has been determined by regulation, ruling or
otherwise by any agency or court to be a hazardous or toxic substance
regulated under federal or state law, and shall include petroleum and
petroleum products.
(iii) For purposes of this Agreement, the term
"Environmental Laws" shall mean CERCLA, RCRA, RCLA and any applicable
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises and similar items
of all Governmental Authorities and all applicable judicial, administrative
and regulatory decrees, judgments and orders, any of which relate to the
protection of human health or the environment from the effects of Hazardous
Substances, including but not limited to, those pertaining to reporting,
licensing, permitting, investigating and remediating emissions, discharges,
releases or threatened releases of Hazardous Substances into the air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances.
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6.13 EMPLOYEE BENEFITS AND EMPLOYEES. Newco shall have no
obligation to any employee of Company for any reason.
6.14 TAX MATTERS. Except as set forth on Schedule 6.14 attached
hereto, (i) Company has timely filed all Tax (as defined below) returns and
statements which it is required to file; (ii) all such returns are complete
and accurate and disclose all Taxes required to be paid for the periods
covered thereby; (iii) Company has not waived any statute of limitations in
respect of Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency; (iv) no assessment of any additional Taxes for
periods for which returns have been filed has been asserted and no basis
exists therefor; (v) to Company's knowledge, there are no unresolved
questions or claims raised by any Taxing authority concerning the Tax
liability of Company; and (vi) all Taxes which Company is required by law to
withhold or to collect for payment have been duly withheld or collected and
have been paid. Company has paid all Taxes due prior to the date hereof and
will pay when due (or contest in good faith by appropriate proceedings) all
Taxes which may become due on or before the Closing Date. For purposes of
this Section 6.14, the term "Tax" or "Taxes" means all taxes, charges, fees,
levies, imposts and other assessments including all income, sales, use, goods
and services, value added, capital, capital gains, alternative net worth,
transfer, profits, withholding, payroll, employer health, excise, real
property and personal property taxes, and any other taxes, customs duties,
stamp duties, fees, assessments or similar charges in the nature of a tax,
together with any interest, fines and penalties imposed by any Governmental
Authority, and whether disputed or not.
6.15 CUSTOMERS. Company shall, by electronic transfer, deliver
to Newco a schedule of all relevant customer records on Company's computer
storage records.
6.16 INSURANCE. Prior to Closing, Company shall maintain
policies of title, liability, fire, worker's compensation and other forms of
insurance (including bonds) which insure against risks and liabilities to an
extent and in a customary industry manner and which are adequate to provide
coverage against risks of a nature to which Company would normally be exposed
in the operation of the Business. All such insurance policies and binders
are in full force and effect at the date of Closing. Company has complied in
all material respects with each of such insurance policies and binders and
has not failed to give any notice or present any claim thereunder in a due
and timely manner.
6.17 BROKERS. Company has not engaged any agent, broker or
other person acting pursuant to the express or implied authority of Company
which is or may be entitled to a commission or broker or finder's fee in
connection with the transactions contemplated by this Agreement or otherwise
with respect to the sale of the Acquired Assets or the Business.
6.18 UNDISCLOSED LIABILITIES. Company has no liabilities or
obligations of any nature, whether absolute, accrued, contingent or
otherwise, which are not reflected or reserved against the December Balance
Sheet except for liabilities and obligations that have arisen in the ordinary
and usual course of business and consistent with past practice (none of which
results from, arises out of, relates to, is in the nature of, or caused by
any breach of contract, breach of warranty, tort, infringement or violation
of law) and except for liabilities and obligations directly related to the
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transactions contemplated hereby.
6.19 PRICING OF SERVICES. Schedule 6.19 sets forth a
description of all rate plans currently offered to customers of the Business.
6.20 PROPRIETARY RIGHTS. Company lawfully possesses, and the
Acquired Assets will include, all intellectual property rights that are
necessary to the conduct of the Business.
6.21 ACCOUNTS RECEIVABLE AND BAD DEBTS. All notes and accounts
receivable of Company which are Acquired Assets and shown on the December
Balance Sheet or thereafter acquired were or (to the extent not heretofore
collected) are valid and genuine, were acquired in the ordinary course of
business and are subject to no asserted counterclaims, defenses or setoffs.
Schedule 6.21 attached hereto sets forth a true, complete and accurate list,
as of the end of the most recent normal billing cycle of the Business,
listing the total amounts of customer receivables and the aging of such
customer receivables based on the following Schedule: 0-30 days, 31-60 days,
61-90 days and over 90 days, from the date thereof.
6.22 CERTAIN BUSINESS RELATIONSHIPS WITH COMPANY. Except as set
forth in Schedule 6.22 attached hereto, none of the officers or directors of
the Company and its affiliates or family members have been involved in any
business arrangement or relationship with Company within the past 12 months.
6.23 DISCLOSURE. No provision of this Agreement relating to
Company, the Business or the Acquired Assets or any other document, Schedule,
Annex or other information furnished by Company to Newco in connection with
the execution, delivery and performance of this Agreement, or the
consummation of the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated in order to make the statement,
in light of the circumstances in which it is made, not misleading. In
connection with the preparation of this Agreement and the documents,
descriptions, opinions, certificates, Annexes, Schedules or written material
prepared by Company and appended hereto or delivered or to be delivered
hereunder, Company agrees it will disclose to Newco any fact known to Company
which Company knows or believes would affect Newco's decision to proceed with
the execution of this Agreement. All Schedules attached hereto are accurate
and complete as of the date hereof. There is no fact now known to Company
relating to the Business or Acquired Assets which in Company's reasonable
opinion adversely affects the condition of the Acquired Assets, the status of
the Authorizations or the ownership, operation, financial condition or
prospects of the Business which has not been disclosed to Newco or set forth
in the Exhibits or Schedules attached hereto.
6.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except
as set forth on Schedule 6.24, there has not been:
(i) any adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or
business of Company taken as a whole;
(ii) any damage, destruction or loss (whether or not
covered by insurance)
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adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership
interests or any grant of any options, warrants,
calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or
distribution in respect of the capital stock or any
direct or indirect redemption, purchase or other
acquisition of any of the capital stock of Company;
(v) any increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become
payable by Company to any of its officers, directors,
stockholders, employees, consultants or agents, except
for ordinary and customary bonuses and salary
increases for employees in accordance with past
practice;
(vi) any work interruptions, labor grievances or labor
claims filed, or any other similar labor event or
condition of any character, adversely affecting the
business of Company;
(vii) any sale or transfer, or any agreement to sell or
transfer, any assets, property or rights of Company to
any person outside the ordinary course of business of
Company;
(viii) any cancellation, or agreement to cancel, any
indebtedness or other obligation owing to Company
outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any
preferential right to purchase or acquire any interest
in any of the assets, property or rights of Company or
requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property,
right or asset outside of the ordinary course of
Company's business;
(xi) any waiver of any rights or claims of Company;
(xii) any breach, amendment or termination of any contract,
agreement, license, permit or other right to which
Company is a party;
(xiii) any transaction by Company outside the ordinary course
of its business;
(xiv) any cancellation or termination of a contract with a
customer or client prior to the scheduled termination
date; or
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(xv) any other distribution of property or assets by
Company outside the ordinary course of Company's
business.
6.25 PROHIBITED ACTIVITIES. Except as set forth on Schedule 6.25,
Company has not, between the Balance Sheet Date and the date of this Agreement,
taken any of the actions set forth in Section 9.3 ("Prohibited Activities").
7. [INTENTIONALLY OMITTED]
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT AND
NEWCO
Parent and Newco, jointly and severally, represent, warrant,
covenant and agree (i) that all of the following representations and
warranties in this Section 8 are materially true at the date of this
Agreement and, subject to Section 9.6, shall be materially true at the
Closing Date and (ii) that all of the covenants and agreements in this
Section 8 shall be materially complied with or performed at and as of the
Closing Date.
8.1 DUE ORGANIZATION. Parent and Newco are each corporations
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma, and are duly authorized and qualified to do business under
all applicable laws, regulations, ordinances and orders of public authorities
to carry on their respective business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would
not have an Adverse Effect. True, complete and correct copies of the Charter
Documents and Bylaws, each as amended, of Parent and Newco (the "Parent
Charter Documents") are all attached hereto as Schedule 8.1.
8.2 AUTHORIZATION. Parent and Newco each has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by
Parent and Newco and their consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action of Parent
and Newco. This Agreement has been duly executed and delivered by Parent and
Newco and is a valid and binding obligation of Parent and Newco, enforceable
against each of them in accordance with its terms.
8.3 CAPITAL STOCK. The authorized capital stock of Parent and
Newco is as set forth in Schedule 8.3. All of the issued and outstanding
shares of the capital stock of Parent and Newco (i) have been duly authorized
and validly issued, (ii) are fully paid and nonassessable, (iii) are owned of
record and beneficially by the persons set forth on Schedule 8.3 and Parent,
respectively, and (iv) were offered, issued, sold and delivered by Parent and
Newco in compliance with all applicable state and Federal laws concerning the
offer, issuance, sale and delivery of securities. Further, none of such
shares was issued in violation of the preemptive rights of any past or
present stockholder of Parent or Newco.
8.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on
Schedule 8.4, (i) no option, warrant, call, conversion right or commitment of
any kind exists which obligates Parent or Newco
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to issue any of its authorized but unissued capital stock and (ii) neither
Parent nor Newco has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay any dividend or make any distribution in respect thereof.
Schedule 8.4 also includes complete and accurate copies of all stock option
or stock purchase plans, including a list, accurate as of the date hereof, of
all outstanding options, warrants or other rights to acquire shares of
capital stock of Parent.
8.5 SUBSIDIARIES. Newco has no Subsidiaries. Parent has no
Subsidiaries except for Newco and each of the other companies identified on
Schedule 8.5. Except as set forth in the preceding sentence, neither Parent
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in a Person nor is Parent or Newco, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporation entity.
8.6 LIABILITIES AND OBLIGATIONS. Parent and Newco have no
liabilities, contingent or otherwise, except as set forth in or contemplated
by this Agreement or agreements similar to this Agreement with the Founding
Companies and except for fees incurred in connection with the transactions
contemplated hereby and thereby.
8.7 CONFORMITY WITH LAW; LITIGATION. Neither Parent nor Newco
is in violation of any law or regulation or any order of any court or
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over either of
them which would have a Adverse Effect; and there are no claims, actions,
suits or proceedings, pending or, to the knowledge of Parent or Newco,
threatened, against or affecting Parent or Newco, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received. Parent and Newco have no
operations.
8.8 NO VIOLATIONS. Neither Parent nor Newco is in violation of
any Parent Charter Document. None of Parent, Newco, or, to the knowledge of
Parent and Newco, any other party thereto, is in default under any lease,
instrument, agreement, license or permit to which Parent or Newco is a party
or by which Parent or Newco, or any of their respective properties, are bound
(collectively, the "Parent Documents"); and (i) the rights and benefits of
Parent and Newco under the Parent Documents will not be adversely affected by
the transactions contemplated hereby and (ii) the execution of this Agreement
and the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the Parent
Documents or the Parent Charter Documents. Except as set forth on
Schedule 8.8, none of the Parent Documents requires notice to, or the consent
or approval of, any governmental agency or other third party with respect to
any of the transactions contemplated hereby in order to remain in full force
and effect, and consummation of the transactions contemplated hereby will not
give rise to any right to termination, cancellation or acceleration or loss
of any right or benefit.
