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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PROTOCOL COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7389 04-3422819
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE DESIGN CENTER PLACE, SUITE 700
BOSTON, MA 02210
617-880-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHEN G. MCLEAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROTOCOL COMMUNICATIONS, INC.
ONE DESIGN CENTER PLACE, SUITE 700
BOSTON, MA 02210
617-880-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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DENNIS J. FRIEDMAN, ESQ. MORTON A. PIERCE, ESQ.
BARBARA L. BECKER, ESQ. MICHELLE B. RUTTA, ESQ.
CHADBOURNE & PARKE LLP DEWEY BALLANTINE LLP
30 ROCKEFELLER PLAZA 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10112 NEW YORK, NY 10019
(212) 408-5100 (212) 259-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(1)
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<S> <C> <C>
Common stock, par value $0.001 per share................. $85,000,000 $22,440.00
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(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
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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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO 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.
SUBJECT TO COMPLETION, DATED , 2000
Shares
PROTOCOL LOGO
Common Stock
------------------
Protocol Communications, Inc. is selling shares of its common stock. Prior
to this offering, there has been no public market for our common stock. The
initial public offering price of our common stock is expected to be between
$ and $ per share. We intend to apply to list our common stock on
The Nasdaq National Market under the symbol "PTCL."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
.
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UNDERWRITING
DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS PROCEEDS TO PROTOCOL
--------------- ------------- --------------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON DONALDSON, LUFKIN & JENRETTE
FIRST UNION SECURITIES, INC. THE ROBINSON-HUMPHREY COMPANY
The date of this prospectus is , 2000.
<PAGE> 3
[Artwork to be provided]
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 14
USE OF PROCEEDS....................... 15
DIVIDEND POLICY....................... 15
CAPITALIZATION........................ 16
DILUTION.............................. 17
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA...................... 18
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 25
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PAGE
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BUSINESS.............................. 32
MANAGEMENT............................ 43
RELATED PARTY TRANSACTIONS............ 50
PRINCIPAL STOCKHOLDERS................ 51
DESCRIPTION OF CAPITAL STOCK.......... 54
SHARES ELIGIBLE FOR FUTURE SALE....... 56
UNDERWRITING.......................... 58
NOTICE TO CANADIAN RESIDENTS.......... 61
LEGAL MATTERS......................... 62
EXPERTS............................... 62
ADDITIONAL INFORMATION................ 63
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), 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 DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
In this prospectus, unless the context requires a different meaning, all
references to "Protocol," "our company," "we," "our" and "us" refer to Protocol
Communications, Inc. and its subsidiaries.
PROTOCOL COMMUNICATIONS, INC.
Protocol is a leading provider of electronic customer relationship
management (eCRM) services that enable our clients to identify, acquire and
retain their customers. We design and implement comprehensive solutions which
utilize the Internet and other communication channels to provide integrated
end-to-end, high value-added solutions to address all the eCRM needs of our
clients. We categorize these solutions broadly into three groups including
assisting in the development of sales, marketing and customer contact
strategies, implementing customer contact and fulfillment services to meet our
clients' sales and marketing needs, and providing continued real-time feedback
and analysis. We are increasingly providing our suite of Internet-enabled
customer management capabilities, such as click to chat, click to call,
automated and live e-mail response management and other similar tools to provide
customized solutions to address client needs. We believe our broad range of
services allows our clients to expand their customer bases, increase the
frequency and quality of customer interactions and enhance opportunities to sell
their products or services. Our ability to provide integrated, end-to-end
solutions enables our clients to manage their customer relationships through a
single service provider and concentrate on developing their core businesses.
We believe we are uniquely positioned to continue to build upon our
leadership position in the rapidly emerging eCRM industry through our extensive
network of customer contact facilities, our ability to quickly develop and
execute large projects for clients, our integrated end-to-end solution
capability and our consultative approach to implementing solutions for our
clients. As of March 31, 2000, we had contracts with over 200 clients, including
Bigwords.com, Cable & Wireless, IBM, Intuit, Shell Energy Services and
ShopTalk.com. We target clients leveraging the Internet as part of their
business strategy, including companies in the Fortune 2000 who have or are
developing a presence on the Internet while maintaining their traditional
businesses as well as select businesses operating exclusively on the Internet.
We currently service clients through our network of over 4,300 employees and 19
customer contact centers in the United States and Canada. Our non-proprietary,
open architecture technology systems allow us to extend our capabilities and to
implement new client solutions in a short timeframe.
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OUR OPPORTUNITY
While commerce conducted over the Internet, or e-commerce, has grown
significantly, studies have shown that there is generally a low level of
satisfaction with the e-commerce experience. As e-commerce evolves, we believe
companies will need to focus on acquiring customers more efficiently and
converting Website visits into lasting and profitable customer relationships. To
do so, and as part of developing successful e-commerce strategies, we believe
that companies must establish eCRM capabilities. By outsourcing this
mission-critical business function to us, our clients can establish their
e-commerce presence with reduced upfront expenses, gain considerable time to
market and access to marketing, customer contact and fulfillment services
capable of expanding as their businesses grow, all while maintaining a high
level of customer service.
We believe that a substantial market opportunity exists for eCRM service
providers who can offer scaleable, end-to-end services which combine
technological infrastructure, an in-depth understanding of their clients'
businesses, management expertise and training resources to effectively and
efficiently serve their clients' long-term needs. We believe we possess many
industry-leading attributes which can be leveraged to the benefit of our clients
and which are unique in the eCRM market today. These include:
- our proven track record of quality scaleable client eCRM services;
- our integrated end-to-end approach; and
- our consultative approach tailored to the needs of our clients.
OUR STRATEGY
Our mission is to be the leading provider of eCRM solutions to businesses
leveraging the Internet as part of their business strategy. To achieve this
objective, we plan to:
- leverage our ability to provide consultative, integrated end-to-end eCRM
solutions;
- capitalize on our "early mover" advantage in the eCRM market;
- further penetrate existing client accounts by providing additional
high-quality, value-added eCRM services;
- access new geographic markets and develop new products and services; and
- pursue strategic acquisitions and partnerships.
COMPANY INFORMATION
We commenced operations as a Delaware corporation in June 1998. As of June
1, 2000, our headquarters will be located at The Tower at Northwoods, 222
Rosewood Drive, Danvers, Massachusetts 01923, and our telephone number is
617-880-2000. Our primary Internet address is www.protocolusa.com. We can also
be reached through www.protocolcanada.com, www.protocoleur.com,
www.protocolec.com, www.protocolasia.com and others. The information on our
Websites are not part of this prospectus.
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THE OFFERING
Common Stock offered.......... shares
Common Stock to be outstanding
after this offering........... shares
Use of proceeds............... We intend to use approximately $62 million of
the net proceeds to repay our existing credit
facility and approximately $4.2 million to pay
accumulated dividends on our Series B
convertible preferred stock. We expect to use
the remaining net proceeds to finance the
continued growth of our business, including
possible future acquisitions, and for other
general corporate purposes, including payment
of contingent obligations of up to $5.6 million
relating to certain of our previous
acquisitions.
Proposed Nasdaq National
Market symbol................. PTCL
Unless otherwise indicated, the information in this prospectus:
- assumes no exercise of the underwriters' over-allotment option;
- reflects the for stock split of our common stock effected
on , 2000;
- assumes the automatic conversion of all outstanding shares of Series A
preferred stock and Series B convertible preferred stock into 10,899,388
shares of common stock upon consummation of this offering;
- assumes no exercise of options outstanding as of March 31, 2000 to
purchase 1,199,500 shares of our common stock at a weighted average
exercise price of $6.05 per share; and
- assumes no issuance of the up to 500,000 shares of common stock that we
may be required to issue in 2001 in connection with certain of our
previous acquisitions.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary historical and unaudited pro forma consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Unaudited Pro Forma
Consolidated Financial Statements" and our consolidated financial statements and
related notes included elsewhere in this prospectus. The summary unaudited pro
forma consolidated financial information does not purport to represent what our
results would have been if the events below had occurred at the dates indicated.
The summary unaudited pro forma consolidated statement of operations data
for the year ended December 31, 1999 gives effect to (1) the acquisitions of
Cross-Industry Communications and MBS Communications in February 1999, of Blue
Line Promotions in April 1999 and of 3223574 Canada Inc., which we refer to in
this prospectus as Media Express in May 1999 (the "1999 Acquired Companies"),
and of Canicom, Carroll Ventures and Saligent in March 2000 (the "2000 Acquired
Companies"), and (2) pro forma adjustments to the historical consolidated
financial statements as if the acquisitions of the 1999 Acquired Companies and
the 2000 Acquired Companies had occurred on January 1, 1999. The unaudited pro
forma as adjusted statement of operations reflects the issuance of shares
of common stock in this offering, assuming an initial public offering price of
$ , and the application of the estimated net proceeds to repay the
existing credit facility, to pay accumulated dividends on the Series B
convertible preferred stock and increase cash.
The summary unaudited pro forma consolidated balance sheet data as of
December 31, 1999 gives effect to the acquisitions of the 2000 Acquired
Companies as if they had occurred on December 31, 1999. The summary unaudited
pro forma as adjusted consolidated balance sheet data as of December 31, 1999
gives effect to the automatic conversion of all outstanding shares of Series A
preferred stock and Series B convertible preferred stock into 10,899,388 shares
of common stock upon the consummation of this offering and the sale of shares of
our common stock in this offering, after deducting the underwriting discount and
estimated offering expenses, and our anticipated application of the net proceeds
of the offering, including $62 million to repay our existing credit facility and
approximately $4.2 million to pay accumulated dividends on our Series B
convertible preferred stock.
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PERIOD FROM YEAR ENDED DECEMBER 31, 1999
JUNE 5, 1998 -----------------------------------
(INCEPTION) TO PRO FORMA
DECEMBER 31, 1998 ACTUAL PRO FORMA AS ADJUSTED
----------------- --------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 14,138 $ 80,689 $ 112,424
Cost of services.............................. 8,222 42,428 58,318
---------- --------- --------- ---------
Gross profit............................. 5,916 38,261 54,106
Operating expenses:
Selling, general and administrative........... 4,078 24,317 36,799
Depreciation and amortization................. 3,500 16,251 21,481
Stock-based compensation expense.............. 1,110 1,742 1,742
---------- --------- --------- ---------
Operating loss........................... (2,772) (4,049) (5,916)
---------- --------- ---------
Net loss................................. $ (2,750) $ (12,682) $ (16,962)
========== ========= =========
Net loss attributable to common
stockholders................................ $ (2,949) $ (52,163) $ (56,433)
========== ========= ========= =========
Basic and diluted net loss per share.......... $ (1.26) $ (14.74) $ (15.09)
========== ========= ========= =========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share.................. 2,345,952 3,539,781 3,739,781
========== ========= =========
OTHER DATA:
Adjusted EBITDA(1)............................ $ 1,838 $ 13,944 $ 17,307
</TABLE>
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DECEMBER 31, 1999
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PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
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(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 9,444 $ 9,592
Working capital.......................................... 8,736 11,436
Total assets............................................. 94,836 116,125
Long-term debt, including current portion................ 65,752 80,856
Series A preferred stock and Series B
convertible preferred stock............................ 73,944 73,944
Total stockholders' equity (deficit)..................... (61,822) (60,308)
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(1) Adjusted EBITDA represents earnings before interest and financial charges,
income taxes, depreciation and amortization and stock-based compensation
expense which is a non-cash item. We have included information concerning
adjusted EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, because we believe that it is used
by certain investors as one measure of financial performance. Adjusted
EBITDA should not be construed as an alternative to operating income, as
determined in accordance with generally accepted accounting principles, or
as a measure of liquidity. Adjusted EBITDA as measured by us may not be
comparable to similarly titled measures reported by other companies.
5
<PAGE> 10
RISK FACTORS
You should carefully consider the risks described below and other
information in this prospectus before deciding to invest in shares of our common
stock. The risks and uncertainties described below are the principal known risks
facing our company but not the only ones we face. If we do not successfully
address the risks described below, our business and operating results could be
materially and adversely affected. In that case, the trading price of our common
stock may decline and you may lose all or part of your investment. We cannot
assure you that we will successfully address these risks.
RISKS RELATED TO OUR BUSINESS
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND ANY
INABILITY TO MANAGE THIS GROWTH AND ANY ADDITIONAL GROWTH COULD HARM OUR
BUSINESS.
We have rapidly and significantly increased the scale of our operations and
anticipate that further significant expansion will be required to address
anticipated growth in our client base and market opportunities. This expansion
has placed, and is expected to continue to place, a strain on our managerial,
operational and financial resources. To the extent that our business continues
to grow rapidly, we will need to continue to improve our managerial, operational
and financial controls and information systems and procedures and will need to
continue to expand, train and manage our overall workforce. If we are unable to
manage additional growth effectively, our business could be adversely affected.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AND A LIMITED HISTORY OF COMBINED
OPERATIONS, IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS.
We commenced operations in June 1998 and have a limited operating history.
We have acquired 15 businesses since our inception. We completed the most recent
acquisitions of three companies in March 2000. Accordingly, you have limited
information with which to evaluate our business and prospects. As a result,
forecasts of our future revenues, expenses and operating results may not be as
accurate as they would be if we had a longer history of operations and of
combined operations.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE CANNOT ASSURE YOU THAT WE WILL
ACHIEVE OPERATING PROFITS.
We had operating losses of $(2.8) million for the period from June 5, 1998
(inception) to December 31, 1998, and $(4.0) million for the year ended December
31, 1999. Included in the operating loss for such periods are amortization of
intangible assets, depreciation, and non-cash stock-based compensation expense
of $4.6 million and $18.0 million, respectively. We expect to incur significant
expenses over the next several years relating to the expansion of our sales
force and our efforts to grow our client base and revenue. We expect to continue
to incur operating losses in the foreseeable future primarily due to our growth
strategy.
IF WE ARE NOT ABLE TO RAPIDLY INCREASE THE SCALE OF OUR OPERATIONS, WE MAY NOT
BE ABLE TO ACCOMMODATE SIGNIFICANT GROWTH IN THE NUMBER OF OUR CLIENTS.
Our success depends on our ability to provide many different clients with a
range of services. In order to maintain and increase our market share, we will
need to increase the scale of our operations in a timely manner to service a
larger number of clients and the increasing volume of activity generated by
those clients. In order to accomplish this increase in scale, we will need to
increase the number of our skilled employees and to expand the physical
infrastructure to support them. If we fail to do so, we may not be able to
efficiently service an increasingly large number of customer interactions within
a short period of time. If we are not able to maintain an appropriate level of
service, we may develop a negative reputation and lose current or prospective
clients and our business could be adversely affected.
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WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our operating results may fluctuate in the future as a result of a variety
of factors, many of which are outside our control. Due to these fluctuations, it
is possible that in some future quarters our operating results will fall below
the expectations of securities analysts and investors, which could cause the
price of our common stock to decline. Factors that may adversely affect our
quarterly operating results include:
- the amount and timing of sales and marketing costs and capital
expenditures relating to the expansion of the scale of our operations;
- the magnitude and timing of marketing programs or acquisitions;
- delays in executing client contracts or implementing services for our
clients;
- technical difficulties or service interruptions; and
- the seasonality of some of our clients' businesses.
In addition, our expense levels are based, in part, on our expectations
with regard to future revenues. If we are unable to predict our future revenues
accurately, we could experience difficulty adjusting our spending in a timely
manner to compensate for unexpected revenue shortfalls. Accordingly, any
significant shortfall relative to our expectations could cause declines in our
quarterly operating results. We believe that our quarterly revenues, expenses
and operating results could vary significantly in the future, and that
period-to-period comparisons should not be relied upon as indicators of future
performance.
ACQUISITIONS COULD RESULT IN DILUTION, UNFAVORABLE ACCOUNTING CHARGES AND
DIFFICULTIES IN SUCCESSFULLY MANAGING OUR BUSINESS.
We have a history of acquisitions and, as part of our business strategy, we
will continue to pursue acquisitions of companies that would complement our
existing business. In March 2000, we acquired three businesses and we are in the
process of completing their integration. Although we may not be able to find
suitable acquisition opportunities on favorable terms, future acquisitions could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities or amortization expenses related to goodwill and
other intangible assets, any of which could harm our operating results.
Furthermore, future acquisitions may entail numerous risks and uncertainties,
including:
- difficulties in the assimilation of operations, personnel and the
information systems of the acquired companies;
- diversion of management's attention from other business concerns; and
- potential loss of key employees and clients of acquired organizations.
We may not be able to successfully integrate any businesses, services or
personnel that might be acquired in the future, and our failure to do so could
limit our future growth.
We may have to make contingent payments in connection with our recent
acquisitions or future acquisitions based upon whether the acquired company
achieves future financial targets. Currently, we have total contingent payment
obligations of up to approximately $24.1 million in cash and up to approximately
500,000 shares of common stock in connection with certain of our previous
acquisitions. To the extent these payments are made in cash, our liquidity may
be adversely impacted. To the extent these payments are made by issuing shares
of our common stock, you may experience dilution.
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IF WE ARE NOT ABLE TO HIRE, TRAIN AND RETAIN SKILLED SALES PERSONNEL AND OTHER
QUALIFIED EMPLOYEES, WE MAY NOT BE ABLE TO SUSTAIN THE GROWTH OF OUR BUSINESS.
We currently employ a highly skilled sales force and plan to expand this
sales force as we increase the scale of our operations. Competition for
qualified sales personnel is intense, and we may not be able to hire a
sufficient number of sales people with the skills we need. If we are unable to
significantly expand our sales force, we may not increase our market share or
revenue, which could limit our future growth.
As a customer relationship management services company, our future
profitability and growth also depends in part on our ability to hire, train and
retain qualified employees to service our clients' customers. The customer
relationship management services industry is labor-intensive and has experienced
personnel turnover in the past. If we cannot hire, train and retain a sufficient
number of qualified employees, we may not be able to provide top level customer
relationship management services as requested by our clients, our expenses could
increase and the growth of our business could be adversely affected.
WE RELY ON THE SERVICES OF OUR KEY EXECUTIVE PERSONNEL WHOSE KNOWLEDGE OF OUR
BUSINESS WOULD BE DIFFICULT TO REPLACE.
Our future success depends to a significant degree on the skills,
experience and efforts of our senior management, whose knowledge of our business
would be difficult to replace. If our key employees left or were seriously
injured and unable to work and we were unable to find qualified replacements in
a timely manner, our operations could be adversely affected.
WE MAY NOT BE ABLE TO REDEPLOY OUR RESOURCES EFFICIENTLY IN THE EVENT NUMEROUS
CLIENT CONTRACTS WERE TERMINATED ON SHORT NOTICE.
A substantial number of our client agreements, including contracts with
some of our larger clients, are terminable upon short notice. Our agreements
with our clients generally provide for an initial term of 12 months and continue
thereafter unless terminated by either party upon 30 days' notice. These clients
may choose to discontinue our services at any time after the initial term and
for any reason. Termination of our services by several clients could require us
to redeploy resources such as our customer contact employees to the accounts of
existing or new clients. If redeployment or reduction of resources could not be
achieved in an efficient and timely manner, our business could be adversely
affected.
CONTROLLING AND MANAGING OUR CLIENTS' INFORMATION MAY EXPOSE US TO ADDITIONAL
BUSINESS RISKS.
As part of our eCRM services, we manage a broad range of our clients'
confidential customer and operational information such as credit card numbers
and customer profile information. If our clients' information is or is perceived
to be misused, damaged, lost or subject to a security breach, our reputation may
be damaged and we may be exposed to a risk of loss or litigation and possible
liability. Our security measures may not be sufficient to prevent security
breaches and we may incur additional costs in connection with maintaining the
integrity of our clients' information in the future.
WE MAY NOT SUCCESSFULLY COMPETE IN OUR INDUSTRY.
Although we have not experienced intense competition in the market for our
services to date, the intensity of competition may increase in the future as
existing competitors enhance and expand their service offerings, as new
participants enter the market and as companies develop in-house customer service
initiatives. Our failure to maintain and enhance our competitive position would
limit our ability to maintain or increase our market share, which could
adversely affect our business. Increased competition also may result in price
reductions, reduced gross margins and loss of market share.
Our most significant competition is from the in-house customer service
initiatives that many of our potential clients have established or plan to
establish. It may be difficult for us to displace some of these internally
developed operations, many of which have greater financial resources and
stronger relationships with the management of our clients than we do. In
addition, many third party providers offer one or more
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of the same services we do, and we face competition from many different sources
depending upon the type and range of services needed by a potential client. Our
competitors include companies that offer a single service, such as call centers,
database management and marketing campaign management companies, as well as
companies that offer multiple services. In addition, a number of these providers
may establish cooperative relationships among themselves.
Some of these competitors have longer operating histories than we do. In
addition, some of these competitors have greater brand recognition and greater
financial, technical, marketing and other resources than we do. As a result,
certain of our competitors may be in a stronger position to respond quickly to
potential acquisitions and other market opportunities, new or emerging
technologies, and changes in client requirements. Competitors with greater
financial resources may be able to offer lower prices, additional services or
other incentives that we cannot match or do not offer.
INTERNATIONAL EXPANSION OF OUR OPERATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
To date our operations have been focused on North America. However, we may
expand the scope of our operations to service international clients and the
international efforts of our domestic clients. International expansion would
require significant management attention and financial resources. We could also
face additional regulatory requirements, tax liabilities and other risks as we
expand internationally. If we were unable to expand our international operations
successfully, our business could be adversely affected.
RISKS RELATED TO TECHNOLOGY
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND TO COMPETE WE MUST
CONTINUALLY ENHANCE OUR COMPUTER AND TECHNOLOGY SYSTEMS TO COMPLY WITH EVOLVING
STANDARDS.
To remain competitive, we must continue to enhance and improve the range,
responsiveness, reliability and features of our services and underlying computer
systems. Our industry is characterized by rapid technological advances, changes
in customer preferences, frequent new products and services embodying new
technologies and the emergence of new industry standards and practices that
could render the technology we use and our systems obsolete. Our success will
depend, in part, on our ability to license leading technologies to enhance our
existing services and to develop new services. We must continue to address the
increasingly sophisticated and varied needs of our clients and respond to
technological advances and emerging industry standards on a cost-effective and
timely basis. If we are unable to license technology to adapt to changing market
conditions, client requirements or emerging industry standards, our business
could be adversely affected.
IF THIRD-PARTY SOFTWARE THAT WE USE TO PROVIDE OUR SERVICES SHOULD CEASE TO BE
AVAILABLE, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
We have no significant proprietary technology or development capabilities
and are dependent upon third-party software to provide many of our services. If
we are unable to continue to obtain key third-party software, delivery of our
services could be delayed until we can license equivalent software and integrate
it, which could adversely affect our business. In addition, if any of the
vendors of our software should cease to provide support for software we use, we
may need to find alternative software or support providers, which may not be
available on similar or suitable terms.
OUR BUSINESS AND COMPETITIVENESS COULD BE ADVERSELY AFFECTED BY SYSTEMS OR
EQUIPMENT FAILURES.
Our business is significantly dependent on services provided by various
local and long distance telephone companies, as well as Internet service
providers. A significant increase in the cost of telecommunications service that
were not recoverable through an increase in the price of our service, or any
significant interruption in telephone or Internet services, could adversely
affect our business.
9
<PAGE> 14
Our operations are also dependent upon our ability to protect our customer
contact centers and our computer and software systems against damage and
failures. Damage or failures could result from fire, power loss, equipment
malfunctions, systems failures, natural disasters and other causes. If our
business or the operations of our clients were interrupted or delayed either
from accidents or the intentional acts of others, we may lose revenues and incur
significant unanticipated expenses which our insurance may not cover. In
addition, in the event of widespread damage or failures at our facilities, our
redundancy plans and insurance coverage may not be sufficient.
RISKS RELATED TO OUR INDUSTRY
IF DEMAND FOR OUTSOURCED ECRM SERVICES DOES NOT GROW AS WE EXPECT, THE GROWTH OF
OUR BUSINESS MAY BE ADVERSELY AFFECTED.
The growth of our business depends on the acceptance by companies of
outsourced eCRM services. If the market for outsourced eCRM services fails to
grow, or grows more slowly than we anticipate, our business could be adversely
affected. Most businesses have little or no experience using the Internet for
personalized customer service and marketing. We cannot reliably predict the
amount of spending on the types of Internet-based customer relationship
management services that we offer. In addition, companies that have invested
substantial resources to manage customer relationships in-house may be reluctant
or slow to accept outsourced solutions that may replace, limit or compete with
their existing systems. Companies may resist outsourcing eCRM services for
various reasons, including:
- risks or perceived risks of allowing third-party service providers access
to their proprietary information;
- a desire to retain control over some or all points of contact with their
customers;
- concerns relating to warehousing inventory with a third party; and
- concerns over the level and quality of services that may be provided by a
third party.
Further, companies that decide to outsource their customer relationship
management services may choose to use multiple providers rather than a single
integrated provider. Many of our clients are currently not utilizing the full
range of our electronic customer relationship management service offerings. If
our existing clients do not expand the types of services we provide for them, or
if future clients do not purchase our fully integrated solutions, the growth of
our business could be adversely affected.
IF ELECTRONIC COMMERCE DOES NOT DEVELOP AS WE ANTICIPATE, THE GROWTH OF OUR
BUSINESS MAY BE ADVERSELY AFFECTED.
The demand for our electronic customer relationship management services
will depend on market acceptance of electronic commerce. The growth projections
for Internet-related activities included in this prospectus are only estimates
by industry analysts and may not prove to be accurate. A number of factors could
prevent this acceptance, including the following:
- buyers may be unwilling to shift from traditional vendors to Internet
vendors;
- the necessary network infrastructure for substantial growth in usage of
the Internet may not adequately develop;
- there may be delays in the development of technologies that facilitate
the use of the Internet and electronic commerce;
- increased government regulation or taxation may adversely affect the
viability of electronic commerce;
- there may be delays in the development of new conventions to handle
increased levels of Internet activity;
10
<PAGE> 15
- increases in the cost of telecommunications services could make access to
the Internet more expensive for consumers, adversely affecting the
viability of business-to-consumer electronic commerce; and
- insufficient availability of telecommunications services or changes in
telecommunications services could result in slower response times,
adversely affecting the viability of electronic commerce.
Because our current and prospective clients include companies conducting or
seeking to conduct business over the Internet, if usage of the Internet does not
continue to grow, or grows at a rate significantly lower than currently
projected, our growth could be adversely affected.
BREACHES OF SECURITY ON THE INTERNET MAY SLOW THE GROWTH OF ELECTRONIC COMMERCE
AND COULD LIMIT OUR GROWTH.
A significant barrier to market acceptance of Internet commerce and
communication is the concern regarding the secure exchange of valuable and
confidential information over public networks. Anyone able to circumvent
security measures could misappropriate proprietary, confidential customer
information or cause interruptions in our clients' operations. Our clients may
be required to incur significant costs to protect against security breaches or
to alleviate problems caused by breaches, reducing their demand for our
services. In addition, a well-publicized breach of security could deter
consumers and businesses from using the Internet to conduct transactions that
involve transmitting confidential information.
WE MAY BE VULNERABLE TO COMPUTER VIRUSES AND OTHER DISRUPTIONS CAUSED BY
UNAUTHORIZED OR ILLEGAL ACCESS TO OUR SYSTEMS THAT COULD NEGATIVELY AFFECT THE
QUALITY OF OUR SERVICES AND EXPOSE US TO ADDITIONAL COSTS IN THE FUTURE.
Our systems may be vulnerable to computer viruses and other disruptions
caused by unauthorized or illegal access to our systems, which we may be
required to allocate additional resources to protect against or correct. In
addition, eliminating computer viruses and alleviating other disruptive problems
may require interruptions, delays or changes in our delivery of services to our
clients' customers. On-line service providers have in the past experienced, and
in the future may experience, interruptions of service as a result of the
accidental or intentional actions of Internet users and current and former
employees. The measures we take to prevent these problems may not be sufficient
to prevent these disruptions in the future.
CHANGES IN GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS.
Although there currently are few laws or regulations directly governing
access to or commerce on the Internet, due to the increasing popularity and use
of the Internet, any number of state, federal or foreign laws and regulations
may be adopted regarding matters such as privacy, pricing and taxation. Other
matters potentially subject to new laws and regulations include acceptable
content and distribution and quality of products and services.
Any new legislation could inhibit growth in use of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium, which could in turn decrease the demand for our services or otherwise
have a material adverse affect on our future operating performance.
Because a portion of our current business involves company-initiated
customer contacts, we are required to comply with the Federal Communications
Commission's rules under the Federal Telephone Consumer Protection Act of 1991
and the Federal Trade Commission's regulations under the Federal Telemarketing
and Consumer Fraud and Abuse Prevention Act of 1994, both of which govern
telephone solicitation. In the event that we decide to expand our outbound
telemarketing services, such rules and regulations would apply to a larger
percentage of our business. Additionally, we could be responsible for our
failure, or the failure of our clients, to comply with regulations applicable to
our clients.
We collect and analyze data from various applications, including Internet
applications, which enable us to capture and use information about our clients'
customers. Government regulation that limits our clients' use of this
information could reduce the demand for our services. A number of jurisdictions
have adopted, or are considering adopting, laws that restrict the use of
customer information from Internet
11
<PAGE> 16
applications. In the United States, the Children's Online Privacy Protection Act
was enacted in October 1998. The Federal Trade Commission has enacted rules
implementing this legislation imposing disclosure obligations on Internet sites
collecting personally identifiable data from children under the age of 13. In
addition, the Federal Trade Commission is investigating privacy practices of
businesses that collect information on the Internet. These and other
privacy-related initiatives could reduce demand for some of the features of our
eCRM services.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE HIGHLY VOLATILE AFTER THIS OFFERING.
Prior to the offering, there has been no public market for our common stock
and there can be no assurance that an active trading market will develop or be
sustained after the offering. The initial public offering price for our common
stock was determined by negotiations between us and the representatives of the
underwriters, and may not be representative of the price that will prevail in
the open market. Factors that may cause the market price of the common stock to
fluctuate significantly after the offering include:
- variations in our results of operations;
- future sales of common stock;
- our announcement or that of our competitors and others of technological
innovations or new products or services;
- conditions or trends in the Internet and online commerce industries;
- changes in the economic performance and/or market valuations of other
electronic commerce enabling and online retail companies;
- announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- additions or departures of key personnel;
- market analysts' estimates of our performance; and
- general market conditions.
The public markets have experienced volatility that has particularly
affected the market prices of securities of many Internet-related companies for
reasons that have often been unrelated to operating results. This volatility may
adversely affect the market price of our common stock and our visibility and
credibility in the markets.
In the past, following periods of market volatility in the price of a
company's securities, security holders have instituted class action litigation.
Many companies in the technology sector have been subject to this type of
litigation. If the market value of our stock experiences adverse fluctuations,
and we become involved in this type of litigation, regardless of the outcome, we
could incur substantial legal costs and our management's attention could be
diverted, causing our business to suffer.
AFTER THIS OFFERING, OUR PRINCIPAL STOCKHOLDERS AND MANAGEMENT WILL STILL BE
ABLE TO EXERCISE A CONTROLLING INFLUENCE OVER OUR BUSINESS AND AFFAIRS.
Immediately after the offering, our two principal stockholders, Willis
Stein & Partners and BCI Partners, and our management collectively will
beneficially own % of our common stock, or %, if the underwriters'
over-allotment option is exercised in full, assuming no exercise of options
outstanding as of the date of the offering. As a result, if these stockholders
act or vote together, they will be able to exercise significant control over all
matters requiring approval by our stockholders, including the election of
directors and approval of mergers and other significant corporate transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control that might otherwise benefit our stockholders.
12
<PAGE> 17
FUTURE SALES OF OUR COMMON STOCK MAY HURT OUR MARKET PRICE.
A substantial number of shares of our common stock will be available for
resale within a short period of time after the offering, including 10,899,388
outstanding shares of common stock into which shares of our Series A preferred
stock and Series B convertible preferred stock will convert automatically upon
the consummation of this offering. Holders of 13,568,805 shares of our common
stock have the right to require us to register their shares with the Securities
and Exchange Commission. We also intend to register all shares of our common
stock that we may issue upon exercise of options granted under our option plans.
Once we register these shares, they can be freely sold in the public market. We
also have contingent obligations to issue up to 500,000 shares of our common
stock in connection with certain of our previous acquisitions. If our
stockholders sell substantial amounts of our common stock in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity securities in the
future at times and prices that we deem appropriate.
WE MAY SPEND A SIGNIFICANT PORTION OF THE NET PROCEEDS OF THIS OFFERING IN WAYS
WITH WHICH YOU MAY NOT AGREE.
A significant portion of the net proceeds of this offering are not
allocated for specific uses. Our management will have broad discretion to spend
the net proceeds from this offering in ways with which you may not agree. The
failure of our management to apply these funds effectively could result in
unfavorable returns. This could have a material and adverse effect on our
business, results of operations and financial condition, and could cause the
price of our common stock to decline.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.
The development of our business may require significant additional capital
in the future to, among other things, fund our operations, expand the range of
services we offer and finance future acquisitions and investments. A portion of
the net proceeds of this offering will be used to repay our existing credit
facility. Upon repayment, we anticipate such credit facility will be terminated
and no replacement facility will be in place at the time this offering is
completed. There is no assurance that additional financing will be available on
terms favorable to us, or at all. The effect of any such financing on our
financial condition or operating results is also uncertain.
Our ability to obtain additional financing will be subject to a number of
factors, including market conditions, our operating performance and investor
sentiment. These factors may make the timing, amount, terms and conditions of
additional financings unattractive to us. If we are unable to raise additional
capital, our growth could be impeded.
YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION OF BOOK VALUE PER SHARE.
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $ in the
net tangible book value per share of common stock from the price you pay for our
common stock in this offering. See "Dilution."
13
<PAGE> 18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our industry and us.
These statements may be found in the sections of this prospectus entitled,
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," and in this prospectus generally. These statements may be identified
by the use of words such as "expect," "estimate," "anticipate," "believe,"
"intend," "plan", "will" and other similar expressions. These forward-looking
statements involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of many factors, as more fully described in the "Risk Factors" section
and elsewhere in this prospectus. We undertake no obligation to update any
forward-looking statements after the date of this prospectus.
This prospectus includes estimates made by independent parties related to
market size and growth. Those estimates involve a number of assumptions and
limitations. We cannot assure you that those estimates of market size are
accurate or that those projections of market growth will be achieved.
14
<PAGE> 19
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of
shares of common stock in this offering will be approximately
$ million at an assumed initial public offering price of $ per
share, or approximately $ million if the underwriters exercise their
over-allotment option in full, after deducting the underwriting discounts and
estimated expenses of this offering.
We expect to use approximately $62 million of the net proceeds of this
offering to repay our existing credit facility and approximately $4.2 million to
pay accumulated dividends on our Series B convertible preferred stock. On
November 30, 1999, Protocol Services, formerly Protocol Communications, and
Media Express, each wholly-owned subsidiaries of Protocol, entered into a credit
agreement with a group of financial institutions to refinance existing loans and
provide funds for acquisitions and for general corporate purposes. The credit
agreement provides for maximum borrowings, under separate facilities, of up to
$124 million in the aggregate, of which $62 million was outstanding as of March
31, 2000. Amounts borrowed under this facility bear interest at a floating rate
based on either the Eurodollar rate or the Prime rate and averaged approximately
10% at December 31, 1999. The maturity dates of the various term loans and the
termination date of the revolving credit facility included in the credit
agreement range from November 30, 2004 to November 30, 2006.
We expect to use the remaining net proceeds to finance the continued growth
of our business and for general corporate purposes, including payment of
contingent obligations of up to $5.6 million relating to certain of our previous
acquisitions. We may also use a portion of the net proceeds to acquire
additional businesses. However, although we are often in discussions concerning
possible acquisitions, we do not currently have any binding commitments to make
any acquisitions.
We have not yet determined the amount of net proceeds, if any, to be used
specifically for each of the foregoing purposes, other than the repayment of
indebtedness and accumulated dividends as described above. Accordingly,
management will have significant flexibility in applying the net proceeds of the
offering remaining after repayment of the debt and payment of the dividends.
Pending their use as described above, we intend to invest the net proceeds of
this offering in interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock, and
we do not anticipate paying cash dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance operations and the expansion of our business.
Any future determination to pay cash dividends on our common stock will be
at the discretion of the board of directors and will depend upon our financial
condition, operating results, capital requirements and such other factors as the
board of directors deems relevant.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the three acquisitions in March
2000 as if they had occurred on December 31, 1999; and
- on a pro forma as adjusted basis to give effect to:
- the automatic conversion of the Series A preferred stock and the
Series B convertible preferred stock into 10,899,388 shares of
common stock upon consummation of this offering;
- the sale of shares of common stock offered by us in this
offering, after deducting the underwriting discounts and estimated
offering expenses payable by us;
- the repayment of our existing credit facility; and
- the payment of accumulated dividends on our Series B convertible
preferred stock.
The table excludes:
- 630,436 shares of common stock issuable upon the exercise of stock
options outstanding as of December 31, 1999 under our stock and option
plans with a weighted average exercise price of $4.67 per share;
- shares of common stock issuable upon the exercise of stock
options granted under our 2000 option plan upon completion of this
offering at an exercise price equal to the initial public offering price;
and
- the issuance of up to 500,000 shares of common stock which may be issued
in 2001, in connection with outstanding contingent obligations relating
to certain of our acquisitions.
Please read this table together with the sections of this prospectus
entitled "Selected Historical Consolidated Financial Data", "Unaudited Pro Forma
Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 9,444 $ 9,592
======== ========
Long-term debt, including current portion................... $ 65,752 $ 80,856
-------- --------
Capital lease obligations, including current portion........ 1,770 1,924
-------- --------
Preferred Stock, $.001 par value per share, 22,150,000
shares authorized; 10,899,388 shares issued and
outstanding on an actual basis; 10,899,388 shares issued
and outstanding on a pro forma basis; and no shares issued
and outstanding on a pro forma as adjusted basis.......... 73,944 73,944
-------- --------
Stockholders' equity (deficit):
Common stock, $.001 par value per share, 40,000,000 shares
authorized; 3,895,250 shares issued and 2,469,417
outstanding on an actual basis; 4,095,250 shares issued
and outstanding on a pro forma basis; and 2,669,417 shares
issued and outstanding on a pro forma as adjusted basis... 4 4
Additional paid-in capital.................................. -- 1,514
Stockholders' notes receivable.............................. (263) (263)
Deferred compensation....................................... (198) (198)
Accumulated other comprehensive loss........................ (8) (8)
Accumulated deficit......................................... (50,557) (50,557)
Treasury stock.............................................. (10,800) (10,800)
-------- --------
Total stockholders' equity (deficit)............... (61,822) (60,308)
-------- --------
Total capitalization............................... $ 79,644 $ 96,416
======== ========
</TABLE>
16
<PAGE> 21
DILUTION
Our pro forma net tangible book value (deficit) as of December 31, 1999 was
$(121,939), or $(32.61) per share. Pro forma net tangible book value (deficit)
per share, after giving effect to all of our acquisitions to date, represents
the total amount of our tangible assets, which equals total assets less
intangible assets, reduced by the total amount of our liabilities and Series A
preferred stock or Series B convertible preferred stock, divided by the number
of shares of common stock outstanding as of December 31, 1999. After giving
effect to the automatic conversion of all outstanding shares of Series A
preferred stock and Series B convertible preferred stock into 10,899,388 shares
of common stock upon the consummation of this offering and the sale of shares of
our common stock in this offering, after deducting the underwriting discounts
and estimated offering expenses, and the application of the estimated net
proceeds therefrom, including repayment of our existing credit facility and
payment of accumulated dividends on our Series B convertible preferred stock,
our pro forma as adjusted net tangible book value as of December 31, 1999 would
have been $ , or $ per share. This represents an immediate increase
in pro forma as adjusted net tangible book value of $ per share to existing
stockholders and an immediate dilution in pro forma as adjusted net tangible
book value of $ per share to new investors.
Dilution per share represents the difference between the price per share to
be paid by new investors and the net tangible book value per share immediately
after this offering. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
------------------
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999.................................................. $
Increase per share attributable to new investors............
------
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table sets forth, as of December 31, 1999, the differences
between the total consideration paid and the average price per share paid by
existing investors and by new investors purchasing shares in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... % % $
New investors.................. % % $
------ ----- ------- -----
Total................ 100.0% 100.0%
====== ===== ======= =====
</TABLE>
The foregoing table does not reflect:
- 630,436 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999 under our stock and option plans at a
weighted average exercise price of $4.67 per share;
- shares of common stock issuable upon the exercise of stock
options to be granted under our 2000 option plan upon completion of this
offering at an exercise price equal to the initial offering price; and
- the issuance of up to 500,000 shares of common stock which may be issued
in 2001 in connection with outstanding contingent obligations relating to
certain of our previous acquisitions.
17
<PAGE> 22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited consolidated financial
statements and related notes thereto included elsewhere in this prospectus.
The selected historical consolidated financial data presented below as of
December 31, 1998 and 1999, and for the period from inception (June 5, 1998) to
December 31, 1998 and for the year ended December 31, 1999 are derived from the
consolidated financial statements of Protocol Communications, Inc., which
consolidated financial statements have been audited by KPMG LLP, independent
certified public accountants.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 5, 1998 YEAR ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1998 1999
------------------ -------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 14,138 $ 80,689
Cost of services............................................ 8,222 42,428
---------- ----------
Gross profit......................................... 5,916 38,261
Operating expenses:
Selling, general and administrative.................... 4,078 24,317
Depreciation and amortization.......................... 3,500 16,251
Stock-based compensation expense....................... 1,110 1,742
---------- ----------
Operating loss....................................... (2,772) (4,049)
---------- ----------
Other (income) expense:
Interest expense.......................................... 798 7,105
Interest income........................................... (10) (108)
Other expense (income).................................... 44 30
---------- ----------
Total other expense.................................. 832 7,027
---------- ----------
Loss before income taxes.................................... (3,604) (11,076)
Income tax expense (benefit)................................ (854) 1,606
---------- ----------
Net loss............................................. (2,750) (12,682)
Accretion to Series A and B preferred stock redemption
values.................................................... (199) (408)
Excess consideration over redemption value paid to Series A
preferred stockholders.................................... -- (38,398)
Series B preferred stock dividends.......................... -- (675)
---------- ----------
Net loss attributable to common stockholders................ $ (2,949) $ (52,163)
========== ==========
Basic and diluted net loss per share........................ $ (1.26) $ (14.74)
========== ==========
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share............ 2,345,952 3,539,781
========== ==========
OTHER DATA:
Adjusted EBITDA(1).......................................... $ 1,838 $ 13,944
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 528 $ 9,444
Working capital (deficit)................................... (223) 8,736
Total assets................................................ 45,328 94,836
Long-term debt, including current portion................... 29,808 65,752
Total long-term liabilities................................. 30,082 63,267
Total Series A preferred stock and Series B convertible
preferred stock........................................... 8,965 73,944
Stockholders' deficit....................................... (1,712) (61,822)
</TABLE>
- ---------------
(1) Adjusted EBITDA represents earnings before interest and financial charges,
income taxes, depreciation and amortization and stock based compensation
expense which is a non-cash item. We have included information concerning
adjusted EBITDA, which is not a measure of financial performance under
generally accepted accounting principles, because we believe that it is used
by certain investors as one measure of financial performance. Adjusted
EBITDA should not be construed as an alternative to operating income, as
determined in accordance with generally accepted accounting principles, or
as a measure of liquidity. Adjusted EBITDA as measured by us may not be
comparable to similarly titled measures reported by other companies.
19
<PAGE> 24
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated statement of operations
gives effect to the acquisition by Protocol of Cross-Industry Communications and
MBS Communications in February 1999, of Blue Line Promotions in April 1999 and
of Media Express in May 1999 (the "1999 Acquired Companies") and of Canicom,
Carroll Ventures, and Saligent in March 2000 (the "2000 Acquired Companies") as
if each acquisition had occurred on January 1, 1999. The unaudited pro forma
consolidated balance sheet gives effect to the acquisitions of the 2000 Acquired
Companies as if each acquisition had occurred on December 31, 1999. These
statements are based on the historical consolidated financial statements of the
Company and the unaudited financial statements of the acquired companies, and
the estimates and assumptions set forth below and in the notes to the unaudited
pro forma consolidated financial statements.
The effect of the acquisitions of the 2000 Acquired Companies has been
presented using the purchase method of accounting, and, accordingly, the
purchase price was allocated to the assets and liabilities assumed based upon
management's best preliminary estimate of fair value with any excess purchase
price being allocated to goodwill or other identifiable intangible assets. The
preliminary allocation of the purchase price will be subject to further
adjustments, which are not anticipated to be material, as we finalize the
allocations of the purchase price in accordance with generally accepted
accounting principles. The pro forma adjustments related to the purchase price
allocations of the 2000 Acquired Companies represent management's best estimate
of the effects of the acquisitions.
The pro forma adjustments are based upon estimates, currently available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial data presented herein are not
necessarily indicative of the results we would have obtained had such events
occurred on January 1, 1999, as assumed, or of our future results. The unaudited
pro forma consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included
elsewhere in this prospectus.
20
<PAGE> 25
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA
1999 2000 ACQUISITION
ACTUAL ACQUISITIONS ACQUISITIONS ADJUSTMENTS
---------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenue................................ $ 80,689 $ 7,977 $ 23,758 $ --
Cost of services....................... 42,428 4,335 11,555 --
---------- ---------- ----------- -------
Gross profit................... 38,261 3,642 12,203 --
Operating expenses:
Selling, general and
administrative..................... 24,317 1,913 10,228 341(a)
Depreciation and amortization........ 16,251 283 483 4,464(b)
Stock-based compensation expense..... 1,742 -- -- --
---------- ---------- ----------- -------
Operating income (loss)........ (4,049) 1,446 1,492 (4,805)
Other expense.......................... 7,027 147 480 1,521(c)
Income tax expense (benefit)........... 1,606 799 -- (534)(d)
---------- ---------- ----------- -------
Net income (loss).............. $ (12,682) $ 500 $ 1,012 $(5,792)
========== ========== =========== =======
Net loss attributable to common
stockholders......................... $ (52,163)
==========
Basic and diluted net loss per share... $ (14.74)
==========
Weighted average shares used in
computing basic and diluted net loss
per share............................ 3,539,781
==========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA
OFFERING PRO FORMA
PRO FORMA ADJUSTMENTS(F) AS ADJUSTED
---------- -------------- -----------
<S> <C> <C> <C>
Revenue................................ $ 112,424
Cost of services....................... 58,318
---------- -------------- --------
Gross profit................... 54,106
Operating expenses:
Selling, general and
administrative..................... 36,799
Depreciation and amortization........ 21,481
Stock-based compensation expense..... 1,742
---------- -------------- --------
Operating income (loss)........ (5,916)
Other expense.......................... 9,175
Income tax expense (benefit)........... 1,871
---------- -------------- --------
Net income (loss).............. $ (16,962)
========== ============== ========
Net loss attributable to common
stockholders......................... $ (56,443) $
========== ========
Basic and diluted net loss per share... $ (15.09)(e) $
========== ========
Weighted average shares used in
computing basic and diluted net loss
per share............................ 3,739,781(e)
========== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
21
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
PRO FORMA PRO FORMA
2000 ACQUISITION OFFERING PRO FORMA
ACTUAL ACQUISITIONS(G) ADJUSTMENTS PRO FORMA ADJUSTMENTS(I) AS ADJUSTED
-------- --------------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 9,444 $ 148 $ -- $ 9,592
Accounts receivable, net.................. 17,120 7,067 -- 24,187
Amounts due from officers................. 181 -- -- 181
Prepaids and other current assets......... 1,438 40 -- 1,478
-------- ------- ------- -------- --- --------
Total current assets................ 28,183 7,255 -- 35,438
Property and equipment, net................. 12,795 2,566 -- 15,361
Goodwill and other intangible assets, net... 50,464 -- 11,167(g) 61,631
Deferred issuance costs, net................ 3,171 -- -- 3,171
Other assets................................ 223 771 (470)(g) 524
-------- ------- ------- -------- --- --------
Total assets........................ $ 94,836 $10,592 $10,697 $116,125
======== ======= ======= ======== === ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt......... $ 5,182 $ -- $ -- $ 5,182
Current portion of capital lease
obligations............................. 879 78 -- 957
Accounts payable.......................... 3,354 3,373 (597)(g) 6,130
Accrued liabilities....................... 9,747 624 (627)(g) 9,744
Customer deposits......................... -- 981 -- 981
Deferred revenue.......................... 280 315 -- 595
Income taxes payable...................... 5 -- -- 5
Other liabilities......................... -- 408 -- 408
-------- ------- ------- -------- --- --------
Total current liabilities........... 19,447 5,779 (1,224) 24,002
Long-term debt, less current portion........ 60,570 2,665 12,439(g) 75,674
Deferred tax liabilities.................... 1,563 -- -- 1,563
Capital lease obligations, less current
portion................................... 891 76 -- 967
Other liabilities........................... 243 40 -- 283
-------- ------- ------- -------- --- --------
Total liabilities................... 82,714 8,560 11,215 102,489
-------- ------- ------- -------- --- --------
Series B convertible preferred stock........ 73,658 -- -- 73,658
Series A preferred stock.................... 286 -- -- 286
-------- ------- ------- -------- --- --------
Total preferred stock 73,944 -- -- 73,944
-------- ------- ------- -------- --- --------
Stockholders' equity (deficit):
Common stock................................ 4 866 (866)(h) 4
Additional paid-in capital.................. -- 29 (29)(h) 1,514
1,514(g)
Stockholders' notes receivable.............. (263) -- -- (263)
Deferred compensation....................... (198) -- -- (198)
Accumulated other comprehensive income...... (8) -- -- (8)
Accumulated earnings (deficit).............. (50,557) 1,137 (1,137)(h) (50,557)
Treasury stock.............................. (10,800) -- -- (10,800)
-------- ------- ------- --------
Total stockholders' equity
(deficit)......................... (61,822) 2,032 (518) (60,308)
-------- ------- ------- -------- --- --------
Total liabilities and stockholders'
equity (deficit).................. $ 94,836 $10,592 $10,697 $116,125
======== ======= ======= ======== === ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
22
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
(a) During 1999, certain employees of the acquired companies did not draw
salaries or had salaries at levels that were significantly different than
the employment contracts entered into with the Company. The pro forma
adjustment to selling, general and administrative expense reflects an
increase in compensation expense to reflect the compensation and benefits
for those employees that are specified in employment contracts entered into
at the date of acquisition.
(b) The pro forma adjustment to depreciation and amortization reflects an
increase in amortization expense to reflect the amortization of intangible
assets associated with the purchase of the 1999 Acquired Companies for the
period from January 1, 1999 to the date of each acquisition and for the 2000
Acquired Companies for the entire year ended December 31, 1999.
(c) The pro forma adjustment to other expense reflects an increase in interest
expense due to the increase in long-term debt incurred by the Company to
finance the purchase of the 2000 Acquired Companies. The actual interest
rate on the debt associated with the acquisitions was 10%. A change of 1/8
percent in the interest rate would result in a change in interest expense
and net loss of $16.
(d) The pro forma adjustment to income expense reflects the increase in foreign
income tax expense related to the acquisition of Media Express, a Canadian
corporation, in May 1999 for the period from January 1, 1999 through April
30, 1999.
(e) Pro forma loss per share reflects the actual weighted average shares of
common stock outstanding adjusted to include an increase of 200,000 shares
to reflect the shares of common stock issued in connection with the purchase
of the 2000 Acquired Companies.
(f) The pro forma offering adjustments reflect the issuance of shares
of common stock in this offering, assuming an initial public offering price
of $ , and the application of the estimated net proceeds to repay
the existing credit facility, to pay accumulated dividends on the Series B
convertible preferred stock and increase cash. The pro forma adjustment
reflects the reduction of historical interest expense associated with the
credit facility but does not effect any interest income generated by the
proceeds in excess of the repayment of the credit facility and accumulate
dividends.
PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
(g) The 2000 acquisition adjustments and pro forma acquisition adjustments
reflect the acquisitions of Canicom, Carroll Ventures and Saligent for
consideration valued at approximately $14,106. The 2000 Acquisitions will be
accounted for as purchases. The purchase price is comprised of the
following:
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
Purchase Consideration:
Cash...................................................... $11,842
Issuance of common stock.................................. 1,514
-------
Total purchase consideration...................... 13,356
Direct costs of acquisitions................................ 750
-------
Total purchase price.............................. $14,106
=======
</TABLE>
The anticipated purchase price allocation and related effects of such
allocation on the unaudited pro forma consolidated balance sheet are as
follows:
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
Tangible assets and liabilities:
Cash and cash equivalents................................. $ 148
Accounts receivable, net.................................. 7,067
Prepaids and other current assets......................... 40
Property and equipment, net............................... 2,566
Other assets.............................................. 771
Accounts payable.......................................... (3,373)
</TABLE>
23
<PAGE> 28
<TABLE>
<S> <C>
Accrued liabilities.............................................................................. (624)
Customer deposits................................................................................ (981)
Deferred revenue................................................................................. (315)
Other liabilities................................................................................ (408)
Long-term debt................................................................................... (2,665)
Capital lease obligations........................................................................ (154)
Other liabilities................................................................................ (40)
---------
Net tangible assets........................................................................... 2,032
Adjustments to net tangible assets............................................................ 907
---------
Adjusted net tangible assets.................................................................. 2,939
---------
Intangible assets:
Noncompete agreements............................................................................ 865
Customer base.................................................................................... 2,592
Workforce in place............................................................................... 1,296
Goodwill......................................................................................... 6,414
---------
Total intangible assets.................................................................. 11,167
---------
Total purchase price allocation.......................................................... $ 14,106
=========
</TABLE>
Intangible assets are expected to include noncompete agreements, customer
base, workforce in place and goodwill, which will be amortized over their
useful lives. The useful lives that are currently being used by Protocol
relate to intangible assets for similar acquisitions by Protocol are two
years for noncompete agreements, three years for customer base, 12 months
for workforce in place and 10 years for goodwill. Protocol is in the
process of completing full valuations of the tangible and intangible
assets. In management's opinion, the preliminary estimates regarding the
allocation of the purchase price and amortization periods are not expected
to differ materially from the final allocation.
The adjustments to net tangible assets and liabilities reflects the impact
of certain provisions of the asset purchase agreements of the 2000 Acquired
Companies that excluded certain acquired assets and liabilities, which
results in a reduction of other assets of $470 and accrued liabilities of
$1,377.
In connection with the purchases of the 2000 Acquired Companies, Protocol
paid off approximately $2,170 and $597 of the acquired companies' long-term
debt and accounts payable, respectively, through its credit facility. The
net effect resulted in an increase in long-term debt and a decrease in
accounts payable of $597.
(h) The pro forma adjustment to stockholders' equity reflects the elimination of
the historical equity balances of the 2000 Acquired Companies and the
issuance of 200,000 shares of Protocol's common stock with a value of
$1,514.
(i) The pro forma adjustment gives effect to the automatic conversion of all
outstanding shares of Series A preferred stock and Series B convertible
preferred stock into 10,899,388 shares of common stock upon the consummation
of this offering and the sale of shares of common stock at an
assumed initial offering price of $ , and the application of
the estimated net proceeds to repay the existing credit facility of
$ and to pay accumulated dividends of $ on the
Series B convertible preferred stock.
24
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes thereto which appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below and
elsewhere in this prospectus, particularly in "Risk Factors."
OVERVIEW
We are a leading provider of electronic customer relationship management
(eCRM) services that enable our clients to identify, acquire and retain their
customers. We design and implement sales, marketing, fulfillment and other
customer relationship programs which utilize the Internet and other
communication channels. Our broad range of services enables our clients to
expand their customer bases, increase the frequency and quality of customer
interactions and enhance opportunities to sell their products or services. We
are able to integrate our services, allowing our clients to manage their
customer relationships through a single service provider and concentrate on
developing their core businesses.
We began operations in June 1998 through the acquisition and integration of
three businesses. During 1998, we acquired and integrated an additional five
businesses. In 1999, we acquired and integrated four businesses, and through
March 2000, we have acquired and are in the process of integrating an additional
three businesses. These acquisitions expanded our service offerings and our
capacity. The acquisitions are summarized below:
<TABLE>
<CAPTION>
DATE BUSINESS ACQUIRED
- ---- -----------------
<S> <C>
June 1998 - Operators Standing By and Sweet, Schatz and Lewis
- Protocol Communications Services
- U.S. Telefactors
July 1998 - Answerphone of Florida
November 1998 - Anserphone of New Orleans, Anserve and Anserphone Systems
- Strategic Alternatives
- Quick Response
December 1998 - The Scribers
February 1999 - MBS Communications
- Cross-Industry Communications
April 1999 - Blue Line Promotions
May 1999 - Media Express
March 2000 - Saligent
- Carroll Ventures
- Canicom
</TABLE>
The aggregate purchase price paid in connection with these acquisitions was
approximately $82.3 million, including cash of $74.6 million, 1,973,500 shares
of common stock at fair market value, and $2.8 million in notes to sellers. In
addition we are obligated to make certain contingent cash and stock payments in
connection with certain of these acquisitions. All of our acquisitions have been
accounted for using the purchase accounting method. These acquisitions created
approximately $77.7 million of goodwill and intangible assets.
We derive revenue from strategic marketing, customer contact, fulfillment
and market research services provided to contracted clients. Our customer
contracts generally provide for an initial term of 12 months and continue
thereafter unless terminated by either party on 30 days' notice. The pricing of
these services varies per client based on a variety of factors, including the
value of the services to the client, the complexity of the services provided,
the breadth of the services provided, and the amount of customization required.
In general services are billed on a per transaction, time or per employee basis,
and
25
<PAGE> 30
market research is generally billed on a project basis. We also derive revenue
from services provided to initiate a project, such as training and set-up. These
services are generally billed up-front on a time or per project basis. Revenue
is recognized at the time service is performed. Clients are normally invoiced on
a weekly or monthly basis. Revenue for services billed in advance are deferred
until the service is performed and are included in deferred revenue in the
accompanying consolidated balance sheets. On a pro forma basis for the year
ended December 31, 1999, taking into account all of our acquisitions to date,
our largest customer accounted for 4% of total revenue, our 10 largest customers
accounted for 26% of revenue and our 50 largest customers accounted for 50% of
our revenue.
Our cost of services consists primarily of wages and benefits for personnel
directly involved in providing services to clients, principally our customer
contact representatives. Also included are communications costs, consisting
primarily of telephone and Internet access costs and the cost of fulfillment
supplies such as packaging. Our clients are typically billed directly by the
third-party provider for communications costs including telephone and Internet
access fees. Under this scenario we do not include these costs in either our
revenue, in the form of increased pricing, or our cost of services.
Our selling, general and administrative expenses consist primarily of
expenses related to: facilities; information technology development and services
and professional services; salaries, commissions, benefits and related expenses
for sales, marketing, finance, customer support, training and information
technology personnel; and marketing costs.
Depreciation for capital assets is computed using the straight-line method
over the useful life of the assets, generally three to seven years. Intangible
assets associated with acquisitions are amortized on a straight-line basis over
the periods expected to be benefited, generally one to 10 years.
Stock-based compensation, a non-cash expense, consists of the difference,
on the date of grant, between the fair value of our stock and the amount a
recipient must pay to acquire the stock.
Income tax expense (benefit) is recorded under the asset and liability
method. Deferred tax assets, liabilities and provisions are measured using
enacted tax rates in accordance with local requirements.
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of revenue for the period presented. Note that our discussion relates
to our operations for approximately seven months in 1998 and 12 months in 1999,
which makes period-to-period comparisons in absolute dollars less meaningful.
<TABLE>
<CAPTION>
PERIOD FROM JUNE 5,
1998 (INCEPTION) YEAR ENDED
TO DEC. 31, 1998 DEC. 31, 1999
------------------- -------------
<S> <C> <C>
Revenue................................................ 100.0% 100.0%
Cost of services....................................... 58.2 52.6
----- -----
Gross profit......................................... 41.8 47.4
Operating expenses:
Selling, general and administrative.................. 28.8 30.1
Depreciation and amortization........................ 24.8 20.1
Stock-based compensation expense..................... 7.9 2.2
----- -----
Operating loss....................................... (19.6) (5.0)
----- -----
Interest expense, net.................................. 8.8 8.7
Other expense.......................................... 0.3 --
----- -----
Loss before income taxes............................. (25.5) (13.7)
Income tax provision (benefit)......................... (6.0) 2.0
----- -----
Net loss............................................. (19.5)% (15.7)%
===== =====
</TABLE>
26
<PAGE> 31
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE PERIOD FROM JUNE 5, 1998
(INCEPTION) TO DECEMBER 31, 1998
Revenue
Revenue for the year ended December 31, 1999 increased by $66.6 million, or
471%, to $80.7 million from $14.1 million for the period from June 5, 1998
(inception) to December 31, 1998. The increase was primarily the result of the
contribution of a full year's revenue in 1999 of the acquisitions made during
1998 and the contribution of approximately $24 million due to the four
acquisitions made in 1999. The acquisitions made in 1998 contributed
approximately $57 million to 1999 revenue compared to approximately $48 million
in annualized revenue for 1998. This represents year over year growth of
approximately $9.0 million or 19%. This growth was a result of average price
increases, increased number of services provided to new and existing clients,
the addition of new clients and growth within the business of existing clients
requiring greater use of our services.
Cost of Services
Cost of services for the year ended December 31, 1999 increased by $34.2
million, or 416%, to $42.4 million from $8.2 million for the period from June 5,
1998 (inception) to December 31, 1998. This was primarily the result of an
increase in the number of employees who performed client services from
approximately 1,300 at the end of 1998 to approximately 3,000 at the end of
1999, as well as moderate increases in communications costs related to increased
volumes. A significant number of these employees were added as a result of the
acquisitions made during this period.
Gross profit increased as a percentage of revenue from 41.8% for the period
from June 5, 1998 (inception) to December 31, 1998 to 47.4% for the year ended
December 31, 1999 due primarily to overall price increases which resulted from a
shift to higher value-added services including the addition of Internet-related
services. Direct labor decreased as a percentage of revenue from 53.8% for the
period from June 5, 1998 (inception) to December 31, 1998 to 44.2% for the year
ended December 31, 1999. Somewhat offsetting these factors was an increase in
communications costs as a percentage of sales from 3.3% for the period from June
5, 1998 (inception) to December 31, 1998 to 6.5% for the year ended December 31,
1999. This was the result of an increase in services where communication costs
are included in the pricing of our contracts. This in turn was partially offset
by an overall decrease in communications costs resulting from new contracts with
our communications carriers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December
31, 1999 increased by $20.2 million, or 493%, to $24.3 million from $4.1 million
for the period from June 5, 1998 (inception) to December 31, 1998. This was
primarily due to an increase in the number of non-customer contact employees,
from approximately 280 at the end of 1998 to approximately 580 at the end of
1999. Most of these employees were added as a result of the acquisitions made
during this period.
As a percentage of revenue, selling, general and administrative expenses
increased to 30.1% for the year ended December 31, 1999 from 28.8% for the
period from June 5, 1998 (inception) to December 31, 1998. The increase was due
primarily to an increased number of employees in site operations, such as client
services and training, and was partially offset by efficiencies in the executive
and finance departments.
Depreciation and Amortization
Depreciation expense for the year ended December 31, 1999 increased by $2.6
million, or 487%, to approximately $3.1 million from approximately $0.5 million
for the period from June 5, 1998 (inception) to December 31, 1998. This increase
reflects a full year of depreciation in 1999 compared to approximately seven
months of depreciation for 1998 which added approximately $0.8 million in
depreciation expense. In addition, capital expenditures of approximately $5.0
million during the year ended
27
<PAGE> 32
December 31, 1999 increased depreciation expense by approximately $1.1 million.
Capital expenditures of approximately $4.0 million related to the acquisitions
made in 1999 added approximately $0.7 million to depreciation expense.
Amortization expense for the year ended December 31, 1999 increased by
$10.2 million, or 343%, to approximately $13.2 million from approximately $3.0
million for the period from June 5, 1998 (inception) to December 31, 1998. This
increase reflects a full year of amortization in 1999 compared to seven months
of amortization for 1998 which added approximately $4.5 million in amortization
expense. In addition, acquisitions in 1999 and related payments added
approximately $27.0 million of goodwill and intangible assets during the year
ended December 31, 1999, approximately $5.6 million of which was amortized in
1999.
Stock-Based Compensation
Stock-based compensation, a non-cash expense, for the year ended December
31, 1999 increased by $0.6 million, or 57%, to $1.7 million from approximately
$1.1 million for the period from June 5, 1998 (inception). This was due to
options and grants issued during 1999 at less than fair market value.
Interest Expense, Net
Interest expense net of interest income for the year ended December 31,
1999 increased by $6.2 million, or 788%, to $7.0 million from $0.8 million for
the period from June 5, 1998 (inception) to December 31, 1998. The increase
reflects a full year of interest in 1999 compared to approximately seven months
of interest in 1998 and an increase in long-term debt and capital lease
obligations from approximately $32.2 million at December 31, 1998 to $67.5
million at December 31, 1999. This increased debt is primarily related to
financing for acquisitions made during this period.
Income Tax Provision
For the period from inception (June 5, 1998) to December 31, 1998, we
recorded a tax benefit of $0.9 million on a loss before income taxes of $3.6
million. We recorded an income tax benefit based on its operating projections at
the time. For the year ended December 31, 1999, we recorded income tax expense
of $1.6 million on a loss before income taxes of $11.1 million. The income tax
expense is the result of taxable income in foreign and state jurisdictions and
the impact of an increase in the valuation allowance against our deferred tax
assets. We increased our valuation allowance after considering all available
objective evidence, both historical and prospective, with the criteria and
guidance established under SFAS No. 109.
At December 31, 1999, we had net operating loss carryforwards for federal
and state income tax purposes of approximately $1.5 million and $6.9 million,
respectively, which are available to offset future taxable income, if any. The
federal net operating loss carryforwards expire in 2019. State net operating
loss carryforwards expire on various dates beginning in 2004. Pursuant to the
Tax Reform Act of 1986, annual utilization of our net operating loss
carryforwards and other tax attributes may be limited if a cumulative change in
ownership of more than 50% occurs within a three year period. We have not
determined whether there has been such a cumulative change in ownership or the
impact on the utilization of the loss carryforwards if such change has occurred.
28
<PAGE> 33
SELECTED QUARTERLY RESULTS OF OPERATIONS
The tables below set forth statements of operations data for the period
from June 5, 1998 (inception) to September 30, 1998, and for each of the five
consecutive quarters ending December 31, 1999. This information was derived from
our unaudited consolidated financial statements. The unaudited information for
each quarter has been prepared on substantially the same basis as the audited
statements included in other parts of this prospectus and includes all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of the results of such periods. You should
read this information in conjunction with our consolidated financial statements
and the related notes elsewhere in this prospectus. The operating results for
any quarter are not necessarily indicative of the operating results of any
future period and therefore, conclusions should not be drawn about our future
results. Our quarterly operating results may fluctuate as a result of a variety
of factors. Please see "Risk Factors - We may fail to meet market expectations
because of fluctuations in our quarterly operating results, which could cause
our stock price to decline" on page 7 of this prospectus for a detailed
description of the factors that may affect our operating results.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 5, 1998 QUARTER ENDED
(INCEPTION) TO ---------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1999 1999 1999 1999
--------------- -------- -------- -------- --------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT AS PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue............................. $ 5,580 $ 8,558 $14,351 $18,747 $21,528 $26,063
Cost of services.................... 3,427 4,795 8,205 9,792 10,762 13,669
------- ------- ------- ------- ------- -------
Gross profit.................... 2,153 3,763 6,146 8,955 10,766 12,394
Operating expenses:
Selling, general and
administrative.................. 1,744 2,334 4,670 5,826 6,805 7,016
Depreciation and amortization..... 1,434 2,066 2,988 4,611 4,312 4,340
Stock-based compensation
expense......................... 975 135 1,146 271 41 284
------- ------- ------- ------- ------- -------
Operating income (loss)......... (2,000) (772) (2,658) (1,753) (392) 754
Other income (expense), net......... (28) (16) 6 22 -- (58)
Interest income (expense), net...... (357) (431) (773) (1,092) (1,312) (3,820)
------- ------- ------- ------- ------- -------
Loss before income taxes............ (2,385) (1,219) (3,425) (2,823) (1,704) (3,124)
Income tax provision (benefit)...... (565) (289) (193) 352 945 502
------- ------- ------- ------- ------- -------
Net loss........................ $(1,820) $ (930) $(3,232) $(3,175) $(2,649) $(3,626)
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 5, 1998
(INCEPTION) TO
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1999 1999 1999 1999
--------------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES
Revenue............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services.................... 61.4 56.0 57.2 52.2 50.0 52.4
----- ----- ----- ----- ----- -----
Gross profit.................... 38.6 44.0 42.8 47.8 50.0 47.6
Operating expenses:
Selling, general and
administrative.................. 31.3 27.3 32.5 31.1 31.6 26.9
Depreciation and amortization..... 25.7 24.1 20.8 24.6 20.0 16.7
Stock-based compensation
expense......................... 17.5 1.6 8.0 1.4 0.2 1.1
----- ----- ----- ----- ----- -----
Operating income (loss)......... (35.9) (9.0) (18.5) (9.3) (1.8) 2.9
Other income (expense), net......... (0.5) (0.2) -- 0.1 -- (.2)
Interest income (expense), net...... (6.4) (5.0) (5.4) (5.8) (6.1) (14.7)
----- ----- ----- ----- ----- -----
Loss before income taxes............ (42.8) (14.2) (23.9) (15.0) (7.9) (12.0)
Income tax provision (benefit)...... (10.1) (3.4) (1.3) 1.9 4.4 1.9
----- ----- ----- ----- ----- -----
Net loss........................ (32.7)% (10.8)% (22.6)% (16.9)% (12.3)% (13.9)%
===== ===== ===== ===== ===== =====
</TABLE>
29
<PAGE> 34
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations and met our capital expenditure requirements
primarily through cash flows from operations, funds from the private placement
of equity securities, borrowings from a credit facility maintained with a group
of lending institutions and capital leases. As of December 31, 1999, we had cash
and cash equivalents of approximately $9.4 million and working capital of
approximately $8.7 million. Through December 31, 1999, we raised approximately
$22.6 million, net of related costs, through two private equity transactions.
At December 31, 1999, our outstanding debt consisted primarily of $63.0
million under the credit facility. Amounts borrowed under this facility bear
interest at a floating rate based on either the Eurodollar rate or the prime
rate, approximately 10.1% as of December 31, 1999. Additionally, as of December
31, 1999, we had approximately $4.5 million of other debt outstanding,
consisting of notes payable to sellers related to acquisitions and capital lease
obligations. At December 31, 1999, we were obligated to pay approximately $7.1
million related to certain acquisitions, based on their performance in 1999. We
will use a portion of the proceeds from this offering to repay the outstanding
indebtedness under our credit facility. It is anticipated that the facility will
be terminated after we repay the indebtedness and no replacement facility will
be in place at the time this offering is completed.
In June 1998, we issued 6,113,929 shares, a warrant to purchase 348,677
shares of Series A preferred stock and a warrant to purchase 100,000 shares of
common stock for $7.9 million, net of related costs. We used the proceeds from
this sale for acquisitions and to fund operations. In November 1999, we issued
119,963 shares of our Series AB mandatorily redeemable preferred stock for
$947,708. All shares were subsequently redeemed in December 1999 for $947,708
with no reissuance. Also in November 1999, all outstanding warrants were
converted into 100,000 shares of Class A common stock and 348,677 shares of
Series A preferred stock. In December 1999, under the terms of a
recapitalization agreement, we issued 10,693,634 shares of our Series B
convertible preferred stock for $81.0 million. As part of the recapitalization,
1,335,333 shares of Class A common stock, 90,500 shares of Class B common stock
and 6,256,852 shares of Series A preferred stock for $57.5 million, using
proceeds from the issuance of Series B convertible preferred stock.
Net cash used in operating activities was approximately $1.0 million for
the period from June 5, 1998 (inception) to December 31, 1998 and $3.0 million
for the year ended December 31, 1999. This was primarily the result of net
losses of approximately $2.8 million for the period ended December 31, 1998 and
$12.7 million for the year ended December 31, 1999.
Net cash used in investing activities was approximately $32.8 million for
the period from June 5, 1998 (inception) to December 31, 1998 and $37.3 million
for the year ended December 31, 1999, primarily in conjunction with the
acquisitions noted above. Capital expenditures were $0.7 million for the period
ended December 31, 1998 and $5.0 million for the year ended December 31, 1999.
Net cash provided by financing activities for the period from June 5, 1998
(inception) to December 31, 1998 was $34.4 million, consisting primarily of
$27.0 million net of related costs from borrowings under the credit facility and
$7.9 million net of related costs from a private equity financing, net of $0.5
million in payments on other debt. For the year ended December 31, 1999, net
cash provided by financing activities was approximately $49.2 million, which
consisted primarily of $30.6 million from net borrowings under the credit
facility, $14.7 million net of related costs from a private equity financing and
$7.0 million from accrued obligations related to acquisitions, net of $3.2
million in payments on other debt.
At December 31, 1999, we were obligated to pay approximately $7.1 million
and 150,000 shares of our common stock in connection with certain acquisitions
made in 1999 based on their performance in 1999. In addition, we may be required
to pay an aggregate of up to $5.6 million in cash based on post closing audits
and performance for the acquisitions made in 2000 and up to an additional $18.5
million in cash and up to 500,000 shares of our common stock based on the future
performance of certain acquisitions made in 1999 and 2000. Of these amounts, up
to $5.6 million is payable in the first half of 2000 and up to $18.5 million
payable in the second half of 2001.
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<PAGE> 35
We believe our current cash and cash equivalents in addition to the net
proceeds from this offering will be sufficient to support our operations,
capital expenditures and various repayment obligations under lease agreements
for the next 12 months. We will use a portion of the proceeds of this offering
to repay the outstanding indebtedness under the credit facility, at which time
we anticipate the facility will be terminated, to pay contingent obligations
related to certain of our past acquisitions and to pay outstanding dividends. We
intend to make significant investments related to the expansion of our sales
activities and in the area of business-to-business marketing which could have a
negative impact on our liquidity. We may be required to raise additional funds
if funds generated from these sources are insufficient to satisfy our liquidity
requirements. There can be no assurance that such additional financing would be
available on acceptable terms, if at all. In addition, although there are
presently no binding commitments or agreements with respect to any acquisitions,
in the future we may consummate such transactions, which may require us to raise
additional funds. Any material acquisition could have a negative effect on
liquidity depending upon the amount, timing and nature of the consideration
paid.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
collectively referred to as derivatives, and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. We are required to adopt this standard in the first quarter of
fiscal year 2001 pursuant to SFAS No. 137, which was issued in June 1999 and
which delays the adoption of SFAS 133 until that time. We expect that the
adoption of SFAS 133 will not have a material impact on our financial position
or results of operations.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC"), issued Statement of
Position 98-1, Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1"). SOP 98-1 requires the capitalization of
certain internal costs related to the implementation of computer software
obtained for internal use. We adopted SOP 98-1 in the first quarter of 1999.
Costs incurred in the preliminary project stage are expensed as incurred while
costs incurred during the development stage are capitalized. Capitalized
computer software costs are amortized over their estimated useful life of three
years. As of December 31, 1999, capitalized software costs were approximately
$941,000. Depreciation of capitalized software costs for the year ended December
31, 1999 was approximately $157,000.
In April 1998, the AcSEC issued Statement of Position 98-5, Reporting Costs
of Start-Up Activities ("SOP 98-5"). Under SOP 98-5, the cost of start-up
activities should be expensed as incurred. Start-up activities are broadly
defined as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, commencing some new operation
or organizing a new entity. This standard, which we adopted in the first quarter
of 1999, did not have any material impact on our financial position or results
of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk from changes in interest rates relates
primarily to increases or decreases in the amount of interest income we can earn
on our investments and on increases or decreases in the amount of interest
expense we must pay with respect to any outstanding debt instruments. We had
total debt under the credit facility of $63 million at December 31, 1999. We
will use a portion of the proceeds of this offering to repay this outstanding
indebtedness, at which time we anticipate the facility will be terminated. The
risk associated with fluctuating interest expense is limited to those debt
instruments and credit facilities that are tied to market rates. We do not plan
to use derivative financial instruments in our investment portfolio. We plan to
ensure the safety and preservation of our invested funds by limiting default
risk, market risk and reinvestment risk. We plan to mitigate default risk by
investing in high-credit securities.
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<PAGE> 36
BUSINESS
Protocol is a leading provider of electronic customer relationship
management (eCRM) services that enable our clients to identify, acquire and
retain their customers. We design and implement sales, marketing, fulfillment
and other customer relationship programs which utilize the Internet and other
communication channels to provide integrated end-to-end, high value-added
solutions designed to address all the eCRM needs of our clients.
We provide comprehensive solutions to address all of our clients' customer
relationship management needs. We categorize these solutions broadly into the
three groups described below. We are increasingly providing our suite of
Internet-enabled customer management capabilities such as click to chat, click
to call, automated and live e-mail response management, and other similar tools
to provide customized services to address these client needs in response to
changing customer preferences. We believe our broad range of services allows our
clients to expand their customer bases, increase the frequency and quality of
customer interactions and enhance opportunities to sell their products or
services. Our ability to provide integrated, end-to-end solutions enables our
clients to manage their customer relationships through a single service provider
and concentrate on developing their core businesses.
<TABLE>
<CAPTION>
CLIENT NEEDS SELECT SERVICES PROVIDED TO OUR CLIENTS
- ------------ ---------------------------------------
<S> <C>
Marketing and - Review of targeted customer profile and marketing goals
Development of - Development of tailored marketing strategies to
Customer Care acquire/retain customers
Strategies/Solutions - Consultative, strategic retreat sessions with clients
Customer Contact - Customer inquiry response and lead generation for
and e-Fulfillment potential customers
- Cross-selling, up-selling and next-selling through direct
customer contact
- Customer service and help desk
- Order processing services
- Inventory management and returns processing
- Customized pick, pack and ship fulfillment services
Real-Time Feedback - Aggregation and analysis of customer contact data,
and Analysis including customer profiling, list processing and database
hosting
- Consultation regarding enhancement of existing marketing
programs
</TABLE>
We believe we are uniquely positioned to continue to build upon our
leadership position in the rapidly emerging eCRM industry through our extensive
network of customer contact facilities, our ability to quickly develop and
execute large projects, our integrated end-to-end solution capability and our
consultative approach to implementing solutions for our clients. As of March 31,
2000, we had contracts with over 200 clients, including Bigwords.com, Cable &
Wireless, IBM, Intuit, Shell Energy Services and ShopTalk.com. We target clients
leveraging the Internet as part of their business strategy, including companies
in the Fortune 2000 who have or are developing a presence on the Internet while
maintaining their traditional businesses as well as select businesses operating
exclusively on the Internet. We currently service clients through our network of
over 4,300 employees and 19 customer contact centers in the United States and
Canada. Our non-proprietary, open architecture technology systems allow us to
extend our capabilities and to implement new client solutions in a short
timeframe.
INDUSTRY OVERVIEW
The E-Commerce Industry
According to an eMarketer report of December 1999, approximately 850,000
businesses currently offer goods, services and information over the Web.
Competition among online businesses is intense with new companies launching
commercial Websites every day. eMarketer estimates that the number of actively
maintained business Websites will grow to 2.3 million worldwide by the year
2002. In addition, IDC
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<PAGE> 37
predicts that worldwide business-to-business and business-to-consumer commerce
conducted over the Internet, will increase from approximately $50 billion in
1998 to approximately $1.3 trillion in 2003.
While commerce conducted over the Internet, or e-commerce, has grown
significantly, studies have shown that there is generally a low level of
satisfaction with the e-commerce experience. According to Forrester Research,
approximately 66% of Web shopping carts are abandoned before purchases are
completed, and of those attempted, more than 25% fail. The Boston Consulting
Group has reported that 43% of Internet shoppers failed to complete an attempted
purchase during the last 12 months. Nearly one-half of all customer service
e-mails go unanswered. Moreover, in the fourth quarter of 1999, high order
volume combined with insufficient customer service support and product
fulfillment capabilities resulted in a number of e-commerce companies being
unable to meet delivery deadlines, provide responsive customer services or
maintain satisfactory inventory levels. We believe that multiple customer
service needs are not being fully met in the current e-commerce environment.
The eCRM Opportunity
We believe that many e-commerce companies have focused their
Internet-related investments to create online storefronts and to advertise to
consumers with the objective of creating brand awareness and achieving market
leadership. As e-commerce evolves, we believe our clients and prospective
clients must focus on acquiring customers more efficiently and converting
Website visits into lasting and profitable customer relationships. To do so, and
as part of developing successful e-commerce strategies, we believe that
companies must establish eCRM capabilities designed to:
- deliver prompt, effective, easy to use, quality customer service;
- develop and execute effective, targeted marketing analysis and programs;
- efficiently and courteously respond to customer inquiries in real-time by
e-mail, online chat, fax or phone;
- develop facilities and an operational infrastructure that can satisfy
rapidly increasing volume requirements, particularly Web-based
requirements;
- accept and process customer orders and inquiries in real-time, 24 hours a
day, seven days a week in a secure, easy to use environment;
- execute billing and payment functions such as secure credit card
processing, sales and other tax calculations, date verification and fraud
detection in real-time;
- pick, pack and ship customer orders promptly and accurately; and
- process product returns and customer refunds.
Faced with the growing cost and operational complexities of developing
comprehensive eCRM services, many companies are seeking to outsource these
mission critical business functions. According to Forrester Research, U.S.
corporate spending on outsourced e-commerce implementation is expected to
increase from $10.6 billion in 1999 to $64 billion in 2003. By outsourcing this
mission critical business function to us, our clients can establish their
e-commerce presence with reduced upfront expenses, gain considerable time to
market and access marketing, customer contact and fulfillment services capable
of expanding as their businesses grow, all while providing the required high
level of customer service.
The outsourcing of these eCRM services must be transparent to the customers
to enable the client to maintain brand recognition and customer loyalty.
Typically, outsourced customer service providers have focused on a single
function, such as information technology, call center management, credit card
processing, warehousing or package delivery. We believe this narrow focus
creates several customer service challenges for companies looking to outsource
more than one of these functions, including the need to manage multiple
outsource service providers, share sensitive information with multiple service
providers and integrate information developed through these providers into their
internal systems. Outsourcing these
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<PAGE> 38
services to multiple vendors also increases the risk of delivering a less
transparent, less customer service oriented solution, potentially jeopardizing
brand recognition and customer loyalty.
We believe that a substantial market opportunity exists for eCRM service
providers who can offer scaleable, end-to-end services which combine
technological infrastructure, in-depth understanding of their clients'
businesses, management expertise, and training resources to effectively and
efficiently serve their clients' long-term needs. These needs are best served by
providing the level of customer service needed to increase customer loyalty and
increase revenues.
OUR SOLUTION
Our objective is to help our clients increase their revenues and enhance
customer loyalty by serving as their outsourced provider of customer
relationship management solutions. Because customer satisfaction plays such a
critical role in the success of any business, we believe that the creation and
implementation of a successful customer relationship strategy provides our
clients with a competitive advantage. We have assembled the intellectual
capital, service offerings, technologies and management to address all
components of our clients' relationships with their customers. We believe we
possess many industry-leading attributes that can be leveraged to the benefit of
our clients and which are unique in the eCRM market today.
Proven track record of quality scaleable eCRM services
We were an early entrant into the emerging eCRM services market and believe
that we are currently the largest provider of end-to-end eCRM solutions in North
America. We currently employ over 4,300 people, operate 19 customer contact
centers and have over 200 clients across a wide variety of industries. We
currently handle an average of 4.8 million customer contacts a month. As a
result of our established network of customer contact centers and our
considerable industry experience relative to smaller competitors, we believe
that clients can rely upon us to successfully and rapidly design and implement
solutions. Our non-proprietary, open architecture technology systems allow us to
extend our capabilities and deliver our solutions to meet the urgent time
constraints and growing volume requirements faced by our clients. For example,
we were able to develop and implement a major e-mail response system for an
online retailer within three weeks which handled over 450,000 e-mails during a
two month period.
Integrated end-to-end approach
We provide comprehensive eCRM solutions enabling our clients to manage
their customer relationships through a single service provider. We have built an
end-to-end suite of services that provides our clients with seamless,
high-quality support for their customers. For example, we may contact a
potential customer for a client to introduce a product or service to a
prospective market. This initial contact may lead to customer inquiries that we
are able to answer across multiple channels including e-mail, VoIP and other
more traditional channels. We can assist a customer in placing an order and
provide the necessary back-end order processing and inventory management.
Finally, we can pick, pack and ship this customized order from our fulfillment
centers. We believe this seamless, transparent customer service experience
results in easier outsourcing for our clients and in better e-commerce
experiences for their customers.
Consultative approach tailored to the needs of our clients
We believe that Protocol utilizes a unique consultative approach to the
provision of eCRM services. We work with each client individually to develop a
tailored marketing strategy. Once a strategy has been developed, the client's
needs are mapped against our suite of service offerings and available tools. We
then implement and monitor this strategy, providing feedback and analysis for
further refinement. For example, we host strategic sessions with the marketing
teams of many of our clients throughout our engagements to provide feedback and
work together to develop enhancements to their marketing programs.
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<PAGE> 39
OUR STRATEGY
Our mission is to be the leading provider of eCRM solutions to businesses
leveraging the Internet as part of their business strategy. To achieve this
objective, we plan to:
Leverage our ability to provide consultative, integrated end-to-end eCRM
solutions
We believe that each of our clients typically needs and wants
fully-integrated, Internet-based customer relationship management solutions
which can address all aspects of the customer relationship continuum, from
identifying potential new customers to servicing those customers following a
sale. We have built an experienced direct sales team skilled in selling
comprehensive solutions in a consultative environment. Our approach is focused
on understanding the needs of our clients and working with them to develop
comprehensive solutions that optimize the value of their customers. We believe
that our broad range of service offerings together with our consultative
approach differentiates us from our competitors. We intend to continue to
leverage this advantage to attract new clients.
In addition, in many cases a client may initially opt for less than the
full suite of our services when they begin a relationship with us. We believe
that by promoting our complete suite of services we will extend our
relationships with many of our existing clients. We have been highly successful
in expanding an initial contract for one or two services into an enhanced
arrangement as clients experience our superior execution and take advantage of
our strategic feedback and analysis. For example, a client may retain us to
manage their e-mail response system and later expand this service to include
live customer services or fulfillment. We will continue to focus on this type of
expansion as an important driver of growth.
Capitalize on our "early mover" advantage in the market for eCRM services
We believe that in advance of other traditional customer service
businesses, we recognized the critical role of customer service to Internet
commerce providers and migrated our core businesses into the e-commerce market
through the implementation and installation of advanced hardware and software
platforms at each of our major customer contact centers and data centers. As an
"early mover" in the eCRM market, we have achieved scale, introduced a
comprehensive range of services, and developed a proven, satisfied client base.
We believe we are well positioned to continue to be among those setting the
standards of performance in our industry. We intend to leverage our large,
diverse group of customers and our broad range of services to continue to grow
and diversify our revenue base. We expect to continue to use our "early mover"
status as a significant advantage in identifying new business opportunities and
competing against new market entrants which often provide limited services or
focus on a particular niche market.
Further penetrate existing client accounts by providing additional high-quality,
value-added eCRM services
We believe that building long-term relationships with our clients is an
important part of our business. Today, many of our clients have multiple
departments and divisions under the umbrella of a parent company, each of which
may individually need our services. This offers us the opportunity to provide
the same or similar services to multiple divisions or departments of existing
clients and thereby increase our revenues. For example, after successful
implementation of our eCRM solutions for Sears Craftsman brand, we were hired to
provide similar services first for Sears Kenmore and subsequently for Sears
DieHard brand. We believe there is a large opportunity for similar growth across
our current client base.
Access new geographic markets and develop new products and services
We have designed our business model and Internet-based technology
infrastructure to be scalable to allow our operations to grow as opportunities
arise, and our clients' needs increase. We believe there are numerous expansion
opportunities in geographic markets in North America and in Europe, as well as
product development opportunities across the e-commerce spectrum. Potential
areas for service expansion include offering a broader range of transaction
processing, Website development and hosting services, and
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<PAGE> 40
additional data mining and warehousing tools. We intend to selectively expand
into these additional markets and services to take advantage of incremental
growth opportunities.
Pursue strategic acquisitions and partnerships
As part of our growth strategy, we will continue to pursue acquisitions of
companies that offer strategic competencies or technologies, geographic
diversity, additional capacity or attractive management talent. For example, we
recently acquired a high-quality, value-added e-fulfillment business that
increased our fulfillment capacity while adding strong management personnel. We
employ a team of acquisition professionals who continue to search for
appropriate candidates across multiple service offerings. We have identified a
substantial group of potential acquisition candidates which we may pursue in the
future.
In addition, we intend to pursue partnerships with certain providers of one
or more related e-commerce services outside the suite of services that we offer.
These partners may include sophisticated, commercial Web design companies, which
create the vehicles for entry into the Internet-based marketing arena, and which
we believe may provide a source of potential new customers for our eCRM
services.
OUR ECRM SOLUTIONS
We provide comprehensive solutions that assist our clients in successfully
managing the entire spectrum of their customer relationships. The table below
presents a sampling of the services we provide or that we have been contracted
to provide to some of our clients and select tools we employ to implement these
services (listed alphabetically):
<TABLE>
<CAPTION>
SELECT PROTOCOL SERVICES SELECT PROTOCOL TOOLS
--------------------------------------- --------------------------------------------------------
RETENTION &
MAXIMIZATION MARKETING CLICK TO
IDENTIFY/ (CUSTOMER CARE, & CHAT; WEB
ACQUIRE UP-SELL & DATABASE CLICK TO CALL; NAVIGATION
CLIENT (SALES) CROSS-SELL) SERVICES E-MAIL WEB CHAT COLLABORATION SUPPORT
- ------ --------- --------------- --------- ------ ------------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
American Telecast...... X X X
Intuit................. X X X
Productivity Point
International........ X X X X X X
Quoteship.com.......... X X X X X
Shell.................. X X X
ShopTalk.com........... X X X X X X
<CAPTION>
SELECT PROTOCOL TOOLS
----------------------
CLIENT E-FULFILLMENT OTHER
- ------ ------------- ------
<S> <C> <C>
American Telecast...... X
Intuit................. X
Productivity Point
International........ X
Quoteship.com.......... X
Shell.................. X
ShopTalk.com........... X X
</TABLE>
SERVICES WE PROVIDE TO OUR CLIENTS
Assisting Clients to Target New Customers
Strategic Market Planning. Working closely with our clients, we provide
strategic market planning services to design comprehensive marketing programs
that most effectively accomplish the clients' goals. For example, this service
might include recommendations on how to most effectively design a campaign to
reach new customers by conducting research to understand the elements that drive
buying behavior and which utilizes many of our service offerings. We continue to
play an increasingly larger role in providing strategic planning input to assist
our clients in meeting their marketing challenges. We believe that our ability
to implement effective marketing solutions differentiates us from our
competitors and is a key factor in our success.
Pre-Sales Customer Support. Pre-sales customer support includes
dissemination of product and company information, lead generation and lead
qualification. These activities assist a client in effectively marketing a
product or service or identifying likely customers. Although use of the Internet
is increasing in this area, the role of the customer contact representative
remains critical in providing this service. Our professional representatives are
able to establish a rapport with the prospective customer, speak knowledgeably
about a product or service being offered and correctly manage a variety of
responses in both the business-to-business and business-to-consumer
environments. In one case, we provided pre-sales
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<PAGE> 41
support to a fitness company, which at the time of our initial contract had a
customer contact to completed sale ratio of 8%. After we implemented our
marketing strategy, the customer contact to sales ratio increased to 25% and the
client has been able to raise the price per unit of its product from
approximately $400 to approximately $1,200 over several years during the course
of our engagement.
Assisting Clients to Acquire Customers
Customer Sales. A customer sale is the essence of customer acquisition.
Our services involve selling products or services to our clients' customers, as
well as adding sales to informational inquiries or assisting a potential
customer to complete a purchase from a Website. This may include helping our
clients' customers navigate our clients' Websites to place orders and also
processing orders from the Website or through toll-free phone numbers listed in
our clients' catalogs. We offer automated and live services that provide the
transactional processing of sales orders such as credit card processing and
order processing and management. The need for our customer sales services is
driven in part by the increasing number of direct sales of higher technology
products, an increased focus on business-to-business sales and the increased use
of the Internet as a commercial medium. In addition, it is driven by the
difficulty that users have experienced completing transactions over the
Internet.
E-fulfillment. Our e-fulfillment services include all the steps necessary
to execute a customer order. We offer our clients inventory management,
fulfillment and distribution services, including processing, picking,
warehousing, labeling, e-mail notifications and arranging for the timely and
cost-effective delivery of customer orders to the correct destination. We have
the capability to provide both product and literature fulfillment and to accept
incoming orders from either an entirely Web-based or multi-channel environment.
By offering fulfillment services, we facilitate sales from the initial point of
contact through the delivery of a product ordered.
Serving Clients with Ongoing Customer Contact Services
Sales-Related Customer Care. After our client has established a
relationship with a customer, we provide a variety of services to enable the
client to realize the fullest value from that relationship. Post-sales customer
care services include online or telephonic customer service, help desk services,
processing of returned items and general information dissemination. Our services
are built on the premise that building lifetime customer relationships and
taking advantage of cross-sale, up-sale and next-sale opportunities offers a
high incremental return on the customer care investment for our clients. For
example, we provide a manufacturer of consumer electronics products with
technical help desk and general post-sale customer service through live contact,
e-mail and Web collaboration to help its customers resolve technical questions
relating to products they have purchased. In addition, we offer these help desk
and similar services to potential customers of our clients to provide them with
a better experience which we believe ultimately results in an increased
probability of later sales.