8.9 PARENT SECURITIES. The shares of Parent Stock deliverable
to Company pursuant to this Agreement will have been duly authorized prior to
the Closing and, upon consummation of the
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Sale in accordance with this Agreement, will be validly issued, fully paid
and nonassessable.
8.10 BUSINESS; REAL PROPERTY; AGREEMENTS. Parent was formed in
December 1998. Neither Parent nor Newco has conducted any business since the
date of its inception, except raising capital and in connection with this
Agreement and similar agreements with the Founding Companies. Except as
disclosed on Schedule 8.10, neither Parent nor Newco owns or has at any time
owned any real property or any personal property or is a party to any other
agreement.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 ACCESS AND COOPERATION; DUE DILIGENCE; AUDITS.
(i) Between the date of this Agreement and the Closing
Date, Company will afford to the officers and
authorized representatives of Parent access to all
of Company's sites, properties, books and records
and will furnish Parent with such additional
financial and operating data and other information
as to the business and properties of Company as
Parent may from time to time reasonably request.
Company will cooperate with Parent, its
representatives, auditors and counsel in the
preparation of any documents or other material that
may be required in connection with any documents or
materials required by this Agreement. Parent and
Newco will treat all information obtained in
connection with the negotiation and performance of
this Agreement as confidential in accordance with
the provisions of Section 16.
(ii) Between the date of this Agreement and the Closing,
Parent will afford to the officers and authorized
representatives of Company access to all of the
sites, properties, books and records of Parent,
Newco and the other companies listed on Schedule
9.1(ii) ("Founding Companies") and will furnish
Company with such additional financial and
operating data and other information as to the
business and properties of Parent, Newco and the
Founding Companies as Company may from time to time
reasonably request. Parent and Newco will
cooperate with Company, representatives, auditors
and counsel in the preparation of any documents or
other material which may be required in connection
with any documents or materials required by this
Agreement. 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 16.
9.2 CONDUCT OF BUSINESS PENDING CLOSING. Unless otherwise
approved in writing by Parent, between the date of this Agreement and the
Closing Date, Company will:
(i) carry on its business in substantially the same manner
as it has heretofore and not introduce any material
new method of management, operation or accounting;
(ii) maintain its properties and facilities, including
those held under lease, in as
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good of working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects all of its
obligations under agreements relating to or affecting
its respective assets, properties or rights;
(iv) keep in full force and effect in all material respects
the present insurance policies or other comparable
insurance coverage;
(v) use its reasonable best efforts to maintain and
preserve its business organization intact, retain its
respective present key employees and maintain its
respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain material compliance with all material
permits, laws, rules and regulations, consent orders,
and all other orders of applicable courts, regulatory
agencies and similar Governmental Authorities;
(vii) maintain present debt instruments and Leases and not
enter into new or amended debt instruments or Leases;
and
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and
agents except for ordinary and customary bonus and
salary increases for employees in accordance with past
practices.
9.3 PROHIBITED ACTIVITIES BY THE COMPANY. Between the date of
this Agreement and the Closing Date, Company will not, without prior written
consent of Parent:
(i) make any change in its Charter Documents or Bylaws;
(ii) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its
securities of any kind;
(iii) declare or pay any dividend, or make any
distribution in respect of Company Stock whether
now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares
of Company Stock;
(iv) enter into any contract or commitment or incur or
agree to incur any liability or make any capital
expenditures, except if it is in the normal course
of business (consistent with past practice), in
connection with the transactions contemplated by
this Agreement, or involves an amount not in excess
of $5,000;
(v) create, assume or permit to exist any Lien upon any
asset or property whether now owned or hereafter
acquired, except (x) with respect to purchase money
Liens incurred in connection with the acquisition of
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equipment with an aggregate cost not in excess of
$5,000 as necessary or desirable for the conduct of
its business, and (y) (1) Liens for Taxes either
not yet due or being contested in good faith and by
appropriate proceedings (and for which contested
Taxes adequate reserves have been established and
are being maintained) or (2) materialmen's,
mechanic's, worker's, repairmen's, employee's or
other like Liens arising in the ordinary course of
business, or (3) Liens set forth on appropriate
schedules hereto;
(vi) sell, assign, lease or otherwise transfer or dispose
of any property or equipment except in the normal
course of business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate
with or into any other corporation;
(ix) waive any material right or claim; provided that it
may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent
with past practice;
(x) commit a material breach or amend or terminate any
material agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
9.4 EXCLUSIVITY. Neither Company, nor any agent, officer,
director, trustee or any representative of Company will, during the period
commencing on the date of this Agreement and ending with the earlier to occur
of the Closing Date or the termination of this Agreement in accordance with
its terms, directly/or indirectly:
(i) solicit or initiate the submission of proposals or
offers from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than
Parent or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, Company, or merger, consolidation or business
combination of Company.
9.5 NOTIFICATION OF CERTAIN MATTERS. Company shall give prompt
notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would likely cause any representation
or warranty of Company contained herein to be untrue or inaccurate in any
respect at or prior to the Closing Date and (ii) any failure of Company to
comply with or
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satisfy any covenant, condition or agreement to be complied with or satisfied
by such Person hereunder as of such date. Parent and Newco shall give prompt
notice to the Company of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would likely cause any representation
or warranty of Parent or Newco contained herein to be untrue or inaccurate in
any respect at or prior to the Closing Date and (ii) any failure of Parent or
Newco to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder as of such date. The delivery of
any notice pursuant to this Section 9.5 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 9.6, (ii) modify the
conditions set forth in Sections 10 and 11 or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
9.6 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until 11:59 p.m.
March 31, 1999 to supplement or amend promptly the Schedules 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. Notwithstanding the foregoing sentence, no amendment or
supplement to a Schedule prepared by Company or Parent that constitutes or
reflects an event or occurrence that would have an Adverse Effect may be made
unless the parties not making the amendment or supplement consent to such
amendment or supplement. For all purposes of this Agreement, including,
without limitation, for purposes of determining whether the conditions set
forth in Sections 10.1 and 11.1 have been fulfilled, the Schedules shall be
deemed to be the Schedules as amended or supplemented pursuant to this
Section 9.6. Except as otherwise specified in Section 16.3, no party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of Section 14.1(iv). Neither the entry
by Parent into any other agreement, such as this Agreement, after the date
hereof for the acquisition of one or more companies nor the performance by
Parent of its obligations thereunder shall be deemed to require the amendment
to or a supplementation of any Schedule hereto.
9.7 FURTHER ASSURANCE. 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 by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY
The obligations of Company with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions.
10.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All representations and warranties of Parent and Newco contained in this
Agreement shall be true and correct as of the Closing Date with the same
effect as though such representations and warranties had been made on and as
of such date; all of the terms, covenants and conditions of this Agreement to
be complied with or performed by Parent and Newco on or before the Closing
Date shall have been duly complied with or performed; and a certificate to
the foregoing effect dated the Closing Date, and
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signed by the President or any Vice President of Parent and of Newco shall
have been delivered to Company.
10.2 NO LITIGATION. No action or proceeding before a court or
any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the Sale and no governmental agency or
body shall have taken any other action or made any request of Company as a
result of which the management of Company deems it inadvisable to proceed
with the transactions hereunder.
10.3 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.
10.4 GOOD STANDING CERTIFICATES. Parent and Newco each shall
have delivered to Company a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Oklahoma Secretary of
State, showing that each of Parent and Newco is in good standing and
authorized to do business and that all state franchise and/or income tax
returns and taxes for Parent and Newco, respectively, for all periods prior
to the Closing Date have been filed and paid to the extent required.
10.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to Parent or Newco that would constitute a material
Adverse Effect.
10.6 SECRETARY'S CERTIFICATES. Company shall have received a
certificate or certificates, dated the Closing Date and signed by the
Secretary of Parent and of Newco, certifying the completeness and accuracy of
the attached copies of Parent's and Newco's respective Charter Documents
(including amendments thereto), Bylaws (including amendments thereto), and
resolutions of the boards of directors and, if required, the stockholders of
Parent and Newco approving Parent's and Newco's entering into this Agreement
and the consummation of the transactions contemplated hereby.
10.7 CLOSING OF THE IPO OR THE PRIVATE PLACEMENT. Parent shall
have received at least $15,000,000 in gross proceeds from Parent's IPO or
Private Placement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND NEWCO
The obligations of Parent and Newco with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions.
11.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS.
All the representations and warranties of Company contained in this
Agreement shall be true and correct as of the Closing Date with the same
effect as though such representations and warranties had been made on and as
of such date; all of the terms, covenants and conditions of this Agreement to
be complied with or performed by Company on or before the Closing Date shall
have been duly complied with or performed; and Company each shall have
delivered to Parent a certificate dated
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the Closing Date and signed by them to such effect.
11.2 NO LITIGATION. No action or proceeding before a court or
any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the Sale and no governmental agency or
body shall have taken any other action or made any request of Parent as a
result of which the management of Parent deems it inadvisable to proceed with
the transactions hereunder.
11.3 SECRETARY'S CERTIFICATE. Parent shall have received a
certificate, dated the Closing Date and signed by the Secretary of the
Company, certifying the completeness and accuracy of the attached copies of
Company's Charter Documents (including amendments thereto), Bylaws (including
amendments thereto), and resolutions of the board of directors and
stockholders approving Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
11.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall
have occurred with respect to Company which would constitute a material
Adverse Effect, and 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 Company to conduct its business.
11.5 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set
forth on Schedule 11.5, all existing agreements between Company and its
stockholders shall have been canceled effective prior to or as of the Closing
Date.
11.6 THIRD PARTY CONSENTS. Company shall have delivered to
Newco such instruments, consents and approvals of third parties (the form and
substance of which shall be reasonably satisfactory to Newco) as are
necessary to assign to Newco without modification thereof, as of the Closing,
the Acquired Assets and the Assumed Liabilities and Newco shall have obtained
all Authorizations necessary for the consummation of the transactions
contemplated by this Agreement. Prior to the Closing Date, each applicable
governmental authority shall have granted its necessary consent to the
assignment of the Authorizations to Newco and each such consent shall have
become final and non-appealable and all applicable waiting periods shall have
expired. Anything herein contrary notwithstanding, Newco shall have the
right (in its sole discretion) to waive the requirement set forth in the
preceding sentence by delivery to Company of a written notice to such effect.
11.7 DUE DILIGENCE. Newco and its agents and representative
shall have conducted a satisfactory legal, tax, accounting, engineering,
regulatory and business due diligence review of the Acquired Assets and the
Business, the results of which shall be satisfactory to Newco. Without
limiting the generality of the foregoing, Newco shall be satisfied that the
Acquired Assets constitute all assets, licenses and property necessary to the
operation of the Business as contemplated to be conducted by Newco, and that
the customer lists and customer composition previously provided to Newco by
Company is substantially similar to such information found by Newco pursuant
to its subsequent due diligence review.