Assisting Clients in Retaining their Customers
Market Surveys. We develop and implement market surveys to evaluate the
results of our clients' strategic marketing and sales campaigns. We also provide
surveys to judge the satisfaction of current customers and to assess the needs
of potential new customers. For example, Protocol has been performing market
surveys for a leading high technology company whose business focus includes the
manufacture of computers, software development and networking services. The
surveys provide the client with information on its products as well as key
competitive products. With the information gained, our client has the
opportunity to improve their product line and to initiate contact with customers
who express less than complete satisfaction.
Data Mining and Warehousing. Data mining and warehousing services include
the statistical analysis of the extensive data aggregated through our other
customer relationship management services. Data mining services can uncover
patterns and relationships hidden in existing databases of customers or
prospective customers which in turn help to determine the characteristics of
customers who are most likely
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<PAGE> 42
to purchase a product, upgrade their purchases or leave for a competitor. This
information enables our clients to take appropriate action with respect to these
customers to maximize customer satisfaction. By providing this research to our
clients, we can assist them in significantly reducing marketing expenses,
increasing sales and building customer satisfaction. For example, we helped a
leading specialty foods retailer by analyzing trend information generated
through automated and live interaction services. Based on the analysis, we
designed a marketing program to up-sell and cross-sell on a specific product mix
which resulted in increased customer satisfaction and greater margin on the
product offerings.
Analysis and Feedback
We believe a distinguishing feature of our solutions is our ability to
provide ongoing analysis and feedback to improve our services and help our
clients to improve their marketing programs. Once a strategy has been executed,
our technology infrastructure allows us to capture real-time data from our
client's customers regarding customer satisfaction, customer inquiries, customer
profiles and related data. Once collected, this data is analyzed and measured
against the goals established by the client to determine the success of the
clients' customer service strategy. We continually refine our services to ensure
that we are effective in meeting the objectives set by our clients. We believe
that this approach of providing real time feedback regarding our clients'
customer satisfaction and our consultative analysis of this data is unique in
our industry and represents one of our more important value-added services.
In addition to the ongoing feedback and regular interaction between our
account service representatives and our clients, we have periodic strategic
retreats with many of our clients. During a retreat we review not only the
current programs, but also strategize about the other marketing challenges that
our clients may be facing. On past retreats, we have worked with our clients to
develop customized solutions to meet our client's marketing challenges. For
example, we recommended that a learning center client offer its technology
certification classes at night for students who because of their jobs could not
attend classes held during the day. These evening classes, which became the most
popular classes offered by this client, increased the client's revenues while
allowing it to maximize the use of existing resources such as classrooms and
computers.
TOOLS WE UTILIZE TO PROVIDE OUR SERVICES
We provide the services described above through the following suite of
tools (presented alphabetically):
Click to Call. Click to Call is the process of generating an outbound call
from a customer contact center based on a user request, or click, at a Website.
The specific technical process may vary by site, but, in general, the user and
the customer contact representative converse over an ordinary telephone line
after the request for a call is generated at a Website.
Click to Chat. Click to Chat involves the real-time exchange of
information via text over the Internet. We expect click to chat to be one of the
more effective tools for eCRM customer support. Typically, a customer would
click on the "chat" button located on our client's Website. One of our
representatives would then engage the customer in an online text based
discussion in a real-time environment. Click to chat services can range from
one-to-one interaction to interaction among a community or group of visitors to
a client's Website.
Collaboration. Collaboration is a process in which a Website user and a
customer contact representative work together sharing multimedia information in
the form of Web pages, text, audio and video, while at the same time they
communicate with click to chat, click to call, or VoIP. Protocol considers
collaboration to be the most powerful demonstration of eCRM customer support
because it permits actual electronic one-to-one marketing, with the delivery of
a specific message to an individual user.
Direct Mail and Printing. We have the capability to produce, print,
personalize and distribute marketing and informational documents such as
postcards, brochures and newsletters for our clients. This
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<PAGE> 43
may range from preparing and mailing several million pieces for a direct mail
campaign to specialty projects for a smaller, more targeted marketing program.
E-mail Management. We provide both e-mail response management and e-mail
campaign management. E-mail response management is the process of receiving a
message from a customer and responding electronically to that message with the
correct information. E-mail campaign management is the creation and distribution
of electronic messages in a coordinated marketing program, based on prior
permission from the recipient. E-mail management can be accomplished either
automatically or with some level of human intervention.
FAQs (Frequently Asked Questions). FAQs is a system that allows
information derived through the customer service process to be integrated into a
self-service information store, accessed either through a client's Website or
automatic voice response or fax-back system maintained by Protocol for the
client.
Internet order processing. Our online order processing capabilities
include sophisticated shopping cart and order management technology, as well as
the ability to collect secure order data and online real-time authorization of
credit card transactions.
IVR (Interactive Voice Response). Interactive voice response is a
technology that provides a limited level of automated customer service over
existing telephone lines. The system generally facilitates self-service access
to information for incoming calls but can also be used as an up-sell and
cross-sell tool. In many cases, a caller can automatically retrieve the desired
information or place an order without having to speak to a customer contact
representative.
Lead Generation Software. We license sophisticated lead generation and
tracking software to provide our clients with the ability to track and quantify
specific results of their marketing programs. The process involves tracking
multiple contacts with a client's customers and the creation and maintenance of
a database of information resulting from those contacts.
Live Contact Services. We maintain a staff of skilled customer contact
representatives, many of whom are multi-lingual, to provide human interaction in
the performance of our services. Our customer contact representatives receive
extensive training in the products, programs and companies they represent and in
how to create rapport and deal appropriately with a variety of customer
situations. We employ automatic call distribution technology to direct each
incoming customer contact to the representative best able to handle it based on
capability and availability.
Message Boards and News Groups. Messages boards and news groups are
Internet formats in which a central administrator creates topics for online
discussion. A series of responses are accumulated over time, by topic, and then
sorted in such a way that a viewer can follow the topic through what appears to
be a common discussion although that discussion is not in real time. For
example, we offer technical support boards where users can see how others have
solved similar problems. These services have been traditionally performed using
telephone-based help desks. The Internet offers an additional and in some ways
more powerful opportunity to leverage customer contacts for our clients and
creates a personalized community for the users.
Portals. Portals are information destinations for users of a client's
Website that summarize key data about the user's interaction with our client.
For example, after a customer purchases a product, the home page that appears on
the customer's computer screen is reconfigured, based on the product purchased
by the customer, with customer support information that addresses the typical
questions a purchaser of that product might have.
VoIP (Voice over Internet Protocol). VoIP enables real-time, interactive
customer service, order processing, cross-selling and up-selling while browsing
a client's Website. We have implemented the VoIP technology currently available
to enable end-users and customer contact representatives to talk and work in a
real-time collaborative environment. As a practical matter, the technology has
yet to advance to a stage deemed commercially acceptable to most of our clients.
We believe VoIP technology will be widely available and utilized within the next
two years.
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<PAGE> 44
Website Services. Website services include Website design, Website
hosting, e-commerce programming and e-commerce integration to assist our clients
as they extend their commercial activities onto the Internet. In Website design,
we work with a client to create a presence on the Internet that effectively
communicates their message. We can also work with them to maximize the Website
for e-commerce activities and provide programming services to integrate the
Website with their existing computer systems. Protocol also hosts Websites,
housing them on secure computers with high bandwidth access and redundant
capabilities.
CUSTOMERS
Because we believe that effective customer relationship management is
critical to every business, we have focused our efforts on providing services to
clients leveraging the Internet as part of their business strategy without
regard to a client's industry, including Fortune 2000 clients who have or who
are developing a presence on the Internet and select businesses operating
exclusively on the Internet.
We are not dependent on any single client for a significant percentage of
our revenue. In 1999, on a pro forma basis, taking into account all of our
acquisitions to date, our largest client represented only 4% of our revenues and
our top 10 clients represented 26% of our revenues. In addition, in 1999, our
top 50 clients represented approximately 50% of our revenues, on a pro forma
basis. The following list represents our largest clients in 1999, on a pro forma
basis (in alphabetical order):
<TABLE>
<S> <C>
- - American Telecast - Intuit
- - Bigwords.com - Meloche Monnex, a TD
- - Casio Canada Trust company
- - Critical Path - My Twinn
- - CyberGate - ServicEdge
- - Dr. Leonard's Healthcare Corp. - Storage Tek
- - Eagle Publishing - The Sportsman's
- - Fannie Mae Guide
- - Garden City Group - Total Research Corp.
- - IBM - Volt Communications
- - Illinois Department of Corrections
</TABLE>
SALES AND MARKETING
We sell our services primarily through our direct sales team. Each of our
account managers works with prospective clients to develop a comprehensive
solution of integrated services for managing their customer relationships. We
believe that this consultative selling approach is a distinguishing factor in
our success and a significant competitive advantage. Our account managers are
measured against quarterly quotas and receive a base salary supplemented by
commission based on revenues recognized over a 12-month period. We currently
employ 15 national account managers and 21 divisional account managers in the
United States and Canada. Our divisional account managers focus on regional
accounts, while our national account managers work with major accounts on a
nationwide basis. We expect to increase the number of our national account
managers significantly in the next year.
To date, we have not conducted extensive public relations, promotion or
branding activities. We expect that these activities will increase substantially
in the future as we move to aggressively build and market the Protocol brand as
a mark of excellence in the eCRM market. In addition to traditional methods such
as trade shows and print advertising, we intend to use the capabilities of the
Internet to create awareness and demand for our services through our Website,
Web advertising and other electronic communications.
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<PAGE> 45
TECHNOLOGY INFRASTRUCTURE
Internet-based applications serve as the technical foundation for all core
applications across Protocol. This technology infrastructure allows us to
harness the power of the Internet for our clients and their customers. We
believe our open architecture approach to technology contributes to our ability
to quickly scale our business activities to respond to our growing customer
demand. Protocol's core technology strategy is built around the following
approach:
- leverage the Internet as the core network backbone;
- use standard applications as components in a networked environment; and
- simplify deployment and increase scalability by taking advantage of
thin-client based workstations.
We utilize non-proprietary products that permit the rapid implementation of
solutions tailored to specific client situations. We are committed to
continually examining our technology base to implement the best technologies
available. Currently within our suite of eCRM applications, we have selected the
following vendors:
- e-mail management powered by Kana;
- message boards and news groups powered by Microsoft and Allaire;
- frame relay network powered by MCI;
- VoIP powered by Lipstream technology by Kana;
- Web collaboration and Web chat powered by Webline; and
- switch capability powered by Lucent and Aspect.
In addition, we have begun to deploy Silknet for multi-channel database
integration and Cisco Systems' Geotel for multi-channel contact center
integration. Each workstation within our customer contact centers is
Internet-enabled and capable of multi-channel communication. In addition, our
e-fulfillment centers are fully Internet-enabled. The Cincinnati location
incorporates a data center maximized for high availability and has been
recognized as a Microsoft Certified Solutions Provider.
EMPLOYEES
As of March 31, 2000, Protocol employed approximately 4,300 people. This
included 3,721 customer contact representatives and supervisors at our customer
contact centers, of which 2,137 were full-time employees and 1,584 were
part-time employees. There were approximately 580 additional employees,
including 146 executive, financial and administrative personnel, 102 account
services representatives who are responsible for day-to-day management of client
programs, 98 employees in the information technology area and 37 people in the
sales and marketing organization. We plan to continue to expand our employee
base as we expand our business with a particular focus on increasing the number
of national account managers and customer contact representatives. None of our
employees is subject to a collective bargaining agreement and we consider our
relations with our employees to be good.
COMPETITION
We believe that the full service eCRM market is nascent and evolving. We
expect competition to develop in our market. At present, we face occasional
competition from new market entrants for some of the services we provide.
However, we believe that there are few, if any, other providers of the broad
range of integrated services we provide.
Our primary competition is the in-house customer service departments of our
potential clients. Competitors offering only one or two of the services offered
by us may compete with us in a narrow range of cases, particularly cases in
which a client is reluctant to turn entire control of its customer management
services to a third party. In these limited cases, we may see competition from
several types of service
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<PAGE> 46
providers including more narrowly focused eCRM providers and, less frequently,
more traditional customer service providers including call centers, traditional
fulfillment companies, outsourcing divisions of direct marketing companies and
order processing companies. Some of our competitors have longer operating
histories than we do. In addition, some of our competitors may have greater
brand recognition and greater financial, technical, marketing and other
resources than we do.
We believe that we compete on the basis of customer satisfaction, speed of
implementation, scope of service, industry experience, past contractual
performance and quality of services. We believe that we compete favorably with
respect to each of these factors, as well as with regard to general
considerations such as reputation and pricing.
FACILITIES
We operate our customer relationship management activities through 19
customer contact centers in the United States and Canada, each of which is fully
Web-enabled and capable of multi-channel communications. As of June 1, 2000, our
headquarters will be located in Danvers, Massachusetts. In addition, we have a
number of small sales and administrative offices throughout the country. The
leases for all of our principal facilities have terms ranging from one to 10
years and generally contain renewal provisions. We believe that our facilities
are suitable and adequate for our current operations, but that additional
facilities will be required for future growth. We further believe that suitable
space will be available as needed to expand our business on commercially
reasonable terms. Set forth below is the location and size of our principal
facilities as of March 31, 2000.
<TABLE>
<CAPTION>
AGGREGATE
LOCATION SQUARE FEET
- -------- -----------
<S> <C>
Atlanta, GA................................................. 3,000
Aurora, IL.................................................. 11,200
Boston, MA.................................................. 16,819
Chesire, CT................................................. 10,217
Cincinnati, OH.............................................. 220,000
Cocoa, FL................................................... 10,148
Colorado Springs, CO........................................ 26,100
Denver, CO(1)............................................... 52,571
Hamilton, Ontario, CANADA................................... 11,000
Lansing, MI................................................. 11,889
Leavenworth, KS............................................. 15,838
Leominister, MA............................................. 8,100
Montreal, Quebec, CANADA.................................... 6,780
New Orleans, LA............................................. 12,927
Nokomis, FL................................................. 4,720
Salt Lake City, UT.......................................... 71,000
Sarasota, FL(2)............................................. 19,131
Worcester, MA............................................... 19,000
</TABLE>
- ---------------
(1) Operated under a facilities management agreement.
(2) We maintain two facilities in Sarasota, Florida.
LEGAL PROCEEDINGS
From time to time, we are involved in legal actions arising in the normal
course of our business. We do not believe that any pending legal action would,
if adversely determined, have a material adverse effect on our business or
operating results.
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<PAGE> 47
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of March 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- ------------------------------------------------------
<S> <C> <C>
Stephen G. McLean.................... 44 Director, President and Chief Executive Officer
Raymond P. Wilson.................... 45 Chief Financial Officer
Kevin N. Blayne...................... 34 Chief Marketing Officer
Deborah Zonies....................... 40 Vice President, Business Affairs and General Counsel
Robert J. Conrads(1)................. 53 Director
Robert C. Froetscher(1).............. 42 Director
J. Barton Goodwin(2)................. 53 Director
Avy H. Stein(2)...................... 45 Director
Peter O. Wilde, Jr.(1)(2)............ 31 Director
</TABLE>
- ---------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Stephen G. McLean, a co-founder of Protocol, has been a director and has
served as President and Chief Executive Officer of Protocol since June 1998. Mr.
McLean was Chief Executive Officer of Teleservices International Group Inc. from
January 1996 to June 1998. He was a business consultant to Indigo from December
1995 to December 1997. Prior to that time, he was Vice President of Worldwide
Marketing of Indigo N.V., having previously served as Vice President of Business
Operations of Indigo America. Mr. McLean graduated from Suffolk University and
holds a J.D. from Suffolk University Law School and an M.B.A. from Northeastern
University.
Raymond P. Wilson, a co-founder of Protocol, has served as its Chief
Financial Officer since June 1998. Mr. Wilson was the Chief Financial Officer of
TeleServices International Group Inc. from January 1997 to June 1998, and served
in a variety of executive positions since 1985 at Scitex America Corp., most
recently as Vice President of Marketing from 1994 to December 1996. Mr. Wilson
graduated from Merrimack College and holds an M.B.A. from Bentley College.
Kevin N. Blayne, a co-founder of Protocol, has served as Vice President,
Sales and Marketing of Protocol since June 1998 and was named the Chief
Marketing Officer of Protocol in February 2000. Prior to forming Protocol, Mr.
Blayne was the Vice President and General Manager of Visitors Services
International from November 1996 to June 1998 and was the Director of Marketing
for Indigo America from January 1995 to November 1996. Mr. Blayne graduated from
the University of Maine.
Deborah Zonies has served as Vice President, Business Affairs and General
Counsel of Protocol since March 2000. Ms. Zonies acted as a consultant to
Protocol in connection with several acquisitions from December 1998 until March
2000. From September 1995 to September 1998, Ms. Zonies served first as Vice
President, Business Affairs and then as President and Chief Executive Officer of
Digital Art Exchange, Inc. Ms. Zonies graduated from Smith College and holds a
J.D. from the University of Notre Dame Law School.
Robert J. Conrads, a co-founder of Protocol, has been a director of
Protocol since June 1998. Mr. Conrads has been the President and Managing
Partner of Voyager Capital Group LLC since January 1997. From January 1994 to
January 1997, Mr. Conrads was the President and Chief Executive Officer of
Indigo America and the Chief Financial Officer of Indigo N.V. Mr. Conrads
graduated from the Georgia Institute of Technology and holds an M.S. from the
Georgia Institute of Technology and an M.B.A. from Harvard Business School.
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<PAGE> 48
Robert C. Froetscher has been a director of Protocol since December 1999.
Mr. Froetscher has served as Managing Director of Willis Stein & Partners since
August 1998. Mr. Froetscher was the Senior Vice President and General Manager of
APAC Teleservices from July 1996 to July 1997 and the Vice President, Sales and
Service for Ameritech Corporation's Consumer Division from July 1994 to July
1996. Mr. Froetscher graduated from the Rose-Hulman Institute of Technology and
holds an M.B.A. from Northwestern University.
J. Barton Goodwin has been a director of Protocol since December 1999. Mr.
Goodwin is a General Partner of BCI Growth IV, L.P. and BCI Growth V, L.P. and a
managing member of BCI Investors, L.L.C., having joined BCI in 1986. Mr. Goodwin
graduated from Washington & Lee University and holds an M.B.A. from Columbia
Business School. Mr. Goodwin is a director of Baker, Fentress & Co. and Factual
Data Corp.
Avy H. Stein has been a director of Protocol since December 1999. Mr. Stein
is a Managing Director of Willis Stein & Partners, which he co-founded in
December 1994. Prior to forming Willis Stein & Partners, Mr. Stein served as
Managing Director for Continental Illinois Venture Corp. from September 1989 to
December 1994. Mr. Stein graduated from the University of Illinois and holds a
J.D. from Harvard Law School, and is a certified public accountant. Mr. Stein is
a director of CTN Media Group, Inc., Racing Champions Corporation and Tremont
Corporation.
Peter O. Wilde, Jr. has been a director of Protocol since December 1999.
Mr. Wilde is a General Partner of BCI Growth IV, L.P. and BCI Growth V, L.P. and
a managing member of BCI Investors, L.L.C., having joined BCI in August 1992.
Mr. Wilde graduated from Colorado College and holds an M.B.A. from Harvard
Business School. Mr. Wilde is a director of AmStar Entertainment, Screen Media
Ventures, Alta Colleges, Community Education Corporation and TrainingNet.
KEY EMPLOYEES
Robert Bossert, 39, has served as our Chief Technology Officer since March
1999. Mr. Bossert was the Senior Vice President-Technology Development and
Management of Modem Media Poppe Tyson, where he had worked since June 1996
before leaving to join Protocol. Mr. Bossert also served as Director-Future
Media for Prodigy Services Company from October 1987 to August 1996.
Robert C. Gust, 43, a co-founder of Protocol, has served as our Senior Vice
President, Business Development since May 1998. From April 1997 to May 1998, Mr.
Gust was a business consultant to Teleservices International Group Inc. Mr. Gust
was the Vice President, Sales of Indigo America from June 1993 to April 1997.
Jerry D. Lewis, 50, has served as our Executive Vice President and General
Manager, Eastern Division of Protocol since January 2000, and served as our
Executive Vice President and General Manager, Southern Division from June 1998
to January 2000. Mr. Lewis was the Chief Executive Officer and President of
Operators Standing By, Inc. from January 1979 to June 1998 when the business was
acquired by Protocol.
David VanDerveer, 41, has served as our Executive Vice President and
General Manager, Central Division since December 1998. Mr. VanDerveer was the
President and Chief Executive Officer of The Scribers, Inc., from June 1996 to
December 1998 when the business was acquired by Protocol. He was previously an
Executive Vice President of West Interactive Corporation from April 1989 to May
1996.
Michael W. Welch, 36, has worked as a consultant to Protocol since March
2000 and was hired as our Vice President, Strategic Business Development in
April 2000. Prior to working with Protocol, Mr. Welch served as the Customer
Care Solutions Manager of Cisco Systems from April 1999. From May 1997 to April
1999, Mr. Welch served as District Market Manager of BellSouth Communication
Systems and from March 1995 to April 1997, he served as a Call Center Specialist
at Executone Information Systems.
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<PAGE> 49
BOARD COMPOSITION
Our by-laws currently authorize our board of directors to have not less
than one member. Our board of directors currently has six members and shortly
after completion of this offering will have seven members. Members of the board
of directors are elected each year at the annual meeting of stockholders to
serve until their successors have been elected and qualified. Directors may be
removed, with or without cause, by the affirmative vote of the holders of a
majority of the shares entitled to vote at an election of directors. There are
no family relationships among any of our directors and executive officers.
BOARD COMMITTEES
We currently have a compensation committee and an audit committee. Our
compensation committee consists of Messrs. Conrads, Froetscher and Wilde. The
compensation committee makes recommendations to the board of directors regarding
various executive incentive compensation and benefit plans and determines
salaries for the executive officers. Our audit committee consists of Messrs.
Goodwin, Stein and Wilde. The audit committee makes recommendations to the board
of directors regarding the selection of independent public accountants; reviews
the results and scope of the audit and other services provided by our
independent public accountants and reviews and evaluates our control functions.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for serving on
the board of directors or any committee of the board, although non-employee
directors are reimbursed for the expenses they incur in attending meetings of
the board or board committees. In January and February of 1999, we issued 28,223
shares of our common stock to Robert J. Conrads, one of our directors. We also
granted options to purchase an aggregate of 50,000 shares of our common stock to
Mr. Conrads at an average exercise price of $7.57 per share in December 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our board of directors and the
board of directors or compensation committee of any other company, nor has any
such interlocking relationship existed in the past.
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<PAGE> 50
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended
December 31, 1999 concerning the compensation we paid to our executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------- ----------------------
NAME AND NUMBER OF SECURITIES ALL OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- ------------------ ---- -------- -------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen G. McLean,
President and Chief Executive
Officer........................ 1999 $228,473 $280,000 118,000 $ 97,637(1)
Raymond P. Wilson,
Chief Financial Officer........ 1999 175,857 140,000 74,000 60,871(2)
Kevin N. Blayne,
Chief Marketing Officer........ 1999 162,077 170,000 74,000 60,871(3)
Deborah Zonies,
Vice President, Business
Affairs and General Counsel.... 1999 150,000(4) -- 10,000 --
</TABLE>
- ---------------
(1) Represents a grant by Protocol of 97,637 shares of common stock on January
1, 1999 valued at $1.00 per share.
(2) Represents a grant by Protocol of 60,871 shares of common stock on January
1, 1999 valued at $1.00 per share.
(3) Represents a grant by Protocol of 60,871 shares of common stock on January
1, 1999 valued at $1.00 per share.
(4) Deborah Zonies became the Vice President, Business Affairs and General
Counsel of Protocol on March 1, 2000. She acted as a consultant to Protocol
from December 1998 to that date. All compensation amounts regarding Ms.
Zonies disclosed in this table were paid in connection with her consulting
agreement which is no longer in effect.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows each grant of stock options during the fiscal
year ended December 31, 1999 to the individuals listed on the previous table.
The exercise price of each option is equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of common stock at fair market
value on the date of exercise or a combination of cash and shares. The potential
realizable value is calculated based on the 10-year term of the option and the
market value at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by:
- multiplying the number of shares of common stock subject to a given
option by the assumed initial public offering price of $ per share;
- assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
- subtracting from that result the total option exercise price.
The options included in the following table for each of Stephen G. McLean,
Raymond P. Wilson and Kevin N. Blayne were granted under our 2000 option plan.
These options will be exercisable upon consummation of this offering. The
options included in the following table for Deborah Zonies were granted under
our 1999 option plan. These options vest 33% on each of January 1, 2000, 2001
and 2003.
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<PAGE> 51
All of the options have 10-year terms, subject to earlier termination if the
optionee's service with us should cease.
Percentages shown under "Percent of Total Options Granted in Fiscal 1999"
are based on a total of 363,436 options granted under our stock option plans
during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING PERCENT OF TOTAL EXERCISE OPTION TERM
OPTIONS OPTIONS GRANTED PRICE PER EXPIRATION ---------------------
NAME GRANTED IN FISCAL 1999 SHARE DATE 5% 10%
- ---- ---------- ---------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stephen G. McLean.............. 118,000 32.5% $7.57 12/1/09
Raymond P. Wilson.............. 74,000 20.4 7.57 12/1/09
Kevin N. Blayne................ 74,000 20.4 7.57 12/1/09
Deborah Zonies................. 10,000 2.8 1.00 1/1/09
</TABLE>
YEAR-END OPTION VALUES
No options granted by Protocol were exercised by the executive officers
during the fiscal year ended December 31, 1999. The following table provides
certain information concerning options granted by Protocol as of December 31,
1999, with respect to each of our executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen G. McLean.......................... 0 118,000
Raymond P. Wilson.......................... 0 74,000
Kevin N. Blayne............................ 0 74,000
Deborah Zonies............................. 0 10,000
</TABLE>
RESTRICTED STOCK GRANTS
In 1998, we established a restricted stock and option plan to grant to
certain employees, non-employee directors and outside consultants shares of
restricted common stock and options to purchase shares of common stock. We
granted a total of 1,539,500 shares of restricted stock to officers, directors
and employees under this plan in 1998. All vesting of outstanding shares of
restricted stock granted under the 1998 plan accelerated, and all forfeiture
provisions lapsed in December 1999, upon consummation of the recapitalization.
OPTION PLANS
In addition to our 1998 plan, we currently have two broad-based stock
option plans, the 1999 option plan and the 2000 option plan, under which we
grant to officers, key employees, directors and consultants options to purchase
our common stock.
The compensation committee of our board of directors administers our option
plans. Options give a recipient the right to purchase a specified number of
shares of common stock from us for a specified time period at a fixed price.
Options granted to employees may be either incentive stock options or options
not intended to be incentive stock options, called non-qualified options. The
compensation committee determines the price per share at which common stock may
be purchased upon exercise of an option. However, in the case of grants of
incentive stock options, the price per share may not be less than the fair
market value of a share of common stock on the date of grant. In the case of any
incentive stock option granted to a person who owns stock possessing more than
10% of the total combined voting power of all classes of our capital stock, the
option price per share will not be less than 110% of the fair market value of a
share of common stock on the date of grant. The option price per share for
non-qualified options may be less than the fair market value of a share of
common stock on the date of grant.
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<PAGE> 52
Except as provided in an option agreement, the price upon exercise of an
option will be paid in full at the time of the exercise in cash, in shares of
common stock at fair market value on the date of exercise or a combination of
cash and shares. The committee may permit other methods of payment upon the
exercise of options, including by delivery of a note by the employee or by
restricted stock. Option terms may not be greater than 10 years, or five years
in the case of an incentive stock option granted to a holder of 10% or more of
the voting power of our capital stock. Option terms are generally determined in
the sole discretion of the committee and are set forth in each option agreement.
However, the options generally terminate sooner than stated in the option
agreements in the event of the termination of the employment of an option
holder. Options granted under the 2000 stock option plan vest annually in equal
installments over four years beginning on the first anniversary of the date of
grant.
Upon consummation of the offering, total options will be exercisable
under our option plans at a weighted average exercise price of .
EXECUTIVE INCENTIVE PROGRAMS
In order to attract, retain and motivate qualified employees, align
employee interest with those of the stockholders and reward employees for
enhancing our value, we established two executive cash compensation programs for
the year 2000, the base plan 2000 and the acquisition plan 2000. Under each
plan, certain management-level employees are eligible to receive annual
performance bonuses based upon Protocol's or our most recently acquired
businesses' achievement of certain predetermined financial goals. Awards under
these plans will be paid at the beginning of 2001 from an incentive pool, which
will be equal to a portion of the amount by which our earnings before interest,
taxation, depreciation and amortization, or EBITDA, or the combined EBITDA of
our most recently acquired businesses exceed established thresholds for the
year. From this incentive pool, each participant is entitled to receive a cash
incentive award up to an amount determined by the participant's base salary.
Effective upon consummation of this offering, performance targets will be based
upon achievement of financial targets yet to be determined.
401(k) PLAN
We sponsor a 401(k) plan intended to qualify under Section 401 of the
Internal Revenue Code. Employees who are at least 21 years old may enter the
plan after one year of eligible employment. Participants may make pre-tax
contributions to the plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. Each participant is fully vested in his or
her contributions and the investment earnings. We may make matching
contributions at our discretion to the plan. Any contributions made by us and
allocated to a participant vest after the fifth anniversary date of the
employment of that participant. Contributions by the participants, or us, to the
plan and the income earned on these contributions are generally not taxable to
the participants until withdrawn. Our matching contributions, if any, are
generally deductible when made. The participants' and our matching contributions
are held in trust as required by law. Individual participants may direct the
trustee to invest their accounts in up to eight authorized investment
alternatives.
EMPLOYMENT AGREEMENTS
In September 1999, we entered into an employment agreement with Stephen G.
McLean, our President and Chief Executive Officer, for a two-year initial term
expiring December 1, 2001. After the initial term, the agreement automatically
renews for successive one-year periods, terminable at the end of any such period
upon 90 days' written notice. Under the agreement, Mr. McLean is entitled to
receive an annual base salary of $270,000 and to participate in our executive
cash incentive programs and option plans. If we terminate Mr. McLean's
employment without cause or if he terminates his employment for good reason, we
must continue to pay his base salary that would have otherwise been payable and
maintain his current medical and health benefits through the remainder of his
then current employment term, plus an additional 12-month period following the
current term. In addition, if Mr. McLean's employment is terminated by him for
good reason or by us for any reason other than for cause, then Mr. McLean will
have the right to require us to repurchase from him all or any portion of his
shares of
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<PAGE> 53
our capital stock or his options to purchase our capital stock at the fair
market value of the shares, in the case of a repurchase of shares, or the fair
market value of the shares subject to the options less the exercise price of the
options, in the case of a repurchase of options.
In September 1999, we entered into employment agreements with Raymond P.
Wilson and Kevin N. Blayne, our Chief Financial Officer and Chief Marketing
Officer, respectively, for one-year initial terms expiring December 1, 2000.
After the initial terms, these agreements automatically renew for successive
one-year periods, terminable at the end of any such period upon 90-days' written
notice. Under these agreements, each of Messrs. Wilson and Blayne is entitled to
receive an annual base salary of $190,000 and each is entitled to participate in
our executive cash incentive programs and option plans. If we terminate either
individual's employment without cause or if he terminates his employment for
good reason, we must continue to pay his base salary that would have otherwise
been payable through the end of the then current term and maintain his current
medical and health benefits through the remainder of his then current employment
term, plus an additional 12-month period following the current term. In
addition, if either Mr. Wilson or Mr. Blayne's employment is terminated by
either of them for good reason or by us for any reason other than for cause,
then either Mr. Wilson or Mr. Blayne will have the right to require us to
repurchase from him all or any portion of his shares of our capital stock or his
options to purchase our capital stock at the fair market value of the shares, in
the case of a repurchase of shares, or the fair market value of the shares
subject to the options less the exercise price of the options, in the case of a
repurchase of options.
We also entered into an at-will employment agreement with Deborah Zonies,
our Vice President of Business Affairs and General Counsel in March 2000. Under
this agreement, Ms. Zonies is entitled to receive approximately $170,000 per
year. Ms. Zonies is also eligible to participate in our executive cash incentive
programs. Ms. Zonies received options to purchase 20,000 shares of our common
stock as an incentive to continue her relationship with Protocol. If Ms. Zonies'
employment is terminated without cause, we must pay her severance pay equal to
six months' base salary.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND LIMITATIONS ON LIABILITY AND
INSURANCE
Protocol is authorized by its Certificate of Incorporation and bylaws to
provide indemnification of, and advancement of expenses to, its agents and other
persons in excess of the indemnification and advancement otherwise permitted by
Section 145 of the General Corporation Law of Delaware, subject only to limits
created by applicable General Corporation Law (statutory or non-statutory), with
respect to actions for breach of duty to Protocol, its stockholders, and others.
Such indemnification and advancements may be effected through, among other ways,
bylaw provisions, agreements or votes of stockholders or disinterested
directors.
In addition, our certificate of incorporation and bylaws contain provisions
permitted under Delaware law relating to the liability of directors. These
provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in circumstances involving
wrongful acts, including:
- for any breach of the director's duty of loyalty to Protocol or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for any acts under section 174 of the Delaware General Corporation law;
or
- for any transaction from which the director derives an improper personal
benefit.
The limitation of a director's liability does not apply to liabilities
arising under federal securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
We currently have directors' and officers' liability insurance to provide
our directors with insurance coverage for losses arising from claims based on
breaches of duty, negligence, error and other wrongful acts.
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<PAGE> 54
RELATED PARTY TRANSACTIONS
RECAPITALIZATION
On December 1, 1999, we closed a recapitalization in which we sold an
aggregate of 10,693,634 shares of our Series B convertible preferred stock to
BCI and certain of its affiliates, Willis Stein and certain of its affiliates
and ING Capital LLC for an aggregate purchase price of $81.0 million.
In addition, certain of these stockholders agreed to purchase, at the
request of our board of directors, an aggregate of up to 3,960,606 additional
shares of Series B convertible preferred stock at a purchase price of
approximately $7.57 per share. This obligation will expire upon the consummation
of this offering.
Under the recapitalization agreement, we redeemed a total of 1,335,333
shares of common stock and all of our Class B common stock from our executive
officers and other stockholders, including one of our directors, for an
aggregate consideration of approximately $10.8 million.
In connection with the recapitalization, each of Willis Stein and BCI
received a financing fee of $567,150. In addition, we paid $946,757 in fees and
disbursements for legal and accounting advisors of Willis Stein and BCI.
CONSULTING SERVICES
In connection with the recapitalization, we entered into a letter agreement
on March 15, 1999 with Benedetto, Gartland & Company for investment advisory
services. Upon consummation of the recapitalization, we paid fees to Benedetto
Gartland in the amount of $4.9 million, and those stockholders who tendered
their shares of common stock and Class B Common Stock in connection with the
recapitalization paid an additional $1.5 million to Benedetto Gartland. Pursuant
to a letter agreement between Benedetto Gartland and Voyager Capital, dated
March 9, 1999, Benedetto Gartland agreed to pay Voyager Capital a fee equal to
40% of any fees received by Benedetto Gartland in connection with the
recapitalization in exchange for consulting services relating to the
recapitalization. Voyager Capital is owned by Robert J. Conrads, a member of our
board of directors.
REGISTRATION RIGHTS AGREEMENT
We are party to a registration rights agreement with our current
stockholders. For a detailed description of the registration rights agreement,
see "Description of Capital Stock - Registration Rights."
CONSULTING AGREEMENT
We entered into a consulting agreement with Deborah Zonies, our current
Vice President and General Counsel, on December 7, 1998. Under the agreement,
Ms. Zonies was retained to assist with Protocol's acquisition program and was
paid $12,500 per month for her services. The initial term of the agreement was
for three months and was extended by the mutual agreement of Ms. Zonies and
Protocol until Ms. Zonies became our Vice President and General Counsel. Ms.
Zonies was granted options to purchase an aggregate of 10,000 shares of our
common stock on January 1, 1999.
STOCK REPURCHASE AGREEMENT
We have entered into a stock repurchase agreement with Robert J. Conrads, a
member of our board of directors. Under this agreement, if Mr. Conrads is
removed from the board of directors for any reason other than by his resignation
or his decision not to seek election for an additional term, he will have the
right to require us to repurchase all or any portion of his shares of our
capital stock or his options to purchase our capital stock at the fair market
value of the shares in the case of a repurchase of shares, or the fair market
value of the shares subject to the options less the exercise price of the
options, in the case of a repurchase of options.
EXECUTIVE LOAN
We provided a loan for taxes in the amount of $66,637 to Stephen G. McLean,
our President and Chief Executive Officer and a member of our board of
directors, in July 1998. This loan bears interest at a rate of 7% per year and
matures in December 2005.
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PRINCIPAL STOCKHOLDERS
The following table contains information with respect to the beneficial
ownership of our common stock as of March 31, 2000 and as adjusted to reflect
the sale of our common stock in this offering, for:
- each person who we know beneficially owns more than 5% of our common
stock;
- each of our directors and each of our named executive officers
individually; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by any one person and the percentage ownership of
that person, shares of common stock subject to options held by that person that
are currently exercisable or that are exercisable within 60 days after March 31,
2000 are deemed outstanding. These option shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any other
person.
Percentage ownership is based on 13,568,805 shares of common stock
outstanding on March 31, 2000 and shares of common stock outstanding upon
consummation of this offering, each of which numbers reflects the automatic
conversion of all outstanding shares of Series A preferred stock and Series B
convertible preferred stock upon consummation of the offering into 10,899,388
shares of common stock.
<TABLE>
<CAPTION>
SHARES OF PROTOCOL COMMON STOCK BENEFICIALLY OWNED
-------------------------------------------------------------------
NUMBER PERCENT
------------------------------------- --------------------------
SOLE VOTING AND SHARED VOTING AND BEFORE AFTER
INVESTMENT POWER INVESTMENT POWER OFFERING OFFERING
---------------- ----------------- -------- --------------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
John R. Willis(1)(2)................. 6,205,502 45.7%
Daniel H. Blumenthal(1)(2)........... 6,205,502 45.7
Daniel M. Gill(1)(2)................. 6,205,502 45.7
Willis Stein & Partners Management
II, L.L.C.(1)(3)................... 6,205,502 45.7
Willis Stein & Partners Management
II, L.P.(4)........................ 6,205,502 45.7
Willis Stein & Partners II,
L.P.(5)............................ 5,832,396 43.0
Donald P. Remey(6)(7)................ 4,391,793 32.4
Hoyt J. Goodrich(6)(7)............... 4,391,793 32.4
Theodore T. Horton, Jr.(6)(7)........ 4,391,793 32.4
Stephen J. Eley(6)(7)................ 4,391,793 32.4
Mark E. Hastings(6)(7)............... 4,391,793 32.4
Thomas J. Cusick, III(6)(8).......... 4,391,793 32.4
BCI Growth IV, L.P.(6)(9)............ 867,051 6.4
BCI Growth V, L.P.(6)(9)............. 3,468,205 25.6
</TABLE>
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<PAGE> 56
<TABLE>
<CAPTION>
SHARES OF PROTOCOL COMMON STOCK BENEFICIALLY OWNED
-------------------------------------------------------------------
NUMBER PERCENT
------------------------------------- --------------------------
SOLE VOTING AND SHARED VOTING AND BEFORE AFTER
INVESTMENT POWER INVESTMENT POWER OFFERING OFFERING
---------------- ----------------- -------- --------------
<S> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Stephen G. McLean(10)................ 476,563 -- % 3.5
Raymond P. Wilson(11)................ 252,921 -- 1.9
Kevin N. Blayne(12).................. 252,920 -- 1.9
Deborah Zonies(13)................... 28,300 -- *
Robert J. Conrads(14)................ 184,965 -- 1.4
Robert C. Froetscher(1)(15).......... -- 6,205,502 45.7
J. Barton Goodwin(6)(9).............. -- 4,391,793 32.4
Avy H. Stein(1)(2)................... -- 6,205,502 45.7
Peter O. Wilde, Jr.(6)(9)............ -- 4,391,793 32.4
All executive officers and directors
as a group (9 persons)............. 11,792,964 84.7
</TABLE>
- ---------------
* Indicates less than 1% beneficial ownership.
(1) Each of John R. Willis, Avy H. Stein, Daniel H. Blumenthal, Daniel M. Gill,
Robert C. Froetscher, Willis Stein & Partners Management II, L.L.C., Willis
Stein & Partners Management II, L.P. and Willis Stein & Partners II, L.P.
is located at 227 West Monroe Street, Suite 4300, Chicago, IL 60606.
(2) As a member of Willis Stein & Partners Management II, L.L.C., which is the
general partner of Willis Stein & Partners Management II, L.P., which is
the general partner of each of Willis Stein & Partners II, L.P. and Willis
Stein & Partners Dutch, L.P., this individual may be deemed to have shared
voting and investment power with respect to the 5,832,396 shares of Series
B convertible preferred stock held by Willis Stein & Partners II, L.P. and
the 373,106 shares of Series B convertible preferred stock held by Willis
Stein & Partners Dutch, L.P.
(3) As the general partner of Willis Stein & Partners Management II, L.P.,
which is the general partner of each of Willis Stein & Partners II, L.P.
and Willis Stein & Partners Dutch, L.P., this entity may be deemed to have
shared voting and investment power with respect to the 5,832,396 shares of
Series B convertible preferred stock held by Willis Stein & Partners II,
L.P. and the 373,106 shares of Series B convertible preferred stock held by
Willis Stein & Partners Dutch, L.P.
(4) As the general partner of each of Willis Stein & Partners II, L.P. and
Willis Stein & Partners Dutch, L.P., this entity may be deemed to have
shared voting and investment power with respect to the 5,832,396 shares of
Series B convertible preferred stock held by Willis Stein & Partners II,
L.P. and the 373,106 shares of Series B convertible preferred stock held by
Willis Stein & Partners Dutch, L.P.
(5) Represents shares of Series B convertible preferred stock purchased on
December 1, 1999 in connection with the recapitalization.
(6) Each of Donald P. Remey, Hoyt J. Goodrich, J. Barton Goodwin, Theodore T.
Horton, Jr., Stephen J. Eley, Peter O. Wilde, Jr., Mark E. Hastings, Thomas
J. Cusick, III, BCI Growth IV, L.P. and BCI Growth V, L.P. is located at
Glenpointe Centre West, Teaneck, NJ 07666.
(7) As a general partner of each of BCI Growth IV, L.P. and BCI Growth V, L.P.
and a managing member of BCI Investors, L.L.C., this individual may be
deemed to have shared voting and investment power with respect to the
867,051 shares of Series B convertible preferred stock held by BCI Growth
IV, L.P., the 3,468,205 shares of Series B convertible preferred stock held
by BCI Growth V, L.P. and the 56,537 shares of Series B convertible
preferred stock held by BCI Investors, L.L.C.
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<PAGE> 57
(8) As a general partner of BCI Growth V, L.P., Mr. Cusick may be deemed to
have shared voting and investment power with respect to the 3,468,205
shares of Series B convertible preferred stock held by BCI Growth V, L.P.
(9) Represents shares of Series B convertible preferred stock purchased on
December 1, 1999 in connection with the recapitalization.
(10) Includes options to purchase 121,750 shares of our common stock granted to
Mr. McLean under our 2000 option plan, which options are exercisable upon
consummation of this offering.
(11) Includes options to purchase 77,750 shares of our common stock granted to
Mr. Wilson under our 2000 option plan, which options are exercisable upon
consummation of this offering.
(12) Includes options to purchase 77,750 shares of our common stock granted to
Mr. Blayne under our 2000 option plan, which options are exercisable upon
consummation of this offering.
(13) Includes options to purchase 3,300 shares of our common stock granted to
Ms. Zonies under our 1999 option plan, which options are exercisable within
60 days after March 31, 2000 and options to purchase 25,000 shares of our
common stock granted to Ms. Zonies under our 2000 option plan, which
options are exercisable upon consummation of this offering.
(14) Includes options to purchase 53,750 shares of our common stock granted to
Mr. Conrads under our 2000 option plan, which options are exercisable upon
consummation of this offering, and 19,546 shares of our Series A preferred
stock which shares will convert into common stock upon consummation of this
offering.
(15) As a limited partner of Willis Stein & Partners Management II, L.P., which
is the general partner of each of Willis Stein & Partners II, L.P. and
Willis Stein & Partners Dutch, L.P., Mr. Froetscher may be deemed to have
shared voting and investment power with respect to the 5,832,396 shares of
Series B convertible preferred stock held by Willis Stein & Partners II,
L.P. and the 373,106 shares of Series B convertible preferred stock held by
Willis Stein & Partners Dutch, L.P.
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DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of the material provisions of our capital
stock. This summary does not purport to be complete. For a more detailed
description, see our amended and restated certificate of incorporation and
by-laws, copies of which we have filed as exhibits to the registration statement
of which this prospectus forms a part.
Pursuant to our Certificate of Incorporation, as amended, we have authority
to issue an aggregate of 62,150,000 shares of capital stock, consisting of
40,000,000 shares of common stock, of which 39,900,000 shares are designated as
common stock and 100,000 shares are designated as Class B common stock, and
22,150,000 shares of preferred stock, of which 7,000,000 shares are designated
Series A preferred stock, 15,000,000 shares are designated as Series B
convertible preferred stock and 150,000 shares are designated as Series AB
preferred stock. As of March 31, 2000, our issued and outstanding capital stock
consisted of 2,469,417 shares of common stock, held by 35 holders of record,
205,754 shares of Series A preferred stock held by 18 holders of record and
10,693,634 shares of Series B convertible preferred stock, held by six holders
of record. None of the Series AB preferred stock and the Class B common stock is
outstanding. Pursuant to our Certificate of Incorporation, all of the 205,754
outstanding shares of Series A preferred stock and all of the 10,693,634
outstanding shares of Series B convertible preferred stock will automatically
convert into an aggregate of 10,899,388 shares of common stock immediately upon
the closing of the offering. Thus, no information regarding the currently
outstanding shares of Series A preferred stock or Series B convertible preferred
stock is set forth below.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to the
preferences that may be applicable to any outstanding shares of the preferred
stock, holders of our common stock are entitled to receive such dividends as may
be declared by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the company, whether voluntary or involuntary, holders of our
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, including preferences that may be applicable to any outstanding
shares of the preferred stock. Holders of our common stock have no preemptive
rights and no right to convert their common stock into any other securities. No
redemption or sinking fund provisions apply to the common stock. All outstanding
shares of common stock are, and all shares of common stock to be outstanding
upon the completion of this offering will be, fully paid and non-assessable.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement dated December 1, 1999, we have
granted registration rights, which are described below, to a number of our
stockholders. All expenses incurred in connection with these registrations,
other than underwriters' and brokers' discounts and commissions, will be payable
by us.
- Piggy Back Registration Rights. Holders of approximately 13,568,805 of
our shares outstanding prior to this offering, including 205,754 shares
of our Series A preferred stock and 10,693,634 shares of our Series B
convertible preferred stock, each of which will automatically convert
into shares of common stock upon consummation of this offering, have the
right under certain circumstances to register their shares for sale if we
at any time propose to register any of our common stock for sale, not
including a registration by us to cover employees' shares on Form S-8 or
shares issued in connection with a business combination transaction on
Form S-4 or other similar forms. The underwriters will be permitted to
reduce pro rata the registrable shares to be included in the registration
statement at the underwriters' discretion for marketing reasons so long
as no shares for the account of any other person are included in the
registration statement.
- Demand Registration Rights. In addition, at any time, holders of a
majority of the Series B Convertible Preferred shares issued to Willis
Stein, BCI and certain of their respective affiliates in
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<PAGE> 59
the recapitalization, or either of BCI Growth V, L.P. or Willis Stein &
Partners II, L.P. individually, are entitled to demand, up to two times
in the aggregate, that we register their shares. However, if the board of
directors feels in its reasonable business judgment that such
registration could interfere with bona fide financing plans of Protocol
or would require disclosure of information, the premature disclosure of
which could, in the board's reasonable business judgment, materially and
adversely affect Protocol, then we may postpone any such registration for
a reasonable period of time not in excess of 90 days and no more than
once in any period of 360 days.
- S-3 Registration Rights. Also, as soon as we become eligible to register
shares on Form S-3, the holders of more than 500,000 of our shares
outstanding prior to this offering will be entitled to request that we
effect a registration of their shares on a shelf registration statement
once in any 180-day period. However, if the board of directors feels in
its reasonable business judgment that such registration could interfere
with bona fide financing plans of Protocol or would require disclosure of
information, the premature disclosure of which could, in the board's
reasonable business judgment, materially and adversely affect Protocol,
then we may postpone any such registration for a reasonable period of
time not in excess of 90 days.
LISTING
We intend to apply to have our common stock quoted on the Nasdaq National
Market under the symbol "PTCL."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be American
Stock Transfer & Trust Company.
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<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices of our common stock.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option. Of these shares, (i) all of the shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless such shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Acts, and (ii) all of the
shares outstanding prior to this offering will be "restricted securities" (as
defined in Rule 144 under the Securities Act) which may only be sold in the
public market if registered under the Securities Act or in accordance with an
exemption from the registration requirements of the Securities Act or an
exemption from registration under Rule 144 under the Securities Act, which rules
are summarized below. The restricted securities will be available for sale in
the public market, subject to the volume limitations and other conditions of
Rule 144, immediately upon the expiration of the 180-day lock-up period.
The following table indicates approximately when the 13,868,805 shares of
common stock that are not being sold in this offering, but which will be
outstanding at the time this offering is complete, will be eligible for sale
into the public market.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
SHARES ELIGIBLE
FOR SALE
---------------
<S> <C>
90 days after the date of this prospectus...................
180 days after the date of this prospectus..................
</TABLE>
LOCK-UP AGREEMENTS
All of our executive officers, directors and principal stockholders have
signed lock-up agreements under which they agreed not to transfer, dispose of or
hedge any shares of common stock or any securities convertible into or
exchangeable for shares of common stock for a period of 180 days from the date
of this prospectus. Transfers or dispositions can be made sooner with the prior
written consent of Credit Suisse First Boston.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this
offering; and
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares of our common stock from us in
connection with a compensatory stock or option plan or other written agreement
before the effective date of this offering is entitled to resell these shares 90
days
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<PAGE> 61
after the effective date of this offering in reliance on Rule 144, without
having to comply with certain restrictions, including the holding period,
contained in Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, along with
the shares acquired upon exercise of these options (including any exercise after
the date of this prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its one year
minimum holding period requirement.
STOCK OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act covering shares of our common stock reserved for issuance under our option
plans. The registration statement on Form S-8 will become effective
automatically upon filing. As of March 31, 2000, options to purchase 1,199,500
shares of common stock were issued and outstanding, of which options to purchase
shares will vest one year after this offering is completed. In
addition, we plan to issue options to purchase shares of common
stock under such plan upon completion of this offering, of which options to
purchase shares will vest one year after this offering is
completed.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 13,568,805 shares
outstanding prior to this offering including 205,754 shares of our Series A
preferred stock and 10,693,634 shares of our Series B convertible preferred
stock, each of which will automatically convert into shares of common stock upon
consummation of this offering, will be entitled to rights to registration of
their shares under the Securities Act of 1933, as amended (the "Securities
Act"). After registration, these shares will become freely tradable without
restrictions under the Securities Act. Any sales of securities by these
shareholders could have a material adverse effect on the trading price of our
common stock.
57
<PAGE> 62
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Donaldson, Lufkin
& Jenrette Securities Corporation, First Union Securities, Inc. and The
Robinson-Humphrey Company, LLC are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation ........
First Union Securities, Inc. ...............................
The Robinson-Humphrey Company, LLC..........................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us............. $ $ $ $
Expenses payable by us............... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or publicly disclose
the intention to make any such offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus.
Our officers and directors and principal stockholders have agreed that they
will not offer, sell, contract to sell, pledge or otherwise dispose of, directly
or indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock,
58
<PAGE> 63
whether any such aforementioned transaction is to be settled by delivery of our
common stock or such other securities, in cash or otherwise, or publicly
disclose the intention to make any such offer, sale, pledge or disposition, or
to enter into any such transaction, swap, hedge or other arrangement, without,
in each case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We intend to apply to list the shares of common stock on The Nasdaq
National Market under the symbol "PTCL."
Prior to the offering, there has been no public market for our common
stock. The initial public offering price for the common stock was determined by
negotiation between the representatives and us and does not reflect the market
price of the common stock following the offering. Among the principal factors
considered in determining the initial public offering price were:
- the information in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history of and prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for, and timing of, our future earnings;
- the present state of our development and our current financial condition;
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
- the general condition of the securities markets at the time of this
offering.
We can offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market for the
common stock will develop and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act").
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
59
<PAGE> 64
- In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for or purchases of the common stock until the time, if any, at
which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the Websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
Other than the prospectus in electronic format, the information contained
on any underwriter's Website and any information contained on any other Website
maintained by an underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been approved or
endorsed by us or any underwriter in its capacity as an underwriter and should
not be relied upon by investors.
60
<PAGE> 65
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that such purchaser is purchasing as principal and not as agent, and (3)
such purchaser has reviewed the text above under "Resale Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within 10 days of the sale of any common
stock acquired by such purchaser pursuant to this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
61
<PAGE> 66
LEGAL MATTERS
The validity of the shares of common stock being offered hereby and certain
other legal matters in connection with this offering with respect to New York
laws and the federal laws of the United States will be passed upon for Protocol
by Chadbourne & Parke LLP, New York, New York. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Dewey
Ballantine LLP, New York, New York.
EXPERTS
The consolidated financial statements of Protocol Communications, Inc. as
of December 31, 1998 and 1999 and for the period from June 5, 1998 (inception)
to December 31, 1998 and for the year ended December 31, 1999, have been
included herein in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon authority of said firm
as experts in auditing and accounting.
The financial statements of Answerphone of Florida, Inc. (d/b/a IOCOM) as
of June 30, 1998 and for the year then ended, have been included herein in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The combined financial statements of Anserphone of New Orleans, Inc. and
Anserve, Inc. as of October 31, 1998 and for the year then ended, have been
included herein in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon authority of said firm
as experts in auditing and accounting.
The financial statements of Operators Standing By, Inc. as of March 31,
1998 and for the year then ended, have been included herein in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon authority of said firm as experts in auditing and
accounting.
The financial statements of Protocol Communications Services, Inc. as of
March 31, 1998 and for the year then ended, have been included herein in
reliance upon the report KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
The financial statements of Quick Response LLC as of September 30, 1998 and
for the year ended, have been included herein in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon authority of said firm as experts in auditing and accounting.
The financial statements of The Scribers, Inc. as of December 31, 1998 and
for the year then ended, have been included herein in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein, and upon authority of said firm as experts in auditing and accounting.
The financial statements of Strategic Alternatives, Inc. as of September
30, 1998 and for the year then ended, have been included herein in reliance upon
the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon authority of said firm as experts in auditing and
accounting.
The financial statements of Sweet, Schatz & Lewis, Inc. (d/b/a Total
Availability Service, Inc.) as of March 31, 1998 and for the year then ended,
have been included herein in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon authority of
said firm as experts in auditing and accounting.
The combined financial statements of U.S. Telefactors Corporation and
Anivox Corporation as of December 31, 1997 and for the year then ended, have
been included herein in reliance upon the report of
62
<PAGE> 67
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon authority of said firm as experts in auditing and accounting.
The consolidated financial statements of 3223574 Canada Inc. as of January
31, 1999 and April 30, 1999 and for the year ended January 31, 1999 and for the
three-months ended April 30, 1999, have been included herein in reliance upon
the report of Boisjoli, Sabbah, Sabbag, Ziri, Malka, chartered accountants,
appearing elsewhere herein, and upon authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (including the exhibits, schedules and amendments thereto)
under the Securities Act of 1933, as amended, with respect to the shares of
common stock to be sold in the offering. This prospectus does not contain all
the information set forth in the Registration Statement. We refer you to the
Registration Statement for further information with respect to us and the shares
of common stock to be sold in the offering. Statements contained in this
prospectus as to the content of any contract, agreement or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of the contract, agreement or other document filed as an
exhibit to the Registration Statement. Each such statement is qualified in all
respects by reference to the exhibit.
You may read and copy all or any portion of the Registration Statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the Registration Statement, are also available to you on the
Securities and Exchange Commission's Web site (http://www.sec.gov).
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance the Exchange Act, we will file periodic reports, proxy statements
and other information with the Securities and Exchange Commission. Upon approval
of the common stock for the quotation on the Nasdaq National Market, any of
these reports, proxy and information statements and other information may also
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
63
<PAGE> 68
PROTOCOL COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF
PROTOCOL COMMUNICATIONS, INC.
Independent Auditors' Report....... F-3
Consolidated Balance Sheets as of
December 31, 1998 and 1999...... F-4
Consolidated Statements of
Operations for the period from
inception (June 5, 1998) to
December 31, 1998 and for the
year ended December 31, 1999.... F-5
Consolidated Statements of
Mandatorily Redeemable
Convertible and Redeemable
Convertible Preferred Stock and
Stockholders' Deficit for the
period from inception (June 5,
1998) to December 31, 1998 and
for the year ended December 31,
1999............................ F-6
Consolidated Statements of Cash
Flows for the period from
inception (June 5, 1998) to
December 31, 1998 and for the
year ended December 31, 1999.... F-8
Notes to Consolidated Financial
Statements...................... F-9
CONSOLIDATED FINANCIAL STATEMENTS OF
3223574 CANADA INC.
Auditors' Report................... F-28
Consolidated Balance Sheets as of
January 31, 1999 and April 30,
1999............................ F-29
Consolidated Statements of Income
for the year ended January 31,
1999 and for the three-months
ended April 30, 1999............ F-30
Consolidated Statements of Retained
Earnings for the year ended
January 31, 1999 and for the
three-months ended April 30,
1999............................ F-31
Consolidated Changes in Financial
Position for the year ended
January 31, 1999 and for the
three-months ended April 30,
1999............................ F-32
Notes to Consolidated Financial
Statements...................... F-33
Schedule A Additional
Information..................... F-42
Schedule B Additional
Information..................... F-43
FINANCIAL STATEMENTS OF THE SCRIBERS,
INC.
Independent Auditors' Report....... F-44
Balance Sheet as of December 31,
1998............................ F-45
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statement of Operations for the
year ended December 31, 1998.... F-46
Statement of Stockholders' Deficit
for the year ended December 31,
1998............................ F-47
Statement of Cash Flows for the
year ended December 31, 1998.... F-48
Notes to Financial Statements...... F-49
FINANCIAL STATEMENTS OF ANSERPHONE OF
NEW ORLEANS, INC., AND ANSERVE,
INC.
Independent Auditors' Report....... F-53
Combined Balance Sheet as of
October 31, 1998................ F-54
Combined Statement of Income for
the year ended October 31,
1998............................ F-55
Combined Statement of Stockholders'
Equity for the year ended
October 31, 1998................ F-56
Combined Statement of Cash Flows
for the year ended October 31,
1998............................ F-57
Notes to Combined Financial
Statements...................... F-58
FINANCIAL STATEMENTS OF QUICK
RESPONSE LLC
Independent Auditors' Report....... F-61
Balance Sheet as of September 30,
1998............................ F-62
Statement of Operations and
Members' Equity for the year
ended September 30, 1998........ F-63
Statement of Cash Flows for the
year ended September 30, 1998... F-64
Notes to Financial Statements...... F-65
FINANCIAL STATEMENTS OF STRATEGIC
ALTERNATIVES, INC.
Independent Auditors' Report....... F-69
Balance Sheet as of September 30,
1998............................ F-70
Statement of Income for the year
ended September 30, 1998........ F-71
Statement of Stockholders' Equity
for the year ended September 30,
1998............................ F-72
Statement of Cash Flows for the
year ended September 30, 1998... F-73
Notes to Financial Statements...... F-74
</TABLE>
F-1
<PAGE> 69
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF ANSWERPHONE
OF FLORIDA, INC. (D/B/A IOCOM)
Independent Auditors' Report....... F-77
Balance Sheet as of June 30,
1998............................ F-78
Statement of Operations for the
year ended June 30, 1998........ F-79
Statement of Stockholders' Equity
for the year ended June 30,
1998............................ F-80
Statement of Cash Flows for the
year ended June 30, 1998........ F-81
Notes to Financial Statements...... F-82
FINANCIAL STATEMENTS OF OPERATORS
STANDING BY, INC.
Independent Auditors' Report....... F-85
Balance Sheet as of March 31,
1998............................ F-86
Statement of Income for the year
ended March 31, 1998............ F-87
Statement of Stockholders' Deficit
for the year ended March 31,
1998............................ F-88
Statement of Cash Flows for the
year ended March 31, 1998....... F-89
Notes to Financial Statements...... F-90
FINANCIAL STATEMENTS OF SWEET, SCHATZ
& LEWIS, INC. (D/B/A TOTAL
AVAILABILITY SERVICE, INC.)
Independent Auditors' Report....... F-93
Balance Sheet as of March 31,
1998............................ F-94
Statement of Income for the year
ended March 31, 1998............ F-95
Statement of Stockholders' Deficit
for the year ended March 31,
1998............................ F-96
Statement of Cash Flows for the
year ended March 31, 1998....... F-97
Notes to Financial Statements...... F-98
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF PROTOCOL
COMMUNICATIONS SERVICES, INC.
Independent Auditors' Report....... F-100
Balance Sheet as of March 31,
1998............................ F-101
Statement of Income and Retained
Earnings for the year ended
March 31, 1998.................. F-102
Statement of Cash Flows for the
year ended March 31, 1998....... F-103
Notes to Financial Statements...... F-104
FINANCIAL STATEMENTS OF U.S.
TELEFACTORS CORPORATION AND ANIVOX
CORPORATION
Independent Auditors' Report....... F-108
Combined Balance Sheet as of
December 31, 1997 and May 31,
1998 (unaudited)................ F-109
Combined Statement of Operations
for the year ended December 31,
1997 and for the five-months
ended May 31, 1998
(unaudited)..................... F-110
Combined Statement of Stockholders'
Deficit for the year ended
December 31, 1997 and for the
five-months ended May 31, 1998
(unaudited)..................... F-111
Combined Statement of Cash Flows
for the year ended December 31,
1997 and for the five-months
ended May 31, 1998
(unaudited)..................... F-112
Notes to Combined Financial
Statements...................... F-113
</TABLE>
F-2
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Protocol Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Protocol
Communications, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, mandatorily redeemable convertible and
redeemable convertible preferred stock and stockholders' deficit and cash flows
for the period from inception (June 5, 1998) to December 31, 1998 and for the
year ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Protocol
Communications, Inc. as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from inception (June 5, 1998) to
December 31, 1998 and for the year ended December 31, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
April 10, 2000
F-3
<PAGE> 71
PROTOCOL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 528 9,444
Accounts receivable, net of allowance for doubtful
accounts of $468 and $1,211 at December 31, 1998 and
1999, respectively...................................... 6,708 17,120
Amounts due from officers................................. -- 181
Prepaids and other current assets......................... 534 1,438
------- -------
Total current assets................................ 7,770 28,183
Property and equipment, net................................. 5,399 12,795
Goodwill and other intangible assets, net................... 30,597 50,464
Debt issuance costs, net.................................... 681 3,171
Net deferred tax assets..................................... 852 --
Deposits.................................................... 29 223
------- -------
Total assets........................................ $45,328 94,836
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt......................... $ 1,701 5,182
Current portion of capital lease obligations.............. 621 879
Accounts payable.......................................... 2,900 3,354
Accrued liabilities....................................... 2,301 9,747
Deferred revenue.......................................... 170 280
Income taxes payable...................................... 300 5
------- -------
Total current liabilities........................... 7,993 19,447
Long-term debt, less current portion........................ 28,107 60,570
Deferred tax liabilities.................................... -- 1,563
Capital lease obligations, less current portion............. 1,732 891
Other liabilities........................................... 243 243
------- -------
Total liabilities................................... 38,075 82,714
------- -------
Series B mandatorily redeemable convertible preferred stock,
$.001 par value, 15,000,000 shares authorized; 10,693,634
shares issued and outstanding at December 31, 1999
(aggregate liquidation preference of $81,675 at December
31, 1999)................................................. -- 73,658
Series AB mandatorily redeemable convertible preferred
stock, $.001 par value, 150,000 shares authorized; no
shares were issued or outstanding at December 31, 1999.... -- --
Series A redeemable convertible preferred stock, $.001 par
value, 7,000,000 shares authorized; 6,113,929 and 205,754
shares issued and outstanding at December 31, 1998 and
1999 (aggregate liquidation preference of $323,000 at
December 31, 1999)........................................ 8,965 286
------- -------
8,965 73,944
------- -------
Commitments and contingencies
Stockholders' deficit:
Common stock, Class A, $.001 par, 39,900,000 shares
authorized; 2,707,000 and 3,804,750 shares issued and
2,707,000 and 2,378,917 shares outstanding at December
31, 1998 and 1999, respectively......................... 3 4
Common stock, Class B, $.001 par, 100,000 shares
authorized; 90,500 shares issued, and 90,500 and no
shares outstanding, at December 31, 1998 and 1999,
respectively............................................ -- --
Additional paid-in capital................................ 1,766 --
Stockholders' notes receivable............................ (246) (263)
Deferred compensation..................................... (485) (198)
Accumulated other comprehensive loss...................... -- (8)
Accumulated deficit....................................... (2,750) (50,557)
Treasury stock (1,425,833 shares of common stock in 1999,
at cost)................................................ -- (10,800)
------- -------
Total stockholders' deficit......................... (1,712) (61,822)
------- -------
Total liabilities and stockholders' deficit......... $45,328 94,836
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 72
PROTOCOL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE
(JUNE 5, 1998) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
--------------- ------------
<S> <C> <C>
Revenue..................................................... $ 14,138 80,689
Cost of services............................................ 8,222 42,428
---------- ---------
Gross profit........................................... 5,916 38,261
Operating expenses:
Selling, general and administrative....................... 4,078 24,317
Depreciation and amortization............................. 3,500 16,251
Stock-based compensation expense.......................... 1,110 1,742
---------- ---------
Operating loss......................................... (2,772) (4,049)
---------- ---------
Other (income) expense:
Interest expense.......................................... 798 7,105
Interest income........................................... (10) (108)
Other expense............................................. 44 30
---------- ---------
Total other expense.................................... 832 7,027
---------- ---------
Loss before income taxes.................................... (3,604) (11,076)
Income tax expense (benefit)................................ (854) 1,606
---------- ---------
Net loss............................................... (2,750) (12,682)
Accretion to Series A and B preferred stock redemption
values.................................................... (199) (408)
Excess consideration over redemption value paid to Series A
preferred stockholders.................................... -- (38,398)
Series B preferred stock dividends.......................... -- (675)
---------- ---------
Net loss attributable to common stockholders................ $ (2,949) (52,163)
========== =========
Basic and diluted net loss per share........................ $ (1.26) (14.74)
========== =========
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share............ 2,345,952 3,539,781
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 73
PROTOCOL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE
AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES B SERIES AB
MANDATORILY SERIES A MANDATORILY STOCKHOLDERS' DEFICIT
REDEEMABLE REDEEMABLE REDEEMABLE -------------------------------------
CONVERTIBLE CONVERTIBLE CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ------------------- ----------------- ------------------ ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------ -------- ------ --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
redeemable
convertible preferred
stock, net of
issuance costs of
$1,386............... -- $ -- 6,113,929 $8,218 -- $ -- -- $-- -- $--
Issuance of preferred
stock warrant........ -- -- -- 548 -- -- -- -- -- --
Issuance of warrant... -- -- -- -- -- -- -- -- -- --
Issuance of Class A
common stock to
officers and
directors............ -- -- -- -- -- -- 1,539,500 2 -- --
Issuance of Class B
common stock to
officers............. -- -- -- -- -- -- -- -- 90,500 --
Issuance of Class A
common stock in
connection with
acquisitions......... -- -- -- -- -- -- 1,167,500 1 -- --
Issuance of Class A
common stock to
employee............. -- -- -- -- -- -- -- -- -- --
Accretion to preferred
stock redemption
value................ -- -- -- 199 -- -- -- -- -- --
Amortization of
deferred
compensation......... -- -- -- -- -- -- -- -- -- --
Accrued interest on
stockholders' notes
receivable........... -- -- -- -- -- -- -- -- -- --
Net loss.............. -- -- -- -- -- -- -- -- -- --
---------- ------- ---------- ------ -------- ----- --------- -- ------- --
Comprehensive loss....
Balance at December
31, 1998............. -- -- 6,113,929 8,965 -- -- 2,707,000 3 90,500 --
Issuance of Class A
common stock in
connection with
acquisitions......... -- -- -- -- -- -- 462,250 -- -- --
Issuance of Class A
common stock to
officers and
directors............ -- -- -- -- -- -- 535,500 1 -- --
<CAPTION>
STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL STOCKHOLDERS' OTHER TOTAL
PAID-IN NOTES DEFERRED COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS'
CAPITAL RECEIVABLE COMPENSATION LOSS DEFICIT STOCK DEFICIT
---------- ------------- ------------ ------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
redeemable
convertible preferred
stock, net of
issuance costs of
$1,386............... $ -- $ -- -- -- $ -- $ -- $ --
Issuance of preferred
stock warrant........ -- -- -- -- -- -- --
Issuance of warrant... 39 -- -- -- -- -- 39
Issuance of Class A
common stock to
officers and
directors............ 694 -- (556) -- -- -- 140
Issuance of Class B
common stock to
officers............. 36 (238) -- -- -- -- (202)
Issuance of Class A
common stock in
connection with
acquisitions......... 1,186 -- -- -- -- -- 1,187
Issuance of Class A
common stock to
employee............. 10 -- (10) -- -- -- --
Accretion to preferred
stock redemption
value................ (199) -- -- -- -- -- (199)
Amortization of
deferred
compensation......... -- -- 81 -- -- -- 81
Accrued interest on
stockholders' notes
receivable........... -- (8) -- -- -- -- (8)
Net loss.............. -- -- -- -- (2,750) -- (2,750)
------- ----- ----- --- -------- -------- --------
Comprehensive loss....
Balance at December
31, 1998............. 1,766 (246) (485) -- (2,750) -- (1,712)
Issuance of Class A
common stock in
connection with
acquisitions......... 1,137 -- -- -- -- -- 1,137
Issuance of Class A
common stock to
officers and
directors............ 1,070 -- -- -- -- -- 1,071
<CAPTION>
STOCKHOLDERS' DEFICIT
-------------
COMPREHENSIVE
LOSS
-------------
<S> <C>
Issuance of Series A
redeemable
convertible preferred
stock, net of
issuance costs of
$1,386...............
Issuance of preferred
stock warrant........
Issuance of warrant...
Issuance of Class A
common stock to
officers and
directors............
Issuance of Class B
common stock to
officers.............
Issuance of Class A
common stock in
connection with
acquisitions.........
Issuance of Class A
common stock to
employee.............
Accretion to preferred
stock redemption
value................
Amortization of
deferred
compensation.........
Accrued interest on
stockholders' notes
receivable...........
Net loss.............. $ (2,750)
--------
Comprehensive loss.... $ (2,750)
========
Balance at December
31, 1998.............
Issuance of Class A
common stock in
connection with
acquisitions.........
Issuance of Class A
common stock to
officers and
directors............
</TABLE>
F-6
<PAGE> 74
PROTOCOL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE AND REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES B SERIES AB
MANDATORILY SERIES A MANDATORILY STOCKHOLDERS' DEFICIT
REDEEMABLE REDEEMABLE REDEEMABLE -------------------------------------
CONVERTIBLE CONVERTIBLE CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ------------------- ----------------- ------------------ ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------ -------- ------ --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series AB
mandatorily
redeemable
convertible preferred
stock................ -- -- -- -- 119,963 948 -- -- -- --
Issuance of stock
options.............. -- -- -- -- -- -- -- -- -- --
Exercise of
warrants............. -- -- 348,677 3 -- -- 100,000 -- -- --
Accretion to preferred
stock redemption
values............... -- 94 -- 313 -- -- -- -- -- --
Recapitalization
through issuance of
Series B mandatorily
redeemable
convertible preferred
stock and purchase of
capital stock, net of
issuance costs of
$8,111............... 10,693,634 72,889 (6,256,852) (8,995) (119,963) (948) -- -- -- --
Accrued dividends on
Series B mandatorily
redeemable
convertible preferred
stock................ -- 675 -- -- -- -- -- -- -- --
Amortization of
deferred
compensation......... -- -- -- -- -- -- -- -- -- --
Accrued interest on
stockholders' notes
receivable........... -- -- -- -- -- -- -- -- -- --
Foreign currency
translation
adjustment........... -- -- -- -- -- -- -- -- -- --
Net loss.............. -- -- -- -- -- -- -- -- -- --
---------- ------- ---------- ------ -------- ----- --------- -- ------- --
Comprehensive loss....
Balance at December
31, 1999............. 10,693,634 $73,658 205,754 $ 286 -- $ -- 3,804,750 $4 90,500 $--
========== ======= ========== ====== ======== ===== ========= == ======= ==
<CAPTION>
STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL STOCKHOLDERS' OTHER TOTAL
PAID-IN NOTES DEFERRED COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS'
CAPITAL RECEIVABLE COMPENSATION LOSS DEFICIT STOCK DEFICIT
---------- ------------- ------------ ------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series AB
mandatorily
redeemable
convertible preferred
stock................ -- -- -- -- -- -- --
Issuance of stock
options.............. 382 -- (192) -- -- -- 190
Exercise of
warrants............. 1 -- -- -- -- -- 1
Accretion to preferred
stock redemption
values............... (314) -- -- -- (94) -- (408)
Recapitalization
through issuance of
Series B mandatorily
redeemable
convertible preferred
stock and purchase of
capital stock, net of
issuance costs of
$8,111............... (4,042) -- -- -- (34,356) (10,800) (49,198)
Accrued dividends on
Series B mandatorily
redeemable
convertible preferred
stock................ -- -- -- -- (675) -- (675)
Amortization of
deferred
compensation......... -- -- 479 -- -- -- 479
Accrued interest on
stockholders' notes
receivable........... -- (17) -- -- -- -- (17)
Foreign currency
translation
adjustment........... -- -- -- (8) -- -- (8)
Net loss.............. -- -- -- -- (12,682) -- (12,682)
------- ----- ----- --- -------- -------- --------
Comprehensive loss....
Balance at December
31, 1999............. $ -- $(263) $(198) $(8) $(50,557) $(10,800) $(61,822)
======= ===== ===== === ======== ======== ========
<CAPTION>
STOCKHOLDERS' DEFICIT
-------------
COMPREHENSIVE
LOSS
-------------
<S> <C>
Issuance of Series AB
mandatorily
redeemable
convertible preferred
stock................
Issuance of stock
options..............
Exercise of
warrants.............
Accretion to preferred
stock redemption
values...............
Recapitalization
through issuance of
Series B mandatorily
redeemable
convertible preferred
stock and purchase of
capital stock, net of
issuance costs of
$8,111...............
Accrued dividends on
Series B mandatorily
redeemable
convertible preferred
stock................
Amortization of
deferred
compensation.........
Accrued interest on
stockholders' notes
receivable...........
Foreign currency
translation
adjustment........... (8)
Net loss.............. (12,682)
--------
Comprehensive loss.... $(12,690)
========
Balance at December
31, 1999.............
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 75
PROTOCOL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE
(JUNE 5, 1998) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (2,750) (12,682)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 3,500 16,251
Stock-based compensation expense......................... 1,110 1,742
Accrued interest income on stockholders' notes
receivable............................................. (8) (17)
Issuance of warrant...................................... 39 --
Amortization and write-off of debt issuance costs........ 73 1,563
Accrued interest expense on long-term debt............... -- 67
Provision for doubtful accounts.......................... 17 352
Deferred income taxes.................................... (974) (52)
Change in operating assets and liabilities, net of impact
of acquisition of businesses:
Accounts receivable.................................... (2,083) (6,229)
Amounts due from officers.............................. -- (181)
Prepaids and other current assets...................... (298) (580)
Deposits............................................... (29) (184)
Accounts payable....................................... 1,068 (1,104)
Accrued liabilities.................................... (822) (1,396)
Deferred revenue....................................... -- 109
Income taxes payable................................... 149 (632)
-------- --------
Net cash used in operating activities................ (1,008) (2,973)
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired............ (31,938) (26,986)
Additional consideration paid on prior acquisitions........ -- (5,283)
Purchases of property and equipment, net................... (650) (5,002)
Issuance of stockholders' notes receivable................. (238) --
-------- --------
Net cash used in investing activities................ (32,826) (37,271)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Series A redeemable convertible
preferred stock.......................................... 9,300 --
Proceeds from issuance of Series B mandatorily redeemable
convertible preferred stock.............................. -- 81,000
Proceeds from issuance of Series AB mandatorily redeemable
convertible preferred stock.............................. -- 948
Redemption of Series AB mandatorily redeemable convertible
preferred stock.......................................... -- (948)
Redemption of Series A mandatorily redeemable convertible
preferred stock.......................................... -- (47,393)
Purchase of treasury stock................................. -- (10,800)
Proceeds from exercise of warrants......................... -- 4
Payment of stock issuance costs............................ (1,386) (8,111)
Payment of debt issuance costs............................. (755) (4,053)
Proceeds from long-term debt............................... 27,701 96,923
Payments of long-term debt................................. (345) (62,258)
Payments of capital lease obligations...................... (153) (3,201)
Accrued acquisition payments............................... -- 7,049
-------- --------
Net cash provided by financing activities............ 34,362 49,160
-------- --------
Net increase in cash and cash equivalents.................. $ 528 8,916
Cash and cash equivalents, beginning of period............. -- 528
-------- --------
Cash and cash equivalents, end of period................... $ 528 9,444
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................. $ 491 5,185
======== ========
Income taxes............................................. $ -- 1,123
======== ========
Noncash investing and financing activities:
Property and equipment acquired under capital leases....... $ 1,332 1,548
======== ========
Accretion to Series A and B preferred stock redemption
values................................................... $ 199 408
======== ========
Accrued dividends on Series B preferred stock.............. $ -- 675
======== ========
Acquisition of businesses:
Fair value of assets acquired.............................. $ 43,371 34,557
Liabilities assumed........................................ (9,566) (6,235)
Issuance of common stock................................... (1,187) (1,137)
-------- --------
Cash paid................................................ 32,618 27,185
Less cash acquired......................................... (680) (199)
-------- --------
Net cash paid for acquisition of businesses.............. $ 31,938 26,986
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 76
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Protocol Communications, Inc. (formerly Protocol Holdings, Inc.) (the
"Company") was incorporated on May 13, 1998. On June 5, 1998, the Company
completed a private placement of redeemable convertible preferred stock and
obtained institutional bank debt financing and simultaneously acquired in
separate merger transactions, three companies engaged in providing outsourced
customer relationship management services. The Company's operations began
contemporaneously with the acquisitions on June 5, 1998. The Company acquired
five additional companies in 1998 and four companies in 1999. (See note 3).
The Company is a provider of outsourced electronic customer relationship
management ("eCRM") service solutions for clients in a variety of industries
throughout North America. These services include strategic market planning, pre-
and post-sales customer support, and customer sales.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the financial statements of
Protocol Communications, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The results of operations of the business combinations accounted for as
purchases have been included in the consolidated financial statements for the
period subsequent to the date of acquisition (see note 3).
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. Significant
estimates made by the Company include the useful lives of fixed assets and
intangible assets, the recoverability of long-term assets, capitalization of
software costs, and the collectibility of accounts receivable and deferred tax
assets.
(c) Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of overnight deposits.
(d) Property and Equipment
Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the present value of minimum lease payments.
Depreciation on property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Property and equipment
held under capital leases and leasehold improvements are amortized straight-line
over the shorter of the lease term or estimated useful life of the asset.
(e) Capitalized Software Development Costs
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC"), issued Statement of
Position 98-1, Accounting for the Cost of
F-9
<PAGE> 77
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1
requires the capitalization of certain internal costs related to the
implementation of computer software obtained for internal use. Effective January
1, 1999, the Company adopted SOP 98-1.
Costs incurred in the preliminary project stage are expensed as incurred
while costs incurred during the development stage are capitalized. Capitalized
computer software costs are amortized over their estimated useful life of three
years and are included in depreciation and amortization in the accompanying
consolidated statements of operations. During 1999, capitalized software costs
were approximately $941,000. Amortization of capitalized software costs for the
year ended December 31, 1999 was approximately $157,000.
(f) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment of
the recoverability will be impacted if estimated future operating cash flows are
not achieved.
(g) Debt Issuance Costs
Costs related to the acquisition of the Company's Credit Agreements are
deferred and amortized over the life of the related debt instruments. During
1999, in connection with executing the Amended and Restated Credit Agreements,
the Company wrote-off approximately $1,355,000 of debt issuance costs. The
amortization and write-off of debt issuance costs are recorded as a component of
interest expense in the accompanying consolidated statements of operations.
(h) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.121,
"Accounting for the Impairment of Long-Lived Assets for Long-Lived Assets to Be
Disposed of." This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
(i) Revenue Recognition
The Company recognizes revenues at the time services are performed. Certain
contracts are billed in advance. Amounts billed, but not yet earned, under these
contracts are recorded as deferred revenue.
(j) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating
F-10
<PAGE> 78
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loss carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(k) Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principle Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". Under APB No. 25, compensation cost is recognized based on the
difference, if any, on the date of grant between the fair value of the Company's
stock and the amount an employee must pay to acquire the stock.
(l) Comprehensive Income (Loss)
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that all components of comprehensive income (loss) be reported in the
consolidated financial statements in the period in which they are recognized.
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources.
(m) Segment Reporting
The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way that public business enterprises report selected information about operating
segments in annual and interim financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 requires the use of the "management approach"
in disclosing segment information, based largely on how senior management
generally analyzes the business operations. In accordance with the provisions of
SFAS No. 131, the Company has determined that it currently operates in only one
segment, and as such, no additional disclosures are required.
(n) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, other assets, accounts payable and
accrued expenses, other liabilities and borrowings are at cost, which
approximates fair value because of either their short-term nature of conversion
to cash or the corresponding variable interest rate attached to the instruments.
(o) Foreign Currency Translation
The accounts of the Company's foreign operations are translated into U.S.
dollars using the current rate method. Assets and liabilities are translated at
the year-end exchange rate and revenue and expenses are translated at average
exchange rates. Gains and losses arising from the translation of the financial
statements of foreign operations are deferred in the accumulated other
comprehensive loss account included as a separate component of stockholders'
equity.
F-11
<PAGE> 79
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) Earnings Per Share
Earnings per share are computed on SFAS No. 128, "Earnings per Share".
Basic earnings (loss) per share is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share gives effect to
all dilutive potential common shares outstanding during the period. Potential
common shares consist of the incremental number of common shares issuable upon
conversion of mandatorily redeemable convertible and redeemable convertible
preferred stock (using the if-converted method) and common shares issuable upon
the exercise of stock options (using the treasury stock method). The computation
of diluted earnings (loss) per share does not assume conversion, exercise or
contingent exercise of securities that would have an antidilutive effect on
earnings.
As the Company has been in a net loss position for all periods presented
weighted average common stock equivalents of 6,152,695 and 6,407,499 as of
December 31, 1998 and 1999, respectively, were excluded from the diluted net
loss per share calculation as they would be antidilutive. As a result, diluted
net loss per share is the same as basic net loss per share, and has not been
presented separately.
(q) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. The Company is required to adopt this standard in the first quarter
of fiscal year 2001 pursuant to SFAS No. 137 (issued in June 1999), which delays
the adoption of SFAS 133 until that time. The Company expects that the adoption
of SFAS 133 will not have a material impact on its financial position or its
results of operations.
In April 1998, the AcSEC issued Statement of Position 98-5, Reporting Costs
of Start-Up Activities ("SOP 98-5"). Under SOP 98-5, the cost of start-up
activities should be expensed as incurred. Start-up activities are broadly
defined as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, commencing some new operation
or organizing a new entity. This standard, which the Company adopted in the
first quarter of 1999, did not have any material impact on its financial
position or results of operations.
(r) Reclassifications
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to 1999 presentation.
(3) ACQUISITIONS
During 1998 and 1999, the Company entered into agreements to acquire eight
businesses and four businesses, respectively. The Company has accounted for
these acquisitions under the purchase method of
F-12
<PAGE> 80
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting. The results of operations of each acquired business are included in
the Company's consolidated statements of operations from the date of
acquisition. The acquired companies are as follows:
1998 ACQUISITIONS
<TABLE>
<CAPTION>
ACQUISITION
ACQUIRED BUSINESS DATE LOCATION TYPE
- ----------------- ------------- ------------- -----
<S> <C> <C> <C>
Protocol Communications Services, Inc. .... June 1998 Massachusetts Asset
Operators Stand By, Inc. and Sweet, Schatz
& Lewis, Inc. (d/b/a Total Availability
Services, Inc.).......................... June 1998 Florida Stock
U.S. Telefactors Corporation............... June 1998 Illinois Stock
Answerphone of Florida, Inc. (d/b/a
IOCOM)................................... July 1998 Florida Asset
Quick Response LLC......................... November 1998 Pennsylvania Asset
Anserphone of New Orleans, Inc............. November 1998 Louisiana Asset
Strategic Alternatives, Inc................ November 1998 Florida Stock
The Scribers, Inc.......................... December 1998 Michigan Asset
</TABLE>
1999 ACQUISITIONS
<TABLE>
<CAPTION>
ACQUISITION
ACQUIRED BUSINESS DATE LOCATION TYPE
- ----------------- ------------- -------------- -----
<S> <C> <C> <C>
MBS Communications, Inc. .................. February 1999 Connecticut Asset
Cross-Industry Communications, Inc. ....... February 1999 Massachusetts Asset
Blue Line Promotions, Inc. ................ April 1999 Georgia Asset
Media Express, Inc. ....................... May 1999 Quebec, Canada Stock
</TABLE>
The Company generally purchases its business acquisitions through the use
of a combination of cash, and issuance of promissory notes and Company common
stock. The aggregate purchase price paid in connection with the 1998
acquisitions was approximately $37.4 million, which consisted of cash payments
of $32.6 million, issuance of promissory notes to sellers of $1.5 million,
issuance of common stock with a fair value of $1.2 million, and acquisition
related costs of $2.1 million. The aggregate purchase price paid in connection
with the 1999 acquisitions was approximately $30.4 million, which consisted of
cash payments of $27.2 million, issuance of promissory notes to sellers of $1.2
million, issuance of common stock with a fair value of $1.1 million, and
acquisition related costs of $891,000.
The aggregate purchase price of the 1998 and 1999 acquisitions was
allocated as follows:
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Current and fixed assets.................................... $ 9,607 9,190
Software.................................................... 341 --
Customer base............................................... 7,796 5,474
Workforce in place.......................................... 3,898 1,675
Noncompete agreements....................................... 2,684 3,700
Assumed liabilities......................................... (5,791) (4,132)
Goodwill.................................................... 18,854 14,518
------- ------
Total purchase consideration................................ $37,389 30,425
======= ======
</TABLE>
Several of the purchase agreements include a provision for contingent
payments to be paid to the sellers based on the acquired entities reaching
certain operating results. During 1999, the Company paid
F-13
<PAGE> 81
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contingent payments of $5.3 million. The contingent payments have been accounted
for as additional goodwill.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and its 1998 and 1999 acquisitions
as if the acquisitions had occurred as of January 1, 1998, after giving effect
to certain adjustments, including amortization of intangible assets, interest
expense, and compensation expense. The pro forma information does not
necessarily reflect the results of operations that would have occurred had the
Company and the 1998 and 1999 acquisitions constituted a single entity during
1998 and 1999.
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Revenue..................................................... $75,841 88,666
Net loss.................................................... $(3,628) (13,350)
Net loss attributable to common stockholders................ $(3,827) (52,831)
Net loss per share.......................................... $ (1.30) (13.52)
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999 ESTIMATED USEFUL LIFE
------ ------ ---------------------
<S> <C> <C> <C>
Telephone and computer equipment................ $4,216 9,376 5 to 7 years
Furniture and fixtures.......................... 889 1,782 5 to 7 years
Leasehold improvements.......................... 617 1,454 Shorter of lease or
estimated useful
life
Software........................................ 64 1,735 3 to 5 years
Other equipment................................. 137 1,815 3 to 5 years
------ ------
5,923 16,162
Less: accumulated depreciation and
amortization.................................. (524) (3,367)
------ ------
$5,399 12,795
====== ======
</TABLE>
Depreciation and amortization of property and equipment was approximately
$524,000 and $3,074,000 for the period of inception (June 5, 1998) to December
31, 1998 and for the year ended December 31, 1999, respectively.
In April 1999, the Company closed a facility and transferred the existing
business to another facility. As a result, the Company expensed approximately
$174,000 to depreciation expense associated with the write-off of the fixed
assets.
F-14
<PAGE> 82
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999 ESTIMATED USEFUL LIFE
------- ------- ---------------------
<S> <C> <C> <C>
Goodwill...................................... $18,854 38,943 10 years
Customer base................................. 7,796 13,270 1 to 10 years
Workforce in place............................ 3,898 5,573 1 to 3 years
Noncompete agreements......................... 2,684 6,384 2 to 3 years
Software...................................... 341 341 2 to 5 years
------- -------
33,573 64,511
Less: accumulated amortization................ (2,976) (15,985)
------- -------
$30,597 48,526
======= =======
</TABLE>
(6) ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -----
<S> <C> <C>
Accrued payroll and related costs........................... $ 810 1,583
Accrued interest............................................ 178 543
Accrued acquisition costs................................... 898 66
Accrued acquisition payments................................ -- 7,049
Accrued other............................................... 415 506
------ -----
$2,301 9,747
====== =====
</TABLE>
(7) LONG-TERM DEBT
Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Tranche A Term Loan......................................... $ -- 25,000
Tranche B Term Loan......................................... -- 26,800
US Acquisition Loan......................................... -- 11,200
Acquisition Loan............................................ 19,341 --
Term Loan................................................... 8,000 --
Notes payable to sellers.................................... 2,467 2,699
Other....................................................... -- 53
------- ------
Total long-term debt...................................... 29,808 65,752
Less: current portion....................................... (1,701) (5,182)
------- ------
Long-term debt, less current portion...................... $28,107 60,570
======= ======
</TABLE>
On June 5, 1998, the Company entered into a Credit Agreement with several
lenders. Under the Credit Agreement, the lenders, collectively, agreed to
provide the following commitments and loans: an Acquisition Loan of up to $20
million, a Term Loan of $8 million and a Revolving Loan of $2 million.
The Acquisition Loan is payable quarterly through May 31, 2005. Principal
payments are based on a percentage of the outstanding principal balance that
ranges from 2.5% in year one to 7.5% in year five.
F-15
<PAGE> 83
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest on the Acquisition Loan is payable quarterly, at a variable rate based
upon the borrower's option of selecting either the Eurodollar rate plus 2.75% or
the base rate plus 1.50% per annum. The base rate is calculated as the higher of
the prime rate or the rate which is 1/2 of 1% in excess of the Federal Funds
Effective Rate (rates ranging from 7.82% to 8.50% at December 31, 1998).
The Term Loan is payable quarterly through May 31, 2004. Quarterly
principal payments, beginning February 28, 1999, range from $50,000 in year one
to $625,000 in year five. Interest on the Term Loan is payable quarterly, at a
variable rate based upon the borrower's option of selecting either the
Eurodollar rate plus 2.5% or the base rate plus 1.25% per annum. The base rate
is calculated as the higher of the prime rate or the rate which is 1/2 of 1% in
excess of the Federal Funds Effective Rate (7.8125% at December 31, 1998).
The Revolving Loan is available through May 31, 2004. The unpaid principal
balance is due on or before May 31, 2004. Interest on the Revolving Loan is
payable quarterly, at a variable rate based upon the borrower's option of
selecting either the Eurodollar rate plus 2.5% or the base rate plus 1.25% per
annum. The base rate is calculated as the higher of the prime rate or the rate
which is 1/2 of 1% in excess of the Federal Funds Effective Rate (9.0% at
December 31, 1998). In 1998, the Company had borrowings of $210,000, which were
subsequently paid off before December 31, 1998.
On May 21, 1999, the Company entered into a Second Amended and Restated
Credit Agreement. Under the Second Amended and Restated Credit Agreement, the
lenders, collectively, agreed to increase the Acquisition Loan commitment to $58
million and the Revolving Loan commitment to $4 million. The Term Loan
commitment was not changed. Under the Second Amended and Restated Credit
Agreement, the interest rates were revised as follows; the interest rate on the
Term and Revolving Loans, based upon the borrower's option, was changed to
either the Eurodollar rate plus 3.00% or the base rate plus 1.75% per annum.
While the interest rate on the Term and Revolving Loans, based upon the
borrower's option, was changed either to the Eurodollar rate plus 3.00% or the
base rate plus 1.75% per annum.
On November 30, 1999, the Company entered into a Third Amended and Restated
Credit Agreement. Under the Third Amended and Restated Credit Agreement, the
lenders, collectively, agreed to convert the Company's existing Acquisition
Loan, Term Loan and Revolving Loan into a Tranche A Term Loan of $25 million, a
Tranche B Term Loan of $26.8 million, a Canadian Term Loan commitment of $11.2
million, a U.S. Acquisition Loan commitment of $41 million, a Canadian
Acquisition Loan commitment of $5 million and a Revolving Loan commitment of $20
million. The borrowings under the U.S. and Canadian Acquisition Loan commitments
are limited to $41 million. Under the Third Amended and Restated Credit
Agreement, the interest rates were as follows; the interest rates on the Tranche
A Term Loan and the Revolving Loan, based upon the borrower's option, was either
the Eurodollar rate plus 3.50% or the base rate plus 2.25% per annum (9.63% at
December 31, 1999). While the interest rates on the Tranche B Term Loan, the
Canadian Term Loan and the Acquisition Loans, based upon the borrower's option,
were either the Eurodollar rate plus 4.00% or the base rate plus 2.75% per annum
(10.13% at December 31, 1999).
Under the Credit Agreements, the Company is subject to commitment fees on
any unusued commitment of .5% per annum. Commitment fees are reflected in other
expense on the accompanying consolidated statements of operations. The amounts
borrowed under the Credit Agreements are secured by all assets of the Company.
The Credit Agreements provide for certain financial and non-financial covenants.
Notes payable to sellers were incurred in connection with the business
acquisitions. The unsecured notes bear interest at fixed rates between 7.0% and
9.75% and mature at various dates through 2002.
F-16
<PAGE> 84
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt as of December 31, 1999 are as follows
(in thousands):
<TABLE>
<S> <C>
2000............................................. $ 5,182
2001............................................. 6,024
2002............................................. 5,870
2003............................................. 6,835
2004............................................. 16,234
Thereafter....................................... 25,607
-------
Total.................................. $65,752
=======
</TABLE>
(8) MANDATORILY REDEEMABLE CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED
STOCK
At December 31, 1999, the Company is authorized to issue up to 22,150,000
shares of preferred stock, of which 7,000,000 shares are designated as Series A
redeemable convertible preferred stock, 150,000 shares are designated as Series
AB mandatorily redeemable convertible preferred stock and 15,000,000 shares are
designated as Series B mandatorily redeemable convertible preferred stock.
On June 5, 1998, the Company issued 6,113,929 shares of Series A redeemable
convertible preferred stock; 5,571,323 shares were issued at $1.57 per share for
gross proceeds of approximately $8.8 million, while an investor received 542,606
shares at no cost. The fair value of the shares issued to the investor of
$852,000 was recorded as stock-based compensation expense in 1998.
The Series A redeemable convertible preferred stock issued to a certain
investor contained a put option, whereby the stockholder had the right to sell
the shares back to the Company at a predetermined exercise price ranging from
$1.25 to $3.75 based upon the holding period of the shares. In January 1999, the
stockholder sold the shares to another investor, thereby effectively canceling
the put right.
On November 11, 1999, the Company issued 119,963 shares of Series AB
mandatorily redeemable convertible preferred stock at $7.90 per share for gross
proceeds of $947,708. Each share of Series AB mandatorily redeemable convertible
preferred stock has no rights, preferences or privileges other than the right to
receive upon surrender $7.90 in cash. The Series AB mandatorily redeemable
convertible preferred stock was issued to provide the Company with bridge
financing before the Company's recapitalization, effective December 1, 1999. In
connection with the Company's recapitalization and issuance of Series B
mandatorily redeemable convertible preferred stock, the Series AB mandatorily
redeemable convertible preferred stock was redeemed for $947,708.
On December 1, 1999, the Company entered into a Recapitalization Agreement,
whereby the Company raised $81 million, before issuance costs of approximately
$8.1 million, by issuing 10,693,634 shares of Series B mandatorily redeemable
convertible preferred stock at $7.575 a share from "New Investors".
Simultaneously, the Company redeemed and purchased 7,682,685 shares of capital
stock for $58.2 million from "Old Investors". The Company redeemed and purchased
6,256,852, 1,335,333 and 90,500 shares of Series A redeemable convertible
preferred stock, Class A common stock and Class B common stock, respectively,
for $7.575 a share. The purchase of 1,425,833 shares of Class A and Class B
common stock at $10.8 million was recorded as treasury stock. The excess
consideration over the redemption value paid to the Series A redeemable
convertible preferred stockholders of $38.4 million was initially applied
against additional paid-in capital until there was none and the remainder was
charged to accumulated deficit.
In addition, at anytime over the next three years, subject to certain
termination events, such as an initial public offering of its common stock or a
change in control, as defined, the Company may issue and sell up to an
additional 3,960,606 shares of Series B mandatorily redeemable convertible
preferred stock at $7.575 to the New Investors to finance the expansion of the
business (the "Put Right"). As a result of
F-17
<PAGE> 85
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this Recapitalization Agreement, assuming the redemption of all shares of
capital stock available for redemption and the issuance of the additional
preferred shares, the New Investors will own up to approximately 84% of the
Company.
The Series A redeemable convertible preferred stock and Series B
mandatorily redeemable convertible preferred stock have certain rights,
preferences and restrictions with respect to dividends, conversion, liquidation,
voting and redemption as follows:
Dividends
The holders of Series B mandatorily redeemable convertible preferred stock
are entitled to receive cumulative, compounding dividends in cash at an annual
rate of 10% of the Preferred Liquidation Preference Amount. The Preferred
Liquidation Preference Amount is $7.5746 per share plus any accrued and unpaid
dividends. The dividends are payable upon liquidation, conversion or redemption
of the Series B mandatorily redeemable convertible preferred stock. Accrued
dividends on the Series B mandatorily redeemable convertible preferred stock at
December 31, 1999 were $675,000.
The holders of Series A redeemable convertible preferred stock are entitled
to receive noncumulative cash dividends at the rate of $.157 per annum, when and
as declared by the Board of Directors. In no event, so long as any shares of
Series A redeemable convertible preferred stock remain outstanding, will any
dividend be declared or paid upon any common stock, other than a dividend or
distribution payable in shares of common stock. The holders of the Series A
redeemable convertible preferred stock can waive this dividend preference upon
the affirmative vote or written consent of at least 70% of the Series A
redeemable convertible preferred stockholders.
In February 1999, the Company's Board of Directors declared a cash dividend
to the Series A redeemable convertible preferred stockholders of $.157 per share
payable 30 days upon the occurrence of any of the following events; the sale of
all or substantially all of the Company's assets, a merger, consolidation or
transaction that results in a new shareholder acquiring 50% of the Company's
voting securities, or an initial public offering of the Company's equity
securities. In connection with the Company's recapitalization on December 1,
1999, the Series A redeemable convertible preferred stockholders waived their
right to this declared dividend.
Conversion
Each share of Series A redeemable convertible preferred stock and Series B
mandatorily redeemable convertible preferred stock is convertible into one share
of common stock, adjusted for certain dilutive events, at the option of the
holder at any time. For both Series A and B, conversion is automatic upon the
closing of a public offering of common stock for which the aggregate proceeds
are at least $50 million and the per share offering price is at least $18.9365.
In addition, any accrued and unpaid dividends on the Series B mandatorily
redeemable convertible preferred stock would be paid in cash. As of December 31,
1999, the Series B mandatorily redeemable convertible preferred stock and Series
A redeemable convertible preferred stock would convert to 10,693,634 and 205,754
shares of common stock, respectively.
Redemption
The Series B mandatorily redeemable convertible preferred stock has a
mandatory redemption feature that requires the Company to redeem all outstanding
shares on December 31, 2006. The redemption price of each share will be the sum
of $7.5746 plus any accrued and unpaid dividends.
The holders of Series A redeemable convertible preferred stock have the
right to require the Company to redeem all the outstanding Series A redeemable
convertible preferred stock for cash, any time after December 31, 2006, upon the
approval of a majority of the holders of the then outstanding shares,
F-18
<PAGE> 86
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to certain restrictions. The redemption price of each share will be the
sum of $1.57 plus all declared and unpaid dividends.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the Series A redeemable convertible preferred
stockholders and Series B mandatorily redeemable convertible preferred
stockholders are entitled to a per share distribution in preference to the
holders of common stock equal to the original issuance price, as adjusted, plus
any accrued and unpaid dividends. The original purchase price per share of
Series A redeemable convertible preferred stock and Series B mandatorily
redeemable convertible preferred stock was $1.57 and $7.5746, respectively. For
purposes of liquidation, the Series B mandatorily redeemable convertible
preferred stockholders are entitled to receive payment before the Series A
redeemable convertible preferred stockholders.
Voting
The holders of Series A redeemable convertible preferred stock and Series B
mandatorily redeemable convertible preferred stock are entitled to vote on all
matters with the Class A common stockholders as if they were one class of stock.
The holders Series A redeemable convertible preferred stock and Series B
mandatorily redeemable convertible preferred stockholders are entitled to the
number of votes equal to the number of shares of common stock into which each
share is then convertible into.
Under the Stockholders Agreement dated December 1, 1999, the Series A and B
stockholders have agreed to vote their shares or give stockholder's consent to,
among other items, to allow the election of two directors designated by each of
the two majority Series B mandatorily redeemable convertible preferred
stockholders.
(9) STOCKHOLDERS' EQUITY
Capital Stock -- Authorized Shares
On November 30, 1999, the Company amended its Certificate of Incorporation
to, among other things, increase its authorized capital stock to 62,150,000
shares, of which 40,000,000 are for common stock and 22,150,000 are for
preferred stock. The increase in authorized shares has been reflected
retroactively in the accompanying consolidated financial statements.
The Company has reserved the following number of shares of common stock for
the conversion of mandatorily redeemable and redeemable convertible preferred
stock, and the issuance of warrants and stock options:
<TABLE>
<S> <C>
Series A redeemable convertible preferred stock............. 7,000,000
Series AB mandatorily redeemable convertible preferred
stock..................................................... 150,000
Series B mandatorily redeemable convertible preferred
stock..................................................... 15,000,000
Stock options............................................... 2,989,500
----------
25,139,500
==========
</TABLE>
Common Stock
The Company has designated two classes of common stock, Class A and Class
B. The rights and privileges of each share of Class A common stock and Class B
common stock are identical, except that the holder of Class B common stock is
not entitled to vote on matters subject to shareholder voting. In addition, each
share of Class B common stock will automatically convert into a share of Class A
common stock upon (i) an initial public offering of the Company's common stock
in which the aggregate proceeds are at least $50 million and the price per share
is at least $18.9365, (ii) the consolidation or merger of the
F-19
<PAGE> 87
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company with or into any other corporation, (iii) the sale of substantially all
of the assets of the Company to any person other than a holder(s) of Series B
mandatorily redeemable convertible preferred stock, (iv) the sale of more than
50% of the capital stock of the Company to any person other than a holder(s) of
Series B mandatorily redeemable convertible preferred stock, or (v) the initial
closing of the transactions contemplated by the Recapitalization Agreement (see
note 8).
Each holder of Class A common stock is entitled to one vote for each share
of stock held. The holders of Class A common stock will vote together with all
other classes and series of stock of the Company as a single class on all
actions to be taken by the Company's stockholders.
During 1998 and 1999, the Company issued 1,539,500 shares and 535,500
shares of Class A common stock, respectively, to directors and officers for no
cash consideration. The shares of Class A common stock were subject to certain
recision clauses that required the employees to remain employed with the Company
for a period of up to four years. In connection with the recapitalization on
December 1, 1999, the Class A common stock became fully vested. During 1998, the
Company issued 90,500 shares of Class B common stock to directors and officers
for no consideration. In connection with these issuances, the Company recognized
a compensation charge for the fair value of the common stock on the date of
issuance. The Company is recognizing the compensation expense over the vesting
period of the underlying stock agreement. At December 31, 1998 and 1999, the
Company had deferred compensation of $485,000 and $198,000, respectively. If the
Company had allocated this expense to each operating expense category, the
entire amount would be included in selling, general and administrative expenses
in 1998 and 1999.
Stockholders' Notes Receivable
In connection with the issuance of common stock to officers in June 1998,
the Company received promissory notes that total $238,000. The unsecured notes
bear interest at 7% per annum. Accrued interest income on the notes was
approximately $8,000 and $25,000 as of December 31, 1998 and 1999, respectively.
Both principal and accrued interest is payable on December 15, 2005. Payment of
the notes outstanding balance will be made solely by deduction of up to 25% of
the net payment of any bonus payable to the officers under their employment
agreements.
Stock Option Plans
1998 Stock Option Plan
In 1998, the Company adopted the 1998 Stock Plan, which provides both for
direct awards or sale of shares of common stock and for the grant of options to
purchase shares of common stock. The 1998 Stock Plan permits the granting of
incentive stock options, as defined under Section 422 of the Internal Revenue
Code, and non-qualified options. Only employees of the Company are eligible for
the grant of incentive stock options, while employees, outside directors and
consultants are eligible for the grant of options or the direct award or sale of
shares. The number of stock options reserved for issuance under the 1998 Stock
Plan is 1,689,500 shares. The 1998 Stock Plan is administered by the
compensation committee under the authority of the Board of Directors. The 1998
Stock Plan automatically terminates ten years from the date of adoption.
Under the terms of the plan, the purchase price of awards or sales must not
be less than 85% of the fair market value of the common stock on date of the
grant. Any right to acquire shares of common stock under the plan automatically
expires if not exercised within 30 days after the date of the grant. Shares
awarded or sold under the plan are subject to special forfeiture conditions,
rights of first refusal and other transfer restrictions as determined by the
Board of Directors. The Company has the right to repurchase the shares from
anyone who is not an officer of the Company, an outside director or a consultant
at the
F-20
<PAGE> 88
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
original purchase price upon termination of services. The right to repurchase
shares lapses at a rate of 20% each year over a five-year.
Under the terms of the plan, the exercise price of incentive stock options
granted must not be less than 100% (110% in certain cases) of the fair market
value of the common stock at the date of the grant. Under the terms of the plan,
the exercise price of non-qualified stock options granted must not be less than
85% of the fair market value per share of common stock on the date of such
grant.
Generally, options expire on the date specified by the compensation
committee but not later than ten years from the date of grant. Under the 1998
Option Plan, stock options generally vest over a five-year period or as
designated by the compensation committee. At December 31, 1999, there were
1,652,000 options available for grant under the 1998 Option Plan.
1999 Stock Option Plan
In 1999, the Company adopted the 1999 Stock Option Plan, which provides for
the granting of options to purchase shares of the Company's common stock to
designated employees, directors and consultants. The 1999 Stock Option Plan
permits the granting of incentive stock options, as defined under Section 422 of
the Internal Revenue Code, and non-qualified options. The number of stock
options reserved for issuance under the 1999 Stock Option Plan is 300,000
shares. Common stock covered by any unexercised portions of terminated or
surrendered by the participant may again be subject to new grants under the
plan. The 1999 Stock Option Plan is administered by the compensation committee
under the authority of the Board of Directors.
Under the terms of the plan, the compensation committee will determine the
conditions on exercise with respect to options granted in each option agreement.
The exercise price of each option granted under the plan is determined by the
compensation committee, however, with respects to incentive stock options, the
exercise price must be at fair market value of the common stock (110% in certain
cases) at the date of the grant. Generally, options expire on the date specified
by the compensation committee but not later than ten years from the date of
grant. At December 31, 1999, there were 70,500 options available for grant under
the 1999 Option Plan.
2000 Stock Option Plan
Effective December 1, 1999, the Company adopted the 2000 Option Stock Plan.
The 2000 Stock Option Plan provides for the granting of options to purchase
shares of the Company's common stock to designated employees, directors and
consultants. The 2000 Stock Plan permits the granting of incentive stock
options, as defined under Section 422 of the Internal Revenue Code, and
non-qualified options. The number of stock options reserved for issuance under
the 2000 Stock Plan is 1,000,000 shares. The 2000 Stock Plan is administered by
the compensation committee under the authority of the Board of Directors. The
2000 Stock Plan automatically terminates 10 years from the date of adoption.
Under the terms of the plan, the exercise price of the stock option is
determined by the compensation committee; provided, however, that the exercise
price of incentive stock options granted must not be less than 100% (110% in
certain cases) of the fair market value of the common stock at the date of the
grant.
Generally, options expire on the date specified by the compensation
committee but not later than ten years from the date of grant (five years in
certain cases). Under the 2000 Stock Option Plan, stock grants vest in equal
increments over four years. Each vested option outstanding may be exercised in
whole or in part at any time. All unvested options will vest automatically upon
a change in control or qualified public offering, as defined. At December 31,
1999, there were 636,564 options available for grant under the 2000 Stock Option
Plan.
F-21
<PAGE> 89
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity under the Company's stock option plans
since inception is summarized as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 5, 1998) TO FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------ -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period........... -- $ -- 72,000 $ .40
Granted...................................... 72,000 .40 598,436 4.90
Exercised.................................... -- -- -- --
Cancelled.................................... -- -- (40,000) .48
------ ---- ------- -----
Outstanding at end of period................. 72,000 $.40 630,436 $4.67
====== ==== ======= =====
Options exercisable at end of period......... -- 82,000
====== =======
Weighted average fair value of options
granted during the period.................. $.25 $3.42
==== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT OPTIONS EXERCISABLE AT
DECEMBER 31, 1999 DECEMBER 31, 1999
- ---------------------------------- ----------------------
WEIGHTED
RANGE AVERAGE WEIGHTED
OF NUMBER OF REMAINING AVERAGE
EXERCISE OUTSTANDING LIFE (IN NUMBER EXERCISE
PRICES SHARES YEARS) EXERCISABLE PRICE
- -------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C>
$ .40 126,500 8.95 76,500 $ .40
1.00 140,500 9.07 5,500 1.00
7.57 363,436 9.92 -- --
------- ------
630,436 82,000
======= ======
</TABLE>
Had the Company determined compensation cost based on the fair value at the
grant date for its stock option grants under SFAS No. 123, utilizing the
Black-Scholes Valuation Model, its net loss would have been changed to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEAR
(JUNE 5, 1998) TO ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
----------------- ------------
<S> <C> <C>
Net loss:
As reported........................................... $(2,750) $(12,682)
Pro forma............................................. (2,753) (12,923)
Net loss attributable to common stockholders:
As reported........................................... (2,949) (52,163)
Pro forma............................................. (2,952) (52,404)
Basic and diluted net loss per share:
As reported........................................... (1.26) (14.74)
Pro forma............................................. (1.26) (14.80)
</TABLE>
F-22
<PAGE> 90
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma amounts were determined using the Black-Scholes Valuation
Model with the following key assumptions:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Expected lives in years..................................... 5 years 5 years
Risk free interest rates.................................... 4.45% 5.08%
Dividend yield.............................................. -- --
Volatility.................................................. 75% 75%
</TABLE>
Warrants
In connection with its formation in June 1998, the Company issued a warrant
to a Series A redeemable convertible preferred stockholder. The warrant entitles
the holder to purchase 100,000 shares of the Company's Class A common stock at
an exercise price of $.40. The Company valued the warrant at $39,000. The
warrant expires in June 2004. On November 30, 1999, the warrant was exercised
and 100,000 shares of Class A common stock were issued.
In addition, a Series A redeemable convertible preferred stockholder
purchased a preferred stock warrant for a total consideration of $548,000 to
purchase 348,677 shares of Series A redeemable convertible preferred stock at
$1.57 per share, at an exercise price of $.01. On November 30, 1999, the warrant
was exercised and 348,677 shares of Series A redeemable convertible preferred
stock were issued.
(10) INCOME TAXES
Total federal and state income tax expense (benefit) for the period from
inception (June 5, 1998) to December 31, 1998 and for the year ended December
31, 1999 consists of the following (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Period from inception (June 5, 1998) to December 31,
1998:
Federal................................................ $ -- (809) (809)
State.................................................. 120 (165) (45)
------ ---- ------
$ 120 (974) (854)
====== ==== ======
Year ended December 31, 1999:
Federal................................................ $ (82) 931 849
State.................................................. 452 220 672
Foreign................................................ 780 (695) 85
------ ---- ------
$1,150 456 1,606
====== ==== ======
</TABLE>
The following table reconciles the Federal statutory income tax rate to the
Company's effective income tax rate:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEAR
(JUNE 5, 1998) ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
--------------- -------------
<S> <C> <C>
Federal statutory income tax rate........................ (34.0%) (34.0%)
State taxes, net of Federal benefit...................... (1.0) 4.0
Goodwill amortization.................................... 7.8 7.9
Compensation expense..................................... 1.4 3.2
Change in valuation allowance............................ 1.7 31.3
Other, net............................................... .4 2.1
----- -----
Effective income tax rate................................ (23.7%) 14.5%
===== =====
</TABLE>
F-23
<PAGE> 91
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets and liabilities result from temporary
differences in the recognition of income and expense for tax and financial
reporting purposes. The sources and tax effects of these temporary differences
are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
<S> <C> <C>
Deferred tax assets:
Operating loss and other credit carryforwards............. $ 307 433
Intangible assets......................................... 636 3,767
Start-up costs............................................ 357 386
Allowance for doubtful accounts........................... 65 503
Deferred compensation..................................... -- 52
Other..................................................... 18 16
------ ------
Total gross deferred tax assets........................ 1,383 5,157
Less: valuation allowance................................... (218) (4,563)
------ ------
Net deferred tax assets.............................. 1,165 594
------ ------
Deferred tax liabilities:
Foreign intangible assets................................. -- 1,478
Depreciation expense...................................... -- 541
Deferred compensation..................................... 217 --
Accrual to cash adjustment................................ 92 54
Other..................................................... 4 84
------ ------
Total deferred tax liabilities......................... 313 2,157
------ ------
Net deferred tax assets (liabilities).................. $ 852 (1,563)
====== ======
</TABLE>
The valuation allowance for deferred tax assets was $218,000 and $4,563,000
as of December 31, 1998 and 1999, respectively. The net change in the total
valuation allowance for the period from inception (June 5, 1998) to December 31,
1998 and the year ended December 31, 1999 was an increase of $218,000 and
$4,345,000 respectively. The Company has established valuation allowances
against it deferred tax assets because management believes that, after
considering all of the available objective evidence, both historical and
prospective, with greater weight given to historical evidence, the realization
of the deferred tax assets does not meet the "more likely than not" criteria
under SFAS No. 109.
At December 31, 1999, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $1,494,000 and
$6,865,000, respectively which are available to offset future taxable income, if
any. The federal net operating loss carryforwards expire in 2019. State net
operating loss carryforwards expire on various dates beginning in 2004. Pursuant
to the Tax Reform Act of 1986, annual utilization of the Company's net operating
loss carryforwards and other tax attributes may be limited if a cumulative
change in ownership of more than 50% occurs within a three year period. The
Company has not determined whether there has been such a cumulative change in
ownership or the impact on the utilization of the loss carryforwards if such
change has occurred.
(11) COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under various capital leases for certain equipment
that expire at various dates over the next three years. The Company also has
several noncancelable operating leases, primarily for call center facilities,
office space and equipment, that expire over various dates through 2008. These
F-24
<PAGE> 92
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
leases generally contain renewal options. Total expenses relating to operating
leases were approximately $278,000 and $2,161,000 for the period from inception
(June 5, 1998) to December 31, 1998 and the year ended December 31, 1999,
respectively.
Minimum future lease obligations at December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31, LEASES LEASES
- ----------------------- --------- -------
<S> <C> <C>
2000........................................................ $1,470 $1,187
2001........................................................ 1,087 543
2002........................................................ 1,004 249
2003........................................................ 720 --
2004........................................................ 151 --
Thereafter.................................................. 450 --
------ ------
Total minimum payments............................ $4,882 1,979
======
Less: amount representing interest.......................... (209)
------
Present value of minimum lease payments........... 1,770
Less: current portion....................................... (879)
------
Long-term capital lease obligations............... $ 891
======
</TABLE>
State Training Grant
In 1998, the Company entered into an unsecured $243,000 loan agreement with
the state of Kansas. The loan matures in June 2003. The loan is non-interest
bearing and no principal payment is required, except in the event of
non-performance under the terms of the agreement. The agreement generally
requires that the Company create and maintain a certain number of full-time and
part-time jobs and minimum payroll levels in each of the five years of the loan.
If the Company achieves the benchmarks in accordance with the agreement then the
state of Kansas will forgive the loan. The Company has recorded the amounts of
the loan as other liabilities in the accompanying consolidated balance sheets.
Employment Contracts
The Company has employment agreements with several key members of
management. Under the terms of the employment agreements, the Company agrees to
compensate and provide certain health benefits over the term of the contract
plus 12 additional months if the Company terminates employment without cause or
if the employee terminates employment with good cause. The terms of the
employment agreements are generally one year.
Legal Proceedings
From time-to-time, the Company is involved in legal actions arising in the
normal course of its business. Management does not believe that any pending
legal action would, if adversely determined, have a material adverse effect on
the business or its operating results.
(12) RELATED PARTY TRANSACTIONS
In connection with the Company's recapitalization (see note 7), the Company
redeemed 1,335,333 shares of Class A common stock and 90,500 shares of Class B
common stock for executive officers and other stockholders, including a
director, for an aggregate consideration of approximately $10.8 million.
F-25
<PAGE> 93
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Company's recapitalization, the principal Series B
mandatorily redeemable preferred stockholders received transaction fees and
related costs of approximately $1.1 million.
Upon consummation of the recapitalization, the Company and the stockholders
who tendered their shares of common stock paid fees to an investment advisor in
the amount of approximately $6.4 million. In a letter agreement between the
investment advisor and a consulting company in March 1999, the investment
advisor agreed to pay the consulting company a fee equal to 40% of any fees
received from the Company in connection with the recapitalization in exchange
for consulting services related to the recapitalization. The consulting company
is owned by a member of the Company's board of directors.
In December 1999, the Company paid fees amounting to approximately $181,000
to a principal shareholder for advisory services, which included consulting on
the recapitalization, acquisitions and general management consulting. Costs
related to acquisitions and the recapitalization were capitalized or included as
part of transactional costs, while costs for general management services were
expensed.
In June 1998, the Company entered into a consulting agreement with the
Chairman of the Board of Directors. The agreement may be terminated at any time
by either party and provides for an annual fee of $85,000 and issuance of
350,000 shares of the Company's Class A common stock. The grant of common shares
vests one-third after 12 months of service, while the remaining balance vests
monthly over the next 24 months. The services agreement terminated effective
December 1, 1999 and the common shares vested immediately upon the change of
control.
In connection with several of its acquisitions, the Company has entered
into agreements to lease office space from former owners and now employees and
shareholders of the Company. For the period from inception (June 5, 1998) to
December 31, 1998 and the year ended December 31, 1999, the Company recorded
lease expense to related parties of approximately $94,000 and $568,000,
respectively. These leases expire at various periods through May 2008.
(13) CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents and accounts
receivable. To date, the Company has invested excess funds in overnight
deposits. The Company maintains its cash and cash equivalents with financial
institutions that management believes are credit worthy. The Company's accounts
receivable are derived from revenues earned from customers located in the United
States and Canada. The Company performs ongoing credit evaluations of its
customers' financial condition and customer payment practices to minimize
collection risks on trade receivables. The Company maintains an allowance for
doubtful accounts receivable based upon the expected collectibility of all
accounts receivable.
For the period from inception (June 5, 1998) to December 31, 1998 and the
year ended December 31, 1999, no single customer accounted for more than 10% of
the Company's revenues.
(14) EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan intended to qualify under Section 401(k)
of the Internal Revenue Code. Company employees, who are at least 21 years of
age, are eligible after one year of employment. The 401(k) plan allows eligible
employees to make pretax contributions up to the maximum allowable amount set by
the Internal Revenue Service. Participants are fully vested in their
contributions and investment earnings. Under the 401(k) plan, the Company may
make matching contributions at its discretion. The Company made no contributions
to the 401(k) plan for the period of inception (June 5, 1998) to December 31,
1998 or for the year ended December 31, 1999.
F-26
<PAGE> 94
PROTOCOL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) SUBSEQUENT EVENTS
Initial Public Offering
On April 7, 2000, the Company's Board of Directors authorized management to
file a registration statement for an initial public offering of the Company's
common stock.
Acquisitions
In March 2000, the Company acquired three companies: Saligent, Inc.,
Carroll Ventures and Canicom, Inc. The aggregate purchase price paid in
connection with the 2000 acquisitions was approximately $14.1 million, which
consisted of cash payments of $11.8 million, issuance of common stock with a
fair value of $1.5 million, and acquisition related costs of $.8 million. The
purchase agreements contain provisions for additional contingent payments to be
paid to the sellers based on achieving certain defined operating results.
Additional consideration may range up to $24.1 million and the issuance of
425,000 shares of common stock. The Company has accounted for these acquisitions
under the purchase method of accounting. The results of operations of each
acquired business will be included in the Company's consolidated statements of
operations from the date of acquisition.
F-27
<PAGE> 95
AUDITORS' REPORT
To the shareholders of
3223574 Canada Inc.
Montreal, Quebec
We have audited the consolidated balance sheet of 3223574 Canada Inc. as at
January 31, 1999 and as at April 30, 1999 and the consolidated statements of
retained earnings, income and changes in financial position for the year and for
the three (3) month period then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at January 31, 1999 and as at
April 30, 1999 and the results of its operations and the changes in its
financial position for the year and for the three (3) month period then ended in
accordance with generally accepted accounting principles
/s/ BOISJOLI, SABBAH, SABBAG, ZIRI, MALKA
Chartered Accountants
Montreal, Quebec
May 21, 1999
F-28
<PAGE> 96
3223574 CANADA INC.
CONSOLIDATED BALANCE SHEET AS AT
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
--------- ---------
(IN U.S. DOLLARS)
-----------------
<S> <C> <C>
ASSETS
CURRENT
Cash........................................................ 728,310 376,606
Accounts receivable (note 3)................................ 2,072,708 2,307,284
Prepaid expenses and deposits............................... 64,808 61,233
Investment (note 5)......................................... 36,731 --
--------- ---------
2,902,557 2,745,123
FIXED ASSETS (NOTE 6)....................................... 1,845,643 2,112,460
--------- ---------
4,748,200 4,857,583
========= =========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (note 8)........... 797,506 911,742
Income taxes payable........................................ 525,069 175,059
Current portion of long-term debt (note 9).................. 422,962 325,404
--------- ---------
1,745,537 1,412,205
LONG-TERM DEBT (NOTE 9)..................................... 694,211 672,856
DEFERRED INCOME (NOTE 10)................................... 153,492 131,836
FUTURE INCOME TAXES......................................... 121,842 134,594
--------- ---------
2,715,082 2,351,491
--------- ---------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (NOTE 11)..................................... 412 412
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (NOTE 12).......... (36,472) (45,409)
CONTRIBUTED SURPLUS......................................... 11,978 11,978
RETAINED EARNINGS........................................... 2,057,200 2,539,111
--------- ---------
2,033,118 2,506,092
--------- ---------
CONTRACTUAL OBLIGATION AND CONTINGENCIES (NOTES 13 & 14).... 4,748,200 4,857,583
========= =========
</TABLE>
F-29
<PAGE> 97
3223574 CANADA INC.
CONSOLIDATED INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
-------------------------
JAN. 31 APRIL 30
1999 1999
$ $
(12 MONTHS) (3 MONTHS)
----------- ----------
(IN U.S. DOLLARS)
<S> <C> <C>
REVENUES.................................................... 11,054,686 3,683,118
DIRECT COSTS (SCHEDULE A)................................... 6,893,792 2,264,211
---------- ---------
GROSS MARGIN................................................ 4,160,894 1,418,907
---------- ---------
EXPENSES
Amortization of development costs........................... 22,021 --
Administrative and general (Schedule B)..................... 1,693,304 435,256
Selling (Schedule B)........................................ 297,717 68,582
Financial (Schedule B)...................................... 75,782 10,008
---------- ---------
2,088,824 513,846
---------- ---------
INCOME BEFORE INCOME TAXES.................................. 2,072,070 905,061
---------- ---------
Income taxes -- current..................................... (749,966) (378,490)
-- future.................................... (60,738) (7,996)
---------- ---------
(810,704) (386,486)
---------- ---------
NET INCOME BEFORE UNDERMENTIONED ITEM....................... 1,261,366 518,575
Equity in a non consolidated wholly-owned Subsidiary's
income (note 15).......................................... 37,354 35,433
Gain on sale of wholly-owned subsidiary (note 15)........... -- 485
---------- ---------
NET INCOME.................................................. 1,298,720 554,493
========== =========
</TABLE>
F-30
<PAGE> 98
3223574 CANADA INC.
CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
-------------------------
JAN. 31 APRIL 30
1999 1999
$ $
(12 MONTHS) (3 MONTHS)
----------- ----------
(IN U.S. DOLLARS)
<S> <C> <C>
RETAINED EARNINGS -- BEGINNING OF PERIOD.................... 758,480 2,057,200
Net income.................................................. 1,298,720 554,493
--------- ---------
2,057,200 2,611,693
Dividends................................................... -- (72,582)
--------- ---------
RETAINED EARNINGS -- END OF PERIOD.......................... 2,057,200 2,539,111
========= =========
</TABLE>
F-31
<PAGE> 99
3223574 CANADA INC.
CONSOLIDATED CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
-------------------------
JAN. 31 APRIL 30
1999 1999
$ $
(12 MONTHS) (3 MONTHS)
----------- ----------
(IN U.S. DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. 1,298,720 554,493
Items not involving a current outlay of funds:
Depreciation of fixed assets........................... 439,834 141,242
Amortization of development costs...................... 22,021 --
Future income taxes.................................... 60,738 7,996
Equity in a non consolidated wholly-owned subsidiary... (37,354) 35,433
Gain on sale of wholly-owned subsidiary................ -- 485
---------- --------
1,783,959 739,649
Changes in non-cash working capital items relating to
operating Activities (note 16)............................ 95,397 (548,936)
---------- --------
FUNDS PROVIDED BY OPERATING ACTIVITIES...................... 1,879,356 190,713
---------- --------
INVESTING ACTIVITIES
Additions to fixed assets................................... (1,616,109) (434,321)
Advances to a related company............................... (102,083) 100,886
Investment in a non-consolidated wholly-owned subsidiary.... (67) --
Proceeds of sale of investment in a non-consolidated
wholly-owned subsidiary................................... -- 69
---------- --------
FUNDS USED BY INVESTING ACTIVITIES.......................... (1,718,259) (333,366)
---------- --------
FINANCING ACTIVITIES
Variation in foreign currency translation adjustment........ (13,678) (55,933)
Advances to directors....................................... (6,568) 2,532
Proceeds of long-term debt.................................. 902,378 --
Repayment of long-term debt................................. (313,557) (155,650)
---------- --------
FUNDS PROVIDED (USED) BY FINANCING ACTIVITIES............... 568,575 (209,051)
---------- --------
(DECREASE) INCREASE IN FUNDS................................ 729,672 (351,704)
FUNDS BEGINNING OF PERIOD................................... (1,362) 728,310
---------- --------
FUNDS END OF PERIOD......................................... 728,310 376,606
========== ========
</TABLE>
F-32
<PAGE> 100
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
(IN U.S. DOLLARS)
1. INCORPORATION AND NATURE OF ACTIVITIES
The Company was incorporated on January 26, 1996 under the Canada Business
Corporations Act. It acts as a holding company.
2. ACCOUNTING POLICIES
Differences between Canadian and United States generally accepted
accounting principles.
The financial statements for the period ended and as at January 31, 1999
and April 30, 1999 have been prepared in accordance with generally accepted
accounting principles in Canada (Canadian GAAP), which confirm in all material
respects with those in the United States (US GAAP) and therefore no
reconciliation is needed.
Consolidated financial statements
The consolidated financial statements of 3223574 Canada Inc. include the
accounts of the company and its wholly-owned subsidiaries, Media Express Inc.
and Les Services Financiers M.E.T.C. Inc./ M.E.T.C. Financial Services Inc.
All significant intercompany balances and transactions have been eliminated
upon consolidation.
Investment
The investment in 3425321 Canada Inc., a wholly-owned subsidiary, is
accounted for using the equity method and has been presented as a current asset
for the reasons mentioned in note 15.
Government grants
Government grants receivable are recorded in the accounts when there is
reasonable assurance that the Company has complied with all conditions necessary
to obtain the grants.
Grants related to expenses are recorded in reduction of the incurred
expense to which it relates.
Grants related to the acquisition of fixed assets are recorded against the
cost of the assets and amortized on a basis consistent with depreciation method
used for the latter.
Fixed assets
Fixed assets are stated at cost less governments grants. Depreciation is
provided for over the estimated useful lives of the related assets using the
following methods and annual rates:
<TABLE>
<S> <C>
Computer equipment............................ 30% diminishing balance
Computer software............................. 30% diminishing balance
Leasehold improvements........................ Straight line over the lease term
Office furniture.............................. 20% diminishing balance
Telephone system.............................. 20% diminishing balance
</TABLE>
Development costs
Development costs consist of certain costs incurred in creating a
telemarketing program for the financial service industry. These costs are being
amortized over a twenty-four-month period.
F-33
<PAGE> 101
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
Future income taxes
The company follows the liability method of accounting to establish its
future income taxes. This method establishes income taxes payable in the future,
due to timing differences between taxable assets and liabilities and their
carrying values, using the income tax rates in effect at year end.
Deferred income
Deferred income represents grants from the Provincial government for job
creation. These amounts are being amortized over a three (3) year period (note
4).
Foreign currency translation
The financial statements of 3223574 Canada Inc. which is considered to be a
self-sustaining company which reports in Canadian dollars, are translated in
accordance with the current rate method as follows:
- Assets and liabilities at the exchange rate prevailing at the balance
sheet date,
- Revenues and expenses at the average exchange rate prevailing during the
year,
- Capital stock and fixed assets at the exchange rate in effect at the
respective transaction date; and
- Translation adjustments arising from exchange rate fluctuations are
deferred and shown as "Foreign Currency Translation Adjustments" under
shareholders' equity.
Financial instruments
a) Credit and price risk
The nature of the industry is such that the company is dependant on several
large clients for a significant portion of its revenues. As at April 30, 1999,
two (2) customers accounted for 62% of sales and 56% of total accounts
receivable.
The company performs credit evaluations of customers and generally does not
require collateral, however, most of the Company's United States trade
receivables are insured by the Canadian Export Development Corporation.
Allowances are maintained for potential losses. It is reasonably possible that
the actual amount of loss, if any, incurred on accounts receivables will differ
from management's estimate.
b) Currency risk
The Company generates revenues from customers primarily in North America,
53% of such revenues are derived from customers in the United States.
Consequently, some assets and revenues are exposed to foreign exchange
fluctuations.
c) Fair value
The fair value of cash, accounts receivable, bank indebtedness, accounts
payable and long term debt correspond approximately to their carrying amount.
F-34
<PAGE> 102
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
--------- ---------
<S> <C> <C>
Trade receivable............................................ 1,949,554 2,327,146
Allowance for doubtful account.............................. (64,919) (67,572)
--------- ---------
1,884,635 2,259,574
Dividend receivable......................................... -- 31,037
Governments grants (note 4)................................. 69,789 --
Advances to directors....................................... 9,850 7,607
Advances to a related company............................... 100,199 --
Other....................................................... 8,235 9,066
--------- ---------
2,072,708 2,307,284
========= =========
</TABLE>
Advances to directors and advances to a related company are non interest
bearing and have no specific terms of repayment.
4. GOVERNMENT GRANTS
The Company entered into an agreement with the Provincial government for a
grant related to job creation. Under the provisions of this agreement jobs must
be created between the period from October 1, 1997 to September 30, 1999 and
must be maintained for a minimal period of three (3) years.
Revenue from job creation assistance program is to be realized over the
three (3) years period it relates to and is credited against salaries expenses.
At year end date, the Company has complied with the terms of the agreement.
Future non compliance will expose the Company to the possibility of
reimbursing part or all of the amounts received. In such case, the reimbursement
will be charged to the expenses of the year during which such a reimbursement
occurs.
5. INVESTMENT
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
------- --------
<S> <C> <C>
Investment in 3425321 Canada Inc. (100%)
At cost..................................................... 66 --
Equity in net earnings...................................... 36,665 --
------ ------
36,731 --
====== ======
</TABLE>
F-35
<PAGE> 103
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
6. FIXED ASSETS
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
--------- --------
NET BOOK ACCUM. NET BOOK
VALUE COST DEPREC. VALUE
$ $ $ $
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Computer equipment............................. 797,202 1,554,300 503,412 1,050,888
Computer software.............................. 378,816 491,765 114,853 376,912
Leasehold improvements......................... 321,549 367,424 55,486 311,938
Office furniture............................... 252,598 375,687 133,274 242,413
Telephone system............................... 95,478 230,910 100,601 130,309
--------- --------- ------- ---------
1,845,643 3,020,086 907,626 2,112,460
========= ========= ======= =========
</TABLE>
7. BANK INDEBTEDNESS
As of April 30, 1999, the Company had available a bank operating line of
credit of $686,000, maturing June 30, 1999 and bearing interest at prime rate
plus 1%. Borrowings are limited to 75% of eligible canadian receivables and 65%
of eligible US receivables. The line of credit is guaranteed by a first moveable
hypothec of $767,000 on all assets and a guarantee of $ 171,600 from the
directors' companies. As at April 30, 1999, no funds were advanced under the
line of credit.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
------- --------
<S> <C> <C>
Accounts payable and accrued liabilities.................... 395,660 742,769
Wages and vacation payable.................................. 341,064 158,218
Sales taxes and deductions at source........................ 60,782 5,042
Dividend payable............................................ -- 5,713
------- -------
797,506 911,742
======= =======
</TABLE>
F-36
<PAGE> 104
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
9. LONG TERM DEBT
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
--------- --------
<S> <C> <C>
Loan payable, secured by a moveable hypothec on equipment
and a guarantee from the directors of $42,900, repayable
by monthly capital installments of $4,766, plus interest
at the prime rate plus 1 1/4%, due May 14, 2000........... 73,535 61,962
Bank term loan, secured by a first and second movable
hypothec on all the assets, repayable by monthly capital
installments of $14,300, plus interest at prime plus 2%,
due December 1, 2002...................................... 846,570 821,907
Bank term loan, secured by a second moveable hypothec on all
assets repayable by monthly capital installments of
$14,300 plus interest at prime plus 2%, due December 15,
1999...................................................... 151,666 114,391
Canada government loan, unsecured, non-interest bearing,
repayable commencing October 31, 2000 in annual
installments of 4% of certain sales in the United States.
Repaid during the period.................................. 45,402 --
--------- --------
1,117,173 998,260
Less Current Portion........................................ (422,962) (325,404)
--------- --------
694,211 672,856
========= ========
</TABLE>
The estimated repayments of the long term debt, excluding the Canada
Government loan, are as follows:
<TABLE>
<CAPTION>
$ $
--------- -------
<S> <C> <C>
2000........................................................ 422,932 325,404
2001........................................................ 234,512 243,222
2002........................................................ 216,131 224,156
2003........................................................ 198,136 205,478
--------- -------
1,071,771 998,260
========= =======
</TABLE>
10. DEFERRED INCOME
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
-------- --------
<S> <C> <C>
Balance -- Beginning of period.............................. 267,931 153,492
Amortization for the year................................... (114,439) (21,656)
-------- -------
Balance at end of year...................................... 153,492 131,836
======== =======
</TABLE>
11. CAPITAL STOCK
Authorized
Unlimited number of common shares, voting, participating.
Unlimited number of class A shares, non voting, non participating.
Unlimited number of class B shares, non voting, non participating, 8% non
cumulative annual dividend ranking in priority to common and class A shares,
redeemable by the company at their issuance
F-37
<PAGE> 105
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
price plus unpaid declared dividends and are entitled to receive in priority to
the common and class A shares upon dissolution of the company.
Unlimited number of class C shares, non voting, non participating, 10% non
cumulative annual dividend ranking in priority to common and class A and B
shares, retractable by the company at their issuance price plus unpaid declared
dividends and are entitled to receive in priority to the common and class B
shares upon dissolution of the company.
Unlimited number of class D shares, non voting, non participating, $0.50
non cumulative monthly dividend ranking in priority to common and class A, B and
D shares, retractable by the company for $100 plus unpaid declared dividends and
are entitled to receive in priority to the common and class C shares upon
dissolution of the company.
Unlimited number of class E shares, non voting, non participating, 9% non
cumulative annual dividend ranking in priority to common and class A, B, C, and
D shares, retractable by the company or the holder at their issuance price plus
unpaid declared dividends and are entitled to receive in priority to the common
and class D shares upon dissolution of the company.
Unlimited number of class F shares, non voting, non participating, 1% non
cumulative monthly dividend ranking in priority to common and class A, B, C, D
and E shares, retractable by the company or the holder at their issuance price
plus unpaid declared dividends and are entitled to receive in priority to the
common and any other class of shares upon dissolution of the company.
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
ISSUED $ $
- ------ ------- --------
<S> <C> <C>
100 class A shares.......................................... 69 69
100 class B shares.......................................... 69 69
787,495 class E shares...................................... 117 117
1,462,405 class F shares.................................... 157 157
--- ---
412 412
=== ===
</TABLE>
12. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The foreign currency translation adjustments represent deferred foreign
exchange losses on translation of the net assets of 3223574 Canada Inc.
The components of the accumulated foreign currency translation adjustments
are as follows:
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
-------- --------
<S> <C> <C>
Working capital............................................. 185,360 341,834
Investment.................................................. (18,769) --
Fixed assets................................................ (909,803) (965,394)
Long term debt.............................................. 570,875 456,205
Deferred income............................................. 73,415 60,249
Future income taxes......................................... 62,262 61,509
Capital stock............................................... 188 188
-------- --------
(36,472) (45,409)
======== ========
</TABLE>
F-38
<PAGE> 106
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
13. CONTRACTUAL OBLIGATION
The company operates from rented premises under leases terminating to March
31, 2003. The annual rentals, excluding escalation charges covering increases in
property taxes and operating expenses, are as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
2000........................................................ 144,486
2001........................................................ 170,704
2002........................................................ 185,977
2003........................................................ 60,479
2004........................................................ 8,807
-------
570,453
=======
</TABLE>
14. CONTINGENCIES
The company has filed a claim against a former client for approximately
$34,000. In response, this client filed a cross claim for approximately
$353,000. In the opinion of legal counsel, this cross claim is frivolous and
unfounded. No provision has been accrued in these financial statements regarding
the above amounts.
15. GAIN ON SALE OF WHOLLY-OWNED SUBSIDIARY
On April 4, 1999, the company sold its 100% interest in 3423521 Canada Inc.
for a consideration of $100 the gain resulting from this transaction is
calculated as follows:
<TABLE>
<CAPTION>
$
-------
<S> <C>
Cost........................................................ 69
Equity
Balance beginning of period................................. 36,664
Equity in net income until disposition...................... 35,433
-------
Total cost and equity....................................... 72,166
Dividends received.......................................... (72,582)
Proceeds on disposal........................................ (69)
-------
Gain on disposal of investment.............................. (485)
=======
</TABLE>
F-39
<PAGE> 107
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
16. CHANGES IN NON-CASH WORKING CAPITAL ITEMS RELATING TO OPERATING ACTIVITIES
<TABLE>
<CAPTION>
JAN. 31 APRIL 30
1999 1999
$ $
----------- ----------
(12 MONTHS) (3 MONTHS)
<S> <C> <C>
(INCREASE) DECREASE IN CURRENT ASSETS
Accounts and other receivables.............................. (567,111) (256,582)
Prepaid expenses and deposits............................... (32,998) 5,803
-------- --------
(600,109) (250,779)
-------- --------
INCREASE (DECREASE) IN CURRENT LIABILITIES
Accounts payable and accrued liabilities.................... 108,894 82,212
Income taxes payable........................................ 440,241 (358,712)
Deferred income............................................. 146,371 (21,657)
-------- --------
695,506 (298,157)
-------- --------
95,397 (548,936)
======== ========
</TABLE>
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 has created potential business computing risks resulting from
the fact that certain computer software has been written using two digit storage
of dates rather than four digits to define the applicable year. This could
result in system failure or incorrect calculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions or engage in normal business activities. Late in fiscal 1999,
management initiated an enterprise-wide program to address the Year 2000 issue.
The Company also initiated formal communications with all its significant
suppliers and large customers to determine the extent to which the Company is
exposed to those third parties' failure to remedy their own Year 2000 issues.
The Company plans to complete and resolve its product, supplier and customer
review by September 1999. To date no third party issues have been identified.
It is not possible to be certain that all aspects of the Year 2000 issues
affecting the Company will be resolved since those issues related to the efforts
of customers, suppliers and other third parties may be outside the Company's
control.
18. SUBSEQUENT EVENT
On May 5, 1999 the company sold a portion of its fixed assets for a
consideration of $1,029,500. The proceeds of sale were used to reimburse loans
and bank term loans in the amount of $998,260. As at the date of sale, the net
book value of these equipment was $1,135,121. On the same date it entered into
an agreement to lease the same equipment under a 36 months capital lease ending
May 1st, 2002.
F-40
<PAGE> 108
3223574 CANADA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
Estimated payments under the provisions of the capital lease contract are
as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
2000........................................................ 357,440
2001........................................................ 389,934
2002........................................................ 389,934
2003........................................................ 32,495
---------
1,169,803
Interest thereon at the effective rate of 8.5%.............. (140,290)
---------
1,029,513
=========
</TABLE>
F-41
<PAGE> 109
SCHEDULE A
3223574 CANADA INC.
ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
-------------------------
JAN. 31 APRIL 30
1999 1999
$ $
(12 MONTHS) (3 MONTHS)
----------- ----------
(IN U.S. DOLLARS)
<S> <C> <C>
DIRECT COSTS
Computer and software maintenance........................... 110,467 37,194
Depreciation -- computer hardware........................... 172,322 62,227
Depreciation -- computer software........................... 182,286 39,312
Dues and subscriptions...................................... 970 144
Lists....................................................... 1,088 734
Office, postage and courier................................. 20,952 6,336
Professional and consulting fees............................ 10,792 261
Promotion................................................... 44,590 5,018
Recruiting.................................................. 129,951 33,293
Salaries and payroll levies................................. 4,833,095 1,765,159
Subcontracts................................................ 472,557 14,127
Telephone................................................... 859,024 272,923
Training.................................................... 15,735 16,646
Travel...................................................... 39,963 10,837
--------- ---------
6,893,792 2,264,211
========= =========
</TABLE>
F-42
<PAGE> 110
SCHEDULE B
3223574 CANADA INC.
ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
-------------------------
JAN. 31 APRIL 30
1999 1999
$ $
(12 MONTHS) (3 MONTHS)
----------- ----------
(IN U.S. DOLLARS)
<S> <C> <C>
ADMINISTRATIVE AND GENERAL EXPENSES
Bad debts................................................... 218,415 3,852
Depreciation -- leasehold improvements;..................... 31,233 21,162
Depreciation -- office furniture............................ 34,653 12,555
Depreciation -- telephone system............................ 19,339 5,927
Donations................................................... 39,682 7,337
Dues and subscriptions...................................... 2,061 811
Light and power............................................. 10,429 3,250
Office, postage and courier................................. 105,215 21,837
Professional fees........................................... 216,425 73,523
Promotion................................................... 44,913 7,437
Rent........................................................ 173,223 68,131
Salaries and payroll levies................................. 585,323 163,337
Taxes and licenses.......................................... 61,572 8,562
Telephone................................................... 48,581 14,842
Training.................................................... 9,869 1,837
Travel...................................................... 92,371 20,856
--------- -------
1,693,304 435,256
========= =======
SELLING EXPENSES
Advertising and subscriptions............................... 41,987 3,667
Office, postage and courier................................. 49,303 2,103
Professional and consulting fees............................ 11,895 --
Promotion................................................... 60,226 18,940
Salaries and commissions.................................... 96,368 35,386
Telephone................................................... 3,884 608
Training.................................................... 694 --
Travel...................................................... 33,360 7,878
--------- -------
297,717 68,582
========= =======
FINANCIAL EXPENSES
Interest and bank charges................................... 12,773 1,337
Interest on long-term debt.................................. 71,818 16,877
--------- -------
84,591 18,214
Interest income............................................. (8,809) (8,206)
--------- -------
75,782 10,008
========= =======
</TABLE>
F-43
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Scribers, Inc.:
We have audited the accompanying balance sheet of The Scribers, Inc. as of
December 31, 1998, and the related statements of operations, stockholders'
deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Scribers, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
As discussed in notes 1(b) and 10, the Company entered into an asset
purchase agreement for the sale of substantially all of its assets, subject to
certain liabilities, to an unrelated party on December 21, 1998. The financial
statements have been prepared as a condition of the sale and no adjustments as a
result of the sale have been recorded as of December 31, 1998.
/s/ KPMG LLP
St. Petersburg, Florida
March 5, 1999
F-44
<PAGE> 112
THE SCRIBERS, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 108,414
Accounts receivable, net of allowance for doubtful
accounts of approximately $218,000..................... 1,652,610
Prepaid expenses.......................................... 50,245
-----------
Total current assets................................... 1,811,269
-----------
Restricted cash from sale of business (note 10)............. 3,090,655
-----------
Property and equipment (note 1):
Land...................................................... 78,500
Buildings and improvements................................ 835,829
Furniture, equipment and vehicles......................... 2,580,677
-----------
3,495,006
Less: accumulated depreciation............................ (906,560)
-----------
Property and equipment, net............................ 2,588,446
-----------
Other assets................................................ 151,772
-----------
Total assets........................................... $ 7,642,142
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt (note 2)................ $ 17,208
Current portion of capital lease obligations (note 4)..... 382,725
Note payable to stockholder (note 5)...................... 58,750
Accounts payable.......................................... 905,399
Accrued expenses.......................................... 315,272
Amounts payable to stockholders........................... 322,396
State income tax payable.................................. 78,438
Other liabilities (note 6)................................ 457,527
-----------
Total current liabilities.............................. 2,537,715
Deferred sales proceeds from sale of business (note 10)..... 6,666,880
Long-term debt, net of current portion (note 2)............. 342,458
State of Kansas grant liability (note 3).................... 243,696
Capital lease obligations, net of current portion (note
4)........................................................ 227,484
Note payable to stockholder (note 5)........................ 646,250
Other liabilities (note 6).................................. 1,830,108
-----------
Total liabilities...................................... 12,494,591
-----------
Commitments (note 4)
Stockholders' equity (deficit):
Common stock, $3 par value; 60,000 shares authorized;
45,328 shares issued and outstanding................... 135,984
Additional paid-in capital................................ 1,169,363
Accumulated deficit....................................... (5,376,655)
-----------
(4,071,308)
Less: treasury stock, at cost............................. (781,141)
-----------
Total stockholders' deficit............................ (4,852,449)
-----------
Total liabilities and stockholders' deficit............ $ 7,642,142
===========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE> 113
THE SCRIBERS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenue..................................................... $11,672,033
-----------
Operating expenses:
Cost of services.......................................... 7,764,534
Selling, general and administrative expenses.............. 5,050,564
Depreciation.............................................. 420,000
-----------
Total operating expenses............................... 13,235,098
-----------
Loss from operations................................... (1,563,065)
-----------
Other expense:
Interest income........................................... 2,768
Interest expense.......................................... (317,476)
-----------
Net loss before income taxes........................... (1,877,773)
Income tax expense.......................................... (100,500)
-----------
Net loss............................................... $(1,978,273)
===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE> 114
THE SCRIBERS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------ -------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997..... 33,786 $101,358 722,672 (3,398,382) -- (2,574,352)
Issuance of common stock....... 11,542 34,626 446,691 -- -- 481,317
Purchase of treasury stock..... -- -- -- -- (781,141) (781,141)
Net loss....................... -- -- -- (1,978,273) -- (1,978,273)
------ -------- --------- ---------- -------- ----------
Balance at December 31, 1998..... 45,328 $135,984 1,169,363 (5,376,655) (781,141) (4,852,449)
====== ======== ========= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 115
THE SCRIBERS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,978,273)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 420,000
Changes in operating assets and liabilities:
Increase in accounts receivable, net................. (705,374)
Increase in prepaid expenses......................... (9,163)
Increase in other assets............................. (44,623)
Increase in accounts payable and accrued expenses.... 404,947
Decrease in other liabilities........................ (205,557)
-----------
Net cash used in operating activities............. (2,118,043)
-----------
Cash flows from investing activities:
Purchases of property and equipment....................... (653,555)
Deferred sales proceeds from sale of business............. 6,750,000
Increase in restricted cash from sale of business......... (3,090,655)
-----------
Net cash provided by investing activities......... 3,005,790
-----------
Cash flows from financing activities:
Decrease in note payable to bank.......................... (1,100,000)
Proceeds from note payable to stockholders................ 228,047
Increase in amounts payable to stockholders............... 322,396
Proceeds from state of Kansas grant....................... 243,696
Repayments of long-term debt.............................. (220,367)
Payments of capital lease obligations..................... (402,930)
Repayments of note payable to stockholders................ (8,934)
Payments received on stock subscriptions receivable....... 528,821
Issuance of common stock.................................. 304,148
Purchase of treasury stock................................ (781,141)
-----------
Net cash used in financing activities............. (886,264)
-----------
Net increase in cash.............................. 1,483
Cash at beginning of year................................... 106,931
-----------
Cash at end of year......................................... $ 108,414
===========
Supplement disclosure of cash flow information:
Cash paid during the year for interest.................... $ 180,389
===========
Supplement disclosure of non-cash investing and financing
activities:
Financed purchase of property and equipment............... $ 853,389
===========
Capital lease obligations assumed by stockholders and
converted to equity.................................... $ 20,916
===========
Notes payable to stockholders converted to equity......... $ 156,253
===========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 116
THE SCRIBERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
The Scribers, Inc. (the "Company") operates as a communications company,
providing telemessaging and telemarketing services in addition to providing
administrative and support functions. The Company serves customers in a variety
of industries.
(b) Basis of Presentation
The Company's year-end is December 31. On December 21, 1998, the Company
sold substantially all of its assets, subject to certain liabilities, to an
unrelated party. The accompanying financial statements have been prepared as of
and for the year ended December 31, 1998 as a condition to the closing of the
transaction.
(c) Concentration of Credit Risk
The financial instrument that potentially subjects the Company to
concentration of credit risk consists principally of trade receivables.
Concentration of credit risk is limited due to the large number of customers
dispersed throughout various industries in different geographic locations.
(d) Revenue Recognition
Company services are invoiced to customers per billing specifications
contained in each contract, which are generally on a weekly basis after services
have been rendered.
(e) Property and Equipment
Land is stated at cost. The cost of the Company's buildings and
improvements, machinery and equipment, furniture and fixtures, and vehicles is
being depreciated over the assets' estimated useful lives, using the
straight-line and double-declining balance methods.
(f) Income Taxes
The Company operates as a Subchapter S corporation under the Internal
Revenue Code. Under those provisions, the Company does not pay corporate income
taxes on its taxable income, except for certain Michigan income taxes on S
corporations. Instead, the stockholders are liable for individual income taxes
on the Company's taxable income. Accordingly, these financial statements do not
contain a provision for income taxes.
(g) Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and revenues and expenses and the disclosure
of contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) LONG-TERM DEBT
The Company has a mortgage note payable to a bank with an outstanding
balance of $359,666 at December 31, 1998. Payments of $4,000, including interest
at 8.75% per annum, are due monthly until maturity of the note in January 2002.
The note is secured by the Company's land and building in Lansing, Michigan.
F-49
<PAGE> 117
THE SCRIBERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled maturities of long-term debt for the next four years are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1999........................................................ $ 17,208
2000........................................................ 18,776
2001........................................................ 20,487
2002........................................................ 303,195
--------
$359,666
========
</TABLE>
In 1998, the Company also entered into a $2,500,000 line of credit
arrangement with a bank which was originally due in September 2001. As of
December 21, 1998, the outstanding loan balance was approximately $2,118,000,
which was satisfied through proceeds received from the sale (note 10). The total
payoff of $2,125,629 included interest and prepayment charges. Interest was
payable monthly on the outstanding balance at the bank's prime lending rate plus
2%. A minimum monthly interest payment of $10,000 was required in accordance
with the arrangement. The loan was secured by the Company's tangible personal
property with personal guarantees from two stockholders.
(3) STATE OF KANSAS GRANT LIABILITY
In 1998, the Company entered into an unsecured $275,000 loan agreement with
the state of Kansas which matures on June 2003. The remaining amount available
under the loan agreement at December 31, 1998 is $31,304. The loan is
non-interest bearing and no principal payments are required, except in the event
of non-performance under the agreement. The agreement generally requires that
the Company creates and maintains a certain number of full-time and part-time
jobs and a minimum full-time and part-time payroll amount in each of the five
years until maturity of the loan. If the Company achieves the benchmarks in
accordance with the agreement the state of Kansas will forgive the debt. The
Company intends to maintain the grant liability until forgiveness of the debt.
(4) LEASE OBLIGATIONS
The Company has leased certain machinery and equipment under capital
leases. The machinery and equipment is included in property and equipment in the
accompanying balance sheet as follows:
<TABLE>
<S> <C>
Furniture, equipment and vehicles........................... $ 966,000
Accumulated depreciation.................................... (132,412)
---------
$ 833,588
=========
</TABLE>
The Company also leases office space, certain machinery and equipment, and
vehicles under operating leases which expire at various dates over the next five
years. Lease expense was approximately $241,000 for the year ended December 31,
1998.
F-50
<PAGE> 118
THE SCRIBERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ---- --------- ---------
<S> <C> <C>
1999........................................................ $ 465,034 235,144
2000........................................................ 253,521 237,256
2001........................................................ 72,537 229,527
2002........................................................ 3,793 227,836
Thereafter.................................................. -- 142,848
--------- ---------
Total minimum payments...................................... 794,885 1,072,611
=========
Less: amount representing interest.......................... (184,676)
---------
Present value of capital lease payment obligations.......... 610,209
Less: current portion....................................... (382,725)
---------
Long-term capital lease obligation.......................... $ 227,484
=========
</TABLE>
(5) NOTE PAYABLE TO STOCKHOLDER
The Company has an unsecured note payable to a stockholder with an
outstanding balance of $705,000 at December 31, 1998. Monthly payments of
$19,583, plus interest at 10% per annum, begin in October 1999 until maturity of
the note in September 2002.
Scheduled maturities of note payable to stockholder for the next four years
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1999........................................................ $ 58,750
2000........................................................ 235,000
2001........................................................ 235,000
2002........................................................ 176,250
--------
$705,000
========
</TABLE>
(6) OTHER LIABILITIES
In 1997, the Company recorded an obligation of $2,287,635 to four former
employees under their employment contracts as other liabilities in the
accompanying balance sheet. While the amounts due under these contracts could be
due within year, management intends to pay the balance ratably through December
2003; therefore, a portion is recorded as long term in the accompanying balance
sheet based on scheduled installments.
(7) RELATED PARTY TRANSACTIONS
Revenue earned from a company partly owned by several stockholders of the
Company totaled $3,666,410 or 32% of total revenue for the year ended December
31, 1998. Accounts receivable from this company totaled $187,744 at December 31,
1998.
Amounts payable to stockholders represent unsecured and non-interest
bearing advances from several stockholders.
F-51
<PAGE> 119
THE SCRIBERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit sharing plan in which all
employees past the age of 21 are eligible to participate after completion of
three months of service. Participants may contribute on an after-tax basis a
cash amount up to 15% of their compensation. The Company may make a matching
contribution up to 5% of the participant contributions. Participants may direct
the allocation of their contributions to a range of investments. Gains and
losses are allocated based on participant balances. Participants are 50% vested
after their third year of service and are fully vested after five years of
service. Company contributions were approximately $4,150 for the year ended
December 31, 1998.
(9) CONCENTRATION OF RISK
Revenue earned from two significant and unrelated customers comprised
approximately 29% of total revenue for the year ended December 31, 1998.
(10) SALE OF BUSINESS
As discussed in note 1(b), the Company sold substantially all of its
assets, subject to certain liabilities, to an unrelated party. The sale
agreement was executed on December 21, 1998, and the Company received a net sale
proceeds advance of $6,666,880 at that time. Effective December 21, 1998,
operations of the Company were assumed by the buyer with the ultimate purchase
price to be determined under the provisions of the asset purchase agreement,
which includes certain purchase price and earn out adjustment provisions which
have not been determined at this time. Restricted cash from sale of business
relates to amounts to be retained by the Company to satisfy liabilities not
assumed by the buyer.
F-52
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Anserphone of New Orleans, Inc.
Anserve, Inc.:
We have audited the accompanying combined balance sheet of Anserphone of
New Orleans, Inc. and Anserve, Inc. (collectively the "Company") as of October
31, 1998, and the related combined statements of income, stockholders' equity
and cash flows for the year then ended. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Anserphone
of New Orleans, Inc. and Anserve, Inc. as of October 31, 1998, and the results
of its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
As discussed in notes 1(c) and 7, the Company entered into an asset
purchase agreement for the sale of its operating assets to an unrelated party on
November 2, 1998.
/s/ KPMG LLP
St. Petersburg, Florida
December 12, 1998
F-53
<PAGE> 121
ANSERPHONE OF NEW ORLEANS, INC.
AND ANSERVE, INC.
COMBINED BALANCE SHEET
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 288,542
Accounts receivable, net of allowance for doubtful
accounts of $61,000.................................... 667,358
Other current assets...................................... 48,619
-----------
Total current assets................................... 1,004,519
-----------
Property and equipment (note 1):
Furniture and equipment................................... 1,387,638
Less accumulated depreciation............................. (1,024,493)
-----------
Property and equipment, net............................... 363,145
-----------
Intangible assets, net (note 1)............................. 162,916
-----------
Other assets................................................ 1,169
-----------
Total assets........................................... $ 1,531,749
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 2)................ $ 46,305
Accounts payable and accrued expenses..................... 41,818
Current portion of notes payable to stockholders (note
3)..................................................... 103,025
-----------
Total current liabilities.............................. 191,148
Long-term debt, net of current portion (note 2)............. 120,182
Notes payable to stockholders, net of current portion (note
3)........................................................ 193,902
-----------
Total liabilities...................................... 505,232
-----------
Commitments (note 5)
Stockholders' equity:
Common stock:
Anserphone of New Orleans, Inc.: $100 par value; 1,000
shares authorized; 250 shares issued and 250 shares
outstanding............................................ 25,000
Anserve, Inc.: no par value; 1,500,000 shares authorized;
10,000 shares issued and outstanding................... 225,000
Additional paid-in capital................................ 318,238
Retained earnings......................................... 543,986
-----------
1,112,224
Less: treasury stock (171,415 shares of common stock, at
cost).................................................. (85,707)
-----------
Total stockholders' equity............................. 1,026,517
-----------
Total liabilities and stockholders' equity............. $ 1,531,749
===========
</TABLE>
See accompanying notes to combined financial statements.
F-54
<PAGE> 122
ANSERPHONE OF NEW ORLEANS, INC.
AND ANSERVE, INC.
COMBINED STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
Revenue..................................................... $7,183,063
----------
Operating expenses:
Cost of services.......................................... 4,848,331
Selling, general and administrative expenses.............. 1,210,315
Depreciation and amortization............................. 223,163
----------
Total operating expenses............................... 6,281,809
----------
Income from operations................................. 901,254
Other income (expense):
Interest income........................................... 12,343
Interest expense.......................................... (47,550)
----------
Net income............................................. $ 866,047
==========
</TABLE>
See accompanying notes to combined financial statements.
F-55
<PAGE> 123
ANSERPHONE OF NEW ORLEANS, INC.
AND ANSERVE, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
ANSERPHONE OF ADDITIONAL TOTAL
NEW ORLEANS, ANSERVE, PAID-IN RETAINED TREASURY STOCKHOLDERS'
INC. INC. CAPITAL EARNINGS STOCK EQUITY
------------- -------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1997...... $25,000 225,000 318,238 511,334 (85,707) 993,865
Net income..................... -- -- -- 866,047 -- 866,047
Shareholder distributions...... -- -- -- (833,395) -- (833,395)
------- ------- ------- -------- ------- ---------
Balance at October 31, 1998...... $25,000 225,000 318,238 543,986 (85,707) 1,026,517
======= ======= ======= ======== ======= =========
</TABLE>
See accompanying notes to combined financial statements.
F-56
<PAGE> 124
ANSERPHONE OF NEW ORLEANS, INC.
AND ANSERVE, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 866,047
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 223,163
Changes in operating assets and liabilities:
Increase in receivables, net......................... (60,204)
Decrease in other assets............................. 32,309
Decrease in accounts payable and accrued expenses.... (67,782)
-----------
Net cash provided by operating activities......... 993,533
-----------
Cash flows from investing activity:
Purchases of property and equipment....................... (165,676)
-----------
Net cash used in investing activity............... (165,676)
-----------
Cash flows from financing activities:
Proceeds from notes payable to stockholders............... 58,000
Repayments of long-term debt.............................. (43,184)
Repayments of notes payable to stockholders............... (182,650)
Stockholder distributions................................. (833,395)
-----------
Net cash used in financing activities............. (1,001,229)
-----------
Net decrease in cash.............................. (173,372)
Cash at beginning of year................................... 461,914
-----------
Cash at end of year......................................... $ 288,542
===========
Supplement disclosure of cash flow information:
Cash paid during the year for interest.................... $ 47,550
===========
</TABLE>
See accompanying notes to combined financial statements.
F-57
<PAGE> 125
ANSERPHONE OF NEW ORLEANS, INC.
AND ANSERVE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The combined financial statements include the financial statements of
Anserphone of New Orleans, Inc. and Anserve, Inc. (the "Company"), which are
companies with common ownership and under common control. All significant
intercompany balances and transactions have been eliminated in combination.
(b) Organization
The Company operates as a communications company, providing telemessaging
and telemarketing services in addition to providing administrative and support
functions. The Company serves customers in a variety of industries.
(c) Basis of Presentation
The Company's year-end is October 31. On November 2, 1998, the Company
entered into an asset purchase agreement for the sale of its operating assets to
unrelated party. The accompanying combined financial statements have been
prepared as of and for the year ended October 31, 1998 as a condition to the
closing of the transaction.
(d) Concentration of Credit Risk
The financial instrument that potentially subjects the Company to
concentration of credit risk consists principally of trade receivables.
Concentration of credit risk is limited due to the large number of customers
dispersed throughout various industries in different geographic locations.
(e) Revenue Recognition
Company services are generally invoiced to customers at the beginning of
the month for recurring fixed fee amounts and invoiced in arrears for the prior
month's excess usage fees. Revenue is recognized when the related service is
provided and monthly pre-bill amounts are deducted from accounts receivable if
not earned.
(f) Property and Equipment
The cost of the Company's furniture and equipment is being depreciated over
the assets' estimated useful lives, using the double-declining balance method.
(g) Intangible Assets
Intangible assets consist of the cost in excess of the fair value of net
assets acquired in business acquisitions, which are being amortized over 60
months on a straight-line basis. Accumulated amortization totaled $127,278 at
October 31, 1998.
(h) Long-Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
F-58
<PAGE> 126
ANSERPHONE OF NEW ORLEANS, INC.
AND ANSERVE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
amount of an asset may not be recoverable. If it is determined that the carrying
amount of an asset cannot be fully recovered, an impairment loss is recognized.
(i) Income Taxes
The Company operates as a Subchapter S corporation under the Internal
Revenue Code. Under those provisions, the Company does not pay corporate income
taxes on its taxable income. Instead, the stockholders are liable for individual
income taxes on the Company's taxable income. Accordingly, these combined
financial statements do not contain a provision for income taxes.
(j) Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and revenues and expenses and the disclosure
of contingent assets and liabilities to prepare these combined financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) LONG-TERM DEBT
Long-term debt consists of a note payable assumed in a business
acquisition, which is due in monthly payments of $4,708, including interest at
7% per annum, until maturity on April 1, 2002.
Scheduled maturities of long-term debt for the next four years are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 46,305
2000........................................................ 48,793
2001........................................................ 52,320
2002........................................................ 19,069
--------
$166,487
========
</TABLE>
(3) NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders consists of various unsecured notes payable
to stockholders, which are due in monthly payments ranging from $277 to $4,708,
including interest rates ranging from 9.5% to 14% per annum, and mature on
various dates through May 2002.
Scheduled maturities of notes payable to stockholders for the next four
years are as follows:
<TABLE>
<S> <C>
1999........................................................ $103,025
2000........................................................ 97,134
2001........................................................ 77,861
2002........................................................ 18,907
--------
$296,927
========
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Company leases its office space from related parties. The lease
requires the Company to provide insurance, repairs and maintenance, and taxes on
the leased property. The lease is renewable on an annual basis. Lease expense
was approximately $148,000 for the year ended October 31, 1998.
F-59
<PAGE> 127
ANSERPHONE OF NEW ORLEANS, INC.
AND ANSERVE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) COMMITMENTS
The Company leases office space and certain equipment utilized in its
operations under noncancelable operating leases. Future minimum lease payments
under its operating leases for the next five years and thereafter are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 175,526
2000........................................................ 159,404
2001........................................................ 146,646
2002........................................................ 131,894
2003........................................................ 131,673
Thereafter.................................................. 526,694
----------
$1,271,837
==========
</TABLE>
Total lease expense, including that incurred to related parties, amounted
to $156,716 for the year ended October 31, 1998.
(6) CONCENTRATION OF RISK
Revenue earned from five significant and unrelated customers comprised
approximately 35% of total revenue for the year ended October 31, 1998.
(7) SUBSEQUENT EVENT
The Company entered into an asset purchase agreement for the sale of its
operating assets to an unrelated party on November 2, 1998. No adjustments to
the accompanying combined financial statements have been made as a result of the
acquisition.
F-60
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
The Members
Quick Response LLC:
We have audited the accompanying balance sheet of Quick Response LLC as of
September 30, 1998, and the related statements of operations and members' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quick Response LLC as of
September 30, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
In November 1998, all the assets and certain liabilities of the Company
were acquired by Protocol Communications, Inc. (see note 1).
/s/ KPMG LLP
Boston, Massachusetts
December 17, 1998
F-61
<PAGE> 129
QUICK RESPONSE LLC
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 15,148
Accounts receivable, net of allowance for doubtful
accounts of $7,045..................................... 71,492
Prepaid expenses.......................................... 6,624
--------
Total current assets................................... 93,264
Property and equipment, net................................. 174,755
Intangible assets, net...................................... 29,790
Security deposits........................................... 5,956
--------
Total assets........................................... $303,765
========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Line of credit with bank.................................. $ 9,000
Current portion of capital lease obligations.............. 31,396
Accounts payable.......................................... 27,321
Accrued expenses.......................................... 16,491
Accrued payroll........................................... 16,349
--------
Total current liabilities.............................. 100,557
Capital lease obligations, less current portion............. 70,013
--------
Total liabilities...................................... 170,570
Commitments (notes 6 and 7)
Members' equity............................................. 133,195
--------
Total liabilities and members' equity.................. $303,765
========
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE> 130
QUICK RESPONSE LLC
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Revenue:
Net fee and service revenue............................... $1,484,692
----------
Operating expenses:
Cost of services.......................................... 1,048,717
Selling, general and administrative....................... 443,068
Depreciation and amortization............................. 59,801
----------
Total operating expenses............................... 1,551,586
----------
Loss from operations........................................ (66,894)
Interest expense............................................ (1,235)
----------
Net loss............................................... (68,129)
Members' equity, beginning of year.......................... 201,324
----------
Members' equity, end of year................................ $ 133,195
==========
</TABLE>
See accompanying notes to financial statements.
F-63
<PAGE> 131
QUICK RESPONSE LLC
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(68,129)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 59,801
Changes in operating assets and liabilities:
Accounts receivable.................................. 3,772
Prepaid expenses..................................... 39
Accounts payable..................................... 18,889
Accrued expenses..................................... (8,562)
Accrued payroll...................................... (13,761)
--------
Net cash used in operating activities............. (7,951)
--------
Cash flows from investing activities:
Purchases of property and equipment....................... (36,446)
Payment of contingent purchase price...................... (7,799)
Increase in security deposits............................. (2,268)
--------
Net cash used in investing activities............. (46,513)
--------
Cash flows from financing activities:
Proceeds from line of credit with bank.................... 9,000
Repayment of capital lease obligations.................... (7,625)
--------
Net cash used in financing activities............. 1,375
--------
Net decrease in cash........................................ (53,089)
Cash, beginning of year..................................... 68,237
--------
Cash, end of year........................................... $ 15,148
========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest expense............ $ 1,235
========
</TABLE>
See accompanying notes to financial statements.
F-64
<PAGE> 132
QUICK RESPONSE LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) NATURE OF BUSINESS AND BASIS OF PRESENTATION
Quick Response LLC (the "Company") is located in York, Pennsylvania, and is
an independent third-party verification company that provides live verbal
verification to resellers of long distance telephone services for both
residential and business users. The Company also operates a call center
operation providing inbound and outbound telecommunication services and
telemarketing services.
The Company's year-end is December 31. In November 1998, all of the assets
and certain liabilities of the Company were acquired by Protocol Holdings, Inc.
for cash. The accompanying financial statements have been prepared as of and for
the year ended September 30, 1998 as a condition to the closing of the
transaction.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. Significant
estimates made by the Company include the useful lives of fixed assets, the
recoverability of long-term assets and the collectibility of accounts
receivable.
(b) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
are stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Equipment held under
capital leases and leasehold improvements are amortized straight line over the
shorter of the lease term or estimated useful life of the asset. Amortization of
assets held under capital leases is included in depreciation expense.
(c) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, 15 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
(d) Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be
F-65
<PAGE> 133
QUICK RESPONSE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(e) Fair Value of Financial Instruments
The Company's financial instruments, including cash, accounts receivable,
accounts payable and accrued expenses, and borrowings are carried at cost, which
approximates fair value because of either their short-term nature of conversion
to cash or the corresponding variable interest rate attached to the instruments.
(f) Revenue Recognition
Revenue from third-party verification services is based on contracted
pricing and is recognized when the service is provided.
(g) Income Taxes
The Company is treated as a partnership for Federal income tax purposes and
does not incur income taxes. Its earnings and losses are included in the
personal returns of the members and taxed depending on their personal tax
situations. Accordingly, the financial statements do not reflect a provision for
income taxes.
(h) Concentration of Credit Risk
The Company's customers are predominantly clustered in the Northeast. The
majority of the Company's revenues are generated in the telecommunications
industry. The Company can be impacted by changes in the telecommunications
industry, including changes in regulatory requirements imposed by the Federal
Communications Commission and related governmental agencies. The Company
generally does not require collateral and writes off all accounts receivable
that are deemed to be uncollectible.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C> <C>
Equipment................................................... $216,861 2-7 years
Furniture and fixtures...................................... 10,728 3-7 years
Computer software........................................... 9,582 3-5 years
Leasehold improvements...................................... 1,120 2 years
--------
238,291
Less: accumulated depreciation and amortization............. (63,536)
--------
$174,755
========
</TABLE>
Depreciation and amortization expense of property and equipment was $55,307
for the year ended September 30, 1998.
F-66
<PAGE> 134
QUICK RESPONSE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following at September 30, 1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C> <C>
Goodwill.................................................... $19,520 15 years
Other....................................................... 14,764 5 years
-------
34,284
Less: accumulated amortization.............................. (4,494)
-------
$29,790
=======
</TABLE>
(5) LINE OF CREDIT WITH BANK
The Company has a line of credit arrangement with a bank in the amount of
$200,000, payable on demand. Interest is payable monthly on the outstanding
balance at the bank's prime lending rate (8.25% at September 30, 1998). The loan
is secured by all assets of the Company. At September 30, 1998, the outstanding
borrowings under this arrangement totaled $9,000.
(6) LEASES
The Company is obligated under various capital leases for certain equipment
that expire at various dates during the next three years. At September 30, 1998,
the gross amount of equipment and related accumulated amortization recorded
under capital leases was $133,273 and $38,872, respectively.
The Company also has a noncancelable operating leases for its facility that
expires in February 1999. Rental expense was $34,569 for the year ended
September 30, 1998.
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30 LEASES LEASES
- ------------------------ -------- ---------
<S> <C> <C>
1999........................................................ $ 40,902 6,592
2000........................................................ 40,902 --
2001........................................................ 36,918 --
-------- -----
Total minimum lease payments.............................. 118,722 6,592
=====
Less amount representing interest (at rates ranging from
10.3% to 14.2%)........................................... (17,313)
--------
Present value of net minimum capital lease payments......... 101,409
Less current portion of obligations under capital leases.... (31,396)
--------
Obligations under capital leases, excluding current
portion................................................... $ 70,013
========
</TABLE>
(7) AMOUNTS DUE TO FORMER OWNERS
As part of the Asset Purchase Agreement effectuated at the time of the
August 8, 1997 recapitalization of the Company, the former owners of the Company
were eligible to receive payments equal to 8% of sales on a weekly basis if
average daily sales per week are greater than $6,750 over the next 52 weeks.
Such payments have been recorded as goodwill on the Company's books and
amortized over a 15-year period.
F-67
<PAGE> 135
QUICK RESPONSE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, under the Asset Purchase Agreement, the Company's former
owners and current members are to receive a distribution equal to 5% of the net
income. Since the Company experienced a loss for the year ended September 30,
1998, no such contingent distribution was made.
(8) RELATED PARTY TRANSACTIONS
Wharton Capital Partners ("WCP") receives a 2% management fee based upon
gross sales. The principals of WCP are the President and CFO of the Company. In
addition, the President had part of his salary paid directly to WCP in the form
of a management fee. Total management fees paid by the Company for the year
ended September 30, 1998 were $37,917, which includes $8,223 of the President's
salary that was paid to WCP in the form of a management fee.
A Member of the Company provides legal advice and counsel to the Company.
Total legal fees paid to the law firm were approximately $9,000 for the year
ended September 30, 1998.
Another Member of the Company receives a consulting fee from the Company.
The consulting fee for the year ended September 30, 1998 was $17,150.
F-68
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Strategic Alternatives, Inc.:
We have audited the accompanying balance sheet of Strategic Alternatives,
Inc. of September 30, 1998, and the related statements of income, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Strategic Alternatives, Inc.
as of September 30, 1998, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 1(b), the Company entered into a stock purchase
agreement for the sale of its outstanding common stock to an unrelated party on
October 30, 1998.
/s/ KPMG LLP
St. Petersburg, Florida
December 18, 1998
F-69
<PAGE> 137
STRATEGIC ALTERNATIVES, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS (NOTE 2)
Current assets:
Cash...................................................... $ 180,278
Accounts receivable....................................... 798,421
Other current assets...................................... 8,101
----------
Total current assets................................... 986,800
Property and equipment, net of accumulated depreciation of
$87,378................................................... 76,022
----------
Total assets........................................... $1,062,822
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (note 2)............................. $ 200,000
Accounts payable and accrued expenses..................... 233,543
Accrued employee compensation............................. 181,770
Income taxes payable...................................... 147,436
Deferred income taxes (note 3)............................ 8,564
Deferred revenue.......................................... 2,316
----------
Total current liabilities.............................. 773,629
----------
Commitments (note 4)
Stockholders' equity:
Common stock, $1.00 par value; 1,000 shares authorized,
200 shares issued and outstanding...................... 200
Retained earnings......................................... 288,993
----------
Total stockholders' equity............................. 289,193
----------
Total liabilities and stockholders' equity............. $1,062,822
==========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 138
STRATEGIC ALTERNATIVES, INC.
STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Revenue..................................................... $4,092,207
----------
Operating expenses:
Direct cost of services................................... 2,762,154
General and administrative................................ 1,072,849
Depreciation.............................................. 28,849
----------
Total operating expenses............................... 3,863,852
----------
Income from operations................................. 228,355
Other income (expense):
Interest income........................................... 11,877
Interest expense.......................................... (5,630)
----------
Income before income taxes............................. 234,602
Income tax expense (note 3)................................. 98,518
----------
Net income............................................. $ 136,084
==========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE> 139
STRATEGIC ALTERNATIVES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at September 30, 1997....................... 200 $200 152,909 153,109
Net income........................................ -- -- 136,084 136,084
--- ---- -------- -------
Balance at September 30, 1998....................... 200 $200 288,993 289,193
=== ==== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE> 140
STRATEGIC ALTERNATIVES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 136,084
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation........................................... 28,849
Deferred income taxes.................................. (50,890)
Deferred revenue....................................... (171,184)
Changes in operating assets and liabilities:
Increase in accounts receivable...................... (188,314)
Decrease in accounts payable and accrued expenses.... (65,271)
Decrease in accrued employee compensation............ (101,701)
Increase in income taxes payable..................... 139,890
---------
Net cash used in operating activities............. (272,537)
---------
Cash flows from investing activities:
Purchases of property and equipment....................... (34,841)
Decrease in other assets.................................. 22,735
---------
Net cash used in investing activities................ (12,106)
---------
Cash flows from financing activities:
Proceeds from note payable to bank........................ 200,000
Repayments of note payable to bank........................ (270)
---------
Net cash provided by financing activities......... 199,730
---------
Net decrease in cash.............................. (84,913)
Cash at beginning of year................................... 265,191
---------
Cash at end of year......................................... $ 180,278
=========
Supplement disclosure of cash flow information:
Cash paid during the year for interest.................... $ 5,630
=========
Cash paid during the year for income taxes................ $ 5,301
=========
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE> 141
STRATEGIC ALTERNATIVES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Strategic Alternatives, Inc. (the "Company") operates as a communications
company, providing telemarketing survey and database services. Services rendered
to customers are generally on a project-by-project basis, which may extend
beyond a one-month period. The Company serves customers in a variety of
industries and a small number of customers comprise a substantial portion of
revenue (see note 5).
(b) Basis of Presentation
The Company's year-end is December 31. On October 30, 1998, the Company
entered into a stock purchase agreement for the sale of all of its common stock
to an unrelated party. The accompanying financial statements have been prepared
as of and for the year ended September 30, 1998 as a condition to the closing of
the transaction.
In previous fiscal years, the Company provided for incentive compensation
and pension expense to its officers during the last quarter of the year. No such
accruals have been made in the accompanying financial statements as of September
30, 1998.
(c) Concentration of Credit Risk
The financial instrument that potentially subjects the Company to
concentration of credit risk consists principally of trade receivables.
Concentration of credit risk is principally a small number of customers in
various industries in different geographic locations.
(d) Revenue Recognition
Company services may be prebilled or invoiced to customers after services
are rendered. Revenue is recognized when the related service is provided and
prebill amounts are reflected as deferred revenue. For services rendered over a
contract period exceeding one month, unbilled revenue amounts, if any, are
recognized based on the estimated completion percentage of the related project.
(e) Property and Equipment
Property and equipment is stated at historical cost. The cost of the
Company's property and equipment is being depreciated over the assets' estimated
useful lives, using the straight-line and double-declining balance methods.
(f) Long-Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
(g) Income Taxes
Income taxes are accounted for the under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years
F-74
<PAGE> 142
STRATEGIC ALTERNATIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(h) Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and revenues and expenses and the disclosure
of contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) NOTE PAYABLE TO BANK
Note payable to bank consists of a promissory note payable due in July
1999, payable monthly, bearing interest at prime plus 1% (9.00% at September 30,
1998). The loan is secured by substantially all of the Company's assets with
personal guarantees from the majority stockholders.
(3) INCOME TAXES
Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- ------
<S> <C> <C> <C>
Twelve months ended September 30, 1998:
U.S. Federal........................................ $127,306 (43,664) 83,642
State and local..................................... 22,102 (7,226) 14,876
-------- ------- ------
$149,408 (50,890) 98,518
======== ======= ======
</TABLE>
Income tax expense attributable to income from continuing operations was
$98,518 for the year ended September 30, 1998, and differed from the amounts
computed by applying the U.S. federal income tax rate of 34 percent to pretax
income from continuing operations as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax expense............................. $ 79,765
Increase (reduction) in income taxes resulting from:
Adjustment to deferred tax assets and liabilities for
enacted changes in tax laws and rates.................. 13,485
State and local income taxes, net of federal income tax
benefit................................................ 3,443
Permanent differences..................................... 7,862
Surtax exemption benefit.................................. (16,750)
Other..................................................... 10,713
--------
$ 98,518
========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at September 30, 1998 are presented
below:
<TABLE>
<S> <C>
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation........................................... $(6,600)
Other..................................................... (1,964)
-------
$(8,564)
=======
</TABLE>
F-75
<PAGE> 143
STRATEGIC ALTERNATIVES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) OPERATING LEASE
The Company leases various equipment and its office space under
noncancelable operating leases that expire at various dates through 2002. The
office lease requires the Company to provide insurance, repairs and maintenance,
and taxes on the leased property and is renewable on an annual basis. Lease
expense was $79,379 for the year ended September 30, 1998. Remaining commitments
on noncancelable operating lease obligations at September 30, 1998 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 69,600
2000........................................................ 51,400
2001........................................................ 23,000
2002........................................................ 300
--------
$144,300
========
</TABLE>
(5) BUSINESS AND CREDIT CONCENTRATION
All of the Company's customers are located in the United States; however,
some of the Company's business activities have been carried out in European
countries. Three of the Company's customers accounted for revenue of
approximately 62% for the year ended September 30, 1998. Accounts receivable
from these customers at September 30, 1998 amounted to approximately 74%. The
Company believes that its accounts receivable are collectible in their entirety,
and therefore no allowance for bad debts is recorded in the accompanying
financial statements.
(6) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan (the "Plan") covering
substantially all of its employees. The Plan allows participants to defer a
portion of their salary and the Company may contribute matching contributions,
although it is not obligated to do so. Pension expense amounted to $4,396 for
the year ended September 30, 1998.
F-76
<PAGE> 144
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Answerphone of Florida, Inc.:
We have audited the accompanying balance sheet of Answerphone of Florida,
Inc. (d/b/a IOCOM) as of June 30, 1998, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Answerphone of Florida, Inc.
(d/b/a IOCOM) as of June 30, 1998, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
As discussed in note 1(b), the Company entered into an asset purchase
agreement for the sale of its operating assets to an unrelated party on July 2,
1998.
/s/ KPMG LLP
St. Petersburg, Florida
October 30, 1998
F-77
<PAGE> 145
ANSWERPHONE OF FLORIDA, INC.
(D/B/A IOCOM)
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS (NOTE 4)
Current assets:
Cash...................................................... $ 126,935
Accounts receivable, net of allowance for doubtful
accounts of $14,980.................................... 103,173
Current portion of note receivable (note 2)............... 25,549
---------
Total current assets................................... 255,657
---------
Property and equipment (note 1):
Furniture and equipment................................... 316,149
Vehicles.................................................. 59,649
Leasehold improvements.................................... 36,533
---------
412,331
Less accumulated depreciation............................. (243,511)
---------
Property and equipment, net............................ 168,820
---------
Note receivable, net of current portion (note 2)............ 58,907
---------
Total assets........................................... $ 483,384
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 4)................ $ 47,188
Accounts payable and accrued expenses..................... 93,829
Amounts payable to related party.......................... 100,000
---------
Total current liabilities.............................. 241,017
Long-term debt, net of current portion (note 4)............. 124,028
---------
Total liabilities...................................... 365,045
---------
Commitments and contingencies (notes 5 and 6)
Stockholders' equity:
Common stock, $100 par value; 100 shares authorized,
issued and outstanding................................. 10,000
Additional paid-in capital................................ 3,547
Retained earnings......................................... 104,792
---------
Total stockholders' equity............................. 118,339
---------
Total liabilities and stockholders' equity............. $ 483,384
=========
</TABLE>
See accompanying notes to financial statements.
F-78
<PAGE> 146
ANSWERPHONE OF FLORIDA, INC.
(D/B/A IOCOM)
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Revenue..................................................... $1,860,482
----------
Operating expenses:
Cost of services.......................................... 1,540,815
Selling, general and administrative expenses.............. 325,484
Depreciation and amortization............................. 99,101
----------
Total operating expenses............................... 1,965,400
----------
Loss from operations................................... (104,918)
----------
Other income (expense):
Interest income........................................... 10,831
Interest expense.......................................... (17,985)
----------
Net loss............................................... $ (112,072)
==========
</TABLE>
See accompanying notes to financial statements.
F-79
<PAGE> 147
ANSWERPHONE OF FLORIDA, INC.
(D/B/A IOCOM)
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997....................... 100 $10,000 3,547 216,864 230,411
Net loss..................................... -- -- -- (112,072) (112,072)
--- ------- ----- -------- --------
Balance at June 30, 1998....................... 100 $10,000 3,547 104,792 118,339
=== ======= ===== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-80
<PAGE> 148
ANSWERPHONE OF FLORIDA, INC.
(D/B/A IOCOM)
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(112,072)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 99,101
Loss on disposal of property and equipment............. 13,319
Changes in operating assets and liabilities:
Increase in accounts receivables, net................ (4,053)
Increase in accounts payable and accrued expenses.... 36,137
---------
Net cash provided by operating activities......... 32,432
---------
Cash flows from investing activities:
Purchases of property and equipment....................... (30,491)
Payments on notes receivable.............................. 24,114
---------
Net cash used in investing activities............. (6,377)
---------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 50,000
Repayments of long-term debt.............................. (51,653)
---------
Net cash used in financing activities............. (1,653)
---------
Net increase in cash.............................. 24,402
Cash at beginning of year................................... 102,533
---------
Cash at end of year......................................... $ 126,935
=========
Supplement disclosure of cash flow information:
Cash paid during the year for interest.................... $ 20,991
=========
</TABLE>
See accompanying notes to financial statements.
F-81
<PAGE> 149
ANSWERPHONE OF FLORIDA, INC.
(D/B/A IOCOM)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Answerphone of Florida, Inc. d/b/a IOCOM (the "Company") operates as a
communications company, providing telemessaging and telemarketing services in
addition to providing administrative and support functions. The Company serves
customers in a variety of industries.
(b) Basis of Presentation
The Company's year-end is December 31. On July 2, 1998, the Company entered
into an asset purchase agreement for the sale of its operating assets to an
unrelated party. The accompanying financial statements have been prepared as of
and for the year ended June 30, 1998 as a condition to the closing of the
transaction.
(c) Concentration of Credit Risk
The financial instrument that potentially subjects the Company to
concentration of credit risk consists principally of trade receivables.
Concentration of credit risk is limited due to the large number of customers
dispersed throughout various industries in different geographic locations.
(d) Revenue Recognition
Company services are generally invoiced to customers at the beginning of
the month for recurring fixed fee amounts and invoiced in arrears for the prior
month's excess usage fees. Revenue is recognized when the related service is
provided and monthly pre-bill amounts are deducted from accounts receivable if
not earned.
(e) Property and Equipment
The cost of the Company's leasehold improvements, furniture and equipment,
and vehicles is being depreciated over the assets' estimated useful lives, using
the double-declining balance method.