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11.8 GOOD STANDING CERTIFICATES. The Company shall have
delivered to Parent a certificate, dated as of a date no earlier than ten
days prior to the Closing Date, duly issued by the appropriate governmental
authority in Company's state of incorporation and, unless waived by Parent,
in each state in which Company is authorized to do business, showing Company
is in good standing and authorized to do business and that all state
franchise and/or income Tax returns and Taxes for Company for all periods
prior to the Closing have been filed and paid.
11.9 FIRPTA CERTIFICATE. If required, Company shall have
delivered to Parent a certificate to the effect that it is not a foreign
person under Section 111445-2(b) of the Treasury regulations.
11.10 CLOSING OF THE IPO OR PRIVATE PLACEMENT. Parent shall have
received at least $15,000,000 in gross proceeds from Parent's IPO or Private
Placement.
11.11 FINANCIAL STATEMENTS. Company shall have provided Parent
audited Balance Sheets as of December 31, 1997 and 1998 and audited
Statements of Income, Retained Earnings and Cash Flows for each of the years
in the two-year period ended December 31, 1998.
11.12 OPERATION OF BUSINESS. Company shall have continued to
operate the Business and market the services of the Business in the normal
course of business and in accordance with past practice.
12. CASUALTY LOSSES
In the event that there shall have been suffered between the date
hereof and the Closing any casualty loss relating to the Acquired Assets that
becomes known to Company, Company will promptly notify Newco of such event.
Company shall, at its option, (i) repair, rebuild or replace the portion of
the Acquired Assets damaged, destroyed or lost prior to the Closing Date, or
(ii) assign to Newco at Closing all claims to insurance proceeds or other
rights of Company against third parties arising from such casualty loss (the
"Claims"); PROVIDED, HOWEVER that if such insurance proceeds are or will not
be sufficient in Newco's reasonable judgment to cover the entire casualty
loss, then the Company shall pay the difference at Closing. To the extent
any Claim is not assignable, such claim may be pursued by Newco, for its own
account and benefit, in the name of Company.
13. INDEMNIFICATION
Company, Parent and Newco each make the following covenants that
are applicable to them, respectively:
13.1 GENERAL INDEMNIFICATION BY COMPANY. Company covenants and
agrees that it will indemnify, defend, protect and hold harmless Parent and
Newco at all times, from and after the Closing Date 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 expenses
of investigation) incurred by Parent or Newco as a result of or arising from
any breach of any representation, warranty, covenant or
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agreement on the part of Company under this Agreement.
13.2 INDEMNIFICATION BY PARENT. Parent covenants and agrees
that it will indemnify, defend, protect and hold harmless Company at all
times from and after the Closing Date 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 expenses of investigation)
incurred by Company as a result of or arising from any breach of any
representation, warranty, covenant or agreement on the part of Parent or
Newco under this Agreement.
13.3 THIRD PERSON CLAIMS. Promptly after any party hereto
(hereinafter the "Indemnified Party") has received notice of or has knowledge
of any claim by a person not a party to this Agreement ("Third Person"), or
the commencement of any action or proceeding by a Third Person, the
Indemnified Party shall, as a condition precedent to a claim with respect
thereto being made against any party obligated to provide indemnification
pursuant to Section 13.1 or 13.2 (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 diligently and in good faith; provided that the
Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified
Party of its intention to do so, and the Indemnified Party shall cooperate
with the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited
to, furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party; provided
that if counsel to the Indemnifying Party shall have a conflict of interest
that prevents counsel for the Indemnifying Party from representing the
Indemnified Party, the Indemnified Party shall have the right to participate
in such matter through counsel of its own choosing and the Indemnifying Party
shall be responsible for the reasonable expenses of such counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying
Party shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such
asserted liability, except to the extent such participation is requested by
the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a
final and complete settlement of any such Third Person claim and the
Indemnified Party refuses to consent to such settlement, then the
Indemnifying Party's liability under this Section 13.3 with respect to such
Third Person claim shall be limited to the amount so offered in settlement by
such Third Person. Upon agreement as to such settlement between such Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange
for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and
all
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additional costs of settlement or judgment. 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 upon consent of the Indemnifying
Party, which consent will not be unreasonably withheld, 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. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. Anything in this Agreement to the contrary
notwithstanding, any amounts owing from an Indemnifying Party to an
Indemnified Party under the provisions of this Section 13 shall be reduced to
the extent to which the Indemnified Party, or any other claimant, actually
receives any proceeds of any insurance policy that are paid with respect to
the matter or occurrence that gave rise to the Third Person claim.
Submission to insurance of any insurable claim otherwise giving rise to
indemnification under this Section 13 shall be a condition precedent to
seeking indemnification under this Section.
13.4 EXCLUSIVE REMEDY. The indemnification provided for in this
Section 13 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party; 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.
13.5 LIMITATIONS ON INDEMNIFICATION. No person shall be
entitled to indemnification under this Section 13 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
agreement set forth in this Agreement.
14. TERMINATION OF AGREEMENT
14.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date solely:
(i) by mutual consent of the boards of directors of Parent
and Company;
(ii) by Company (acting through its board of directors),
on the one hand, or by Parent (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 May 31, 1999 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;
(iii) by Company, on the one hand, or by Parent, on the
other hand, if a material breach or default shall
be made by the other party in the observance or in
the due and timely performance of any of the
material covenants, agreements or
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conditions contained herein, and the curing of such
default shall not have been made on or before the
Closing Date; or
(iv) by Company, on the one hand, or by Parent, on the
other hand, if either such party or parties
declines to consent to an amendment or supplement
to a Schedule proposed by the other party or
parties pursuant to Section 9.6 because such
proposed amendment constitutes or reflects an event
or occurrence that would have a material Adverse
Effect on the party or parties proposing the same.
14.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in
Section 9.6, 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.
15. NONCOMPETITION
15.1 PROHIBITED ACTIVITIES. Each stockholder of the Company (a
"Stockholder") will not, for a period of one year following the Closing Date,
for any reason whatsoever, directly or indirectly, for himself or on behalf
of or in conjunction with any other Person:
(i) engage, as an officer, director, stockholder,
owner, partner, joint venturer, or in a managerial
capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales
representative, in the sale or marketing of
telecommunication services or interconnect services
within the state of Oklahoma (the "Territory");
(ii) call upon any person within the Territory who is an
employee of Parent (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 Parent (including the Subsidiaries
thereof);
(iii) call upon any Person which is or which has been,
within one year prior to the Closing Date, a
customer of Parent (including the Subsidiaries
thereof) for the purpose of soliciting or selling
products or services in direct competition with
Parent (or its Subsidiaries);
(iv) call upon any prospective acquisition candidate, on
any Stockholder's own behalf or on behalf of any
competitor of Parent (including the Subsidiaries
thereof) in the long-distance telephone or
interconnect business, which candidate, to the
knowledge of such Stockholder after due inquiry,
was called upon by Parent (including the
Subsidiaries thereof) or for which, to the
knowledge of such Stockholder after due inquiry,
Parent (or any Subsidiary thereof) made an
acquisition analysis for the purpose of acquiring
such entity; or
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(v) disclose existing or prospective customers of
Company to any Person for any reason or purpose
whatsoever except to the extent that the Company
has in the past disclosed such information to the
public for valid business reasons.
Notwithstanding the above, the foregoing covenants shall not be
deemed to prohibit any Stockholder from acquiring as an investment after the
date of this Agreement not more than five percent of the capital stock of a
competing business whose stock is traded on a national securities exchange or
the National Association of Securities Dealers' Automated Quotation System.
15.2 DAMAGES. Because of the difficulty of measuring economic
losses to Parent as a result of a breach of the foregoing covenants, and
because of the immediate and irreparable damage that could be caused to
Parent for which it would have no other adequate remedy, each Stockholder
agrees that the foregoing covenants may be enforced by Parent, in the event
of breach by such Stockholder, by injunction and restraining order.
15.3 REASONABLE RESTRAINT. It is agreed by the parties hereto
that the foregoing covenants in this Section 15 impose a reasonable restraint
on the Stockholders in light of the activities and business of Parent
(including the Subsidiaries thereof) on the date of the execution of this
Agreement and the reasonably foreseeable plans of Parent.
15.4 SEVERABILITY; REFORMATION. The covenants in this Section 15
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 the court deems reasonable, and the Agreement shall thereupon be
automatically reformed.
15.5 INDEPENDENT COVENANT. All of the covenants in this
Section 15 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 Parent (including the Subsidiaries thereof),
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Parent of such covenants. It is specifically
agreed that the period of one year stated at the beginning of this Section 15,
during which the agreements and covenants of each Stockholder made in this
Section 15 shall be effective, shall be computed by excluding from such
computation any time during which such Stockholder is in violation of any
provision of this Section 15. The covenants contained in Section 15 shall not
be affected by any breach of any other provision hereof by any party hereto
and shall become nugatory if the transactions contemplated by this Agreement
are not consummated.
15.6 MATERIALITY. Stockholders hereby agree that the covenants
set forth in this Section 15 are a material and substantial part of the
transactions contemplated by this Agreement.
16. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
16.1 COMPANY AND STOCKHOLDERS. Company and Stockholders recognize
and
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acknowledge that they had in the past, currently have, and in the future may
have, access to certain confidential information of Company, the Founding
Companies and/or Parent, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of Company, the
Founding Companies and/or Parent. Company and Stockholders agree that they
will not disclose such confidential information to any Person for any purpose
or reason whatsoever, except (i) to authorized representatives of Parent;
(ii) following the Closing, such information may be disclosed by Company and
Stockholders as is required in the course of performing their duties for
Parent or Newco; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 16.1, unless (x) such information becomes known to the public
generally through no fault of Company or Stockholders, (y) 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 (y), Company or Stockholders, if possible, shall give immediate prior
written notice thereof to Parent and provide Parent with the opportunity to
contest such disclosure, or (z) 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 Company or any Stockholder of the provisions of this Section 16.1, Parent
shall be entitled to an injunction (without the posting of bond or proof of
actual damages) restraining Company or Stockholders from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed
as prohibiting Parent 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, (1) the
above mentioned restrictions on Company or Stockholders' ability to
disseminate confidential information with respect to Company shall become
nugatory and (2) Company and Stockholders (including representatives,
advisors and legal counsel) shall within ten business days of the Parent's
request, deliver all copies of the confidential information of Parent in its
or his possession in any form whatsoever (including, but not limited to, any
reports, memoranda or other material prepared by Company or Stockholders or
their representatives, advisors or legal counsel).