(f) Long-Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
(g) Income Taxes
The Company operates as a Subchapter S corporation under the Internal
Revenue Code. Under those provisions, the Company does not pay corporate income
taxes on its taxable income. Instead, the stockholders are liable for individual
income taxes on the Company's taxable income. Accordingly, these financial
statements do not contain a provision for income taxes.
(h) Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and revenues and expenses and the disclosure
of contingent assets and liabilities to prepare these
F-82
<PAGE> 150
ANSWERPHONE OF FLORIDA, INC.
(D/B/A IOCOM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) NOTE RECEIVABLE
In 1995, the Company received a note as partial payment for the sale of
certain customer list assets to an unrelated party. The note is due in monthly
payments of $2,735, including interest at 10.25% through May 2001. The note is
secured by the assets associated with the sale.
(3) NOTE PAYABLE TO BANK
In 1996, the Company entered into a line of credit arrangement with a bank
in the amount of $50,000, payable on demand. The amount available under this
line of credit at June 30, 1998 is $50,000. Interest is payable monthly on the
outstanding balance at 9%. The loan is secured by substantially all of the
Company's assets with personal guarantees from the majority stockholders.
(4) LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1998:
<TABLE>
<S> <C>
Note payable to a bank, due in monthly payments of $3,388,
including interest at 9% through September 2001. The note
is secured by substantially all of the Company's assets
with personal guarantees from the majority stockholders... $114,207
Note payable to a bank, due in monthly payments of $1,430,
including interest at 9% through June 2002. The note is
secured by substantially all of the Company's assets with
personal guarantees from the majority stockholders........ 57,009
--------
171,216
Less: current portion..................................... (47,188)
--------
$124,028
========
</TABLE>
Scheduled maturities of long-term debt for the next four years subsequent
to June 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1999........................................................ $ 47,188
2000........................................................ 48,329
2001........................................................ 52,863
2002........................................................ 22,836
--------
$171,216
========
</TABLE>
(5) RELATED PARTY TRANSACTIONS
The Company leases its office space from a related party. The lease
requires the Company to provide insurance, repairs and maintenance, and taxes on
the leased property. The lease is renewable on an annual basis. Lease expense
was $61,150 for the year ended June 30, 1998.
F-83
<PAGE> 151
ANSWERPHONE OF FLORIDA, INC.
(D/B/A IOCOM)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) CONTINGENCY
As of October 30, 1998, the Company was involved in a dispute with a vendor
with respect to billings assessed in December 1997 amounting to approximately
$25,000. Management, through discussions with the vendor, believes this amount
will be settled with no liability to the Company. Accordingly, no liabilities
related to this matter have been recorded.
F-84
<PAGE> 152
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Operators Standing By, Inc.:
We have audited the accompanying balance sheet of Operators Standing By,
Inc. as of March 31, 1998, and the related statements of income, stockholder's
deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Operators Standing By, Inc.
as of March 31, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
As discussed in note 1(b), the Company's common stock was sold to an
unrelated party on June 5, 1998.
/s/ KPMG LLP
St. Petersburg, Florida
October 2, 1998
F-85
<PAGE> 153
OPERATORS STANDING BY, INC.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS (NOTES 2 AND 3)
Current assets:
Cash...................................................... $ 160,478
Receivables:
Trade, net of allowance for doubtful accounts of
$78,864............................................... 874,765
Other.................................................. 50,611
Prepaid expenses and other................................ 14,535
----------
Total current assets................................. 1,100,389
----------
Property and equipment (note 1):
Leasehold improvements.................................... 42,522
Furniture and fixtures.................................... 100,149
Telephone and office equipment............................ 900,503
----------
1,043,174
Less: accumulated depreciation............................ (789,618)
----------
Property and equipment, net.......................... 253,556
----------
Total assets......................................... $1,353,945
==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Note payable to bank (note 2)............................. $ 73,841
Current portion of long-term debt and capital lease
obligations (note 3)................................... 345,375
Accounts payable and accrued expenses..................... 676,839
Amounts payable to related party.......................... 21,619
----------
Total current liabilities............................ 1,117,674
Long-term debt and capital lease obligations, net of current
portion (note 3).......................................... 642,000
----------
Total liabilities.................................... 1,759,674
----------
Commitments (note 4)
Stockholder's deficit:
Common stock, $1 par value; 1,200 shares authorized; 120
shares issued and outstanding.......................... 120
Additional paid-in capital................................ 62,371
Retained earnings......................................... 96,265
----------
158,756
Less: treasury stock, at cost............................. (564,485)
----------
Total stockholder's deficit.......................... (405,729)
----------
Total liabilities and stockholder's deficit.......... $1,353,945
==========
</TABLE>
See accompanying notes to financial statements.
F-86
<PAGE> 154
OPERATORS STANDING BY, INC.
STATEMENT OF INCOME
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Revenue..................................................... $5,216,455
----------
Operating expenses:
Cost of services.......................................... 3,180,600
Selling, general and administrative expenses.............. 995,247
Depreciation.............................................. 155,630
----------
Total operating expenses............................... 4,331,477
----------
Income from operations................................. 884,978
Interest expense............................................ 124,916
----------
Net income............................................. $ 760,062
==========
</TABLE>
See accompanying notes to financial statements.
F-87
<PAGE> 155
OPERATORS STANDING BY, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
---------------- PAID-IN (ACCUMULATED TREASURY STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT) STOCK DEFICIT
------ ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997... 120 $120 62,371 (379,544) (564,485) (881,538)
Net income................ -- -- -- 760,062 -- 760,062
Distributions to
stockholder............ -- -- -- (284,253) -- (284,253)
--- ---- ------ -------- -------- --------
Balance at March 31, 1998... 120 $120 62,371 96,265 (564,485) (405,729)
=== ==== ====== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-88
<PAGE> 156
OPERATORS STANDING BY, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 760,062
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 155,630
Changes in operating assets and liabilities:
Increase in receivables, net......................... (643,991)
Decrease in amounts receivable from related party.... 29,072
Decrease in prepaid expenses and other............... 1,604
Increase in accounts payable and accrued expenses.... 225,445
Increase in amounts payable to related party......... 21,619
---------
Net cash provided by operating activities......... 549,441
---------
Cash flows from investing activity:
Payments on notes receivable.............................. 215,178
---------
Net cash provided by investing activity........... 215,178
---------
Cash flows from financing activities:
Proceeds from note payable to bank........................ 57,808
Repayments of long-term debt and capital lease
obligations............................................ (409,314)
Distributions to stockholder.............................. (284,253)
---------
Net cash used in financing activities............. (635,759)
---------
Net increase in cash.............................. 128,860
Cash at beginning of year................................... 31,618
---------
Cash at end of year......................................... $ 160,478
=========
Supplement disclosure of cash flow information:
Cash paid during the year for interest.................... $ 115,624
=========
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE> 157
OPERATORS STANDING BY, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Operators Standing By, Inc. (the "Company") operates as a communications
company, providing telemessaging and telemarketing services in addition to
providing administrative and support functions. The Company serves customers in
a variety of industries.
(b) Basis of Presentation
The Company's year-end is December 31. On June 5, 1998, the Company's
common stock was sold to an unrelated party. The accompanying financial
statements have been prepared as of and for the year ended March 31, 1998 as a
condition to the closing of the transaction.
(c) Concentration of Credit Risk
The financial instrument that potentially subjects the Company to
concentration of credit risk consists principally of trade receivables.
Concentration of credit risk is limited due to the large number of customers
dispersed throughout various industries in different geographic locations.
In addition, the Company maintains its cash balances in excess of
Federally-insured limits in one financial institution located in Sarasota,
Florida. Concentration of credit risk is considered by management to be limited
due to the quality of the financial institution.
(d) Revenue Recognition
Company services are generally invoiced to customers at the beginning of
the month for recurring fixed fee amounts and invoiced in arrears for the prior
month's excess usage fees. Revenue is recognized when the related service is
provided and monthly pre-bill amounts are deducted from trade receivables if not
earned.
(e) Property and Equipment
Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the present value of minimum lease payments.
Depreciation on property and equipment is computed using the straight-line
and double-declining balance methods. Property and equipment held under capital
leases and leasehold improvements are amortized straight-line over the shorter
of the lease term or estimated useful life of the asset.
(f) Income Taxes
The Company operates as a Subchapter S corporation under the Internal
Revenue Code. Under those provisions, the Company does not pay corporate income
taxes on its taxable income. Instead, the stockholders are liable for individual
income taxes on the Company's taxable income. Accordingly, these financial
statements do not contain a provision for income taxes.
(g) Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and revenues and expenses and the disclosure
of contingent assets and liabilities to prepare these
F-90
<PAGE> 158
OPERATORS STANDING BY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) NOTE PAYABLE TO BANK
In 1996, the Company entered into a line of credit arrangement with a bank
in the amount of $75,000, payable on demand. The amount available under this
line of credit at March 31, 1998 is $1,159. Interest is payable monthly on the
outstanding balance at 1.25% above the bank's prime lending rate. The bank's
prime lending rate at March 31, 1998 was 8.5%. The loan is secured by the
Company's tangible personal property with a personal guarantee from the
stockholder.
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following at
March 31, 1998:
<TABLE>
<S> <C>
Note payable to a bank, due in monthly payments of $10,000,
plus interest at 1.25% above the bank's prime lending rate
(8.5% at March 31, 1998) through June 1998. The note is
secured by the Company's tangible personal property with a
personal guarantee from the stockholder................... $ 30,100
Notes payable to former stockholders related to a common
stock repurchase, due in monthly payments of $19,789,
including interest at 9.5% through February 2001. The
notes are secured by the Company's tangible personal
property and are subordinate to the notes payable to
bank...................................................... 602,887
Capital lease obligations, payable in monthly payments
ranging from $128 to $8,823, including interest rates
ranging from 9.5% to 10.845%, maturing on various dates
through August 2001. The leases are secured by the leased
property with a personal guarantee from the stockholder... 354,388
---------
987,375
Less: current portion..................................... (345,375)
---------
$ 642,000
=========
</TABLE>
Scheduled maturities of long-term debt and capital lease obligations for
the next four years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
--------------------- --------
<S> <C>
1999........................................................ $345,375
2000........................................................ 304,425
2001........................................................ 295,715
2002........................................................ 41,860
--------
$987,375
========
</TABLE>
(4) LEASE COMMITMENTS
The Company has entered into various operating leases for office space and
vehicles which expire at various dates over the next four years. Lease expense
was $137,681 for the year ended March 31, 1998.
F-91
<PAGE> 159
OPERATORS STANDING BY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
--------------------- --------
<S> <C>
1999........................................................ $121,019
2000........................................................ 80,431
2001........................................................ 75,493
2002........................................................ 57,465
--------
$334,408
========
</TABLE>
(5) SIGNIFICANT CUSTOMER
Revenue earned from one significant and unrelated customer comprised
approximately 12% of total revenue for the year ended March 31, 1998.
F-92
<PAGE> 160
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sweet, Schatz & Lewis, Inc.:
We have audited the accompanying balance sheet of Sweet, Schatz & Lewis,
Inc., (d/b/a Total Availability Service, Inc.) as of March 31, 1998, and the
related statements of income, stockholders' deficit and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sweet, Schatz & Lewis, Inc.,
(d/b/a Total Availability Service, Inc.) as of March 31, 1998, and the results
of its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
As discussed in note 1(b), the Company's common stock was sold to an
unrelated party on June 5, 1998.
/s/ KPMG LLP
St. Petersburg, Florida
October 2, 1998
F-93
<PAGE> 161
SWEET, SCHATZ & LEWIS, INC.
(D/B/A TOTAL AVAILABILITY SERVICE, INC.)
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS (NOTE 2)
Current assets:
Cash...................................................... $ 20,620
Receivables:
Trade, net of allowance for doubtful accounts of
$16,012............................................... 78,574
Amounts receivable from related party.................. 21,619
Other.................................................. 5,819
Prepaid expenses and other................................ 3,113
---------
Total current assets................................. 129,745
---------
Property and equipment (note 1):
Furniture and fixtures.................................... 40,985
Telephone and office equipment............................ 302,098
---------
343,083
Less: accumulated depreciation............................ (316,668)
---------
Property and equipment, net.......................... 26,415
---------
Total assets......................................... $ 156,160
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt and capital lease
obligations (note 2)................................... 78,568
Accounts payable and accrued expenses..................... 114,949
---------
Total current liabilities............................ 193,517
Long-term debt and capital lease obligations, net of current
portion (note 2).......................................... 135,760
---------
Total liabilities.................................... 329,277
---------
Commitments (note 3)
Stockholders' deficit:
Common stock, $1 par value; 7,500 shares authorized;
140 shares issued and outstanding...................... 140
Additional paid-in capital................................ 108,744
Retained earnings......................................... 4,717
---------
113,601
Less: treasury stock, at cost............................. (286,718)
---------
Total stockholders' deficit.......................... (173,117)
---------
Total liabilities and stockholders' deficit.......... $ 156,160
=========
</TABLE>
See accompanying notes to financial statements.
F-94
<PAGE> 162
SWEET, SCHATZ & LEWIS, INC.
(D/B/A TOTAL AVAILABILITY SERVICE, INC.)
STATEMENT OF INCOME
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Revenue..................................................... $1,001,910
----------
Operating expenses:
Cost of services.......................................... 745,989
Selling, general and administrative expenses.............. 174,961
Depreciation.............................................. 24,077
----------
Total operating expenses............................... 945,027
----------
Income from operations................................. 56,883
Interest expense............................................ 28,332
----------
Net income............................................. $ 28,551
==========
</TABLE>
See accompanying notes to financial statements.
F-95
<PAGE> 163
SWEET, SCHATZ & LEWIS, INC.
(D/B/A TOTAL AVAILABILITY SERVICE, INC.)
STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
--------------- PAID-IN (ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) STOCK DEFICIT
------ ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997............ 132 $132 88,752 (23,834) (286,718) (221,668)
Issuance of common stock........... 8 8 19,992 -- -- 20,000
Net income......................... -- -- -- 28,551 -- 28,551
--- ---- ------- ------- -------- --------
Balance at March 31, 1998............ 140 $140 108,744 4,717 (286,718) (173,117)
=== ==== ======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-96
<PAGE> 164
SWEET, SCHATZ & LEWIS, INC.
(D/B/A TOTAL AVAILABILITY SERVICE, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 28,551
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 24,077
Loss on disposal of property and equipment............. 38,903
Changes in operating assets and liabilities:
Decrease in trade receivables, net................... 23,246
Increase in amounts receivable from related party.... (21,619)
Decrease in prepaid expenses and other............... 2,172
Increase in accounts payable and accrued expenses.... 31,435
Decrease in amounts payable to related party......... (29,072)
--------
Net cash provided by operating activities......... 97,693
--------
Cash flows from investing activity:
Purchases of property and equipment....................... (24,104)
--------
Net cash used in investing activity............... (24,104)
--------
Cash flows from financing activities:
Repayments of long-term debt and capital lease
obligations............................................ (72,969)
Issuance of common stock.................................. 20,000
--------
Net cash used in financing activities............. (52,969)
--------
Net increase in cash.............................. 20,620
Cash at beginning of year................................... --
--------
Cash at end of year......................................... $ 20,620
========
Supplement disclosure of cash flow information:
Cash paid during the year for interest.................... $ 31,215
========
</TABLE>
See accompanying notes to financial statements.
F-97
<PAGE> 165
SWEET, SCHATZ & LEWIS, INC.
(D/B/A TOTAL AVAILABILITY SERVICE, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Sweet, Schatz & Lewis, Inc. d/b/a Total Availability Service, Inc. (the
"Company") operates as a communications company, providing telemessaging and
telemarketing services in addition to providing administrative and support
functions. The Company serves customers in a variety of industries.
(b) Basis of Presentation
The Company's year-end is December 31. On June 5, 1998, the Company's
common stock was sold to an unrelated party. The accompanying financial
statements have been prepared as of and for the year ended March 31, 1998 as a
condition to the closing of the transaction.
(c) Concentration of Credit Risk
The financial instrument that potentially subjects the Company to
concentration of credit risk consists principally of trade receivables.
Concentration of credit risk is limited due to the large number of customers
dispersed throughout various industries in different geographic locations.
(d) Revenue Recognition
Company services are generally invoiced to customers at the beginning of
the month for recurring fixed fee amounts and invoiced in arrears for the prior
month's excess usage fees. Revenue is recognized when the related service is
provided and monthly pre-bill amounts are deducted from trade receivables if not
earned.
(e) Property and Equipment
The cost of the Company's furniture and fixtures, and telephone and office
equipment is being depreciated over the assets' estimated useful lives, using
straight-line and declining balance methods.
(f) Income Taxes
The Company operates as a Subchapter S corporation under the Internal
Revenue Code. Under those provisions, the Company does not pay corporate income
taxes on its taxable income. Instead, the stockholders are liable for individual
income taxes on the Company's taxable income. Accordingly, these financial
statements do not contain a provision for income taxes.
(g) Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and revenues and expenses and the disclosure
of contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-98
<PAGE> 166
SWEET, SCHATZ & LEWIS, INC.
(D/B/A TOTAL AVAILABILITY SERVICE, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following at
March 31, 1998:
<TABLE>
<S> <C>
Note payable to a bank, due in monthly payments of $5,000,
plus interest at 1.25% above the bank's prime lending rate
(8.5% at March 31, 1998) through July 2001. The note is
secured by the Company's tangible personal property with a
personal guarantee from a stockholder..................... $198,086
Capital lease obligations, payable in monthly payments
ranging from $418 to $766, including interest rates
ranging from 9.924% to 10.76%, maturing on various dates
through June 1999. The leases are secured by the leased
property with a personal guarantee from a stockholder..... 16,242
--------
214,328
Less: current portion..................................... (78,568)
--------
$135,760
========
</TABLE>
Aggregate maturities of long-term debt and capital lease obligations for
the next four years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
--------------------- --------
<S> <C>
1999........................................................ $ 78,568
2000........................................................ 62,674
2001........................................................ 60,000
2002........................................................ 13,086
--------
$214,328
========
</TABLE>
(3) LEASES
The Company has entered into various operating leases for office space
which expire at various dates through January 2004. Lease expense was $40,066
for the year ended March 31, 1998.
The future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
--------------------- --------
<S> <C>
1999........................................................ $ 39,530
2000........................................................ 24,515
2001........................................................ 23,150
2002........................................................ 23,150
2003........................................................ 23,150
Thereafter.................................................. 19,292
--------
$152,787
========
</TABLE>
F-99
<PAGE> 167
INDEPENDENT AUDITORS' REPORT
The Stockholders
Protocol Communications Services, Inc.:
We have audited the accompanying balance sheet of Protocol Communications
Services, Inc. as of March 31, 1998, and the related statements of income and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Protocol Communications
Services, Inc. as of March 31, 1998, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
In June 1998, all the assets and certain liabilities of the Company were
acquired by Protocol Communications, Inc. (see note 1b).
/s/ KPMG LLP
Boston, Massachusetts
September 18, 1998
F-100
<PAGE> 168
PROTOCOL COMMUNICATIONS SERVICES, INC.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS (NOTES 3 AND 4)
Current assets:
Cash and cash equivalents................................. $ 115,927
Trade accounts receivable, net of allowance for doubtful
accounts of $64,180.................................... 607,918
Accounts receivable, other................................ 42,588
Prepaid expenses.......................................... 21,866
----------
Total current assets................................... 788,299
Property and equipment, net (note 2)........................ 702,176
Intangible assets, net of accumulated amortization of
$49,019................................................... 188,732
Refundable deposits......................................... 2,595
----------
Total assets........................................... $1,681,802
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 4)................ $ 136,639
Accounts payable.......................................... 23,106
Accrued expenses.......................................... 126,520
Distributions payable to stockholders..................... 250,000
Other current liabilities................................. 61,445
----------
Total current liabilities.............................. 597,710
Long-term debt, net of current portion (note 4)............. 216,936
----------
Total liabilities...................................... 814,646
----------
Commitments and contingencies (notes 5 and 6)
Stockholders' equity:
Common stock, no par value, 2,500 shares authorized; 1,000
shares issued and outstanding.......................... 30,338
Retained earnings......................................... 836,818
----------
Total stockholders' equity............................. 867,156
----------
Total liabilities and stockholders' equity............. $1,681,802
==========
</TABLE>
See accompanying notes to financial statements.
F-101
<PAGE> 169
PROTOCOL COMMUNICATIONS SERVICES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Revenue:
Net fee and service revenue............................... $4,487,174
----------
Operating expenses:
Cost of services.......................................... 2,566,943
Selling, general and administrative....................... 1,054,396
Depreciation and amortization............................. 146,394
----------
Total operating expenses............................... 3,767,733
----------
Income from operations...................................... 719,441
----------
Other income (expense):
Finance charge income..................................... 17,425
Interest expense.......................................... (31,907)
----------
Total other income (expense)........................... (14,482)
----------
Net income............................................. 704,959
Retained earnings, beginning of year........................ 795,813
Distributions to stockholders............................. (663,954)
----------
Retained earnings, end of year.............................. $ 836,818
==========
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE> 170
PROTOCOL COMMUNICATIONS SERVICES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 704,959
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 146,394
Change in operating assets and liabilities:
Trade accounts receivable, net....................... 5,797
Accounts receivable, other........................... (8,915)
Prepaid expenses..................................... 5,858
Accounts payable..................................... (24,218)
Accrued expenses..................................... 9,987
Other current liabilities............................ 19,375
---------
Net cash provided by operating activities......... 859,237
---------
Cash flows used in investing activity:
Additions to property and equipment....................... (186,823)
---------
Net cash used in investing activity............... (186,823)
---------
Cash flows used in financing activities:
Repayment of long-term debt............................... (95,657)
Distributions to stockholders............................. (580,529)
---------
Net cash used in financing activities............. (676,186)
---------
Net decrease in cash and cash equivalents................... (3,772)
Cash and cash equivalents, beginning of year................ 119,699
---------
Cash and cash equivalents, end of year...................... $ 115,927
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest expense............ $ 31,935
=========
</TABLE>
See accompanying notes to financial statements.
F-103
<PAGE> 171
PROTOCOL COMMUNICATIONS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
Protocol Communications Services, Inc. (the "Company") operates as a
communications company, providing telemessaging and telemarketing services in
addition to providing administrative and support functions. The Company serves
customers in a variety of industries.
(b) Basis of Presentation
The Company's year-end is December 31. In June 1998, all of the assets and
certain liabilities of the Company were acquired by Protocol Holdings, Inc. for
cash and stock. The accompanying financial statements have been prepared as of
and for the year ended March 31, 1998 as a condition to the closing of the
transaction.
(c) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and revenues and expenses
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(d) Cash Equivalents
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
(e) Concentration of Credit Risk
The financial instrument that potentially subjects the Company to
concentration of credit risk consists principally of trade accounts receivables.
Concentration of credit risk is limited due to the large number of customers
dispersed throughout various industries in different geographic locations.
(f) Property and Equipment
Property and equipment is stated at cost and is being depreciated over the
assets' estimated useful lives, using straight-line and declining balance
methods.
(g) Intangible Assets
Intangible assets include goodwill recorded in connection with the
repurchase of the common stock of a majority stockholder of the Company in 1990.
The goodwill is being amortized over a period of 20 years on the straight-line
method (see note 6). At March 31, 1998, the unamortized balance of goodwill was
$185,731.
Intangible assets also include customer accounts, acquired through a
business merger in 1987, and long-term debt settlement costs incurred upon
refinancing of existing debt and acquisition of telephone equipment in March
1994. Amortization is based upon the straight-line method not to exceed five
years.
F-104
<PAGE> 172
PROTOCOL COMMUNICATIONS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) Long-lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed Of," the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If it is determined that the carrying amount of
an asset cannot be fully recovered, an impairment loss is recognized.
(i) Income Taxes
The Company operates as a Subchapter S corporation under the Internal
Revenue Code. Under those provisions, the Company does not pay corporate income
taxes on its taxable income. Instead, the stockholders are liable for individual
income taxes on the Company's taxable income. Accordingly, these financial
statements do not contain a provision for income taxes.
(j) Non-Monetary Transactions
The Company conducts certain transactions under various barter agreements,
whereby services are provided by the Company in exchange for the use of
services, namely for employee benefits, travel and entertainment, and office
expenses.
Revenue from bartered transactions amounted to $65,651 for the year ended
March 31, 1998. Services provided by the Company in excess of services used
amounted to $41,099 for the year ended March 31, 1998, which is reported in
accounts receivable, other.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 1998:
<TABLE>
<S> <C>
Telephone and office equipment.............................. $ 963,526
Leasehold improvements...................................... 152,443
Furniture and fixtures...................................... 77,123
Transportation equipment.................................... 35,783
----------
1,228,875
Less: accumulated depreciation and amortization............. (526,699)
----------
$ 702,176
==========
</TABLE>
(3) NOTE PAYABLE -- BANK
The Company has a line of credit arrangement with a bank in the amount of
$250,000, payable on demand. The amount available through March 31, 1998 is
$250,000. Interest is payable monthly on the outstanding balance at 1.0% above
the bank's prime lending rate. The bank's prime lending rate at March 31, 1998
was 8.5%. The loan is secured by the Company's tangible personal property with
personal guarantees from the stockholders. At March 31, 1998, there were no
outstanding borrowings under this arrangement.
F-105
<PAGE> 173
PROTOCOL COMMUNICATIONS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consists of the following at
March 31, 1998:
<TABLE>
<S> <C>
Note payable to a bank, consisting of 60 monthly payments in
the amount of $4,600, including interest at 9.31%, through
March 1999. The note is secured by all the Company's
assets, with personal guarantees from the stockholders.... $ 53,560
Note payable to a bank, consisting of 60 monthly payments in
the amount of $4,024, including interest at 9.41%, through
March 1999. The note is secured by the Company's telephone
equipment with personal guarantees from the stockholders.
The note agreement requires that the Company maintain or
meet certain financial covenants.......................... 46,838
Note payable to a finance company in 48 monthly payments in
the amount of $828, including interest at 9.5%, through
August 2001, secured by transportation equipment.......... 28,885
Note payable to a former stockholder, consisting of monthly
payments of $2,083, including interest at 7% (see note
6)........................................................ 191,450
Capital lease obligation, payable in 60 monthly payments in
the amount of $1,137, including interest at 14.79%,
through February 1999. The lease is secured by telephone
equipment................................................. 11,626
Capital lease obligation on power generating equipment
payable in 60 monthly payments in the amount of $946,
including interest at 16.45%, through May 2000. The lease
is guaranteed by a stockholder............................ 21,216
---------
Total long-term debt and capital lease obligations..... 353,575
Less: current portion....................................... (136,639)
---------
Long-term debt and capital lease obligations, net of
current portion....................................... $ 216,936
=========
</TABLE>
Scheduled maturities of long-term debt and capital lease obligations for
the next five years and thereafter is as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- ---------------------
<S> <C>
1999........................................................ $136,639
2000........................................................ 25,698
2001........................................................ 7,743
2002........................................................ 10,616
2003........................................................ 6,518
Thereafter.................................................. 166,361
--------
Total..................................................... $353,575
========
</TABLE>
(5) LEASE COMMITMENTS
The Company entered into a three-year operating lease for transportation
equipment in April 1997, with a minimum monthly payment of $699.
F-106
<PAGE> 174
PROTOCOL COMMUNICATIONS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- ---------------------
<S> <C>
1999........................................................ $ 8,388
2000........................................................ 8,388
2001........................................................ 699
-------
Total..................................................... $17,475
=======
</TABLE>
(6) PAYABLE TO FORMER STOCKHOLDER
On November 19, 1990, in connection with the repurchase of common stock by
the Company, the Company entered into an agreement with the former
employee/stockholder, whereby the former employee/stockholder is to receive
payments from the Company in the amount of $25,000 per year for a period of 10
years from the date of the agreement. In addition, the Company's obligation to
pay $25,000 per year is to remain fixed and unconditional thereafter in the
event the former employee/stockholder survives the ten-year period and to
continue until death or the death of the former employee/stockholder's survivor.
At the date of the repurchase of the common stock, the Company recorded the
actuarial present value of the future payments as goodwill.
(7) RETIREMENT PLAN
The Company maintains a 401(k) retirement plan covering substantially all
employees. Employees may annually contribute up to 10% of their respective
compensation. Employer contributions are made solely at the Company's discretion
and amounted to $6,268 for the year ended March 31, 1998.
(8) RELATED PARTY TRANSACTIONS
The Company's office facility is owned by the Company's two stockholders
and is leased under a tenant-at-will arrangement. In June 1998, the Company
entered into a lease agreement for a five-year term at $5,400 per month. Rent
expense was $70,200 for the year ended March 31, 1998. In addition, the Company
paid real estate taxes amounting to $6,523 for the year then ended.
F-107
<PAGE> 175
INDEPENDENT AUDITORS' REPORT
The Board of Directors
U.S. Telefactors Corporation:
We have audited the accompanying combined balance sheet of U.S. Telefactors
Corporation and Anivox Corporation (the "Company") as of December 31, 1997, and
the related combined statement of earnings, stockholders' equity, and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the U.S. Telefactors
Corporation and Anivox Corporation as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
February 8, 1999
F-108
<PAGE> 176
U.S. TELEFACTORS CORPORATION
COMBINED BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 2
Accounts receivable....................................... 548,265
Other current assets...................................... 3,167
----------
Total current assets................................... 551,434
Net property and equipment.................................. 434,658
Deferred taxes.............................................. 40,195
Deposits.................................................... 6,770
----------
Total assets........................................... $1,033,057
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit............................................ $ 238,563
Accounts payable.......................................... 62,764
Accrued expenses.......................................... 264,249
Income tax payable........................................ 35,010
Deferred income tax....................................... 109,219
Accrued payroll taxes..................................... 53,584
Current portion of long-term debt......................... 108,474
Current portion of capital lease obligations.............. 49,817
----------
Total current liabilities.............................. 921,680
Long-term debt, less current portion........................ 106,133
Capital lease obligations, less current portion............. 16,546
----------
Total liabilities...................................... 1,044,359
Redeemable preferred stock:
Class A preferred stock, par value of $1 per share:
authorized, issued and outstanding no shares, stated at
redemption value, $1 per share......................... --
Class B preferred stock, par value of $1 per share: 36,666
authorized 24,444 shares issued and outstanding, stated
at redemption value, $1 per share...................... 24,444
Class C preferred stock, par value $1 per share:
authorized, issued and outstanding 40,000 shares,
stated at redemption value, $1 per share............... 40,000
Class D preferred stock, par value $1 per share:
authorized 73,334 shares; issued and outstanding 61,112
shares, stated at redemption value, $1 per share....... 61,112
Class E preferred stock, par value of $1 per share:
authorized, issued and outstanding 20,000 shares,
stated at redemption value, $1 per share............... 20,000
Class F preferred stock, par value $1 per share:
authorized 75,000 shares; no shares issued and
outstanding, stated at redemption value, $1 per
share.................................................. --
----------
Total redeemable preferred stock....................... 145,556
----------
Stockholders' deficit:
Common stock of no par value: authorized 300,000 shares;
issued and outstanding 1,000 shares.................... --
Additional paid-in capital................................ 52,782
Accumulated deficit....................................... (209,640)
----------
Total stockholders' deficit............................ (156,858)
----------
$1,033,057
==========
</TABLE>
See accompanying notes to combined financial statements.
F-109
<PAGE> 177
U.S. TELEFACTORS CORPORATION
COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Service revenues............................................ $3,737,939
Operating expenses:
Cost of services.......................................... 2,115,712
Selling, general, and administrative expenses............. 1,046,795
Depreciation and amortization............................. 197,175
----------
Operating income....................................... 378,257
Other (income) expense:
Interest income........................................... (4,100)
Interest expense.......................................... 77,836
Other, net................................................ 45,213
----------
Net income before income taxes......................... 259,308
Income taxes................................................ 83,151
----------
Net income............................................. $ 176,157
==========
</TABLE>
See accompanying notes to combined financial statements.
F-110
<PAGE> 178
U.S. TELEFACTORS CORPORATION
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
DESCRIPTION STOCK CAPITAL DEFICIT DEFICIT
- ----------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................. $ -- 52,782 (368,038) (315,256)
Dividends paid to preferred shareholders..... -- -- (17,759) (17,759)
Net income................................... -- -- 176,157 176,157
-------- ------ -------- --------
Balance at December 31, 1997................. $ -- 52,782 (209,640) (156,858)
======== ====== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-111
<PAGE> 179
U.S. TELEFACTORS CORPORATION
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 176,157
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 197,175
Deferred taxes......................................... 36,391
Loss from disposition of fixed assets.................. 5,262
Changes in assets and liabilities:
Accounts receivable.................................. (46,212)
Other current assets................................. 3,829
Accounts payable..................................... (85,895)
Accrued expenses..................................... 75,956
Income tax payable................................... 35,010
Accrued payroll taxes................................ 12,554
---------
Net cash provided by operating activities......... 410,227
---------
Cash flows from investing activities -- purchases of
property and equipment.................................... (176,066)
---------
Net cash used in investing activities............. (176,066)
---------
Cash flows from financing activities:
Decrease in line of credit................................ (383)
Repayment of notes payable................................ (107,034)
Payments of capital lease obligations..................... (109,257)
Dividends paid to preferred shareholders.................. (17,759)
---------
Net cash used in financing activities............. (234,433)
---------
Decrease in cash.................................. (272)
Cash at beginning of period................................. 274
---------
Cash at end of period....................................... $ 2
=========
Supplemental disclosures of cash flow information -- cash
paid during the period for interest on:
Bank loan................................................. $ 37,807
Capital leases............................................ 40,029
---------
Total cash paid for interest...................... $ 77,836
=========
Supplemental disclosures of noncash activities:
Assets acquired through capital lease transactions........ $ 8,045
Issuance of notes in consideration for assets acquired.... 60,000
=========
</TABLE>
See accompanying notes to combined financial statements.
F-112
<PAGE> 180
U.S. TELEFACTORS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business/Nature of Operations
U.S. Telefactors Corporation (the Company) is engaged in the business of
providing telephone answering and marketing services for businesses,
individuals, and the governmental entities in the Chicago, Illinois metropolitan
area. A substantial portion of the revenues and assets reflected in the combined
financial statements results from services performed in this industry and
region.
Anivox Corporation, a controlled entity, is engaged in research and
development activities related to the Company's operations.
(b) Principles of Combination
The combined financial statements include the financial statements of U.S.
Telefactors Inc. and Anivox Corporation, a controlled entity. All significant
intercompany balances and transactions have been eliminated in combination.
(c) Fair Value of Financial Instruments
Financial instruments include cash, accounts receivable, deposits, accounts
payable, accrued expenses, accrued payroll taxes, long-term debt and lease
obligations. The fair value of financial instruments was not materially
different from their carrying values at December 31, 1997.
(d) Property and Equipment
Property and equipment are stated at historical cost. Leasehold
improvements are capitalized and amortized over the lease term or useful life,
whichever is shorter. The Company provides for depreciation and amortization
using various applicable depreciation methods over the following estimated
useful lives:
<TABLE>
<CAPTION>
ESTIMATED
CLASS OF ASSETS USEFUL LIFE (YEARS)
- --------------- -------------------
<S> <C>
Telephone and computer equipment............................ 5
Office furniture and equipment.............................. 5-10
Software.................................................... 5
Leasehold improvements...................................... Lease term
==========
</TABLE>
(e) Revenue Recognition
Revenue is recognized when services are provided to customers.
(f) Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period of enactment.
F-113
<PAGE> 181
U.S. TELEFACTORS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
The Company has historically filed its Federal and state income tax returns
using the cash basis method of accounting.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities in connection with the preparation of these
combined financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Telephone and computer equipment............................ $ 893,090
Office furniture and equipment.............................. 139,788
Software.................................................... 81,466
Leasehold improvements...................................... 124,114
----------
1,238,458
Less accumulated depreciation............................... 803,800
----------
Net property and equipment................................ $ 434,658
==========
</TABLE>
(3) NOTES PAYABLE TO BANK
Long-term debt
Long-term debt is comprised of the following at December 31, 1997:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Note payable to bank due in September 1999, payable in
monthly installments of $1,954, with interest at 10.5% per
annum, secured by the assets of the Company............... $ 34,759
Note payable to bank due in February 2000, payable in
monthly installments of $4,492, with interest at 10.5% per
annum, secured by the assets of the Company............... 100,570
Note payable to bank due in September 1998, payable in
monthly installments of $1,593, with interest at 8.0% per
annum, secured by specific equipment...................... 10,912
Note payable to bank due in June 1999, payable in monthly
installments of $1,250, with interest at 10.9% per annum,
secured by specific equipment............................. 20,200
Note payable to bank due in April 1999, payable in monthly
installments of $1,995, with interest at 10.5% per annum,
secured by specific equipment............................. 48,166
--------
214,607
Less -- current maturities.................................. 108,474
--------
Total long-term debt...................................... $106,133
========
</TABLE>
Total long-term debt maturities in 1998, 1999, and 2000 are $108,474,
$95,767, and $10,366, respectively.
F-114
<PAGE> 182
U.S. TELEFACTORS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
The Company maintains a $300,000 revolving credit facility that expires on
February 5, 1998. Interest is variable based on the prime lending rate plus two
percent, which amounted to 10.25% at December 31, 1997. The conditions precedent
to a borrowing under the facility include minimum cash balances and compliance
with net worth and interest coverage covenants. The amounts outstanding at
December 31, 1997 was $238,563.
The Company held a note at December 31, 1996, bearing interest in the
amount of $24,663 payable to the investors of Anivox Corporation, its wholly
owned subsidiary as of December 31, 1997, the balance of which was paid in 1997.
(4) REDEEMABLE PREFERRED STOCK
The Company has the following series of redeemable preferred stock
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
SERIES
---------------------------------------------------------------------------
A B C D E F
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Authorized shares....... 36,666 36,666 40,000 73,334 20,000 75,000
Issued and outstanding
shares................ -- 24,444 40,000 61,112 20,000 --
Dividend rate (per
annum)................ 11.50% 11.50% 14.00% 11.50% 11.00% 9.00%
Redemption rate......... Full value Full value Full value Full value Full value Full value
========== ========== ========== ========== ========== ==========
</TABLE>
Each of the above classes of preferred stock is due to mature on July 1,
1998.
(5) RELATED-PARTY TRANSACTIONS
During 1997, the Company reported $7,986 in consulting expenses that were
paid to a majority shareholder of the Company.
Dividends were paid to the Company's investors on the outstanding preferred
stock at the above rate and amounted to $17,759 in 1997.
(6) COMMITMENTS AND CONTINGENCIES
Capital Leases
The Company is obligated under various capital leases for equipment that
expires at various dates through December 31, 2000. Amortization of assets held
under capital leases is included with depreciation expense. The obligations have
been discounted to reflect implicit interest rates ranging from 5% to 28%.
Operating Leases
The Company leases its facilities under a non-cancelable lease agreement
that expires on February 29, 2000. Related rental expenses were $85,991 for the
year ended December 31, 1997. The Company leases various equipment under
non-cancelable lease agreements that expire at various dates through March 2000.
F-115
<PAGE> 183
U.S. TELEFACTORS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
Future minimum lease payments under capital leases and non-cancelable
operating leases (with initial or remaining lease terms in excess of one year)
as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
- ----------------------- -------- ---------
<S> <C> <C>
1998........................................................ $ 55,142 75,202
1999........................................................ 18,682 77,491
2000........................................................ 12,451 12,979
-------- --------
Total minimum lease payments.............................. 86,275 165,672
========
Less amount representing interest........................... (19,912)
--------
Present value of minimum lease payments................... 66,363
Less current portion of capital lease obligations........... (49,817)
--------
Long-term portion of capital lease obligations............ $ 16,546
========
</TABLE>
(7) INCOME TAXES
The provision for income tax expense from operations for the year ended
December 31, 1997 is as follows
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Current:
U.S. Federal.............................................. $35,341
State and local........................................... 10,017
-------
Total current.......................................... 45,358
-------
Deferred:
U.S. Federal.............................................. 29,975
State and local........................................... 7,818
-------
Total deferred......................................... 37,793
-------
Provision for income tax expense....................... $83,151
=======
</TABLE>
The differences between the federal statutory and effective tax rates for
the year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Expected tax expense........................................ $ 82,167
State income taxes, net of federal benefit.................. 10,846
Nondeductible meals and entertainment....................... 3,360
Effect of graduated rates................................... (11,750)
Other....................................................... (1,472)
--------
Effective tax rate........................................ $ 83,151
========
</TABLE>
F-116
<PAGE> 184
U.S. TELEFACTORS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 are presented below:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Deferred tax assets:
Property and equipment.................................... $ 13,965
Intangible assets......................................... 26,230
Net operating loss........................................ 11,299
---------
Total gross deferred tax assets........................ 51,494
Less valuation allowance.................................... 11,299
---------
Net deferred tax asset................................. 40,195
Deferred tax liabilities -- accrual to cash differences..... (109,219)
---------
Net deferred taxes..................................... $ (69,024)
=========
</TABLE>
The Company recorded a deferred tax asset valuation allowance equal to the
net operating loss created by Anivox Corporation, a controlled entity which is
engaged in research and development. The valuation allowance of $11,299 reduces
deferred tax assets to reflect the estimated amount of deferred tax assets that
will more than likely not be realized in future periods. Realization of deferred
tax assets is dependent upon the generation of future taxable income.
(8) RISK FACTORS
The Company derived a significant portion of its revenue and cash receipts
from two significant customers who comprised 33% and 16% of the Company's sales
in 1997. The Company's ability to maintain and expand its current levels of
revenues and cash flows from these sources could be materially and adversely
affected by changes within the industries in which these companies operate, as
well as changes in the national economy.
(9) SUBSEQUENT EVENT -- SALE OF COMPANY
On June 5, 1998, Protocol Communications, Inc. acquired all of the
Company's outstanding common and preferred stock.
F-117
<PAGE> 185
LOGO
<PAGE> 186
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses, other than underwriting commissions, expected to be incurred
by the Company in connection with the issuance and distribution of the
securities being registered under this Registration Statement are estimated to
be as follows:
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Securities and Exchange Commission Registration Fee......... $
National Association of Securities Dealers, Inc. Filing
Fee.......................................................
Nasdaq National Market Filing Fee...........................
Printing and Engraving......................................
Legal Fees and Expenses.....................................
Accounting Fees and Expenses................................
Transfer Agent Fees.........................................
Miscellaneous...............................................
Total.................................................. $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law ("DGCL"), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that the Company may
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 (other than
an action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, agent or employee of the Company or is or
was serving at the Company's request as a director, officer, agent or employee
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgment, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the Company as well
but only to the extent of defense expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and reasonably incurred and not
to any satisfaction of judgment or settlement of the claim itself, and with the
further limitation that in such actions no indemnification shall be made in the
event of any adjudication of negligence or misconduct in the performance of his
duties to the Company, unless the court believes that in light of all the
circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to such
actions be entered in the books containing the minutes of the meetings of the
board of directors at the time such action occurred or immediately after such
absent director receives notice of the unlawful acts.
II-1
<PAGE> 187
The Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to the Company or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the DGCL regarding unlawful dividends and stock
purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
The Company's Amended and Restated Bylaws provide that:
- the Company must indemnify its directors and officers to the fullest
extent permitted by Delaware law;
- the Company may indemnify its other employees and agents to the same
extent that it indemnified its officers and directors, unless otherwise
determined by its Board of Directors; and
- the Company must advance expenses, as incurred, to its directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by Delaware law.
The indemnification provisions contained in the Company's Certificate of
Incorporation and By-laws are not exclusive of any other rights to which a
person may be entitled by law, agreement, vote of stockholders or disinterested
directors or otherwise. In addition, the Company maintains insurance on behalf
of its directors and executive directors or officers insuring them against any
liability asserted against them in their capacities as directors or officers or
arising out of such status.
The Company has also purchased insurance for its directors and officers for
certain losses arising from claims or charges made against them in their
capacities as directors and officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Company has sold shares of its capital
stock in the following transactions that were not registered under the
Securities Act of 1933, as amended.
- Since its inception, the Company has granted to officers, members of
management, employees and others options to purchase an aggregate of
1,199,500 shares of the Company's common stock at an average exercise
price of $6.05 per share.
- In June 1998, the Company issued 814,500 shares of its common stock and
90,500 shares of its Class B common stock to four of its executive
officers and 550,000 shares of its common stock to three of its then
current directors.
- In June 1998, the Company issued 6,113,929 shares of its Series A
preferred stock and warrants to purchase 348,677 shares of its Series A
preferred stock and a warrant to purchase 100,000 shares of its common
stock to a group of investors for an aggregate purchase price of
$9,300,000.
- In June 1998, the Company issued an aggregate of 667,500 shares of its
common stock in connection with three acquisitions.
- In July 1998, the Company issued 50,000 shares of its common stock in
connection with an acquisition.
- In November 1998, the Company issued an aggregate of 150,000 shares of
its common stock in connection with two acquisitions.
- In November 1998, the Company issued 50,000 shares of its common stock to
an employee in consideration of services rendered.
II-2
<PAGE> 188
- In December 1998, the Company issued 300,000 shares of its common stock
in connection with an acquisition.
- In January 1999, the Company issued 435,000 shares of its common stock to
a group of its stockholders, including four executive officers and three
then current directors.
- In February 1999, the Company issued 100,000 shares of its common stock
to three of its then current directors.
- In February 1999, the Company issued an aggregate of 231,000 shares of
its common stock in connection with two acquisitions.
- In April 1999, the Company issued 75,000 shares of its common stock in
connection with an acquisition.
- In May 1999, the Company issued 150,000 shares of its common stock in
connection with an acquisition.
- In October 1999, the Company issued 6,250 shares of its common stock to
an employee pursuant to his employment agreement.
- In November 1999, the Company issued 119,963 shares of its mandatorily
redeemable Series AB preferred stock to a group of stockholders for an
aggregate purchase price of $947,707. These shares were redeemed upon
consummation of the recapitalization.
- In December 1999, the Company issued 10,693,634 shares of its Series B
preferred stock to a group of investors for an aggregate purchase price
of approximately $81,000,000.
- In March 2000, the Company issued an aggregate of 200,000 shares of its
common stock in connection with three acquisitions.
The Company used the net proceeds of the stock sales for working capital
and other general corporate purposes, including corporate acquisitions, and
repayment of indebtedness.
The sales of the securities listed above were deemed to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) of such Act or, with respect to issuance to employees, Rule 701
promulgated under Section 3(b) of such Act as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation. The recipients of securities in
each transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof. Appropriate legends were affixed to the instruments
representing such securities issued in such transactions. All recipients had
adequate access, through their relationships or agreements with the Company, to
information about us.
II-3
<PAGE> 189
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Stock Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Corporation, Teleservices Holdings
Corporation, Operators Standing By, Inc. and Jerry D. Lewis.
2.2** Stock Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Corporation, Sweet, Schatz & Lewis,
Inc. and Jerry D. Lewis, James E. Carla, II and Daniel L.
Sullivan.
2.3** Asset Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Sub 1 Inc., Teleservices Holdings
Corporation, Protocol Communications Services, Inc. and
David Dearborn and Francis Quinn.
2.4** Stock Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Corporation, Teleservices Holdings
Corporation, U.S. Telefactors Corporation and Andrew M. Knee
and John H. and Carol C. Turner.
2.5** Asset Purchase Agreement dated July 2, 1998, by and between
Protocol Acquisition Sub 1, Inc., Protocol Holdings, Inc.,
Answerphone of Florida, Inc. d/b/a IOCOM and Judith M.
Molitor, as trustee of the Amended and Restated Judith M.
Molitor Family Trust, Donald N. Molitor, as trustee of the
Amended and Restated Donald N. Molitor Family Trust, and D.
Scott Molitor.
2.6** Asset Purchase Agreement dated November 2, 1998, by and
between Anserphone, Inc., Protocol Holdings, Inc.,
Anserphone of New Orleans, Inc. and Charles F. Read, Jr. and
C. Baldwin Read.
2.7** Asset Purchase Agreement dated November 2, 1998, by and
between Anserphone, Inc., Anserphone Systems, Inc. (the
"Seller") and the stockholders of the Seller listed on the
signature pages thereto.
2.8** Stock Purchase Agreement dated October 30, 1998, by and
between Protocol Communications, Inc., Protocol Holdings,
Inc., Strategic Alternatives Inc. d/b/a Strategic
Alternatives Inc. of Florida and Joseph Post.
2.9** Amendment to Stock Purchase Agreement, dated October 30,
1998, between Protocol Communications, Inc., Protocol
Holdings, Inc., Strategic Alternatives, Inc. d/b/a Strategic
Alternatives, Inc. of Florida and Joseph Post.
2.10** Asset Purchase Agreement dated November 6, 1998, by and
between Quick Response, Inc., Quick Response LLC and
Christopher R. Zentgraf, John J. Zentgraf, Robert J.
Lieblein, Jordan J. Kreiner, April S. Reeser, Elmer A. Barry
and Dorsey M. Lombardo.
2.11** Asset Purchase Agreement dated December 15, 1998, by and
between Scribers, Inc., The Scribers, Inc. (the "Seller")
and the stockholders of the Seller set forth on the
signature page thereto.
2.12** Stock Purchase Agreement dated March 28, 1999, by and
between Protocol Holdings, Inc., Protocol Communications,
Inc., 3223574 Canada, Inc. (the "Company"), Media Express,
Inc., METC Financial Services, Inc., and the stockholders of
the Company listed on the signature pages thereto.
2.13 Amendment to Stock Purchase Agreement made May 21, 1999, by
and between Protocol Holdings, Inc., Protocol
Communications, Inc., 3223574 Canada, Inc. (the "Company"),
Media Express, Inc., METC Financial Services Inc. and the
stockholders of the Company listed on the signature pages
thereto.
3.1 Restated Certificate of Incorporation of Teleservices
Holdings Corporation dated June 8, 1998.
</TABLE>
II-4
<PAGE> 190
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
3.2 Certificate of Amendment of Certificate of Incorporation of
Teleservices Holdings Corporation, dated July 13, 1998.
3.3 Certificate of Amendment to Certificate of Incorporation of
Protocol Holdings, Inc., dated October 25, 1999.
3.4 Certificate of Designation, Preferences and Rights of Series
AB Preferred Stock of Protocol Holdings, Inc., dated October
25, 1999.
3.5 Certificate of Amendment of Certificate to Incorporation of
Protocol Holdings, Inc., dated November 29, 1999.
3.6 Certificate of Amendment of Certificate of Incorporation of
Protocol Holdings, dated April 5, 2000.
3.7 Bylaws of Teleservices Holding Corporation.
4.1 Recapitalization Agreement among Protocol Holdings, Inc. and
The Several Participants Named in Schedule I thereto, and
The Several Parties specified as "Original Stockholders" on
the Signature Pages thereof and each Addendum thereto, dated
as of September 29, 1999.
4.2 Registration Rights Agreement dated December 1, 1999.
4.3 Stockholders Agreement dated as of December 1, 1999 by and
among Protocol Holdings, Inc., the Several Persons named in
Schedule I thereto, and the Several Persons Named in
Schedule II thereto.
5.1* Opinion of Legality of Chadbourne & Parke LLP.
10.1 Third Amended and Restated Credit Agreement dated as of
November 30, 1999.
10.2* AT&T Contract Tariff Order Form, dated March 23, 1999,
between Protocol Communications, Inc. and AT&T Corp.
10.3* AT&T Contract Tariff Order Form, dated November 12, 1999,
between Protocol Communications, Inc. and AT&T Corp.
10.4 Teleservices Holdings Corporation 1998 Stock Plan.
10.5 Protocol Holdings, Inc. 1999 Stock Option Plan.
10.6 Protocol Holdings, Inc. 2000 Stock Option Plan (As Amended
and Restated April 13, 2000).
10.7 Executive Cash Compensation Program -- Base Plan 2000.
10.8 Executive Cash Compensation Program -- Acquisition Plan
2000.
10.9 Amended and Restated Employment Agreement, dated September
29, 1999, by and between Protocol Holdings, Inc. and Stephen
G. McLean.
10.10 Amended and Restated Employment Agreement, dated September
29, 1999, by and between Protocol Holdings, Inc. and Raymond
P. Wilson.
10.11 Amended and Restated Employment Agreement, dated September
29, 1999, by and between Protocol Holdings, Inc. and Kevin
N. Blayne.
10.12 Employment Agreement, dated March 1, 2000, between Protocol
Communications, Inc. and Deborah Zonies.
21.1 Subsidiaries of Protocol Communications, Inc.
23.1 Consent of Chadbourne & Parke LLP (included in opinion filed
as Exhibit 5.1).
23.2 Consent of KPMG LLP regarding Protocol Communications, Inc.
23.3 Consent of KPMG LLP regarding Answerphone of Florida, Inc.
23.4 Consent of KPMG LLP regarding Anserphone of New Orleans,
Inc. and Anserve, Inc.
23.5 Consent of KPMG LLP regarding Operators Standing By, Inc.
23.6 Consent of KPMG LLP regarding Protocol Communications
Services, Inc.
</TABLE>
II-5
<PAGE> 191
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
23.7 Consent of KPMG LLP regarding Quick Response LLC
23.8 Consent of KPMG LLP regarding The Scribers, Inc.
23.9 Consent of KPMG LLP regarding Strategic Alternatives, Inc.
23.10 Consent of KPMG LLP regarding Sweet Schatz & Lewis, Inc.
23.11 Consent of KPMG LLP regarding U.S. Telefactors Corporation
and Anivox Corporation
23.12 Consent of Boisjoli, Sabbah, Sabbag, Ziri, Malka regarding
3223574 Canada Inc.
24.1 Power of Attorney (included on the signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential Treatment is being requested with respect to portions of these
agreements.
(b) Financial Statement Schedule.
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
S-1 Schedule II -- Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 17th day of April, 2000.
PROTOCOL COMMUNICATIONS, INC.
By: /s/ STEPHEN G. MCLEAN
------------------------------------------------------------------------------
Name: Stephen G. McLean
Title: Director, President
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Protocol Communications, Inc.
(the "Company") and each of us, do hereby constitute and appoint Stephen G.
McLean, Raymond P. Wilson and Deborah Zonies, or each of them, our true and
lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution, to do any and all acts and things in our names and on our behalf
in our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated above, which
said attorneys or agents, or either of them, may deem necessary or advisable to
enable the Company to comply with the Securities Act of 1933, as amended, and
any rules, regulations and requirements of the Securities and Exchange
Commission, and any and all amendments (including post-effective amendments) to
this Registration Statement, in connection with the public offering of the
common stock of the Company, including specifically but without limitation,
power and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments) to
such Registration Statement; and we do hereby ratify and confirm all that the
said attorneys and agents, or their substitute or substitutes, or either of
them, shall do or cause to be done by virtue hereof.
II-7
<PAGE> 193
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ STEPHEN G. MCLEAN Director, President and Chief April 17, 2000
- ------------------------------------ Executive Officer
Stephen G. McLean
/s/ RAYMOND P. WILSON Chief Financial Officer April 17, 2000
- ------------------------------------
Raymond P. Wilson
/s/ KEVIN N. BLAYNE Chief Marketing Officer April 17, 2000
- ------------------------------------
Kevin N. Blayne
/s/ DEBORAH ZONIES Vice President, Business Affairs and April 17, 2000
- ------------------------------------ General Counsel
Deborah Zonies
/s/ ROBERT J. CONRADS Director April 17, 2000
- ------------------------------------
Robert J. Conrads
/s/ ROBERT C. FROETSCHER Director April 17, 2000
- ------------------------------------
Robert C. Froetscher
/s/ J. BARTON GOODWIN Director April 17, 2000
- ------------------------------------
J. Barton Goodwin
/s/ AVY H. STEIN Director April 17, 2000
- ------------------------------------
Avy H. Stein
/s/ PETER O. WILDE, JR. Director April 17, 2000
- ------------------------------------
Peter O. Wilde, Jr.
</TABLE>
II-8
<PAGE> 194
SCHEDULE II
PROTOCOL COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (JUNE 5, 1998)
TO DECEMBER 31, 1998 AND FOR THE
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ALLOWANCE AT ADDITIONS
BALANCES AT DATE OF CHARGED TO
BEGINNING BUSINESS COSTS AND BALANCE AT
DESCRIPTION OF PERIOD ACQUISITIONS EXPENSES DEDUCTIONS END OF PERIOD
- ----------- ----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
For the period from inception (June 5,
1998) to December 31, 1998.......... $ -- $451 $ 17 $-- $ 468
Year ended December 31, 1999........... 468 433 352 42 1,211
</TABLE>
S-1
<PAGE> 195
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Stock Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Corporation, Teleservices Holdings
Corporation, Operators Standing By, Inc. and Jerry D. Lewis.
2.2** Stock Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Corporation, Sweet, Schatz & Lewis,
Inc. and Jerry D. Lewis, James E. Carla, II and Daniel L.
Sullivan.
2.3** Asset Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Sub 1 Inc., Teleservices Holdings
Corporation, Protocol Communications Services, Inc. and
David Dearborn and Francis Quinn.
2.4** Stock Purchase Agreement dated June 5, 1998, by and between
Teleservices Acquisition Corporation, Teleservices Holdings
Corporation, U.S. Telefactors Corporation and Andrew M. Knee
and John H. and Carol C. Turner.
2.5** Asset Purchase Agreement dated July 2, 1998, by and between
Protocol Acquisition Sub 1, Inc., Protocol Holdings, Inc.,
Answerphone of Florida, Inc. d/b/a IOCOM and Judith M.
Molitor, as trustee of the Amended and Restated Judith M.
Molitor Family Trust, Donald N. Molitor, as trustee of the
Amended and Restated Donald N. Molitor Family Trust, and D.
Scott Molitor.
2.6** Asset Purchase Agreement dated November 2, 1998, by and
between Anserphone, Inc., Protocol Holdings, Inc.,
Anserphone of New Orleans, Inc. and Charles F. Read, Jr. and
C. Baldwin Read.
2.7** Asset Purchase Agreement dated November 2, 1998, by and
between Anserphone, Inc., Anserphone Systems, Inc. (the
"Seller") and the stockholders of the Seller listed on the
signature pages thereto.
2.8** Stock Purchase Agreement dated October 30, 1998, by and
between Protocol Communications, Inc., Protocol Holdings,
Inc., Strategic Alternatives Inc. d/b/a Strategic
Alternatives Inc. of Florida and Joseph Post.
2.9** Amendment to Stock Purchase Agreement, dated October 30,
1998, between Protocol Communications, Inc., Protocol
Holdings, Inc., Strategic Alternatives, Inc. d/b/a Strategic
Alternatives, Inc. of Florida and Joseph Post.
2.10** Asset Purchase Agreement dated November 6, 1998, by and
between Quick Response, Inc., Quick Response LLC and
Christopher R. Zentgraf, John J. Zentgraf, Robert J.
Lieblein, Jordan J. Kreiner, April S. Reeser, Elmer A. Barry
and Dorsey M. Lombardo.
2.11** Asset Purchase Agreement dated December 15, 1998, by and
between Scribers, Inc., The Scribers, Inc. (the "Seller")
and the stockholders of the Seller set forth on the
signature page thereto.
2.12** Stock Purchase Agreement dated March 28, 1999, by and
between Protocol Holdings, Inc., Protocol Communications,
Inc., 3223574 Canada, Inc. (the "Company"), Media Express,
Inc., METC Financial Services, Inc., and the stockholders of
the Company listed on the signature pages thereto.
2.13 Amendment to Stock Purchase Agreement made May 21, 1999, by
and between Protocol Holdings, Inc., Protocol
Communications, Inc., 3223574 Canada, Inc. (the "Company"),
Media Express, Inc., METC Financial Services Inc. and the
stockholders of the Company listed on the signature pages
thereto.
3.1 Restated Certificate of Incorporation of Teleservices
Holdings Corporation dated June 8, 1998.
</TABLE>
<PAGE> 196
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
3.2 Certificate of Amendment of Certificate of Incorporation of
Teleservices Holdings Corporation, dated July 13, 1998.
3.3 Certificate of Amendment to Certificate of Incorporation of
Protocol Holdings, Inc., dated October 25, 1999.
3.4 Certificate of Designation, Preferences and Rights of Series
AB Preferred Stock of Protocol Holdings, Inc., dated October
25, 1999.
3.5 Certificate of Amendment of Certificate to Incorporation of
Protocol Holdings, Inc., dated November 29, 1999.
3.6 Certificate of Amendment of Certificate of Incorporation of
Protocol Holdings, dated April 5, 2000.
3.7 Bylaws of Teleservices Holding Corporation.
4.1 Recapitalization Agreement among Protocol Holdings, Inc. and
The Several Participants Named in Schedule I thereto, and
The Several Parties specified as "Original Stockholders" on
the Signature Pages thereof and each Addendum thereto, dated
as of September 29, 1999.
4.2 Registration Rights Agreement dated December 1, 1999.
4.3 Stockholders Agreement dated as of December 1, 1999 by and
among Protocol Holdings, Inc., the Several Persons named in
Schedule I thereto, and the Several Persons Named in
Schedule II thereto.
5.1* Opinion of Legality of Chadbourne & Parke LLP.
10.1 Third Amended and Restated Credit Agreement dated as of
November 30, 1999.
10.2* AT&T Contract Tariff Order Form, dated March 23, 1999,
between Protocol Communications, Inc. and AT&T Corp.
10.3* AT&T Contract Tariff Order Form, dated November 12, 1999,
between Protocol Communications, Inc. and AT&T Corp.
10.4 Teleservices Holdings Corporation 1998 Stock Plan.
10.5 Protocol Holdings, Inc. 1999 Stock Option Plan.
10.6 Protocol Holdings, Inc. 2000 Stock Option Plan (As Amended
and Restated April 13, 2000).
10.7 Executive Cash Compensation Program -- Base Plan 2000.
10.8 Executive Cash Compensation Program -- Acquisition Plan
2000.
10.9 Amended and Restated Employment Agreement, dated September
29, 1999, by and between Protocol Holdings, Inc. and Stephen
G. McLean.
10.10 Amended and Restated Employment Agreement, dated September
29, 1999, by and between Protocol Holdings, Inc. and Raymond
P. Wilson.
10.11 Amended and Restated Employment Agreement, dated September
29, 1999, by and between Protocol Holdings, Inc. and Kevin
N. Blayne.
10.12 Employment Agreement, dated March 1, 2000, between Protocol
Communications, Inc. and Deborah Zonies.
21.1 Subsidiaries of Protocol Communications, Inc.
23.1 Consent of Chadbourne & Parke LLP (included in opinion filed
as Exhibit 5.1).
23.2 Consent of KPMG LLP regarding Protocol Communications, Inc.
23.3 Consent of KPMG LLP regarding Answerphone of Florida, Inc.
23.4 Consent of KPMG LLP regarding Anserphone of New Orleans,
Inc. and Anserve, Inc.
23.5 Consent of KPMG LLP regarding Operators Standing By, Inc.
23.6 Consent of KPMG LLP regarding Protocol Communications
Services, Inc.
</TABLE>
<PAGE> 197
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
23.7 Consent of KPMG LLP regarding Quick Response LLC
23.8 Consent of KPMG LLP regarding The Scribers, Inc.
23.9 Consent of KPMG LLP regarding Strategic Alternatives, Inc.
23.10 Consent of KPMG LLP regarding Sweet Schatz & Lewis, Inc.
23.11 Consent of KPMG LLP regarding U.S. Telefactors Corporation
and Anivox Corporation, Inc.
23.12 Consent of Boisjoli, Sabbah, Sabbag, Ziri, Malka regarding
3223574 Canada Inc.
24.1 Power of Attorney (included on the signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential Treatment is being requested with respect to portions of these
agreements.
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made this
5th day of June, 1998, by and between TELESERVICES ACQUISITION CORPORATION, a
Delaware corporation ("Buyer"), TELESERVICES HOLDINGS CORPORATION, a Delaware
corporation and holder of all the issued and outstanding capital stock of Buyer
("Parent"), OPERATORS STANDING BY, INC., a Florida corporation ("OSB"), and
Jerry D. Lewis (the "Seller").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, OSB is principally engaged in the business of
supplying telemarketing services and is the end user and subscriber for certain
toll free telephone numbers listed on Schedule 2.1(q) hereto (the "Toll Free
Telephone Numbers");
WHEREAS, the Seller is presently the owner of all of the
issued and outstanding capital stock of the "OSB Stock"; and
WHEREAS, the Seller desires to sell his shares of OSB Stock to
Buyer and Buyer desires to purchase all of the OSB Stock from the Seller, all in
the manner and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION
1.1 STOCK PURCHASE. On the terms and subject to the conditions
of this Agreement, on the Closing Date (as hereinafter defined), the Seller
shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall
purchase and acquire from the Seller, all right, title and interest of the
Seller, legal or equitable, in and to the shares of OSB Stock. The certificates
evidencing the OSB Stock shall be delivered at the Closing (as hereinafter
defined) to Buyer, free and clear of all liens, claims, security interests and
encumbrances, accompanied by duly executed stock powers (endorsed in blank, with
signatures guaranteed) and any necessary stock transfer tax stamps affixed
thereto.
1.2 PURCHASE PRICE. (a) As the purchase price for all of the
OSB Stock (the "Purchase Price"), (i) Buyer shall pay to the Seller an aggregate
sum, subject to adjustment as provided in Section 1.4 below, of [*****] in cash
(the "Cash Purchase Price") and (ii) Buyer shall cause Parent to issue [******]
shares of Common Stock of Parent (the "Parent Common Stock") which shall be
equal to [****] of outstanding after completion of Phase I and Phase II
Acquisitions, the further transfer of which shall be restricted under the
Securities Act of 1933, as amended (the "Securities Act") and as provided under
Section 2.2(e) hereof. For purposes
- -------------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
hereof, (i) "Phase I Acquisition" shall mean the acquisition by Buyer of the
businesses of Operators Standing By, Inc., Sweet, Schatz and Lewis, Inc., U.S.
Telefactors Corporation and Protocol Communications Services, Inc. and "Phase II
Acquisitions" shall mean the acquisition by Buyer or its Affiliates of
businesses comparable in revenue and earnings, in the aggregate, to the Phase I
Acquisitions and which acquisitions shall occur on or before March 31, 1999.
(b) The Cash Purchase Price shall be payable in cash at Closing by
wire transfer of immediately available funds as follows: (i) [******] to an
account of the Seller designated in writing by him and (ii) [*******] to the
account of Williams, Parker, Harrison, Dietz & Getzen Trust Account, as escrow
agent ("Escrow Agent") designated in the escrow agreement annexed hereto as
Exhibit A (as the same may be amended from time to time, the "Escrow
Agreement"), to be held and disbursed by the Escrow Agent pursuant to the terms
thereof.
(c) Certificates representing the shares of Parent Common Stock shall
be delivered to the Seller at Closing.
1.3 CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of O'Melveny and
Meyers, Buyer's Lender's counsel, in New York City, at 10:00 A.M., June 5, 1998,
or at such other place and/or on such other date and time as shall be agreed
upon by Buyer and the Seller (the "Closing Date").
1.4 PURCHASE PRICE ADJUSTMENT.
(a) Within one hundred twenty (120) days after Closing, Buyer, at its
expense, shall cause KPMG Peat Marwick LLP to deliver to the Seller audited
balance sheets and related statements of income, retained earnings and cash
flows for each of OSB and Sweet, Schatz & Lewis, Inc., a Florida corporation
("SS&L"); for their respective 12-month periods ended March 31, 1998 (the
"Financial Statements") all of which financial statements shall be prepared in
accordance with generally accepted accounting principles ("GAAP") and the rules
and regulations of the Securities Exchange Commission applicable to financial
reporting of public companies.
(b) The Seller shall have forty-five (45) days from delivery of the
Financial Statements to raise any objection thereto by delivery of written
notice to Buyer setting forth such objections in reasonable detail. In the event
that the Seller shall fail to so deliver such written objections with respect to
any of the Financial Statements within such 45-day period, then any such
Financial Statements in respect of which no such objection is so delivered shall
be deemed final and binding on the parties. In the event that any such
objections are so delivered, Buyer and the Seller shall attempt, in good faith,
to resolve such objections and, if unable to do so within fifteen (15) days of
delivery of such objections, shall, within five (5) business days thereafter
designate a nationally recognized firm of independent public accountants,
mutually satisfactory to Buyer and the Seller (the "Independent Accountants").
In the event that Buyer and the Seller are unable to agree on the Independent
Accountants within such 5-business day period, the Independent Accountants shall
be designated jointly by the independent accountants of Buyer and OSB within
three (3) business days thereafter. The Independent Accountants shall resolve
all remaining objections to the Financial Statements made by the Seller in
accordance herewith within forty-five (45) days from their date of designation.
The determination of the
2
<PAGE> 3
Independent Accountants shall be final and binding on the parties. The fees and
expenses of the Independent Accountants shall be borne by the Seller, unless the
determination of the Independent Accountants shall result in an aggregate net
Adjustment Amount (as defined below) exceeding [********].
(c) The Cash Purchase Price shall be adjusted in each of the following
instances, based on the Financial Statements, as finally determined in
accordance herewith, by the amounts ("Adjustment Amounts") determined as
follows:
(i) in the event that on March 31, 1998, outstanding Funded Debt
(as defined below) shall exceed [******], the Cash Purchase Price shall be
reduced by an amount equal to such excess; and
(ii) in the event that [****] shall exceed 12-Month EBITDA (as
defined below) by more than [*****] (e.g. [***]), the Cash Purchase Price shall
be reduced by an amount equal to [****] for each $1.00 of such excess (rounded
down to the nearest whole dollar).
Adjustment Amounts determined pursuant to this Section 1.4(c) shall not exceed
$[******] in the aggregate, unless the Seller shall have provided information to
Buyer in connection herewith, or made representations or warranties hereunder,
regarding the financial condition or business of OSB and/or SS&L which, in
either case, the Seller knew or should have known were inaccurate or misleading,
or omitted facts necessary to make them not misleading, in which event the Cash
Purchase Price shall be reduced by the entire Adjustment Amounts as though no
such limitation applied. Within three (3) business days of the final
determinations of the applicable Financial Statements, the Seller shall pay to
Buyer (whether or not the sum of such Adjustment Amounts shall exceed the Cash
Purchase Price) each Adjustment Amount by wire transfer of immediately available
funds to an account designated by Buyer in writing to the Seller.
(d) For purposes hereof, (i) "Funded Debt" shall mean the aggregate
indebtedness of OSB and SS&L for borrowed money outstanding on March 31, 1998
(including, without limitation, capitalized lease obligations), exclusive of (A)
cash in the bank accounts listed on Schedule 2.1(s) hereto as of March 31, 1998
and (B) indebtedness incurred under the revolving credit facilities referred to
in Schedule 2.1(v) hereto and in Schedule 2.1(v) to the Stock Purchase Agreement
dated the date hereof among, Buyer, the Seller, SS&L and other stockholders of
SS&L, but only to the extent incurred in order to fund OSB's working capital
requirements, and (ii) "12-Month EBITDA" shall mean the combined earnings of OSB
and SS&L for the 12-month period ended March 31, 1998, before deduction for
interest, taxes, depreciation and amortization, in each case determined in
accordance with GAAP on an accrual basis and before deduction of [********] in
non-recurring charges mutually agreed to by Buyer and the Seller (the
"Non-Recurring Charges") and as set forth on the Financial Statements.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF OSB AND THE SELLER. OSB and the
Seller hereby,
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jointly and severally, represent and warrant to, and covenant and agree with,
Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. OSB is a corporation duly
organized, validly existing and in good standing and authorized to exercise its
corporate powers, rights and privileges under the laws of the State of Florida
with full corporate power and authority to own, lease and operate its properties
and to carry on its business as presently conducted by it. Schedule 2.1(a)
hereto sets forth all states and other jurisdictions in which OSB is duly
qualified and in good standing to do business as a foreign corporation. There
are no other states or jurisdictions in which the character and location of the
properties owned or leased by it, or the conduct of its business makes such
qualification necessary, except to the extent that failure to do so would not
have a material adverse effect on the financial condition, business or
operations of OSB. Copies of OSB's Articles of Incorporation and all amendments
thereto, and of OSB's By-Laws, as amended to date, are attached to Schedule
2.1(a) and are complete and correct. OSB's minute books contain complete and
accurate records of all meetings and other corporate actions, including, without
limitation, actions by unanimous written consent of the Seller and board of
directors of OSB (including all committees of its board of directors).
(b) CAPITALIZATION. The authorized capital stock of OSB consists of
1,200 shares of Common Stock, par value $1.00 per share, of which 120 shares are
issued and outstanding and are owned by the Seller. All issued shares of OSB
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. All prior offerings and sales of OSB Stock have been made in
accordance with all Federal and state securities laws. There are no outstanding
obligations, options, warrants, rights, calls, commitments, conversion rights,
plans or other agreements of any character to which OSB is a party or otherwise
bound which provide for the purchase or issuance by OSB of any authorized but
not outstanding, or authorized and outstanding shares of capital stock of OSB.
There is no personal liability attached to the OSB Stock. No person has any
preemptive or similar rights in respect of any securities of OSB.
(c) AUTHORITY. The execution and delivery by OSB and the Seller of
this Agreement and all of the agreements, schedules, exhibits, documents and
instruments specifically provided for hereunder to be executed and/or delivered
by any or all of them (all of the foregoing, including this Agreement, being
hereinafter sometimes collectively referred to as the "Executed Agreements"),
the performance by OSB and the Seller (to the extent that they are parties
thereto) of their respective obligations under the Executed Agreements, and the
consummation of the transactions contemplated by the Executed Agreements, have
been duly and validly authorized by all necessary corporate action on the part
of OSB and by the Seller, and OSB has all necessary corporate power with respect
thereto. The Executed Agreements are, or when executed and delivered by the
delivering parties shall be, the valid and binding obligations of the delivering
parties, enforceable in accordance with their respective terms, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws and, as to the availability of equitable remedies,
subject to general principles of equity and the discretion of the court having
jurisdiction thereof. Except as set forth on Schedule 2.1(c) hereto, neither the
execution and delivery by OSB and the Seller (to the extent that they are
parties thereto) of the Executed Agreements, nor the consummation of the
transactions contemplated thereby, nor the performance by OSB and the Seller (to
the extent that they are parties thereto) of their respective obligations under
the Executed Agreements, shall (nor with the giving of notice or the lapse of
time or both would) (i) conflict with or result in a breach of any provision of
the Articles of Incorporation or By-Laws of OSB, (ii) give rise to a default, or
any right of termination,
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cancellation or acceleration, or otherwise result in a loss of contractual
benefits to OSB, under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which OSB or the Seller is a party or by which it or any of its properties or
assets may be bound, (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to OSB or the Seller or any of their
respective properties or assets, (iv) result in the creation or imposition of
any lien, claim, restriction, charge or encumbrance upon any of the properties
or assets of OSB, or (v) interfere with or otherwise materially and adversely
affect the ability of OSB to carry on its business as now conducted.
(d) INTERESTS IN OTHER ENTITIES. Except as set forth in Schedule
2.1(d) hereto, OSB does not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation or entity, (ii) have any ownership interest, direct or indirect, of
record or beneficially, in any entity, or (iii) have any obligation, direct or
indirect, present or contingent, to purchase or subscribe for any interest in,
advance or loan monies to, or in any way make investments in, any person or
entity, or to share any profits or capital investments in other persons or
entities, or both.
(e) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. Except as set
forth in Schedule 2.1(e) hereto, no approval, consent, compliance, exemption,
authorization or other action by, or notice to or filing with, any governmental
authority or any other entity, and no lapse of a waiting period, is necessary or
required to be obtained by OSB or the Seller in connection with the execution,
delivery or performance by any of them, of this Agreement, any of the Executed
Agreements or the transactions contemplated hereby.
(f) PROJECTIONS. OSB has delivered to Buyer a set of projections (the
"Projections"), a copy of which its attached hereto as Schedule 2.1(f), which
the Seller has been advised are material to Buyer in its decision to enter into
this Agreement and purchase the OSB Stock hereunder. The Projections are based
on the best estimates of OSB and the Seller derived from reasonable expectations
at the time the Projections were made, and OSB and the Seller believe that Buyer
is justified in relying thereon, there being, however, no guarantee of the
achievement of the Projections.
(g) FINANCIAL STATEMENTS; MINIMUM NET WORTH.
(i) OSB has delivered to Buyer true and complete copies of its
unaudited balance sheets as of December 31, 1996, and related statements of
income, retained earnings and cash flows for the period then ending (the "1996
Financial Statements"), true and complete copies of its unaudited balance sheets
as of December 31, 1997, and related statements of income, retained earnings and
cash flows for the period then ending (the "1997 Financial Statements") and true
and complete copies of its unaudited balance sheet as of March 31, 1998 (the
"Interim Balance Sheet"), and related statements of income, retained earnings
and cash flows for the period then ending (collectively, with the Interim
Balance Sheet, the "Interim Financial Statements"). All of such financial
statements, including any notes thereto, were prepared on the basis set forth in
Schedule 2.1(g), applied on a consistent basis throughout the periods involved
subject, in respect of the Interim Financial Statements, to normal year-end
audit adjustments, none of which are material (except as may be otherwise
expressly stated in said financial statements and notes thereto or in Schedule
2.1(g) hereto) and such financial statements
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fairly present the financial position of OSB at the dates thereof and the
results of its operations for the periods as indicated. The books and records of
OSB are in all material respects complete and correct, have been maintained in
accordance with good business practices, and accurately reflect the basis for
the financial condition and results of operations of OSB as set forth in the
financial statements referred to herein.
(ii) As of March 31, 1998, OSB and SS&L shall have had a Net
Worth equal to or greater than [******] . For purposes hereof, "Net Worth" shall
mean the excess of (A) the combined total assets of OSB and SS&L as of March 31,
1998 over (B) the combined total liabilities of OSB and SS&L as of March 31,
1998 in each case, determined in accordance with GAAP.
(iii) The Non-Recurring Charges represent obligations actually
incurred or paid by OSB or SS&L.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. OSB does not have any
liabilities, commitments or obligations, whether accrued, absolute, contingent
or otherwise which have not been (i) in the case of liabilities, commitments and
obligations of a type customarily reflected on the corporate balance sheet of
OSB, reflected on the Interim Balance Sheet, incurred, consistent with past
practice, in the ordinary course of business since the date of the Interim
Balance Sheet and which are not material either individually or in the aggregate
or (ii) in the case of all other types of liabilities and obligations, described
in Schedule 2.1(h) hereto.
(i) ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Schedule 2.1(i) hereto, since December 31, 1997, OSB has not:
(i) suffered any material adverse change in its working capital,
condition (financial or otherwise), assets, liabilities, business, operations or
prospects;
(ii) incurred any material liabilities or obligations except
items incurred in the ordinary course of business and consistent with past
practice, none of which exceeds $50,000 (counting obligations or liabilities
arising from one transaction or a series or similar transactions, and all
periodic installments or payments under any lease or other agreement providing
for periodic installments or payments, as a single obligation or liability), or
experienced any increase in, or change in any assumption underlying or methods
of calculating, any bad debt, contingency or other reserves;
(iii) paid, discharged or satisfied any claim, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities and obligations reflected or reserved against in
the Interim Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the date of the Interim Balance Sheet;
(iv) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind;
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(v) written off as uncollectible any notes or accounts
receivable, except for write-offs in the ordinary course of business and
consistent with past practice, none of which are material;
(vi) canceled any debts or waived any claims or rights of
substantial value, or sold, transferred, or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(vii) disposed of or permitted to lapse any rights to use any
Toll Free Telephone Number listed on Schedule 2.1(q) hereof, patent, trademark,
trade name or copyright, or disposed of or disclosed (except as necessary in the
conduct of its business) to any person any trade secret, formula, process or
know-how;
(viii) granted any general increase in the compensation of
officers or employees (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee, and,
unless otherwise set forth in Schedule 2.1(i), no such increase is customary on
a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or commitment in excess
of $10,000 for additions to property, plant, equipment or intangible assets or
made aggregate capital expenditures and commitments in excess of $50,000 (on a
consolidated basis), for additions to property, plant, equipment or intangible
assets;
(x) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock;
(xi) made any change in any method of accounting or accounting
practice;
(xii) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of its officers, directors, debtholders, stockholders or employees or any
"affiliate" or "associate" of any of its officers, directors, noteholders,
stockholders or employees (as such terms are defined in Rule 405 promulgated
under the Securities Act and as used herein "Associate" and "Affiliate"), except
for compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended December 31, 1997;
(xiii) paid any amount in respect of indebtedness for borrowed
money except for regularly scheduled payments of principal and interest in
accordance with the terms thereof; or
(xiv) agreed, whether in writing or otherwise, to take any action
described in this Section unless such action is specifically excepted from this
Section or described in Schedule 2.1(i).
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(j) TAX MATTERS. Except as set forth in Schedule 2.1(j) hereto, OSB
has filed with the appropriate governmental agencies all Federal, state, local
or foreign tax returns and reports required to be filed by it ("Returns"), has
paid in full or made adequate provision for the payment of, all taxes of every
nature, including, but not limited to, income, sales, franchise and withholding
taxes ("Taxes"), together with interest, penalties, assessments and deficiencies
owed by it (whether or not shown on any Returns), and all such Returns were
correct and complete in all respects. OSB is not currently the beneficiary of
any extension of time within which to file any Returns. The Seller has
previously provided Buyer with true and complete copies of all such Returns
filed within the past 5 years. The provisions for income and other Taxes
reflected on the Interim Balance Sheet are adequate for all accrued and unpaid
taxes of OSB as of the date of the Interim Balance Sheet, whether (i) incurred
in respect of or measured by income of OSB for any periods prior to the close of
business on that date, or (ii) arising out of transactions entered into, or any
state of facts existing, on or prior to that date. The provision for Taxes
reflected on the books of account of OSB is adequate for all Taxes of said
entity which accrued since the date of the Interim Balance Sheet. There are no
filed or other known tax liens upon any property or assets of OSB. OSB has not
waived any statute of limitations in respect of Taxes or executed or filed with
any governmental authority any agreement extending the period for the assessment
or collection of any Taxes, and it is not a party to any pending or, to OSB's or
the Seller's best knowledge, threatened action or proceeding by any governmental
authority for the assessment or collection of Taxes. To the best knowledge of
OSB and the Seller, no issue has arisen in any examination of OSB by any
governmental authority that if raised with respect to any other period not so
examined would, if upheld, result in a material deficiency for any other period
not so examined. There is no unresolved written claim by a governmental
authority in any jurisdiction where OSB does not file Returns that OSB is or may
be subject to taxation by such jurisdiction. There has been no examination or
audit with respect to Taxes with respect to any year. OSB is not required to
make any adjustment pursuant to Section 481 of the Internal Revenue Code of
1986, as amended (the "Code"), by reason of a change in accounting method or
otherwise and, to the best knowledge of OSB and the Seller, neither the Internal
Revenue Service nor any other governmental authority has proposed any such
adjustment or change in accounting method in respect of OSB, which proposal is
currently pending and OSB does not have an application pending with any
governmental authority requesting permission for any change in accounting method
that relates to its business and/or operations. OSB 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, stockholder or other
third party. OSB is a "small business corporation" within the meaning of Section
1361(b) of the Code and expects to continue to qualify as a small business
corporation within the meaning of such Section at all times until the Closing
Date. Except as set forth in Schedule 2.1(j) hereto, OSB does not have liability
or any potential or deferred liability for Taxes under Section 1371(d)(2),
Section 1374 or Section 1375 of the Code. OSB has never filed any consolidated,
combined or unitary Return for any period ending on or prior to the Closing
Date.
(k) LITIGATION. Except as set forth in Schedule 2.1(k) hereto, there
are no suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending, or to the best knowledge of OSB and the
Seller, threatened against or affecting, or which may affect, OSB or any of its
properties, assets or businesses or the transactions contemplated hereby. To the
best knowledge of OSB and the Seller, there are no outstanding judgments,
orders, stipulations, injunctions, decrees or awards against OSB which are not
satisfied.
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(l) COMPLIANCE WITH APPLICABLE LAW. OSB is, and at all times since its
formation has been in compliance in all material respects with all Federal,
state, local and foreign laws, statutes, ordinances, regulations, and
administrative rulings (collectively "Laws"), promulgated by any governmental or
regulatory authority applicable to OSB or to the conduct of the business or
operations of OSB or to the use of its properties and assets, including, without
limitation, all environmental Laws and all Laws relating to the Toll Free
Telephone Numbers. OSB has not received, and does not know of the issuance or
threatened issuance of, any notices of violation or alleged violation of any
laws by OSB. Neither OSB nor the Seller know of any pending or proposed
legislation applicable to OSB or to the conduct of business or operations of OSB
which, if enacted, could have a material adverse effect on the business, results
of operations, financial position or prospects of OSB or the value of its
properties or assets.
(m) PERMITS. A list of all permits, approvals, licenses, certificates,
franchises, authorizations, consents and orders ("Permits") necessary to the
operation of the business of OSB in the manner in which it is presently
conducted is set forth on Schedule 2.1(m) hereto. All such Permits are valid and
remain in full force and effect. OSB has not engaged in any activity which would
cause revocation or suspension of any such Permits and no action or proceeding
looking to or contemplating the revocation or suspension of any thereof is
pending or threatened. No additional Permits will be required to permit OSB to
continue its business substantially in the manner it is presently conducted
after the consummation of the transactions contemplated hereby.
(n) TITLE TO PROPERTIES. OSB does not own any real property. Except as
set forth in Schedule 2.1(n) hereto, OSB has good title to all of the properties
and assets (personal and mixed, tangible and intangible) reflected on the
Interim Balance Sheet or thereafter acquired or which it purports to own (except
properties or assets sold or otherwise disposed of in the ordinary course of
business consistent with past practice subsequent to the date of the Interim
Balance Sheet which in the aggregate did not have a book value in excess of
$50,000), free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except those referred to in the Interim
Balance Sheet. Schedule 2.1(n) also contains an accurate list setting forth all
(i) real property leased (whether as lessor or lessee) or subject to contract or
commitment of purchase or sale or lease (whether as lessor or lessee) by OSB and
(ii) significant personal property leased by or to OSB or subject to a title
retention or conditional sales agreement or other security device. All leases
listed in Schedule 2.1(n) are valid, binding and enforceable in accordance with
their terms, and are in full force and effect, except to the extent that
enforceability may be limited by the operation of bankruptcy, insolvency or
similar laws and, as to the availability of equitable remedies, subject to the
general principles of equity and the discretion of the court having jurisdiction
thereof; to the best of the Seller's knowledge there are no existing material
defaults by OSB thereunder; no material event of default has occurred which
(whether with or without notice, lapse of time or both) would constitute a
material default by OSB thereunder; and all lessors under such leases have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification of
the rights and obligations of OSB under such leases.
(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the Interim Balance
Sheet are good and collectible in the ordinary course of business at the
aggregate recorded
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amounts thereof, less the amount written off consistent with past practice as
set forth in Schedule 2.1(o) hereto, and are not subject to any offsets. The
accounts receivable of OSB which were thereafter added are good and collectible
in the ordinary course of business at the aggregate amounts recorded on the
books of account, less the amount written off consistent with past practice, and
are not subject to any offsets.
(ii) Schedule 2.1(o) hereto contains a complete and accurate list
of all items of machinery, equipment and other fixed assets of OSB (the
"Equipment") having a book value in excess of $100. To the best of the Seller's
knowledge, each such item of Equipment is in good operating condition, normal
wear and tear excepted, and is fit for its intended use. To the best of the
Seller's knowledge, each such item has been maintained, in all material
respects, in accordance with its manufacturer's recommended maintenance practice
and with prudent business practice and no such maintenance has been deferred.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto lists all licenses,
patents, copyrights, or trademarks owned or used by OSB in the conduct of its
business and all applications therefor (the "Intellectual Property"). No officer
or director, stockholder or employee of OSB nor any of their Affiliates or
Associates has any ownership or other interest in any of the Intellectual
Property. To the best knowledge of OSB and the Seller, none of the Intellectual
Property is being infringed upon by, or infringes, any licenses, patents,
copyrights, trademarks or other intellectual property rights of any other person
or entity. Except as set forth in Schedule 2.1(p), the validity of the
Intellectual Property and the title thereto of OSB have not been questioned in
any litigation or governmental inquiry or proceeding to which OSB, is a party,
and, to the best knowledge of OSB and the Seller, no such litigation,
governmental inquiry or proceeding is threatened. The conduct of the business of
OSB as presently conducted does not conflict with valid licenses, trademarks,
trademark rights, trade names, trade name rights, service marks or patents of
others in any way likely to affect adversely, in any material respect, the
Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q) hereto sets forth a
complete list of all Toll Free Telephone Numbers owned or used by OSB in the
conduct of its business. No officer or director, stockholder or employee of OSB
nor any of their Affiliates or Associates has any ownership or other interest in
the Toll Free Telephone Numbers. OSB has not warehoused, brokered or hoarded (as
those terms are defined in the Second Report and Order and Further Notice of
Proposed Rulemaking in CC Docket No. 95-155, Released April 11, 1997, by the
Federal Communications Commission ("FCC")) any of the Toll Free Telephone
Numbers in violation of any applicable FCC rules or regulations.
(r) INSURANCE. Schedule 2.1(r) hereto contains a complete and correct
list and copies of all policies of insurance in which OSB or its officers or
directors (in such capacity) is an insured party, beneficiary or loss payable
payee. Such policies are in full force and effect and in the reasonable judgment
of OSB and the Seller provide the type and amount of coverage reasonably
required for the business of OSB.
(s) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 2.1(s) hereto
contains a complete and correct list showing (i) the name of each bank in which
OSB has an account or safe deposit box and the names of all persons authorized
to draw thereon or have access thereto, and (ii) the names of all persons, if
any, holding powers of attorney from OSB.
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(t) EMPLOYEE ARRANGEMENTS; ERISA. OSB has (i) no union, collective
bargaining, employment, management, severance or consulting agreements to which
OSB is a party or is otherwise bound, and (ii) no compensation plans, bonus
plans, deferred compensation agreements, pension and retirement plans,
profit-sharing plans, stock purchase and stock option plans. Schedule 2.1(t)
hereto contains a complete and correct list and copies of OSB's hospitalization,
insurance plans or arrangements providing for benefits for employees of OSB.
Such Schedule also lists the names and compensation of all persons employed by
OSB. OSB has no employee benefits plans established or maintained by OSB which
are qualified for Federal income tax exemption under Sections 401 and 501 of the
Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in Schedule 2.1(u)
hereto (i) OSB is not a party to or bound by any distributorship, dealership,
sales agency, franchise or similar agreement which relates to the sale,
distribution or servicing of the Toll Free Telephone Numbers or services related
thereto, (ii) OSB does not have any sole-source supplier of significant goods or
services (other than utilities) with respect to which practical alternative
sources are not available on comparable terms and conditions, (iii) there are
not pending and, to OSB's and the Seller's best knowledge there are not
threatened, any labor negotiations involving or affecting OSB and, to OSB's and
the Seller's best knowledge, no organizing activities involving union
representation exist in respect of any of its employees, (iv) OSB neither gives
nor is bound by any express warranties relating to its services and, to the best
knowledge of OSB and the Seller, there has been no assertion of any breach of
warranties which could have a material adverse effect on the business or
condition (financial or otherwise) of OSB and, to the best knowledge of OSB and
the Seller, there are no known claims or complaints by a client representing at
least five (5%) percent of the revenue of OSB with respect to any product sold
or services provided by OSB, (v) OSB is not a party to or bound by any agreement
which limits its freedom to compete in any line of business or with any person
or entity, and (vi) OSB is not a party to or bound by any agreement or involved
in any transaction in which any officer, director, debtholder or stockholder, or
any Affiliate or Associate of any such person has, or had when made, a direct or
indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a complete and correct
list of any and all material contracts, commitments, obligations and
undertakings, written or oral, to which OSB is a party or otherwise bound, other
than contracts, commitments, obligations and undertakings with customers of OSB
producing less than $40,000 in revenue per year. True and complete copies of all
written contracts, commitments, obligations and undertakings set forth in
Schedule 2.1(v) hereto have been furnished to Buyer, and except as expressly
stated in Schedule 2.1(v), each of them is in full force and effect, no person
or entity which is a party thereto or otherwise bound thereby is, to the best
knowledge of OSB and the Seller, in material default thereunder, and no event,
occurrence, condition or act exists which, with the giving of notice or the
lapse of time or both, would give rise to a default or right of cancellation
thereunder, and OSB is not in material default thereunder and no event,
occurrence, condition or act exists by or on behalf of OSB which, with the
giving of notice or the lapse of time or both would give rise to a material
default by OSB thereunder, and to OSB's and the Seller's best knowledge, there
have been no threatened cancellations thereof and there are no outstanding
disputes thereunder. To the best of OSB's and the Seller's knowledge there is no
reason why any the contracts listed on Schedule 2.1(v), could not be continued
between Buyer and OSB's contractual partners on the same terms and conditions as
currently apply. Neither OSB nor the Seller has any reason to
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believe that any of OSB's contractual partners will terminate its relationship
with OSB as a result of the acquisition of OSB by Buyer.
(w) BROKERS. No agent, broker, person or firm acting on behalf of OSB
or the Seller or under the authority of any of the foregoing, is or shall be
entitled to a brokerage commission, finder's fee, or other like payment in
connection with any of the transactions contemplated hereby, from OSB or the
Seller.
(x) DISCLOSURE. No representation or warranty made by OSB or the
Seller herein or in any of the Executed Agreements contains any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make the statements therein not misleading.
(y) AFFILIATED TRANSACTIONS. Except as set forth in Schedule 2.1(y)
hereto, the Seller (i) is not a party to any agreement, transaction or
arrangement (oral or written) with or involving OSB or any Associate or
Affiliate of OSB, or (ii) has no claim, monetary or otherwise, of any sort
against OSB.
(z) CLAIMS AGAINST OSB. Except as set forth in Schedule 2.1(z) hereto,
OSB has no debts, obligations or liabilities owing to the Seller and, to the
best knowledge of OSB, nothing exists that could give rise to a claim by the
Seller of any such debts, obligation or liability of OSB to the Seller.
(aa) DISCLOSURE SCHEDULES. All schedules to this Agreement are
integral parts to this Agreement. Nothing in a schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein, unless the
schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail. The Seller is responsible for preparing
and arranging the schedules corresponding to the lettered and numbered
paragraphs contained herein.
2.2 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and
warrants to, and covenants and agrees with Buyer, as follows:
(a) CAPACITY; VALIDITY. The Seller has the legal capacity to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed by the Seller and
constitutes a valid and binding obligation of the Seller enforceable against him
in accordance with its terms.
(b) TITLE TO SECURITIES. The Seller holds of record and owns
beneficially (or will own beneficially on the Closing Date) all of the OSB Stock
free and clear of any restrictions on transfer (other than any restrictions
under the Securities Act and state securities laws), taxes, liens, charges,
claims, demands, security interests, options, warrants, purchase rights,
contracts, commitments or other encumbrances. The Seller is not a party to any
option, warrant, purchase right or other agreement or understanding that could
require the Seller to sell, transfer or otherwise dispose of any shares of the
OSB Stock. The Seller is not a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of any shares of the OSB
Stock. The sale and transfer of such shares of OSB Stock to Buyer as provided
herein shall vest
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Buyer with good and marketable title to the OSB Stock, free and clear of all
liens, charges, claims and encumbrances.
(c) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. The Seller does not own or
possess any rights in or to the Toll Free Telephone Numbers listed on Schedule
2.1(q) hereto.
(d) INVESTMENT INTENT. The Seller acknowledges that none of the shares
of Parent Common Stock are registered under the Securities Act or any state
securities laws. The shares of Parent Common Stock are being acquired by the
Seller for investment purposes only and not with a view to the distribution or
resale thereof. The Seller has no present intention to sell or otherwise dispose
of the Parent Common Stock, except in compliance with the provisions of the
Securities Act.
(e) RESTRICTIONS ON TRANSFER.
(i) The Seller agrees that he will not transfer or otherwise
dispose of (each, a "Transfer") any of the shares of Parent Common Stock (or any
interest therein) except upon the terms and conditions specified herein and the
Seller will cause any subsequent holder of such shares of Parent Common Stock to
agree to take and hold the shares of Parent Common Stock subject to the terms
and conditions of this Agreement, if such shares of Parent Common Stock are
required to include a legend pursuant to Section 2.2(e)(ii) hereof.
(ii) Each certificate representing the shares of Parent Common
Stock issued to the Seller or to any subsequent stockholder shall include a
legend in the following form; PROVIDED, HOWEVER, that such legend shall not be
required (and shall be removed by Buyer) if (A) a Transfer is being made in
connection with a sale of shares of Parent Common Stock registered under the
Securities Act, or in connection with a sale in compliance with Rule 144 under
the Securities Act, as such Rule may be amended from time to time (each a
"Public Sale") or (B) in the opinion of counsel satisfactory to Buyer that the
shares represented thereby may be publicly sold without registration under the
Securities Act and any applicable state securities laws.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT
BE TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION THEREOF OR A VALID EXEMPTION THEREFROM.
(iii) Notwithstanding anything to the contrary in this Section
2.2(e), the Seller shall not Transfer any of the shares of Parent Common Stock
except to the extent permitted, and in accordance with, the Shareholder
Agreement referred to in Section 4.1(h) hereof.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to, and covenants and agrees with, the Seller as follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full
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corporate power and authority to own, lease and operate its properties and to
carry on its business as presently conducted by it and is qualified in each
other jurisdiction in which qualification is required for it to own, lease and
operate its properties and carry on its business as presently conducted by it,
except to the extent that failure to so qualify would not have a material
adverse effect on the financial condition, business or operations of Buyer.
(b) [INTENTIONALLY OMITTED]
(c) AUTHORITY. The execution and delivery by Buyer of this Agreement
and of each of the other Executed Agreements to which it shall be a party, the
performance by Buyer of its obligations under this Agreement or such Executed
Agreements and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of Buyer, and Buyer has all necessary corporate power with respect
thereto. This Agreement and the Executed Agreements are, or when executed and
delivered by Buyer shall be, the valid and binding obligations of Buyer,
enforceable in accordance with their respective terms, except to the extent that
enforceability may be limited by the operation of bankruptcy, insolvency or
similar laws and, as to the availability of equitable remedies, subject to
general principles of equity and the discretion of the court having jurisdiction
thereof. Neither the execution and delivery by Buyer of the Executed Agreements,
nor the consummation of the transactions contemplated thereby, nor the
performance by Buyer of its obligations under the Executed Agreements, shall
(nor with the giving of notice or the lapse of time or both would) (i) conflict
with or result in a breach of any provision of the Articles of Incorporation or
By-Laws of Buyer, (ii) violate any order, writ, injunction, decree, law,
statute, rule or regulation or (iii) interfere with or otherwise materially and
adversely affect the ability of Buyer to carry on its business as now conducted.
(d) LITIGATION. There are no suits or actions, or administrative,
arbitration or other proceedings or governmental investigations, pending, or to
the best knowledge of Buyer, threatened against or affecting, or which may
affect, Buyer or any of its properties, assets or businesses or the transactions
contemplated hereby. To the best knowledge of Buyer, there are no outstanding
judgments, orders, stipulations, injunctions, decrees or awards against Buyer
which are not satisfied.
(e) COMPLIANCE WITH APPLICABLE LAW. Buyer is, and at all times since
its formation has been in compliance in all material respects with all Federal,
state, local and foreign Laws promulgated by any governmental or regulatory
authority applicable to Buyer or to the conduct of the business or operations of
Buyer or to the use of its properties and assets. Buyer has not received, and
does not know of the issuance or threatened issuance of, any notices of
violation or alleged violation of any Laws by Buyer. Buyer does not know of any
pending or proposed legislation applicable to Buyer or to the conduct of
business or operations of Buyer which, if enacted, could have a material adverse
effect on the business, results of operations, financial position or prospects
of Buyer or the value of its properties or assets.
(f) INVESTMENT INTENT. The OSB Stock is being acquired by Buyer for
investment purposes only and not with a view to the distribution or resale
thereof. Buyer has no present intention to sell or otherwise dispose of the OSB
Stock, except in compliance with the provisions of the Securities Act.
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(g) BROKERS. No agent, broker, person or firm acting on behalf of
Buyer or under its authority is or shall be entitled to a brokerage commission,
finder's fee, or other like payment in connection with any of the transactions
contemplated hereby.
(h) DISCLOSURE. No representation or warranty made by Buyer herein or
in any of the Executed Agreements contains any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements therein not misleading.
2.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby represents and
warrants to Seller that the authorized capital stock of Parent consists of (i)
15,000,000 shares of Common Stock, par value $.001 per share, of which 100,000
shares are designated Class B Common Stock ("Class B Stock") and (ii) 7,000,000
shares of Series A Preferred Stock, par value $.001 per share. 2,485,000 shares
of Common Stock are issued and outstanding, of which 90,500 shares are Class B
Stock and 6,520,000 shares of Series A Preferred Stock are issued and
outstanding. The shares of the Parent Common Stock being transferred to the
Seller in accordance herewith shall be duly and validly issued and fully paid
and non-assessable. The transfer of such shares of Parent Common Stock to the
Seller as provided herein shall vest the Seller with good and marketable title
to the Parent Common Stock, free and clear of all liens, charges, claims and
encumbrances.
3. COVENANTS
3.1 COVENANTS OF THE SELLER AND OSB. The Seller and OSB jointly and
severally covenant and agree to perform or take any and all such actions to
effectuate the following from the date hereof until the Closing Date or the
termination of this agreement, whichever shall first occur:
(a) INVESTIGATION BY BUYER. Buyer may, prior to the Closing Date,
through its representatives (including its counsel, accountants and consultants)
make such investigations of the properties, offices and operations of OSB and
such audit of the financial condition of OSB as it deems necessary or advisable
in connection with the transactions contemplated hereby, including, without
limitation, any investigation enabling it to familiarize itself with such
properties, offices, operations and financial condition provided that no
unreasonable interference with the normal business operations of OSB be thereby
caused; such investigation shall not, however, affect OSB's or the Seller's
representations, warranties and agreements hereunder provided that Buyer
notifies the Seller of any fact it discovers in such investigation which it
believes is in conflict with the representations and warranties made by OSB
and/or the Seller hereunder. OSB and the Seller shall permit Buyer and its
authorized representatives to have, after the date hereof, full access to the
premises and to all books and records and tax returns of OSB and Buyer shall
have the right to make copies thereof and excerpts therefrom. OSB and the Seller
shall furnish Buyer with such financial and operating data and other information
with respect to OSB as Buyer may from time to time reasonably request.
(b) CARRY ON IN ORDINARY COURSE. Except with Buyer's prior written
consent, OSB shall, and the Seller shall cause OSB to, carry on its business
diligently and substantially in the same manner as heretofore conducted, and
shall not (i) enter into or agree to
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enter into any extraordinary transaction, contract, lease or commitment, (ii)
declare any dividends, nor make any distributions or payments to the Seller
other than employment compensation, (iii) redeem any shares of OSB Stock or
issue any capital stock or enter into any agreement which grants a right to
acquire any of OSB's capital stock, (iv) increase the compensation of any
employee of OSB, other than ordinary year-end increases or enter into any
severance agreement or employment agreement with any employee of OSB; (v) loan
or advance any amounts to any officer, director, stockholder or employee of OSB
or enter into any agreement with any of the foregoing or any person related to
any of the foregoing, (vi) acquire or dispose of any assets, other than in the
ordinary course of business, and (vii) encumber or commit to encumber any of its
assets, (viii) take any action, or suffer any action to be taken, which could
cause any of the representations or warranties of the Seller or OSB contained
herein not to be true and correct on and as of the Closing Date, or (ix) enter
into any agreement to take any of the foregoing actions.
(c) OTHER TRANSACTIONS. OSB and the Seller shall not, and shall cause
OSB's directors, officers, employees, agents and Affiliates or Associates not
to, directly or indirectly, solicit or initiate the submission of proposals
from, or solicit, encourage, entertain or enter into any arrangement, agreement
or understanding with, or engage in any negotiations with, or furnish any
information to, any person, other than Buyer or a representative thereof, with
respect to the acquisition of all or any part of the business or assets of OSB
or any of its securities. Should OSB or any of its Affiliates or Associates,
during such period, receive any offer or inquiry relating to such acquisition,
or obtain information that such an offer is likely to be made, they will provide
Buyer with immediate written notice thereof, which notice will include the
identity of the prospective offeror and the price and terms of any offer.
(d) CONSENTS. Provided that there is no material cost to, or
obligations of, the Seller and provided that Buyer provides all reasonable
cooperation, the Seller shall cause OSB to, and OSB shall, use all reasonable
efforts to obtain in writing, prior to the Closing Date, all consents,
approvals, waivers, authorizations and orders necessary or reasonably required
in order to permit it to effectuate this Agreement and to consummate the
transactions contemplated hereby (collectively, "Consents"). All such Consents
will be in writing and copies thereof will be delivered to Buyer promptly after
OSB's receipt thereof but no later than immediately prior to Closing.
(e) SUPPLEMENTAL DISCLOSURE. The Seller and OSB agree that, with
respect to their representations and warranties made in this Agreement, they
will have a continuing obligation to promptly supplement or amend the schedules
hereto with respect to any matter hereafter discovered which, if existing or
known at the date of this Agreement and on the Closing Date, would have been
required to be set forth or described in the schedules hereto.
(f) PUBLIC ANNOUNCEMENTS. The Seller and Buyer agree that they will
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement or the transactions
contemplated hereby and any press release or any public statement shall be
subject to mutual agreement of the parties, except as may be required by the
disclosure obligations of Buyer under applicable securities laws.
4. CONDITIONS TO CLOSING
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4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation of Buyer to
close under this Agreement is subject to the satisfaction of following
conditions any of which may be waived by Buyer in writing at or prior to
Closing:
(a) DUE DILIGENCE. Buyer shall have completed, to its satisfaction,
its business, legal, tax and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the Closing Date, the
Seller and OSB shall have complied with and duly performed all agreements and
conditions on their part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Closing Date.
(c) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Seller and OSB contained in this Agreement, or otherwise made in
connection with the transactions contemplated hereby, shall be true and correct
in all material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
(d) LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Closing Date there shall not have been any loss, damage or destruction to or of
any of the assets, property or business of OSB in excess of $50,000 in the
aggregate, whether or not covered by insurance, nor shall the assets,
properties, business or prospects of OSB have been adversely affected in any way
as a result of any fire, accident, or other casualty, war, civil strife, riot or
act of God or the public enemy or otherwise.
(e) NO LEGAL PROCEEDINGS. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby, and on the Closing Date there will be no court
or governmental actions or proceedings pending or threatened against or
affecting OSB which involve a demand for any judgment or liability, whether or
not covered by insurance, and which may result in any material adverse change in
the business, operations, properties or assets or in the condition, financial or
otherwise, of OSB.
(f) CERTIFICATE. Buyer shall have received a certificate dated the
Closing Date and executed by the Seller and an authorized officer of OSB to the
effect that the conditions expressed in Sections 4.1(b), 4.1(c), 4.1(d) and
4.1(e) have been fulfilled.
(g) CONSENTS. Buyer shall have received all Consents necessary to
effectuate this Agreement and to consummate the transactions contemplated
hereby.
(h) EMPLOYMENT AGREEMENTS. Buyer shall have entered into Employment
Agreements with each of the Seller, Daniel L. Sullivan and Shane Lewis, in form
and substance satisfactory to Buyer.
(i) SHAREHOLDERS AGREEMENT. The Seller shall have entered into a
Shareholders Agreement, in form and substance satisfactory to Buyer.
(j) ESCROW AGREEMENT. The Seller and the Escrow Agent shall have
entered into the Escrow Agreement.
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(k) RESIGNATIONS OF OFFICERS AND DIRECTORS. Buyer shall have received
resignations effective as of the Closing Date from all of the executive officers
and each of the members of the board of directors of OSB.
(l) CERTIFICATES OF STATUS. Buyer shall have received certificates
from the Secretary of State of Florida and of each jurisdiction set forth in
Schedule 2.1(a) hereto, providing that OSB has filed its most recent annual
report, has not filed articles of dissolution and is in good standing in each
such jurisdiction.
(m) OPINION OF COUNSEL. The Seller shall have furnished Buyer with a
favorable opinion of Williams, Parker, Harrison, Dietz & Getzen, counsel for OSB
and the Seller, dated as of the Closing Date, and in form and substance
reasonably satisfactory to Buyer.
(n) GENERAL RELEASE OF OSB BY THE SELLER. The Seller shall have fully
released and discharged OSB from any and all obligations owing to him by OSB and
all claims, actions or suits that he now has or may hereafter have against OSB
in form and substance satisfactory to Buyer and its counsel.
(o) CERTIFICATE OF NET WORTH. Buyer shall have received certificate
from the Seller certifying that the Net Worth is not less than [******].
(p) SS&L ACQUISITION. Simultaneously with the Closing, Buyer shall
have acquired all of the issued and outstanding capital stock of SS&L.
4.2 CONDITIONS OF THE SELLER' AND OSB'S OBLIGATIONS TO CLOSE. The
obligations of the Seller and OSB to close under this Agreement are subject to
the following conditions any of which may be waived by OSB in writing at or
prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Buyer
shall have complied with and duly performed all agreements and conditions on its
part to be complied with and performed pursuant to or in connection with this
Agreement on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer contained in this Agreement, shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date.
(c) CLOSING CERTIFICATE. The Seller shall have received a certificate
dated the Closing Date and executed by an authorized officer of Buyer to the
effect that the conditions contained in Section 4.2(a) and (b) have been
fulfilled.
(d) ESCROW AGREEMENT. Buyer and the Escrow Agent shall have entered
into the Escrow Agreement.
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(e) OPINION OF COUNSEL. Buyer shall have furnished the Seller with a
favorable opinion of Gunderson, Dettmer, counsel for Buyer, dated as of the
Closing Date, and in form and substance reasonably satisfactory to the Seller.
(f) SS&L ACQUISITION. Simultaneously with the Closing, Buyer shall
have acquired all of the capital stock of SS&L.
(g) RELEASE OF GUARANTIES. The Seller shall have received a written
release or termination of each of the guaranties set forth on Schedule 2.1(y)
hereto.
5. TAX MATTERS
5.1 TAX RETURNS. Buyer shall prepare and file, or cause to be prepared and
filed, all Returns for OSB that are due after the Closing Date, including,
without limitation, Returns relating to period(s) ending on or prior to the
Closing Date which are due after the Closing Date except the income tax returns
described in the following sentence. Notwithstanding the preceding sentence, the
Seller shall prepare and file, or cause to be prepared and filed, all U.S.
Federal, state and local income tax Returns of OSB for all period(s) ending on
or prior to the Closing Date and no such Returns shall subsequently be amended
or refiled without the prior written consent of Buyer, which consent shall not
be unreasonably withheld. The Seller shall permit Buyer to review and comment on
each Return prepared by or on behalf of the Seller in accordance with the
preceding sentence prior to filing and shall make such revisions to such Returns
as are reasonably requested by Buyer. Buyer shall cause all such Returns to be
signed by an authorized officer of OSB to permit timely filing thereof
(including permitted extensions).
5.2 TAX ELECTION. Buyer may require the Seller to join in making the
election permitted by Section 338(h)(10) of the Code (the "Election") with
respect to OSB. If Buyer elects to do so, the following procedure shall be
followed:
(a) Not later than six months after the Closing Date, Buyer shall
deliver to the Seller the following:
(i) A notice signed by Buyer stating Buyer's intent to make the
Election and requesting the Seller to join in the Election.
(ii) A completed Form 8023-A signed by the Buyer.
(iii) A copy of form 1120S that Buyer proposes be filed by OSB
with respect to the period from January 1, 1998 through the Closing Date (the
"1998 Period"), either as the initially filed return, or as an amended return.
(iv) A copy of all work papers upon which the form 1120S is
based.
(b) Within 30 days after receipt of the items described in
subparagraph (i) above, the Seller shall deliver to Buyer the following:
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(i) A notice signed by the Seller stating whether or not, based
upon information available to the Seller at the time, he accepts the accuracy,
completeness, and form of presentation of Form 1120S prepared by Buyer, with a
reasonably detailed explanation of any non-acceptance.
(ii) A detailed calculation of the Seller's estimate of the
Additional Tax and Expenses, as defined below, to which the Seller would be
subjected if the Election is made. For this purpose, "Additional Tax" shall mean
the difference between the amount of the Seller's federal and Florida income tax
liability, were the Election to be made, and the amount of such liability were
the Election not to be made. The Seller's tax liability arising from the sale of
stock of OSB, were the Election not to be made, shall be based upon the
consideration stated in this contract (including all amounts paid or payable to
the Seller pursuant to this paragraph), the Seller's stock basis as conclusively
determined by the Seller's certified public accountant, and a twenty percent
capital gains tax rate. "Expenses" as used above, means all out-of-pocket third
party legal and accounting expenses which the Seller, as of the date of the
calculation, reasonably expects to incur in connection with the actions that the
Seller shall then have taken, and expect to take in the exercise of reasonable
prudence, as a direct consequence of the filing of the Election.
(c) Within 20 days after the receipt by Buyer of the items described
in Section 5.2(b) above, Buyer shall deliver to the Seller the following:
(i) A notice signed by Buyer stating whether or not Buyer accepts
the determination of the Additional Tax and Expenses stated by the Seller in the
notice described in Section 5.2(b)(ii) above.
(ii) If Buyer accepts the calculation a cashier's check in the
amount of the Additional Tax and Expense specified by the Seller in the
calculation of Section 5.2(b)(ii).
(iii) An agreement in form satisfactory to the Seller whereunder
Buyer indemnifies the Seller against all Additional Tax and Expenses which the
Seller may incur prior to the final determination and payment of the Additional
Tax and the Seller agrees to reimburse Buyer to the extent the Additional Taxes
and Expenses specified in Section 5.2(b)(ii) shall exceed the actual amount of
Additional Taxes and Expenses incurred by the Seller. In the event that Buyer
does not indemnify the Seller in time for the Seller to pay the Additional Taxes
on a timely basis, Buyer shall pay any interest and penalties resulting
therefrom.
(d) Within 20 days after the receipt by Buyer of the items described
in Section 5.2(b) above, Buyer and the Seller shall attempt to agree on a form
of security, satisfactory to Buyer and the Seller, to secure the agreement set
forth in Section 5.2(c)(iii) above, in an amount equal to 50% of the amount paid
under Section 5.2(b)(ii). In the event that the parties are unable to agree, the
Seller shall not be required to join in making the Election.
(e) If the security described in Section 5.2(d) has been agreed to,
within 5 days after the receipt by the Seller of the items described in Section
5.2(c) above, in form satisfactory to Seller, but in no event later than eight
months after the Closing Date, the Seller shall execute and deliver to Buyer the
Form 8023-A.
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(f) In the event that a dispute arises between Buyer and the Seller as
to the accuracy, completeness or method of presentation of tax returns,
calculations, etc. under Sections 5.2(a) and (b) above, the parties shall
consult with each other in an attempt to resolve the dispute. If the dispute
cannot be thus resolved, the dispute shall be resolved by binding arbitration to
be carried out by a national accounting firm mutually acceptable to Buyer and
the Seller at Buyer's expense. The Seller's Expenses incurred in connection with
the resolution of such dispute. If the parties are unable to agree on the
selection of an arbitrator within 5 days of the notice of dispute, Arthur
Anderson shall be the arbitrator.
(g) Notwithstanding anything contained herein to the contrary, if the
Election is made, the Seller shall have no liability for any federal, state or
local income tax, or any other kind of tax, imposed upon OSB under Section 1374
of the Code or otherwise, as a consequence of the Election, nor any Expense
incurred in connection therewith, nor will any representation, warranty or
covenant hereunder be deemed to be breached by any such tax liability, and Buyer
shall indemnify the Seller against any and all of the foregoing.
(h) Each party shall provide all reasonable cooperation to the other
party hereunder to implement the foregoing procedure and to attempt to permit
the timely filing of Form 8023-A if the Buyer intends to make the Election.
(i) If the Seller's Form 1040 for 1998 is audited by Internal Revenue
Service and any issue concerning the amount of tax arising from the Election is
raised as an issue, the Seller shall promptly notify Buyer, and Buyer shall have
the opportunity to participate in and/or undertake the defense of such item
according to the procedures set forth in Section 6 hereof relating to
indemnification.
(j) Buyer shall pay to the Seller, within 15 days after the Seller
shall give Buyer written notice, any and all amounts for which the Seller
becomes obligated as Additional Tax and Expense. The Seller shall pay to Buyer
within 15 days after Buyer shall give the Seller written notice, any and all
amounts to the extent the Additional Taxes and Expenses paid to the Seller shall
exceed the actual amount of Additional Taxes and Expenses incurred by the
Seller. Any amounts due under this Section 5.2 not timely paid shall bear
interest at 10% per annum.
5.3 TRANSFER TAXES. Notwithstanding anything to the contrary contained
herein, the Seller, shall assume and pay all sales, use, privilege, transfer,
stock transfer, real property transfer, documentary, gains, stamp, duties,
recording and similar Taxes and fees (including any penalties, interest or
additions) imposed upon any party hereto incurred in connection with any of the
transactions contemplated by this Agreement (collectively, "Transfer Taxes") and
shall, at their own expense, accurately file all necessary Returns and other
documentation with respect to any Transfer Tax other than Returns which Buyer is
responsible for filing under applicable law. The Seller agrees to timely sign
and deliver such certificates or forms as may be necessary or appropriate to
establish a lawful exemption from (or otherwise lawfully reduce), or file
Returns with respect to, such Transfer Taxes.
5.4 AMENDMENTS.
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(a) The Seller shall not (and shall not cause or permit OSB to) amend,
refile or otherwise modify any Return relating in whole or in part to OSB with
respect to any taxable year or period ending on or before the Closing Date
without the prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed.
(b) Buyer and the Seller shall (i) assist the other party in preparing
any Returns which such other party is responsible for preparing and filing in
accordance with Section 5.1 above, (ii) cooperate fully in preparing for any
audits of, or disputes with taxing authorities regarding, any Returns of OSB,
and (iii) make available to the other party and to any taxing authority as
reasonably requested all information, records and documents relating to Taxes of
OSB.
5.5 NOTICES. Each of the Seller and Buyer shall (and shall cause their
respective Affiliates to): provide timely notice to the other in writing of any
notice of deficiency, proposed adjustment, adjustment, assessment, audit,
examination, suit, dispute or other claim delivered, sent, commenced or
initiated to or against OSB by any taxing authority with respect to taxable
periods for which the other may have a liability hereunder and furnish the other
with copies of all correspondence received from any taxing authority in
connection with any Tax audit or information request with respect to any such
taxable period.
6. INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties of the
Seller in this Agreement or in any document delivered pursuant hereto shall
survive the Closing Date for a period of three years and shall then terminate;
PROVIDED, HOWEVER, that (i) any such representation and warranty shall survive
the time it would otherwise terminate only with respect to claims of which
notice has been given as provided in this Agreement prior to such termination
and (ii) such time limitation shall not apply to the representations and
warranties set forth in Section 2.2(b) hereof, which shall survive indefinitely,
and Sections 2.1(h), 2.1(j), 2.1(l), 2.1(n) hereof, which shall survive until
the expiration of the applicable statute of limitations.
6.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this Section 6, each
party which, pursuant to this Section 6, shall agree to indemnify any other
person or entity shall be referred to, as applicable, as the "Indemnitor", and
each such person and entity who is entitled to be indemnified by any Indemnitor
shall be referred to as the "Indemnified Person" with respect to such
Indemnitor.
6.3 INDEMNITY OF THE SELLER. The Seller and, with respect only to claims
made hereunder by Buyer prior to the Closing, OSB, hereby jointly and severally
agree to indemnify, hold harmless and reimburse Buyer and its directors,
officers, stockholders, agents and employees from and against any and all
claims, liabilities, losses, damages and expenses incurred by such Indemnified
Persons (including reasonable attorneys' fees and disbursements) which shall be
caused by or related to or shall arise out of any breach or alleged breach of
any representation, warranty, covenant or agreement of OSB or the Seller
contained in this Agreement and shall reimburse such Indemnified Persons for all
costs and expenses (including reasonable attorneys' fees and disbursements) as
they shall be incurred, in connection with paying, investigating, preparing for
or defending any action, claim, investigation, inquiry or other proceeding,
whether or
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<PAGE> 23
not in connection with pending or threatened litigation, which shall be caused
by or related to or shall arise out of such breach or alleged breach, whether or
not any such Indemnified Person shall be named as a party thereto and whether or
not any liability shall result therefrom. The Seller and OSB further agree that
they shall not, without the prior written consent of Buyer settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder unless such settlement, compromise or consent shall include an
unconditional release of each Indemnified Person under this Section 6.3 from all
liability arising out of such claim, action, suit or proceeding. Notwithstanding
the foregoing, no Indemnified Person shall be entitled to recovery under this
Section 6.3 in respect of any claims, liabilities, losses, damages and expenses
if, and only to the extent that, the condition or event giving rise to such
claim, liability, loss, damage or expense is reflected in the calculation of an
Adjustment Amount pursuant to Section 1.4(c) hereof and, conversely, no
Adjustment Amount pursuant to Section 1.4(c) hereof shall operate as a
limitation hereunder to the extent that such Adjustment Amount shall not fully
satisfy such claim, liability, loss, damage or expense.
6.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold harmless and
reimburse the Seller and OSB and OSB's directors, officers, agents and employees
from and against any and all claims, liabilities, losses, damages and expenses
incurred by them (including reasonable attorneys' fees and disbursements) which
shall be caused by or related to or shall arise out of any breach or alleged
breach of any representation, warranty, covenant or agreement of Buyer contained
in this Agreement and shall reimburse such Indemnified Persons for all costs and
expenses (including reasonable attorneys' fees and disbursements) as shall be
incurred, in connection with paying investigating, preparing for or defending
any action, claim, investigation, inquiry or other proceeding, whether or not in
connection with pending or threatened litigation, which shall be caused by or
related to or shall arise out of such breach or alleged breach, whether or not
such Indemnified Persons shall be named as a party thereto and whether or not
any liability shall result therefrom. Buyer further agrees that it shall not,
without the prior written consent of the Seller and OSB, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
unless such settlement, compromise or consent shall include an unconditional
release of the Seller and OSB under this Section 6.4 from all liability arising
out of such claim, action, suit or proceeding.
6.5 LIMITATION ON INDEMNIFICATION. The indemnification obligations provided
for by Sections 6.3 and 6.4 hereof shall not come into effect until the
Indemnified Persons shall have suffered damages by reason of all matters and
actions covered by Sections 6.3 and 6.4 hereof exceeding an aggregate threshold
of $25,000.
6.6 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after receipt by an
Indemnified Person of notice of the commencement of any action or proceeding
with respect to which indemnification may be sought hereunder, such Indemnified
Person shall notify the Indemnitor of the commencement of such action or
proceeding, but failure to so notify the Indemnitor shall not relieve the
Indemnitor from any liability which the Indemnitor may have hereunder or
otherwise, unless the Indemnitor shall be materially prejudiced by such failure.
If the Indemnitor shall so elect, the Indemnitor shall assume the defense of
such action or proceeding, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall pay the fees and
disbursements of such counsel. In the event, however, that such Indemnified
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Person shall reasonably determine in its judgment that having common counsel
would present such counsel with a conflict of interest or alternative defenses
shall be available to an Indemnified Person or if the Indemnitor shall fail to
assume the defense of the action or proceeding in a timely manner, then such
Indemnified Person may employ separate counsel to represent or defend it in any
such action or proceeding and the Indemnitor shall pay the reasonable fees and
disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons in any jurisdiction in any single action or
proceeding. In any action or proceeding the defense of which the Indemnitor
shall assume, the Indemnified Person shall have the right to participate in such
litigation and to retain its own counsel at such Indemnified Person's own
expense except as otherwise provided above in this Section 6.5, so long as such
participation does not interfere with the Indemnitor's control of such
litigation.
6.7 TAX INDEMNITY. The Seller shall indemnify and hold harmless and
reimburse Buyer from and against all Federal, state and local income Taxes,
imposed upon OSB for any taxable year ending on or prior to the Closing Date,
except to the extent such Taxes shall be incurred as a result of the Code
Section 338(h)(10) election.
7. NON-COMPETITION; CONFIDENTIALITY
7.1 NON-COMPETITION. Following the Closing Date and for a period of three
(3) years thereafter, the Seller shall not, directly or indirectly, (a) engage
in any business or activity that competes with the business in which OSB or any
of its Affiliates is currently engaged, anywhere in the United States, other
than the captive call center business (the "Business"); (b) enter the employ of
any person or entity engaged in any business or activity that competes with the
Business or render any consulting or other services to any person or entity for
use in or with the effect of competing with the Business; or (c) have an
interest in any business or activity that competes with the Business, in any
capacity, including, without limitation, as an investor, partner, stockholder,
officer, director, principal, agent, employee, or creditor; PROVIDED, HOWEVER,
that nothing herein shall prevent the purchase or ownership by the Seller of
less than 3% of the outstanding equity securities of any class of securities of
a company registered under Section 12 of the Securities and Exchange Act of
1934, as amended, nor the Seller's ownership of any amount of the Buyer's equity
securities, nor the Seller's employment by Buyer or an affiliate of Buyer.
7.2 NO COMPETING INTERESTS. The Seller hereby represents and warrants to
Buyer that he has no ownership or other interest in any business or activity
that competes, directly or indirectly, with the Business except for ownership of
stock of and other activities in connection with SS&L.
7.3 NON-DISRUPTION. Following the Closing Date and for a period of five (5)
years thereafter, the Seller shall not, directly or indirectly, interfere with,
disrupt or attempt to disrupt any present or prospective relationship then known
to the Seller, contractual or otherwise, between OSB or any of its Affiliates,
on the one hand, and any of its customers, suppliers or employees, on the other
hand.
7.4 CONFIDENTIALITY. The Seller shall not use for his own behalf or divulge
to any other person or entity any confidential information or trade secrets of
or relating to Buyer in
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any manner whatsoever (except as authorized and required in connection with the
Seller's relationship with Buyer or any of its Affiliates during the term of
such relationship or except as may be required under legal process by subpoena
or other court order; PROVIDED, HOWEVER, that the Seller shall give Buyer prompt
prior written notice thereof in order to contest such requirement or order). As
used herein, confidential information shall consist of all information,
knowledge or data relating to Buyer or any of its Affiliates (including, without
limitation, all information relating to inventions, procedures and operations,
processes and methods, financial information, customer and prospective customer
lists, prices and trade practices) which is not in the public domain or
otherwise published or publicly available, except for information which the
Seller can demonstrate by written records was previously known to him, is now,
or becomes in the future, public knowledge, other than through acts or omissions
of the Seller, is lawfully obtained by the Seller from sources independent of
the Buyer, or is subsequently developed by the Seller independent of
confidential information or trade secrets of or relating to Buyer in connection
with this transaction.
7.5 REMEDIES UPON BREACH. The Seller acknowledges and agrees that (a) Buyer
shall be irreparably injured in the event of a breach by the Seller of any of
his obligations under this Section 7; (b) monetary damages shall not be an
adequate remedy for such breach; (c) Buyer shall be entitled to injunctive
relief, in addition to any other remedy which it may have, in the event of any
such breach; and (d) the existence of any claims which the Seller may have
against Buyer, whether under this Agreement or otherwise, shall not be a defense
to the enforcement by Buyer of any of its rights under this Agreement.
8. MISCELLANEOUS PROVISIONS
(a) CONFIDENTIALITY. OSB, the Seller and Buyer agree not to, directly
or indirectly, without the prior written consent of the other, use or disclose
to any person, firm or corporation, any of the terms of this Agreement, except
as may be required by the disclosure obligations of Buyer under applicable
securities laws or as may be required to be disclosed to the attorneys and/or
accountants of the parties hereto in connection with the transactions
contemplated hereby.
(b) NOTIFICATION. Each party hereto shall give the other party or
parties hereto prompt written notice of (i) the existence of any fact or the
occurrence of any event which constitutes, or with the giving of notice or the
passage of time or both would constitute, a breach of any representation or
warranty of the party giving such notice made herein or pursuant hereto and (ii)
the taking of any action by the party giving such notice that would breach or
violate, or constitute a default under, any agreement or covenant of such party
made herein or pursuant hereto. The giving of any such notice shall not affect,
modify or limit in any way any representation, warranty, agreement or covenant
of the parties made herein or pursuant hereto.
(c) EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
(d) NOTICES. All notices, requests, demands and other communications
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed duly given when delivered by hand, telecopied
or posted in the
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United States mail by registered or certified mail with postage pre-paid, return
receipt requested, (i) if to Buyer, to Teleservices Acquisition Corporation, c/o
Hertzog, Calamari & Gleason, 100 Park Avenue, New York, New York 10016,
Attention: John D. Vaughan, Esq., facsimile number: (212) 213-1199; and (ii) if
to the Seller, to 1297 Ringling Boulevard, Sarasota, Florida 34237, Attention:
Mr. Jerry D. Lewis, facsimile number: (941) 906-9099, or to such other
address(es) as shall be specified by like notice to the other parties.
(e) AMENDMENTS. This Agreement may be amended or modified at any time
prior to the Closing Date, but only by a written instrument executed by all of
the parties hereto.
(f) ENTIRE AGREEMENT. This Agreement (together with the other
agreements, certificates, instruments and documents delivered pursuant hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
(g) APPLICABLE LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
internal laws of the State of New York. The parties hereby consent to the
exclusive jurisdiction of Federal and New York State courts located in the
County of New York and agree that service of process by certified mail, return
receipt requested, shall constitute personal service for all purposes hereof.
(h) TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date by any of the following:
(i) By mutual written agreement of Buyer and the Seller;
(ii) By either Buyer or the Seller, if the Closing has not
occurred within 30 days of the date hereof, upon written notice by such
terminating party, provided that at the time such notice is given a material
breach of this Agreement by such terminating party shall not be the principal
reason for the Closing's failure to occur;
(iii) Subject to the provisions of Section 8(i) hereof, by Buyer,
by written notice to the Seller and OSB, if there has been a material violation
or breach of any of the Seller's or OSB's covenants or agreements made herein or
in connection herewith or if any representation or warranty of the Seller or OSB
made herein or in connection herewith proves to be materially inaccurate or
misleading; or
(iv) Subject to the provisions of Section 8(i) hereof, by the
Seller, by written notice to Buyer, if there has been a material violation or
breach of any of Buyer's covenants or agreements made herein or in connection
herewith or if any representation or warranty of Buyer made herein or in
connection herewith proves to be materially inaccurate or misleading.
(i) EFFECTS OF TERMINATION. If this Agreement is terminated as
provided in Section 8(h) hereof, then this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto
(or any of their respective stockholders,
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<PAGE> 27
officers, directors or employees), except based on the agreements contained in
Section 6.3 and 6.4 hereof; PROVIDED, HOWEVER, that if Buyer terminates this
Agreement pursuant to Section 8(h)(iii) hereof, or the Seller terminates this
Agreement pursuant to Section 8(h)(iv) hereof, the non-terminating party shall
remain liable for any breach hereof.
(j) HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
(k) FEES AND DISBURSEMENTS. Buyer shall pay its own expenses, and the
fees and disbursements of the counsel, accountants or auditors retained by it in
connection with the preparation, execution and delivery of this Agreement and
the fees and expenses and disbursements of the counsel to OSB and the Seller
shall be paid by the Seller.
(l) ASSIGNMENT. This Agreement may not be assigned by OSB or the
Seller without the prior written consent of Buyer. This Agreement may not be
assigned by Buyer, except for an assignment by Buyer to any Affiliate, without
the prior written consent of the Seller.
(m) BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
(n) SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(o) RECORDS RETENTION. On the Closing Date the Seller shall deliver to
the Buyer all books, records and other documents ("Books and Records")
pertaining to the business of OSB, including, without limitation,
(i) all instruments, documents and evidences of title of any of
the assets of OSB and the OSB Stock;
(ii) all books of account, ledgers, minute books and other
records of OSB;
(iii) any and all other documents, records and writing of any
kind whatsoever which on the Closing Date shall be possessed by the Seller or
OSB for use to any extent or in any manner in connection with the business of
OSB.
Buyer shall permit the Seller or his duly authorized representatives at any time
and from time to time between the hours of 9:00 a.m. and 5:00 p.m., local time,
on weekdays excepting holidays, or upon reasonable prior written notice, during
the period of six (6) years following the Closing to
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examine, inspect, photocopy and/or copy such Books and Records then in the
possession of Buyer as shall pertain to the operation of the OSB business for
the period ending on the Closing Date.
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IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement the day and year first above written.
TELESERVICES ACQUISITION CORPORATION
By: /s/ Richard F. Gaccione
-------------------------------------------
Title: Chairman
TELESERVICES HOLDINGS CORPORATION
with respect only to Section 2.4 hereof
By: /s/ Richard F. Gaccione
-------------------------------------------
Title: Chairman
OPERATORS STANDING BY, INC.
By: /s/ Jerry D. Lewis
-------------------------------------------
Title: President
Seller:
/s/ Jerry D. Lewis
-----------------------------------------------
Jerry D. Lewis
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<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made this
5th day of June, 1998, by and between TELESERVICES ACQUISITION CORPORATION, a
Delaware corporation ("Buyer"), SWEET, SCHATZ & LEWIS, INC., a Florida
corporation ("SS&L"), and Jerry D. Lewis, James E. Carla, II and Daniel L.
Sullivan (the "Sellers", and each individually, a "Seller").
W I T N E S S E T H :
-------------------
WHEREAS, SS&L is principally engaged in the business of
supplying telemessaging services and is the end user and subscriber for certain
toll free telephone numbers listed on Schedule 2.1(q) hereto (the "Toll Free
Telephone Numbers");
WHEREAS, the Sellers are presently the owners of an aggregate
of 140 shares of common stock, par value $1.00 per share (the "SS&L Stock"),
which represents all of the issued and outstanding capital stock of SS&L; and
WHEREAS, the Sellers desire to sell their respective shares of
SS&L Stock to Buyer and Buyer desires to purchase all of the SS&L Stock from the
Sellers, all in the manner and subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION
1.1 STOCK PURCHASE. On the terms and subject to the conditions
of this Agreement, on the Closing Date (as hereinafter defined), each Seller
shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall
purchase and acquire from each such Seller, all right, title and interest of
such Sellers, legal or equitable, in and to the number of shares of SS&L Stock
set forth opposite such Seller's name on Schedule 1.1 hereto under the caption
"Number of Shares Owned." The certificates evidencing the SS&L Stock shall be
delivered at the Closing (as hereinafter defined) to Buyer, free and clear of
all liens, claims, security interests and encumbrances, accompanied by duly
executed stock powers (endorsed in blank, with signatures guaranteed) and any
necessary stock transfer tax stamps affixed thereto.
1.2 PURCHASE PRICE. As the purchase price for all of the SS&L
Stock (the "Purchase Price"), Buyer shall pay to the Sellers an aggregate sum of
[******] in cash. The Purchase Price shall be payable in cash at Closing by wire
transfer of immediately available funds to an account of the Sellers designated
in writing by Jerry D. Lewis ("Sellers' Rep"). The Purchase Price shall be
allocated by the Sellers' Rep among the Sellers as provided on Schedule 1.2
hereto under the caption "Allocation of Cash Purchase Price."
- ---------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
1.3 CLOSING DATE. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Hertzog,
Calamari & Gleason, 100 Park Avenue, 23rd Floor, New York, New York, at 10:00
A.M., June 5, 1998, or at such other place and/or on such other date and time as
shall be agreed upon by Buyer and the Sellers (the "Closing Date").
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SS&L AND THE SELLERS.
SS&L and the Sellers hereby, jointly and severally, represent and warrant to,
and covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. SS&L is a
corporation duly organized, validly existing and in good standing and authorized
to exercise its corporate powers, rights and privileges under the laws of the
State of Florida with full corporate power and authority to own, lease and
operate its properties and to carry on its business as presently conducted by
it. Schedule 2.1(a) hereto sets forth all states and other jurisdictions in
which SS&L is duly qualified and in good standing to do business as a foreign
corporation. There are no other states or jurisdictions in which the character
and location of the properties owned or leased by it, or the conduct of its
business makes such qualification necessary, except to the extent that failure
to do so would not have a material adverse effect on the financial condition,
business or operations of SS&L. Copies of SS&L's Articles of Incorporation and
all amendments thereto, and of SS&L's By-Laws, as amended to date, are attached
to Schedule 2.1(a) and are complete and correct. SS&L's minute books contain
complete and accurate records of all meetings and other corporate actions,
including, without limitation, actions by unanimous written consent of the
Sellers and board of directors of SS&L (including all committees of its board of
directors).
(b) CAPITALIZATION. The authorized capital stock of
SS&L consists of 7,500 shares of Common Stock, par value $1.00 per share, of
which 140 shares are issued and outstanding. The number of shares of SS&L Stock
owned beneficially or of record by each of the Sellers is set forth on Schedule
1.1 hereto. All issued shares of SS&L Stock have been duly authorized and
validly issued and are fully paid and nonassessable. All prior offerings and
sales of SS&L Stock have been made in accordance with all Federal and state
securities laws. There are no outstanding obligations, options, warrants,
rights, calls, commitments, conversion rights, plans or other agreements of any
character to which SS&L is a party or otherwise bound which provide for the
purchase or issuance by SS&L of any authorized but not outstanding, or
authorized and outstanding shares of capital stock of SS&L. There is no personal
liability attached to the SS&L Stock. No person has any preemptive or similar
rights in respect of any securities of SS&L.
(c) AUTHORITY. The execution and delivery by SS&L and
the Sellers of this Agreement and all of the agreements, schedules, exhibits,
documents and instruments specifically provided for hereunder to be executed
and/or delivered by any or all of them (all of the foregoing, including this
Agreement, being hereinafter sometimes collectively referred to as the "Executed
Agreements"), the performance by SS&L and any or all of the Sellers (to the
extent that they are parties thereto) of their respective obligations under the
Executed Agreements, and the consummation of the transactions contemplated by
the Executed Agreements, have been duly and validly authorized by all necessary
corporate action on the part of SS&L and by the Sellers, and
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<PAGE> 3
SS&L has all necessary corporate power with respect thereto. The Executed
Agreements are, or when executed and delivered by the delivering parties shall
be, the valid and binding obligations of the delivering parties, enforceable in
accordance with their respective terms, except to the extent that enforceability
may be limited by the operation of bankruptcy, insolvency or similar laws, and,
as to the availability of equitable remedies, subject to general principles of
equity and the discretion of the court having jurisdiction thereof. Except as
set forth on Schedule 2.1(c) hereto, neither the execution and delivery by SS&L
and any or all of the Sellers (to the extent that they are parties thereto) of
the Executed Agreements, nor the consummation of the transactions contemplated
thereby, nor the performance by SS&L and any or all of the Sellers (to the
extent that they are parties thereto) of their respective obligations under the
Executed Agreements, shall (nor with the giving of notice or the lapse of time
or both would) (i) conflict with or result in a breach of any provision of the
Articles of Incorporation or By-Laws of SS&L, (ii) give rise to a default, or
any right of termination, cancellation or acceleration, or otherwise result in a
loss of contractual benefits to SS&L, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which SS&L or any Seller is a party or by which it
or any of its properties or assets may be bound, (iii) violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to SS&L or any
of the Sellers or any of their respective properties or assets, (iv) result in
the creation or imposition of any lien, claim, restriction, charge or
encumbrance upon any of the properties or assets of SS&L, or (v) interfere with
or otherwise materially and adversely affect the ability of SS&L to carry on its
business as now conducted.
(d) INTERESTS IN OTHER ENTITIES. Except as set forth
in Schedule 2.1(d) hereto, SS&L does not (i) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation or entity, (ii) have any ownership interest, direct or
indirect, of record or beneficially, in any entity, or (iii) have any
obligation, direct or indirect, present or contingent, to purchase or subscribe
for any interest in, advance or loan monies to, or in any way make investments
in, any person or entity, or to share any profits or capital investments in
other persons or entities, or both.
(e) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY
CONSENTS. Except as set forth in Schedule 2.1(e) hereto, no approval, consent,
compliance, exemption, authorization or other action by, or notice to or filing
with, any governmental authority or any other entity, and no lapse of a waiting
period, is necessary or required to be obtained by SS&L or any Seller in
connection with the execution, delivery or performance by any of them, of this
Agreement, any of the Executed Agreements or the transactions contemplated
hereby.
(f) PROJECTIONS. SS&L has delivered to Buyer a set of
projections (the "Projections"), a copy of which its attached hereto as Schedule
2.1(f), which the Sellers have been advised are material to Buyer in its
decision to enter into this Agreement and purchase the SS&L Stock hereunder. The
Projections are based on the best estimates of SS&L and the Sellers derived from
reasonable expectations at the time the Projections were made, and SS&L believes
that Buyer is justified in relying thereon, there being, however, no guarantee
of the achievement of the Projections.
(g) FINANCIAL STATEMENTS. SS&L has delivered to Buyer
true and complete copies of its unaudited balance sheets as of December 31,
1996, and related statements
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<PAGE> 4
of income, retained earnings and cash flows for the period then ending (the
"1996 Financial Statements"), true and complete copies of its unaudited balance
sheets as of December 31, 1997, and related statements of income, retained
earnings and cash flows for the period then ending and true and complete copies
of its unaudited balance sheet as of March 31, 1998 (the "Interim Balance
Sheet"), and related statements of income, retained earnings and cash flows for
the period then ending (collectively, with the Interim Balance Sheet, the
"Interim Financial Statements"). All of such financial statements, including any
notes thereto, were prepared on the basis set forth in Schedule 2.1(g), applied
on a consistent basis throughout the periods involved subject, in respect of the
Interim Financial Statements, to normal year-end audit adjustments, none of
which are material (except as may be otherwise expressly stated in said
financial statements and notes thereto or in Schedule 2.1(g) hereto) and such
financial statements fairly present the financial position of SS&L at the dates
thereof and the results of its operations for the periods as indicated. The
books and records of SS&L are in all material respects complete and correct,
have been maintained in accordance with good business practices, and accurately
reflect the basis for the financial condition and results of operations of SS&L
as set forth in the financial statements referred to herein.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. SS&L does not
have any liabilities, commitments or obligations, whether accrued, absolute,
contingent or otherwise which have not been (i) in the case of liabilities,
commitments and obligations of a type customarily reflected on the corporate
balance sheet of SS&L, reflected on the Interim Balance Sheet, incurred,
consistent with past practice, in the ordinary course of business since the date
of the Interim Balance Sheet and which are not material either individually or
in the aggregate or (ii) in the case of all other types of liabilities and
obligations, described in Schedule 2.1(h) hereto.
(i) ABSENCE OF CERTAIN CHANGES. Except as and to the
extent set forth in Schedule 2.1(i) hereto, since December 31, 1997, SS&L has
not:
(i) suffered any material adverse change in
its working capital, condition (financial or otherwise), assets, liabilities,
business, operations or prospects;
(ii) incurred any material liabilities or
obligations except items incurred in the ordinary course of business and
consistent with past practice, none of which exceeds $50,000 (counting
obligations or liabilities arising from one transaction or a series or similar
transactions, and all periodic installments or payments under any lease or other
agreement providing for periodic installments or payments, as a single
obligation or liability), or experienced any increase in, or change in any
assumption underlying or methods of calculating, any bad debt, contingency or
other reserves;
(iii) paid, discharged or satisfied any
claim, liabilities or obligations (absolute, accrued, contingent or otherwise)
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities and obligations
reflected or reserved against in the Interim Balance Sheet or incurred in the
ordinary course of business and consistent with past practice since the date of
the Interim Balance Sheet;
(iv) permitted or allowed any of its
property or assets (real, personal or mixed, tangible or intangible) to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind;
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(v) written off as uncollectible any notes
or accounts receivable, except for write-offs in the ordinary course of business
and consistent with past practice, none of which are material;
(vi) canceled any debts or waived any claims
or rights of substantial value, or sold, transferred, or otherwise disposed of
any of its properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent with past
practice;
(vii) disposed of or permitted to lapse any
rights to use any Toll Free Telephone Number listed on Schedule 2.1(q) hereof,
patent, trademark, trade name or copyright, or disposed of or disclosed (except
as necessary in the conduct of its business) to any person any trade secret,
formula, process or know-how;
(viii) granted any general increase in the
compensation of officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or any increase
in the compensation payable or to become payable to any officer or employee,
and, unless otherwise set forth in Schedule 2.1(i), no such increase is
customary on a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or
commitment in excess of $10,000 for additions to property, plant, equipment or
intangible assets or made aggregate capital expenditures and commitments in
excess of $50,000 (on a consolidated basis), for additions to property, plant,
equipment or intangible assets;
(x) declared, paid or set aside for payment
any dividend or other distribution in respect of its capital stock;
(xi) made any change in any method of
accounting or accounting practice;
(xii) paid, loaned or advanced any amount
to, or sold, transferred or leased any properties or assets (real, personal or
mixed, tangible or intangible) to, or entered into any agreement or arrangement
with, any of its officers, directors, debtholders, the Sellers or employees or
any "affiliate" or "associate" of any of its officers, directors, noteholders,
the Sellers or employees (as such terms are defined in Rule 405 promulgated
under the Securities Act and as used herein "Associate" and "Affiliate"), except
for compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended December 31, 1997;
(xiii) paid any amount in respect of
indebtedness for borrowed money except for regularly scheduled payments of
principal and interest in accordance with the terms thereof; or
(xiv) agreed, whether in writing or
otherwise, to take any action described in this Section unless such action is
specifically excepted from this Section or described in Schedule 2.1(i).
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(j) TAX MATTERS. Except as set forth in Schedule
2.1(j) hereto, SS&L has filed with the appropriate governmental agencies all
Federal, state, local or foreign tax returns and reports required to be filed by
it ("Returns"), has paid in full or made adequate provision for the payment of,
all taxes of every nature, including, but not limited to, income, sales,
franchise and withholding taxes ("Taxes"), together with interest, penalties,
assessments and deficiencies owed by it (whether or not shown on any Returns),
and all such Returns were correct and complete in all respects. SS&L is not
currently the beneficiary of any extension of time within which to file any
Returns. The Sellers have previously provided Buyer with true and complete
copies of all such Returns filed within the past 5 years. The provisions for
income and other Taxes reflected on the Interim Balance Sheet are adequate for
all accrued and unpaid taxes of SS&L as of the date of the Interim Balance
Sheet, whether (i) incurred in respect of or measured by income of SS&L for any
periods prior to the close of business on that date, or (ii) arising out of
transactions entered into, or any state of facts existing, on or prior to that
date. The provision for Taxes reflected on the books of account of SS&L is
adequate for all Taxes of said entity which accrued since the date of the
Interim Balance Sheet. There are no filed or other known tax liens upon any
property or assets of SS&L. SS&L has not waived any statute of limitations in
respect of Taxes or executed or filed with any governmental authority any
agreement extending the period for the assessment or collection of any Taxes,
and it is not a party to any pending or, to SS&L's or any Seller's best
knowledge, threatened action or proceeding by any governmental authority for the
assessment or collection of Taxes. To the best knowledge of SS&L and the
Sellers, no issue has arisen in any examination of SS&L by any governmental
authority that if raised with respect to any other period not so examined would,
if upheld, result in a material deficiency for any other period not so examined.
There is no unresolved written claim by a governmental authority in any
jurisdiction where SS&L does not file Returns that SS&L is or may be subject to
taxation by such jurisdiction. There has been no examination or audit with
respect to Taxes with respect to any year. SS&L is not required to make any
adjustment pursuant to Section 481 of the Internal Revenue Code of 1986, as
amended (the "Code"), by reason of a change in accounting method or otherwise
and, to the best knowledge of SS&L and the Sellers, neither the Internal Revenue
Service nor any other governmental authority has proposed any such adjustment or
change in accounting method in respect of SS&L, which proposal is currently
pending and SS&L does not have an application pending with any governmental
authority requesting permission for any change in accounting method that relates
to its business and/or operations. SS&L 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, Seller or other third party. SS&L is
a "small business corporation" within the meaning of Section 1361(b) of the Code
and expects to continue to qualify as a small business corporation within the
meaning of such Section at all times until the Closing Date. SS&L does not have
liability or any potential or deferred liability for Taxes under Section
1371(d)(2), Section 1374 or Section 1375 of the Code. SS&L has never filed any
consolidated, combined or unitary Return for any period ending on or prior to
the Closing Date.
(k) LITIGATION. Except as set forth in Schedule
2.1(k) hereto, there are no suits or actions, or administrative, arbitration or
other proceedings or governmental investigations, pending, or to the best
knowledge of SS&L and the Sellers, threatened against or affecting, or which may
affect, SS&L or any of its properties, assets or businesses or the transactions
contemplated hereby. To the best knowledge of SS&L and the Sellers, there are no
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outstanding judgments, orders, stipulations, injunctions, decrees or awards
against SS&L which are not satisfied.
(l) COMPLIANCE WITH APPLICABLE LAW. SS&L is, and at
all times since its formation has been in compliance in all material respects
with all Federal, state, local and foreign laws, statutes, ordinances,
regulations, and administrative rulings (collectively "Laws"), promulgated by
any governmental or regulatory authority applicable to SS&L or to the conduct of
the business or operations of SS&L or to the use of its properties and assets,
including, without limitation, all environmental Laws and all Laws relating to
the Toll Free Telephone Numbers. SS&L has not received, and does not know of the
issuance or threatened issuance of, any notices of violation or alleged
violation of any laws by SS&L. Neither SS&L nor the Sellers know of any pending
or proposed legislation applicable to SS&L or to the conduct of business or
operations of SS&L which, if enacted, could have a material adverse effect on
the business, results of operations, financial position or prospects of SS&L or
the value of its properties or assets.
(m) PERMITS. A list of all permits, approvals,
licenses, certificates, franchises, authorizations, consents and orders
("Permits") necessary to the operation of the business of SS&L in the manner in
which it is presently conducted is set forth on Schedule 2.1(m) hereto. All such
Permits are valid and remain in full force and effect. SS&L has not engaged in
any activity which would cause revocation or suspension of any such Permits and
no action or proceeding looking to or contemplating the revocation or suspension
of any thereof is pending or threatened. No additional Permits will be required
to permit SS&L to continue its business substantially in the manner it is
presently conducted after the consummation of the transactions contemplated
hereby.
(n) TITLE TO PROPERTIES. SS&L does not own any real
property. Except as set forth in Schedule 2.1(n) hereto, SS&L has good title to
all of the properties and assets (personal and mixed, tangible and intangible)
reflected on the Interim Balance Sheet or thereafter acquired or which it
purports to own (except properties or assets sold or otherwise disposed of in
the ordinary course of business consistent with past practice subsequent to the
date of the Interim Balance Sheet which in the aggregate did not have a book
value in excess of $50,000), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever, except those referred to in
the Interim Balance Sheet. Schedule 2.1(n) also contains an accurate list
setting forth all (i) real property leased (whether as lessor or lessee) or
subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by SS&L and (ii) significant personal property leased by or to
SS&L or subject to a title retention or conditional sales agreement or other
security device. All leases listed in Schedule 2.1(n) are valid, binding and
enforceable in accordance with their terms, and are in full force and effect,
except to the extent that enforceability may be limited by the operation of
bankruptcy, insolvency or similar laws and, as to the availability of equitable
remedies, subject to the general principles of equity and the discretion of the
court having jurisdiction thereof; to the best of the Sellers' knowledge, there
are no material existing defaults by SS&L thereunder; no material event of
default has occurred which (whether with or without notice, lapse of time or
both) would constitute a material default by SS&L thereunder; and all lessors
under such leases have consented (where such consent is necessary) to the
consummation of the transactions contemplated by this Agreement without
requiring modification of the rights and obligations of SS&L under such leases.
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(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the
Interim Balance Sheet are good and collectible in the ordinary course of
business at the aggregate recorded amounts thereof, , less the amount written
off consistent with past practice as set forth in Schedule 2.1(o)(i) hereto, and
are not subject to any offsets. The accounts receivable of SS&L which were
thereafter added are good and collectible in the ordinary course of business at
the aggregate amounts recorded on the books of account, less the amount written
off consistent with past practice, and are not subject to any offsets.
(ii) Schedule 2.1(o)(ii) hereto contains a
complete and accurate list of all items of machinery, equipment and other fixed
assets of SS&L (the "Equipment") having a book value in excess of $100. To the
best of the Sellers' knowledge, each such item of Equipment is in good operating
condition, normal wear and tear excepted, and is fit for its intended use. To
the best of the Sellers' knowledge, each such item has been maintained, in all
material respects, in accordance with its manufacturer's recommended maintenance
practice and with prudent business practice and no such maintenance has been
deferred.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto
lists all licenses, patents, copyrights, or trademarks owned or used by SS&L in
the conduct of its business and all applications therefor (the "Intellectual
Property"). No officer or director, Seller or employee of SS&L nor any of their
Affiliates or Associates has any ownership or other interest in any of the
Intellectual Property. To the best knowledge of SS&L and the Sellers, none of
the Intellectual Property is being infringed upon by, or infringes, any
licenses, patents, copyrights, trademarks or other intellectual property rights
of any other person or entity. Except as set forth in Schedule 2.1(p), the
validity of the Intellectual Property and the title thereto of SS&L have not
been questioned in any litigation or governmental inquiry or proceeding to which
SS&L, is a party, and, to the best knowledge of SS&L and the Sellers, no such
litigation, governmental inquiry or proceeding is threatened. The conduct of the
business of SS&L as presently conducted does not conflict with valid licenses,
trademarks, trademark rights, trade names, trade name rights, service marks or
patents of others in any way likely to affect adversely, in any material
respect, the Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q)
hereto sets forth a complete list of all Toll Free Telephone Numbers owned or
used by SS&L in the conduct of its business. No officer or director, Seller or
employee of SS&L nor any of their Affiliates or Associates has any ownership or
other interest in the Toll Free Telephone Numbers. SS&L has not warehoused,
brokered or hoarded (as those terms are defined in the Second Report and Order
and Further Notice of Proposed Rulemaking in CC Docket No. 95-155, Released
April 11, 1997, by the Federal Communications Commission ("FCC")) any of the
Toll Free Telephone Numbers in violation of any applicable FCC rules or
regulations.
(r) INSURANCE. Schedule 2.1(r) hereto contains a
complete and correct list and copies of all policies of insurance in which SS&L
or its officers or directors (in such capacity) is an insured party, beneficiary
or loss payable payee. Such policies are in full force and effect and in the
reasonable judgment of SS&L and the Sellers provide the type and amount of
coverage reasonably required for the business of SS&L.
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(s) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule
2.1(s) hereto contains a complete and correct list showing (i) the name of each
bank in which SS&L has an account or safe deposit box and the names of all
persons authorized to draw thereon or have access thereto, and (ii) the names of
all persons, if any, holding powers of attorney from SS&L.
(t) EMPLOYEE ARRANGEMENTS; ERISA. SS&L has (i) no
union, collective bargaining, employment, management, severance or consulting
agreements to which SS&L is a party or is otherwise bound, and (ii) no
compensation plans, bonus plans, deferred compensation agreements, pension and
retirement plans, profit-sharing plans, stock purchase and stock option plans.
Schedule 2.1(t) hereto contains a complete and correct list and copies of SS&L's
hospitalization, insurance plans or arrangements providing for benefits for
employees of SS&L. Such Schedule also lists the names and compensation of all
persons employed by SS&L. SS&L has no employee benefits plans established or
maintained by SS&L which are qualified for Federal income tax exemption under
Sections 401 and 501 of the Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in
Schedule 2.1(u) hereto (i) SS&L is not a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale, distribution or servicing of the Toll Free Telephone
Numbers or services related thereto, (ii) SS&L does not have any sole-source
supplier of significant goods or services (other than utilities) with respect to
which practical alternative sources are not available on comparable terms and
conditions, (iii) there are not pending and, to SS&L's and the Sellers' best
knowledge there are not threatened, any labor negotiations involving or
affecting SS&L and, to SS&L's and the Sellers' best knowledge, no organizing
activities involving union representation exist in respect of any of its
employees, (iv) SS&L neither gives nor is bound by any express warranties
relating to its services and, to the best knowledge of SS&L and the Sellers,
there has been no assertion of any breach of warranties which could have a
material adverse effect on the business or condition (financial or otherwise) of
SS&L and, to the best knowledge of SS&L and the Sellers, there are no known
claims or complaints by a client representing at least five (5%) percent of the
revenue of SS&L with respect to any product sold or services provided by SS&L,
(v) SS&L is not a party to or bound by any agreement which limits its freedom to
compete in any line of business or with any person or entity, and (vi) SS&L is
not a party to or bound by any agreement or involved in any transaction in which
any officer, director, debtholder or Seller, or any Affiliate or Associate of
any such person has, or had when made, a direct or indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a
complete and correct list of any and all material contracts, commitments,
obligations and undertakings, written or oral, to which SS&L is a party or
otherwise bound, other than contracts, commitments, obligations and undertakings
with customers of SS&L producing less than $25,000 in revenue per year. True and
complete copies of all written contracts, commitments, obligations and
undertakings set forth in Schedule 2.1(v) hereto have been furnished to Buyer,
and except as expressly stated in Schedule 2.1(v), each of them is in full force
and effect, no person or entity which is a party thereto or otherwise bound
thereby is, to the best knowledge of SS&L and the Sellers, in material default
thereunder, and no event, occurrence, condition or act exists which, with the
giving of notice or the lapse of time or both, would give rise to a default or
right of cancellation thereunder, and SS&L is not in material default thereunder
and no event, occurrence, condition or act exists by or
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on behalf of SS&L which, with the giving of notice or the lapse of time or both
would give rise to a material default by SS&L thereunder, and to SS&L's and the
Sellers' best knowledge, there have been no threatened cancellations thereof and
there are no outstanding disputes thereunder. To the best of SS&L's and the
Sellers' knowledge there is no reason why any the contracts listed on Schedule
2.1(v) could not be continued between Buyer and SS&L's contractual partners on
the same terms and conditions as currently apply. Neither SS&L nor any Seller
has any reason to believe that any of SS&L's contractual partners will terminate
its relationship with SS&L as a result of the acquisition of SS&L by Buyer.
(w) BROKERS. No agent, broker, person or firm acting
on behalf of SS&L or the Sellers or under the authority of any of the foregoing,
is or shall be entitled to a brokerage commission, finder's fee, or other like
payment in connection with any of the transactions contemplated hereby, from
SS&L or any of the Sellers.
(x) DISCLOSURE. No representation or warranty made by
SS&L or the Sellers herein or in any of the Executed Agreements contains any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements therein not misleading.
(y) AFFILIATED TRANSACTIONS. Except as set forth in
Schedule 2.1(y) hereto, no Seller (i) is a party to any agreement, transaction
or arrangement (oral or written) with or involving SS&L or any Associate or
Affiliate of SS&L or any of the Sellers, or (ii) has any claim, monetary or
otherwise, of any sort against SS&L.
(z) CLAIMS AGAINST SS&L. Except as set forth in
Schedule 2.1(z) hereto, SS&L has no debts, obligations or liabilities owing to
the Sellers and, to the best knowledge of SS&L, nothing exists that could give
rise to a claim by the Sellers of any such debts, obligation or liability of
SS&L to the Sellers.
(aa) DISCLOSURE SCHEDULES. All schedules to this
Agreement are integral parts to this Agreement. Nothing in a schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, unless the schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. The Sellers
are responsible for preparing and arranging the schedules corresponding to the
lettered and numbered paragraphs contained herein.
2.2 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the
Sellers severally represents and warrants to, and covenants and agrees with
Buyer, with respect to such Seller, as follows:
(a) CAPACITY; VALIDITY. Such Seller has the legal
capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by such Seller and constitutes a valid and binding obligation of such
Seller enforceable against him in accordance with its terms.
(b) TITLE TO SECURITIES. Such Seller holds of record
and owns beneficially (or will own beneficially on the Closing Date) the number
of shares of the SS&L
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Stock set forth opposite his or her name on Schedule 1.1 hereto, free and clear
of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), taxes, liens, charges, claims,
demands, security interests, options, warrants, purchase rights, contracts,
commitments or other encumbrances. Such Seller is not a party to any option,
warrant, purchase right or other agreement or understanding that could require
such Seller to sell, transfer or otherwise dispose of any shares of the SS&L
Stock. Such Seller is not a party to any voting trust, proxy or other agreement
or understanding with respect to the voting of any shares of the SS&L Stock. The
sale and transfer of such shares of SS&L Stock to Buyer as provided herein shall
vest Buyer with good and marketable title to the SS&L Stock, free and clear of
all liens, charges, claims and encumbrances.
(c) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such
Seller does not own or possess any rights in or to the Toll Free Telephone
Numbers listed on Schedule 2.1(q) hereto.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to, and covenants and agrees with, the Sellers as
follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its business as presently conducted
by it and is qualified in each other jurisdiction in which qualification is
required for it to own, lease and operate its properties and carry on its
business as presently conducted by it, except to the extent that failure to so
qualify would not have a material adverse effect on the financial condition,
business or operations of Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of
this Agreement and of each of the other Executed Agreements to which it shall be
a party, the performance by Buyer of its obligations under this Agreement or
such Executed Agreements and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
corporate action on the part of Buyer, and Buyer has all necessary corporate
power with respect thereto. This Agreement and the Executed Agreements are, or
when executed and delivered by Buyer shall be, the valid and binding obligations
of Buyer, enforceable in accordance with their respective terms, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws and, as to the availability of equitable remedies,
subject to general principles of equity and the discretion of the court having
jurisdiction thereof. Neither the execution and delivery by Buyer of the
Executed Agreements, nor the consummation of the transactions contemplated
thereby, nor the performance by Buyer of its obligations under the Executed
Agreements, shall (nor with the giving of notice or the lapse of time or both
would) (i) conflict with or result in a breach of any provision of the Articles
of Incorporation or By-Laws of Buyer, (ii) violate any order, writ, injunction,
decree, law, statute, rule or regulation or (iii) interfere with or otherwise
materially and adversely affect the ability of Buyer to carry on its business as
now conducted.
(c) INVESTMENT INTENT. The SS&L Stock is being
acquired by Buyer for investment purposes only and not with a view to the
distribution or resale thereof. Buyer has
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no present intention to sell or otherwise dispose of the SS&L Stock, except in
compliance with the provisions of the Securities Act.
(d) BROKERS. No agent, broker, person or firm acting
on behalf of Buyer or under its authority is or shall be entitled to a brokerage
commission, finder's fee, or other like payment in connection with any of the
transactions contemplated hereby.
3. COVENANTS
3.1 COVENANTS OF THE SELLERS AND SS&L. The Sellers and SS&L
jointly and severally covenant and agree to perform or take any and all such
actions to effectuate the following from the date hereof until the Closing Date
or the termination of this agreement, whichever shall first occur:
(a) INVESTIGATION BY BUYER. Buyer may, prior to the
Closing Date, through its representatives (including its counsel, accountants
and consultants) make such investigations of the properties, offices and
operations of SS&L and such audit of the financial condition of SS&L as it deems
necessary or advisable in connection with the transactions contemplated hereby,
including, without limitation, any investigation enabling it to familiarize
itself with such properties, offices, operations and financial condition,
provided that no unreasonable interference with the normal business operations
of SS&L be thereby caused; such investigation shall not, however, affect SS&L's
or the Sellers' representations, warranties and agreements hereunder provided
that Buyer notifies the Sellers of any fact it discovers in such investigation
which it believes is in conflict with the representations and warranties made by
SS&L and/or the Sellers hereunder. SS&L and the Sellers shall permit Buyer and
its authorized representatives to have, after the date hereof, full access to
the premises and to all books and records and tax returns of SS&L and Buyer
shall have the right to make copies thereof and excerpts therefrom. SS&L and the
Sellers shall furnish Buyer with such financial and operating data and other
information with respect to SS&L as Buyer may from time to time reasonably
request.
(b) CARRY ON IN ORDINARY COURSE. Except with Buyer's
prior written consent, SS&L shall, and each Seller shall cause SS&L to, carry on
its business diligently and substantially in the same manner as heretofore
conducted, and shall not (i) enter into or agree to enter into any extraordinary
transaction, contract, lease or commitment, (ii) declare any dividends, nor make
any distributions or payments to the Sellers other than employment compensation,
(iii) redeem any shares of SS&L Stock or issue any capital stock or enter into
any agreement which grants a right to acquire any of SS&L's capital stock, (iv)
increase the compensation of any employee of SS&L, other than ordinary year-end
increases or enter into any severance agreement or employment agreement with any
employee of SS&L; (v) loan or advance any amounts to any officer, director,
Seller or employee of SS&L or enter into any agreement with any of the foregoing
or any person related to any of the foregoing, (vi) acquire or dispose of any
assets, other than in the ordinary course of business, and (vii) encumber or
commit to encumber any of its assets, (viii) take any action, or suffer any
action to be taken, which could cause any of the representations or warranties
of any Sellers or SS&L contained herein not to be true and correct on and as of
the Closing Date, or (ix) enter into any agreement to take any of the foregoing
actions.
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(c) OTHER TRANSACTIONS. SS&L and the Sellers shall
not, and shall cause SS&L's directors, officers, employees, agents and
Affiliates or Associates not to, directly or indirectly, solicit or initiate the
submission of proposals from, or solicit, encourage, entertain or enter into any
arrangement, agreement or understanding with, or engage in any negotiations
with, or furnish any information to, any person, other than Buyer or a
representative thereof, with respect to the acquisition of all or any part of
the business or assets of SS&L or any of its securities. Should SS&L or any of
its Affiliates or Associates, during such period, receive any offer or inquiry
relating to such acquisition, or obtain information that such an offer is likely
to be made, they will provide Buyer with immediate written notice thereof, which
notice will include the identity of the prospective offeror and the price and
terms of any offer.
(d) CONSENTS. Provided that there is no material cost
to, or obligations of, the Sellers and provided that Buyer provides all
reasonable cooperation, the Sellers shall cause SS&L to, and SS&L shall, use all
reasonable efforts to obtain in writing, prior to the Closing Date, all
consents, approvals, waivers, authorizations and orders necessary or reasonably
required in order to permit it to effectuate this Agreement and to consummate
the transactions contemplated hereby (collectively, "Consents"). All such
Consents will be in writing and copies thereof will be delivered to Buyer
promptly after SS&L's receipt thereof but no later than immediately prior to
Closing.
(e) SUPPLEMENTAL DISCLOSURE. The Sellers and SS&L
agree that, with respect to their representations and warranties made in this
Agreement, they will have a continuing obligation to promptly supplement or
amend the schedules hereto with respect to any matter hereafter discovered
which, if existing or known at the date of this Agreement and on the Closing
Date, would have been required to be set forth or described in the schedules
hereto.
(f) PUBLIC ANNOUNCEMENTS. The Sellers and Buyer agree
that they will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and any press release or any public statement
shall be subject to mutual agreement of the parties, except as may be required
by the disclosure obligations of Buyer under applicable securities laws.
4. CONDITIONS TO CLOSING
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation
of Buyer to close under this Agreement is subject to the satisfaction of
following conditions any of which may be waived by Buyer in writing at or prior
to Closing:
(a) DUE DILIGENCE. Buyer shall have completed to its
satisfaction its business, legal, tax and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the
Closing Date, the Sellers and SS&L shall have complied with and duly performed
all agreements and conditions on their part to be complied with and performed
pursuant to or in connection with this Agreement on or before the Closing Date.
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(c) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Sellers and SS&L contained in this
Agreement, or otherwise made in connection with the transactions contemplated
hereby, shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
(d) LOSS, DAMAGE OR DESTRUCTION. Between the date
hereof and the Closing Date there shall not have been any loss, damage or
destruction to or of any of the assets, property or business of SS&L in excess
of $25,000 in the aggregate, whether or not covered by insurance, nor shall the
assets, properties, business or prospects of SS&L have been adversely affected
in any way as a result of any fire, accident, or other casualty, war, civil
strife, riot or act of God or the public enemy or otherwise.
(e) NO LEGAL PROCEEDINGS. No court or governmental
action or proceeding shall have been instituted or threatened to restrain or
prohibit the transactions contemplated hereby, and on the Closing Date there
will be no court or governmental actions or proceedings pending or threatened
against or affecting SS&L which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of SS&L.
(f) CERTIFICATE. Buyer shall have received a
certificate dated the Closing Date and executed by the Sellers and an authorized
officer of SS&L to the effect that the conditions expressed in Sections 4.1(b),
4.1(c), 4.1(d) and 4.1(e) have been fulfilled.
(g) CONSENTS. Buyer shall have received all Consents
necessary to effectuate this Agreement and to consummate the transactions
contemplated hereby.
(h) EMPLOYMENT AGREEMENTS. Buyer shall have entered
into an Employment Agreement with James E. Carla, II, in form and substance
satisfactory to Buyer.
(i) [Intentionally omitted.]
(j) ESCROW AGREEMENT. The Sellers and the Escrow
Agent shall have entered into the Escrow Agreement.
(k) RESIGNATIONS OF OFFICERS AND DIRECTORS. Buyer
shall have received resignations effective as of the Closing Date from all of
the executive officers and each of the members of the board of directors of
SS&L.
(l) CERTIFICATES OF STATUS. Buyer shall have received
certificates from the Secretary of State of Florida and of each jurisdiction set
forth in Schedule 2.1(a) hereto, providing that SS&L has filed its most recent
annual report, has not filed articles of dissolution and is in good standing in
each such jurisdiction.
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(m) OPINION OF COUNSEL. The Sellers shall have
furnished Buyer with a favorable opinion of Williams, Parker, Harrison, Dietz &
Getzen, counsel for SS&L and the Sellers, dated as of the Closing Date, and in
form and substance reasonably satisfactory to Buyer.
(n) GENERAL RELEASE OF SS&L BY THE SELLERS. Each of
the Sellers shall have fully released and discharged SS&L from any and all
obligations owing to them by SS&L and all claims, actions or suits that they now
have or may hereafter have against SS&L in form and substance satisfactory to
Buyer and its counsel.
(o) OSB ACQUISITION. Simultaneously with the Closing,
Buyer shall have acquired all of the issued and outstanding capital stock of
Operators Standing By, Inc., a Florida corporation ("OSB").
4.2 CONDITIONS OF THE SELLERS' AND SS&L'S OBLIGATIONS TO
CLOSE. The obligations of the Sellers and SS&L to close under this Agreement are
subject to the following conditions any of which may be waived by SS&L in
writing at or prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the
Closing Date, Buyer shall have complied with and duly performed all agreements
and conditions on its part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer contained in this Agreement, shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
(c) CLOSING CERTIFICATE. The Sellers shall have
received a certificate dated the Closing Date and executed by an authorized
officer of Buyer to the effect that the conditions contained in Section 4.2(a)
and (b) have been fulfilled.
(d) ESCROW AGREEMENT. Buyer and the Escrow Agent
shall have entered into the Escrow Agreement.
(e) OSB ACQUISITION. Simultaneously with the Closing,
Buyer shall have acquired all of the issued and outstanding capital stock of
OSB.
(f) RELEASE OF GUARANTIES. Jerry D. Lewis shall have
received a written release or termination of each of the guaranties set forth on
Schedule 2.1(y) hereto.
5. TAX MATTERS
5.1 TAX RETURNS. Buyer shall prepare and file, or cause to be
prepared and filed, all Returns for SS&L that are due after the Closing Date,
including, without limitation, Returns relating to period(s) ending on or prior
to the Closing Date which are due after the Closing Date except the income tax
returns described in the following sentence. Notwithstanding the preceding
sentence, Sellers' Rep shall prepare and file, or cause to be prepared and
filed, all U.S.
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Federal, state and local income tax Returns of SS&L for all period(s) ending on
or prior to the Closing Date and no such Returns shall subsequently be amended
or refiled without the prior written consent of Buyer, which consent shall not
be unreasonably withheld. Sellers' Rep shall permit Buyer to review and comment
on each Return prepared by or on behalf of the Sellers in accordance with the
preceding sentence prior to filing and shall make such revisions to such Returns
as are reasonably requested by Buyer. Buyer shall cause all such Returns to be
signed by an authorized officer of SS&L to permit timely filing thereof
(including permitted extensions).
5.2 TAX ELECTION. Buyer may require the Sellers to join in
making the election permitted by Section 338(h)(10) of the Code (the "Election")
with respect to SS&L. If Buyer elects to do so, the following procedure shall be
followed:
(a) Not later than six months after the Closing Date,
Buyer shall deliver to the Sellers' Rep the following:
(i) A notice signed by Buyer stating Buyer's
intent to make the Election and requesting the Sellers to join in the Election.
(ii) A completed Form 8023-A signed by the
Buyer.
(iii) A copy of form 1120S that Buyer
proposes be filed by SS&L with respect to the period from January 1, 1998
through the Closing Date (the "1998 Period"), either as the initially filed
return, or as an amended return.
(iv) A copy of all work papers upon which
the form 1120S is based.
(b) Within 30 days after receipt of the items
described in subparagraph (i) above, the Seller shall deliver to Buyer the
following:
(i) A notice signed by the Sellers stating
whether or not, based upon information available to the Sellers at the time, he
accepts the accuracy, completeness, and form of presentation of Form 1120S
prepared by Buyer, with a reasonably detailed explanation of any non-acceptance.
(ii) A detailed calculation of the Sellers'
estimate of the Additional Tax and Expenses, as defined below, to which the
Sellers would be subjected if the Election is made. For this purpose,
"Additional Tax" shall mean the difference between the amount of the Sellers'
federal and Florida income tax liability, were the Election to be made, and the
amount of such liability were the Election not to be made. The Sellers' tax
liability arising from the sale of stock of SS&L, were the Election not to be
made, shall be based upon the consideration stated in this contract (including
all amounts paid or payable to the Sellers pursuant to this paragraph), the
Sellers' stock basis as conclusively determined by the Sellers' certified public
accountant, and a twenty percent capital gains tax rate. "Expenses" as used
above, means all out-of-pocket third party legal and accounting expenses which
the Sellers, as of the date of the calculation, reasonably expect to incur in
connection with the actions that the Sellers shall then
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have taken, and expect to take in the exercise of reasonable prudence, as a
direct consequence of the filing of the Election.
(c) Within 20 days after the receipt by Buyer of the
items described in Section 5.2(b) above, Buyer shall deliver to the Sellers the
following:
(i) A notice signed by Buyer stating whether
or not Buyer accepts the determination of the Additional Tax and Expenses stated
by the Sellers in the notice described in Section 5.2(b)(ii) above.
(ii) If Buyer accepts the calculation a
cashier's check in the amount of the Additional Tax and Expense specified by the
Sellers in the calculation of Section 5.2(b)(ii).
(iii) An agreement in form satisfactory to
the Sellers whereunder Buyer indemnifies the Sellers against all Additional Tax
and Expenses which the Sellers may incur prior to the final determination and
payment of the Additional Tax and the Sellers agree to reimburse Buyer to the
extent the Additional Taxes and Expenses specified in Section 5.2(b)(ii) shall
exceed the actual amount of Additional Taxes and Expenses incurred by the
Sellers. In the event that Buyer does not indemnify the Sellers in time for the
Sellers to pay the Additional Taxes on a timely basis, Buyer shall pay any
interest and penalties resulting therefrom.
(d) Within 20 days after the receipt by Buyer of the
items described in Section 5.2(b) above, Buyer and the Sellers shall attempt to
agree on a form of security, satisfactory to Buyer and the Sellers, to secure
the agreement set forth in Section 5.2(c)(iii) above, in an amount equal to 50%
of the amount paid under Section 5.2(b)(ii). In the event that the parties are
unable to agree, the Sellers shall not be required to join in making the
Election.
(e) If the security described in Section 5.2(d) has
been agreed to, within 5 days after the receipt by the Sellers of the items
described in Section 5.2(c) above, in form satisfactory to Seller, but in no
event later than eight months after the Closing Date, the Sellers shall execute
and deliver to Buyer the Form 8023-A.
(f) In the event that a dispute arises between Buyer
and the Sellers as to the accuracy, completeness or method of presentation of
tax returns, calculations, etc. under Sections 5.2(a) and (b) above, the parties
shall consult with each other in an attempt to resolve the dispute. If the
dispute cannot be thus resolved, the dispute shall be resolved by binding
arbitration to be carried out by a national accounting firm mutually acceptable
to Buyer and the Sellers at Buyer's expense. The Sellers' Expenses incurred in
connection with the resolution of such dispute. If the parties are unable to
agree on the selection of an arbitrator within 5 days of the notice of dispute,
Arthur Anderson shall be the arbitrator.
(g) Notwithstanding anything contained herein to the
contrary, if the Election is made, the Sellers shall have no liability for any
federal, state or local income tax, or any other kind of tax, imposed upon SS&L
under Section 1374 of the Code or otherwise, as a consequence of the Election,
nor any Expense incurred in connection therewith, nor will any
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representation, warranty or covenant hereunder be deemed to be breached by any
such tax liability, and Buyer shall indemnify the Sellers against any and all of
the foregoing.
(h) Each party shall provide all reasonable
cooperation to the other party hereunder to implement the foregoing procedure
and to attempt to permit the timely filing of Form 8023-A if the Buyer intends
to make the Election.
(i) If the Sellers' Form 1040 for 1998 is audited by
Internal Revenue Service and any issue concerning the amount of tax arising from
the Election is raised as an issue, the Sellers shall promptly notify Buyer, and
Buyer shall have the opportunity to participate in and/or undertake the defense
of such item according to the procedures set forth in Section 6 hereof relating
to indemnification.
(j) Buyer shall pay to the Sellers, within 15 days
after the Sellers shall give Buyer written notice, any and all amounts for which
the Sellers become obligated as Additional Tax and Expense. The Sellers shall
pay to Buyer within 15 days after Buyer shall give the Sellers written notice,
any and all amounts to the extent the Additional Taxes and Expenses paid to the
Sellers shall exceed the actual amount of Additional Taxes and Expenses incurred
by the Sellers. Any amounts due under this Section 5.2 not timely paid shall
bear interest at 10% per annum.
5.3 TRANSFER TAXES. Notwithstanding anything to the contrary
contained herein, the Sellers, jointly and severally, shall assume and pay all
sales, use, privilege, transfer, stock transfer, real property transfer,
documentary, gains, stamp, duties, recording and similar Taxes and fees
(including any penalties, interest or additions) imposed upon any party hereto
incurred in connection with any of the transactions contemplated by this
Agreement (collectively, "Transfer Taxes") and shall, at their own expense,
accurately file all necessary Returns and other documentation with respect to
any Transfer Tax other than Returns which Buyer is responsible for filing under
applicable law. The Sellers agree to timely sign and deliver such certificates
or forms as may be necessary or appropriate to establish a lawful exemption from
(or otherwise lawfully reduce), or file Returns with respect to, such Transfer
Taxes.
5.4 AMENDMENTS.
(a) The Sellers shall not (and shall not cause or
permit SS&L to) amend, refile or otherwise modify any Return relating in whole
or in part to SS&L with respect to any taxable year or period ending on or
before the Closing Date without the prior written consent of Buyer, which
consent shall not be unreasonably withheld or delayed.
(b) Buyer and each of the Sellers shall (i) assist
the other party in preparing any Returns which such other party is responsible
for preparing and filing in accordance with Section 5.1 above, (ii) cooperate
fully in preparing for any audits of, or disputes with taxing authorities
regarding, any Returns of SS&L, and (iii) make available to the other party and
to any taxing authority as reasonably requested all information, records and
documents relating to Taxes of SS&L.
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5.5 NOTICES. Each of the Sellers and Buyer shall (and shall
cause their respective Affiliates to): provide timely notice to the other in
writing of any notice of deficiency, proposed adjustment, adjustment,
assessment, audit, examination, suit, dispute or other claim delivered, sent,
commenced or initiated to or against SS&L by any taxing authority with respect
to taxable periods for which the other may have a liability hereunder and
furnish the other with copies of all correspondence received from any taxing
authority in connection with any Tax audit or information request with respect
to any such taxable period.
6. INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS. The representations and
warranties of the Sellers in this Agreement or in any document delivered
pursuant hereto shall survive the Closing Date for a period of three years and
shall then terminate; PROVIDED, HOWEVER, that (i) any such representation and
warranty shall survive the time it would otherwise terminate only with respect
to claims of which notice has been given as provided in this Agreement prior to
such termination and (ii) such time limitation shall not apply to the
representations and warranties set forth in Section 2.2(b) hereof, which shall
survive indefinitely, and Sections 2.1(h), 2.1(j), 2.1(l) and 2.1(n) hereof,
which shall survive until the expiration of the applicable statute of
limitations.
6.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this
Section 6, each party which, pursuant to this Section 6, shall agree to
indemnify any other person or entity shall be referred to, as applicable, as the
"Indemnitor", and each such person and entity who is entitled to be indemnified
by any Indemnitor shall be referred to as the "Indemnified Person" with respect
to such Indemnitor.
6.3 INDEMNITY OF SELLERS. The Sellers and, with respect only
to claims made hereunder by Buyer prior to the Closing, SS&L, hereby jointly and
severally agree to indemnify, hold harmless and reimburse Buyer and its
directors, officers, agents and employees from and against any and all claims,
liabilities, losses, damages and expenses incurred by such Indemnified Persons
(including reasonable attorneys' fees and disbursements) which shall be caused
by or related to or shall arise out of any breach or alleged breach of any
representation, warranty, covenant or agreement of SS&L or Sellers contained in
this Agreement and shall reimburse such Indemnified Persons for all costs and
expenses (including reasonable attorneys' fees and disbursements) as they shall
be incurred, in connection with paying, investigating, preparing for or
defending any action, claim, investigation, inquiry or other proceeding, whether
or not in connection with pending or threatened litigation, which shall be
caused by or related to or shall arise out of such breach or alleged breach,
whether or not any such Indemnified Person shall be named as a party thereto and
whether or not any liability shall result therefrom. The Sellers and SS&L
further agree that they shall not, without the prior written consent of Buyer
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder unless such settlement, compromise or consent shall
include an unconditional release of each Indemnified Person under this Section
6.3 from all liability arising out of such claim, action, suit or proceeding.
6.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold
harmless and reimburse the Sellers and SS&L and SS&L's directors, officers,
agents and employees from and against any and all claims, liabilities, losses,
damages and expenses incurred by them
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(including reasonable attorneys' fees and disbursements) which shall be caused
by or related to or shall arise out of any breach or alleged breach of any
representation, warranty, covenant or agreement of Buyer contained in this
Agreement and shall reimburse such Indemnified Persons for all costs and
expenses (including reasonable attorneys' fees and disbursements) as shall be
incurred, in connection with paying investigating, preparing for or defending
any action, claim, investigation, inquiry or other proceeding, whether or not in
connection with pending or threatened litigation, which shall be caused by or
related to or shall arise out of such breach or alleged breach, whether or not
such Indemnified Persons shall be named as a party thereto and whether or not
any liability shall result therefrom. Buyer further agrees that it shall not,
without the prior written consent of the Sellers' Rep and SS&L, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder unless such settlement, compromise or consent shall include an
unconditional release of the Sellers and SS&L under this Section 6.4 from all
liability arising out of such claim, action, suit or proceeding.
6.5 LIMITATION ON INDEMNIFICATION. The indemnification
obligations provided for by Sections 6.3 and 6.4 hereof shall not come into
effect until the Indemnified Persons shall have suffered damages by reason of
all matters and actions covered by Sections 6.3 and 6.4 hereof exceeding an
aggregate threshold of $25,000.
6.6 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after
receipt by an Indemnified Person of notice of the commencement of any action or
proceeding with respect to which indemnification may be sought hereunder, such
Indemnified Person shall notify the Indemnitor of the commencement of such
action or proceeding, but failure to so notify the Indemnitor shall not relieve
the Indemnitor from any liability which the Indemnitor may have hereunder or
otherwise, unless the Indemnitor shall be materially prejudiced by such failure.
If the Indemnitor shall so elect, the Indemnitor shall assume the defense of
such action or proceeding, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall pay the fees and
disbursements of such counsel. In the event, however, that such Indemnified
Person shall reasonably determine in its judgment that having common counsel
would present such counsel with a conflict of interest or alternative defenses
shall be available to an Indemnified Person or if the Indemnitor shall fail to
assume the defense of the action or proceeding in a timely manner, then such
Indemnified Person may employ separate counsel to represent or defend it in any
such action or proceeding and the Indemnitor shall pay the reasonable fees and
disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons in any jurisdiction in any single action or
proceeding. In any action or proceeding the defense of which the Indemnitor
shall assume, the Indemnified Person shall have the right to participate in such
litigation and to retain its own counsel at such Indemnified Person's own
expense except as otherwise provided above in this Section 6.5, so long as such
participation does not interfere with the Indemnitor's control of such
litigation.
6.7 TAX INDEMNITY. The Sellers, jointly and severally, shall
indemnify and hold harmless and reimburse Buyer from and against all Federal,
state and local income Taxes, imposed upon SS&L for any taxable year ending on
or prior to the Closing Date, except to the extent such Taxes shall be incurred
as a result of the Code Section 338(h)(10) election.
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7. NON-COMPETITION; CONFIDENTIALITY
7.1 NON-COMPETITION. Following the Closing Date and for a
period of three (3) years thereafter, no Seller shall, directly or indirectly,
(a) engage in any business or activity that competes with the business in which
SS&L is then engaged anywhere in the United States, other than the captive call
center business (the "Business"); (b) enter the employ of any person or entity
engaged in any business or activity that competes with the Business or render
any consulting or other services to any person or entity for use in or with the
effect of competing with the Business; or (c) have an interest in any business
or activity that competes with the Business, in any capacity, including, without
limitation, as an investor, partner, Seller, officer, director, principal,
agent, employee, or creditor; PROVIDED, HOWEVER, that nothing herein shall
prevent the purchase or ownership by any Seller of less than 3% of the
outstanding equity securities of any class of securities of a company registered
under Section 12 of the Securities and Exchange Act of 1934, as amended, nor the
Seller's ownership of any amount of the Buyer's equity securities, nor the
Seller's employment by Buyer or an affiliate of Buyer.
7.2 NO COMPETING INTERESTS. Each Seller hereby represents and
warrants to Buyer that he has no ownership or other interest in any business or
activity that competes, directly or indirectly, with the Business except for
ownership of stock of and other activities in connection with SS&L.
7.3 NON-DISRUPTION. Following the Closing Date and for a
period of five (5) years thereafter, no Seller shall, directly or indirectly,
interfere with, disrupt or attempt to disrupt any present or prospective
relationship then known to the Sellers, contractual or otherwise, between SS&L
or any of its Affiliates, on the one hand, and any of its customers, suppliers
or employees, on the other hand.
7.4 CONFIDENTIALITY. No Seller shall use for his own behalf or
divulge to any other person or entity any confidential information or trade
secrets of or relating to Buyer in any manner whatsoever (except as authorized
and required in connection with the Seller's relationship with Buyer or any of
its affiliates during the term of such relationship or except as may be required
under legal process by subpoena or other court order; PROVIDED, HOWEVER, that
the Seller shall give Buyer prompt prior written notice thereof in order to
contest such requirement or order). As used herein, confidential information
shall consist of all information, knowledge or data relating to Buyer or any of
its Affiliates (including, without limitation, all information relating to
inventions, procedures and operations, processes and methods, financial
information, customer and prospective customer lists, prices and trade
practices) which is not in the public domain or otherwise published or publicly
available, except for information which such Seller can demonstrate by written
records was previously known to him, or is now, or becomes in the future, public
knowledge, other than through acts or omissions of such Seller, is lawfully
obtained by such Seller from sources independent of Buyer, or is subsequently
developed by the Seller independent of confidential information or trade secrets
of or relating to Buyer in connection with this transaction.