16.2 PARENT AND NEWCO. Parent and Newco recognize and
acknowledge that they had in the past and currently have and in the future
may have, prior to the Closing, access to certain confidential information of
Company, such as operational policies and pricing and cost policies that are
valuable, special and unique assets of Company. Parent and Newco agree that,
prior to the Closing, or if the transactions contemplated by this Agreement
are not consummated, they will not disclose such confidential information to
any person for any purpose or reason whatsoever, except (i) to authorized
representatives of Company and (ii) to counsel and other advisers, provided
that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 16.2, unless (x) such information becomes known to
the public generally through no fault of Parent or Newco; (y) 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 (y); Parent and Newco shall, if possible, give immediate prior written
notice thereof to Company and Stockholders and provide Company and Stockholders
with the opportunity to contest such disclosure; or (z) 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 Parent or Newco of the provisions of this Section 16.2,
Company and Stockholders shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining Parent and Newco from
disclosing, in whole or in part, such confidential information. Nothing
herein shall be
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construed as prohibiting Company and Stockholders 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, Parent and Newco (including their representatives, advisors
and legal counsel) shall within ten business days after Company's request,
deliver all copies of the confidential information of Company in their
possession in any form whatsoever (including, but not limited to, any
reports, memoranda, or other materials prepared by Parent or Newco or their
representatives, advisors or legal counsel at the direction of Parent or
Newco).
16.3 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants in Section 16.1
and 16.2 and because of the immediate and irreparable damage that would be
caused for which no other adequate remedy exists, 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 injunction and
restraining order.
16.4 SURVIVAL. The obligations of the parties under this
Section 16 shall survive the termination of this Agreement for a period of
three years from the Closing Date or the termination of this Agreement
pursuant to Section 14.
17. TRANSFER RESTRICTIONS
Except for transfers to Stockholders who agree to be bound by the
restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders, the trustees of which so agree), for a period of one year from
the consummation of the IPO (unless the IPO shall not be consummated by May 31,
1999), except pursuant to Section 19, the Company shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose of any Parent Stock received by the Company in the Sale. The Parent
Stock delivered to the Company pursuant to Section 4 of this Agreement will
bear a legend substantially in the form set forth below and containing such
other information as Parent may deem necessary or appropriate:
EXCEPT AS OTHERWISE PERMITTED BY THE ISSUER, THIS SECURITY MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED
OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY
OF THE CONSUMMATION OF ISSUER'S INITIAL UNDERWRITTEN PUBLIC OFFERING ("IPO").
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE OR AFTER --, IF THE IPO HAS
NOT BEEN CONSUMMATED BY THAT DATE.
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18. INVESTMENT REPRESENTATIONS
Company acknowledges that the Parent Stock to be delivered to
Company pursuant to this Agreement (the "Restricted Securities") has not been
and will not be registered under the 1933 Act and therefore may not be resold
without compliance with the requirements of the 1933 Act and applicable state
securities laws. All of the Restricted Securities are being acquired by
Company solely for its own account, for investment purposes only and not with
a view to, or in connection with, a distribution thereof.
18.1 COMPLIANCE WITH LAW. Company represents, warrants,
covenants and agrees that none of the Restricted Securities will be offered,
sold, assigned, exchanged, transferred, encumbered, distributed, appointed 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
thereunder and the provisions of applicable state securities laws and
regulations. All of the Restricted Securities shall bear the following
legend in addition to the legend required under Section 17 of this Agreement:
THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS AND UNTIL (A) THE SHARES REPRESENTED BY THIS SECURITY
SHALL HAVE BEEN REGISTERED UNDER THE ACTS OR (B) THE HOLDER OF THE SHARES
REPRESENTED BY THIS SECURITY PROVIDES THE ISSUER WITH (X) AN UNQUALIFIED
WRITTEN OPINION OF LEGAL COUNSEL, WHICH COUNSEL AND OPINION (IN FORM AND
SUBSTANCE) SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT
THE PROPOSED DISPOSITION OF THE SHARES REPRESENTED BY THIS SECURITY MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y) SUCH OTHER EVIDENCE AS
MAY BE REASONABLY SATISFACTORY TO THE ISSUER THAT THE PROPOSED DISPOSITION
MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
18.2 ECONOMIC RISK; SOPHISTICATION. Company is able to bear the
economic risk of an investment in the Restricted Securities and can afford to
sustain a total loss of such investment and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the proposed investment in Parent. Company has had an adequate
opportunity to ask questions and receive answers from the officers of Parent
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 Parent, the plans for the operations
of the business of Parent and any plans for additional acquisitions and the
like. Company has asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to its satisfaction.
19. REGISTRATION RIGHTS
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19.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the
date of consummation of the IPO, whenever Parent proposes to register any
Parent Stock for its own or the account of others under the 1933 Act for a
public offering, other than (i) any shelf registration of shares to be used
as consideration for acquisitions of additional businesses by Parent and
(ii) registrations relating to employee benefit plans, Parent shall give
Company prompt written notice of its intent to do so. Upon the written
request of Company given within 15 business days after receipt of such
notice, Parent shall cause to be included in such registration all
Registerable Securities (including any shares of Parent Stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Registerable Securities) which any Company requests;
provided, however, if Parent is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 19.1 that
the number of shares to be sold by Persons other than Parent is greater than
the number of such shares which can be offered without adversely affecting
the offering, Parent may reduce pro rata the number of shares offered for the
accounts of such Persons (based upon the number of shares held by such
Person) to a number deemed satisfactory by such managing underwriter.
19.2 DEMAND REGISTRATION RIGHTS. At any time after the date of
consummation of the IPO, the holders ("Founding Stockholders") of a majority
of the shares of Parent Stock (i) representing Registerable Securities owned
by Company or its permitted transferees or (ii) acquired by other stockholders
of Parent on or prior to the closing of the IPO in connection with the
acquisition of their companies by Parent pursuant to an agreement similar to
this Agreement, which shares have not been previously registered or sold and
which shares are not entitled to be sold under Rule 144(k) (or any similar or
successor provision) promulgated under the 1933 Act, may request in writing
that Parent file a registration statement under the 1933 Act covering the
registration of the shares of Parent Stock issued to and held by the Founding
Stockholders or their permitted transferees (including any stock issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Parent Stock) (a "Demand Registration"). Within ten days
of the receipt of such request, Parent shall give written notice of such
request to all other Founding Stockholders and shall, as soon as practicable
but in no event later than 45 days after notice from the Founding
Stockholders requesting such registration, file and use its best efforts to
cause to become effective a registration statement covering all such shares.
Parent shall be obligated to effect only one Demand Registration for all
Founding Stockholders; provided, however, that Parent shall not be deemed to
have satisfied its obligation under this Section 19.2 unless and until a
Demand Registration covering all shares of Parent Stock requested to be
registered has been filed and becomes effective under the 1933 Act and has
remained current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand, a
majority of the disinterested directors of Parent (i.e. directors who have
not demanded or elected to sell shares in any such public offering) may defer
the filing of the registration statement for a 30 day period.
If, at the time of any request for a Demand Registration, Parent
has formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering
under the 1933 Act, no registration of the Parent Stock shall be initiated
under this
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Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement provided that Parent shall
provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 19.1.
19.3 REGISTRATION PROCEDURES. All expenses incurred in
connection with the registrations under this Section 19 (including all
registration, filing, qualification, legal, printing and accounting fees, but
excluding underwriting commissions and discounts), shall be borne by Parent.
In connection with registrations under Sections 19.1 and 19.2, Parent will,
as expeditiously as practicable:
(i) Prepare and file with the SEC a registration statement
with respect to such Parent Stock and use its best
efforts to cause such registration statement to become
and remain effective, provided that Parent may
discontinue any registration of its securities that is
being effected pursuant to Section 19.1 at any time
prior to the effective date of the registration
statement relating thereto.
(ii) Prepare and file with the SEC such amendments
(including post-effective amendments) and
supplements to such registration statement and the
prospectus used in connection therewith as may be
necessary (x) to keep such registration statement
effective for a period as may be requested by the
stockholders holding a majority of the Parent Stock
covered thereby not exceeding 90 days and (y) to
comply with the provisions of the 1933 Act with
respect to the disposition of all securities
covered by such registration statement during such
period in accordance with the intended methods of
disposition by the seller or sellers thereof set
forth in such registration statement; provided,
that before filing a registration statement or
prospectus relating to the sale of Parent Stock, or
any amendments or supplements thereto, Parent will
furnish to counsel of each holder of Parent Stock
covered by such registration statement or
prospectus, copies of all documents proposed to be
filed, which documents will be subject to the
review of such counsel, and Parent will give
reasonable consideration in good faith to any
comments of such counsel.
(iii) Furnish to each holder of Parent Stock covered by
the registration statement and to each underwriter,
if any, of such Parent Stock, such number of copies
of a preliminary prospectus and prospectus for
delivery in conformity with the requirements of the
1933 Act, and such other documents, as such Person
may reasonably request, in order to facilitate the
public sale or other disposition of the Parent
Stock.
(iv) Use its best efforts to register or qualify the Parent
Stock covered by such registration statement under
such other securities or blue sky laws of such
jurisdictions as each seller shall reasonably request,
and do any and all other acts and things which may be
reasonably necessary or advisable to enable
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such seller to consummate the disposition of the
Parent Stock owned by such seller in such
jurisdictions, except that Parent shall not for any
such purpose be required (x) to qualify to do business
as a foreign corporation in any jurisdiction where,
but for the requirements of this Section 19.3(iv), it
is not then so qualified, (y) to subject itself to
taxation in any such jurisdiction, or (z) to take any
action which would subject it to general or unlimited
service of process in any such jurisdiction where it
is not then so subject.
(v) Use its best efforts to cause the Parent Stock
covered by such registration statement to be
registered with or approved by such other
governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof
to consummate the disposition of such Parent Stock.
(vi) Immediately notify each seller of Parent Stock
covered by such registration statement, at any time
when a prospectus relating thereto is required to
be delivered under the 1933 Act within the
appropriate period mentioned in Section 19.3(ii),
if Parent becomes aware that the prospectus
included in such registration statement, as then in
effect, includes 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 in the light of
the circumstances then existing, and, at the
request of any such seller, deliver a reasonable
number of copies of an amended or supplemental
prospectus as may be necessary so that, as
thereafter delivered to the Parents of such Parent
Stock, each prospectus shall not include an untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in the light of the circumstances then
existing.
(vii) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and
make generally available to its security holders,
in each case as soon as practicable, but not later
than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the
period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will
satisfy the provisions of Section 11 (a) of the
1933 Act.
(viii) Use its best efforts in cooperation with the
underwriters to list such Parent Stock on each
securities exchange as they may reasonably
designate.
(ix) In the event the offering is an underwritten offering,
use its best efforts to obtain a "cold comfort" letter
from the independent public accountants for Parent in
customary form and covering such matters of the type
customarily covered by such letters.
(x) Execute and deliver all instruments and documents
(including in an underwritten offering an underwriting
agreement in customary form) and take such other
actions and obtain such certificates and opinions as
the
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stockholders holding a majority of the shares of
Parent Stock covered by the Registration Statement may
reasonably request in order to effect an underwritten
public offering of such Parent Stock.
(xi) Make available for inspection by the seller of such
Parent Stock covered by such registration
statement, by any underwriter participating in any
disposition to be effected pursuant to such
registration statement and by any attorney,
accountant or other agent retained by any such
seller or any such underwriter, all pertinent
financial and other records, pertinent corporate
documents and properties of Parent, and cause all
of Parent's officers, directors and employees to
supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or
agent in connection with such registration
statement.
(xii) Obtain for delivery to the underwriter or agent an
opinion or opinions from counsel for Parent in
customary form and in form and scope reasonably
satisfactory to such underwriter or agent and its
counsel.
19.4 OTHER REGISTRATION MATTERS.
(i) Each stockholder holding shares of Parent Stock
covered by a registration statement referred to in
this Section 19 will, upon receipt of any notice
from Parent of the happening of any event of the
kind described in Section 19.3(vi), forthwith
discontinue disposition of the Parent Stock
pursuant to the registration statement covering
such Parent Stock until such holder's receipt of
the copies of the supplemented or amended
prospectus contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2
involves an underwritten offering, each of the
stockholders agrees, whether or not his shares of
Parent Stock are included in such registration, not
to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the
1933 Act, of any Parent Stock, or of any security
convertible into or exchangeable or exercisable for
any Parent Stock (other than as part of such
underwritten offering), without the consent of the
managing underwriter, during a period commencing
eight calendar days before and ending 180 calendar
days (or such lesser number as the managing
underwriter shall designate) after the effective
date of such registration.
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19.5 INDEMNIFICATION.
(i) In the event of any registration of any securities
of Parent under the 1933 Act pursuant to Section
19.1 or 19.2, Parent will, and it hereby agrees to,
indemnify and hold harmless, to the extent
permitted by law, each seller of any Parent Stock
covered by such registration statement, each
Affiliate of such seller and their respective
directors, officers, employees and agents or
general and limited partners (and directors,
officers, employees and agents thereof) each other
Person who participates as an underwriter in the
offering or sale of such securities and each other
Person, if any, who controls such seller or any
such underwriter within the meaning of the 1933
Act, as follows:
(x) against any and all loss, liability, claim,
damage or expense whatsoever arising out of
or based upon an untrue statement or
alleged untrue statement of a material fact
contained in any registration statement (or
any amendment or supplement thereto),
including all documents incorporated
therein by reference, or the omission or
alleged omission therefrom of a material
fact required to be stated therein or
necessary to make the statements therein
not misleading, or arising out of an untrue
statement or alleged untrue statement of a
material fact contained in any preliminary
prospectus or prospectus (or any amendment
or supplement thereto) or the omission or
alleged omission therefrom of a material
fact necessary in order to make the
statements therein not misleading;
(y) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of
the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by
any governmental agency or body, commenced or
threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or
any such alleged untrue statement or omission,
if such settlement is effected with the
written consent of Parent; and
(z) against any and all expense reasonably
incurred by them in connection with
investigating, preparing or defending
against any litigation, or investigation or
proceeding by any governmental agency or
body, commenced or threatened, or any claim
whatsoever based upon any such untrue
statement or omission, or any such alleged
untrue statement or mission to the extent
that any such expense is not paid under
subsection (x) or (y) above;
Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such
seller or any such director, officer, employee, agent,
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general or limited partner, investment advisor or agent,
underwriter or controlling Person and shall survive the
transfer of such securities by such seller.
(ii) Parent may require, as a condition to including any
Parent Stock in any registration statement filed in
accordance with Section 19.1 or 19.2, that Parent
shall have received an undertaking reasonably
satisfactory to it from the prospective seller of
such Parent Stock or any underwriter, to indemnify
and hold harmless (in the same manner and to the
same extent as set forth in Section 19.5(i)) Parent
with respect to any statement or alleged statement
in or omission or alleged omission from such
registration statement, any preliminary, final or
summary prospectus contained therein, or any
amendment or supplement, if such statement or
alleged statement or omission or alleged omission
was made in reliance upon and in conformity with
written information furnished to Parent by or on
behalf of such seller or underwriter specifically
stating that it is for use in the preparation of
such registration statement, preliminary, final or
summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect
regardless of any investigation made by or on
behalf of Parent or any such director, officer or
controlling Person and shall survive the transfer
of such securities by such seller. In that event,
the obligations of the Parent and such sellers
pursuant to this Section 19.5 are to be several and
not joint; provided, however, that, with respect to
each claim pursuant to this Section 19.5, Parent
shall be liable for the full amount of such claim,
and each such seller's liability under this Section
19.5 shall be limited to an amount equal to the net
proceeds (after deducting the underwriting discount
and expenses) received by such seller from the sale
of Parent Stock held by such seller pursuant to
this Agreement.
(iii) Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of
any action or proceeding involving a claim referred
to in this Section 19.5, such indemnified party
will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice
to such indemnifying party of the commencement of
such action; provided, however, that the failure of
any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of
its obligations under this Section 19.5, except to
the extent (not including any such notice of an
underwriter) that the indemnifying party is
materially prejudiced by such failure to give
notice. In case any such action is brought against
an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties
may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the
fees and expenses of more than one firm of counsel
selected by holders of a majority of the shares of
Parent Stock included in the offering or more than
one firm of counsel for the underwriters in
connection with any one action or separate but
similar or related actions), the indemnifying party
will be entitled to participate in and to assume
the
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defense thereof, jointly with any other
indemnifying party similarly notified, to the
extent that it may wish with counsel reasonably
satisfactory to such indemnified party, and after
notice from the indemnifying party to such
indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or
other expenses subsequently incurred by such
indemnifying party in connection with the defense
thereof, provided that the indemnifying party will
not agree to any settlement without the prior
consent of the indemnified party (which consent
shall not be unreasonably withheld) unless such
settlement requires no more than a monetary payment
for which the indemnifying party agrees to
indemnify the indemnified party and includes a
full, unconditional and complete release of the
indemnified party; provided, however, that the
indemnified party shall be entitled to take control
of the defense of any claim as to which, in the
reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying
party and the indemnified party would be
inappropriate under the applicable standards of
professional conduct due to actual or potential
differing interests between them. In the event that
the indemnifying party does not assume the defense
of a claim pursuant to this Section 19.5(iii), the
indemnified party will have the right to defend
such claim by all appropriate proceedings, and will
have control of such defense and proceedings, and
the indemnified party shall have the right to agree
to any settlement without the prior consent of the
indemnifying party. Each indemnified party shall,
and shall cause its legal counsel to, provide
reasonable cooperation to the indemnifying party
and its legal counsel in connection with its
assuming the defense of any claim, including the
furnishing of the indemnifying party with all
papers served in such proceeding. In the event that
an indemnifying party assumes the defense of an
action under this Section 19.5(iii), then such
indemnifying party shall, subject to the provisions
of this Section 19.5, indemnify and hold harmless
the indemnified party from any and all losses,
claims, damages or liabilities by reason of such
settlement or judgment.
(iv) Parent and each seller of Parent Stock shall provide
for the foregoing indemnity (with appropriate
modifications) in any underwriting agreement with
respect to any required registration or other
qualification of securities under any federal or state
law or regulation of any governmental authority.
19.6 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by
Section 19.5 is for any reason not available or insufficient for any reason
to hold harmless an indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, the parties required to indemnify
by the terms thereof shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by Parent, any seller of Parent Stock and one or more of
the underwriters, except to the extent that contribution is not permitted
under Section 11 (f) of the 1933 Act. In determining the amounts which the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of
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the Parent Stock by taking into account the portion of the proceeds of the
offering realized by each, and the relative fault of each party by taking
into account the parties' relative knowledge and 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 under the circumstances. Parent and
each Person selling securities agree with each other that no seller of Parent
Stock shall be required to contribute any amount in excess of the amount such
seller would have been required to pay to an indemnified party if the
indemnity under Section 19.5(ii) were available. Parent and each such seller
agree with each other and the underwriters of the Parent Stock, if requested
by such underwriters, that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if
the underwriters were treated as one entity for such purpose) or for the
underwriters' portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the
Parent Stock. For purposes of this Section 19.6, each Person, if any, who
controls an underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such underwriter, and each
director and each officer of Parent who signed the registration statement,
and each Person, if any, who controls Parent or a seller of Parent Stock
within the meaning of Section 15 of the 1933 Act shall have the same rights
to contribution as Parent or a seller of Parent Stock, as the case may be.
19.7 UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. After Parent completes its initial underwritten public
offering and for as long thereafter as any stockholder shall continue to hold
any Restricted Securities, Parent shall use reasonable efforts to file, on a
timely basis, all annual, quarterly and other reports required to be filed by
it under Sections 13 and 15(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder, as amended from
time to time.
20. GENERAL
20.1 COOPERATION. Company, Parent and Newco shall 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 any of the others may reasonably request for the purpose of
carrying out this Agreement. Company will cooperate and use its reasonable
efforts to have its officers, directors and employees cooperate with Parent
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.
20.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of
the parties hereunder may not be assigned (except by operation of law or as
permitted by Section 17), but if assigned by operation of law, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto,
the successors of Parent, Newco and Company.
20.3 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Annexes) and the documents delivered pursuant hereto constitute the
entire agreement and understanding among Company, Newco and Parent and
supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution and delivery,
constitutes a valid
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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 Company, Newco and Parent, acting through their respective
officers or representatives, duly authorized by their respective Boards of
Directors. Any disclosure made on any Schedule delivered pursuant hereto
shall be deemed to have been disclosed for purposes of any other Schedule
required hereby; provided that Company shall make a good faith effort to
cross reference disclosures, as necessary or advisable, between related
Schedules.
20.4 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.
20.5 BROKERS AND AGENTS. Except as disclosed on Schedule 20.5,
each party represents and warrants that it employed no broker or agent in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damage or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by
such indemnifying party.
20.6 NOTICES. All notices of communication required or
permitted hereunder shall be in writing, addressed to the party to be
notified, and may be given by (i) depositing the same in United States mail,
postage prepaid and registered or certified with return receipt requested,
(ii) by telecopying the same if receipt thereof is confirmed or (iii) by
delivering the same in person to an officer or agent of such party.
(x) If to Parent or Newco, addressed to them at:
The Alliance Group, Inc.
12101 North Meridian
Oklahoma City, Oklahoma 73120
Attn: David W. Aduddell
Telecopy No.: (405) 749-8080
with a copy to:
McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attn: David J. Ketelsleger, Esq.
Telecopy No.: (405) 235-0439
(y) If to the Company, addressed to it at:
The Phone Man Sales and Services, Inc.
3212 West Hefner Road
Oklahoma City, Oklahoma 73120
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Attn: Jerry Dyer
Telecopy No.:
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.6 from time to time.
20.7 GOVERNING LAW. This Agreement Shall be construed in
accordance with the laws of the State of Oklahoma.
20.8 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.
20.9 TIME. Time is of the essence with respect to this Agreement.
20.10 REFORMATION AND SEVERABILITY. In case any provision of
this Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent practicable, 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.
20.11 REMEDIES CUMULATIVE. Except as otherwise provided in
Section 13.4, 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.
20.12 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.
20.13 PUBLIC STATEMENTS. The parties hereto shall consult with
each other and no party shall issue any public announcement or statement with
respect to the transactions contemplated hereby without the consent of the
other parties, unless the party desiring to make such announcement or
statement, after seeking such consent from the other parties, obtains advice
from legal counsel that a public announcement or statement is required by
applicable law.
20.14 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 Parent, Newco and Company. Any amendment or
waiver effected in accordance with this Section 20.14 be binding upon each of
the parties hereto.