7.5 REMEDIES UPON BREACH. The Sellers acknowledge and agree
that (a) Buyer shall be irreparably injured in the event of a breach by a Seller
of any of their obligations under this Section 7; (b) monetary damages shall not
be an adequate remedy for such breach; (c)
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Buyer shall be entitled to injunctive relief, in addition to any other remedy
which it may have, in the event of any such breach; and (d) the existence of any
claims which a Seller may have against Buyer, whether under this Agreement or
otherwise, shall not be a defense to the enforcement by Buyer of any of its
rights under this Agreement.
8. MISCELLANEOUS PROVISIONS
(a) CONFIDENTIALITY. SS&L, the Sellers and Buyer
agree not to, directly or indirectly, without the prior written consent of the
other, use or disclose to any person, firm or corporation, any of the terms of
this Agreement, except as may be required by the disclosure obligations of Buyer
under applicable securities laws or as may be required to be disclosed to the
attorneys and/or accountants of the parties hereto in connection with the
transactions contemplated hereby.
(b) NOTIFICATION. Each party hereto shall give the
other party or parties hereto prompt written notice of (i) the existence of any
fact or the occurrence of any event which constitutes, or with the giving of
notice or the passage of time or both would constitute, a breach of any
representation or warranty of the party giving such notice made herein or
pursuant hereto and (ii) the taking of any action by the party giving such
notice that would breach or violate, or constitute a default under, any
agreement or covenant of such party made herein or pursuant hereto. The giving
of any such notice shall not affect, modify or limit in any way any
representation, warranty, agreement or covenant of the parties made herein or
pursuant hereto.
(c) EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
(d) NOTICES. All notices, requests, demands and other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed duly given when delivered by
hand, telecopied or posted in the United States mail by registered or certified
mail with postage pre-paid, return receipt requested, (i) if to Buyer, to
Teleservices Acquisition Corporation, c/o Hertzog, Calamari & Gleason, 100 Park
Avenue, New York, New York 10016, Attention: John D. Vaughan, Esq., facsimile
number: (212) 213-1199; and (ii) if to the Sellers, to 1297 Ringling Boulevard,
Sarasota, Florida 34237, Attention: Mr. Jerry D. Lewis, facsimile number: (941)
906-9099, or to such other address(es) as shall be specified by like notice to
the other parties.
(e) AMENDMENTS. This Agreement may be amended or
modified at any time prior to the Closing Date, but only by a written instrument
executed by all of the parties hereto.
(f) ENTIRE AGREEMENT. This Agreement (together with
the other agreements, certificates, instruments and documents delivered pursuant
hereto) constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof, and supersedes all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof.
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(g) APPLICABLE LAW. This Agreement and the legal
relations among the parties hereto shall be governed by and construed in
accordance with the internal laws of the State of New York. The parties hereby
consent to the exclusive jurisdiction of Federal and New York State courts
located in the County of New York and agree that service of process by certified
mail, return receipt requested, shall constitute personal service for all
purposes hereof.
(h) TERMINATION. This Agreement may be terminated at
any time prior to the Closing Date by any of the following:
(i) By mutual written agreement of Buyer and
the Sellers;
(ii) By either Buyer or the Sellers, if the
Closing has not occurred within 30 days of the date hereof, upon written notice
by such terminating party, provided that at the time such notice is given a
material breach of this Agreement by such terminating party shall not be the
principal reason for the Closing's failure to occur;
(iii) Subject to the provisions of Section
8(i) hereof, by Buyer, by written notice to the Sellers and SS&L, if there has
been a material violation or breach of any of the Sellers' or SS&L's covenants
or agreements made herein or in connection herewith or if any representation or
warranty of the Sellers or SS&L made herein or in connection herewith proves to
be materially inaccurate or misleading; or
(iv) Subject to the provisions of Section
8(i) hereof, by the Sellers, by written notice to Buyer, if there has been a
material violation or breach of any of Buyer's covenants or agreements made
herein or in connection herewith or if any representation or warranty of Buyer
made herein or in connection herewith proves to be materially inaccurate or
misleading.
(i) EFFECTS OF TERMINATION. If this Agreement is
terminated as provided in Section 8(h) hereof, then this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of any party hereto (or any of their respective stockholders, officers,
directors or employees), except based on the agreements contained in Section 6.3
and 6.4 hereof; provided, HOWEVER, that if Buyer terminates this Agreement
pursuant to Section 8(h)(iii) hereof, or the Sellers terminate this Agreement
pursuant to Section 8(h)(iv) hereof, the non-terminating party shall remain
liable for any breach hereof.
(j) HEADINGS. The headings contained herein are for
the sole purpose of convenience of reference, and shall not in any way limit or
affect the meaning or interpretation of any of the terms or provisions of this
Agreement.
(k) FEES AND DISBURSEMENTS. Buyer shall pay its own
expenses, and the fees and disbursements of the counsel, accountants or auditors
retained by it in connection with the preparation, execution and delivery of
this Agreement and the fees and expenses and disbursements of the counsel to
SS&L and the Sellers shall be paid by the Sellers.
(l) ASSIGNMENT. This Agreement may not be assigned by
SS&L or any Seller without the prior written consent of Buyer. This Agreement
may not be assigned by
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Buyer, except for an assignment by Buyer to any Affiliate, without the prior
written consent of the Sellers' Rep.
(m) BINDING EFFECT; BENEFITS. This Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
(n) SEVERABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
(o) RECORDS RETENTION. On the Closing Date the
Sellers shall deliver to the Buyer all books, records and other documents
("Books and Records") pertaining to the business of SS&L, including, without
limitation,
(i) all instruments, documents and evidences
of title of any of the assets of SS&L and the SS&L Stock;
(ii) all books of account, ledgers, minute
books and other records of SS&L;
(iii) any and all other documents, records
and writing of any kind whatsoever which on the Closing Date shall be possessed
by the Sellers or SS&L for use to any extent or in any manner in connection with
the business of SS&L.
Buyer shall permit the Sellers or their duly authorized representatives at any
time and from time to time between the hours of 9:00 a.m. and 5:00 p.m., local
time, on weekdays excepting holidays, or upon reasonable prior written notice,
during the period of six (6) years following the Closing to examine, inspect,
photocopy and/or copy such Books and Records then in the possession of Buyer as
shall pertain to the operation of the SS&L business for the period ending on the
Closing Date.
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IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement the day and year first above written.
TELESERVICES ACQUISITION CORPORATION
By: /s/ Richard F. Gaccione
------------------------------------
Title: Chairman
SWEET, SCHATZ & LEWIS, INC.
By: /s/ Jerry D. Lewis
------------------------------------
Title: President
SELLERS:
/s/ Jerry D. Lewis
---------------------------------------
Jerry D. Lewis
/s/ James E. Carla, II
---------------------------------------
James E. Carla, II
/s/ Daniel L. Sullivan
---------------------------------------
Daniel L. Sullivan
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<PAGE> 1
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this
5th day of June, 1998, by and between TELESERVICES ACQUISITION SUB 1 INC., a
Delaware corporation ("Buyer"), TELESERVICES HOLDINGS CORPORATION., a Delaware
corporation and ultimate parent of Buyer ("Parent"), PROTOCOL COMMUNICATIONS
SERVICES, INC., a Massachusetts corporation (the "Seller") and David Dearborn
and Francis Quinn (the "Stockholders", and each individually, a "Stockholder").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Seller is principally engaged in the business of
supplying telemarketing services (the "Business") and is the end user subscriber
for certain toll free telephone numbers listed on Schedule 2.1(q) hereto (the
"Toll Free Telephone Numbers");
WHEREAS, the Stockholders are presently the owners of all of
the issued and outstanding capital stock of the Seller; and
WHEREAS, the Seller desires to sell to Buyer, and Buyer
desires to purchase from the Seller substantially all of its assets and
operations subject to certain liabilities, all in the manner and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, on the Closing Date (as defined in Section 1.6
below), the Seller shall, and the Stockholders shall cause the Seller to, sell,
transfer, convey, assign and deliver ("Transfer") to Buyer, and Buyer shall
purchase, acquire and accept from the Seller, all of the Seller's rights,
properties, assets, contracts, leases and businesses of every kind, character
and description, whether tangible or intangible, real, personal or mixed,
accrued, contingent or otherwise, and wherever located, less and except the
Excluded Assets (as defined in Section 1.2 below) (after giving effect to the
exclusion of the Excluded Assets, such assets are hereinafter collectively
referred to as the "Transferred Assets"), free and clear of all liens, claims
and encumbrances, including, without limitation:
(a) all cash and cash equivalents;
(b) all machinery, equipment, furniture, office equipment,
telephone equipment, computers and computer equipment, spare parts, supplies,
tools and vehicles;
- ----------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
(c) all of the Seller's right, title and interest in and
to any income and payments due the Seller, including, without limitation, all
accounts and accounts receivable whether or not reflected on the Seller's books
and records;
(d) all letters of credit, leases of real and personal
property, rental agreements, commitments, insurance policies, purchase orders,
sales orders, service agreements, maintenance agreements, distribution
agreements, supply agreements and all other contracts, agreements and
understandings, whether written or oral, and all rights, claims and causes of
action thereunder, whether pending or inchoate;
(e) all prepaid assets and all deposits, refunds, rebates
and other rights to payment relating to the Transferred Assets or Assumed
Liabilities, (as defined in Section 1.3 below);
(f) all intangible assets (including, without limitation,
all issued and applied for patents, trademarks, copyrights, trade names, trade
secrets, service marks, customer lists, relationships and arrangements with
customers, covenants not to compete, inventions, formulae, processes and
permits, computer software and source code, and all licenses, agreements and
applications with respect to any of the foregoing, any goodwill associated with
any of the foregoing, and all claims and causes of action relating to any of the
foregoing, including claims and causes of action for past infringement) arising
from or utilized in the operations of the Business, including the name "Protocol
Communications Services";
(g) to the extent transferable, all licenses,
authorizations and permits issued by any governmental agency relating to the
Business or the Transferred Assets, and all applications therefor pending; and
(h) all books, records and files relating to the Business
and the Transferred Assets and the operations thereof for all periods ending on
or before the Closing Date, but excluding such items which relate to the
Excluded Assets or the liabilities of the Seller not assumed by Buyer.
1.2 EXCLUDED ASSETS. Notwithstanding anything in Section 1.1
to the contrary, the Seller shall retain all of its right, title and interest in
and to all of, and shall not Transfer to Buyer any of, the following assets,
rights and properties (the "Excluded Assets"):
(a) any proceeds and any other consideration paid or
payable in accordance with this Agreement and all rights of the Seller under
this Agreement or any agreement or instrument executed pursuant hereto or
thereto, including, without limitation, the Seller's right to enforce Buyer's
representations, warranties and covenants hereunder and the obligations of Buyer
to pay, perform or discharge the Assumed Liabilities;
(b) all minute books, stock books and similar corporate
records of the Seller; and
(c) the items set forth on Schedule 1.2(c).
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<PAGE> 3
1.3 ASSUMPTION OF LIABILITIES. Subject to the terms and
conditions of this Agreement, on the Closing Date, Buyer shall assume and agree
to pay, perform and discharge when due only the following liabilities and
obligations of the Seller and no others:
(a) liabilities and obligations of the Seller in respect
of the accounts payable of the Seller set forth in the 12-Month Financial
Statements (as defined in Section 1.7(a) hereof) and accounts payable of the
Seller, and other non-material liabilities less than or equal to $25,000,
incurred by the Seller in the ordinary course of business since the date thereof
to the extent outstanding on the Closing Date, in each case exclusive of any
such accounts payable in respect of personal expenses of the Stockholders;
(b) liabilities and obligations of the Seller in respect
of Funded Debt (as defined in Section 1.7(d) hereof) to the extent set forth in
the Closing Date Financial Statements;
(c) liabilities and obligations of the Seller to Dorothy
F. Quinn under the pension plan referred to in Schedule 2.1(t) hereto (the
"Assumed Pension Obligations"); and
(d) obligations of the Seller for performance after the
Closing under the agreements set forth on Schedule 2.1(v) hereto.
1.4 EXCLUDED LIABILITIES. "Excluded Liabilities" shall mean,
and Buyer shall not assume and shall have no liability for, any liabilities or
obligations of the Seller not specifically set forth in Section 1.3 above,
including, without limitation, the following:
(a) any liability of the Seller for any Federal, state,
local or foreign income, capital gains or franchise taxes or taxes on capital
(including, without limitation, any deferred income tax liability and any
penalties and interest thereon);
(b) any liability for expenses incurred by, or for claims
made against, the Seller in connection with or resulting from or attributable to
this Agreement or the transactions contemplated hereby, if any;
(c) any liability for any investment banking, brokerage or
similar charge or commission, or any attorneys' or accountants' fees and
expenses, payable or incurred by the Seller in connection with the preparation,
negotiation, execution or delivery of this Agreement or the transactions
contemplated hereby;
(d) any liability of the Seller to Buyer arising out of
any misrepresentation or breach of any warranty of the Seller contained in this
Agreement or any of the schedules or exhibits hereto or in any certificate,
agreement, instrument or other document delivered pursuant hereto or out of the
failure of the Seller to perform any of its agreements or covenants contained
herein or therein or to perform or satisfy any of the Excluded Liabilities;
(e) any liability under any employee pension, benefit or
other plan other than the Assumed Pension Obligation; and
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<PAGE> 4
(f) any other liability arising from or relating to the
operation of the Business on or prior to the Closing Date to the extent not
specifically set forth in Section 1.3(a), (b), (c), or (d) above.
The Seller shall remain fully liable for, and shall promptly pay when due, the
Excluded Liabilities.
1.5 PURCHASE PRICE.
(a) As the purchase price for all of the Transferred
Assets (the "Purchase Price"), (i) Buyer shall pay to the Seller an aggregate
sum, subject to adjustment as provided in Section 1.7 below, of [******] in cash
(the "Cash Purchase Price")and (ii) Buyer shall cause Parent to issue [******]
shares of Class A Common Stock of Parent (the "Parent Common Stock") which
Parent agrees shall be equal to [****] of the outstanding capital stock of
Parent after completion of Phase I and Phase II Acquisitions, the further
transfer of which shall be restricted under the Securities Act of 1933, as
amended (the "Securities Act") and as provided under Section 2.2(e) hereof. For
purposes hereof, (i) "Phase I Acquisition" shall mean the acquisition by Buyer
of the businesses of Operators Standing By, Inc., Sweet, Schatz and Lewis, Inc.,
U.S. Telefactors Corporation and Protocol Communications Services, Inc. and
"Phase II Acquisitions" shall mean the acquisition by Buyer or its affiliates of
businesses comparable in revenues and earnings, in the aggregate, to the Phase I
Acquisitions and which acquisitions shall occur on or before March 31, 1999.
(b) The Cash Purchase Price shall be payable in cash at
Closing by wire transfer of immediately available funds as follows: (i) [******]
to an account of the Seller designated in writing by the Seller allocated and
(ii) [******] to the account of Mesirov Gelman Jaffe Cramer & Jamieson, LLP, as
escrow agent ("Escrow Agent") designated in the escrow agreement annexed hereto
as Exhibit A (as the same may be amended from time to time, the "Escrow
Agreement"), to be held and disbursed by the Escrow Agent pursuant to the terms
thereof.
1.6 CLOSING DATE. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Hertzog,
Calamari & Gleason, 100 Park Avenue, 23rd Floor, New York, New York, at 10:00
A.M., June 5, 1998, or at such other place and/or on such other date and time as
shall be agreed upon by Buyer and the Seller (the "Closing Date").
1.7 PURCHASE PRICE ADJUSTMENT.
(a) Within one hundred twenty (120) days after Closing,
Buyer shall cause KPMG Peat Marwick LLP to deliver to the Seller an audited
balance sheet and related statements of income, retained earnings and cash flows
for the Seller's fiscal year ended December 31, 1997 (the "1997 Financial
Statements"), and for the 12-month period ended March 31, 1998 (the "12-Month
Financial Statements"), all of which financial statements shall be prepared in
accordance with generally accepted accounting principles ("GAAP") and the rules
and regulations of the Securities Exchange Commission applicable to financial
reporting of public companies.
(b) The Seller shall have forty-five (45) days from
delivery of the 1997 Financial Statements and the 12-Month Financial Statements
(collectively, the "Financial
4
<PAGE> 5
Statements") to raise any objection thereto by delivery of written notice to
Buyer setting forth such objections in reasonable detail. In the event that the
Seller shall fail to so deliver such written objections with respect to any of
the Financial Statements within such 45-day period, then any such Financial
Statements in respect of which no such objection is so delivered shall be deemed
final and binding on the parties. In the event that any such objections are so
delivered, Buyer and the Seller shall attempt, in good faith, to resolve such
objections and, if unable to do so within fifteen (15) days of delivery of such
objections, shall, within five (5) business days thereafter designate a
nationally recognized firm of independent public accountants, mutually
satisfactory to Buyer and the Seller (the "Independent Accountants"). In the
event that Buyer and the Seller are unable to agree on the Independent
Accountants within such 5-business day period, the Independent Accountants shall
be designated jointly by the independent accountants of Buyer and the Seller
within three (3) business days thereafter. The Independent Accountants shall
resolve all remaining objections to the Financial Statements made by the Seller
in accordance herewith within thirty (30) days from their date of designation.
The determination of the Independent Accountants shall be final and binding on
the parties. The fees and expenses of the Independent Accountant shall be borne
by the Stockholders, jointly and severally, unless the determination of the
Independent Accountants shall result in an increase in the amount of the
Purchase Price of more than ten (10%) percent over the amount of the Purchase
Price as determined from the Financial Statements originally delivered to
Seller.
(c) The Cash Purchase Price shall be adjusted in each of
the following instances, based on the Financial Statements, as finally
determined in accordance herewith, by the amounts ("Adjustment Amounts")
determined as follows:
(i) in the event that the Seller shall have
outstanding on March 31, 1998, Net Funded Debt (as defined below) in excess of
[******], the Cash Purchase Price shall be reduced by an amount equal to such
excess;
(ii) in the event that the sum of [******] shall
exceed 12-Month EBITDA (as defined below) by more than [*******] (E.G., [**]),
the Cash Purchase Price shall be reduced by an amount ---- equal to [****] for
each $1.00 of such excess (rounded down to the nearest whole dollar); and
(iii) in the event that 12-Month EBITDA shall exceed
the sum of [*******] by more than [******] (E.G., [***]), the Cash Purchase
Price shall be increased by an amount equal to [****] for each $1.00 of
such excess (rounded down to the nearest whole dollar).
Within three (3) business days of the final determinations of the applicable
Financial Statements (e.g., the Financial Statements from which each Adjustment
Amount is to be calculated), (A) the Seller shall pay to Buyer (whether or not
the sum of such Adjustment Amounts shall exceed the Cash Purchase Price) each
Adjustment Amount calculated pursuant to Sections 1.7(c)(i) and 1.7(c)(ii) above
in the aggregate, by wire transfer of immediately available funds to an account
designated in writing by Buyer. Buyer shall pay to the Seller the Adjustment
Amount calculated pursuant to 1.7(c)(iii), net of any unpaid Adjustment Amounts
due to Buyer pursuant to Sections 1.7(c)(i) and 1.7(c)(ii) above, on terms to be
agreed upon by Buyer and the Seller.
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<PAGE> 6
(d) For purposes hereof, (i) "Funded Debt" shall mean the
remainder of all indebtedness of the Seller for borrowed money outstanding on
March 31, 1998 (including, without limitation, capitalized lease obligations),
exclusive of indebtedness incurred under the revolving credit facility referred
to in Schedule 2.1(v) hereto, but only to the extent incurred in order to fund
the Seller's working capital requirements, including distributions to fund the
Stockholders' 1997 Federal and state tax liability in respect of earnings of the
Seller, and (ii) "12-Month EBITDA" shall mean the earnings of the Seller for the
12-month period ended March 31, 1998, before deduction for interest, taxes,
depreciation and amortization, in each case determined in accordance with GAAP
and before deduction in respect of [******] in non-recurring charges mutually
agreed to by Buyer and the Seller and, as set forth on the 12-Month Financial
Statements.
(e) The parties acknowledge and agree that the Purchase
Price shall be allocated among the Transferred Assets in accordance with
Schedule 1.7(e) hereto. The parties shall not take any position for purposes of
Federal, state or local income taxes respecting the allocation of the Purchase
Price which is inconsistent with the allocation set forth on such Schedule.
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
STOCKHOLDERS. The Seller and the Stockholders hereby, jointly and severally,
represent and warrant to, and covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Seller is a
corporation duly organized, validly existing and in good standing and authorized
to exercise its corporate powers, rights and privileges under the laws of the
State of Massachusetts with full corporate power and authority to own, lease and
operate its properties and to carry on its business as presently conducted by
it. Schedule 2.1(a) hereto sets forth all states and other jurisdictions in
which the Seller is duly qualified and in good standing to do business as a
foreign corporation. There are no other states or jurisdictions in which the
character and location of the properties owned or leased by it, or the conduct
of its business makes such qualification necessary except those in which the
failure to so qualify would not have a material adverse effect on Seller. Copies
of the Seller's Articles of Incorporation and all amendments thereto, and of the
Seller's By-Laws, as amended to date, are attached to Schedule 2.1(a) and are
complete and correct.
(b) [INTENTIONALLY OMITTED]
(c) AUTHORITY. The execution and delivery by the Seller
and the Stockholders of this Agreement and all of the agreements, schedules,
exhibits, documents and instruments specifically provided for hereunder to be
executed and/or delivered by any or all of them (all of the foregoing, including
this Agreement, being hereinafter sometimes collectively referred to as the
"Executed Agreements"), the performance by the Seller and any or all of the
Stockholders (to the extent that they are parties thereto) of their respective
obligations under the Executed Agreements, and the consummation of the
transactions contemplated by the Executed Agreements, have been duly and validly
authorized by all necessary corporate action on the part of the Seller and by
the Stockholders, and the Seller has all necessary corporate power with respect
thereto. The Executed Agreements are, or when executed and delivered by the
delivering parties shall be, the valid and binding obligations of the delivering
parties, enforceable in accordance with
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<PAGE> 7
their respective terms, except to the extent that enforceability may be limited
by the operation of bankruptcy, insolvency or similar laws. Neither the
execution and delivery by the Seller and any or all of the Stockholders (to the
extent that they are parties thereto) of the Executed Agreements, nor the
consummation of the transactions contemplated thereby, nor the performance by
the Seller and any or all of the Stockholders (to the extent that they are
parties thereto) of their respective obligations under the Executed Agreements,
shall (nor with the giving of notice or the lapse of time or both would) (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or By-Laws of the Seller, (ii) give rise to a default, or any
right of termination, cancellation or acceleration, or otherwise result in a
loss of contractual benefits to the Seller, under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which the Seller or any Stockholder is a party
or by which it or any of its properties or assets may be bound, (iii) violate
any law, statute, rule or regulation, or to the knowledge of the Seller and the
Stockholders, any order, writ, injunction or decree, applicable to the Seller or
any of the Stockholders or any of their respective properties or assets, (iv)
result in the creation or imposition of any lien, claim, restriction, charge or
encumbrance upon any of the properties or assets of the Seller, or (v) interfere
with or otherwise materially and adversely affect the ability of the Seller to
carry on its business as now conducted.
(d) INTERESTS IN OTHER ENTITIES. Except as set forth in
Schedule 2.1(d) hereto, the Seller does not (i) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation or entity, (ii) have any ownership interest, direct or
indirect, of record or beneficially, in any entity, or (iii) have any
obligation, direct or indirect, present or contingent, to purchase or subscribe
for any interest in, advance or loan monies to, or in any way make investments
in, any person or entity, or to share any profits or capital investments in
other persons or entities, or both.
(e) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS.
Except as set forth in Schedule 2.1(e) hereto, no approval, consent, compliance,
exemption, authorization or other action by, or notice to or filing with, any
governmental authority or any other entity, and no lapse of a waiting period, is
necessary or required to be obtained by the Seller or any Stockholder in
connection with the execution, delivery or performance by any of them, of this
Agreement, any of the Executed Agreements or the transactions contemplated
hereby.
(f) PROJECTIONS. The Seller has delivered to Buyer a set
of projections (the "Projections"), a copy of which is attached hereto as
Schedule 2.1(f), which the Seller and the Stockholders have been advised are
material to Buyer in its decision to enter into this Agreement. The Projections
are based on the best estimates of the Seller and the Stockholders derived from
reasonable expectations at the time the Projections were made, and the Seller
and the Stockholders believe that Buyer is justified in relying thereon, there
being, however, no guarantee of the achievement of the Projections.
(g) FINANCIAL STATEMENTS; MINIMUM NET WORTH.
(i) The Seller has delivered to Buyer true and
complete copies of its unaudited balance sheets as of December 31, 1996, and
related statements of income, retained earnings and cash flows for the period
then ending (the "1996 Financial Statements"), true and complete copies of its
unaudited balance sheets as of December 31, 1997, and related statements of
income, retained earnings and cash flows for the period then ending and true and
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<PAGE> 8
complete copies of its unaudited balance sheet as of March 31, 1998 (the
"Interim Balance Sheet"), and related statements of income, retained earnings
and cash flows for the period then ending (collectively, with the Interim
Balance Sheet, the "Interim Financial Statements"). All of such financial
statements, including any notes thereto, were prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved subject, in
respect of the Interim Financial Statements, to normal year-end audit
adjustments, none of which are material (except as may be otherwise expressly
stated in said financial statements and notes thereto or in Schedule 2.1(g)
hereto) and such financial statements and notes thereto fairly present the
financial position of the Seller at the dates thereof and the results of its
operations for the periods as indicated. The books and records of the Seller are
in all material respects complete and correct, have been maintained in
accordance with good business practices, and accurately reflect the basis for
the financial condition and results of operations of the Seller as set forth in
the financial statements referred to herein.
(ii) As of June 1, 1998, the Seller shall have had a
Net Worth equal to or greater than [******]. For purposes hereof "Net Worth"
shall mean the excess of (A) the total Transferred Assets of the Seller as of
June 1, 1998, over (B) the total Assumed Liabilities of the Seller as of such
date, in each case, determined in accordance with GAAP.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. The Seller does
not have any liabilities, commitments or obligations, whether accrued, absolute,
contingent or otherwise which have not been (i) in the case of liabilities,
commitments and obligations of a type customarily reflected on the corporate
balance sheet of the Seller, reflected on the Interim Balance Sheet in
accordance with GAAP, incurred, consistent with past practice, in the ordinary
course of business since the date of the Interim Balance Sheet and which are not
material either individually or in the aggregate or (ii) in the case of all
other types of liabilities and obligations, described in Schedule 2.1(h) hereto.
(i) ABSENCE OF CERTAIN CHANGES. Except as and to the
extent set forth in Schedule 2.1(i) hereto, since December 31, 1997, the Seller
has not:
(i) suffered any material adverse change in its
working capital, condition (financial or otherwise), assets, liabilities,
business or operations;
(ii) incurred any material liabilities or obligations
except items incurred in the ordinary course of business and consistent with
past practice, none of which exceeds $5,000 (counting obligations or liabilities
arising from one transaction or a series or similar transactions, and all
periodic installments or payments under any lease or other agreement providing
for periodic installments or payments, as a single obligation or liability), or
experienced any increase in, or change in any assumption underlying or methods
of calculating, any bad debt, contingency or other reserves;
(iii) paid, discharged or satisfied any claim,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities and obligations reflected or
reserved against in the Interim Balance Sheet or incurred in the ordinary course
of business and consistent with past practice since the date of the Interim
Balance Sheet;
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<PAGE> 9
(iv) permitted or allowed any of its property or
assets (real, personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge of
any kind;
(v) written off as uncollectible any notes or accounts
receivable, except for write-offs in the ordinary course of business and
consistent with past practice, none of which are material;
(vi) canceled any debts or waived any claims or rights
of substantial value, or sold, transferred, or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(vii) disposed of or permitted to lapse any rights to
use any Toll Free Telephone Number listed on Schedule 2.1(q) hereof, patent,
trademark, trade name or copyright, or disposed of or disclosed (except as
necessary in the conduct of its business) to any person any trade secret,
formula, process or know-how;
(viii) granted any general increase in the
compensation of officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or any increase
in the compensation payable or to become payable to any officer or employee,
and, unless otherwise set forth in Schedule 2.1(i), no such increase is
customary on a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or commitment
in excess of $10,000 for additions to property, plant, equipment or intangible
assets or made aggregate capital expenditures and commitments in excess of
$50,000 (on a consolidated basis), for additions to property, plant, equipment
or intangible assets;
(x) declared, paid or set aside for payment any
dividend or other distribution in respect of its capital stock;
(xi) made any change in any method of accounting or
accounting practice;
(xii) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of its officers, directors, debtholders, stockholders or employees or any
"affiliate" or "associate" of any of its officers, directors, noteholders,
stockholders or employees (as such terms are defined in Rule 405 promulgated
under the Securities Act and as used herein "Associate" and "Affiliate"), except
for compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended December 31, 1997;
(xiii) paid any amount in respect of indebtedness for
borrowed money except for regularly scheduled payments of principal and interest
in accordance with the terms thereof; or
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(xiv) agreed, whether in writing or otherwise, to take
any action described in this Section unless such action is specifically excepted
from this Section or described in Schedule 2.1(i).
(j) TAX MATTERS. Except as set forth in Schedule 2.1(j)
hereto, the Seller has filed with the appropriate governmental agencies all
Federal, state, local or foreign tax returns and reports required to be filed by
it ("Returns"), has paid in full or made adequate provision for the payment of,
all taxes of every nature, including, but not limited to, income, sales,
franchise and withholding taxes ("Taxes"), together with interest, penalties,
assessments and deficiencies owed by it (whether or not shown on any Returns),
and to its knowledge all such Returns were correct and complete in all respects.
The Seller is not currently the beneficiary of any extension of time within
which to file any Returns. The Seller has previously provided Buyer with true
and complete copies of all such Returns filed within the past 5 years. The
provisions for income and other Taxes reflected on the Interim Balance Sheet are
adequate for all accrued and unpaid taxes of the Seller as of the date of the
Interim Balance Sheet, whether (i) incurred in respect of or measured by income
of the Seller for any periods prior to the close of business on that date, or
(ii) arising out of transactions entered into, or any state of facts existing,
on or prior to that date. The provision for Taxes reflected on the books of
account of the Seller is adequate for all Taxes of said entity which accrued
since the date of the Interim Balance Sheet. There are no filed or other known
tax liens upon any property or assets of the Seller. The Seller has not waived
any statute of limitations in respect of Taxes or executed or filed with any
governmental authority any agreement extending the period for the assessment or
collection of any Taxes, and it is not a party to any pending or, to the
Seller's or any Stockholder's knowledge, threatened action or proceeding by any
governmental authority for the assessment or collection of Taxes. To the
knowledge of the Seller and the Stockholders, no issue has arisen in any
examination of the Seller by any governmental authority that if raised with
respect to any other period not so examined would, if upheld, result in a
material deficiency for any other period not so examined. There is no unresolved
written claim by a governmental authority in any jurisdiction where the Seller
does not file Returns that the Seller is or may be subject to taxation by such
jurisdiction. There has been no examination or audit with respect to Taxes with
respect to any year. The Seller 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, stockholder or other third party.
(k) LITIGATION. Except as set forth in Schedule 2.1(k)
hereto, there are no suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending, or to the best knowledge of
the Seller and the Stockholders, threatened against or affecting, or which, if
adversely determined, would have a material adverse effect on the Seller or any
of its properties, assets or businesses or the transactions contemplated hereby.
To the best knowledge of the Seller and the Stockholders, there are no
outstanding judgments, orders, stipulations, injunctions, decrees or awards
against the Seller which are not satisfied.
(l) COMPLIANCE WITH APPLICABLE LAW. The Seller is, and at
all times since its formation has been in all material respects in compliance
with all Federal, state, local and foreign laws, statutes, ordinances,
regulations, and administrative rulings (collectively "Laws"), promulgated by
any governmental or regulatory authority applicable to the Seller or to the
conduct of the business or operations of the Seller or to the use of its
properties and assets, including, without limitation, all environmental Laws and
all Laws relating to the Toll Free Telephone Numbers. The Seller has not
received, and the Seller and the Stockholders do not know of the
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issuance or threatened issuance of, any notices of violation or alleged
violation of any laws by the Seller. Neither the Seller nor the Stockholders
know of any pending or proposed legislation applicable to the Seller or to the
conduct of business or operations of the Seller which, if enacted, could have a
material adverse effect on the business, results of operations, financial
position or prospects of the Seller or the value of its properties or assets.
(m) PERMITS. A list of all permits, approvals, licenses,
certificates, franchises, authorizations, consents and orders ("Permits")
necessary to the operation of the business of the Seller in the manner in which
it is presently conducted is set forth on Schedule 2.1(m) hereto. All such
Permits are valid and remain in full force and effect. The Seller has not
engaged in any activity which would cause revocation or suspension of any such
Permits and no action or proceeding looking to or contemplating the revocation
or suspension of any thereof is pending or threatened. No additional Permits
will be required to permit the Seller to continue its business substantially in
the manner it is presently conducted after the consummation of the transactions
contemplated hereby, except those the failure of which to obtain would not have
a material adverse effect on Seller.
(n) TITLE TO PROPERTIES. The Transferred Assets constitute
all assets which have been used in the Business since December 31, 1997, except
worn out or obsolete equipment disposed of in the ordinary course of business,
and which are necessary for the conduct of the Business. The Seller does not own
any real property. Except as set forth in Schedule 2.1(n) hereto, the Seller has
good title to all of the properties and assets (personal and mixed, tangible and
intangible) reflected on the Interim Balance Sheet or thereafter acquired or
which it purports to own (except properties or assets sold or otherwise disposed
of in the ordinary course of business consistent with past practice subsequent
to the date of the Interim Balance Sheet which in the aggregate did not have a
book value in excess of $5,000), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature whatsoever, except those referred
to in the Interim Balance Sheet. Schedule 2.1(n) also contains an accurate list
setting forth all (i) real property leased (whether as lessor or lessee) or
subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by the Seller and (ii) significant personal property leased by
or to the Seller or subject to a title retention or conditional sales agreement
or other security device. All leases listed in Schedule 2.1(n) are valid,
binding and enforceable in accordance with their terms, and are in full force
and effect, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws; there are no existing
defaults by the Seller thereunder; no event of default has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default by the Seller thereunder; and all lessors under such leases have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification of
the rights and obligations of the Seller under such leases. All of the tangible
property (whether owned or leased) included in the Transferred Assets are
located at the real property leased by the Seller as set forth in Schedule
2.1(n) hereto.
(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the Interim
Balance Sheet are good and collectible in the ordinary course of business at the
aggregate recorded amounts thereof, less the amount of the reserve for bad
accounts reflected therein, and are not subject to any offsets. The accounts
receivable of the Seller which were thereafter added are good and collectible in
the ordinary course of business at the aggregate amounts recorded on the books
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of account, less the amount of the reserve for bad accounts reflected therein
(which reserve has been established on a basis consistent with prior practice
and in accordance with GAAP) and are not subject to any offsets. Set forth on
Schedule 2.1(o) hereto is a true and complete list of the Seller's accounts
receivable as of May 31, 1998, and aging with respect thereto.
(ii) Schedule 2.1(o) hereto contains a complete and
accurate list of all machinery, equipment and other fixed assets of the Seller
(the "Equipment") having a book value in excess of $1,000. Each such item of
Equipment is in good operating condition, normal wear and tear excepted, and is
fit for its intended use. Each such item has been maintained, in all material
respects, in accordance with its manufacturer's recommended maintenance practice
and with prudent business practice and no such maintenance has been deferred.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto lists
all licenses, patents, copyrights, or trademarks owned or used by the Seller in
the conduct of its business and all applications therefor (the "Intellectual
Property"). No officer or director, stockholder or employee of the Seller nor
any of their Affiliates or Associates has any ownership or other interest in any
of the Intellectual Property. To the knowledge of the Seller and the
Stockholders, none of the Intellectual Property is being infringed upon by, or
infringes, any licenses, patents, copyrights, trademarks or other intellectual
property rights of any other person or entity. Except as set forth in Schedule
2.1(p), the validity of the Intellectual Property and the title thereto of the
Seller have not been questioned in any litigation or governmental inquiry or
proceeding to which the Seller, is a party, and, to the best knowledge of the
Seller and the Stockholders, no such litigation, governmental inquiry or
proceeding is threatened. To the Seller's knowledge, the conduct of the business
of the Seller as presently conducted does not conflict with valid licenses,
trademarks, trademark rights, trade names, trade name rights, service marks or
patents of others in any way likely to affect adversely, in any material
respect, the Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q) hereto
sets forth a complete list of all Toll Free Telephone Numbers owned or used by
the Seller in the conduct of its business. No officer or director, stockholder
or employee of the Seller nor any of their Affiliates or Associates has any
ownership or other interest in the Toll Free Telephone Numbers. The Seller has
not warehoused, brokered or hoarded (as those terms are defined in the Second
Report and Order and Further Notice of Proposed Rulemaking in CC Docket No.
95-155, Released April 11, 1997, by the Federal Communications Commission
("FCC")) any of the Toll Free Telephone Numbers in violation of any applicable
FCC rules or regulations.
(r) INSURANCE. Schedule 2.1(r) hereto contains a complete
and correct list and copies of all policies of insurance in which the Seller or
its officers or directors (in such capacity) is an insured party, beneficiary or
loss payable payee. Such policies are in full force and effect and in the
reasonable judgment of the Seller and the Stockholders provide the type and
amount of coverage reasonably required for the business of the Seller.
(s) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 2.1(s)
hereto contains a complete and correct list showing (i) the name of each bank in
which the Seller has an account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto, and (ii) the names of all
persons, if any, holding powers of attorney from the Seller.
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(t) EMPLOYEE ARRANGEMENTS; ERISA. The Seller has no union,
collective bargaining, employment, management, or consulting agreements to which
the Seller is a party or is otherwise bound. Schedule 2.1(t) hereto contains a
true and complete list of all pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, severance,
disability, hospitalization, medical insurance, life insurance and other
employee benefit plans, programs or arrangements maintained by the Seller or
under which the Seller has any material obligations (other than obligations to
make current wage or salary payments) in respect of, or which otherwise cover,
any of the current or former officers, employees or consultants of the Seller,
or their beneficiaries (each an "Employee Benefit Plan" and collectively the
"Employee Benefit Plans"). Except as set forth in Schedule 2.1(t) hereto, no
Employee Benefit Plan is subject to Title IV of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 412 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Seller has provided Buyer
true and complete copies of all Forms 5500 (with attached schedules) filed
during the three most recently ended plan years for each Employee Benefit Plan.
Except as set forth on Schedule 2.1(t) hereto, all Employee Benefit Plans
comply, in all material respects, in form, operation and administration with
their respective provisions, the applicable provisions of ERISA, the Code and
other applicable laws. All contributions to and payments from the Employee
Benefit Plans which may have been required to be made in accordance with the
Employee Benefit Plans, and when applicable, ERISA and the Code, have been made
or are properly accrued and reflected on the Balance Sheets or the books and
records of the Seller. Schedule 2.1(t) hereto also lists the names and
compensation of all persons employed by the Seller. Except as set forth on
Schedule 2.1(t) hereto, the Seller has no Employee Benefit Plans which are
qualified for Federal income tax exemption under Sections 401 and 501 of the
Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in
Schedule 2.1(u) hereto (i) the Seller is not a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale, distribution or servicing of the Toll Free Telephone
Numbers or services related thereto, (ii) the Seller does not have any
sole-source supplier of significant goods or services (other than utilities)
with respect to which practical alternative sources are not available on
comparable terms and conditions, (iii) there are not pending and, to the
Seller's and the Stockholders' knowledge there are not threatened, any labor
negotiations involving or affecting the Seller and, to the Seller's and the
Stockholders' knowledge, no organizing activities involving union representation
exist in respect of any of its employees, (iv) the Seller neither gives nor is
bound by any express warranties relating to its services and, to the knowledge
of the Seller and the Stockholders, there has been no assertion of any breach of
warranties which could have a material adverse effect on the business or
condition (financial or otherwise) of the Seller and, to the knowledge of the
Seller and the Stockholders, there are no problems or potential problems with
respect to any product sold or services provided by the Seller, (v) the Seller
is not a party to or bound by any agreement which limits its freedom to compete
in any line of business or with any person or entity, (vi) the Seller is not a
party to or bound by any agreement which based on current economic circumstances
will result in a loss when performed, and (vii) the Seller is not a party to or
bound by any agreement or involved in any transaction in which any officer,
director, debtholder or stockholder, or any Affiliate or Associate of any such
person has, or had when made, a direct or indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a complete
and correct list of any and all material contracts, commitments, obligations and
undertakings, written or oral, to which the Seller is a party or otherwise
bound. True and complete copies of all contracts,
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commitments, obligations and undertakings set forth in Schedule 2.1(v) hereto
have been furnished to Buyer, and except as expressly stated in Schedule 2.1(v),
each of them is in full force and effect, no person or entity which is a party
thereto or otherwise bound thereby is, to the knowledge of the Seller and the
Stockholders, in default thereunder, and no event, occurrence, condition or act
exists which, with the giving of notice or the lapse of time or both, would give
rise to a default or right of cancellation thereunder, and the Seller is not in
default thereunder and no event, occurrence, condition or act exists by or on
behalf of the Seller which, with the giving of notice or the lapse of time or
both would give rise to a default by the Seller thereunder, and to the Seller's
and the Stockholders' best knowledge, there have been no threatened
cancellations thereof and there are no outstanding disputes thereunder. To the
Seller's and the Stockholders' knowledge there is no reason why any of the
contracts listed on Schedule 2.1(v), could not be continued between Buyer and
the Seller's contractual partners on the same terms and conditions as currently
apply. Neither the Seller nor any Stockholder has any reason to believe that any
of the Seller's contractual partners will terminate its relationship with the
Seller as a result of the acquisition of the Seller's assets by Buyer.
(w) BROKERS. Except for Geneva Corporate Finance, Inc.,
the fees of which shall be borne by the Seller, no agent, broker, person or firm
acting on behalf of the Seller or the Stockholders or under the authority of any
of the foregoing, is or shall be entitled to a brokerage commission, finder's
fee, or other like payment in connection with any of the transactions
contemplated hereby, from the Seller or any of the Stockholders.
(x) DISCLOSURE. No representation or warranty made by the
Seller or the Stockholders herein or in any of the Executed Agreements contains
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements therein not misleading.
(y) AFFILIATED TRANSACTIONS. Except as set forth in
Schedule 2.1(y) hereto, no Stockholder (i) is a party to any agreement,
transaction or arrangement (oral or written) with or involving the Seller or any
Associate or Affiliate of the Seller or any of its stockholders, or (ii) has any
claim, monetary or otherwise, of any sort against the Seller. Notwithstanding
anything to the contrary contained herein, each Stockholder hereby releases and
discharges the Seller from all claims, actions or suits that any of them now has
or may hereafter have against the Seller which would affect the Transferred
Assets.
(z) CLAIMS AGAINST THE SELLER. Except as set forth in
Schedule 2.1(z) hereto, the Seller has no debts, obligations or liabilities
owing to the Stockholders and, to the best knowledge of the Seller, nothing
exists that could give rise to a claim by the Stockholders of any such debts,
obligation or liability of the Seller to the Stockholders.
(aa) DISCLOSURE SCHEDULES. All schedules to this Agreement
are integral parts to this Agreement. Nothing in a schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
unless the schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail, including by explicit
cross-reference to another schedule to this Agreement. The Seller and the
Stockholders are responsible for preparing and arranging the schedules
corresponding to the lettered and numbered paragraphs contained herein.
Disclosure made in a specific schedule shall not be
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deemed to have been disclosed with respect to any other schedule unless an
explicit cross-reference appears.
(bb) PRINCIPAL PLACE OF BUSINESS; RESIDENCE. The Seller's
principal place of business is located at 12 Main Street, Leominster,
Massachusetts. David Dearborn resides at 16 Lakewood Park Road, Westminster,
Massachusetts. Francis Quinn resides at 100 Stagecoach Road, Lancaster,
Massachusetts.
2.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
of the Stockholders severally represents and warrants to, and covenants and
agrees with Buyer, with respect to such Stockholder as follows:
(a) CAPACITY; VALIDITY. Such Stockholder has the legal
capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by such Stockholder and constitutes a valid and binding obligation of
such Stockholder enforceable against him in accordance with its terms.
(b) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such
Stockholder does not own or possess any rights in or to the Toll Free Telephone
Numbers listed on Schedule 2.1(q) hereto.
(c) INVESTMENT INTENT. Such Stockholder acknowledges that
none of the shares of Parent Common Stock are registered under the Securities
Act or any state securities laws. The shares of Parent Common Stock are being
acquired by such Stockholder for investment purposes only and not with a view to
the distribution or resale thereof. Such Stockholder has no present intention to
sell or otherwise dispose of the Parent Common Stock, except in compliance with
the provisions of the Securities Act.
(d) RESTRICTIONS ON TRANSFER.
(i) Such Stockholder agrees that he will not transfer
or otherwise dispose of (each, a "Transfer") any of the shares of Parent Common
Stock (or any interest therein) except upon the terms and conditions specified
herein and such Stockholder will cause any subsequent holder of such
Stockholder's shares of Parent Common Stock to agree to take and hold the shares
of Parent Common Stock subject to the terms and conditions of this Agreement, if
such shares of Parent Common Stock are required to include a legend pursuant to
Section 2.2(e)(ii) hereof.
(ii) Each certificate representing the shares of
Parent Common Stock issued to the Stockholders or to any subsequent stockholder
shall include a legend in the following form; PROVIDED, HOWEVER, that such
legend shall not be required (and shall be removed), and all other restrictions
on transfer herein provided shall be removed, if a Transfer is being made as
part of with a sale of shares of Parent Common Stock registered under the
Securities Act, or in connection with a sale in compliance with Rule 144 under
the Securities Act, as such Rule may be amended from time to time (each a
"Public Sale"):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
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STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION THEREOF OR A VALID
EXEMPTION THEREFROM.
(iii) Notwithstanding anything to the contrary in this
Section 2.2(e), such Stockholder shall not Transfer any of the shares of Parent
Common Stock except to the extent permitted, and in accordance with, the
Stockholders Agreement referred to in Section 4.1(h) hereof.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to, and covenants and agrees with, the Seller as
follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its business as presently conducted
by it and is qualified in each other jurisdiction in which qualification is
required for it to own, lease and operate its properties and carry on its
business as presently conducted by it, except to the extent that failure to so
qualify would not have a material adverse effect on the financial condition,
business or operations of Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of this
Agreement and of each of the other Executed Agreements to which it shall be a
party, the performance by Buyer of its obligations under this Agreement or such
Executed Agreements and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
action on the part of Buyer, and Buyer has all necessary corporate power with
respect thereto. This Agreement and the Executed Agreements are, or when
executed and delivered by Buyer shall be, the valid and binding obligations of
Buyer, enforceable in accordance with their respective terms, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws. Neither the execution and delivery by Buyer of the
Executed Agreements, nor the consummation of the transactions contemplated
thereby, nor the performance by Buyer of its obligations under the Executed
Agreements, shall (nor with the giving of notice or the lapse of time or both
would) (i) conflict with or result in a breach of any provision of the
Certificate of Incorporation or By-Laws of Buyer, (ii) violate any order, writ,
injunction, decree, law, statute, rule or regulation or (iii) interfere with or
otherwise materially and adversely affect the ability of Buyer to carry on its
business as now conducted.
(c) BROKERS. No agent, broker, person or firm acting on
behalf of Buyer or under its authority is or shall be entitled to a brokerage
commission, finder's fee, or other like payment in connection with any of the
transactions contemplated hereby.
2.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent
represents and warrants to Seller and each of the Stockholders as follows:
(a) CAPITALIZATION. The authorized capital stock of Parent
consists of (i) 15,000,000 shares of Common Stock, par value $.001 per share, of
which 100,000 shares are designated Class B Common Stock ("Class B Stock") and
(ii) 7,000,000 shares of Series A Preferred Stock, par value $.001 per share.
2,485,000 shares of Common Stock are issued and
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outstanding or are reserved for issuance against outstanding options and
warrants, of which 90,500 shares are Class B Stock, and 6,520,000 shares of
Series A Preferred Stock are issued and outstanding. The shares of the Parent
Common Stock being transferred to the Stockholders in accordance herewith shall
be duly and validly issued and fully paid and non-assessable. The transfer of
such shares of Parent Common Stock to the Stockholders as provided herein shall
vest the Stockholders with good and marketable title to the Parent Common Stock,
free and clear of all liens, charges, claims and encumbrances.
(b) ORGANIZATION, STANDING AND POWER. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its business as presently conducted
by it and is qualified in each other jurisdiction in which qualification is
required for it to own, lease and operate its properties and carry on its
business as presently conducted by it, except to the extent that failure to so
qualify would not have a material adverse effect on the financial condition,
business or operations of Parent.
(c) AUTHORITY. The execution and delivery by Parent of
this Agreement and of each of the other Executed Agreements to which it shall be
a party, the performance by Parent of its obligations under this Agreement or
such Executed Agreements and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
corporate action on the part of Parent, and Parent has all necessary corporate
power with respect thereto. This Agreement and the Executed Agreements to which
Parent shall be a party are, or when executed and delivered by Parent shall be,
the valid and binding obligations of Parent, enforceable in accordance with
their respective terms, except to the extent that enforceability may be limited
by the operation of bankruptcy, insolvency or similar laws. Neither the
execution and delivery by Parent of such Executed Agreements, nor the
consummation of the transactions contemplated thereby, nor the performance by
Parent of its obligations under such Executed Agreements, shall (nor with the
giving of notice or the lapse of time or both would) (i) conflict with or result
in a breach of any provision of the Certificate of Incorporation or By-Laws of
Parent, (ii) violate any order, writ, injunction, decree, law, statute, rule or
regulation or (iii) interfere with or otherwise materially and adversely affect
the ability of Parent to carry on its business as now conducted.
3. COVENANTS. The Stockholders and the Seller jointly and
severally covenant and agree to perform or take all reasonable actions to
effectuate the following from the date hereof until the Closing Date:
3.1 INVESTIGATION BY BUYER. Buyer may, prior to the Closing
Date, through its representatives (including its counsel, accountants and
consultants) make such investigations of the properties, offices and operations
of the Seller and such audit of the financial condition of the Seller as it
deems necessary or advisable in connection with the transactions contemplated
hereby, including, without limitation, any investigation enabling it to
familiarize itself with such properties, offices, operations and financial
condition; such investigation shall not, however, affect the Seller's or the
Stockholders' representations, warranties and agreements hereunder. The Seller
and the Stockholders shall permit Buyer and its authorized representatives to
have, after the date hereof, full access to the premises and to all books and
records and Returns of the Seller and Buyer shall have the right to make copies
thereof and excerpts therefrom. The Seller and the
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Stockholders shall furnish Buyer with such financial and operating data and
other information with respect to the Seller as Buyer may from time to time
reasonably request.
3.2 CARRY ON IN ORDINARY COURSE. Except with Buyer's prior
written consent, the Seller shall, and each Stockholder shall cause the Seller
to, carry on its business diligently and substantially in the same manner as
heretofore conducted, and shall not (a) enter into or agree to enter into any
extraordinary transaction, contract, lease or commitment, (i) declare any
dividends, nor make any distributions or payments to the Stockholders other than
employment compensation, (ii) redeem any shares of the Seller Stock, (iii)
increase the compensation of any employee of the Seller, other than ordinary
year-end increases or enter into any severance agreement or employment agreement
with any employee of the Seller; (iv) loan or advance any amounts to any
officer, director, stockholder or employee of the Seller or enter into any
agreement with any of the foregoing or any person related to any of the
foregoing, (v) acquire or dispose of any assets, other than in the ordinary
course of business, and (vi) encumber or commit to encumber any of its assets,
(vii) take any action, or suffer any action to be taken, which could cause any
of the representations or warranties of any Stockholders or the Seller contained
herein not to be true and correct on and as of the Closing Date, or (viii) enter
into any agreement to take any of the foregoing actions.
3.3 OTHER TRANSACTIONS. The Seller and the Stockholders shall
not, and shall cause the Seller's directors, officers, stockholders, employees,
agents and Affiliates or Associates not to, directly or indirectly, solicit or
initiate the submission of proposals from, or solicit, encourage, entertain or
enter into any arrangement, agreement or understanding with, or engage in any
negotiations with, or furnish any information to, any person, other than Buyer
or a representative thereof, with respect to the acquisition of all or any part
of the business or assets of the Seller or any of its securities. Should the
Seller or any of its Affiliates or Associates, during such period, receive any
offer or inquiry relating to such acquisition, or obtain information that such
an offer is likely to be made, they will provide Buyer with immediate written
notice thereof, which notice will include the identity of the prospective
offeror and the price and terms of any offer.
3.4 CONSENTS. The Stockholders shall cause the Seller to, and
the Seller shall, use its best efforts to obtain in writing, prior to the
Closing Date, all consents, approvals, waivers, authorizations and orders
necessary or reasonably required in order to permit it to effectuate this
Agreement and to consummate the transactions contemplated hereby (collectively,
"Consents"). All such Consents will be in writing and copies thereof will be
delivered to Buyer promptly after the Seller's receipt thereof but no later than
immediately prior to Closing.
3.5 SUPPLEMENTAL DISCLOSURE. The Stockholders and the Seller
agree that, with respect to their representations and warranties made in this
Agreement, they will have a continuing obligation prior to Closing to promptly
supplement or amend the schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement
and on the Closing Date, would have been required to be set forth or described
in the schedules hereto.
3.6 PUBLIC ANNOUNCEMENTS. The Stockholders and Buyer agree
that they will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and any press
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release or any public statement shall be subject to mutual agreement of the
parties, except as may be required by the disclosure obligations of Buyer under
applicable securities laws.
4. CONDITIONS TO CLOSING.
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation
of Buyer to close under this Agreement is subject to the satisfaction of the
following conditions any of which may be waived by Buyer in writing at or prior
to Closing:
(a) DUE DILIGENCE. Buyer shall have completed, to its
satisfaction, its business, legal, tax and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the Closing
Date, the Stockholders and the Seller shall have complied with and duly
performed all agreements and conditions on their part to be complied with and
performed pursuant to or in connection with this Agreement on or before the
Closing Date.
(c) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Stockholders and the Seller contained in this Agreement,
or otherwise made in connection with the transactions contemplated hereby, shall
be true and correct in all material respects on and as of the Closing Date with
the same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
(d) LOSS, DAMAGE OR DESTRUCTION. Between the date hereof
and the Closing Date there shall not have been any loss, damage or destruction
to or of any of the assets, property or business of the Seller in excess of
$50,000 in the aggregate, whether or not covered by insurance, nor shall the
assets, properties, business or prospects of the Seller have been adversely
affected in any way as a result of any fire, accident, or other casualty, war,
civil strife, riot or act of God or the public enemy or otherwise.
(e) NO LEGAL PROCEEDINGS. No court or governmental action
or proceeding shall have been instituted or threatened to restrain or prohibit
the transactions contemplated hereby, and on the Closing Date there will be no
court or governmental actions or proceedings pending or threatened against or
affecting the Seller which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of the Seller.
(f) CERTIFICATE. Buyer shall have received a certificate
dated the Closing Date and executed by the Stockholders and an authorized
officer of the Seller to the effect that the conditions expressed in Sections
4.1(b), 4.1(c), 4.1(d) and 4.1(e) have been fulfilled.
(g) CONSENTS. Buyer shall have received all Consents
necessary to effectuate this Agreement and to consummate the transactions
contemplated hereby.
(h) EMPLOYMENT AGREEMENTS. Buyer shall have entered into
Employment Agreements with David Dearborn and Francis Quinn, in form and
substance satisfactory to Buyer.
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(i) STOCKHOLDERS AGREEMENT. The Stockholders shall have
entered into a Stockholders Agreement, in form and substance satisfactory to
Buyer.
(j) ESCROW AGREEMENT. The Seller and the Escrow Agent
shall have entered into the Escrow Agreement.
(k) NAME CHANGE. Buyer shall have received a duly
authorized and executed document which amends the certificate of incorporation
of the Seller to change Seller's name to a name other than Protocol
Communications Services, or any derivative thereof or any similar name, and is
otherwise in form for filing with the Secretary of State of the Commonwealth of
Massachusetts.
(l) CERTIFICATES OF STATUS. Buyer shall have received
certificates from the Secretary of State of Massachusetts and of each
jurisdiction set forth in Schedule 2.1(a) hereto, providing that the Seller has
filed its most recent annual report, has not filed articles of dissolution and
is in good standing in each such jurisdiction.
(m) OPINION OF COUNSEL. The Stockholders shall have
furnished Buyer with a favorable opinion of Mesirov Gelman Jaffe Cramer &
Jamieson, LLP, counsel for the Seller and the Stockholders, dated as of the
Closing Date, and in form and substance satisfactory to Buyer.
(n) CERTIFICATE OF NET WORTH. Buyer shall have received a
certificate from the Stockholders certifying that on and as of June 1, 1998, the
Net Worth of the Seller is not less than [******].
(o) BILLS OF SALE. Buyer shall have received such bills of
sale, deeds of transfer, assignments and other documents in form and substance
satisfactory to Buyer conveying the Transferred Assets to Buyer.
(p) PHASE I ACQUISITIONS. Parent or a wholly-owned
subsidiary thereof shall have successfully acquired the stock or assets of each
of the Phase I Acquisitions.
4.2 CONDITIONS OF THE STOCKHOLDERS' AND THE SELLER'S
OBLIGATIONS TO CLOSE. The obligations of the Stockholders and the Seller to
close under this Agreement are subject to the following conditions any of which
may be waived by the Seller in writing at or prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Closing
Date, Buyer shall have complied with and duly performed all agreements and
conditions on its part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer contained in this Agreement, shall be true and correct
in all material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
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(c) CLOSING CERTIFICATE. The Stockholders shall have
received a certificate dated the Closing Date and executed by an authorized
officer of Buyer to the effect that the conditions contained in Section 4.2(a)
and (b) have been fulfilled.
(d) ESCROW AGREEMENT. Buyer and the Escrow Agent shall
have entered into the Escrow Agreement.
(e) OPINION OF COUNSEL. Buyer and Parent shall have
furnished to the Seller with a favorable opinion of Gunderson Dettmer, counsel
for Buyer and Parent, dated as of the Closing Date.
(f) LEASE AGREEMENT. Buyer or Parent and the Stockholders
shall have entered into a Lease Agreement for property located at 12 Main
Street, Leominster, Massachusetts, in form and substance satisfactory to the
parties.
(g) PHASE I ACQUISITIONS. Parent or a wholly-owned
subsidiary thereof shall have successfully acquired the stock or assets of each
of the Phase I Acquisitions.
5. FURTHER ASSURANCES. From time to time after the Closing,
and without further consideration, the Seller shall execute and deliver such
other instruments of conveyance, assignment, transfer and delivery and take such
other actions as Buyer may reasonably request in order more effectively to
Transfer to Buyer, to place Buyer in possession or control of, all of the
rights, properties, assets and businesses intended to be Transferred hereunder,
to assist in the collection of any and all such rights, properties and assets,
and to enable Buyer to exercise and to enjoy all of the rights and benefits of
the Seller with respect thereto.
6. TRANSFER TAXES. The Seller shall pay all income, gains and
excise taxes, if any, incurred in connection with the transactions contemplated
by this Agreement. With respect to any item that is exempt from sales or use tax
on any basis, Buyer shall deliver to the Seller such certificates for such
exemption as the Seller may reasonably request. Except as hereinabove provided,
the party hereto which is responsible under applicable law shall bear and pay in
their entirety all other taxes and registration and transfer fees, if any,
payable by reason of the Transfer of the Transferred Assets pursuant to this
Agreement. Each party hereto will cooperate to the extent practicable in
minimizing all taxes (other than income taxes) and fees levied by reason of the
Transfer of the Transferred Assets.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS. The representations and
warranties of the Stockholders in this Agreement or in any document delivered
pursuant hereto shall survive the Closing Date for a period of two years and
shall then terminate; PROVIDED, HOWEVER, that (i) any such representation and
warranty shall survive the time it would otherwise terminate only with respect
to claims of which notice has been given as provided in this Agreement prior to
such termination and (ii) such time limitation shall not apply to the
representations and warranties set forth in Sections 2.1(h), 2.1(j), 2.1(l) and
2.1(n) hereof, which shall survive until the expiration of the applicable
statute of limitations.
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7.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this
Section 7, each party which, pursuant to this Section 7, shall agree to
indemnify any other person or entity shall be referred to, as applicable, as the
"Indemnitor", and each such person and entity who is entitled to be indemnified
by any Indemnitor shall be referred to as the "Indemnified Person" with respect
to such Indemnitor.
7.3 INDEMNITY OF THE SELLER AND THE STOCKHOLDERS. The Seller
and the Stockholders hereby jointly and severally agree to indemnify, hold
harmless and reimburse Buyer and its directors, officers, agents and employees
from and against any and all claims, liabilities, losses, damages and expenses
incurred by such Indemnified Persons (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of any
(a) breach or alleged breach of any representation or warranty of the Seller and
the Stockholders contained in this Agreement, (b) any breach of any covenant or
agreement of Seller or the Stockholders contained in the Agreement and (c) any
failure by Seller to satisfy the Excluded Liabilities, and shall reimburse such
Indemnified Persons for all costs and expenses (including reasonable attorneys'
fees and disbursements) as they shall be incurred, in connection with paying,
investigating, preparing for or defending any action, claim, investigation,
inquiry or other proceeding, whether or not in connection with pending or
threatened litigation, which shall be caused by or related to or shall arise out
of such breach or alleged breach, whether or not any such Indemnified Person
shall be named as a party thereto and whether or not any liability shall result
therefrom. The Stockholders and the Seller further agree that they shall not,
without the prior written consent of Buyer settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder unless
such settlement, compromise or consent shall include an unconditional release of
each Indemnified Person under this Section 7.3 from all liability arising out of
such claim, action, suit or proceeding.
7.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold
harmless and reimburse the Stockholders and the Seller and the Seller's
directors, officers, agents and employees from and against any and all claims,
liabilities, losses, damages and expenses incurred by them (including reasonable
attorneys' fees and disbursements) which shall be caused by or related to or
shall arise out of (a) any breach or alleged breach of any representation or
warranty of Buyer contained in this Agreement, (b) any breach of any covenant or
agreement of Buyer contained in the Agreement and (c) any Assumed Liability and
the operation of the business after Closing, and shall reimburse such
Indemnified Persons for all costs and expenses (including reasonable attorneys'
fees and disbursements) as shall be incurred, in connection with paying,
investigating, preparing for or defending any action, claim, investigation,
inquiry or other proceeding, whether or not in connection with pending or
threatened litigation, which shall be caused by or related to or shall arise out
of such breach or alleged breach, whether or not such Indemnified Persons shall
be named as a party thereto and whether or not any liability shall result
therefrom. Buyer further agrees that it shall not, without the prior written
consent of the Seller, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder unless such settlement,
compromise or consent shall include an unconditional release of the Stockholders
and the Seller under this Section 7.4 from all liability arising out of such
claim, action, suit or proceeding.
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7.5 LIMITATION ON INDEMNIFICATION. No Indemnified Person shall
be entitled to assert any claim for indemnification arising out of a breach of
representation or warranty under Section 7.3(a) or 7.4(a) hereof until such time
as all such claims for indemnification shall exceed $30,000 in the aggregate,
and then only to the extent of such excess. Further, the dollar amount of the
indemnification obligations in respect of such claims for a breach of
representations or warranties under each of Section 7.3(a) and 7.4(c) may not
exceed, in the aggregate, the Cash Purchase Price (the "Claims Limitation"),
unless the Indemnitor shall have provided information to Buyer or the Seller, as
the case may be, in connection herewith, or made representations or warranties
hereunder which, in either case the Indemnitor knew or should have known were
inaccurate or misleading, or omitted facts necessary to make them not
misleading, in which event the Claims Limitation shall not apply.
7.6 SPECIAL TAX INDEMNITY OF BUYER. Buyer hereby agrees to
indemnify, hold harmless and reimburse the Seller from and against any and all
income taxes imposed upon the Seller pursuant to Section 1374 of the Code
("Section 1374 Taxes") and any interest in connection therewith (other than
interest arising as a result of any late filing by the Seller) as a result of
the Transfer and for all costs and expenses (including reasonable attorneys'
fees and disbursements) as shall be incurred in connection with paying,
investigating, preparing for or defending any action, claim, audit or other
proceeding relating to such Section 1374 Taxes, whether or not any liability
shall result therefrom. Notwithstanding the foregoing, Buyer shall have no
liability hereunder for Section 1374 Taxes or associated costs and expenses, to
the extent such Section 1374 Taxes or associated costs and expenses arise as a
result of:
(a) the Seller reporting an amount of Section 1374 Taxes
in excess of $25,000 on its Federal income tax return for the period
including the Closing Date, or subsequently amending such return to
reflect an amount of Section 1374 Taxes in excess of such amount;
(b) the Seller consenting to any adjustment of the amount
of Section 1374 Taxes due with respect to the Transfer without the
prior written consent of Buyer;
(c) any Section 1374 Taxes which are not directly
attributable to the Transfer including, without limitation, any Section
1374 Taxes arising out of Seller's business operations during its
taxable year including the Closing Date; and
(d) any Section 1374 Taxes in excess of the amount
initially reported by the Seller on its Federal income tax return for
the period including the Closing Date arising as a result of a breach
of any of the representations and warranties of Seller contained in
Section 7.7 hereof.
7.7 SPECIAL REPRESENTATIONS OF SELLER. In connection with
Section 7.6(d) hereof, the Seller represents and warrants to Buyer as follows:
(a) the Seller purchased the shares of the Seller's Common
Stock owned by Dorothy F. Quinn (representing 51% of the outstanding
shares of the Seller's Common Stock) for $23,000 and other
consideration described in that certain Stock Purchase Agreement, dated
November 19, 1990, and no other compensation was paid by the Seller to
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Dorothy F. Quinn in connection with the purchase of such shares except
as set forth in such Stock Purchase Agreement or disclosed in writing
to Buyer;
(b) neither the Seller nor any of its shareholders
received any offer to purchase the stock of the Seller for an amount in
excess of $46,000 or the assets of Seller for an amount in excess of
$532,000 (including assumption of liabilities) or negotiated any such
purchase during the period from January 1, 1990, through December 31,
1991;
(c) the Seller properly elected to be taxed as an S
corporation under Section 1361 of the Code, effective as of January 1,
1991, and has qualified as an S corporation at all times thereafter;
(d) the Seller's U.S. Corporation Income Tax Return for
1990, as well as its balance sheet as of December 31, 1990, as
furnished to Buyer, are true and correct in all material respects;
(e) not more than twenty-five percent (25%) of the persons
reflected on the Seller's various customer lists as of December 31,
1990, remain on the Seller's customer lists as of the date hereof; and
(f) none of the Seller, or any of its officers, directors
or shareholders is aware of any fact not previously disclosed to Buyer
that would result in the valuation of Seller's stock on December 31,
1990, being in excess of $46,000.
7.8 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after
receipt by an Indemnified Person of notice of the commencement of any action or
proceeding with respect to which indemnification may be sought hereunder, such
Indemnified Person shall notify the Indemnitor of the commencement of such
action or proceeding, but failure to so notify the Indemnitor shall not relieve
the Indemnitor from any liability which the Indemnitor may have hereunder or
otherwise, unless the Indemnitor shall be materially prejudiced by such failure.
If the Indemnitor shall so elect, the Indemnitor may assume the defense of such
action or proceeding, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall pay the fees and
disbursements of such counsel. In the event, however, that such Indemnified
Person shall reasonably determine in its judgment that having common counsel
would present such counsel with a conflict of interest or alternative defenses
shall be available to an Indemnified Person or if the Indemnitor shall fail to
assume the defense of the action or proceeding in a timely manner, then such
Indemnified Person may employ separate counsel to represent or defend it in any
such action or proceeding and the Indemnitor shall pay the reasonable fees and
disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons in any jurisdiction in any single action or
proceeding. In any action or proceeding the defense of which the Indemnitor
shall assume, the Indemnified Person shall have the right to participate in such
litigation and to retain its own counsel at such Indemnified Person's own
expense except as otherwise provided above in this Section 7.5, so long as such
participation does not interfere with the Indemnitor's control of such
litigation.
8. NON-COMPETITION; CONFIDENTIALITY.
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8.1 NON-COMPETITION. Following the Closing Date and for a
period of three (3) years thereafter (the "Non-Competition Period"), the Seller
and the Stockholders shall not, directly or indirectly, (a) engage in any
business or activity that competes with the business in which the Seller or any
of its Affiliates is then engaged, anywhere in the United States and elsewhere
in the world (the "Business"); (b) enter the employ of any person or entity
engaged in any business or activity that competes with the Business or render
any consulting or other services to any person or entity for use in or with the
effect of competing with the Business; or (c) have an interest in any business
or activity that competes with the Business, in any capacity, including, without
limitation, as an investor, partner, stockholder, officer, director, principal,
agent, employee, or creditor; PROVIDED, HOWEVER, that nothing herein shall
prevent the purchase or ownership by any Stockholder of less than 5% of the
outstanding equity securities of any class of securities of a company registered
under Section 12 of the Securities and Exchange Act of 1934, as amended, and any
stock hereafter owned of Parent.
8.2 NO COMPETING INTERESTS. Each Stockholder hereby represents
and warrants to Buyer that he has no ownership or other interest in any business
or activity that competes, directly or indirectly, with the Business.
8.3 NON-DISRUPTION. Following the Closing Date and for a
period of five (5) years thereafter, the Seller and the Stockholders shall not,
directly or indirectly, interfere with, disrupt or attempt to disrupt any
present or prospective relationship, contractual or otherwise, between the
Seller or any of its Affiliates, on the one hand, and any of its customers,
suppliers or employees, on the other hand.
8.4 CONFIDENTIALITY. The Seller and the Stockholders shall not
use for his own behalf or divulge to any other person or entity any confidential
information or trade secrets of or relating to Buyer in any manner whatsoever
(except as authorized and required in connection with the Stockholders'
relationship with Buyer or any of its affiliates during the term of such
relationship or except as may be required under legal process by subpoena or
other court order; PROVIDED, HOWEVER, that the Stockholder shall give Buyer
prompt prior written notice thereof in order to contest such requirement or
order). As used herein, confidential information shall consist of all
information, knowledge or data relating to Buyer or any of its affiliates
(including, without limitation, all information relating to inventions,
procedures and operations, processes and methods, financial information,
customer and prospective customer lists, prices and trade practices) which is
not in the public domain or otherwise published or publicly available.
8.5 REMEDIES UPON BREACH. The Seller and the Stockholders
acknowledge and agree that (a) Buyer shall be irreparably injured in the event
of a breach by a Stockholder of any of his obligations under this Section 8; (b)
monetary damages shall not be an adequate remedy for such breach; (c) Buyer
shall be entitled to injunctive relief, in addition to any other remedy which it
may have, in the event of any such breach; and (d) the existence of any claims
which Stockholder may have against Buyer, whether under this Agreement or
otherwise, shall not be a defense to the enforcement by Buyer of any of its
rights under this Agreement.
9. MISCELLANEOUS PROVISIONS.
9.1 CONFIDENTIALITY. The Seller, the Stockholders and Buyer
agree not to, directly or indirectly, without the prior written consent of the
other, use or disclose to any person,
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firm or corporation, any materials or information obtained in Buyer's due
diligence investigation of Seller not a part of the Purchased Assets, or any of
the terms of this Agreement, except as may be required by the disclosure
obligations of Buyer under applicable securities laws or as may be required to
be disclosed to the attorneys and/or accountants of the parties hereto in
connection with the transactions contemplated hereby.
9.2 NOTIFICATION. Each party hereto shall give the other party
or parties hereto prompt written notice of (a) the existence of any fact or the
occurrence of any event which constitutes, or with the giving of notice or the
passage of time or both would constitute, a breach of any representation or
warranty of the party giving such notice made herein or pursuant hereto and (b)
the taking of any action by the party giving such notice that would breach or
violate, or constitute a default under, any agreement or covenant of such party
made herein or pursuant hereto. The giving of any such notice shall not affect,
modify or limit in any way any representation, warranty, agreement or covenant
of the parties made herein or pursuant hereto.
9.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
9.4 NOTICES. All notices, requests, demands and other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed duly given when delivered by
hand, telecopied or posted in the United States mail by registered or certified
mail with postage pre-paid, return receipt requested, (a) if to Buyer, to
Teleservices Holdings Corporation, c/o Hertzog, Calamari & Gleason, 100 Park
Avenue, New York, New York 10016, Attention: John D. Vaughan, Esq., facsimile
number: (212) 213-1199; and (i) if to the Seller or the Stockholders, to 100
Stagecoach Road, Lancaster, MA 01523, Attention: Francis L. Quinn, facsimile
number: (978) 534-7490, or to such other address(es) as shall be specified by
like notice to the other parties.
9.5 AMENDMENTS. This Agreement may be amended or modified at
any time prior to the Closing Date, but only by a written instrument executed by
all of the parties hereto.
9.6 ENTIRE AGREEMENT. This Agreement (together with the other
agreements, certificates, instruments and documents delivered pursuant hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
9.7 APPLICABLE LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the internal laws of the State of New York. The parties hereby consent to the
exclusive jurisdiction of Federal and New York State courts located in the
County of New York and agree that service of process by certified mail, return
receipt requested, shall constitute personal service for all purposes hereof.
9.8 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date by any of the following:
(a) By mutual written agreement of Buyer and the Seller;
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(b) By either Buyer or the Seller, if the Closing has not
occurred within thirty (30) days after execution of this agreement, upon written
notice by such terminating party, provided that at the time such notice is given
a material breach of this Agreement by such terminating party shall not be the
principal reason for the Closing's failure to occur;
(c) Subject to the provisions of Section 9.9 hereof, by
Buyer, by written notice to the Seller, if there has been a material violation
or breach of any of the Stockholders' or the Seller's covenants or agreements
made herein or in connection herewith or if any representation or warranty of
the Stockholders or the Seller made herein or in connection herewith proves to
be materially inaccurate or misleading when made; or
(d) Subject to the provisions of Section 9.9 hereof, by
the Seller, by written notice to Buyer, if there has been a material violation
or breach of any of Buyer's covenants or agreements made herein or in connection
herewith or if any representation or warranty of Buyer made herein or in
connection herewith proves to be materially inaccurate or misleading when made.
9.9 EFFECTS OF TERMINATION. If this Agreement is terminated as
provided in Section 9.8 hereof, then this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto
(or any of their respective stockholders, officers, directors or employees),
except based on the agreements contained in Section 7.3 and 7.4 hereof;
PROVIDED, HOWEVER, that if Buyer terminates this Agreement pursuant to Section
9.8(c) hereof, or the Seller terminates this Agreement pursuant to Section
9.8(d) hereof, the non-terminating party shall remain liable for any breach
hereof.
9.10 HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
9.11 FEES AND DISBURSEMENTS. Buyer shall pay its own expenses,
and the fees and disbursements of the counsel, accountants or auditors retained
by it in connection with the preparation, execution and delivery of this
Agreement and the fees and expenses and disbursements of the counsel to the
Seller and the Stockholders shall be paid by the Stockholders.
9.12 ASSIGNMENT. This Agreement may not be assigned by the
Seller without the prior written consent of Buyer. This Agreement may not be
assigned by Buyer, except for an assignment by Buyer to any Affiliate, without
the prior written consent of the Seller.
9.13 BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
9.14 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
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prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement the day and year first above written.
TELESERVICES ACQUISITION SUB 1 INC.
By: /s/ Richard F. Gaccione
-------------------------------------------------
Title: Chairman
TELESERVICES HOLDINGS CORPORATION
with respect only to Sections 1.5(a) and 2.4 hereof
By: /s/ Richard F. Gaccione
-------------------------------------------------
Title: Chairman
PROTOCOL COMMUNICATIONS
SERVICES, INC.
By: /s/ Francis L. Quinn
-------------------------------------------------
Title: President
STOCKHOLDERS:
/s/ David Dearborn
----------------------------------------------------
David Dearborn
/s/ Francis L. Quinn
----------------------------------------------------
Francis Quinn
29
<PAGE> 1
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made this
5th day of June, 1998, by and between TELESERVICES ACQUISITION CORPORATION, a
Delaware corporation ("Buyer"), TELESERVICES HOLDINGS CORPORATION, a Delaware
corporation and holder of all the issued and outstanding capital stock of Buyer
("Parent"), U.S. TELEFACTORS CORPORATION, an Illinois corporation ("USTC"), and
Andrew M. Knee and John H. and Carol C. Turner (the "Sellers", and each
individually, a "Seller").
W I T N E S S E T H :
-------------------
WHEREAS, USTC is principally engaged in the business of
supplying telemarketing services and is the end user and subscriber for certain
toll free telephone numbers listed on Schedule 2.1(q) hereto (the "Toll Free
Telephone Numbers");
WHEREAS, the Sellers are presently the owners of an aggregate
of 1,000 shares of common stock, no par value (the "USTC Common Stock"), of USTC
(collectively, the "USTC Stock") which represents all of the issued and
outstanding capital stock of USTC;
WHEREAS, the Sellers desire to sell their respective shares of
USTC Stock to Buyer and Buyer desires to purchase all of the USTC Stock from the
Sellers, all in the manner and subject to the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION
1.1 STOCK PURCHASE. On the terms and subject to the conditions
of this Agreement, on the Closing Date (as hereinafter defined), each Seller
shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall
purchase and acquire from each such Seller, all right, title and interest of
such Sellers, legal or equitable, in and to the number of shares of USTC Stock
set forth opposite such Seller's name on Schedule 1.1 hereto under the caption
"Number of Shares Owned." Each Seller resides at the address set forth therein.
The certificates evidencing the USTC Stock shall be delivered at the Closing (as
hereinafter defined) to Buyer, free and clear of all liens, claims, security
interests and encumbrances, accompanied by duly executed stock powers (endorsed
in blank, with signatures guaranteed) and any necessary stock transfer tax
stamps affixed thereto.
1.2 PURCHASE PRICE. (a) As the purchase price for all of the
USTC Stock (the "Purchase Price"), (i) Buyer shall pay to the Sellers an
aggregate sum, subject to adjustment as provided in Section 1.4 below [******]
in cash (the "Cash Purchase Price"), and (ii) Buyer shall cause Parent to issue
[******] shares of Common Stock of Parent (the "Parent Common Stock") which
shall not be less than [****] of the issued and outstanding shares of Common
Stock of Parent after completion of Phase I and Phase II Acquisitions, the
further transfer of which shall be restricted under the Securities Act of 1933,
as amended (the "Securities Act") and as provided under Section 2.2(e) hereof.
For purposes hereof, (i) "Phase I Acquisition" shall mean the acquisition by
Buyer of the businesses of Operators Standing By, Inc., Sweet, Schatz and Lewis,
Inc. and Protocol Communications Services, Inc. and "Phase II Acquisitions"
shall mean the
- ---------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
acquisition by Buyer or its Affiliates of businesses comparable in revenue and
earnings, in the aggregate, to the Phase I Acquisitions and which acquisitions
shall occur on or before March 31, 1999.
(b) The Cash Purchase Price shall be payable in cash
at Closing by wire transfer of immediately available funds as follows: (i)
[******] (less any amounts due pursuant to Section 3(a) hereof) to an account of
the Sellers designated in writing by Sellers' Rep and (ii) [******] to the
account of Charles H. Atwell, Esq., as escrow agent ("Escrow Agent") designated
in the escrow agreement annexed hereto as Exhibit A (as the same may be amended
from time to time, the "Escrow Agreement"), to be held and disbursed by the
Escrow Agent pursuant to the terms thereof. The Cash Purchase Price shall be
allocated by the Sellers' Rep among the Sellers as provided on Schedule 1.2
hereto under the caption "Allocation of Cash Purchase Price."
(c) The shares of Parent Common Stock shall be
allocated among the Sellers as provided on Schedule 1.2 hereto under the caption
"Allocation of Parent Common Stock" and certificates representing such shares
shall be delivered to the appropriate Sellers at Closing.
1.3 CLOSING DATE. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of O'Melveny
and Meyers, Buyer's Lender's counsel, in New York City, at 10:00 A.M., June 5,
1998, or at such other place and/or on such other date and time as shall be
agreed upon by Buyer and the Sellers (the "Closing Date").
1.4 PURCHASE PRICE ADJUSTMENT.
(a) Within one hundred twenty (120) days after
Closing, Buyer, at its expense, shall cause KPMG Peat Marwick LLP to deliver to
the Sellers an audited balance sheet and related statements of income, retained
earnings and cash flows for USTC's fiscal year ended December 31, 1997 (the
"1997 Financial Statements"), and for the portion of USTC's 1998 fiscal year
ending on the Closing Date (the "Closing Date Financial Statements"), all of
which financial statements shall be prepared in accordance with generally
accepted accounting principles and the rules and regulations of the Securities
Exchange Commission applicable to financial reporting of public companies
("GAAP").
(b) The Sellers shall have forty-five (45) days from
delivery of the 1997 Financial Statements and the Closing Date Financial
Statements (collectively, the "Financial Statements") to raise any objection
thereto by delivery of joint written notice to Buyer setting forth such
objections in reasonable detail. In the event that the Sellers shall fail to so
deliver such written objections with respect to any of the Financial Statements
within such 45-day period, then any such Financial Statements in respect of
which no such objection is so delivered shall be deemed final and binding on the
parties. In the event that any such objections are so delivered, Buyer and
Sellers' Rep shall attempt, in good faith, to resolve such objections and, if
unable to do so within fifteen (15) days of delivery of such objections, shall,
within five (5) business days thereafter designate a nationally recognized firm
of independent public accountants, mutually satisfactory to Buyer and Sellers'
Rep (the "Independent Accountants"). In the event that Buyer and Sellers' Rep
are unable to agree on the Independent Accountants within such 5-business day
period, the Independent Accountants shall be designated jointly by the
independent accountants of Buyer and USTC within three (3) business days
thereafter. The Independent Accountants shall resolve all remaining objections
to the Financial Statements made by the Sellers in accordance herewith within
forty-five (45) days from their date of designation. The determination of the
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Independent Accountants shall be final and binding on the parties. The fees and
expenses of the Independent Accountants shall be borne one-half by Sellers,
jointly and severally, and one-half by Buyer.
(c) The Cash Purchase Price shall be adjusted in each
of the following instances, based on the Financial Statements, as finally
determined in accordance herewith, by the amounts ("Adjustment Amounts")
determined as follows:
(i) in the event that on the Closing Date
USTC shall have outstanding Funded Debt (as defined below) in excess of
[******], the Cash Purchase Price shall be reduced by an amount equal to such
excess; and
(ii) in the event that the sum of [******]
shall exceed 1997 EBITDA (as defined below), the Cash Purchase Price shall be
reduced by an amount equal to [****] for each $1.00 of such excess (rounded down
to the nearest whole dollar).
Within thirty (30) business days of the final determinations of the applicable
Financial Statements (e.g., the Financial Statements from which each Adjustment
Amount is to be calculated), each Seller shall pay to Buyer his or her share of
each Adjustment Amount (based on the percentages for the allocation of the Cash
Purchase Price set forth on Schedule 1.2 hereto) by wire transfer of immediately
available funds to an account designated by Buyer in writing to the Sellers. In
no event will the aggregate Adjustment Amounts exceed the Cash Purchase Price,
or, with respect to such amounts due from John and Carol Turner, the aggregate
Cash Purchase Price allocated to them pursuant to Schedule 1.2 hereto.
(d) For purposes hereof, (i) "Funded Debt" shall mean
all indebtedness of USTC for borrowed money outstanding on the Closing Date
(including, without limitation, capitalized lease obligations but specifically
excluding the lease obligations set forth in Schedule 1.4(d) hereto), exclusive
of indebtedness incurred under the revolving credit facility referred to in
Schedule 2.1(v) hereto and (ii) "1997 EBITDA" shall mean the earnings of USTC
for its fiscal year ended December 31, 1997, before deduction for interest,
taxes, depreciation and amortization, in each case determined in accordance with
GAAP and before deduction in respect of charges set forth in Schedule 1.4(d)
hereto ("Non-Recurring Charges") and as set forth on the 1997 Financial
Statements.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF USTC AND THE SELLERS.
USTC and the Sellers hereby, jointly and severally, represent and warrant to
Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. USTC is a
corporation duly organized, validly existing and in good standing and authorized
to exercise its corporate powers, rights and privileges under the laws of the
State of Illinois with full corporate power and authority to own, lease and
operate its properties and to carry on its business as presently conducted by
it. Schedule 2.1(a) hereto sets forth all states and other jurisdictions in
which USTC is duly qualified and in good standing to do business as a foreign
corporation. There are no other states or jurisdictions in which the character
and location of the properties owned or leased by it, or the conduct of its
business makes such qualification necessary, except where failure to so qualify
would not have a material adverse effect on the condition (financial or
otherwise) of USTC. Copies of USTC's Articles of Incorporation and all
amendments thereto, and of USTC's
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<PAGE> 4
By-Laws, as amended to date, are attached to Schedule 2.1(a) and are complete
and correct.
(b) CAPITALIZATION. The authorized capital stock of
USTC consists of 300,000 shares of Common Stock, no par value, of which 1,000
shares are issued and outstanding; 36,666 shares of Class A Preferred Stock, par
value $1.00 per share, of which no shares are issued and outstanding; 36,666
shares of Class B Preferred Stock, par value $1.00 per share, of which 24,444
shares are issued and outstanding; 40,000 shares of Class C Preferred Stock, par
value $1.00 per share, of which 30,000 shares are issued and outstanding; 73,334
shares of Class D Preferred Stock, par value $1.00 per share, of which 48,889
shares are issued and outstanding; 20,000 shares of Class E Preferred Stock, par
value $1.00 per share, of which 20,000 shares are issued and outstanding; and
75,000 shares of Class F Preferred Stock, par value $1.00 per share, of which no
shares are issued and outstanding. USTC has redeemed or has exercised its rights
to redeem all issued and outstanding shares of its preferred stock outstanding
as of December 31, 1997, and, upon payment to John and Carol Turner of the
aggregate redemption price of $123,333, USTC will have no further rights or
obligations with respect thereto. The number of shares of USTC Stock owned
beneficially or of record by each of the Sellers is set forth on Schedule 1.1
hereto. All issued shares of USTC Stock have been duly authorized and validly
issued and are fully paid and nonassessable. There are no outstanding
obligations, options, warrants, rights, calls, commitments, conversion rights,
plans or other agreements of any character to which USTC is a party or otherwise
bound which provide for the purchase or issuance by USTC of any authorized but
not outstanding, or authorized and outstanding shares of capital stock of USTC.
There is no personal liability attached to the USTC Stock. No person has any
preemptive or similar rights in respect of any securities of USTC.
(c) AUTHORITY. The execution and delivery by USTC and
the Sellers of this Agreement and all of the agreements, schedules, exhibits,
documents and instruments specifically provided for hereunder to be executed
and/or delivered by any or all of them (all of the foregoing, including this
Agreement, being hereinafter sometimes collectively referred to as the "Executed
Agreements"), the performance by USTC and any or all of the Sellers (to the
extent that they are parties thereto) of their respective obligations under the
Executed Agreements, and the consummation of the transactions contemplated by
the Executed Agreements, have been duly and validly authorized by all necessary
corporate action on the part of USTC and by the Sellers, and USTC has all
necessary corporate power with respect thereto. The Executed Agreements are, or
when executed and delivered by the delivering parties shall be, the valid and
binding obligations of the delivering parties, enforceable in accordance with
their respective terms, except to the extent that enforceability may be limited
by the operation of bankruptcy, insolvency or similar laws. Neither the
execution and delivery by USTC and any or all of the Sellers (to the extent that
they are parties thereto) of the Executed Agreements, nor the consummation of
the transactions contemplated thereby, nor the performance by USTC and any or
all of the Sellers (to the extent that they are parties thereto) of their
respective obligations under the Executed Agreements, shall (nor with the giving
of notice or the lapse of time or both would) (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or By-Laws of USTC,
(ii) except as set forth on Schedule 2.1(c)(ii) hereto, give rise to a default,
or any right of termination, cancellation or acceleration, or otherwise result
in a loss of contractual benefits to USTC, under any of the terms, conditions or
provisions of any note, bond, mortgage or indenture or any license, agreement or
other instrument or obligation material to the business of USTC to which USTC or
any Seller is a party or by which it or any of its properties or assets may be
bound, (iii) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to USTC or any of the Sellers or any of their respective
properties or assets, (iv) result in the creation or imposition of any lien,
claim, restriction, charge or encumbrance upon any of the properties or assets
of USTC, or (v) interfere
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<PAGE> 5
with or otherwise materially and adversely affect the ability of USTC to carry
on its business as now conducted.
(d) INTERESTS IN OTHER ENTITIES. Except as set forth
in Schedule 2.1(d) hereto, USTC does not (i) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation or entity, (ii) have any ownership interest, direct or
indirect, of record or beneficially, in any entity, or (iii) have any
obligation, direct or indirect, present or contingent, to purchase or subscribe
for any interest in, advance or loan monies to, or in any way make investments
in, any person or entity, or to share any profits or capital investments in
other persons or entities, or both.
(e) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY
CONSENTS. Except as set forth in Schedule 2.1(e) hereto, no approval, consent,
compliance, exemption, authorization or other action by, or notice to or filing
with, any governmental authority or any other entity, and no lapse of a waiting
period, is necessary or required to be obtained by USTC or any Seller in
connection with the execution, delivery or performance by any of them, of this
Agreement, any of the Executed Agreements or the transactions contemplated
hereby.
(f) [Intentionally omitted.]
(g) FINANCIAL STATEMENTS; MINIMUM CLOSING NET WORTH,
ETC.
(i) USTC has delivered to Buyer true and
complete copies of its unaudited balance sheets as of December 31, 1996, and
related statements of income, retained earnings and cash flows for the period
then ending (the "1996 Financial Statements"), true and complete copies of its
unaudited balance sheets as of December 31, 1997, and related statements of
income, retained earnings and cash flows for the period then ending (the "1997
Financial Statements") and true and complete copies of its unaudited balance
sheet as of March 31, 1998 (the "Interim Balance Sheet"), and related statements
of income, retained earnings and cash flows for the period then ending
(collectively, with the Interim Balance Sheet, the "Interim Financial
Statements"). All of such financial statements, including any notes thereto,
were prepared on a consistent basis throughout the periods involved and such
financial statements fairly present the financial position of USTC at the dates
thereof and the results of its operations for the periods as indicated. The
books and records of USTC are in all material respects complete and correct,
have been maintained in accordance with good business practices, and accurately
reflect the basis for the financial condition and results of operations of USTC
as set forth in the financial statements referred to herein.
(ii) As of December 31 1997, USTC had a Net
Worth equal to or greater than [*****]. For purposes hereof, "Net Worth" shall
mean the excess of (A) the total assets of USTC as of December 31, 1997 over (B)
the total liabilities of USTC as of December 31, 1997, in each instance,
determination in accordance with GAAP.
(iii) The Non-Recurring Charges represent
amounts actually paid by USTC.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in Schedule 2.1(h) hereto, USTC does not have any liabilities,
commitments or obligations, whether accrued, absolute, contingent or otherwise
which have not been (i) in the case of liabilities, commitments and obligations
of a type customarily reflected on the corporate balance sheet of
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<PAGE> 6
USTC, reflected on the Interim Balance Sheet or incurred, consistent with past
practice, in the ordinary course of business since the date of the Interim
Balance Sheet and which are not material either individually or in the aggregate
or (ii) in the case of all other types of liabilities and obligations, described
in Schedule 2.1(h).
(i) ABSENCE OF CERTAIN CHANGES. Except as and to the
extent set forth in Schedule 2.1(i) hereto, since December 31, 1997, USTC has
not:
(i) suffered any material adverse change in
its working capital, condition (financial or otherwise), assets, liabilities,
business or operations;
(ii) incurred any material liabilities or
obligations except items incurred in the ordinary course of business and
consistent with past practice, which do not exceed, in the aggregate, $50,000
(counting obligations or liabilities arising from one transaction or a series of
similar transactions, and all periodic installments or payments under any lease
or other agreement providing for periodic installments or payments, as a single
obligation or liability), or experienced any increase in, or change in any
assumption underlying or methods of calculating, any bad debt, contingency or
other reserves;
(iii) paid, discharged or satisfied any
claim, liabilities or obligations (absolute, accrued, contingent or otherwise)
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities and obligations
reflected or reserved against in the 1997 Financial Statements, the Interim
Balance Sheet or incurred in the ordinary course of business and consistent with
past practice since the date of the Interim Balance Sheet;
(iv) permitted or allowed any of its
property or assets (real, personal or mixed, tangible or intangible) to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind;
(v) written off as uncollectible any notes
or accounts receivable, except for write-offs in the ordinary course of business
and consistent with past practice, none of which are material;
(vi) canceled any debts or waived any claims
or rights of substantial value, or sold, transferred, or otherwise disposed of
any of its properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent with past
practice;
(vii) disposed of or permitted to lapse any
patent, trademark, trade name or copyright, or disposed of or disclosed (except
as necessary in the conduct of its business) to any person any trade secret,
formula, process or know-how, other than Buyer;
(viii) granted any general increase in the
compensation of officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or any increase
in the compensation payable or to become payable to any officer or employee,
and, unless otherwise set forth in Schedule 2.1(i), no such increase is
customary on a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or
commitment in
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excess of $10,000 for additions to property, plant, equipment or intangible
assets or made aggregate capital expenditures and commitments in excess of
$50,000 (on a consolidated basis) for additions to property, plant, equipment or
intangible assets;
(x) declared, paid or set aside for payment
any dividend or other distribution in respect of, or redeemed any shares of, its
capital stock;
(xi) made any change in any method of
accounting or accounting practice;
(xii) paid, loaned or advanced any amount
to, or sold, transferred or leased any properties or assets (real, personal or
mixed, tangible or intangible) to, or entered into any agreement or arrangement
with, any of its officers, directors, debtholders, the Sellers or employees or
any "affiliate" or "associate" of any of its officers, directors, noteholders,
the Sellers or employees (as such terms are defined in Rule 405 promulgated
under the Securities Act and as used herein "Associate" and "Affiliate"), except
for compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended December 31, 1997; (xiii) paid
any amount in respect of indebtedness for borrowed money except for regularly
scheduled payments of principal and interest in accordance with the terms
thereof; or
(xiv) agreed, whether in writing or
otherwise, to take any action described in this Section unless such action is
specifically excepted from this Section or described in Schedule 2.1(i).