20.15 COLLECTION PROCEDURES. From and after the Closing, Newco
shall have the right and authority, at its expense, to collect for its
account all items to which it is entitled as provided in
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this Agreement and to endorse with the name of the Company any checks or drafts
received on account of any such items.
20.16 ARBITRATION. Any claim, controversy or dispute arising out
of or relating to this Agreement, except as set forth herein, shall be
settled by arbitration in Oklahoma City, Oklahoma, in accordance with the
rules for arbitration of the American Arbitration Association. Any
arbitration shall be undertaken pursuant to the Federal Arbitration Act,
where possible, and the decision of the arbitrators shall be final, binding,
and enforceable in any court of competent jurisdiction. In any dispute in
which a party seeks in excess of $50,000 in damages, three arbitrators shall
be employed. Otherwise, a single arbitrator shall be employed. All costs
relating to the arbitration shall be borne equally by the parties, other than
their own attorneys' and experts' fees. The parties will bear their own
attorneys' and experts' fees. The arbitrators will not award punitive,
consequential or indirect damages. Each party hereby waives the right to such
damages and agrees to receive only those actual damages directly resulting
from the claim asserted. In resolving all disputes between the parties, the
arbitrators will apply the laws of the State of Oklahoma. Except as needed
for presentation in lieu of a live appearance, depositions will not be taken.
The parties will be entitled to conduct document discovery by requesting
production of documents. The arbitrators will resolve any discovery disputes
by such prehearing conferences as may be needed. Either party may be
entitled to pursue such remedies for emergency or preliminary injunctive
relief in any court of competent jurisdiction, provided that each party
agrees that it will consent to the stay of such judicial proceedings on the
merits of both this Agreement and the related transactions pending
arbitration of all underlying claims between the parties immediately
following the issuance of any such emergency or injunctive relief.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
THE ALLIANCE GROUP, INC.
BY: /s/ David W. Aduddell
-------------------------------------
NAME: David W. Aduddell
TITLE: President/Chief Executive Officer
ALLIANCE ACQUISITION IV CORP.
BY: /s/ David W. Aduddell
-------------------------------------
NAME: David W. Aduddell
TITLE: Chief Executive Officer
THE PHONE MAN SALES AND SERVICES, INC.
BY: /s/ Jerry Dyer
-------------------------------------
NAME: Jerry Dyer
TITLE: President
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<PAGE>
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
dated as of the 5th day of April, 1999
by and among
THE ALLIANCE GROUP, INC.
(Parent)
and
ALLIANCE ACQUISITION V CORP.
(Newco)
and
ACCESS COMMUNICATIONS SERVICES, INC.
(Company)
and
STEVE ADUDDELL
and
DAVID ADUDDELL
(Stockholders of the Company)
<PAGE>
AMENDMENT TO AGREEMENT
This Amendment to Agreement ("Amendment") is made and entered into as of
the 5th day of April, 1999, by and among THE ALLIANCE GROUP, INC., an
Oklahoma corporation ("Parent"), ALLIANCE ACQUISITION V CORP., an Oklahoma
corporation ("Newco"), ACCESS COMMUNICATIONS SERVICES, INC., an Oklahoma
corporation (the "Company"), and STEVE ADUDDELL AND DAVID ADUDDELL, the only
stockholders of the Company (collectively, the "Stockholders").
RECITALS
WHEREAS, Parent, Newco, the Company and the Stockholders executed that
certain Agreement and Plan of Merger dated March 10, 1999 (the "Merger
Agreement"); and
WHEREAS, Parent, Newco, the Company and the Stockholders desire to amend
the Merger Agreement to reflect that, since David W. Aduddell will contribute
to Parent all of the Parent stock issued to him pursuant to the Merger
Agreement, Mr. Aduddell should not be restricted by the noncompetition
provisions set forth in the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency whereof are hereby acknowledged, it is mutually
agreed as follows:
1. Parent and Newco acknowledge and agree that David W. Aduddell is
not subject to the noncompetition provisions set forth in Section 15 of the
Merger Agreement, and Parent and Newco will not enforce the noncompetition
provisions set forth in Section 15 of the Merger Agreement against Mr.
Aduddell.
2. In exchange for Parent and Newco releasing David W. Aduddell from
the noncompetition provisions of the Merger Agreement, David W. Aduddell
agrees not to compete against Parent or Newco to the same extent as he agreed
not to compete against Logix in accordance with the terms of that certain
noncompetition agreement executed by and between David W. Aduddell and Logix
(the "Logix Agreement"), except that the territory specified in the Logix
Agreement will be reduced to only include Oklahoma County and any county
contiguous thereto, in the State of Oklahoma.
3. All terms of the Merger Agreement continue to apply, except as
otherwise specified above, and if any conflict exists between the Merger
Agreement and this Amendment, the terms of this Amendment shall control. Any
terms not otherwise defined herein are defined as set forth in the Merger
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
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<PAGE>
THE ALLIANCE GROUP, INC.
BY: /s/ William J. Hartwig
NAME: William J. Hartwig
TITLE: President
ALLIANCE ACQUISITION VIII CORP.
BY: /s/ William J. Hartwig
NAME: William J. Hartwig
TITLE: Vice President of Operations
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<PAGE>
ACCESS COMMUNICATIONS SERVICES, INC.
BY: /s/ Steve Aduddell
NAME: Steve Aduddell
TITLE: President
STOCKHOLDERS:
/s/ David W. Aduddell
David W. Aduddell
/s/ David W. Aduddell
Steve Aduddell
-4-
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADVANTAGE BUSINESS SOLUTIONS, INC.
Advantage Business Solutions, Inc., an Oklahoma corporation (the
"Corporation"), hereby amends and restates its Certificate of Incorporation.
The original Certificate of Incorporation was filed with the Secretary of
State on September 4, 1998. This Amended and Restated Certificate of
Incorporation was adopted in accordance with the provisions of Sections 1077
and 1080 of the Oklahoma General Corporation Act (the "Act").
FIRST. The name of the Corporation is: The Alliance Group, Inc.
SECOND. The address of the initial registered office of the Corporation
in the State of Oklahoma is 12101 North Meridian, Oklahoma City, Oklahoma
County, Oklahoma 73120. The name of the registered agent at such address is
David W. Aduddell.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Oklahoma General
Corporation Act (the "Act").
FOURTH. The total number of shares of capital stock which the
Corporation shall have authority to issue is 5,000,000 shares, divided into
4,500,000 shares designated as Common Stock, par value $.01 per share, and
500,000 shares designated as Preferred Stock, par value $.01 per share.
The preferences, qualifications, limitations, restrictions and the
special or relative rights in respect of the shares of each class are as
follows:
PREFERRED.
The board of directors is authorized, subject to limitations prescribed
by law and the provisions hereof, to provide for the issuance of the shares
of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Oklahoma, to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the board with respect to each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of
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<PAGE>
that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and if so,
the terms and conditions of such conversion, including provisions for adjustment
of the conversion rate in such events as the board shall determine;
(e) Whether or not shares of that series shall be redeemable, and if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution and winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(h) Any other relative rights, preferences or limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or set
apart for payment before any dividends shall be paid or declared or set apart
for payment on the common shares with respect to the same dividend period.
COMMON.
Each of the shares of Common Stock of the Corporation shall be equal in all
respects to each other share. The holders of shares of Common Stock shall be
entitled to one vote for each share of Common Stock held with respect to all
matters as to which the Common Stock is entitled to be voted.
Subject to the preferential and other dividend rights applicable to
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive such dividends (payable in cash, stock or otherwise) as may be declared
on the Common Stock by the board of directors at any time or from time to time
out of any funds legally available therefor.
In the event of any voluntary or involuntary liquidation, distribution or
winding up of the Corporation, after distribution in full of the preferential
and/or other amounts to be
2
<PAGE>
distributed to the holders of shares of Preferred Stock, the holders of
shares of Common Stock shall be entitled to receive all of the remaining
assets of the Corporation available for distribution to its shareholders,
ratably in proportion to the number of shares of Common Stock held by them.
FIFTH. The name and mailing address of the sole incorporator is as
follows: David W. Aduddell, 12101 North Meridian, Oklahoma City, Oklahoma
73120.
SIXTH. Provisions for governing the internal affairs of the Corporation
are set forth in the Corporation's Bylaws, as the same may be amended from time
to time, which shall be adopted, amended or repealed by the incorporator prior
to receipt of any payment for any of the Corporation's stock, and thereafter,
the power to adopt, amend or repeal the bylaws is conferred on the board of
directors. Elections of directors need not be by written ballot.
SEVENTH. To the fullest extent permitted by the Act as the same exists or
may hereafter be amended, a director of this Corporation shall not be liable to
the Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director.
EIGHTH. The business and affairs of the Corporation shall be under the
direction of the board of directors.
The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the total number of directors constituting the entire board of
directors. The term of the initial Class I directors shall terminate on the
date of the 2000 annual meeting of shareholders; the term of the initial Class
II directors shall terminate on the date of the 2001 annual meeting of
shareholders and the term of the initial Class III directors shall terminate on
the date of the 2002 annual meeting of shareholders. At each annual meeting of
shareholders beginning in 2000, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the board of directors,
however resulting, may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy shall hold office for a term that shall coincide with
the term of the class to which such director shall have been elected.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election,
3
<PAGE>
term of office, filling of vacancies and other features of such directorship
shall be governed by the terms of the Certificate of Designation attributable
to such Preferred stock or the resolution or resolutions adopted by the board
of directors applicable thereto, and such directors so elected shall not be
divided into classes unless expressly provided by such terms.
NINTH. Except as otherwise required by law or as otherwise provided in
this Certificate of Incorporation or in the Bylaws of the Corporation, any
matter properly submitted to a vote of the shareholders entitled to vote at a
meeting of shareholders duly convened at which there is a quorum present
shall be deemed approved upon an affirmative vote of a majority of the
outstanding shares of capital stock entitled to vote and present at the
meeting, in person or by proxy. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the issued
and outstanding stock of this Corporation having voting power, voting
together as a single class, shall be required to amend, repeal or adopt any
provisions inconsistent with Sections Seventh, Eighth, Ninth, Tenth and
Eleventh of this Certificate of Incorporation.
TENTH. The Corporation shall indemnify the following persons in the
following manner:
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding or investigation, whether civil,
criminal or administrative, and whether external or internal to the
Corporation (other than a judicial action or suit brought by or in the right
of the Corporation), by reason of the fact that he is or was a director,
officer, or employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, or employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (all such persons being referred to hereafter as an "Agent"),
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed judicial action or suit brought by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he
is or was an Agent against expenses (including attorneys' fees), actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any
4
<PAGE>
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
(c) Any indemnification under Subsection (a) or (b) of this
Section (unless ordered by a court) shall be made by the Corporation unless a
determination is reasonably and promptly made (i) by the Board by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders, that such
person acted in bad faith and in a manner that such person did not believe to
be in or not opposed to the best interests of the Corporation, or, with
respect to any criminal proceeding, that such person believed or had
reasonable cause to believe that his conduct was unlawful.