(j) TAX MATTERS. Except as set forth in Schedule
2.1(j) hereto, USTC has filed with the appropriate governmental agencies all
Federal, state, local or foreign tax returns and reports required to be filed by
it ("Returns"), has paid in full or made adequate provision for the payment of,
all taxes of every nature, including, but not limited to, income, sales,
franchise and withholding taxes ("Taxes"), together with interest, penalties,
assessments and deficiencies owed by it with respect to all periods covered by
such Returns, and all such Returns were correct and complete in all respects.
USTC is not currently the beneficiary of any extension of time within which to
file any Returns. The Sellers have previously provided Buyer with true and
complete copies of all such Returns filed within the past three (3) years. There
are no filed or other known tax liens upon any property or assets of USTC. USTC
has not waived any statute of limitations in respect of Taxes or executed or
filed with any governmental authority any agreement extending the period for the
assessment or collection of any Taxes, and it is not a party to any pending or,
to USTC's or any Seller's knowledge, threatened action or proceeding by any
governmental authority for the assessment or collection of Taxes. To the
knowledge of USTC and the Sellers, no issue has arisen in any examination of
USTC by any governmental authority that if raised with respect to any other
period not so examined would, if upheld, result in a material deficiency for any
other period not so examined. There is no unresolved written claim by a
governmental authority in any jurisdiction where USTC does not file Returns that
USTC is or may be subject to taxation by such jurisdiction. There has been no
examination or audit with respect to Taxes with respect to any year. USTC is not
required to make any adjustment pursuant to Section 481 of the Internal Revenue
Code of 1986, as amended (the "Code"), by reason of a change in accounting
method or otherwise and, to the knowledge of USTC and the Sellers, neither the
Internal Revenue Service nor any other governmental authority has proposed any
such adjustment or change in accounting method in respect of USTC, which
proposal is currently pending and USTC does not have an
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<PAGE> 8
application pending with any governmental authority requesting permission for
any change in accounting method that relates to its business and/or operations.
USTC 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, Seller or other third party. USTC has never filed any consolidated,
combined or unitary Return for any period ending on or prior to the Closing
Date.
(k) LITIGATION. Except as set forth in Schedule
2.1(k) hereto, there are no suits or actions, or administrative, arbitration or
other proceedings or governmental investigations, pending, or to the knowledge
of USTC and the Sellers, threatened against or affecting, or which may affect,
USTC or any of its properties, assets or businesses or the transactions
contemplated hereby. To the best knowledge of USTC and the Sellers, there are no
outstanding judgments, orders, stipulations, injunctions, decrees or awards
against USTC which are not satisfied.
(l) COMPLIANCE WITH APPLICABLE LAW. Except for any
noncompliance which would not, individually or in the aggregate, result in a
material adverse effect on the condition (financial or otherwise) of the
business or operations of USTC. USTC is, and at all times since its formation
has been, in compliance with all Federal, state, local and foreign laws,
statutes, ordinances, regulations, and administrative rulings (collectively
"Laws"), promulgated by any governmental or regulatory authority applicable to
USTC or to the conduct of the business or operations of USTC or to the use of
its properties and assets, including, without limitation, all environmental
Laws. USTC has not received, and does not know of the issuance or threatened
issuance of, any notices of violation or alleged violation of any laws by USTC.
(m) PERMITS. A list of all permits, approvals,
licenses, certificates (other than USTC's certificate of incorporation),
franchises, authorizations, consents and orders ("Permits") necessary to the
operation of the business of USTC in the manner in which it is presently
conducted is set forth on Schedule 2.1(m) hereto. All such Permits are valid and
remain in full force and effect. USTC has not engaged in any activity which
would cause revocation or suspension of any such Permits and no action or
proceeding looking to or contemplating the revocation or suspension of any
thereof is pending or threatened. No additional Permits will be required to
permit USTC to continue its business in the State of Illinois substantially in
the manner it is presently conducted after the consummation of the transactions
contemplated hereby.
(n) TITLE TO PROPERTIES. USTC does not own any real
property. Except as set forth in Schedule 2.1(n) hereto, USTC has good title to
all of the properties and assets (personal and mixed, tangible and intangible)
reflected on the Interim Balance Sheet or thereafter acquired or which it
purports to own (except properties or assets sold or otherwise disposed of in
the ordinary course of business consistent with past practice subsequent to the
date of the Interim Balance Sheet which in the aggregate did not have a book
value in excess of $10,000), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever. Schedule 2.1(n) also contains
an accurate list setting forth all (i) real property leased (whether as lessor
or lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by USTC and (ii) significant personal property
leased by or to USTC or subject to a title retention or conditional sales
agreement or other security device. All leases listed in Schedule 2.1(n) are
valid, binding and enforceable in accordance with their terms, and are in full
force and effect, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws; there are no existing
defaults by USTC thereunder; no event of default has occurred which (whether
with or without notice, lapse of time or both) would constitute a default by
USTC thereunder; and all lessors under such leases have consented (where
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<PAGE> 9
such consent is necessary) to the consummation of the transactions contemplated
by this Agreement without requiring modification of the rights and obligations
of USTC under such leases. All USTC's property is located at USTC's facilities
at 1000 Corporate Boulevard, Suite B, Aurora, Illinois 60504-6413.
(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the
Interim Balance Sheet are good and collectible in the ordinary course of
business at the aggregate recorded amounts thereof and are not subject to any
offsets. The accounts receivable of USTC which were thereafter added are good
and collectible in the ordinary course of business at the aggregate amounts
recorded on the books of account and are not subject to any offsets. Set forth
on Schedule 2.1(o)(i) hereto is a true and complete list of USTC's accounts
receivable as of June 1, 1998, and aging with respect thereto.
(ii) Schedule 2.1(o)(ii) hereto contains a
complete and accurate list of all machinery, equipment and other fixed assets of
USTC (the "Equipment") having a book value in excess of $1,000. Each such item
of Equipment is in good operating condition, normal wear and tear excepted, and
is fit for its intended use. USTC has purchased maintenance agreements with
respect to its UPS battery back-up and telephone switch systems from the
manufacturers thereof or other qualified maintenance provider.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto
lists all licenses, patents, copyrights, or trademarks owned or used by USTC in
the conduct of its business and all applications therefor (the "Intellectual
Property"). No officer or director, Seller or employee of USTC nor any of their
Affiliates or Associates has any ownership or other interest in any of the
Intellectual Property. To the knowledge of USTC and the Sellers, none of the
Intellectual Property is being infringed upon by, or infringes, any licenses,
patents, copyrights, trademarks or other intellectual property rights of any
other person or entity. Except as set forth in Schedule 2.1(p), the validity of
the Intellectual Property and the title thereto of USTC have not been questioned
in any litigation or governmental inquiry or proceeding to which USTC, is a
party, and, to the knowledge of USTC and the Sellers, no such litigation,
governmental inquiry or proceeding is threatened. The conduct of the business of
USTC as presently conducted does not conflict with valid licenses, trademarks,
trademark rights, trade names, trade name rights, service marks or patents of
others in any way likely to affect adversely, in any material respect, the
Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q)
hereto sets forth a complete list of all Toll Free Telephone Numbers owned or
used by USTC in the conduct of its business. No officer or director, Seller or
employee of USTC nor any of their Affiliates or Associates has any ownership or
other interest in the Toll Free Telephone Numbers.
(r) INSURANCE. Schedule 2.1(r) hereto contains a
complete and correct list and copies of all policies of insurance in which USTC
or its officers or directors (in such capacity) is an insured party, beneficiary
or loss payable payee. Such policies are in full force and effect.
(s) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule
2.1(s) hereto contains a complete and correct list showing (i) the name of each
bank in which USTC has an account or safe deposit box and the names of all
persons authorized to draw thereon or have access
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thereto, and (ii) the names of all persons, if any, holding powers of attorney
from USTC.
(t) EMPLOYEE ARRANGEMENTS; ERISA. USTC has (i) no
union, collective bargaining, employment, management, severance or consulting
agreements to which USTC is a party or is otherwise bound, and (ii) no
compensation plans, bonus plans, deferred compensation agreements, pension and
retirement plans, profit-sharing plans, stock purchase and stock option plans.
Schedule 2.1(t) hereto contains a complete and correct list and copies of USTC's
hospitalization, insurance plans or arrangements providing for benefits for
employees of USTC. Such Schedule also lists the names and compensation of all
persons employed by USTC. USTC has no employee benefits plans established or
maintained by USTC which are qualified for Federal income tax exemption under
Sections 401 and 501 of the Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in
Schedule 2.1(u) hereto (i) USTC is not a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale, distribution or servicing of the Toll Free Telephone
Numbers or services related thereto, (ii) USTC does not have any sole-source
supplier of significant goods or services (other than utilities) with respect to
which practical alternative sources are not available on comparable terms and
conditions, (iii) there are not pending and, to USTC's and the Sellers'
knowledge there are not threatened, any labor negotiations involving or
affecting USTC and, to USTC's and the Sellers' knowledge, no organizing
activities involving union representation exist in respect of any of its
employees, (iv) USTC neither gives nor is bound by any express warranties
relating to its services and, to the knowledge of USTC and the Sellers, there
has been no assertion of any breach of warranties which could have a material
adverse effect on the business or condition (financial or otherwise) of USTC
and, to the knowledge of USTC and the Sellers, there are no problems or
potential problems with respect to any product sold or services provided by
USTC, (v) USTC is not a party to or bound by any written agreement which limits
its freedom to compete in any line of business or with any person or entity,
(vi) USTC is not a party to or bound by any agreement which based on current
economic circumstances will result in a loss when performed, and (vii) USTC is
not a party to or bound by any agreement or involved in any transaction in which
any officer, director, debtholder or Seller, or any Affiliate or Associate of
any such person has, or had when made, a direct or indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a
complete and correct list of any and all contracts, commitments, obligations and
undertakings, written or oral, to which USTC is a party or otherwise bound which
are material to the operation and business of USTC. True and complete copies of
all written contracts, commitments, obligations and undertakings set forth in
Schedule 2.1(v) hereto have been furnished to Buyer, and except as expressly
stated in Schedule 2.1(v), each of them is in full force and effect, no person
or entity which is a party thereto or otherwise bound thereby is, to the
knowledge of USTC and the Sellers, in default thereunder, and no event,
occurrence, condition or act exists which, with the giving of notice or the
lapse of time or both, would give rise to a default or right of cancellation
thereunder, and USTC is not in default thereunder and no event, occurrence,
condition or act exists by or on behalf of USTC which, with the giving of notice
or the lapse of time or both would give rise to a default by USTC thereunder. To
USTC's and the Sellers' knowledge, there have been no threatened cancellations
thereof and there are no outstanding disputes thereunder. Neither USTC nor any
Seller has been advised that any of USTC's contractual partners (including,
without limitation, the State of Illinois, Department of Central Management)
will terminate its relationship with USTC as a result of the acquisition of USTC
by Buyer.
(w) BROKERS. No agent, broker, person or firm acting
on behalf of
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USTC or the Sellers or under the authority of any of the foregoing, is or shall
be entitled to a brokerage commission, finder's fee, or other like payment in
connection with any of the transactions contemplated hereby, from USTC or any of
the Sellers.
(x) DISCLOSURE. No representation or warranty made by
USTC or the Sellers herein or in any of the Executed Agreements contains any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements therein not misleading.
(y) AFFILIATED TRANSACTIONS. Except as set forth in
Schedule 2.1(y) hereto, no Seller (i) is a party to any agreement, transaction
or arrangement (oral or written) with or involving USTC or any Associate or
Affiliate of USTC or any of the Sellers, or (ii) has any claim, monetary or
otherwise, of any sort against USTC.
2.2 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the
Sellers severally represents and warrants to Buyer, with respect to such Seller,
as follows:
(a) CAPACITY; VALIDITY. Such Seller has the legal
capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by such Seller and constitutes a valid and binding obligation of such
Seller enforceable against him in accordance with its terms.
(b) TITLE TO SECURITIES. Such Seller holds of record
and owns beneficially (or will own beneficially on the Closing Date) the number
of shares of the USTC Stock set forth opposite his or her name on Schedule 1.1
hereto, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), taxes, liens,
charges, claims, demands, security interests, options, warrants, purchase
rights, contracts, commitments or other encumbrances. Such Seller is not a party
to any option, warrant, purchase right or other agreement or understanding that
could require such Seller to sell, transfer or otherwise dispose of any shares
of the USTC Stock. Such Seller is not a party to any voting trust, proxy or
other agreement or understanding with respect to the voting of any shares of the
USTC Stock.
(c) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such
Seller does not own or possess any rights in or to the Toll Free Telephone
Numbers listed on Schedule 2.1(q) hereto.
(d) INVESTMENT INTENT. Such Seller acknowledges that
none of the shares of Parent Common Stock are registered under the Securities
Act or any state securities laws. The shares of Parent Common Stock are being
acquired by such Seller for investment purposes only and not with a view to the
distribution or resale thereof. Such Seller has no present intention to sell or
otherwise dispose of the Parent Common Stock, except in compliance with the
provisions of the Securities Act.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to the Sellers as follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its business
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as presently conducted by it and is qualified in each other jurisdiction in
which qualification is required for it to own, lease and operate its properties
and carry on its business as presently conducted by it, except to the extent
that failure to so qualify would not have a material adverse effect on the
financial condition, business or operations of Buyer.
(b) [Intentionally omitted]
(c) AUTHORITY. The execution and delivery by Buyer of
this Agreement and of each of the other Executed Agreements to which it shall be
a party, the performance by Buyer of its obligations under this Agreement or
such Executed Agreements and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
corporate action on the part of Buyer, and Buyer has all necessary corporate
power with respect thereto. This Agreement and the Executed Agreements are, or
when executed and delivered by Buyer shall be, the valid and binding obligations
of Buyer, enforceable in accordance with their respective terms, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws. Neither the execution and delivery by Buyer of the
Executed Agreements, nor the consummation of the transactions contemplated
thereby, nor the performance by Buyer of its obligations under the Executed
Agreements, shall (nor with the giving of notice or the lapse of time or both
would) (i) conflict with or result in a breach of any provision of the Articles
of Incorporation or By-Laws of Buyer, (ii) violate any order, writ, injunction,
decree, law, statute, rule or regulation or (iii) interfere with or otherwise
materially and adversely affect the ability of Buyer to carry on its business as
now conducted.
(d) INVESTMENT INTENT. The USTC Stock is being
acquired by Buyer for investment purposes only and not with a view to the
distribution or resale thereof. Buyer has no present intention to sell or
otherwise dispose of the USTC Stock, except in compliance with the provisions of
the Securities Act.
(e) BROKERS. No agent, broker, person or firm acting
on behalf of Buyer or under its authority is or shall be entitled to a brokerage
commission, finder's fee, or other like payment in connection with any of the
transactions contemplated hereby.
2.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby
represents and warrants to Sellers that the authorized capital stock of Parent
consists of (i) 15,000,000 shares of Common Stock, par value $.001 per share, of
which 100,000 shares are designated Class B Common Stock ("Class B Stock") and
(ii) 7,000,000 shares of Series A Preferred Stock, par value $.001 per share.
2,485,000 shares of Common Stock are issued and outstanding or are reserved for
issue against outstanding options and warrants, of which 90,500 shares are Class
B Stock and 6,520,000 shares are Series A Preferred Stock are issued and
outstanding. The shares of the Parent Common Stock being transferred to the
Seller in accordance herewith shall be duly and validly issued and fully paid
and non-assessable. The transfer of such shares of Parent Common Stock to the
Seller as provided herein shall vest the Seller with good and marketable title
to the Parent Common Stock, free and clear of all liens, charges, claims and
encumbrances.
3. PREFERRED STOCK; PARENT COMMON STOCK
(a) PREFERRED STOCK REDEMPTIONS. Sellers acknowledge
and agree that to the extent that USTC shall have paid any amounts, or
undertaken to pay any amounts, in
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respect of the redemption of shares of its preferred stock set forth on Schedule
2.1(i) hereto. Buyer shall be entitled to deduct from the portion of the Cash
Purchase Price payable pursuant to 2.1(b)(i) hereto the amount paid or
undertaken to be paid by USTC in respect thereof as set forth in such Schedule
and to utilize such portion thereof to reimburse USTC in respect of any such
amounts paid by USTC or to satisfy at Closing any such amounts undertaken by
USTC to be paid.
(b) RESTRICTIONS ON TRANSFER.
(i) Each Seller agrees that he will not
transfer or otherwise dispose of (each, a "Transfer") any of the shares of
Parent Common Stock (or any interest therein) except upon the terms and
conditions specified herein and such Seller will cause any subsequent holder of
such Seller's shares of Parent Common Stock to agree to take and hold the shares
of Parent Common Stock subject to the terms and conditions of this Agreement, if
such shares of Parent Common Stock are required to include a legend pursuant to
Section 3(b) hereof.
(ii) Each certificate representing the
shares of Parent Common Stock issued to the Sellers or to any subsequent
stockholder shall include a legend in the following form; PROVIDED, HOWEVER,
that such legend shall not be required (and shall be removed) if a Transfer is
being made in connection with a sale of shares of Parent Common Stock registered
under the Securities Act, or in connection with a sale in compliance with Rule
144 under the Securities Act, as such Rule may be amended from time to time
(each a "Public Sale"):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION THEREOF OR A VALID EXEMPTION
THEREFROM.
(iii) Notwithstanding anything to the
contrary in this Section 3(b), such Seller shall not Transfer any of the shares
of Parent Common Stock except to the extent permitted, and in accordance with,
the Stockholders Agreement referred to in Section 4.1(g) hereof.
4. CONDITIONS TO CLOSING
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation
of Buyer to close under this Agreement is subject to the satisfaction of
following conditions any of which may be waived by Buyer in writing at or prior
to Closing:
(a) DUE DILIGENCE. Buyer shall have completed, to its
satisfaction, its business, legal and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the
Closing Date, the Sellers and USTC shall have complied with and duly performed
all agreements and conditions on their part to be complied with and performed
pursuant to or in connection with this Agreement on or before the Closing Date.
(c) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Sellers and USTC contained in this
Agreement, or otherwise made in connection with the transactions contemplated
hereby, shall be true and correct in all material respects on and
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as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
(d) NO LEGAL PROCEEDINGS. No court or governmental
action or proceeding shall have been instituted or threatened to restrain or
prohibit the transactions contemplated hereby, and on the Closing Date there
will be no court or governmental actions or proceedings pending or threatened
against or affecting USTC which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of USTC.
(e) CONSENTS. Buyer shall have received all Consents
necessary to effectuate this Agreement and to consummate the transactions
contemplated hereby.
(f) EMPLOYMENT AGREEMENTS. Buyer shall have entered
into Employment Agreements with Andrew M. Knee and Connie Lais, in form and
substance satisfactory to Buyer.
(g) STOCKHOLDERS AGREEMENT. The Sellers shall have
entered into a Stockholders Agreement, in form and substance satisfactory to
Parent.
(h) ESCROW AGREEMENT. The Sellers and the Escrow
Agent shall have entered into the Escrow Agreement.
(i) RESIGNATIONS OF OFFICERS AND DIRECTORS. Buyer
shall have received resignations effective as of the Closing
Date from all of the executive officers and each of the members of the board of
directors of USTC.
(j) CERTIFICATES OF STATUS. Buyer shall have received
certificates from the Secretary of State of Illinois and of each jurisdiction
set forth in Schedule 2.1(a) hereto, providing that USTC has filed its most
recent annual report, has not filed articles of dissolution and is in good
standing in each such jurisdiction.
(k) OPINION OF COUNSEL. The Sellers shall have
furnished Buyer with a favorable opinion of counsel(s) for USTC and the Sellers,
dated as of the Closing Date, and in form and substance satisfactory to Buyer.
(l) GENERAL RELEASE OF USTC BY THE SELLERS. The
Sellers shall have fully released and discharged USTC from any and all
obligations owing to them by USTC in form and substance satisfactory to Buyer
and its counsel.
4.2 CONDITIONS OF THE SELLERS' AND USTC'S OBLIGATIONS TO
CLOSE. The obligations of the Sellers and USTC to close under this Agreement are
subject to the following conditions any of which may be waived by USTC in
writing at or prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the
Closing Date, Buyer shall have complied with and duly performed all agreements
and conditions on its part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Closing Date.
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(b) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer contained in this Agreement, shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
(c) OPINION OF COUNSEL. Buyer shall have furnished
Sellers with a favorable opinion of counsel(s) for Buyer, dated as of the
Closing, and in form and substance satisfactory to Seller's Rep.
(d) ESCROW AGREEMENT. Buyer and the Escrow Agent
shall have entered into the Escrow Agreement.
5. TRANSFER TAXES. Notwithstanding anything to the contrary
contained herein, the Sellers, jointly and severally, shall assume and pay all
sales, use, privilege, transfer, stock transfer, real property transfer,
documentary, gains, stamp, duties, recording and similar Taxes and fees
(including any penalties, interest or additions) imposed upon any party hereto
incurred in connection with the purchase of USTC Stock (or the redemption of any
shares of USTC's preferred stock) as contemplated by this Agreement
(collectively, "Transfer Taxes") and shall, at their own expense, accurately
file all necessary Returns and other documentation with respect to any Transfer
Tax other than Returns which Buyer is responsible for filing under applicable
law. The Sellers agree to timely sign and deliver such certificates or forms as
may be necessary or appropriate to establish a lawful exemption from (or
otherwise lawfully reduce), or file Returns with respect to, such Transfer
Taxes.
6. INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS. The representations and
warranties of the Sellers in this Agreement or in any document delivered
pursuant hereto shall survive the Closing Date for a period of one year and
shall then terminate; PROVIDED, HOWEVER, that (i) any such representation and
warranty shall survive the time it would otherwise terminate only with respect
to claims of which notice has been given as provided in this Agreement prior to
such termination and (ii) such time limitation shall not apply to the
representations and warranties set forth in Section 2.2(b) hereof, which shall
survive indefinitely, and Sections 2.1(j), 2.1(l) (with respect only to
environmental laws) and 2.1(n) hereof, which shall survive until the expiration
of the applicable statute of limitations.
6.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this
Section 6, each party which, pursuant to this Section 6, shall agree to
indemnify any other person or entity shall be referred to, as applicable, as the
"Indemnitor", and each such person and entity who is entitled to be indemnified
by any Indemnitor shall be referred to as the "Indemnified Person" with respect
to such Indemnitor.
6.3 INDEMNITY OF SELLERS. The Sellers and, with respect only
to claims made hereunder by Buyer prior to the Closing, USTC, hereby jointly and
severally agree to indemnify, hold harmless and reimburse Buyer and its
directors, officers, stockholders, agents and employees from and against any and
all claims, liabilities, losses, damages and expenses incurred by such
Indemnified Persons (including reasonable attorneys' fees and disbursements)
which shall be caused by or related to or shall arise out of any breach or, with
respect to third party claims, alleged breach of any representation, warranty,
covenant or agreement of USTC or Sellers contained in this Agreement and shall
reimburse such Indemnified Persons for all costs and expenses (including
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reasonable attorneys' fees and disbursements) as they shall be incurred, in
connection with paying, investigating, preparing for or defending any action,
claim, investigation, inquiry or other proceeding, whether or not in connection
with pending or threatened litigation, which shall be caused by or related to or
shall arise out of such breach or alleged breach, whether or not any such
Indemnified Person shall be named as a party thereto and whether or not any
liability shall result therefrom. The Sellers and USTC further agree that they
shall not, without the prior written consent of Buyer settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
unless such settlement, compromise or consent shall include an unconditional
release of each Indemnified Person under this Section 6.3 from all liability
arising out of such claim, action, suit or proceeding.
6.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold
harmless and reimburse the Sellers and USTC and USTC's directors, officers,
agents and employees from and against any and all claims, liabilities, losses,
damages and expenses incurred by them (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of any
breach or, with respect to third party claims, alleged breach of any
representation, warranty, covenant or agreement of Buyer contained in this
Agreement and shall reimburse such Indemnified Persons for all costs and
expenses (including reasonable attorneys' fees and disbursements) as shall be
incurred, in connection with paying investigating, preparing for or defending
any action, claim, investigation, inquiry or other proceeding, whether or not in
connection with pending or threatened litigation, which shall be caused by or
related to or shall arise out of such breach or alleged breach, whether or not
such Indemnified Persons shall be named as a party thereto and whether or not
any liability shall result therefrom. Buyer further agrees that it shall not,
without the prior written consent of the Sellers' Rep and USTC, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder unless such settlement, compromise or consent shall include an
unconditional release of the Sellers and USTC under this Section 6.4 from all
liability arising out of such claim, action, suit or proceeding.
6.5 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after
receipt by an Indemnified Person of notice of any third party claim with respect
to which indemnification may be sought hereunder, such Indemnified Person shall
notify the Indemnitor of such claim, but failure to so notify the Indemnitor
shall not relieve the Indemnitor from any liability which the Indemnitor may
have hereunder or otherwise, unless the Indemnitor shall be materially
prejudiced by such failure. If the Indemnitor shall so elect, the Indemnitor
shall assume the defense of such claim, including the employment of counsel
reasonably satisfactory to such Indemnified Person, and shall pay the fees and
disbursements of such counsel. In the event, however, that such Indemnified
Person shall reasonably determine in its judgment that having common counsel
would present such counsel with a conflict of interest or alternative defenses
shall be available to an Indemnified Person or if the Indemnitor shall fail to
assume the defense of the action or proceeding in a timely manner, then such
Indemnified Person may employ separate counsel to represent or defend it in any
such action or proceeding and the Indemnitor shall pay the reasonable fees and
disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons in any jurisdiction in any single action or
proceeding. In any action or proceeding the defense of which the Indemnitor
shall assume, the Indemnified Person shall have the right to participate in any
litigation and to retain its own counsel at such Indemnified Person's own
expense except as otherwise provided above in this Section 6.5, so long as such
participation does not interfere with the Indemnitor's control of such
litigation.
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6.6 GUARANTY INDEMNITY. Subject to Section 6.5 above, Buyer
shall indemnify and hold harmless and reimburse Andrew M. Knee and John H.
Turner from and against any and all claims, liabilities, losses, damages and
expenses incurred by Mr. Knee or Mr. Turner under any of the guaranties provided
by him and set forth on Schedule 6.6 hereto, provided that Buyer shall be
entitled to set off any claim it may have against Mr. Knee or Mr. Turner
pursuant to Section 6.3 hereof against any obligation it may have hereunder.
Buyer shall use its best efforts to cause all such guaranties to be terminated
as soon as practicable after Closing.
6.7 LIMITATION ON LIABILITY. No Indemnified Person shall be
entitled to assert any claim for indemnification arising out of a breach of
representation or warranty under Section 6.3 or 6.4 hereof until such time as
all such claims for indemnification shall exceed $50,000 in the aggregate, and
then only to the extent of such excess. Further, the dollar amount of the
indemnification obligations in respect of such claims for a breach of
representations or warranties under each of Section 6.3 and 6.4 may not exceed,
in the aggregate, the Cash Purchase Price and, with respect to John H. and Carol
C. Turner, may not exceed the portion of the aggregate Cash Purchase Price
allocated to them pursuant to Schedule 1.2 hereto.
7. NON-COMPETITION; CONFIDENTIALITY
7.1 NON-COMPETITION. Following the Closing Date and for a
period of five (5) years thereafter (the "Non-Competition Period"), Andrew M.
Knee shall not, directly or indirectly, (a) engage in any business or activity
that competes with the call center business anywhere in North America (the
"Business"); (b) enter the employ of any person or entity engaged in any
business or activity that competes with the Business or render any consulting or
other services to any person or entity for use in or with the effect of
competing with the Business; or (c) have an interest in any business or activity
that competes with the Business, in any capacity, including, without limitation,
as an investor, partner, stockholder, officer, director, principal, agent,
employee, or creditor; PROVIDED, HOWEVER, that nothing herein shall prevent the
purchase or ownership by any Seller of less than 3% of the outstanding equity
securities of any class of securities of a company registered under Section 12
of the Securities and Exchange Act of 1934, as amended.
7.2 NO COMPETING INTERESTS. Each Seller hereby represents and
warrants to Buyer that he has no ownership or other interest in any business or
activity that competes, directly or indirectly, with the Business.
7.3 NON-DISRUPTION. During the Non-Competition Period, no
Seller shall, directly or indirectly, interfere with, disrupt or attempt to
disrupt any present or prospective relationship, contractual or otherwise,
between USTC or any of its Affiliates, on the one hand, and any of its
customers, suppliers or employees, on the other hand.
7.4 CONFIDENTIALITY. No Seller shall use for his own behalf or
divulge to any other person or entity any confidential information or trade
secrets of or relating to Buyer in any manner whatsoever (except as authorized
and required in connection with the Seller's relationship with Buyer or any of
its Affiliates during the term of such relationship or except as may be required
under legal process by subpoena or other court order; PROVIDED, HOWEVER, that
the Seller shall give Buyer prompt prior written notice thereof in order to
contest such requirement or order). As used herein, confidential information
shall consist of all information, knowledge or data relating to Buyer or any of
its Affiliates (including, without limitation, all information relating to
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inventions, procedures and operations, processes and methods, financial
information, customer and prospective customer lists, prices and trade
practices) which is not in the public domain or otherwise published or publicly
available.
7.5 REMEDIES UPON BREACH. The Sellers acknowledge and agree
that (a) Buyer shall be irreparably injured in the event of a breach by a Seller
of any of his obligations under this Section 7; (b) monetary damages shall not
be an adequate remedy for such breach; (c) Buyer shall be entitled to injunctive
relief, in addition to any other remedy which it may have, in the event of any
such breach; and (d) the existence of any claims which a Seller may have against
Buyer, whether under this Agreement or otherwise, shall not be a defense to the
enforcement by Buyer of any of its rights under this Agreement.
8. MISCELLANEOUS PROVISIONS
(a) CONFIDENTIALITY. USTC, the Sellers and Buyer
agree not to, directly or indirectly, without the prior written consent of the
other, use or disclose to any person, firm or corporation, any of the terms of
this Agreement, except as may be required by the disclosure obligations of Buyer
under applicable securities laws or as may be required to be disclosed to the
attorneys and/or accountants of the parties hereto in connection with the
transactions contemplated hereby.
(b) PUBLIC ANNOUNCEMENTS. The Sellers and Buyer agree
that they will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and any press release or any public statement
shall be subject to mutual agreement of the parties, except as may be required
by the disclosure obligations of Buyer under applicable securities laws.
(c) NOTIFICATION. Each party hereto shall give the
other party or parties hereto prompt written notice of (i) the existence of any
fact or the occurrence of any event which constitutes, or with the giving of
notice or the passage of time or both would constitute, a breach of any
representation or warranty of the party giving such notice made herein or
pursuant hereto and (ii) the taking of any action by the party giving such
notice that would breach or violate, or constitute a default under, any
agreement or covenant of such party made herein or pursuant hereto. The giving
of any such notice shall not affect, modify or limit in any way any
representation, warranty, agreement or covenant of the parties made herein or
pursuant hereto.
(d) EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
(e) NOTICES. All notices, requests, demands and other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed duly given when delivered by
hand, telecopied or posted in the United States mail by registered or certified
mail with postage pre-paid, return receipt requested, (i) if to Buyer, to
Teleservices Acquisition Corporation, c/o Hertzog, Calamari & Gleason, 100 Park
Avenue, New York, New York 10016, Attention: John D. Vaughan, Esq., facsimile
number: (212) 213-1199; and (ii) if to the Sellers, to c/o U.S. Telefactors
Corporation, 1000 Corporate Boulevard, Suite B, Aurora, Illinois 60504-6413,
Attention: Mr. Andrew Knee, facsimile number: (630) 820-7186, or to such other
address(es) as shall be specified by like notice to the other parties.
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(f) AMENDMENTS. This Agreement may be amended or
modified at any time prior to the Closing Date, but only by a written instrument
executed by all of the parties hereto.
(g) ENTIRE AGREEMENT. This Agreement (together with
the other agreements, certificates, instruments and documents delivered pursuant
hereto) constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof, and supersedes all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof.
(h) APPLICABLE LAW. This Agreement and the legal
relations among the parties hereto shall be governed by and construed in
accordance with the internal laws of the State of Illinois. The parties hereby
consent to the nonexclusive jurisdiction of Federal and New York State courts
located in the County of New York and of Federal and Illinois State courts
located in the County of Kane and agree that service of process by certified
mail, return receipt requested, shall constitute personal service for all
purposes hereof.
(i) HEADINGS. The headings contained herein are for
the sole purpose of convenience of reference, and shall not in any way limit or
affect the meaning or interpretation of any of the terms or provisions of this
Agreement.
(j) FEES AND DISBURSEMENTS. Buyer shall pay its own
expenses, and the fees and disbursements of the counsel, accountants or auditors
retained by it in connection with the preparation, execution and delivery of
this Agreement and the fees and expenses and disbursements of the counsel to
USTC and the Sellers shall be paid by the Sellers, provided that USTC may pay up
to $20,000 of Seller's legal expenses prior to Closing.
(k) ASSIGNMENT. This Agreement may not be assigned by
USTC or any Seller without the prior written consent of Buyer. This Agreement
may not be assigned by Buyer, except for an assignment by Buyer to any
Affiliate, without the prior written consent of the Sellers' Rep.
(l) BINDING EFFECT; BENEFITS. This Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
(m) SEVERABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Stock Purchase Agreement the day and year first above written.
TELESERVICES ACQUISITION CORPORATION
By: /s/ Richard F. Gaccione
------------------------------------
Title: Chairman of the Board
TELESERVICES HOLDING CORPORATION
with respect only to Section 2.4 hereof
By: /s/ Richard F. Gaccione
------------------------------------
Title: Chairman of the Board
U.S. TELEFACTORS CORPORATION
By: /s/ Andrew M. Knee
------------------------------------
Title: President
SELLERS:
/s/ Andrew M. Knee
----------------------------------------
Andrew M. Knee
/s/ John H. Turner
----------------------------------------
John H. Turner
/s/ Carol C. Turner
----------------------------------------
Carol C. Turner
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<PAGE> 1
EXHIBIT 2.5
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this
2nd day of July, 1998, by and between Protocol Acquisition Sub 1, Inc., a
Delaware corporation ("Buyer"), Protocol Holdings, Inc., a Delaware corporation
and ultimate parent of Buyer ("Parent"), Answerphone of Florida, Inc. d/b/a/
IOCOM, a Florida corporation (the "Seller") and Judith M. Molitor, as trustee of
the Amended and Restated Judith M. Molitor Family Trust u/a/d 10/15/87, Donald
N. Molitor, as trustee of the Amended and Restated Donald N. Molitor Family
Trust u/a/d 10/15/87, and D. Scott Molitor (the "Stockholders", and each
individually, a "Stockholder").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Seller is principally engaged in the business of
supplying telemarketing services (the "Business") and is the end user subscriber
for certain toll free telephone numbers listed on Schedule 2.1(q) hereto (the
"Toll Free Telephone Numbers");
WHEREAS, the Stockholders are presently the owners of all of
the issued and outstanding capital stock of the Seller; and
WHEREAS, the Seller desires to sell to Buyer, and Buyer
desires to purchase from the Seller substantially all of its assets and
operations subject to certain liabilities, all in the manner and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, on the Closing Date (as defined in Section 1.6
below), the Seller shall, and the Stockholders shall cause the Seller to, sell,
transfer, convey, assign and deliver ("Transfer") to Buyer, and Buyer shall
purchase, acquire and accept from the Seller, all of the Seller's rights,
properties, assets, contracts, leases and businesses of every kind, character
and description, whether tangible or intangible, real, personal or mixed,
accrued, contingent or otherwise, and wherever located, less and except the
Excluded Assets (as defined in Section 1.2 below) (after giving effect to the
exclusion of the Excluded Assets, such assets are hereinafter collectively
referred to as the "Transferred Assets"), free and clear of all liens, claims
and encumbrances, including, without limitation:
(a) all cash and cash equivalents;
- -------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
(b) all machinery, equipment, furniture, office equipment, telephone
equipment, computers and computer equipment, spare parts, supplies, tools and
vehicles;
(c) all of the Seller's right, title and interest in and to any income
and payments due the Seller, including, without limitation, all accounts and
accounts receivable whether or not reflected on the Seller's books and records;
(d) all letters of credit, leases of real and personal property,
rental agreements, commitments, insurance policies, purchase orders, sales
orders, service agreements, maintenance agreements, distribution agreements,
supply agreements and all other contracts, agreements and understandings,
whether written or oral, and all rights, claims and causes of action thereunder,
whether pending or inchoate;
(e) all prepaid assets and all deposits, refunds, rebates and other
rights to payment relating to the Transferred Assets or Assumed Liabilities, (as
defined in Section 1.3 below);
(f) all intangible assets (including, without limitation, all issued
and applied for patents, trademarks, copyrights, trade names, trade secrets,
service marks, customer lists, relationships and arrangements with customers,
covenants not to compete, authors, designers and suppliers, inventions,
formulae, processes and permits, computer software and source code, and all
licenses, agreements and applications with respect to any of the foregoing, any
goodwill associated with any of the foregoing, and all claims and causes of
action relating to any of the foregoing, including claims and causes of action
for past infringement) arising from or utilized in the operations of the
Business, including the name "IOCOM";
(g) to the extent transferable, all licenses, authorizations and
permits issued by any governmental agency relating to the Business or the
Transferred Assets, and all applications therefor pending; and
(h) all books, records and files relating to the Business and the
Transferred Assets and the operations thereof for all periods ending on or
before the Closing Date, but excluding such items which relate to the Excluded
Assets or the liabilities of the Seller not assumed by Buyer.
1.2 EXCLUDED ASSETS. Notwithstanding anything in Section 1.1 to the
contrary, the Seller shall retain all of its right, title and interest in and to
all of, and shall not Transfer to Buyer any of, the following assets, rights and
properties (the "Excluded Assets"):
(a) any proceeds and any other consideration paid or payable in
accordance with this Agreement and all rights of the Seller under this Agreement
or any agreement or instrument executed pursuant hereto or thereto, including,
without limitation, the Seller's right to enforce Buyer's representations,
warranties and covenants hereunder and the obligations of Buyer to pay, perform
or discharge the Assumed Liabilities;
(b) all minute books, stock books and similar corporate records of the
Seller; and
(c) the items set forth on Schedule 1.2(c).
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<PAGE> 3
1.3 ASSUMPTION OF LIABILITIES. Subject to the terms and conditions of this
Agreement, on the Closing Date, Buyer shall assume and agree to pay, perform and
discharge when due only the following liabilities and obligations of the Seller
and no others:
(a) liabilities and obligations of the Seller in respect of the
accounts payable of the Seller set forth in the 12-Month Financial Statements
(as defined in Section 1.7(a) hereof) and accounts payable of the Seller
incurred by the Seller in the ordinary course of business, including obligations
to employees in respect of vacation and sick-leave, since the date thereof to
the extent reflected on the 12-Month Financial Statements or incurred since the
date thereof, in each case exclusive of any such accounts payable in respect of
personal expenses of the Stockholders;
(b) liabilities and obligations of the Seller in respect of Funded
Debt (as defined in Section 1.7(d) hereof) outstanding on the Closing Date but
in no event in excess of $20,000;
(c) liabilities and obligations of the Seller in respect of up to
$15,000 in fees and expenses, payable or incurred by the Seller in connection
with this Agreement and the transactions contemplated hereby (the "Assumed
Expenses"); and
(d) obligations of the Seller for performance after the Closing under
the agreements set forth on Schedule 2.1(v) hereto.
1.4 EXCLUDED LIABILITIES. "Excluded Liabilities" shall mean, and Buyer
shall not assume and shall have no liability for, any liabilities or obligations
of the Seller not specifically set forth in Section 1.3 above, including,
without limitation, the following:
(a) any liability of the Seller for any Federal, state, local or
foreign income, capital gains or franchise taxes or taxes on capital (including,
without limitation, any deferred income tax liability and any penalties and
interest thereon);
(b) any liability for expenses incurred by, or for claims made
against, the Seller in connection with or resulting from or attributable to this
Agreement or the transactions contemplated hereby, if any;
(c) any liability for any investment banking, brokerage or similar
charge or commission, or any attorneys' or accountants' fees and expenses,
payable or incurred by the Seller in connection with the preparation,
negotiation, execution or delivery of this Agreement or the transactions
contemplated hereby; other than the Assumed Expenses;
(d) any liability of the Seller to Buyer arising out of any
misrepresentation or breach of any warranty of the Seller contained in this
Agreement or any of the schedules or exhibits hereto or in any certificate,
agreement, instrument or other document delivered pursuant hereto or out of the
failure of the Seller to perform any of its agreements or covenants contained
herein or therein or to perform or satisfy any of the Excluded Liabilities;
(e) any liability or obligation to employees including, without
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<PAGE> 4
limitation, liabilities and obligations in respect of compensation and severance
(including, without limitation, severance obligations arising as a result of the
transactions contemplated hereby) and any liability or obligation under any
employee pension, benefit or other plan other than accrued payroll for the
normal payroll period in which the Closing occurs;
(f) any liability for Funded Debt in excess of $20,000;
(g) any liability set forth on Schedule 1.4(g); and
(h) any other liability arising from or relating to the operation of
the Business on or prior to the Closing Date to the extent not specifically set
forth in Section 1.3(a), (b), (c) or (d) above.
The Seller shall remain fully liable for, and shall promptly pay when due, the
Excluded Liabilities.
1.5 PURCHASE PRICE.
(a) As the purchase price for all of the Transferred Assets (the
"Purchase Price"), (i) Buyer shall pay to the Seller an aggregate sum, subject
to adjustment as provided in Section 1.7 below, of [******] in cash (the "Cash
Purchase Price"), and (ii) Buyer shall cause Parent to issue [******] shares of
Common Stock of Parent (the "Parent Common Stock"), the further transfer of
which shall be restricted under the Securities Act of 1933 and as provided under
Section 2.2(e) hereof.
(b) The Cash Purchase Price shall be payable in cash at Closing by
wire transfer of immediately available funds (i) [******] to an account of the
Seller designated in writing by the Seller and (ii) [******] to the account of
Albert D. Celio, P.A. Trust Account, as escrow agent ("Escrow Agent") designated
in the escrow agreement annexed hereto as Exhibit A (as the same may be amended
from time to time, the "Escrow Agreement"), to be held and disbursed by the
Escrow Agent pursuant to the terms thereof.
1.6 CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Albert D. Celio,
P.A. 976 Brevard Avenue, Rockledge, Florida 32955, at 10:00 A.M., July 15, 1998,
or at such other place and/or on such other date and time as shall be agreed
upon by Buyer and the Seller (the "Closing Date").
1.7 PURCHASE PRICE ADJUSTMENT.
(a) Within one hundred twenty (120) days after Closing, Buyer shall
cause KPMG Peat Marwick LLP to deliver to the Seller an audited balance sheet
and related statements of income, retained earnings and cash flows for the
Seller's fiscal year ended December 31, 1997 (the "1997 Financial Statements"),
and for the 12-month period ended June 30, 1998 (the "12-Month Financial
Statements"), all of which financial statements shall be prepared in accordance
with generally accepted accounting principles ("GAAP") and the rules and
regulations of the Securities Exchange Commission applicable to financial
reporting of public companies.
(b) The Seller shall have forty-five (45) days from delivery of the
1997 Financial Statements and the 12-Month Financial Statements (collectively,
the "Financial
4
<PAGE> 5
Statements") to raise any objection thereto by delivery of written notice to
Buyer setting forth such objections in reasonable detail. In the event that the
Seller shall fail to so deliver such written objections with respect to any of
the Financial Statements within such 45-day period, then any such Financial
Statements in respect of which no such objection is so delivered shall be deemed
final and binding on the parties. In the event that any such objections are so
delivered, Buyer and the Seller shall attempt, in good faith, to resolve such
objections and, if unable to do so within fifteen (15) days of delivery of such
objections, shall, within five (5) business days thereafter designate a
nationally recognized firm of independent public accountants, mutually
satisfactory to Buyer and the Seller (the "Independent Accountants"). In the
event that Buyer and the Seller are unable to agree on the Independent
Accountants within such 5-business day period, the Independent Accountants shall
be designated jointly by the independent accountants of Buyer and the Seller
within three (3) business days thereafter. The Independent Accountants shall
resolve all remaining objections to the Financial Statements made by the Seller
in accordance herewith within thirty (30) days from their date of designation.
The determination of the Independent Accountants shall be final and binding on
the parties. The fees and expenses of the Independent Accountant shall be borne
by the Stockholders, jointly and severally, unless the determination of the
Independent Accountants shall result in an increase in the amount of the
Purchase Price of more than ten (10%) percent over the amount of the Purchase
Price as determined from the Financial Statements originally delivered to
Seller.
(c) The Cash Purchase Price shall be adjusted in each of the following
instances, based on the Financial Statements, as finally determined in
accordance herewith, by the amount (the "Adjustment Amount") determined as
follows:
(i) in the event that the sum of [******] shall exceed 12-Month
EBITDA (as defined below) by more than [******], the Cash Purchase Price shall
be reduced by an amount equal to [****] for each $1.00 of such excess (rounded
down to the nearest whole dollar);
(ii) in the event that 12-Month EBITDA shall exceed the sum of
[*******] by more than [*****], the Cash Purchase Price shall be increased by an
amount equal to [*****] for each $1.00 of such excess (rounded down to the
nearest whole dollar); and
(iii) in the event that the sum of [*******] shall exceed Net
Current Accounts Receivable (as defined below), the Cash Purchase Price shall be
reduced by an amount equal to [****] for each $1.00 of such excess (rounded down
to the nearest whole dollar).
Within three (3) business days of the final determinations of the Financial
Statements, the Seller shall pay to Buyer (whether or not the sum of such
Adjustment Amounts shall exceed the Cash Purchase Price) each Adjustment Amount
calculated pursuant to Sections 1.7(c)(i) and 1.7(c)(iii) above, in the
aggregate, by wire transfer of immediately available funds to an account
designated in writing by Buyer. Buyer shall pay to the Seller the Adjustment
Amount calculated pursuant to 1.7(c)(ii) above, net of any unpaid Adjustment
Amounts due to Buyer pursuant to Sections 1.7(c)(i) and 1.7(c)(iii) above, on
terms to be agreed upon by Buyer and the Seller. Buyer shall endeavor in good
faith to pay such amount to the Seller as soon as is practicable.
(d) For purposes hereof, (i) "Funded Debt" shall mean the excess of
the remainder of all indebtedness of the Seller for borrowed money outstanding
as of the Closing
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<PAGE> 6
Date (including, without limitation, capitalized lease obligations) over the
aggregate cash balances as of the Closing Date; (ii) "12-Month EBITDA" shall
mean the earnings of the Seller for the 12-month period ended June 30, 1998, as
set forth in the 12-Month Financial Statements before deduction for interest,
taxes, depreciation and amortization, in each case determined in accordance with
GAAP, as adjusted for non-recurring revenue, charges and adjustments set forth
on Schedule 1.7(d) with respect to non-recurring and deferred revenue, to the
extent actually received, and with respect to non-recurring charges and
adjustments, to the extent actually earned or incurred and to the extent of the
amounts thereof which Buyer determines will not be incurred by it in the
operation of the Business in the ordinary course from and after June 30, 1998,
and (iii) "Net Current Accounts Receivable" shall mean the excess of accounts
receivable of the Seller as of July 31, 1998, which are good and collectible and
have been incurred in the ordinary course of business for services performed or
products delivered and which are due and payable within 60 days from the date of
invoice over the accounts payable of the Seller as of July 31, 1998.
(e) The parties acknowledge and agree that the Purchase Price shall be
allocated among the Transferred Assets in accordance with Schedule 1.7(e)
hereto. The parties shall not take any position for purposes of Federal, state
or local income taxes respecting the allocation of the Purchase Price which is
inconsistent with the allocation set forth on such Schedule.
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE STOCKHOLDERS. The
Seller and the Stockholders hereby, jointly and severally, represent and warrant
to, and covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Seller is a corporation
duly organized, validly existing and in good standing and authorized to exercise
its corporate powers, rights and privileges under the laws of the State of
Florida with full corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted by it. Schedule
2.1(a) hereto sets forth all states and other jurisdictions in which the Seller
is duly qualified and in good standing to do business as a foreign corporation.
There are no other states or jurisdictions in which the character and location
of the properties owned or leased by it, or the conduct of its business makes
such qualification necessary. Copies of the Seller's Articles of Incorporation
and all amendments thereto, and of the Seller's By-Laws, as amended to date, are
attached to Schedule 2.1(a) and are complete and correct. The Seller's minute
books contain complete and accurate records of all meetings and other corporate
actions, including, without limitation, actions by unanimous written consent of
the Stockholders and board of directors of the Seller (including all committees
of its board of directors).
(b) AUTHORITY. The execution and delivery by the Seller and the
Stockholders of this Agreement and all of the agreements, schedules,
exhibits, documents and instruments specifically provided for hereunder to be
executed and/or delivered by any or all of them (all of the foregoing, including
this Agreement, being hereinafter sometimes collectively referred to as the
"Executed Agreements"), the performance by the Seller and any or all of the
Stockholders (to the extent that they are parties thereto) of their respective
obligations under the Executed Agreements, and the consummation of the
transactions contemplated by the Executed
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<PAGE> 7
Agreements, have been duly and validly authorized by all necessary corporate
action on the part of the Seller and by the Stockholders, and the Seller has all
necessary corporate power with respect thereto. The Executed Agreements are, or
when executed and delivered by the delivering parties shall be, the valid and
binding obligations of the delivering parties, enforceable in accordance with
their respective terms, except to the extent that enforceability may be limited
by the operation of bankruptcy, insolvency or similar laws. Neither the
execution and delivery by the Seller and any or all of the Stockholders (to the
extent that they are parties thereto) of the Executed Agreements, nor the
consummation of the transactions contemplated thereby, nor the performance by
the Seller and any or all of the Stockholders (to the extent that they are
parties thereto) of their respective obligations under the Executed Agreements,
shall (nor with the giving of notice or the lapse of time or both would) (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or By-Laws of the Seller, (ii) give rise to a default, or any
right of termination, cancellation or acceleration, or otherwise result in a
loss of contractual benefits to the Seller, under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which the Seller or any Stockholder is a party
or by which it or any of its properties or assets may be bound, (iii) violate
any order, writ, injunction, decree, law, statute, rule or regulation applicable
to the Seller or any of the Stockholders or any of their respective properties
or assets, (iv) result in the creation or imposition of any lien, claim,
restriction, charge or encumbrance upon any of the properties or assets of the
Seller, or (v) interfere with or otherwise materially and adversely affect the
ability of the Seller to carry on its business as now conducted.
(c) INTERESTS IN OTHER ENTITIES. Except as set forth in Schedule
2.1(c) hereto, the Seller does not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation or entity, (ii) have any ownership interest, direct or indirect, of
record or beneficially, in any entity, or (iii) have any obligation, direct or
indirect, present or contingent, to purchase or subscribe for any interest in,
advance or loan monies to, or in any way make investments in, any person or
entity, or to share any profits or capital investments in other persons or
entities, or both.
(d) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. Except as set
forth in Schedule 2.1(d) hereto, no approval, consent, compliance, exemption,
authorization or other action by, or notice to or filing with, any governmental
authority or any other entity, and no lapse of a waiting period, is necessary or
required to be obtained by the Seller or any Stockholder in connection with the
execution, delivery or performance by any of them, of this Agreement, any of the
Executed Agreements or the transactions contemplated hereby.
(e) PROJECTIONS. The Seller has delivered to Buyer a set of
projections (the "Projections"), a copy of which is attached hereto as Schedule
2.1(e), which the Seller and the Stockholders have been advised are material to
Buyer in its decision to enter into this Agreement. The Projections are based on
the best estimates of the Seller and the Stockholders derived from reasonable
expectations at the time the Projections were made, and the Seller and the
Stockholders believe that Buyer is justified in relying thereon, there being,
however, no guarantee of the achievement of the Projections.
(f) FINANCIAL STATEMENTS. The Seller has delivered to Buyer true and
complete copies of its unaudited balance sheet as of December 31, 1996, and the
related statement of cash receipts and disbursements for the year ended December
31, 1996 (the "1996 Financial
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<PAGE> 8
Statements"), true and complete copies of its unaudited balance sheet as of
December 31, 1997, and the related income statements of income for the year
ended December 31, 1997 (the "1997 Financial Statements") and true and complete
copies of its unaudited balance sheet as of March 31, 1998 (the "Interim Balance
Sheet"), and the related income statement for the three months ending March 31,
1998 (collectively, with the Interim Balance Sheet, the "Interim Financial
Statements"). Except as set forth on Schedule 2.1(f), all of such financial
statements, including any notes thereto, were prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved subject, in
respect of the Interim Financial Statements, to normal year-end audit
adjustments, none of which are material (except as may be otherwise expressly
stated in said financial statements and notes thereto or in Schedule 2.1(f)
hereto). The financial statements fairly present the financial position of the
Seller at the dates thereof and the results of its operations for the periods as
indicated. The books and records of the Seller are in all material respects
complete and correct, have been maintained in accordance with good business
practices, and accurately reflect the basis for the financial condition and
results of operations of the Seller as set forth in the financial statements
referred to herein.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. The Seller does not have any
liabilities, commitments or obligations, whether accrued, absolute, contingent
or otherwise which have not been (i) in the case of liabilities, commitments and
obligations of a type customarily reflected on the corporate balance sheet of
the Seller, reflected on the Interim Balance Sheet in accordance with GAAP,
incurred, consistent with past practice, in the ordinary course of business
since the date of the Interim Balance Sheet and which are not material either
individually or in the aggregate or (ii) in the case of all other types of
liabilities and obligations, described in Schedule 2.1(g) hereto.
(h) ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Schedule 2.1(h) hereto, since December 31, 1997, the Seller has not:
(i) suffered any material adverse change in its working capital,
condition (financial or otherwise), assets, liabilities, business, operations or
prospects;
(ii) incurred any material liabilities or obligations except
items incurred in the ordinary course of business and consistent with past
practice, none of which exceeds $15,000 (counting obligations or liabilities
arising from one transaction or a series or similar transactions, and all
periodic installments or payments under any lease or other agreement providing
for periodic installments or payments, as a single obligation or liability), or
experienced any increase in, or change in any assumption underlying or methods
of calculating, any bad debt, contingency or other reserves;
(iii) paid, discharged or satisfied any claim, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities and obligations reflected or reserved against in
the Interim Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the date of the Interim Balance Sheet;
(iv) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind;
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<PAGE> 9
(v) written off as uncollectible any notes or accounts
receivable, except for write-offs in the ordinary course of business and
consistent with past practice, none of which are material;
(vi) canceled any debts or waived any claims or rights of
substantial value, or sold, transferred, or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
in the ordinary course of business and consistent with past practice;
(vii) disposed of or permitted to lapse any rights to use any
Toll Free Telephone Number listed on Schedule 2.1(q) hereof, patent, trademark,
trade name or copyright, or disposed of or disclosed (except as necessary in the
conduct of its business) to any person any trade secret, formula, process or
know-how;
(viii) granted any general increase in the compensation of
officers or employees (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee, and,
unless otherwise set forth in Schedule 2.1(h), no such increase is customary on
a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or commitment in excess
of $10,000 for additions to property, plant, equipment or intangible assets or
made aggregate capital expenditures and commitments in excess of $50,000 (on a
consolidated basis), for additions to property, plant, equipment or intangible
assets;
(x) redeemed any shares of its capital stock or declared, paid or
set aside for payment any dividend or other distribution in respect of its
capital stock;
(xi) made any change in any method of accounting or accounting
practice;
(xii) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of its officers, directors, debtholders, stockholders or employees or any
"affiliate" or "associate" of any of its officers, directors, noteholders,
stockholders or employees (as such terms are defined in Rule 405 promulgated
under the Securities Act and as used herein "Associate" and "Affiliate"), except
for compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended December 31, 1997;
(xiii) paid any amount in respect of Funded Debt except for
regularly scheduled payments of principal and interest in accordance with the
terms thereof; or
(xiv) agreed, whether in writing or otherwise, to take any action
described in this Section unless such action is specifically excepted from this
Section or described in Schedule 2.1(h).
(i) TAX MATTERS. Except as set forth in Schedule 2.1(i) hereto, the
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Seller has filed with the appropriate governmental agencies all Federal, state,
local or foreign tax returns and reports required to be filed by it ("Returns"),
has paid in full or made adequate provision for the payment of, all taxes of
every nature, including, but not limited to, income, sales, franchise and
withholding taxes ("Taxes"), together with interest, penalties, assessments and
deficiencies owed by it (whether or not shown on any Returns), and all such
Returns were correct and complete in all respects. The Seller is not currently
the beneficiary of any extension of time within which to file any Returns. The
Seller has previously provided Buyer with true and complete copies of all such
Returns filed within the past 5 years. The provisions for income and other Taxes
reflected on the Interim Balance Sheet are adequate for all accrued and unpaid
taxes of the Seller as of the date of the Interim Balance Sheet, whether (i)
incurred in respect of or measured by income of the Seller for any periods prior
to the close of business on that date, or (ii) arising out of transactions
entered into, or any state of facts existing, on or prior to that date. The
provision for Taxes reflected on the books of account of the Seller is adequate
for all Taxes of said entity which accrued since the date of the Interim Balance
Sheet. There are no filed or other known tax liens upon any property or assets
of the Seller. The Seller has not waived any statute of limitations in respect
of Taxes or executed or filed with any governmental authority any agreement
extending the period for the assessment or collection of any Taxes, and it is
not a party to any pending or, to the Seller's or any Stockholder's best
knowledge, threatened action or proceeding by any governmental authority for the
assessment or collection of Taxes. To the best knowledge of the Seller and the
Stockholders, no issue has arisen in any examination of the Seller by any
governmental authority that if raised with respect to any other period not so
examined would, if upheld, result in a material deficiency for any other period
not so examined. There is no unresolved written claim by a governmental
authority in any jurisdiction where the Seller does not file Returns that the
Seller is or may be subject to taxation by such jurisdiction. There has been no
examination or audit with respect to Taxes with respect to any year. The Seller
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, stockholder or other third party.
(j) LITIGATION. Except as set forth in Schedule 2.1(j) hereto, there
are no suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending, or to the best knowledge of the Seller and
the Stockholders, threatened against or affecting, or which may affect, the
Seller or any of its properties, assets or businesses or the transactions
contemplated hereby. To the best knowledge of the Seller and the Stockholders,
there are no outstanding judgments, orders, stipulations, injunctions, decrees
or awards against the Seller which are not satisfied.
(k) COMPLIANCE WITH APPLICABLE LAW. The Seller is, and at all times
since its formation has been in compliance with all Federal, state, local and
foreign laws, statutes, ordinances, regulations, and administrative rulings
(collectively "Laws"), promulgated by any governmental or regulatory authority
applicable to the Seller or to the conduct of the business or operations of the
Seller or to the use of its properties and assets, including, without
limitation, all environmental Laws and all Laws relating to the Toll Free
Telephone Numbers. The Seller has not received, and the Seller and the
Stockholders do not know of the issuance or threatened issuance of, any notices
of violation or alleged violation of any laws by the Seller. Neither the Seller
nor the Stockholders know of any pending or proposed legislation applicable to
the Seller or to the conduct of business or operations of the Seller which, if
enacted, could have a material adverse effect on the business, results of
operations, financial position or prospects of the Seller or the value of its
properties or assets
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(l) ENVIRONMENTAL MATTERS. Except as set forth on Schedule 2.1(l)
hereto:
(i) neither the Seller nor its operations or the real property
leased by the Seller as set forth in Schedule 2.1(n) hereto (the "Facility") are
subject to any outstanding written order, consent decree or settlement agreement
with any person relating to (A) any Environmental Laws (as defined in below),
(B) any Environmental Claim (as defined below), or (C) any Hazardous Materials
Activity (as defined below) that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the business,
results of operations, financial position or prospects of the Seller or the
value of its properties or assets;
(ii) the Seller has not received any letter or request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9604) or any comparable state
law;
(iii) there are, and to the Seller's and the Stockholders'
knowledge, have been no conditions, occurrences, or Hazardous Materials
Activities which could reasonably be expected to form the basis of an
Environmental Claim against the Seller or that, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
business, results of operations, financial position or prospects of the Seller
or the value of its properties or assets;
(iv) neither the Seller nor, to the Seller's and the
Stockholders' knowledge, any predecessor of the Seller, has filed at any time
any notice under any Environmental Law indicating past or present treatment of
Hazardous Materials at the Facility, and none of the Seller's operations
involves the generation, transportation, storage, or disposal of hazardous
waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent; and
(v) compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws will not, individual or in
the aggregate, have a reasonable possibility of giving rise to a material
adverse effect on the business, results of operations, financial position or
prospects of the Seller or the value of its properties or assets.
(vi) Notwithstanding anything in this Section 2.1(l) to the
contrary, no event or condition has occurred or is occurring with respect to the
Seller relating to any Environmental Law, any Release (as defined in subsection
(vii) below) of Hazardous Materials, or any Hazardous Material Activity,
including any matter disclosed on Schedule 2.1(l), which individually or in the
aggregate has had or could reasonably be expected to have a material adverse
effect on the business, results of operations, financial position or prospects
of the Seller or the value of its properties or assets.
(vii) The following terms used in this Section 2.1(l) shall have
the following meanings:
(A) "Environmental Laws" shall mean any and all current or
future statutes, ordinances, orders, rules regulations, guidance documents,
judgments, governmental authorizations, or any other requirements of
governmental authorities relating to (1)
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environmental matters, including those relating to any Hazardous Materials
Activity (as defined below), (2) the generation, use, storage, transportation or
disposal of Hazardous Materials (as defined below), or (3) occupational safety
and health, industrial hygiene, land use or the protection of human, plant, or
animal health or welfare, in any manner applicable to the Seller or the
Facility, including the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 ET SEQ.), - the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the Resource Conservation -
and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Federal Water Pollution
Control Act (33 U.S.C. - Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C.
Section 7401 ET SEQ.), the Toxic Substances Control - - Act (15 U.S.C. Section
2601 ET SEQ.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
- - Section 136 ET SEQ.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 ET SEQ.), the Oil - - Pollution Act (33 U.S.C. Section 2701 ET SEQ.)
and the Emergency Planning and Community Right-to-Know - Act (42 U.S.C. Section
11001 ET SEQ.), each as amended or supplemented, any analogous present or future
- - state or local statutes or laws, and any regulations promulgated pursuant to
the foregoing.
(B) "Environmental Claim" shall mean any investigation,
notice, notice of violation, claim, action, suit, proceeding, demand, abatement
order or other order or directive (conditional or otherwise), by any
governmental authority or any other person, arising (1) pursuant to or in
connection with any actual or alleged violation of any Environmental Laws, (2)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (3) in connection with any actual or alleged damage,
injury, threat or harm to heath, safety, natural resources or the environment.
(C) "Hazardous Materials" shall mean (1) any chemical,
material or substance at any time defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous
waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous
waste", "infectious waste", "toxic substances", or any other term or expression
intended to define, list or classify substances by reason of properties harmful
to health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws), (2) any oil, petroleum,
petroleum fraction or petroleum derived substance, (3) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources, (4) any flammable
substances or explosives, (5) any radioactive materials, (6) any
asbestos-containing materials, (7) urea formaldehyde foam insulation, (8)
electrical equipment which contains oil or dielectric fluid containing
polychlorinated biphenyls, (9) pesticides, and (10) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any other persons in the vicinity of the
Facility or to the indoor or outdoor environment.
(D) "Hazardous Materials Activity" shall mean any past,
current, proposed or threatened activity, event or occurrence involving any
Hazardous Materials, including the use, manufacture, possession, storage,
holding, presence, existence, location, Release (as defined below), threatened
Release, discharge, placement, generation, transportation, processing,
construction, treatment, abatement, removal, remediation, disposal, disposition
or handling of any Hazardous Materials, and any corrective action or response
action with respect to any of the
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foregoing.
(E) "Release" shall mean any release, spill, emission,
leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge,
dispersal, dumping, leaching or migration of Hazardous Materials into the indoor
or outdoor environment (including, without limitation, the abandonment or
disposal of any barrels, containers or other closed receptacles containing any
Hazardous Materials), including the movement of any Hazardous Materials through
the air, soil, surface water or ground water.
(m) PERMITS. A list of all permits, approvals, licenses, certificates,
franchises, authorizations, consents and orders ("Permits") necessary to the
operation of the business of the Seller in the manner in which it is presently
conducted is set forth on Schedule 2.1(m) hereto. All such Permits are valid and
remain in full force and effect. The Seller has not engaged in any activity
which would cause revocation or suspension of any such Permits and no action or
proceeding looking to or contemplating the revocation or suspension of any
thereof is pending or threatened. No additional Permits will be required to
permit the Seller to continue its business substantially in the manner it is
presently conducted after the consummation of the transactions contemplated
hereby.
(n) TITLE TO PROPERTIES. The Transferred Assets constitute all assets
which have been used in the Business since December 31, 1997, and which are
necessary for the conduct of the Business. The Seller does not own any real
property. Except as set forth in Schedule 2.1(n) hereto, the Seller has good
title to all of the properties and assets (personal and mixed, tangible and
intangible) reflected on the Interim Balance Sheet or thereafter acquired or
which it purports to own (except properties or assets sold or otherwise disposed
of in the ordinary course of business consistent with past practice subsequent
to the date of the Interim Balance Sheet which in the aggregate did not have a
book value in excess of $5,000), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature whatsoever, except those referred
to in the Interim Balance Sheet. Schedule 2.1(n) also contains an accurate list
setting forth all (i) real property leased (whether as lessor or lessee) or
subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by the Seller and (ii) significant personal property leased by
or to the Seller or subject to a title retention or conditional sales agreement
or other security device. All leases listed in Schedule 2.1(n) are valid,
binding and enforceable in accordance with their terms, and are in full force
and effect, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws; there are no existing
defaults by the Seller thereunder; no event of default has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default by the Seller thereunder; and all lessors under such leases have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification of
the rights and obligations of the Seller under such leases. All of the tangible
property (whether owned or leased) included in the Transferred Assets are
located at the real property leased by the Seller as set forth in Schedule
2.1(n) hereto.
(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the Interim Balance
Sheet are good and collectible in the ordinary course of business at the
aggregate recorded amounts thereof, less the amount of the reserve for bad
accounts reflected therein, and are not
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subject to any offsets. The accounts receivable of the Seller which were
thereafter added are good and collectible in the ordinary course of business at
the aggregate amounts recorded on the books of account, less the amount of the
reserve for bad accounts reflected therein (which reserve has been established
on a basis consistent with prior practice and in accordance with GAAP) and are
not subject to any offsets. Set forth on Schedule 2.1(o) is a true and complete
list of the Seller's accounts receivable as of June 30, 1998, and aging with
respect thereto.
(ii) Schedule 2.1(o) hereto contains a complete and accurate list
of all machinery, equipment and other fixed assets of the Seller (the
"Equipment") having a book value in excess of $250. Each such item of Equipment
is in good operating condition, normal wear and tear excepted, and is fit for
its intended use. Each such item has been maintained, in all material respects,
in accordance with its manufacturer's recommended maintenance practice and with
prudent business practice and no such maintenance has been deferred.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto lists all licenses,
patents, copyrights, or trademarks owned or used by the Seller in the conduct of
its business and all applications therefor (the "Intellectual Property"). No
officer or director, stockholder or employee of the Seller nor any of their
Affiliates or Associates has any ownership or other interest in any of the
Intellectual Property. To the best knowledge of the Seller and the Stockholders,
none of the Intellectual Property is being infringed upon by, or infringes, any
licenses, patents, copyrights, trademarks or other intellectual property rights
of any other person or entity. Except as set forth in Schedule 2.1(p), the
validity of the Intellectual Property and the title thereto of the Seller have
not been questioned in any litigation or governmental inquiry or proceeding to
which the Seller, is a party, and, to the best knowledge of the Seller and the
Stockholders, no such litigation, governmental inquiry or proceeding is
threatened. The conduct of the business of the Seller as presently conducted
does not conflict with valid licenses, trademarks, trademark rights, trade
names, trade name rights, service marks or patents of others in any way likely
to affect adversely, in any material respect, the Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q) hereto sets forth a
complete list of all Toll Free Telephone Numbers owned or used by the Seller in
the conduct of its business. No officer or director, stockholder or employee of
the Seller nor any of their Affiliates or Associates has any ownership or other
interest in the Toll Free Telephone Numbers. The Seller has not warehoused,
brokered or hoarded (as those terms are defined in the Second Report and Order
and Further Notice of Proposed Rulemaking in CC Docket No. 95-155, Released
April 11, 1997, by the Federal Communications Commission ("FCC")) any of the
Toll Free Telephone Numbers in violation of any applicable FCC rules or
regulations.
(r) INSURANCE. Schedule 2.1(r) hereto contains a complete and correct
list of all policies of insurance in which the Seller or its officers or
directors (in such capacity) is an insured party, beneficiary or loss payable
payee. Copies of all such policies have been previously provided to the Buyer.
Such policies are in full force and effect and in the reasonable judgment of the
Seller and the Stockholders provide the type and amount of coverage reasonably
required for the business of the Seller.
(s) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 2.1(s) hereto
contains a complete and correct list showing (i) the name of each bank in which
the Seller has an
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account or safe deposit box and the names of all persons authorized to draw
thereon or have access thereto, and (ii) the names of all persons, if any,
holding powers of attorney from the Seller.
(t) EMPLOYEE ARRANGEMENTS; ERISA. The Seller has (i) no union,
collective bargaining, employment, management, severance or consulting
agreements to which the Seller is a party or is otherwise bound, and (ii) no
deferred compensation agreements, pension and retirement plans, profit-sharing
plans, stock purchase and stock option plans. Schedule 2.1(t) hereto contains a
true and complete list of all compensation, incentive, bonus, severance,
disability, hospitalization, medical insurance, life insurance and other
employee benefit plans, programs or arrangements maintained by the Seller or
under which the Seller has any material obligations (other than obligations to
make current wage or salary payments) in respect of, or which otherwise cover,
any of the current or former officers, employees or consultants of the Seller,
or their beneficiaries (each an "Employee Benefit Plan" and collectively the
"Employee Benefit Plans"). No Employee Benefit Plan is subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). All
contributions to and payments from the Employee Benefit Plans which may have
been required to be made in accordance with the Employee Benefit Plans have been
made or are properly accrued and reflected on the Balance Sheets or the books
and records of the Seller. Schedule 2.1(t) hereto also lists the names and
compensation of all persons employed by the Seller. Except as set forth on
Schedule 2.1(t) hereto, the Seller has no Employee Benefit Plans which are
qualified for Federal income tax exemption under Sections 401 and 501 of the
Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in Schedule 2.1(u)
hereto (i) the Seller is not a party to or bound by any distributorship,
dealership, sales agency, franchise or similar agreement which relates to the
sale, distribution or servicing of the Toll Free Telephone Numbers or services
related thereto, (ii) the Seller does not have any sole-source supplier of
significant goods or services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (iii) there are not pending and, to the Seller's and the
Stockholders' best knowledge there are not threatened, any labor negotiations
involving or affecting the Seller and, to the Seller's and the Stockholders'
best knowledge, no organizing activities involving union representation exist in
respect of any of its employees, (iv) the Seller neither gives nor is bound by
any express warranties relating to its services and, to the best knowledge of
the Seller and the Stockholders, there has been no assertion of any breach of
warranties which could have a material adverse effect on the business or
condition (financial or otherwise) of the Seller and, to the best knowledge of
the Seller and the Stockholders, there are no problems or potential problems
with respect to any product sold or services provided by the Seller, (v) the
Seller is not a party to or bound by any agreement which limits its freedom to
compete in any line of business or with any person or entity, (vi) the Seller is
not a party to or bound by any agreement which based on current economic
circumstances will result in a loss when performed, and (vii) the Seller is not
a party to or bound by any agreement or involved in any transaction in which any
officer, director, debtholder or stockholder, or any Affiliate or Associate of
any such person has, or had when made, a direct or indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a complete and correct
list of any and all contracts, commitments, obligations and undertakings,
written or oral, to which the Seller is a party or otherwise bound. True and
complete copies of all contracts,
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commitments, obligations and undertakings set forth in Schedule 2.1(v) hereto
have been furnished to Buyer, and except as expressly stated in Schedule 2.1(v),
each of them is in full force and effect, no person or entity which is a party
thereto or otherwise bound thereby is, to the best knowledge of the Seller and
the Stockholders, in default thereunder, and no event, occurrence, condition or
act exists which, with the giving of notice or the lapse of time or both, would
give rise to a default or right of cancellation thereunder, and the Seller is
not in default thereunder and no event, occurrence, condition or act exists by
or on behalf of the Seller which, with the giving of notice or the lapse of time
or both would give rise to a default by the Seller thereunder, and to the
Seller's and the Stockholders' best knowledge, there have been no threatened
cancellations thereof and there are no outstanding disputes thereunder. To the
best of the Seller's and the Stockholders' knowledge there is no reason why any
of the contracts listed on Schedule 2.1(v), could not be continued between Buyer
and the Seller's contractual partners on the same terms and conditions as
currently apply. Neither the Seller nor any Stockholder has any reason to
believe that any of the Seller's contractual partners will terminate its
relationship with the Seller as a result of the acquisition of the Seller's
assets by Buyer.
(w) BROKERS. No agent, broker, person or firm acting on behalf of the
Seller or the Stockholders or under the authority of any of the foregoing, is or
shall be entitled to a brokerage commission, finder's fee, or other like payment
in connection with any of the transactions contemplated hereby, from the Seller
or any of the Stockholders.
(x) DISCLOSURE. To the best knowledge of the Seller and the
Stockholders, no representation or warranty made by the Seller or the
Stockholders herein or in any of the Executed Agreements contains any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading.
(y) AFFILIATED TRANSACTIONS. Except as set forth in Schedule 2.1(y)
hereto, no Stockholder (i) is a party to any agreement, transaction or
arrangement (oral or written) with or involving the Seller or any Associate or
Affiliate of the Seller or any of its stockholders, or (ii) has any claim,
monetary or otherwise, of any sort against the Seller. Notwithstanding anything
to the contrary contained herein, each Stockholder hereby releases and
discharges the Seller from all claims, actions or suits that any of them now has
or may hereafter have against the Seller.
(z) CLAIMS AGAINST THE SELLER. Except as set forth in Schedule 2.1(z)
hereto, the Seller has no debts, obligations or liabilities owing to the
Stockholders and, to the best knowledge of the Seller, nothing exists that could
give rise to a claim by the Stockholders of any such debts, obligation or
liability of the Seller to the Stockholders.
(aa) DISCLOSURE SCHEDULES. All schedules to this Agreement are
integral parts to this Agreement. Nothing in a schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein, unless the
schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail, including by explicit cross-reference
to another schedule to this Agreement. Without limiting the generality of the
foregoing, the mere listing, or inclusion of a copy, of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein, unless the representation or warranty is being made in
connection with the existence of the document or other item itself. The Seller
and the Stockholders are responsible for preparing and arranging the schedules
corresponding to the lettered and numbered paragraphs contained herein.
Disclosure
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made in a specific schedule shall not be deemed to have been disclosed with
respect to any other schedule unless an explicit cross-reference appears.
(bb) PRINCIPAL PLACE OF BUSINESS; RESIDENCE. The Seller's principal
place of business is located at 625 Florida Avenue, Cocoa, Florida 32922. Judith
M. Molitor and Donald N. Molitor reside at 1171 Indian River Drive, Cocoa,
Florida 32922. D. Scott Molitor resides at 600 Deerhurst Drive, Melbourne,
Florida 32940.
2.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the
Stockholders severally represents and warrants to, and covenants and agrees with
Buyer, with respect to such Stockholder as follows:
(a) CAPACITY; VALIDITY. Such Stockholder has the legal capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by such
Stockholder and constitutes a valid and binding obligation of such Stockholder
enforceable against him in accordance with its terms.
(b) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such Stockholder does not
own or possess any rights in or to the Toll Free Telephone Numbers listed on
Schedule 2.1(q) hereto.
(c) INVESTMENT INTENT. Such Stockholder acknowledges that none of the
shares of Parent Common Stock are registered under the Securities Act or any
state securities laws. The shares of Parent Common Stock are being acquired by
such Stockholder for investment purposes only and not with a view to the
distribution or resale thereof. Such Stockholder has no present intention to
sell or otherwise dispose of the Parent Common Stock, except in compliance with
the provisions of the Securities Act.
(d) INFORMATION. Such Stockholder (i) has such knowledge and
experience in financial and business affairs that he/she is capable of
evaluating the merits and risks involved in purchasing the Parent Common Stock,
(ii) is able to bear the economic risks involved in purchasing the Parent Common
Stock, and (iii) has had the opportunity to ask questions of, and receive
answers from, Parent and persons acting on Parent's behalf concerning the terms
and conditions of the Parent Common Stock and to obtain any additional
information in connection therewith.
(e) ACCREDITATION. Such Stockholder is an accredited investor within
the meaning of Regulation D of the Securities Act.
(f) RESTRICTIONS ON TRANSFER.
(i) Such Stockholder agrees that he will not transfer or
otherwise dispose of (each, a "Transfer") any of the shares of Parent Common
Stock (or any interest therein) except upon the terms and conditions specified
herein and such Stockholder will cause any subsequent holder of such
Stockholder's shares of Parent Common Stock to agree to take and hold the shares
of Parent Common Stock subject to the terms and conditions of this Agreement, if
such shares of Parent Common Stock are required to include a legend pursuant to
Section 2.2(f)(ii) hereof.
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(ii) Each certificate representing the shares of Parent Common
Stock issued to the Stockholders or to any subsequent stockholder shall include
a legend in the following form; PROVIDED, HOWEVER, that such legend shall not be
required (and shall be removed) if a Transfer is being made in connection with a
sale of shares of Parent Common Stock registered under the Securities Act, or in
connection with a sale in compliance with Rule 144 under the Securities Act, as
such Rule may be amended from time to time (each a "Public Sale"):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT
BE TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION THEREOF OR A VALID EXEMPTION THEREFROM.
(iii) Notwithstanding anything to the contrary in this Section
2.2(f), such Stockholder shall not Transfer any of the shares of Parent Common
Stock except to the extent permitted, and in accordance with, the Shareholders
Agreement referred to in Section 4.1(h) hereof.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to, and covenants and agrees with, the Seller as follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted by it and is
qualified in each other jurisdiction in which qualification is required for it
to own, lease and operate its properties and carry on its business as presently
conducted by it, except to the extent that failure to so qualify would not have
a material adverse effect on the financial condition, business or operations of
Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of this Agreement
and of each of the other Executed Agreements to which it shall be a party, the
performance by Buyer of its obligations under this Agreement or such Executed
Agreements and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of Buyer, and Buyer has all necessary corporate power with respect
thereto. This Agreement and the Executed Agreements are, or when executed and
delivered by Buyer shall be, the valid and binding obligations of Buyer,
enforceable in accordance with their respective terms, except to the extent that
enforceability may be limited by the operation of bankruptcy, insolvency or
similar laws. Neither the execution and delivery by Buyer of the Executed
Agreements, nor the consummation of the transactions contemplated thereby, nor
the performance by Buyer of its obligations under the Executed Agreements, shall
(nor with the giving of notice or the lapse of time or both would) (i) conflict
with or result in a breach of any provision of the Articles of Incorporation or
By-Laws of Buyer, (ii) violate any order, writ, injunction, decree, law,
statute, rule or regulation or (iii) interfere with or otherwise materially and
adversely affect the ability of Buyer to carry on its business as now conducted.
(c) BROKERS. No agent, broker, person or firm acting on behalf of
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Buyer or under its authority is or shall be entitled to a brokerage commission,
finder's fee, or other like payment in connection with any of the transactions
contemplated hereby.
2.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and
warrants to Seller and each of the Stockholders as follows:
(a) CAPITALIZATION. The authorized capital stock of Parent consists of
(i) 15,000,000 shares of Common Stock, par value $.001 per share, of which
100,000 shares are designated Class B Common Stock ("Class B Stock") and (ii)
7,000,000 shares of Series A Preferred Stock, par value $.001 per share.
2,485,000 shares of Common Stock are issued and outstanding or are reserved for
issuance against outstanding options and warrants, of which 90,500 shares are
Class B Stock, and 6,520,000 shares of Series A Preferred Stock are issued and
outstanding. The shares of the Parent Common Stock being transferred to the
Stockholders in accordance herewith shall be duly and validly issued and fully
paid and non-assessable. The transfer of such shares of Parent Common Stock to
the Stockholders as provided herein shall vest the Stockholders with good and
marketable title to the Parent Common Stock, free and clear of all liens,
charges, claims and encumbrances.
(b) ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted by it and is
qualified in each other jurisdiction in which qualification is required for it
to own, lease and operate its properties and carry on its business as presently
conducted by it, except to the extent that failure to so qualify would not have
a material adverse effect on the financial condition, business or operations of
Parent.
(c) AUTHORITY. The execution and delivery by Parent of this Agreement
and of each of the other Executed Agreements to which it shall be a party, the
performance by Parent of its obligations under this Agreement or such Executed
Agreements and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of Parent, and Parent has all necessary corporate power with respect
thereto. This Agreement and the Executed Agreements to which Parent shall be a
party are, or when executed and delivered by Parent shall be, the valid and
binding obligations of Parent, enforceable in accordance with their respective
terms, except to the extent that enforceability may be limited by the operation
of bankruptcy, insolvency or similar laws. Neither the execution and delivery by
Parent of such Executed Agreements, nor the consummation of the transactions
contemplated thereby, nor the performance by Parent of its obligations under
such Executed Agreements, shall (nor with the giving of notice or the lapse of
time or both would) (i) conflict with or result in a breach of any provision of
the Certificate of Incorporation or By-Laws of Parent, (ii) violate any order,
writ, injunction, decree, law, statute, rule or regulation or (iii) interfere
with or otherwise materially and adversely affect the ability of Parent to carry
on its business as now conducted.
3. COVENANTS. The Stockholders and the Seller jointly and severally
covenant and agree to perform or take any and all such actions to effectuate the
following from the date hereof until the Closing Date:
3.1 INVESTIGATION BY BUYER. Buyer may, prior to the Closing Date, through
its
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representatives (including its counsel, accountants and consultants) make such
investigations of the properties, offices and operations of the Seller and such
audit of the financial condition of the Seller as it deems necessary or
advisable in connection with the transactions contemplated hereby, including,
without limitation, any investigation enabling it to familiarize itself with
such properties, offices, operations and financial condition; such investigation
shall not, however, affect the Seller's or the Stockholders' representations,
warranties and agreements hereunder. The Seller and the Stockholders shall
permit Buyer and its authorized representatives to have, after the date hereof,
full access to the premises and to all books and records and Returns of the
Seller and Buyer shall have the right to make copies thereof and excerpts
therefrom. The Seller and the Stockholders shall furnish Buyer with such
financial and operating data and other information with respect to the Seller as
Buyer may from time to time reasonably request.
3.2 CARRY ON IN ORDINARY COURSE. Except with Buyer's prior written consent,
the Seller shall, and each Stockholder shall cause the Seller to, carry on its
business diligently and substantially in the same manner as heretofore
conducted, and shall not (a) enter into or agree to enter into any extraordinary
transaction, contract, lease or commitment, (i) declare any dividends, nor make
any distributions or payments to the Stockholders other than employment
compensation, (ii) redeem any shares of the Seller Stock or issue any capital
stock or enter into any agreement which grants a right to acquire any of the
Seller Stock, (iii) increase the compensation of any employee of the Seller,
other than ordinary year-end increases or enter into any severance agreement or
employment agreement with any employee of the Seller; (iv) loan or advance any
amounts to any officer, director, stockholder or employee of the Seller or enter
into any agreement with any of the foregoing or any person related to any of the
foregoing, (v) acquire or dispose of any assets, other than in the ordinary
course of business, and (vi) encumber or commit to encumber any of its assets,
(vii) take any action, or suffer any action to be taken, which could cause any
of the representations or warranties of any Stockholders or the Seller contained
herein not to be true and correct on and as of the Closing Date, (viii) repay
(including by way of offset) any Funded Debt except for regularly scheduled
payments thereof in accordance therewith, or (ix) enter into any agreement to
take any of the foregoing actions.
3.3 OTHER TRANSACTIONS. The Seller and the Stockholders shall not, and
shall cause the Seller's directors, officers, stockholders, employees, agents
and Affiliates or Associates not to, directly or indirectly, solicit or initiate
the submission of proposals from, or solicit, encourage, entertain or enter into
any arrangement, agreement or understanding with, or engage in any negotiations
with, or furnish any information to, any person, other than Buyer or a
representative thereof, with respect to the acquisition of all or any part of
the business or assets of the Seller or any of its securities. Should the Seller
or any of its Affiliates or Associates, during such period, receive any offer or
inquiry relating to such acquisition, or obtain information that such an offer
is likely to be made, they will provide Buyer with immediate written notice
thereof, which notice will include the identity of the prospective offeror and
the price and terms of any offer.
3.4 CONSENTS. The Stockholders shall cause the Seller to, and the Seller
shall, use its best efforts to obtain in writing, prior to the Closing Date, all
consents, approvals, waivers, authorizations and orders necessary or reasonably
required in order to permit it to effectuate this Agreement and to consummate
the transactions contemplated hereby (collectively, "Consents"). All such
Consents will be in writing and copies thereof will be delivered to Buyer
promptly after the Seller's receipt thereof but no later than immediately prior
to Closing.
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3.5 SUPPLEMENTAL DISCLOSURE. The Stockholders and the Seller agree that,
with respect to their representations and warranties made in this Agreement,
they will have a continuing obligation to promptly supplement or amend the
schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement and on the Closing
Date, would have been required to be set forth or described in the schedules
hereto.
3.6 PUBLIC ANNOUNCEMENTS. The Stockholders and Buyer agree that they will
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement or the transactions
contemplated hereby and any press release or any public statement shall be
subject to mutual agreement of the parties, except as may be required by the
disclosure obligations of Buyer under applicable securities laws.
4. CONDITIONS TO CLOSING.
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation of Buyer to
close under this Agreement is subject to the satisfaction of the following
conditions any of which may be waived by Buyer in writing at or prior to
Closing:
(a) DUE DILIGENCE. Buyer shall have completed, to its satisfaction,
its business, legal, tax and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the Closing Date, the
Stockholders and the Seller shall have complied with and duly performed all
agreements and conditions on their part to be complied with and performed
pursuant to or in connection with this Agreement on or before the Closing Date.
(c) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Stockholders and the Seller contained in this Agreement, or otherwise
made in connection with the transactions contemplated hereby, shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
(d) LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Closing Date there shall not have been any loss, damage or destruction to or of
any of the assets, property or business of the Seller in excess of $10,000 in
the aggregate, whether or not covered by insurance, nor shall the assets,
properties, business or prospects of the Seller have been adversely affected in
any way as a result of any fire, accident, or other casualty, war, civil strife,
riot or act of God or the public enemy or otherwise.
(e) NO LEGAL PROCEEDINGS. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby, and on the Closing Date there will be no court
or governmental actions or proceedings pending or threatened against or
affecting the Seller which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of the Seller.
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(f) CERTIFICATE. Buyer shall have received a certificate dated the
Closing Date and executed by the Stockholders and an authorized officer of the
Seller to the effect that the conditions expressed in Sections 4.1(b), 4.1(c),
4.1(d) and 4.1(e) have been fulfilled.
(g) CONSENTS. Buyer shall have received all Consents necessary to
effectuate this Agreement and to consummate the transactions contemplated
hereby.
(h) EMPLOYMENT AGREEMENT. Buyer shall have entered into an Employment
Agreement with D. Scott Molitor, in form and substance satisfactory to Buyer.
(i) SHAREHOLDERS AGREEMENT. The Stockholders shall have entered into a
Shareholders Agreement, in form and substance satisfactory to Buyer.
(j) ESCROW AGREEMENT. The Seller and the Escrow Agent shall have
entered into the Escrow Agreement.
(k) LEASE AGREEMENT. Buyer and Donald N. Molitor, as trustee of the
Amended and Restated Donald N. Molitor Family Trust u/a/d 10/15/87, shall have
entered into a lease agreement covering the offices of Seller located at 625
Florida Avenue, Cocoa, Florida in form and substance satisfactory to Buyer.
(l) NAME CHANGE. Buyer shall have received a duly authorized and
executed document which amends the certificate of incorporation of the Seller to
change Seller's name to a name other than Answerphone or IOCOM, or any
derivative thereof or any similar name, and is otherwise in form for filing with
the Secretary of State of the State of Florida.
(m) CERTIFICATES OF STATUS. Buyer shall have received certificates
from the Secretary of State of the State of Florida and of each jurisdiction set
forth in Schedule 2.1(a) hereto, providing that the Seller has filed its most
recent annual report, has not filed articles of dissolution and is in good
standing in each such jurisdiction.
(n) OPINION OF COUNSEL. The Stockholders shall have furnished Buyer
with a favorable opinion of Albert D. Celio, P.A., counsel for the Seller and
the Stockholders, dated as of the Closing Date, and in form and substance
satisfactory to Buyer.
(o) BILLS OF SALE. Buyer shall have received such bills of sale, deeds
of transfer, assignments and other documents in form and substance satisfactory
to Buyer conveying the Transferred Assets to Buyer.
(p) APPROVAL OF BUYER'S LENDER. Buyer shall have received the approval
of its lender, CIBC, to effectuate this Agreement and to consummate the
transactions contemplated hereby.
4.2 CONDITIONS OF THE STOCKHOLDERS' AND THE SELLER'S OBLIGATIONS TO CLOSE.
The obligations of the Stockholders and the Seller to close under this Agreement
are subject to the following conditions any of which may be waived by the Seller
in writing at or prior to Closing:
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(a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Buyer
shall have complied with and duly performed all agreements and conditions on its
part to be complied with and performed pursuant to or in connection with this
Agreement on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer contained in this Agreement, shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date.
(c) CLOSING CERTIFICATE. The Stockholders shall have received a
certificate dated the Closing Date and executed by an authorized officer of
Buyer to the effect that the conditions contained in Section 4.2(a) and (b) have
been fulfilled.
(d) ESCROW AGREEMENT. Buyer and the Escrow Agent shall have entered
into the Escrow Agreement.
5. FURTHER ASSURANCES. From time to time after the Closing, and without
further consideration, the Seller shall execute and deliver such other
instruments of conveyance, assignment, transfer and delivery and take such other
actions as Buyer may reasonably request in order more effectively to Transfer to
Buyer, to place Buyer in possession or control of, all of the rights,
properties, assets and businesses intended to be Transferred hereunder, to
assist in the collection of any and all such rights, properties and assets, and
to enable Buyer to exercise and to enjoy all of the rights and benefits of the
Seller with respect thereto.
6. TRANSFER TAXES. The Seller shall pay all income, gains, sales and excise
taxes, if any, incurred in connection with the transactions contemplated by this
Agreement. With respect to any item that is exempt from sales or use tax on any
basis, Buyer shall deliver to the Seller such certificates for such exemption as
the Seller may reasonably request. Except as hereinabove provided, the party
hereto which is responsible under applicable law shall bear and pay in their
entirety all other taxes and registration and transfer fees, if any, payable by
reason of the Transfer of the Transferred Assets pursuant to this Agreement.
Each party hereto will cooperate to the extent practicable in minimizing all
taxes (other than income taxes) and fees levied by reason of the Transfer of the
Transferred Assets.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties of the
Stockholders in this Agreement or in any document delivered pursuant hereto
shall survive the Closing Date for a period of eighteen (18) months and shall
then terminate; PROVIDED, HOWEVER, that (i) any such representation and warranty
shall survive the time it would otherwise terminate only with respect to claims
of which notice has been given as provided in this Agreement prior to such
termination and (ii) such time limitation shall not apply to the representations
and warranties set forth in Section 2.2(b) hereof, which shall survive
indefinitely, and Sections 2.1(g), 2.1(i), 2.1(l) and 2.1(n) hereof, which shall
survive until the expiration of the applicable statute of limitations.
7.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this Section 7, each
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party which, pursuant to this Section 7, shall agree to indemnify any other
person or entity shall be referred to, as applicable, as the "Indemnitor", and
each such person and entity who is entitled to be indemnified by any Indemnitor
shall be referred to as the "Indemnified Person" with respect to such
Indemnitor.
7.3 INDEMNITY OF THE SELLER AND THE STOCKHOLDERS. The Seller and the
Stockholders hereby jointly and severally agree to indemnify, hold harmless and
reimburse Buyer and its directors, officers, agents and employees from and
against any and all claims, liabilities, losses, damages and expenses incurred
by such Indemnified Persons (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of (a)
any material breach or alleged breach of any representation or warranty of the
Seller and the Stockholders contained in this Agreement, (b) any breach of any
covenant or agreement of Seller or the Stockholders contained in the Agreement
and (c) any failure by Seller to satisfy the Excluded Liabilities, and shall
reimburse such Indemnified Persons for all costs and expenses (including
reasonable attorneys' fees and disbursements) as they shall be incurred, in
connection with paying, investigating, preparing for or defending any action,
claim, investigation, inquiry or other proceeding, whether or not in connection
with pending or threatened litigation, which shall be caused by or related to or
shall arise out of such breach or alleged breach, whether or not any such
Indemnified Person shall be named as a party thereto and whether or not any
liability shall result therefrom. The Stockholders and the Seller further agree
that they shall not, without the prior written consent of Buyer settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder unless such settlement, compromise or consent shall include an
unconditional release of each Indemnified Person under this Section 7.3 from all
liability arising out of such claim, action, suit or proceeding.