(d) Notwithstanding the other provisions of this Section, to
the extent that an Agent has been successful on the merits or otherwise,
including the dismissal of an action without prejudice or the settlement of
an action without admission of liability, in defense of any proceeding or in
defense of any claim, issue or matter therein, such Agent shall be
indemnified against all expenses incurred in connection therewith.
(e) Except as limited by this Subsection (e), expenses
incurred in any action, suit, proceeding or investigation shall be paid by
the Corporation in advance of the final disposition of such matter, if the
Agent shall undertake to repay such amount in the event that it is ultimately
determined, as provided herein, that such person is not entitled to
indemnification. Notwithstanding the foregoing, no advance shall be made by
the Corporation if a determination is reasonably and promptly made by the
Board by a majority vote of a quorum of disinterested directors, or (if such
a quorum is not obtainable or, even if obtainable, a quorum of
disinterested-directors so directs) by independent legal counsel in a written
opinion, that, based upon the facts known to the Board or counsel at the time
such determination is made, such person acted in bad faith and in a manner
that such person did not believe to be in or not opposed to the best interest
of the Corporation, or, with respect to any criminal proceeding, that such
person believed or had reasonable cause to believe his conduct was unlawful.
In no event shall any advance be made in instances where the Board or
independent legal counsel reasonably determines that such person deliberately
breached his duty to the Corporation or its shareholders.
(f) Any indemnification or advance under Subsections (b), (c),
(d) or (e) of this Section shall be made promptly, and in any event within
ninety (90) days, upon the written request of the Agent, unless with respect
to applications under Subsections (b), (c) or (e) of this Section, a
determination is reasonably and promptly made by the Board by a majority vote
of a quorum of disinterested directors that such Agent acted in a manner set
forth in such Subsections as to justify the Corporation in not indemnifying
or making an advance to the
5
<PAGE>
Agent. In the event no quorum of disinterested directors is obtainable, the
Board shall promptly direct that independent legal counsel shall decide
whether the Agent acted in the manner set forth in such Subsections as to
justify the Corporation not indemnifying or making an advance to the Agent.
The right to indemnification or advances as granted by this Section shall be
enforceable by the Agent in any court of competent jurisdiction, if the Board
or independent legal counsel denies the claim, in whole or in part, or if no
disposition of such claim is made within ninety (90) days. The Agent's
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
(g) The indemnification provided by this Section shall not be
deemed exclusive of any other rights to which an Agent seeking
indemnification may be entitled under any Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be an Agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person. All rights to indemnification under this Section shall be deemed
to be provided by a contract between the Corporation and the Agent who serves
in such capacity at any time while this Certificate of Incorporation and
other relevant provisions of the general corporation law and other applicable
law, if any, are in effect. Any repeal or modification thereof shall not
affect any rights or obligations then existing.
(h) Upon resolution passed by the Board, the Corporation may
purchase and maintain insurance on behalf of any person who is or was an
Agent against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability
under the provisions of this Section.
(i) For the purposes of this Section, references to "the
Corporation" include all constituent corporations absorbed in a consolidation
or merger as well as the resulting or surviving corporation, so that any
person who is or was a director, officer, employee, trustee or agent of such
a constituent corporation or is or was serving at the request of such
constituent corporation as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise
shall stand in the same position under the provisions of this Section with
respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity.
(j) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee,
trustee or agent of the Corporation which imposes duties on, or involves
services by, such director, officer, employee, trustee or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonable believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in
6
<PAGE>
this Section.
(k) If this Section or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Agent as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with
respect to any action, suit, proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a
grand jury proceeding and an action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Section that shall not have been invalidated, or by any other applicable
agreement or law.
(l) The rights of indemnity created by this Section are and
shall be at all times subordinate to the right of prior payment of all
obligations of the Corporation for borrowed money to the extent they are due
and payable at the time any payment under this Section shall be due and
payable.
ELEVENTH. All contracts or transactions between the Corporation
(including any of its subsidiaries) and one or more of its affiliates (as
that term is defined in Rule 12b-2 as promulgated under the Securities
Exchange Act of 1934, as amended) or between the Corporation (including any
of its subsidiaries) and any other corporation, partnership, association, or
other organization in which an affiliate of the Corporation is an affiliate
thereof, shall be void or voidable solely for this reason unless:
(a) the material facts as to the affiliate's relationship or
interest and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the board or committee in good
faith authorize the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) the material facts as to the affiliate's relationship or
interest and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the disinterested shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
TWELFTH. The Corporation reserves the right to amend, alter, change, or
repeal any provisions herein contained, in the manner now or later prescribed
by statute. All rights, powers, privileges, and discretionary authority
granted or conferred upon shareholders or directors are granted subject to
this reservation.
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, for the purpose of forming a corporation pursuant to the
Oklahoma General Corporation Act, makes
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<PAGE>
this Amended and Restated Certificate of Incorporation and does hereby
further certify that the facts hereinabove stated are true as set forth as of
this 26th day of February, 1999.
/s/ David W. Aduddell, President
Attest:
/s/ Joe Evans
- --------------------------------
Joe Evans, Secretary
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<PAGE>
THE ALLIANCE GROUP, INC.
(AN OKLAHOMA CORPORATION, F/N/A ADVANCED BUSINESS SOLUTIONS, INC.)
BYLAWS
FEBRUARY 26, 1999
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of The Alliance
Group, Inc. (hereinafter called the Corporation) in the State of Oklahoma
shall be at 12101 North Meridian, Oklahoma City, Oklahoma 73120, and the
name of the registered agent in charge thereof shall be David Aduddell.
SECTION 1.02 OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State
of Oklahoma, as the Board of Directors (hereinafter called the Board) may
from time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
SECTION 2.02 SPECIAL MEETINGS. A special meeting of the stockholders
for the transaction of any proper business may be called at any time by the
Board or by the President.
SECTION 2.03 PLACE OF MEETINGS. All meetings of the stockholders
shall be held at such places, within or without the State of Oklahoma, as may
from time to time be designated by the person or persons calling the
respective meeting and specified in the respective notices or waivers of
notice thereof.
<PAGE>
SECTION 2.04 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall
be given not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder of record entitled to vote at such meeting
by delivering a typewritten or printed notice thereof to him personally, or
by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his post office address furnished by him to the
Secretary of the Corporation for such purpose or, if he shall not have
furnished to the Secretary his address for such purpose, then at his post
office address last known to the Secretary, or by transmitting a notice
thereof to him at such address by telegraph, cable, or wireless. Except as
otherwise expressly required by law, no publication of any notice of a
meeting of the stockholders shall be required. Every notice of a meeting of
the stockholders shall state the place, date and hour of the meeting, and, in
the case of a special meeting, shall also state the purpose or purposes for
which the meeting is called. Notice of any meeting of stockholders shall not
be required to be given to any stockholder who shall have waived such notice
and such notice shall be deemed waived by any stockholder who shall attend
such meeting in person or by proxy, except as a stockholder who shall attend
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment
is taken.
SECTION 2.05 QUORUM. Except in the case of any meeting for the
election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy,
shall constitute a quorum for the transaction of business at any meeting of
the stockholders of the Corporation or any adjournment thereof. In the
absence of a quorum at any meeting or any adjournment thereof, a majority in
voting interest of the stockholders present in person or by proxy and
entitled to vote thereat or, in the absence therefrom of all the
stockholders, any officer entitled to preside at, or to act as secretary of,
such meeting may adjourn such meeting from time to time. At any such
adjourned meeting at which a quorum is present any business may be transacted
which might have been transacted at the meeting as originally called.
SECTION 2.06 VOTING.
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:
(i) On the date fixed pursuant to Section 6.05 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meetings, or
(ii) if no such record date shall have been so fixed, then (a) at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or
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(b) if notice of the meeting shall be waived, at the close of business on the
day next preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall
be entitled to vote, unless in the transfer by the pledgor on the books of
the Corporation he shall have expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent such
stock and vote thereon. Stock having voting power standing of record in the
names of two or more persons, whether fiduciaries, members of a partnership,
joint tenants in common, tenants by entirety or otherwise, or with respect to
which two or more persons have the same fiduciary relationship, shall be
voted in accordance with the provisions of the General Corporation Law of the
State of Oklahoma.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said
proxy shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect
of revoking the same unless he shall in writing so notify the secretary of
the meeting prior to the voting of the proxy. At any meeting of the
stockholders all matters, except as otherwise provided in the Certificate of
Incorporation, in these Bylaws or by law, shall be decided by the vote of a
majority in voting interest of the stockholders present in person or by proxy
and entitled to vote thereat and thereon, a quorum being present. The vote
at any meeting of the stockholders on any question need not be by ballot,
unless so directed by the chairman of the meeting. On a vote by ballot each
ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and it shall state the number of shares voted.
SECTION 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 2.08 JUDGES. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge
so appointed shall first subscribed an oath faithfully to execute the duties
of a judge at such meeting with strict impartiality and according
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to the best of his ability. Such judges shall decide upon the qualification
of the voters and shall report the number of shares represented at the
meeting and entitled to vote on such question, shall conduct and accept the
votes, and, when the voting is completed, shall ascertain and report the
number of shares voted respectively for and against the question. Reports of
judges shall be in writing and subscribed and delivered by them to the
Secretary of the Corporation. The judges need not be stockholders of the
Corporation, and any officer of the Corporation may be a judge on any
question other than a vote for or against a proposal in which he shall have a
material interest.
SECTION 2.09 ACTION WITHOUT MEETING. Any action required to be taken
at any annual or special meeting of stockholders of the Corporation, or any
action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 GENERAL POWERS. The property, business and affairs of
the Corporation shall be managed by the Board.
SECTION 3.02 NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the entire Board shall not be less than one (1) or more than
nine (9) and shall consist of two (2) until, within the limits above
specified, a different number of directors, which shall constitute the whole
Board, shall be determined by resolution of the Board. The term of office of
the directors shall be determined in accordance with the Corporation's
Certificate of Incorporation.
SECTION 3.03 ELECTION OF DIRECTORS. All elections of directors shall
be decided by a plurality.
SECTION 3.04 CHAIRMAN OF THE BOARD. The members of the Board shall
elect one of the members of the Board to serve as the Chairman of the Board
of the Corporation. The Chairman of the Board shall serve in such capacity
until he resigns, is removed from the Board or is replaced by the majority
vote of the Board with a successor.
SECTION 3.05 RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the
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acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.06 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors,
or any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office until his successor shall have been elected and
shall qualify or until he shall resign or shall have been removed in the
manner hereinafter provided.
SECTION 3.07 PLACE OF MEETING, ETC. The Board may hold any of its
meetings at such place or places within or without the State of Oklahoma as
the Board may from time to time by resolution designate or as shall be
designated by the person or persons calling the meeting or in the notice or a
waiver of notice of any such meeting. Directors may participate in any
regular or special meeting of the Board by means of conference telephone or
similar communications equipment pursuant to which all persons participating
in the meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.08 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.09 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting shall be held
at the same hour and place on the next succeeding business day not a legal
holiday. Except as provided by law, notice of regular meetings need not be
given.
SECTION 3.10 SPECIAL MEETINGS. Special meetings of the Board shall be
held whenever called by the President or the Chairman of the Board or a
majority of the authorized number of directors. Except as otherwise provided
by law or by these Bylaws, notice of the time and place of each such special
meeting shall be mailed to each director, addressed to him at his residence
or usual place of business, at least five (5) days before the day on which
the meeting is to be held, or shall be given by telephonic notice at least
twenty-four (24) hours before the time of such scheduled meeting. Except
where otherwise required by law or by these Bylaws, notice of the purpose of
a special meeting need not be given. Notice of any meeting of the Board
shall not be required to be given to any director who is present at such
meeting, except a director who shall attend such meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.
SECTION 3.11 QUORUM AND MANNER OF ACTING. Except as otherwise
provided in the Certificate of Incorporation, these Bylaws or by law, the
presence of a majority of directors then in office shall be required to
constitute a quorum for the transaction of business at any meeting of the
Board, and all matters shall be decided at any such meeting, a quorum being
present, by the affirmative votes of a majority of the directors present. In
the absence of a quorum, a majority of directors present at any meeting may
adjourn the same from time to time
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until a quorum shall be present. Notice of any adjourned meeting need not be
given. The directors shall act only as a Board, and the individual directors
shall have no power as such.
SECTION 3.12 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of
the Board or of such committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the Board or committee.
SECTION 3.13 REMOVAL OF DIRECTORS. Subject to the provisions of the
Certificate of Incorporation or as required by law, any director may be
removed at any time, either with or without cause, by the affirmative vote of
the stockholders having a majority of the voting power of the Corporation
given at a special meeting of the stockholders called for the purpose.
SECTION 3.14 COMPENSATION. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution
of the Board. The Board may also provide that the Corporation shall
reimburse each such director for any expense incurred by him on account of
his attendance at any meetings of the Board or committees of the Board.
Neither the payment of such compensation nor the reimbursement of such
expenses shall be construed to preclude any director from serving the
Corporation or its subsidiaries in any other capacity and receiving
compensation therefor.
SECTION 3.15 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. Any such
committee, to the extent provided in the resolution of the Board, shall have
and may exercise all the powers and authority of the Board in the management
of the business and affairs of the Corporation, and may authorize the seal of
the Corporation to be affixed to all papers which may require it. Any such
committee shall keep written minutes of its meetings and report the same to
the Board at the next regular meeting of the Board. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in the place of any such absent or disqualified member.
SECTION 3.16 ADVISORY COMMITTEE. The Board may appoint such person or
persons as it may select to an advisory committee to the Board who shall be
authorized to participate in such meetings of the Board as determined by it.
Once established, this advisory committee shall be known as the Advisory
Board. Members of the Advisory Board shall not have the rights or obligations
of members of the Board and shall not participate in any voting thereof.
Members of the Advisory Board shall be entitled to such compensation as the
Board may determine from time to time.
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ARTICLE IV
OFFICERS
SECTION 4.01 NUMBER. The officers of the Corporation shall be a Chairman
of the Board, a President, one or more Vice Presidents (the number thereof and
their respective titles to be determined by the Board), a Secretary and a
Treasurer.
SECTION 4.02 ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers
of the Corporation, except such officers as may be appointed in accordance with
Section 4.03, shall be elected annually by the Board at the first meeting
thereof held after the election thereof. Each officer shall hold office until
his successor shall have been duly chosen and shall qualify or until his
resignation or removal in the manner hereinafter provided.
SECTION 4.03 ASSISTANTS, AGENTS AND EMPLOYEES, ETC. In addition to the
officers specified in Section 4.01, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, including one or
more Assistant Secretaries, and one or more Assistant Treasurers, each of whom
shall hold office for such period, have such authority, and perform such duties
as the Board may from time to time determine. The Board may delegate to any
officer of the Corporation or any committee of the Board the power to appoint,
remove and prescribe the duties of any such assistants, agents or employees.
SECTION 4.04 REMOVAL. Any officer, assistant, agent or employee of the
Corporation may be removed, with or without cause, at any time: (i) in the case
of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board and (ii) in the case of any other officer, assistant,
agent or employee, by any officer of the Corporation or committee of the Board
upon whom or which such power of removal may be conferred by the Board.
SECTION 4.05 RESIGNATIONS. Any officer or assistant may resign at any
time by giving written notice of his resignation to the Board or the Secretary
of the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, upon receipt thereof by the
Board or the Secretary, as the case may be; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 4.06 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Board, shareholders and committees of which he is
a member. He shall have such power and perform such duties as may be authorized
by the Board.
SECTION 4.08 THE PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President
shall be the chief executive officer of the Corporation. The President shall
(i) have the overall supervision of the business of the Corporation and shall
direct the affairs and policies of the
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Corporation, subject to any directions which may be given by the Board, (ii)
have authority to designate the duties and powers of officers and delegate
special powers and duties to specified officers, so long as such designations
shall not be inconsistent with the laws of the State of Oklahoma, these
bylaws or action of the Board, and shall in general have all other powers and
shall perform all other duties incident to the chief executive officer of a
corporation and such other powers and duties as may be prescribed by the
Board from time to time.
SECTION 4.09 THE VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board may from time to time prescribe. At
the request of the President, or in case of the President's absence or inability
to act upon the request of the Board, a Vice President shall perform the duties
of the President and when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the President.
SECTION 4.10 THE SECRETARY. The Secretary shall, if present, record the
proceedings of all meeting of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed, in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.
SECTION 4.11 THE TREASURER. The Treasurer shall have the general care
and custody of the funds and securities of the Corporation, and shall deposit
all such funds in the name of the Corporation in such banks, trust companies or
other depositories as shall be selected by the Board. He shall receive, and
give receipts for, moneys due and payable to the Corporation from any source
whatsoever. He shall exercise general supervision over expenditures and
disbursements made by officers, agents and employees of the Corporation and the
preparation of such records and reports in connection therewith as may be
necessary or desirable. He shall, in general, perform all other duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board.
SECTION 4.12 COMPENSATION. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided in these Bylaws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board
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or by these Bylaws, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or in any amount.
SECTION 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney shall
give such bond, if any, as the Board may require.
SECTION 5.03 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
SECTION 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may select
or as may be selected by any officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the
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date of issue. A record shall be kept of the respective names of the persons,
firms or corporations owning the stock represented by such certificates, the
number and class of shares represented by such certificates, respectively,
and the respective dates thereof, and in case of cancellation, the respective
dates of cancellation. Every certificate surrendered to the Corporation for
exchange or transfer shall be cancelled, and no new certificate or
certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases
provided for in Section 6.04.
SECTION 6.02 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
SECTION 6.04 LOST, STOLEN, DESTROYED, AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper to do so.
SECTION 6.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any other change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days nor less than ten (10) days prior to any other action. If no
record date is fixed by the Board, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A
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determination of stockholders entitled to notice of or to vote at a meeting
of stockholders shall apply to any adjournment of such meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 SEAL. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the Corporation was incorporated in the State of
Oklahoma and the year of incorporation.
SECTION 7.02 WAIVER OF NOTICES. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 7.03 AMENDMENTS. Except otherwise set forth in the Corporation's
Certificate of Incorporation, these Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made (i) by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board, or (ii) by the stockholders, at any annual meeting of
stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any Bylaws made
or altered by the stockholders may be altered or repealed by either the Board or
the stockholders in accordance with the Corporation's Certificate of
Incorporation and these Bylaws.
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EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary State or Organization
- ---------- ---------------------
<S> <C>
Alliance Acquisition I Corp. Oklahoma
Alliance Acquisition II Corp. Oklahoma
Alliance Acquisition III Corp. Oklahoma
Alliance Acquisition IV Corp. Oklahoma
Alliance Acquisition V Corp. Oklahoma
Alliance Acquisition VI Corp. Oklahoma
Alliance Acquisition VII Corp. Oklahoma
Alliance Acquisition VIII Corp. Oklahoma
Alliance Acquisition IX Corp. Oklahoma
Alliance Acquisition X Corp. Oklahoma
Alliance Acquisition XI Corp. Oklahoma
Alliance Acquisition XII Corp. Oklahoma
Alliance Acquisition XIII Corp. Oklahoma
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of The Alliance Group, Inc.
on Form SB-2 of our reports on the financial statements of the following
companies (for the periods indicated) appearing in the Prospectus, which is part
of this Registration Statement:
As of December 31, 1998, and for the period from September 4, 1998
(date of inception), to December 31, 1998:
The Alliance Group, Inc. (formerly Advantage Business Solutions,
Inc.), dated March 18, 1999 (April 9, 1999 as to Note 7 to the
financial statements)
As of December 31, 1998, and the year then ended:
Access Communication Services, Inc., dated February 28, 1999
American Telcom, Inc., dated February 19, 1999
Banner Communications, Inc., dated February 28, 1999
Communication Services, Inc., dated March 9, 1999
Travis Business Systems, Inc., dated February 19, 1999
As of December 31, 1998 and 1997, and for the years then ended:
Telephone and Paging Divisions of Electrical & Instrument Sales
Corporation (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the divisions being
a component part of EIS), dated March 5, 1999
As of September 30, 1998, and for the year then ended:
Terra Telecom, Inc., dated February 15, 1999
Telkey Communications, Inc., dated February 26, 1999
We also consent to the reference to us under the headings "Summary Combined
Financial Information" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
April 9, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm and to the use of our report dated
February 18, 1999, included in or made a part of the Prospectus of The
Alliance Group, Inc. which is made a part of the Registration Statement on
Form SB-2 (No. 333-__________) of The Alliance Group, Inc.
/s/ Hunter, Atkins & Russell, PLC
Oklahoma City, Oklahoma
April 8, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm and to the use of our report dated
February 28, 1999, included in or made a part of the Prospectus of The Alliance
Group, Inc. which is made a part of the Registration Statement (Form SB-2) of
The Alliance Group, Inc.
April 9, 1999 /s/ Saxon & Knol, P.C.
--------------------------------
<PAGE>
CONSENT
The undersigned hereby consents to the reference to his name in the
prospectus forming a part of this registration statement on Form SB-2 of The
Alliance Group, Inc. and all amendments thereto, and consents to serve as the
Chief Executive Officer and a director of The Alliance Group, Inc. if the
acquisitions described in the prospectus and all transactions related
thereto, are consummated.
/s/ Larry E. Travis
---------------------------
Larry E. Travis
April 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF THE ALLIANCE GROUP, INC. AS OF DECEMBER 31, 1998 AND FOR THE
PERIOD FROM SEPTEMBER 8, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> SEP-04-1998
<PERIOD-END> DEC-31-1998
<CASH> 79,700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,633
<PP&E> 42,699
<DEPRECIATION> (1,978)
<TOTAL-ASSETS> 142,852
<CURRENT-LIABILITIES> 138,809
<BONDS> 0
0
0
<COMMON> 7,610
<OTHER-SE> (29,686)
<TOTAL-LIABILITY-AND-EQUITY> 142,852
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 112,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 850
<INCOME-PRETAX> (113,078)
<INCOME-TAX> 0
<INCOME-CONTINUING> (113,078)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113,078)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