7.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold harmless and
reimburse the Stockholders and the Seller and the Seller's directors, officers,
agents and employees from and against any and all claims, liabilities, losses,
damages and expenses incurred by them (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of (a)
any material breach or alleged breach of any representation or warranty of Buyer
contained in this Agreement, (b) any breach of any covenant or agreement of
Buyer contained in the Agreement and (c) any Assumed Liability and the operation
of the business after Closing, and shall reimburse such Indemnified Persons for
all costs and expenses (including reasonable attorneys' fees and disbursements)
as shall be incurred, in connection with paying, investigating, preparing for or
defending any action, claim, investigation, inquiry or other proceeding, whether
or not in connection with pending or threatened litigation, which shall be
caused by or related to or shall arise out of such breach or alleged breach,
whether or not such Indemnified Persons shall be named as a party thereto and
whether or not any liability shall result therefrom. Buyer further agrees that
it shall not, without the prior written consent of the Seller, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder unless such settlement, compromise or consent shall include an
unconditional release of the Stockholders and the Seller under this Section 7.4
from all liability arising out of such claim, action, suit or proceeding.
7.5 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after receipt by an
Indemnified Person of notice of the commencement of any action or proceeding
with respect to
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which indemnification may be sought hereunder, such Indemnified Person shall
notify the Indemnitor of the commencement of such action or proceeding, but
failure to so notify the Indemnitor shall not relieve the Indemnitor from any
liability which the Indemnitor may have hereunder or otherwise, unless the
Indemnitor shall be materially prejudiced by such failure. If the Indemnitor
shall so elect, the Indemnitor shall assume the defense of such action or
proceeding, including the employment of counsel reasonably satisfactory to such
Indemnified Person, and shall pay the fees and disbursements of such counsel. In
the event, however, that such Indemnified Person shall reasonably determine in
its judgment that having common counsel would present such counsel with a
conflict of interest or alternative defenses shall be available to an
Indemnified Person or if the Indemnitor shall fail to assume the defense of the
action or proceeding in a timely manner, then such Indemnified Person may employ
separate counsel to represent or defend it in any such action or proceeding and
the Indemnitor shall pay the reasonable fees and disbursements of such counsel;
PROVIDED, HOWEVER, that the Indemnitor shall not be required to pay the fees and
disbursements of more than one separate counsel for all Indemnified Persons in
any jurisdiction in any single action or proceeding. In any action or proceeding
the defense of which the Indemnitor shall assume, the Indemnified Person shall
have the right to participate in such litigation and to retain its own counsel
at such Indemnified Person's own expense except as otherwise provided above in
this Section 7.5, so long as such participation does not interfere with the
Indemnitor's control of such litigation.
8. NON-COMPETITION; CONFIDENTIALITY.
8.1 NON-COMPETITION. Following the Closing Date and for a period of five
(5) years thereafter (the "Non-Competition Period"), the Seller and the
Stockholders shall not, directly or indirectly, (a) engage in any business or
activity that competes with the business in which the Seller or any of its
Affiliates is then engaged, anywhere in the contiguous United States (the
"Business"); (b) enter the employ of any person or entity engaged in any
business or activity that competes with the Business or render any consulting or
other services to any person or entity for use in or with the effect of
competing with the Business; or (c) have an interest in any business or activity
that competes with the Business, in any capacity, including, without limitation,
as an investor, partner, stockholder, officer, director, principal, agent,
employee, or creditor; PROVIDED, HOWEVER, that nothing herein shall prevent the
purchase or ownership by any Stockholder of less than 3% of the outstanding
equity securities of any class of securities of a company registered under
Section 12 of the Securities and Exchange Act of 1934, as amended.
Notwithstanding the foregoing, the Non-Competition Period shall be reduced to a
period of three (3) years solely for activities engaged in within the State of
Florida.
8.2 NO COMPETING INTERESTS. Each Stockholder hereby represents and warrants
to Buyer that he has no ownership or other interest in any business or activity
that competes, directly or indirectly, with the Business.
8.3 NON-DISRUPTION. Following the Closing Date and for a period of five (5)
years thereafter, the Seller and the Stockholders shall not, directly or
indirectly, interfere with, disrupt or attempt to disrupt any present or
prospective relationship, contractual or otherwise, between the Seller or any of
its Affiliates, on the one hand, and any of its customers, suppliers or
employees, on the other hand.
8.4 CONFIDENTIALITY. The Seller and the Stockholders shall not use for his
own
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behalf or divulge to any other person or entity any confidential information or
trade secrets of or relating to Buyer in any manner whatsoever (except as
authorized and required in connection with the Stockholders' relationship with
Buyer or any of its affiliates during the term of such relationship or except as
may be required under legal process by subpoena or other court order; PROVIDED,
HOWEVER, that the Stockholder shall give Buyer prompt prior written notice
thereof in order to contest such requirement or order). As used herein,
confidential information shall consist of all information, knowledge or data
relating to Buyer or any of its affiliates (including, without limitation, all
information relating to inventions, procedures and operations, processes and
methods, financial information, customer and prospective customer lists, prices
and trade practices) which is not in the public domain or otherwise published or
publicly available.
8.5 REMEDIES UPON BREACH. The Seller and the Stockholders acknowledge and
agree that (a) Buyer shall be irreparably injured in the event of a breach by a
Stockholder of any of his obligations under this Section 8; (b) monetary damages
shall not be an adequate remedy for such breach; (c) Buyer shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach; and (d) the existence of any claims which Stockholder
may have against Buyer, whether under this Agreement or otherwise, shall not be
a defense to the enforcement by Buyer of any of its rights under this Agreement.
9. MISCELLANEOUS PROVISIONS.
9.1 CONFIDENTIALITY. The Seller, the Stockholders and Buyer agree not to,
directly or indirectly, without the prior written consent of the other, use or
disclose to any person, firm or corporation, any materials or information
obtained in Buyer's due diligence investigation of Seller not a part of the
Purchased Assets, or any of the terms of this Agreement, except as may be
required by the disclosure obligations of Buyer under applicable securities laws
or as may be required to be disclosed to the attorneys and/or accountants of the
parties hereto in connection with the transactions contemplated hereby.
9.2 NOTIFICATION. Each party hereto shall give the other party or parties
hereto prompt written notice of (a) the existence of any fact or the occurrence
of any event which constitutes, or with the giving of notice or the passage of
time or both would constitute, a breach of any representation or warranty of the
party giving such notice made herein or pursuant hereto and (b) the taking of
any action by the party giving such notice that would breach or violate, or
constitute a default under, any agreement or covenant of such party made herein
or pursuant hereto. The giving of any such notice shall not affect, modify or
limit in any way any representation, warranty, agreement or covenant of the
parties made herein or pursuant hereto.
9.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
9.4 NOTICES. All notices, requests, demands and other communications which
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed duly given when delivered by hand, or posted in the
United States mail by registered or certified mail with postage pre-paid, return
receipt requested, (a) if to Buyer, to Protocol Acquisition Sub 1, Inc., c/o
Protocol Communications, Inc. 2197 Ringling Blvd., Sarasota, Florida 34237,
Attention: Stephen McLean; copy to Hertzog, Calamari & Gleason, 100 Park Avenue,
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New York, NY 10016, Attention: John D. Vaughan, Esq., facsimile number: (212)
213-1199, and (b) if to the Seller or the Stockholders, to D. Scott Molitor c/o
Answerphone of Florida, Inc. d/b/a IOCOM 625 Florida Avenue, Cocoa, Florida
32922, facsimile number: (407) 633-6711; copy to Albert D. Celio, P.A. 976
Brevard Avenue, Suite A, Rockledge, Florida 32955; facsimile number: (407)
633-2356 or to such other address(es) as shall be specified by like notice to
the other parties.
9.5 AMENDMENTS. This Agreement may be amended or modified at any time prior
to the Closing Date, but only by a written instrument executed by all of the
parties hereto.
9.6 ENTIRE AGREEMENT. This Agreement (together with the other agreements,
certificates, instruments and documents delivered pursuant hereto) constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, oral and
written, among the parties hereto with respect to the subject matter hereof.
9.7 APPLICABLE LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
internal laws of the State of Florida. The parties hereby consent to the
exclusive jurisdiction of Federal and Florida State courts located in the County
of Brevard and agree that service of process by certified mail, return receipt
requested, shall constitute personal service for all purposes hereof.
9.8 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date by any of the following:
(a) By mutual written agreement of Buyer and the Seller;
(b) By either Buyer or the Seller, if the Closing has not occurred by
August 12, 1998, upon written notice by such terminating party, provided that at
the time such notice is given a material breach of this Agreement by such
terminating party shall not be the principal reason for the Closing's failure to
occur;
(c) Subject to the provisions of Section 9.9 hereof, by Buyer, by
written notice to the Seller, if there has been a material violation or breach
of any of the Stockholders' or the Seller's covenants or agreements made herein
or in connection herewith or if any representation or warranty of the
Stockholders or the Seller made herein or in connection herewith proves to be
materially inaccurate or misleading; or
(d) Subject to the provisions of Section 9.9 hereof, by the Seller, by
written notice to Buyer, if there has been a material violation or breach of any
of Buyer's covenants or agreements made herein or in connection herewith or if
any representation or warranty of Buyer made herein or in connection herewith
proves to be materially inaccurate or misleading.
9.9 EFFECTS OF TERMINATION. If this Agreement is terminated as
provided in Section 9.8 hereof, then this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto
(or any of their respective stockholders, officers, directors or employees),
except based on the agreements contained in Section 7.3 and 7.4 hereof;
PROVIDED, HOWEVER, that if Buyer terminates this Agreement pursuant to Section
9.8(c) hereof, or the Seller terminates this Agreement pursuant to Section
9.8(d) hereof, the non-terminating party
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shall remain liable for any breach hereof.
9.10 HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
9.11 FEES AND DISBURSEMENTS. Buyer shall pay its own expenses, and the
fees and disbursements of the counsel, accountants or auditors retained by it in
connection with the preparation, execution and delivery of this Agreement and
the fees and expenses and disbursements of the counsel to the Seller and the
Stockholders shall be paid by the Stockholders.
9.12 ASSIGNMENT. This Agreement may not be assigned by the Seller or
any Stockholder without the prior written consent of Buyer. This Agreement may
not be assigned by Buyer, except for an assignment by Buyer to any Affiliate,
without the prior written consent of the Seller.
9.13 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
9.14 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this
Asset Purchase Agreement the day and year first above written.
PROTOCOL ACQUISITION SUB 1, INC.
By: /s/ Stephen G. Mclean
-----------------------------------------------------
Name: Stephen G. McLean
Title: President & CEO
PROTOCOL HOLDINGS, INC.
with respect only to Sections 1.5(a) and 2.4 hereof
By: /s/ Stephen G. Mclean
-----------------------------------------------------
Name: Stephen G. McLean
Title: President & CEO
ANSWERPHONE OF FLORIDA, INC. d/b/a IOCOM
By: /s/ D. Scott Molitor
-----------------------------------------------------
D. Scott Molitor
President
STOCKHOLDERS:
/s/ Judith M. Molitor, Trustee
---------------------------------------------------------
Judith M. Molitor, as trustee of the Amended and
Restated Judith M. Molitor Family Trust u/a/d
10/15/87
/s/ Donald N. Molitor
---------------------------------------------------------
Donald N. Molitor, as trustee of the Amended and Restated
Donald N. Molitor Family Trust u/a/d
10/15/87
/s/ D. Scott Molitor
---------------------------------------------------------
D. Scott Molitor
-29-
<PAGE> 1
EXHIBIT 2.6
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this 2nd day
of November, 1998, by and between Anserphone, Inc., a Delaware corporation
("Buyer"), Protocol Holdings, Inc., a Delaware corporation and ultimate parent
of Buyer ("Parent"), Anserphone of New Orleans, Inc., a Louisiana corporation
(the "Seller") and Charles F. Read, Jr. and C. Baldwin Read (the "Stockholders",
and each individually, a "Stockholder").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Seller is principally engaged in the business of supplying
operator, answering and telemarketing services (the "Business") and is the end
user subscribers for certain toll free telephone numbers listed on Schedule
2.1(q) hereto (the "Toll Free Telephone Numbers");
WHEREAS, the Stockholders are presently the owners of all of the issued
and outstanding capital stock of the Seller; and
WHEREAS, the Seller desires to sell to Buyer, and Buyer desires to
purchase from the Sellers substantially all of its assets and operations subject
to certain liabilities, all in the manner and subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, on the Effective Date (as defined in Section 1.6 below), the
Seller shall, and the Stockholders shall cause the Seller to, sell, transfer,
convey, assign and deliver ("Transfer") to Buyer, and Buyer shall purchase,
acquire and accept from the Seller, the Business and all of such Seller's
rights, properties, assets, contracts, leases and businesses of every kind,
character and description, whether tangible or intangible, real, personal or
mixed, accrued, contingent or otherwise, and wherever located, less and except
the Excluded Assets (as defined in Section 1.2 below) (after giving effect to
the exclusion of the Excluded Assets, such assets are hereinafter collectively
referred to as the "Transferred Assets"), free and clear of all liens, claims
and encumbrances, including, without limitation:
(a) all machinery, equipment, furniture, office equipment, telephone
equipment, computers and computer equipment, spare parts, supplies, tools and
vehicles;
- --------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
(b) all of the Seller's right, title and interest in and to any income
and payments due to the Seller, including, without limitation, all accounts and
accounts receivable whether or not reflected on the Seller's books and records,
but expressly excluding the Excess Receivables (as defined in Section 9.2
hereof) and receivables due from employees, not in excess of $30,000, as listed
on Schedule 1.2(f) hereto;
(c) all letters of credit, leases of real and personal property, rental
agreements, commitments, insurance policies (other than the disability policies
listed on Schedule 1.2(c) hereto), purchase orders, sales orders, service
agreements, maintenance agreements, distribution agreements, supply agreements
and all other contracts, agreements and understandings, whether written or oral,
and all rights, claims and causes of action thereunder, whether pending or
inchoate;
(d) all prepaid assets and all deposits, refunds, rebates and other
rights to payment relating to the Transferred Assets;
(e) all intangible assets (including, without limitation, all issued
and applied for patents, trademarks, copyrights, trade names, trade secrets,
service marks, customer lists, relationships and arrangements with customers,
covenants not to compete, authors, designers and suppliers, inventions,
formulae, processes and permits, computer software and source code, and all
licenses, agreements and applications with respect to any of the foregoing, any
goodwill associated with any of the foregoing, and all claims and causes of
action relating to any of the foregoing, including claims and causes of action
for past infringement) arising from or utilized in the operations of the
Business, including the names "Anserphone" and "Anserve" and all derivations
thereof (subject to Section 9.4 hereof);
(f) to the extent transferable, all licenses, authorizations and
permits issued by any governmental agency relating to the Business or the
Transferred Assets, and all applications therefor pending; and
(g) all books, records and files (other than minute and stock books and
other similar corporate records) relating to the Business and the Transferred
Assets and the operations thereof for all periods ending on or before the
Effective Date, but excluding such items which relate to the Excluded Assets or
the liabilities of the Seller not assumed by Buyer.
1.2 EXCLUDED ASSETS. Notwithstanding anything in Section 1.1 to the
contrary, the Seller shall retain all of their right, title and interest in and
to all of, and shall not Transfer to Buyer any of, the following assets, rights
and properties (the "Excluded Assets"):
(a) all cash, and cash equivalents, of the Seller on the Effective
Date;
(b) all claims of the Seller in the action styled CLIFTON F. BURLEIGH
AND EVELYN C. BURLEIGH V. EXECUTIVE SERVICES INC. AND ANSERPHONE OF NEW ORLEANS,
INC., Case No. 438911 Division D, currently pending in the 19th Judicial Court,
Parish of East Baton Rouge (the "ESI Action");
(c) the Excess Receivables (as defined in Section 9.2 below);
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<PAGE> 3
(d) any proceeds and any other consideration paid or payable in
accordance with this Agreement and all rights of the Seller under this Agreement
or any agreement or instrument executed pursuant hereto or thereto, including,
without limitation, the Seller's rights to enforce Buyer's representations,
warranties and covenants hereunder and the obligations of Buyer to pay, perform
or discharge the Assumed Liabilities;
(e) all minute books, stock books and similar corporate records of the
Seller; and
(f) the items set forth on Schedule 1.2(f).
1.3 NO ASSUMPTION OF LIABILITIES. Except for the liabilities expressly
set forth on Schedule 1.3 hereto, Buyer shall not assume and shall have no
liability for, any liabilities or obligations of the Seller (or any predecessor
of the Seller, including, without limitations Anserve, Inc., a Louisiana
corporation ("Anserve")), known or unknown, fixed or contingent ("Liabilities")
including, without limitation, the following:
(a) any liability in respect of accounts payable;
(b) any liability in respect of any indebtedness whether or not secured
by the Transferred Assets;
(c) subject to Section 1.10(b) hereof, any liability for any Federal,
state, local or foreign income, capital gains, franchise taxes, taxes on
capital, sales and use tax, or employee withholding taxes (including, without
limitation, any deferred income tax liability and any penalties and interest
thereon);
(d) any liability for expenses incurred by, or for claims made against,
the Seller in connection with or resulting from or attributable to this
Agreement or the transactions contemplated hereby, if any;
(e) any liability for any investment banking, brokerage or similar
charge or commission, or any attorneys' or accountants' fees and expenses,
payable or incurred by the Seller in connection with the preparation,
negotiation, execution or delivery of this Agreement or the transactions
contemplated hereby;
(f) any liability of the Seller to Buyer arising out of any
misrepresentation or breach of any warranty of the Seller contained in this
Agreement or any of the schedules or exhibits hereto or in any certificate,
agreement, instrument or other document delivered pursuant hereto or out of the
failure of the Seller to perform any of their agreements or covenants contained
herein or therein or to perform or satisfy any of the Liabilities;
(g) any liability or obligation to employees including, without
limitation, liabilities and obligations in respect of compensation and severance
(including, without limitation, severance obligations arising as a result of the
transactions contemplated hereby) and any liability or obligation under any
employee pension, benefit or other plan; and
3
<PAGE> 4
(h) any other liability arising from or relating to the operation of
the Business (whether by the Seller or Anserve) on or prior to the Effective
Date to the extent not otherwise specifically set forth in this Section 1.3.
The Seller shall remain fully liable for, and shall promptly pay when due, all
such Liabilities.
1.4 [Intentionally Omitted]
1.5 PURCHASE PRICE.
(a) As the purchase price for all of the Transferred Assets (the
"Purchase Price"), (i) Buyer shall pay to the Seller an aggregate sum, subject
to adjustment as provided in Section 1.7 below, of [******] in cash (the "Cash
Purchase Price"), and (ii) Buyer shall cause Parent to issue [******] shares of
Common Stock of Parent (the "Parent Common Stock"), the further transfer of
which shall be restricted under the Securities Act of 1933 and as provided under
Section 2.2(f) hereof.
(b) The Cash Purchase Price shall be payable in the form of a bank
cashier's check, certified check or federal funds wire transfer to an account of
the Seller designated by it in writing prior to Closing and shall be due and
payable as follows: (i) [*******] at Closing and (ii) [******] on the earlier of
(x) one hundred fifty (150) days after Closing or (y) the final determination of
the Financial Statements as described in Section 1.7 below.
(c) The Parent Common Stock will be issued in the name of the Seller,
or its designees, and in amounts, as directed by the Seller in writing within
three (3) business days prior to Closing.
1.6 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Seller's
counsel, in New Orleans, at 10:00 A.M., November 2, 1998, or at such other place
and/or on such other date and time as shall be agreed upon by Buyer and the
Seller (the "Effective Date"), which Closing shall be effective as of 12:01 a.m.
on the date of Closing.
1.7 EBITDA ADJUSTMENT TO PURCHASE PRICE.
(a) Within one hundred fifty (150) days after Closing, Buyer shall
cause KPMG Peat Marwick LLP to deliver to the Seller an audited balance sheet
and related statements of income, retained earnings and cash flows for the
Seller for its fiscal years ended December 31, 1997 (the "1997 Financial
Statements"), and for the 12-month periods ended October 31, 1998 (the "12-Month
Financial Statements"), all of which financial statements shall be prepared on a
pro forma basis, as though the Business conduct throughout the periods involved,
were conducted by the Seller and by Anserve as separate entities and in
accordance with generally accepted accounting principles ("GAAP") and the rules
and regulations of the Securities Exchange Commission applicable to financial
reporting of public companies.
(b) The Seller shall have forty-five (45) days from delivery of the
1997 Financial Statements and the 12-Month Financial Statements (collectively,
the "Financial Statements") to raise any objection thereto by delivery of
written notice to Buyer setting forth such
4
<PAGE> 5
objections in reasonable detail. In the event that the Seller shall fail to so
deliver such written objections with respect to any of the Financial Statements
within such 45-day period, then any such Financial Statements in respect of
which no such objection is so delivered shall be deemed final and binding on the
parties. In the event that any such objections are so delivered, Buyer and the
Seller shall attempt, in good faith, to resolve such objections and, if unable
to do so within fifteen (15) days of delivery of such objections, shall, within
five (5) business days thereafter designate a nationally recognized firm of
independent public accountants, mutually satisfactory to Buyer and the Seller
(the "Independent Accountants"). In the event that Buyer and the Seller are
unable to agree on the Independent Accountants within such 5-business day
period, the Independent Accountants shall be designated jointly by the
independent accountants of Buyer and the Seller within three (3) business days
thereafter. The Independent Accountants shall resolve all remaining objections
to the Financial Statements made by the Seller in accordance herewith within
thirty (30) days from its date of designation. The determination of the
Independent Accountants shall be final and binding on the parties. The fees and
expenses of the Independent Accountant shall be borne by the Stockholders,
jointly and severally, unless the determination of the Independent Accountants
shall result in an increase in the amount of the Purchase Price of more than ten
(10%) percent over the amount of the Purchase Price as determined from the
Financial Statements originally delivered to the Seller.
(c) The Cash Purchase Price shall be adjusted in each of the following
instances, based on the Financial Statements, as finally determined in
accordance herewith, by the amount (the "Adjustment Amount") determined as
follows:
(i) in the event that the sum of [*********] (the "Adjustment
Target") shall exceed 12-Month EBITDA (as defined below) by more than [******]
(e.g. [**]), the Cash Purchase Price shall be reduced by an amount equal to
[****] for each $1.00 of the entire excess over 12 - month EBITDA (rounded down
to the nearest whole dollar); and
(ii) in the event that 12-Month EBITDA shall exceed the Adjustment
Target by more than [*****] (e.g. [**]), the Cash Purchase Price shall be
increased by an amount equal to [****] for each $1.00 of the entire excess over
the Adjustment Target (rounded down to the nearest whole dollar); and
Within thirty (30) business days of the final determinations of the Financial
Statements, the Seller shall pay to Buyer (whether or not the sum of such
Adjustment Amounts shall exceed the Cash Purchase Price) any Adjustment Amount
calculated pursuant to Section 1.7(c)(i) above, in the aggregate, by wire
transfer of immediately available funds to an account designated in writing by
Buyer and Buyer shall pay to the Seller the Adjustment Amount calculated
pursuant to 1.7(c)(ii) above.
(d) For purposes hereof, "12-Month EBITDA" shall mean the earnings of
the Seller (and Anserve) for the 12-month period ended October 31, 1998, as set
forth in the 12-Month Financial Statements before deduction for interest, taxes,
depreciation and amortization, in each case determined in accordance with GAAP,
as adjusted for extraordinary non-recurring income and expenditures as set forth
on Schedule 1.7(d) hereto, with respect to non-recurring income, to the extent
actually received and with respect to non-recurring expenditures, to the extent
actually incurred, and to the extent of the amounts thereof which Buyer
determines will not be incurred by it in the operation of the Business in the
ordinary course from and after the
5
<PAGE> 6
Effective Date.
1.8 EARN-OUT ADJUSTMENT.
(a) In addition to the Purchase Price payable pursuant to Section 1.5
above, Buyer shall pay additional amounts, and shall cause Parent to issue
additional shares of Parent Common Stock, upon the occurrence of the following
events and in the following amounts:
(i) in the event that Combined EBITDA for any of the calendar
years 1999 and/or 2000 shall be an amount equal to or greater than (A)
[***************] of the Target EBITDA for such calendar year and (B)
[**************] of the gross revenues of the Combined Business for such
calendar year, Buyer shall cause Parent to issue [******] shares of Parent
Common Stock for each such calendar year such event occurs; and
(ii) in the event that Combined EBITDA for any of the calendar
years 1999, 2000 and/or 2001 shall exceed [****************] of gross revenues
for the Combined Business for such calendar year and shall be (A) an amount
equal to or greater than [***************************************] , but not
greater than [*****************], of the Target EBITDA for such calendar year,
Buyer shall pay, in respect of any such calendar year in which such event
occurs, an amount equal to [**] of the amount of the excess over such Target
EBITDA, (B) an amount greater than [************************] , but not greater
than [************] , of the Target EBITDA for such calendar year, Buyer shall
pay, in respect of any such calendar year in which such event occurs, an amount
equal to [***********] of the amount of the excess over the Target EBITDA or (C)
an amount greater than [***************************] of the Target EBITDA for
such calendar year, Buyer shall pay, in respect of any such calendar year in
which such event occurs, an amount equal to [***********] of the excess over the
Target EBITDA.
(b) For purposes hereof, (i) "Combined EBITDA" shall mean the combined
earnings of the Combined Business before deduction for interest, taxes,
depreciation and amortization, as set forth in Parent's annual, audited
consolidating financial statements prepared in accordance with GAAP, but,
notwithstanding the forgoing, specifically excluding from any such earnings any
amounts received or receivable in respect of any accounts receivable, claims or
other rights constituting any portion of the Transferred Assets or arising out
of or in connection with this Agreement, (ii) "Combined Business" shall mean the
Business (including, without limitation, the business, formerly conducted by
Anserve) and the business of Anserphone Systems, Inc., an Alabama corporation,
acquired by Buyer on the Effective Date, as conducted by Buyer, and (iii)
"Target EBITDA" shall mean (A) for calendar year 1999, [*******************] of
the sum of (1) 12-month EBITDA plus (2) the 12-month EBITDA ("ASI 12-month
EBITDA") as defined in the Asset Purchase Agreement of even date herewith among
Buyer, Anserphone Systems, Inc., an Alabama corporation ("ASI") and the
shareholders of ASI named therein ("1999 Trigger"), (B) for calendar year 2000,
[************************] of the 1999 Trigger ("2000 Trigger") and (C) for
calendar year 2001, [**************************] of the 2000 Trigger.
(c) Amounts payable, and shares issuable, pursuant to Section 1.8(a)
above shall be determined annually, shall not be cumulative and shall be payable
promptly upon receipt by Buyer of the annual financial statements referred to in
Section 1.8(b)(i) above. With
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<PAGE> 7
each such payment, or issuance, Buyer shall deliver a copy of such financial
statements, together with a reasonably detailed calculation of the amounts paid
and/or shares issued. Amounts shall be paid, and shares shall be issued, as
directed in writing by Seller. The number of shares of Parent Common Stock
issuable pursuant to Section 1.8(a)(i) above shall be subject to adjustment for
stock splits, reverse stock splits, recapitalizations and consolidations as
though outstanding on the record or effective date, as the case may be, of any
such event .
(d) Notwithstanding anything to the contrary contained in this Section
1.8, no amounts shall be payable, and no shares shall be issuable, in respect of
any calendar year in which both of the Stockholders shall have either
voluntarily terminated their employment with Buyer or Buyer shall have
terminated such employment for "cause", as defined in each such Stockholder's
employment agreement with Buyer.
1.9 [***********] .
(a) [*******************]
(b) [************************]
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<PAGE> 8
1.10 PURCHASE PRICE ALLOCATION.
(a) The parties acknowledge and agree that the Purchase Price shall be
allocated among the Transferred Assets in accordance with Schedule 1060 of the
Internal Revenue Code of 1986, as amended (the "Code") and as set forth in a
written notice to the Seller promptly after the final determination of the
Financial Statements (the "Allocation Notice"). The parties shall not take any
position for purposes of Federal, state or local income taxes respecting the
allocation of the Purchase Price which is inconsistent with the allocation set
forth in such Allocation Notice.
(b) If, as a result of any allocation in the Allocation Notice, Seller
is required, pursuant to Section 1245 of the Code, to recapture depreciation
taken by Seller with respect to depreciable assets included in the Transferred
Assets, Buyer shall indemnify, and hold Seller harmless, on an after-tax basis,
for the difference between the tax incurred by Seller with respect to the amount
of such depreciation recapture on such assets at the ordinary income rate and
the amount of such tax Seller would have incurred had such depreciation
recapture amount been taxed at the long term capital gains rate, together with
any interest or penalties thereon incurred by Seller as a result of (i) Buyer's
failure to promptly pay to Seller amounts due pursuant to this Section 1.10 or
(ii) any tax audit related to the proper characterization of such allocation.
(c) Seller may claim any amounts pursuant to this Section 1.10 at any
time within fifteen days from delivery of the Allocation Notice by delivery of
written notice ("Adjustment Notice") to Buyer setting forth a reasonably
detailed calculation of the amount claimed, together with a copy of Seller's tax
returns on which such recapture income is reported. Buyer shall have fifteen
days from delivery of the Adjustment Notice to raise any objection thereto by
delivery of written notice setting forth such objections in reasonable detail.
In the event that Buyer shall fail to deliver such written objections with such
period, the calculation set forth in the Adjustment Notice shall be deemed final
and binding on the parties (unless the Internal Revenue Service, pursuant to a
tax audit, shall reallocate any allocation in the Allocation Notice) and Buyer
shall thereupon promptly pay to Seller the amount set forth in the Adjustment
Notice as directed therein. In the event that any such objections are delivered,
Buyer and the Seller shall attempt, in good faith, to resolve such objections
and if unable to do so within fifteen days from the delivery thereof, shall
promptly appoint a mutually acceptable independent certified public accountant
(who shall be the Independent Accountant, if one has been designated pursuant to
Section 1.7 above) whose determination with respect to such objection will be
final and binding on the parties. The cost of any such accountant will be shared
equally by Buyer and the Seller.
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE STOCKHOLDERS.
The Seller and the Stockholders hereby, jointly and severally, represent and
warrant to, and covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Seller is a
corporation duly organized, validly existing and in good standing and authorized
to exercise its corporate powers, rights and privileges under the laws of the
State of Louisiana with full corporate power and authority to own, lease and
operate its properties and to carry on its business as presently conducted by
it. Schedule 2.1(a) hereto sets forth all states and other jurisdictions in
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<PAGE> 9
which the Seller is duly qualified and in good standing to do business as a
foreign corporation. There are no other states or jurisdictions in which the
character and location of the properties owned or leased by it, or the conduct
of its business makes such qualification necessary, except where failure to so
qualify would not have a material adverse effect on the financial condition,
business or operations of the Seller. Copies of the Seller's Articles of
Incorporation and all amendments thereto, and of the Seller's By-Laws, as
amended to date, are attached to Schedule 2.1(a) and are complete and correct.
To the best knowledge of the Seller and the Stockholders, the Seller's minute
books contain complete and accurate records of all meetings and other corporate
actions, including, without limitation, actions by unanimous written consent of
the Stockholders and board of directors of the Seller (including all committees
of its board of directors).
(b) AUTHORITY. The execution and delivery by the Seller and the
Stockholders of this Agreement and all of the agreements, schedules, exhibits,
documents and instruments specifically provided for hereunder to be executed
and/or delivered by any or all of them (all of the foregoing, including this
Agreement, being hereinafter sometimes collectively referred to as the "Executed
Agreements"), the performance by the Seller and any or all of the Stockholders
(to the extent that they are parties thereto) of their respective obligations
under the Executed Agreements, and the consummation of the transactions
contemplated by the Executed Agreements, have been duly and validly authorized
by all necessary corporate action on the part of the Seller and by the
Stockholders, and the Seller has all necessary corporate power and authority
with respect thereto. This Agreement has been, and upon Execution and delivery
of each of the other Executed Agreements such other Executed Agreements will be,
duly executed and delivered. Neither the execution and delivery by the Seller
and any or all of the Stockholders (to the extent that they are parties thereto)
of the Executed Agreements, nor the consummation of the transactions
contemplated hereby or thereby, nor the performance by the Seller and any or all
of the Stockholders (to the extent that they are parties thereto) of their
respective obligations under the Executed Agreements, shall (nor with the giving
of notice or the lapse of time or both would) (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or By-Laws of the
Seller, (ii) give rise to a default, or any right of termination, cancellation
or acceleration, or otherwise result in a loss of any material contractual
benefits to the Seller, under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which the Seller or any Stockholder is a party or by which it or
any of their properties or assets may be bound, (iii) violate, in any material
respect, any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Seller or any of the Stockholders or any of their respective
properties or assets, (iv) result in the creation or imposition of any lien,
claim, restriction, charge or encumbrance upon any of the properties or assets
of the Seller, or (v) interfere with or otherwise materially and adversely
affect the ability of the Seller to carry on its business as now conducted.
(c) INTERESTS IN OTHER ENTITIES. Except as set forth in Schedule 2.1(c)
hereto, the Seller does not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation or entity, (ii) have any ownership interest, direct or indirect, of
record or beneficially, in any entity, or (iii) have any obligation, direct or
indirect, present or contingent, to purchase or subscribe for any interest in,
advance or loan monies to, or in any way make investments in, any person or
entity, or to share any profits or capital investments in other persons or
entities, or both.
(d) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. Except as
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set forth in Schedule 2.1(d) hereto, no approval, consent, compliance,
exemption, authorization or other action by, or notice to or filing with, any
governmental authority or any other entity, and no lapse of a waiting period, is
necessary or required to be obtained by the Seller or any Stockholder in
connection with the execution, delivery or performance by any of them, of this
Agreement, any of the Executed Agreements or the transactions contemplated
hereby.
(e) PROJECTIONS. The Seller has delivered to Buyer a set of projections
(the "Projections"), a copy of which is attached hereto as Schedule 2.1(e),
which the Seller and the Stockholders have been advised are material to Buyer in
its decision to enter into this Agreement. The Projections are based on the best
estimates of the Seller and the Stockholders derived from reasonable
expectations at the time the Projections were made, and the Seller and the
Stockholders believe that Buyer is justified in relying thereon, there being,
however, no guarantee of the achievement of the Projections.
(f) FINANCIAL STATEMENTS. The Seller has delivered to Buyer true and
complete copies of its and Anserve's unaudited balance sheets as of December 31,
1996, and the related statements of income, retained earnings and cash flows for
the period then ending (the "1996 Financial Statements"), true and complete
copies of its and Anserve's unaudited balance sheets as of December 31, 1997,
and the related statements of income, retained earnings and cash flows for the
period then ending (the "1997 Financial Statements") and true and complete
copies of its and Anserve's unaudited balance sheets for the eight month period
ended August 31, 1998 (the "Interim Balance Sheet"), and the related statements
of income, retained earnings and cash flows for the period then ending
(collectively, with the Interim Balance Sheet, the "Interim Financial
Statements"). All of such financial statements, including any notes thereto,
were prepared on a consistent basis throughout the periods involved and such
fairly present the financial position of the Seller and Anserve at the dates
thereof and the results of its operations for the periods as indicated. The
books and records of the Seller and Anserve are in all material respects
complete and correct, have been maintained in accordance with good business
practices, and accurately reflect the basis for the financial condition and
results of operations of the Seller and Anserve as set forth in the financial
statements referred to herein.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. To the best of the Seller's and
the Stockholders' knowledge, the Seller does not have any liabilities,
commitments or obligations, whether accrued, absolute, contingent or otherwise
which have not been (i) in the case of liabilities, commitments and obligations
of a type customarily reflected on the corporate balance sheet of the Seller or
Anserve, reflected on the Interim Balance Sheet in accordance with GAAP,
incurred, consistent with past practice, in the ordinary course of business
since the date of the Interim Balance Sheet and which are not material either
individually or in the aggregate or (ii) in the case of all other types of
liabilities and obligations, described in Schedule 2.1(g) hereto.
(h) ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Schedule 2.1(h) hereto, since August 31, 1998, neither the Seller nor Anserve
have:
(i) suffered any material adverse change in their working capital,
condition (financial or otherwise), assets, liabilities, business, operations or
prospects;
(ii) incurred any material liabilities or obligations except items
incurred in the ordinary course of business and consistent with past practice,
none of which
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exceeds $10,000 (counting obligations or liabilities arising from one
transaction or a series or similar transactions, and all periodic installments
or payments under any lease or other agreement providing for periodic
installments or payments, as a single obligation or liability), or experienced
any increase in, or change in any assumption underlying or methods of
calculating, any bad debt, contingency or other reserves;
(iii) permitted or allowed, or agreed to permit or allow, any of
their property or assets (real, personal or mixed, tangible or intangible) to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind in excess of $10,000 in the aggregate, except
encumbrances disclosed on Schedule 2.1(h) hereto and which will be discharged on
or prior to the Effective Date ;
(iv) written off, or agreed to write off, as uncollectible any notes or
accounts receivable, except for write-offs in the ordinary course of business
and consistent with past practice, none of which are material;
(v) canceled any debts or waived or suffered to lapse any claims or
rights of substantial value, or sold, transferred, or otherwise disposed of any
of their properties or assets (real, personal or mixed, tangible or intangible)
or agreed to do any of the foregoing, except in the ordinary course of business
and consistent with past practice;
(vi) disposed of or suffered to lapse any rights to use any Toll Free
Telephone Number listed on Schedule 2.1(q) hereof, patent, trademark, trade name
or copyright, or disposed of or disclosed (except as necessary in the conduct of
their business) to any person any trade secret, formula, process or know-how or
agreed to do any of the foregoing;
(vii) granted, or agreed to grant, any general increase in the
compensation of officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or any increase
in the compensation payable or to become payable to any officer or employee,
and, unless otherwise set forth in Schedule 2.1(h), no such increase is
customary on a periodic basis or is required by agreement or understanding;
(viii) made, or agreed to make, any single capital expenditure or
commitment in excess of $10,000 for additions to property, plant, equipment or
intangible assets or made, or agreed to make, aggregate capital expenditures and
commitments in excess of $10,000 (on a consolidated basis), for additions to
property, plant, equipment or intangible assets, other than the New Equipment
set forth on Schedule 1.3 hereto;
(ix) made any change in any method of accounting or accounting
practice; or
(x) sold, transferred or leased, or agreed to sell, transfer or lease,
any properties or assets (real, personal or mixed, tangible or intangible) to,
or entered into any agreement or arrangement with, any of its officers,
directors, debtholders, stockholders or employees or any "affiliate" or
"associate" of any of its officers, directors, noteholders, stockholders or
employees (as such terms are defined in Rule 405 promulgated under the
Securities Act and as used herein "Associate" and "Affiliate"), except for
Seller's purchase of the
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business and assets of Anserve described in such Schedule 2.1 (h).
(i) TAX MATTERS. Except as set forth in Schedule 2.1(i) hereto, each of
the Seller and Anserve have filed with the appropriate governmental agencies all
Federal, state, local or foreign tax returns and reports required to be filed by
them ("Returns"), have paid in full or made adequate provision for the payment
of, all taxes of every nature, including, but not limited to, income, sales,
franchise and withholding taxes ("Taxes"), together with interest, penalties,
assessments and deficiencies owed by them with respect to all periods covered by
such Returns, and all such Returns were correct and complete in all respects.
Neither the Seller nor Anserve are currently the beneficiary of any extension of
time within which to file any Returns. The Seller has previously provided Buyer
with true and complete copies of all such Returns filed within the past 3 years.
The provisions for income and other Taxes reflected on the Interim Balance Sheet
are adequate for all accrued and unpaid taxes of the Seller and Anserve as of
the date of the Interim Balance Sheet, whether (i) incurred in respect of or
measured by income of the Seller and/or Anserve for any periods prior to the
close of business on that date, or (ii) arising out of transactions entered
into, or any state of facts existing, on or prior to that date. The provisions
for Taxes reflected on the books of account of the Seller are adequate for all
Taxes of Seller which accrued since the date of the Interim Balance Sheet. There
are no filed or other known tax liens upon any property or assets of the Seller.
Neither the Seller nor Anserve have waived any statute of limitations in respect
of Taxes or executed or filed with any governmental authority any agreement
extending the period for the assessment or collection of any Taxes, and neither
is a party to any pending or, to the Seller's or any Stockholder's best
knowledge, threatened action or proceeding by any governmental authority for the
assessment or collection of Taxes. To the best knowledge of the Seller and the
Stockholders, no issue has arisen in any examination of the Seller or Anserve by
any governmental authority that if raised with respect to any other period not
so examined would, if upheld, result in a material deficiency for any other
period not so examined. There is no unresolved written claim by a governmental
authority in any jurisdiction where the Seller or Anserve do not file Returns
that the Seller or Anserve is or may be subject to taxation by such
jurisdiction. There has been no examination or audit with respect to Taxes with
respect to any year. Each of the Seller and Anserve have 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, stockholder or other
third party.
(j) LITIGATION. Except as set forth in Schedule 2.1(j) hereto, there
are no suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending, or to the best knowledge of the Seller and
the Stockholders, threatened against or affecting, or which may affect, the
Seller, Anserve, or any of their properties, assets or businesses or the
transactions contemplated hereby. To the best knowledge of the Seller and the
Stockholders, there are no outstanding judgments, orders, stipulations,
injunctions, decrees or awards against the Seller or Anserve which are not
satisfied.
(k) COMPLIANCE WITH APPLICABLE LAW. Each of the Seller and Anserve are,
and at all times since January 1, 1995, have been in compliance in all material
respects with all Federal, state, local and foreign laws, statutes, ordinances,
regulations, and administrative rulings (collectively "Laws"), promulgated by
any governmental or regulatory authority applicable to the Seller and Anserve or
to the conduct of the Business or operations of the Seller or Anserve or to the
use of their properties and assets, including, without limitation, all
environmental Laws and all Laws relating to the Toll Free Telephone Numbers. The
Seller has
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not received, and the Seller and the Stockholders do not know of the issuance or
threatened issuance of, any notices of violation or alleged violation of any
laws by the Seller or Anserve. Neither the Seller nor the Stockholders know of
any pending legislation in the State of Louisiana applicable to the Seller or to
the conduct of business or operations of the Seller which, if enacted, could
have a material adverse effect on the business, results of operations, financial
position or prospects of the Seller or the value of its properties or assets
(l) ENVIRONMENTAL MATTERS. Except as set forth on Schedule 2.1(l)
hereto:
(i) neither the Seller (which term, for the purposes of this
representation, shall include Anserve) nor its operations or the real property
leased by the Seller as set forth in Schedule 2.1(n) hereto (the "Facility") are
subject to any outstanding written order, consent decree or settlement agreement
with any person relating to (A) any Environmental Laws (as defined in below),
(B) any Environmental Claim (as defined below), or (C) any Hazardous Materials
Activity (as defined below) that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the business,
results of operations, financial position or prospects of the Seller or the
value of its properties or assets;
(ii) the Seller has not received any letter or request for information
under Section 104 of the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9604) or any comparable state law;
(iii) there are, and to the Seller's and the Stockholders' knowledge,
have been no conditions, occurrences, or Hazardous Materials Activities which
could reasonably be expected to form the basis of an Environmental Claim against
the Seller or that, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the business, results of
operations, financial position or prospects of the Sellers or the value of its
properties or assets;
(iv) neither the Seller nor, to the Seller's and the Stockholders'
knowledge, any predecessor of the Seller, has filed at any time any notice under
any Environmental Law indicating past or present treatment of Hazardous
Materials at the Facility, and none of the Seller's operations involves the
generation, transportation, storage, or disposal of hazardous waste, as defined
under 40 C.F.R. Parts 260-270 or any state equivalent; and
(v) compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws will not have, individually
or in the aggregate, a reasonable possibility of giving rise to a material
adverse effect on the business, results of operations, financial position or
prospects of the Seller or the value of its properties or assets.
(vi) Notwithstanding anything in this Section 2.1(l) to the contrary,
no event or condition has occurred or is occurring with respect to the Seller
relating to any Environmental Law, any Release (as defined in subsection (vii)
below) of Hazardous Materials, or any Hazardous Material Activity, including any
matter disclosed on Schedule 2.1(l), which, individually or in the aggregate,
has had or could reasonably be expected to have a material adverse effect on the
business, results of operations, financial position or prospects of the Seller
or
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the value of its properties or assets.
(vii) The following terms used in this Section 2.1(l) shall have the
following meanings:
(A) "Environmental Laws" shall mean any and all current statutes,
ordinances, orders, rules regulations, guidance documents, judgments,
governmental authorizations, or any other requirements of governmental
authorities relating to (1) environmental matters, including those relating to
any Hazardous Materials Activity (as defined below) or (2) the generation, use,
storage, transportation, Release or disposal of Hazardous Materials (as defined
below), in any manner applicable to the Seller or the Facility.
(B) "Environmental Claim" shall mean any investigation, notice, notice
of violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any governmental authority or
any other person, arising (1) pursuant to or in connection with any actual or
alleged violation of any Environmental Laws, (2) in connection with any
Hazardous Materials or any actual or alleged Hazardous Materials Activity, or
(3) in connection with any actual or alleged damage, injury, threat or harm to
natural resources or the environment.
(C) "Hazardous Materials" shall mean (1) any chemical, material or
substance at any time defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste",
"pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste",
"infectious waste", "toxic substances", or any other term or expression intended
to define, list or classify substances by reason of properties harmful to
health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws), (2) any oil, petroleum,
petroleum fraction or petroleum derived substance, (3) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources, (4) any flammable
substances or explosives, (5) any radioactive materials, (6) any
asbestos-containing materials, (7) urea formaldehyde foam insulation, (8)
electrical equipment which contains oil or dielectric fluid containing
polychlorinated biphenyls, (9) pesticides, and (10) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any other persons in the vicinity of the
Facility or to the indoor or outdoor environment.
(D) "Hazardous Materials Activity" shall mean any past, current,
proposed or threatened activity, event or occurrence involving any Hazardous
Materials, including the use, manufacture, possession, storage, holding,
presence, existence, location, Release (as defined below), threatened Release,
discharge, placement, generation, transportation, processing, construction,
treatment, abatement, removal, remediation, disposal, disposition or handling of
any Hazardous Materials, and any corrective action or response action with
respect to any of the foregoing.
(E) "Release" shall mean any release, spill, emission, leaking,
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pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), including the movement of any Hazardous Materials through the air,
soil, surface water or ground water.
(m) PERMITS. A list of all permits, approvals, licenses, certificates,
franchises, authorizations, consents and orders ("Permits") necessary and
material to the operation of the business of the Seller in the manner in which
it is presently conducted is set forth on Schedule 2.1(m) hereto. All such
Permits are valid and remain in full force and effect. The Seller has not
engaged in any activity which would cause revocation or suspension of any such
Permits and no action or proceeding looking to or contemplating the revocation
or suspension of any thereof is pending or threatened. To the best knowledge of
the Seller and the Stockholders, no additional Permits will be required to
permit the Seller to continue their business substantially in the manner it is
presently conducted after the consummation of the transactions contemplated
hereby.
(n) TITLE TO PROPERTIES. The Transferred Assets constitute all assets
which have been used in the Business (whether by the Seller or Anserve) since
December 31, 1997, and which are necessary for the conduct of the Business,
except as set forth in Schedule 2.1(n) hereto, and except for the Excluded
Assets. The Seller does not own any real property. Except as set forth in
Schedule 2.1(n) hereto, the Seller has good title to all of the properties and
assets (personal and mixed, tangible and intangible) reflected on the Interim
Balance Sheet or thereafter acquired or which it purports to own (except
properties or assets sold or otherwise disposed of in the ordinary course of
business consistent with past practice subsequent to the date of the Interim
Balance Sheet which in the aggregate did not have a book value in excess of
$10,000), free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever. Schedule 2.1(n) also contains an accurate
list and a brief description of all (i) leases (whether by or to the Seller) and
contracts and commitments for the purchase or sale or lease (whether as lessor
or lessee), of the Seller with respect to real property and (ii) leases (whether
by or to the Seller) and title retention or conditional sales agreements and
other security devices of the Seller with respect to items of personal property
having a book value in excess of $5,000. There are no existing defaults by the
Seller under any of the agreements set forth in Schedule 2.1(n) and no event of
default has occurred which (whether with or without notice, lapse of time or
both) would constitute a default by the Seller thereunder. All lessors
thereunder have consented (where such consent is necessary) to the consummation
of the transactions contemplated by this Agreement without requiring
modification of the rights and obligations of the Seller thereunder. All of the
tangible property (whether owned or leased) included in the Transferred Assets
are located at the real property leased by the Seller as set forth in Schedule
2.1(n) hereto.
(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the Interim Balance Sheet
arose in the ordinary course of business for services performed or goods
delivered and none are subject to any offsets. The accounts receivable of the
Seller which were thereafter added arose in the ordinary course of business for
services performed or goods delivered and none are subject to any offsets. Set
forth on Schedule 2.1(o) is a true and complete list of the Seller's accounts
receivable as of September 30, 1998, and aging with respect thereto. At least
ninety five
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(95%) percent of the Closing Receivables (as defined in Section 9.2 hereof) will
be good and collectible in the ordinary course of business at the aggregate
amounts recorded on the Seller's books of account.
(ii) Schedule 2.1(o) hereto contains a complete and accurate list
of all machinery, equipment and other fixed assets of the Seller (the
"Equipment") having a book value in excess of $500. Each such item of Equipment
is in good operating condition, normal wear and tear excepted, and is fit for
its intended use. Each such item has been maintained, in all material respects,
in accordance with prudent business practice and no such maintenance has been
deferred.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto lists all licenses,
patents, copyrights, or trademarks owned or used by the Seller and Anserve in
the conduct of the Business and all applications therefor (the "Intellectual
Property"). No officer or director, Stockholder or employee of the Seller nor
any of their Affiliates or Associates has any ownership or other interest in any
of the Intellectual Property. To the best knowledge of the Sellers and the
Stockholders, none of the Intellectual Property is being infringed upon by, or
infringes, any licenses, patents, copyrights, trademarks or other intellectual
property rights of any other person or entity. Except as set forth in Schedule
2.1(p), the validity of the Intellectual Property and the title thereto of the
Seller has not been questioned in any litigation or governmental inquiry or
proceeding to which the Seller, is a party, and, to the best knowledge of the
Seller and the Stockholders, no such litigation, governmental inquiry or
proceeding is threatened. The conduct of the business of the Seller as presently
conducted does not conflict with valid licenses, trademarks, trademark rights,
trade names, trade name rights, service marks or patents of others in any way
likely to affect adversely, in any material respect, the Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q) hereto sets forth a
complete list of all Toll Free Telephone Numbers owned or used by the Seller and
Anserve in the conduct of the Business. No officer or director, Stockholder or
employee of the Seller nor any of its Affiliates or Associates has any ownership
or other interest in the Toll Free Telephone Numbers. Neither the Seller nor
Anserve have warehoused, brokered or hoarded (as those terms are defined in the
Second Report and Order and Further Notice of Proposed Rulemaking in CC Docket
No. 95-155, Released April 11, 1997, by the Federal Communications Commission
("FCC")) any of the Toll Free Telephone Numbers in violation of any applicable
FCC rules or regulations.
(r) INSURANCE. Schedule 2.1(r) hereto contains a complete and correct
list of all policies of insurance in which the Seller, Anserve or their officers
or directors (in such capacity) are an insured party, beneficiary or loss
payable payee. Complete and accurate copies of all such policies have been
previously provided to the Buyer. Such policies are in full force and effect
and, in the reasonable judgment of the Seller and the Stockholders, provide the
type and amount of coverage reasonably required for the Business.
(s) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 2.1(s) hereto
contains a complete and correct list showing (i) the name of each bank in which
the Seller has an account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto, and (ii) the names of all
persons, if any, holding powers of attorney from the Seller.
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(t) EMPLOYEE ARRANGEMENTS; ERISA. The Seller has (i) no union,
collective bargaining, employment, management, severance or consulting
agreements to which the Seller is a party or are otherwise bound, and (ii) no
deferred compensation agreements, pension and retirement plans, profit-sharing
plans, stock purchase and stock option plans. Schedule 2.1(t) hereto contains a
true and complete list of all compensation, incentive, bonus, severance,
disability, hospitalization, medical insurance, life insurance and other
employee benefit plans, programs or arrangements maintained by the Seller or
under which the Seller has any material obligations (other than obligations to
make current wage or salary payments) in respect of, or which otherwise cover,
any of the current or former officers, employees or consultants of the Seller,
or its beneficiaries (each an "Employee Benefit Plan" and collectively the
"Employee Benefit Plans"). No Employee Benefit Plan is subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). All
contributions to and payments from the Employee Benefit Plans which may have
been required to be made in accordance with the Employee Benefit Plans have been
made or are properly accrued and reflected on the Balance Sheets or the books
and records of the Seller. Schedule 2.1(t) hereto also lists the names,
compensation and all accrued and unused vacation and sick time of all persons
employed by the Seller. The Seller has no Employee Benefit Plans which are
qualified for Federal income tax exemption under Sections 401 and 501 of the
Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in Schedule 2.1(u)
hereto (i) the Seller is not a party to or bound by any distributorship,
dealership, sales agency, franchise or similar agreement which relates to the
sale, distribution or servicing of the Toll Free Telephone Numbers or services
related thereto, (ii) the Seller does not have any sole-source supplier of
significant goods or services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (iii) there are not pending and, to the Seller's and the
Stockholders' best knowledge there are not threatened, any labor negotiations
involving or affecting the Seller and, to the Seller's and the Stockholders'
best knowledge, no organizing activities involving union representation exist in
respect of any of their employees, (iv) the Seller neither gives nor is bound by
any express warranties relating to its services and, to the best knowledge of
the Seller and the Stockholders, there has been no assertion of any breach of
warranties which could have a material adverse effect on the Business or
condition (financial or otherwise) of the Seller and, to the best knowledge of
the Seller and the Stockholders, there are no problems or potential problems
with respect to any product sold or services provided by the Seller which could
have a material adverse effect on the Business, (v) the Seller is not a party to
or bound by any agreement which limits its freedom to compete in any line of
business or with any person or entity, (vi) the Seller is not a party to or
bound by any agreement which based on current economic circumstances will result
in a material loss when performed, and (vii) the Seller is not a party to or
bound by any agreement or involved in any transaction in which any officer,
director, debtholder or Stockholder, or any Affiliate or Associate of any such
person has, or had when made, a direct or indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a complete and correct
list and brief description of any and all material contracts, commitments,
obligations and undertakings, written or oral, involving amounts in excess of
$10,000, to which the Seller is a party or otherwise bound. True and complete
copies of all contracts, commitments, obligations and undertakings set forth in
Schedule 2.1(v) hereto have been furnished to Buyer, and except as expressly
stated in Schedule 2.1(v), each of them is in full force and effect, and to the
Seller's and
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the Stockholders' best knowledge, (a) no person or entity which is a party
thereto or otherwise bound thereby is, to the best knowledge of the Seller and
the Stockholders, in default thereunder, and (b) no event, occurrence, condition
or act exists which, with the giving of notice or the lapse of time or both,
would give rise to a default or right of cancellation thereunder, the Seller is
not in default thereunder and no event, occurrence, condition or act exists by
or on behalf of the Seller which, with the giving of notice or the lapse of time
or both would give rise to a default by the Seller thereunder, there have been
no threatened cancellations thereof and there are no outstanding disputes
thereunder. To the best of the Seller's and the Stockholders' knowledge there is
no reason why any of the contracts listed on Schedule 2.1(v), could not be
continued between Buyer and the Seller's contractual partners on the same terms
and conditions as currently apply. Neither the Seller nor any Stockholder has
any reason to believe that any of the Seller's contractual partners will
terminate its relationship with the Seller as a result of the acquisition of the
Seller's assets by Buyer.
(w) BROKERS. No agent, broker, person or firm acting on behalf of the
Seller or the Stockholders or under the authority of any of the foregoing, is or
shall be entitled to a brokerage commission, finder's fee, or other like payment
in connection with any of the transactions contemplated hereby, from the Seller
or any of the Stockholders.
(x) DISCLOSURE. No representation or warranty made by the Seller or the
Stockholders herein or in any of the Executed Agreements omits or will omit to
state a material fact necessary in order to make the statements therein not
misleading.
(y) [Intentionally omitted].
(z) DISCLOSURE SCHEDULES. All schedules to this Agreement are integral
parts to this Agreement. Nothing in a schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
schedule identifies the reason for the exception. The Seller and the
Stockholders are responsible for preparing and arranging the schedules
corresponding to the lettered and numbered paragraphs contained herein.
Disclosure made in a specific schedule shall not be deemed to have been
disclosed with respect to any other schedule unless a cross-reference appears.
(aa) PRINCIPAL PLACE OF BUSINESS; RESIDENCE. The Seller's principal
place of business is located at 19348 N. 4th Street, Covington, Louisiana 70433.
Charles F. Read, Jr. resides at 10 Cherokee Lane, Covington, Louisiana 70433 and
C. Baldwin Read resides at 72392 Military Road, Covington, Louisiana 70433.
2.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the
Stockholders severally represents and warrants to, and covenants and agrees with
Buyer, with respect to such Stockholder as follows:
(a) CAPACITY; VALIDITY. Such Stockholder has the legal capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by such
Stockholder.
(b) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such Stockholder does not
own or possess any rights in or to the Toll Free Telephone Numbers listed on
Schedule 2.1(q)
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hereto.
(c) INVESTMENT INTENT. Such Stockholder acknowledges that none of the
shares of Parent Common Stock are registered under the Securities Act or any
state securities laws. The shares of Parent Common Stock are being acquired by
such Stockholder for investment purposes only and not with a view to the
distribution or resale thereof. Such Stockholder has no present intention to
sell or otherwise dispose of the Parent Common Stock, except in compliance with
the provisions of the Securities Act.
(d) INFORMATION. Such Stockholder (i) has such knowledge and experience
in financial and business affairs that he/she is capable of evaluating the
merits and risks involved in purchasing the Parent Common Stock, (ii) is able to
bear the economic risks involved in purchasing the Parent Common Stock, and
(iii) has had the opportunity to ask questions of, and receive answers from,
Parent and persons acting on Parent's behalf concerning the terms and conditions
of the Parent Common Stock and to obtain any additional information in
connection therewith.
(e) ACCREDITATION. Such Stockholder is an "accredited investor" within
the meaning of Regulation D of the Securities Act of 1933.
(f) RESTRICTIONS ON TRANSFER.
(i) Such Stockholder agrees that he will not transfer or otherwise
dispose of (each, a "Transfer") any of the shares of Parent Common Stock (or any
interest therein) except upon the terms and conditions specified herein and such
Stockholder will cause any subsequent holder of such Stockholder's shares of
Parent Common Stock to agree to take and hold the shares of Parent Common Stock
subject to the terms and conditions of this Agreement, if such shares of Parent
Common Stock are required to include a legend pursuant to Section 2.2(f)(ii)
hereof.
(ii) Each certificate representing the shares of Parent Common
Stock issued to the Stockholders or to any subsequent stockholder shall include
a legend in the following form; PROVIDED, HOWEVER, that such legend shall not be
required (and shall be removed) if a Transfer is being made in connection with a
sale of shares of Parent Common Stock registered under the Securities Act, or in
connection with a sale in compliance with Rule 144 under the Securities Act, as
such Rule may be amended from time to time (each a "Public Sale"):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION THEREOF OR A VALID EXEMPTION
THEREFROM.
(iii) Notwithstanding anything to the contrary in this Section
2.2(f), such Stockholder shall not Transfer any of the shares of Parent Common
Stock except to the extent permitted, and in accordance with, the Shareholders
Agreement referred to in Section 4.1(i) hereof.
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2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to, and covenants and agrees with, the Seller as follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted by it and is
qualified in each other jurisdiction in which qualification is required for it
to own, lease and operate its properties and carry on its business as presently
conducted by it, except to the extent that failure to so qualify would not have
a material adverse effect on the financial condition, business or operations of
Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of this
Agreement and of each of the other Executed Agreements to which it shall be a
party, the performance by Buyer of its obligations under this Agreement or such
Executed Agreements and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
action on the part of Buyer, and Buyer has all necessary corporate power with
respect thereto. This Agreement and the Executed Agreements are, or when
executed and delivered by Buyer shall be, the valid and binding obligations of
Buyer, enforceable in accordance with their respective terms, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws. Neither the execution and delivery by Buyer of the
Executed Agreements, nor the consummation of the transactions contemplated
thereby, nor the performance by Buyer of its obligations under the Executed
Agreements, shall (nor with the giving of notice or the lapse of time or both
would) (i) conflict with or result in a breach of any provision of the Articles
of Incorporation or By-Laws of Buyer, (ii) violate any order, writ, injunction,
decree, law, statute, rule or regulation or (iii) interfere with or otherwise
materially and adversely affect the ability of Buyer to carry on its business as
now conducted.
(c) BROKERS. No agent, broker, person or firm acting on behalf of
Buyer or under its authority is or shall be entitled to a brokerage commission,
finder's fee, or other like payment in connection with any of the transactions
contemplated hereby.
2.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and
warrants to Seller and each of the Stockholders as follows:
(a) CAPITALIZATION. The authorized capital stock of Parent
consists of (i) 15,000,000 shares of Common Stock, par value $.001 per share, of
which 100,000 shares are designated Class B Common Stock ("Class B Stock") and
(ii) 7,000,000 shares of Series A Preferred Stock, par value $.001 per share. No
more than 10,000,000 shares of Common Stock are issued and outstanding or are
reserved for issuance against outstanding options and warrants, of which 90,500
shares are Class B Stock, and 6,520,000 shares of Series A Preferred Stock are
issued and outstanding. The shares of the Parent Common Stock being transferred
to the Stockholders in accordance herewith shall be duly and validly issued and
fully paid and non-assessable.
(b) ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its business
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as presently conducted by it and is qualified in each other jurisdiction in
which qualification is required for it to own, lease and operate its properties
and carry on its business as presently conducted by it, except to the extent
that failure to so qualify would not have a material adverse effect on the
financial condition, business or operations of Parent.
(c) AUTHORITY. The execution and delivery by Parent of this
Agreement and of each of the other Executed Agreements to which it shall be a
party, the performance by Parent of its obligations under this Agreement or such
Executed Agreements and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
action on the part of Parent, and Parent has all necessary corporate power with
respect thereto. This Agreement and the Executed Agreements to which Parent
shall be a party are, or when executed and delivered by Parent shall be, the
valid and binding obligations of Parent, enforceable in accordance with their
respective terms, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws. Neither the execution and
delivery by Parent of such Executed Agreements, nor the consummation of the
transactions contemplated thereby, nor the performance by Parent of its
obligations under such Executed Agreements, shall (nor with the giving of notice
or the lapse of time or both would) (i) conflict with or result in a breach of
any provision of the Certificate of Incorporation or By-Laws of Parent, (ii)
violate any order, writ, injunction, decree, law, statute, rule or regulation or
(iii) interfere with or otherwise materially and adversely affect the ability of
Parent to carry on its business as now conducted.
3. PRE-CLOSING COVENANTS. The Stockholders and the Seller jointly and
severally covenant and agree to perform or take any and all such actions to
effectuate the following from the date hereof until the Effective Date:
3.1 INVESTIGATION BY BUYER. Buyer may, prior to the Effective Date,
through its representatives (including its counsel, accountants and consultants)
make such investigations of the properties, offices and operations of the Seller
and such audit of the financial condition of the Seller as it deems necessary or
advisable in connection with the transactions contemplated hereby, including,
without limitation, any investigation enabling it to familiarize itself with
such properties, offices, operations and financial condition; such investigation
shall not, however, affect the Seller's or the Stockholders' representations,
warranties and agreements hereunder. The Seller and the Stockholders shall
permit Buyer and its authorized representatives to have, after the date hereof,
full access to the premises and to all books and records and Returns of the
Seller and Buyer shall have the right to make copies thereof and excerpts
therefrom. The Seller and the Stockholders shall furnish Buyer with such
financial and operating data and other information with respect to the Seller as
Buyer may from time to time reasonably request.
3.2 CARRY ON IN ORDINARY COURSE. Except with Buyer's prior written
consent, the Seller shall, and each Stockholder shall cause the Seller to, carry
on its business diligently and substantially in the same manner as heretofore
conducted, and shall not (a) enter into or agree to enter into any extraordinary
transaction, contract, lease or commitment, (i) declare any dividends, nor make
any distributions or payments to the Stockholders other than employment
compensation to the extent that any such action could cause any condition set
forth in Section 4.1 hereof not to
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be satisfied on or prior to Closing, (ii) redeem any shares of any Seller's
capital stock or issue any capital stock or enter into any agreement which
grants a right to acquire any Seller's capital stock to the extent that any such
action could cause any condition set forth in Section 4.1 hereof not to be
satisfied on or prior to Closing, (iii) increase the compensation of any
employee of the Seller, other than ordinary year-end increases or enter into any
severance agreement or employment agreement with any employee of the Seller;
(iv) loan or advance any amounts to any officer, director, Stockholder or
employee of the Seller or enter into any agreement with any of the foregoing or
any person related to any of the foregoing, to the extent that any such action
could cause any condition set forth in Section 4.1 hereof not to be satisfied on
or prior to Closing, (v) acquire or dispose of any assets, other than
acquisitions or dispositions in the ordinary course of business not material in
amount or to the Business, and (vi) encumber or commit to encumber any of its
assets to the extent that any such action could cause any condition set forth in
Section 4.1 hereof not to be satisfied on or prior to Closing, (vii) take any
action, or suffer any action to be taken, which could cause any of the
representations or warranties of any Stockholders or the Seller contained herein
not to be true and correct on and as of the Effective Date, (viii) repay
(including by way of offset) any indebtedness for borrowed money except for
regularly scheduled payments thereof in accordance therewith to the extent that
any such action could cause any condition set forth in Section 4.1 hereof not to
be satisfied on or prior to Closing, or (ix) enter into any agreement to take
any of the foregoing actions.
3.3 OTHER TRANSACTIONS. From the date hereof until the Effective Date,
the Seller and the Stockholders shall not, and shall cause the Seller's
directors, officers, stockholders, employees, agents and Affiliates or
Associates not to, directly or indirectly, solicit or initiate the submission of
proposals from, or solicit, encourage, entertain or enter into any arrangement,
agreement or understanding with, or engage in any negotiations with, or furnish
any information to, any person, other than Buyer or a representative thereof,
with respect to the acquisition of all or any part of the business or assets of
the Seller or any of its securities. Should the Seller or any of its Affiliates
or Associates, during such period, receive any offer or inquiry relating to such
acquisition, or obtain information that such an offer is likely to be made, they
will provide Buyer with immediate written notice thereof, which notice will
include the identity of the prospective offeror and the price and terms of any
offer.
3.4 CONSENTS. The Stockholders shall cause the Seller to, and the
Seller shall, use its best efforts to obtain in writing, prior to the Effective
Date, all consents, approvals, waivers, authorizations and orders necessary or
reasonably required in order to permit it to effectuate this Agreement and to
consummate the transactions contemplated hereby (collectively, "Consents"). All
such Consents will be in writing and copies thereof will be delivered to Buyer
promptly after the Seller's receipt thereof but no later than immediately prior
to Closing.
3.5 SUPPLEMENTAL DISCLOSURE. The Stockholders and the Seller agree
that, with respect to their representations and warranties made in this
Agreement, they will have a continuing obligation, ending on the Effective Date,
to promptly supplement or amend the schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement and on the Effective Date, would have been required to be set forth or
described in the schedules hereto.
3.6 PUBLIC ANNOUNCEMENTS. The Stockholders and Buyer agree that they
will consult with each other before issuing any press releases or otherwise
making any public statements with respect to this Agreement or the transactions
contemplated hereby and any press release or any public statement shall be
subject to mutual agreement of the parties, except as may be required by the
disclosure obligations of Buyer under applicable securities laws.
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4. CONDITIONS TO CLOSING.
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation of Buyer
to close under this Agreement is subject to the satisfaction of the following
conditions any of which may be waived by Buyer in writing at or prior to
Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Effective Date, the
Stockholders and the Seller shall have complied with and duly performed all
agreements and conditions on their part to be complied with and performed
pursuant to or in connection with this Agreement on or before the Effective
Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Stockholders and the Seller contained in this Agreement, or otherwise
made in connection with the transactions contemplated hereby, shall be true and
correct in all material respects on and as of the Effective Date with the same
force and effect as though such representations and warranties had been made on
and as of the Effective Date.
(c) LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Effective Date there shall not have been any loss, damage or destruction to or
of any of the assets, property or business of the Seller in excess of $10,000 in
the aggregate, whether or not covered by insurance, nor shall the assets,
properties, business or prospects of the Seller have been adversely affected in
any way as a result of any fire, accident, or other casualty, war, civil strife,
riot or act of God or the public enemy or otherwise.
(d) NO LEGAL PROCEEDINGS. No court or governmental action or proceeding
shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby, and on the Effective Date there will be no
court or governmental actions or proceedings pending or threatened against or
affecting the Seller which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of the Seller.
(e) CERTIFICATE. Buyer shall have received a certificate dated the
Effective Date and executed by the Stockholders and an authorized officer of the
Seller to the effect that the conditions expressed in Sections 4.1(a), 4.1(b),
4.1(c) and 4.1(d) have been fulfilled.
(f) CONSENTS. Buyer shall have received all Consents necessary to
effectuate this Agreement and to consummate the transactions contemplated
hereby.
(g) EMPLOYMENT AGREEMENTS. Buyer shall have entered into Employment
Agreements with Charles F. Read, Jr. and C. Baldwin Read, in form and substance
satisfactory to Buyer.
(h) SHAREHOLDERS AGREEMENT. The Stockholders shall have entered into a
Shareholders Agreement, in form and substance satisfactory to Buyer.
(i) NAME CHANGE. Buyer shall have received a duly authorized and
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executed document which amends the certificate of incorporation of the Seller to
change the Seller's name to a name other than Anserphone or Anserve, or any
derivative thereof or any similar name, and is otherwise in form for filing with
the Secretary of State of the State of Louisiana.
(j) CERTIFICATES OF STATUS. Buyer shall have received certificates from
the Secretary of State of the State of Louisiana and of each jurisdiction set
forth in Schedule 2.1(a) hereto, providing that the Seller has filed its most
recent annual report, has not filed articles of dissolution and is in good
standing in each such jurisdiction.
(k) OPINION OF COUNSEL. The Stockholders shall have furnished Buyer
with a favorable opinion of Michael L. Eckstein, P.C., counsel for the Seller
and the Stockholders, dated as of the Effective Date, and in form and substance
satisfactory to Buyer.
(l) BILLS OF SALE. Buyer shall have received such bills of sale, deeds
of transfer, assignments and other documents in form and substance satisfactory
to Buyer conveying the Transferred Assets to Buyer.
(m) APPROVAL OF BUYER'S LENDER. Buyer shall have received the approval
of its lender to effectuate this Agreement and to consummate the transactions
contemplated hereby.
4.2 CONDITIONS OF THE STOCKHOLDERS' AND THE SELLER'S OBLIGATIONS TO
CLOSE. The obligations of the Stockholders and the Seller to close under this
Agreement are subject to the following conditions any of which may be waived by
the Seller in writing at or prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Effective Date, Buyer
shall have complied with and duly performed all agreements and conditions on its
part to be complied with and performed pursuant to or in connection with this
Agreement on or before the Effective Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer contained in this Agreement, shall be true and correct in all material
respects on and as of the Effective Date with the same force and effect as
though such representations and warranties had been made on and as of the
Effective Date.
(c) CLOSING CERTIFICATE. The Stockholders shall have received a
certificate dated the Effective Date and executed by an authorized officer of
Buyer to the effect that the conditions contained in Section 4.2(a) and (b) have
been fulfilled.
5. FURTHER ASSURANCES. From time to time after the Closing, and without
further consideration, the Seller shall execute and deliver such other
instruments of conveyance, assignment, transfer and delivery and take such other
actions as Buyer may reasonably request in order more effectively to Transfer to
Buyer, to place Buyer in possession or control of, all of the rights,
properties, assets and businesses intended to be Transferred hereunder, to
assist in the collection of any and all such rights, properties and assets, and
to enable Buyer to exercise and to enjoy all of the rights and benefits of the
Seller with respect thereto.
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6. TRANSFER TAXES. The Seller shall pay all income and gains taxes, if
any, incurred in connection with the transactions contemplated by this
Agreement, subject to section 1.10 hereof. Except as hereinabove provided, the
party hereto which is responsible under applicable law shall bear and pay in
their entirety all other taxes and registration and transfer fees, if any,
payable by reason of the Transfer of the Transferred Assets pursuant to this
Agreement. Each party hereto will cooperate to the extent practicable in
minimizing all taxes (other than income taxes) and fees levied by reason of the
Transfer of the Transferred Assets.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties of
the Stockholders in this Agreement or in any document delivered pursuant hereto
shall survive the Effective Date for a period of three (3) years and shall then
terminate; PROVIDED, HOWEVER, that (i) any such representation and warranty
shall survive the time it would otherwise terminate only with respect to claims
of which notice has been given as provided in this Agreement prior to such
termination and (ii) such time limitation shall not apply to the representations
and warranties set forth in Sections 2.1(i), 2.1(l) and 2.1(n) hereof, which
shall survive until the expiration of the applicable statute of limitations.
7.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this Section 7,
each party which, pursuant to this Section 7, shall agree to indemnify any other
person or entity shall be referred to, as applicable, as the "Indemnitor", and
each such person and entity who is entitled to be indemnified by any Indemnitor
shall be referred to as the "Indemnified Person" with respect to such
Indemnitor.
7.3 INDEMNITY OF THE SELLER AND THE STOCKHOLDERS. The Seller and the
Stockholders hereby jointly and severally agree to indemnify, hold harmless, pay
and reimburse, Buyer and its directors, officers, agents and employees from and
against any and all claims, liabilities, losses, damages and expenses incurred
by such Indemnified Persons (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of (a)
any material breach or alleged breach of any representation or warranty of the
Seller and the Stockholders contained in this Agreement, (b) any breach of any
covenant or agreement of the Seller or the Stockholders contained in the
Agreement, (c) any failure by the Seller to satisfy the Liabilities and (d) use
by Seller of the name Anserphone pursuant to Section 9.4 hereof, and shall
reimburse such Indemnified Persons for all costs and expenses (including
reasonable attorneys' fees and disbursements) as they shall be incurred, in
connection with paying, investigating, preparing for or defending any action,
claim, investigation, inquiry or other proceeding, whether or not in connection
with pending or threatened litigation, which shall be caused by or related to or
shall arise out of such breach or alleged breach, whether or not any such
Indemnified Person shall be named as a party thereto and whether or not any
liability shall result therefrom.
7.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold
harmless, pay and reimburse the Stockholders and the Seller and the Seller's
directors, officers, agents and employees from and against any and all claims,
liabilities, losses, damages and expenses incurred by them (including reasonable
attorneys' fees and disbursements) which shall be caused by or related to or
shall arise out of (a) any material breach or alleged breach of any
representation or warranty of Buyer contained in this Agreement and (b) any
breach of any covenant or agreement of Buyer contained in the Agreement and
shall reimburse such Indemnified Persons for all costs
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and expenses (including reasonable attorneys' fees and disbursements) as shall
be incurred, in connection with paying, investigating, preparing for or
defending any action, claim, investigation, inquiry or other proceeding, whether
or not in connection with pending or threatened litigation, which shall be
caused by or related to or shall arise out of such breach or alleged breach,
whether or not such Indemnified Persons shall be named as a party thereto and
whether or not any liability shall result therefrom.
7.5 PROCEDURES FOR INDEMNIFICATION. Promptly after becoming aware of a
claim for indemnification hereunder (including a claim or suit by a third
party), such Indemnified Person shall notify the Indemnitor of the commencement
of such claim, but failure to so notify the Indemnitor shall not relieve the
Indemnitor from any liability which the Indemnitor may have hereunder or
otherwise, unless the Indemnitor shall be materially prejudiced by such failure
or unless such failure is intentional. If the Indemnitor does not object in
writing to any indemnification claim (other than a third party claim) within
five days of receiving notice thereof, the Indemnified Person shall be entitled
to promptly recover from the Indemnitor (including by way of offset) the amount
of such claim, and no later objection by the Indemnitor shall be permitted. In
the event that the Indemnitor contests such claim, the parties shall attempt to
resolve the dispute in good faith, but if they have not done so within ten days
after the Indemnitor received notice thereof, then any of such parties may
pursue such other remedies as may be available to it, hereunder, at law or
otherwise.
7.6 DEFENSE OF THIRD PARTY CLAIMS. The Indemnitor shall assume the
defense of any third party action or proceeding, including the employment of
counsel reasonably satisfactory to the Indemnified Person, and shall pay the
fees and disbursements of such counsel. In the event, however, that such
Indemnified Person shall reasonably determine in its judgment that having common
counsel would present such counsel with a conflict of interest or alternative
defenses shall be available to an Indemnified Person or if the Indemnitor shall
fail to assume the defense of the action or proceeding in a timely manner, then
such Indemnified Person may employ separate counsel to represent or defend it in
any such action or proceeding and the Indemnitor shall pay the reasonable fees
and disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall
not be required to pay the fees and disbursements of more than one separate
counsel for all Indemnified Persons in any jurisdiction in any single action or
proceeding. The Indemnified Person shall also have the right to participate in
any action or proceeding defended by the Indemnitor and to retain its own
counsel at such Indemnified Person's own expense, so long as such participation
does not interfere with the Indemnitor's control of such litigation. The
Indemnitor further agrees that it shall not, without the prior written consent
of the Indemnified Person settle or compromise or consent to the entry of any
judgment in any action or proceeding in respect of which indemnification may be
sought hereunder unless such settlement, compromise or consent shall include an
unconditional release of each Indemnified Person under Section 7.2 or Section
7.3, as the case may be, from all liability arising out of such claim, action,
suit or proceeding. In the event that, upon the failure of the Indemnitor to
assume to defense of any action or proceeding in a timely manner, the
Indemnified Person shall defend, such Identified Person shall be entitle to
settle, compromise or consent to the entry of any judgment, without the consent
of the Indemnitor and without affecting its rights against Indemnitor hereunder.
8. NON-COMPETITION; CONFIDENTIALITY.
8.1 NON-COMPETITION. Following the Effective Date and for a period of
five
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(5) years thereafter (the "Non-Competition Period"), the Seller and the
Stockholders shall not, directly or indirectly, (a) engage in any business or
activity that competes with Buyer's or any of its affiliate's outsourced client
telemarketing/teleservices business, anywhere in the contiguous United States;
(b) enter the employ of any person or entity engaged in any business or activity
that competes with any such business or render any consulting or other services
to any person or entity for use in or with the effect of competing with any such
business; or (c) have an interest in any business or activity that competes with
any such business, in any capacity, including, without limitation, as an
investor, partner, stockholder, officer, director, principal, agent, employee,
or creditor; PROVIDED, HOWEVER, that nothing herein shall prevent the purchase
or ownership by any Stockholder of less than 5% of the outstanding equity
securities of any class of securities of a company registered under Section 12
of the Securities and Exchange Act of 1934, as amended. Notwithstanding the
foregoing, in the event that a Stockholder's employment with Buyer is terminated
by Buyer without cause (as defined in any employment agreement entered into by
such Stockholder and Buyer); the Non-Competition Period shall terminate with
respect to such Stockholder on the later to occur of the second anniversary of
the effective date of such termination and the third anniversary of the
Effective Date.
8.2 NO COMPETING INTERESTS. Each Stockholder hereby represents and
warrants to Buyer that he has no ownership or other interest in any business or
activity that competes, directly or indirectly, with the Business.
8.3 NON-DISRUPTION. During the Non-Competition Period, the Seller and
the Stockholders shall not, directly or indirectly, interfere with, disrupt or
attempt to disrupt any present or prospective relationship, contractual or
otherwise, between the Seller or any of its Affiliates, on the one hand, and any
of their customers, suppliers or employees, on the other hand.
8.4 CONFIDENTIALITY. The Seller and the Stockholders shall not at any
time, directly or indirectly, use communicate, disclose or disseminate any
Confidential Information in any manner whatsoever (except to his personal
financial or legal advisors and as may be required under legal process by
subpoena or other court order; provided that, the Seller or any Stockholder will
take reasonable steps to give the Buyer sufficient prior written notice in order
to contest such requirement or order). "Confidential Information" means any and
all information (oral or written) relating to the Buyer or any person
controlling, controlled by, or under common control with the Buyer or any of
their respective activities, including, but not limited to, information relating
to trade secrets, proprietary information, software, software codes,
advertising, sales, marketing and other materials customers and supplier lists,
data processing reports, customer sales analyses, invoice, price lists or
information, and information pertaining to any governmental investigation,
except such information which is generally known in the industry or in the
public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain), other than as a result of a breach of the provisions hereof.
8.5 REMEDIES UPON BREACH. The Seller and the Stockholders acknowledge
and agree that (a) Buyer shall be irreparably injured in the event of a breach
by the Seller or a Stockholder of any of the obligations under this Section 8;
(b) monetary damages shall not be an adequate remedy for such breach; (c) Buyer
shall be entitled to injunctive relief, in addition to any other remedy which it
may have, in the event of any such breach; and (d) the existence of any claims
which the Seller or Stockholder may have against Buyer, whether under this
Agreement or
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otherwise, shall not be a defense to the enforcement by Buyer of any of its
rights under this Agreement.
9. POST-CLOSING COVENANTS.
9.1 REPURCHASE OBLIGATION. (a) The Seller shall have the option,
exercisable at any time on or after January 1, 2000 and prior to December 31,
2002, to require Buyer to repurchase all, or any part of the [******] shares of
PHI Common Stock issued to the Seller pursuant to Section 1.5(a) hereof (as the
same may have been readjusted for stock splits, reverse stock splits,
recapitalizations or other adjustments, the "Option Shares"), to the extent
that, at the time of such exercise, Buyer shall have legally available funds
therefor. The option may be exercised by delivery of an irrevocable notice of
exercise, accompanied by the certificate(s) representing such Option Shares duly
endorsed in blank, with all necessary stock transfer stamps annexed thereto and
otherwise in form for transfer. Such notice shall certify that such Option
Shares are owned, and are being transferred, free and clear of all liens claims
and encumbrances, and that no rights with respect thereto have been granted to
any other party. Notwithstanding the foregoing, in the event that Buyer shall
provide written notice to Seller that Parent intends to conduct a public
offering of its capital stock, Seller shall have thirty (30) days from receipt
of such notice to exercise the option (in which case the provisions of Section
9.1(c) below shall not apply) or such option shall expire.
(b) The purchase price for the Option Shares shall be [****]
[*************************************************************]
payable, in cash, by
wire transfer to an account or accounts designated in the notice of exercise,
within 120 days from receipt by Buyer of the notice of exercise and share
certificate(s) required pursuant to Section 9.1(a) above.
(c) Notwithstanding the forgoing, in the event that (i) the
repurchase of the Option Shares would result in the occurrence of an event of
default under any credit facility of Buyer or any of its affiliates or (ii)
Parent shall propose to conduct an underwritten public offering of its
securities in which the managing underwriter shall be of the belief that any
such exercise or repurchase is reasonably likely to have an adverse effect on
the success of such offering, the Buyer may rescind such exercise and forego
such repurchase until the earlier to occur of (A) such time as no such event of
default would result, (B) the completion of such public offering or (C) 180 days
from its receipt of the notice of exercise, on which event the option shall be
again exercisable. [***********************************]
9.2 COLLECTION OF ACCOUNTS RECEIVABLE. (a) From and after
Closing, Buyer shall collect, and promptly deposit, all accounts receivable of
the Seller as of the Effective Date ("Closing Receivables"), in the ordinary
course of business and shall not discount, except in the
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ordinary course of business consistent with the past practice of the Seller, any
such accounts receivable or permit any account debtor any right of set-off for
claims arising out of or in connection with the conduct of the Business after
Closing.
(b) At such time as Buyer shall have received, in cleared funds,
[******] in respect of the Closing Receivables and/or the Closing Receivables as
defined in the ASI Agreement ("Collection Threshold"), all amounts thereafter
collected thereon shall be shared by Buyer and the Seller (i) [***] to the
Seller ("Excess Receivables") and (ii) [***] to Buyer. Buyer shall make payments
to the Seller in respect of the Excess Receivables promptly after then end of
each month. Until such time as Buyer shall make payments of amounts due to the
Seller pursuant to this Section 9.2, Buyer shall hold the amounts thereof in
trust for the Seller, but shall not be obligated to segregate any such amounts.
All payments received from account debtors of Buyer shall be applied first
against the oldest outstanding undisputed obligations of such account debtor to
Buyer, notwithstanding any direction of such account debtor to the contrary. In
the event that Buyer shall receive written notice from any account debtor which
shall dispute the amount of any Closing Receivable, or shall be otherwise unable
to collect any Closing Receivable, the Seller shall cooperate with, and assist,
Buyer in the resolution of such dispute, if any, and the collection of such
receivable. Buyer shall not otherwise be obligated to commence any action
against, or alter its relationship with, any such account debtor. At the request
of Buyer, and upon Buyer's assignment to the Seller of any disputed Closing
Receivable or Closing Receivable which is more than 90 days past due, Seller
shall pay to Buyer the full amount thereof, to the extent, but only to the
extent, that the Collection Threshold has not then been met. At the request of
the Seller, Buyer shall assign to the Seller all Closing Receivables which are
more than 150 days past day upon Seller's payment to Buyer of the full amount
thereof, to the extent, but only to the extent, that the Collection Threshold
has not been met. To the extent that the Seller shall utilize the capability of
the Buyer (i.e., personnel, facilities, etc.) in the collection of such assigned
Closing Receivables, the Seller shall pay to the Buyer a factoring fee of
fifteen (15%) percent of all collections thereon.
(c) In furtherance and not in limitation of Buyer's rights hereunder,
Buyer is hereby expressly authorized, and is hereby irrevocably appointed as
attorney-in-fact, with full power of substitution, to act in Seller's name and
stead, to take any and all actions it may, in its discretion, deem necessary to
collect all Closing Receivables, to endorse the Seller's name on any and all
instruments and other payments thereon or with respect thereto and to deposit
all payments, in any form received, in accounts of Buyer, subject to Buyers
obligations pursuant to Section 9.2 (b) above. This power of attorney is coupled
with an interest.
(d) It is expressly acknowledged and agreed that any amount received by
a stockholder in respect of a Closing Receivable shall be deemed to have been
received by him as an employee of Buyer and on its behalf.
9.3 PAYMENTS OF INVOICES
(a) To the extent that the Seller or Buyer (the "Invoiced Party") shall
receive invoices, or shall otherwise be required to pay amounts, which
represent, in whole or in part, liabilities (such as utility and phone bills,
ordinary maintenance contracts, sales commissions, etc., relating to periods
either before or after the Closing) and which, pursuant to the terms hereof, are
to be satisfied by the other (the "Responsible Party"), the Invoiced Party may,
in its discretion, (a) pay such amounts and demand payment from the Responsible
Party, provided that no individual
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<PAGE> 30
amount exceeds $1,000, (b) demand payment from the Responsible Party prior to
any such payment by the Invoiced Party or (c) demand that the Responsible Party
make such payment directly, provided that if only a portion is due from the
Responsible Party and a portion from the Invoiced Party, the Invoiced Party
shall make payment of its portion to the Responsible Party simultaneously with
such request.
(b) Upon any demand by an Invoiced Party pursuant to Section
9.3 above, whether for payment to the Invoiced Party or to a third party
obligee, shall promptly make such payment.
(c) Each party shall maintain copies of invoices and records
of payments in respect of all payments made by them pursuant to this Section 9.3
and, upon request, promptly provide copies thereof to the other.
(d) Each party shall have the right to set-off against amounts
due to the other, amounts due to it from the other which shall not be paid in
accordance herewith.
9.4 USE OF ANSERPHONE NAME. Notwithstanding the transfer to
Buyer at Closing of the name "Anserphone of New Orleans", Buyer hereby consents
to the use of such name solely for purposes of identifying the Seller as the
plaintiff in the ongoing prosecution of the action referred to in Section 1.2
(b) hereof.
9.5 NEW EQUIPMENT PAYMENTS. Buyer shall reimburse the Seller
for Seller's cost for the items of Equipment set forth in Schedule 2.1(g) (iii)
within thirty (30) days from the Effective Date.
9.6 EMPLOYEE VACATION ACCRUALS. Buyer agrees to credit all
former employees of the Seller, which become employees of the Buyer, with the
vacation and sick day accruals set forth in Schedule 9.6 hereof, in accordance
with the policies, with respect to vacation and sick days set forth in such
Schedule 2.1(t) hereto.
10. MISCELLANEOUS PROVISIONS.
10.1 CONFIDENTIALITY. The Seller, the Stockholders and Buyer
agree not to, directly or indirectly, without the prior written consent of the
other, use or disclose to any person, firm or corporation, any materials or
information obtained in Buyer's due diligence investigation of the Seller not a
part of the Purchased Assets, or any of the terms of this Agreement, except as
may be required by the disclosure obligations of Buyer under applicable
securities laws or as may be required to be disclosed to the attorneys and/or
accountants of the parties hereto in connection with the transactions
contemplated hereby.
10.2 NOTIFICATION. Each party hereto shall give the other
party or parties hereto prompt written notice of (a) the existence of any fact
or the occurrence of any event which constitutes, or with the giving of notice
or the passage of time or both would constitute, a breach of any representation
or warranty of the party giving such notice made herein or pursuant hereto and
(b) the taking of any action by the party giving such notice that would breach
or violate, or constitute a default under, any agreement or covenant of such
party made herein or pursuant hereto. The giving of any such notice shall not
affect, modify or limit in any way any
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<PAGE> 31
representation, warranty, agreement or covenant of the parties made herein or
pursuant hereto.
10.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
10.4 NOTICES. All notices, requests, demands and other communications
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed duly given when delivered by hand, or posted
in the United States mail by registered or certified mail with postage pre-paid,
return receipt requested, (a) if to Buyer, to Protocol Acquisition Sub 2, Inc.,
c/o Protocol Communications, Inc. 2197 Ringling Blvd., Sarasota, Florida 34237,
Attention: Stephen McLean; copy to Hertzog, Calamari & Gleason, 100 Park Avenue,
New York, NY 10016, Attention: John D. Vaughan, Esq., facsimile number: (212)
213-1199, and (b) if to the Seller or the Stockholders, to Charles F. Read and
C. Baldwin Read, 19348 N. 4th Street, Covington, Louisiana 70433; copy to
Michael L. Eckstein, 1515 Poydras Street, Suite 2195, New Orleans, Louisiana
70112, facsimile number: (504) 566-0040; or to such other address(es) as shall
be specified by like notice to the other parties.
10.5 AMENDMENTS. This Agreement may be amended or modified at any time
prior to the Effective Date, but only by a written instrument executed by all of
the parties hereto.
10.6 ENTIRE AGREEMENT. This Agreement (together with the other
agreements, certificates, instruments and documents delivered pursuant hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
10.7 APPLICABLE LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
internal laws of the State of Delaware. The parties hereby consent to the
exclusive jurisdiction of Federal and Louisiana courts located in the St.
Tammany Parish and agree that service of process by certified mail, return
receipt requested, shall constitute personal service for all purposes hereof.
10.8 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Date by any of the following:
(a) By mutual written agreement of Buyer and the Seller;
(b) By either Buyer or the Seller, if the Closing has not occurred by
November 15, 1998, upon written notice by such terminating party, provided that
at the time such notice is given a material breach of this Agreement by such
terminating party shall not be the principal reason for the Closing's failure to
occur;
(c) Subject to the provisions of Section 10.9 hereof, by Buyer, by
written notice to the Seller, if there has been a material violation or breach
of any of the Stockholders' or the Seller's covenants or agreements made herein
or in connection herewith or if any representation or warranty of the
Stockholders or the Seller made herein or in connection herewith proves to be
materially inaccurate or misleading; or
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<PAGE> 32
(d) Subject to the provisions of Section 10.9 hereof, by the
Seller, by written notice to Buyer, if there has been a material violation or
breach of any of Buyer's covenants or agreements made herein or in connection
herewith or if any representation or warranty of Buyer made herein or in
connection herewith proves to be materially inaccurate or misleading.
10.9 EFFECTS OF TERMINATION. If this Agreement is terminated as
provided in Section 10.8 hereof, then this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto
(or any of their respective stockholders, officers, directors or employees),
except based on the agreements contained in Sections 7.3 and 7.4 hereof;
PROVIDED, HOWEVER, that if Buyer terminates this Agreement pursuant to Section
10.8(c) hereof, or the Seller terminates this Agreement pursuant to Section
10.8(d) hereof, the non-terminating party shall remain liable for any breach
hereof.
10.10 HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
10.11 FEES AND DISBURSEMENTS. Buyer shall pay its own expenses, and the
fees and disbursements of the counsel, accountants or auditors retained by it in
connection with the preparation, execution and delivery of this Agreement and
the fees and expenses and disbursements of the counsel to the Seller and the
Stockholders shall be paid by the Stockholders.
10.12 ASSIGNMENT. This Agreement may not be assigned by the Seller or
any Stockholder without the prior written consent of Buyer.
10.13 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
10.14 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
[NEXT PAGE IS SIGNATURE PAGE]
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<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this
Asset Purchase Agreement the day and year first above written.
ANSERPHONE, INC.
By: /s/ Raymond P. Wilson
- -----------------------
Name:
Title:
PROTOCOL HOLDINGS, INC.
with respect only to Sections 1.5(a) and 2.4 hereof
By: /s/ Stephen G. Mclean
- ------------------------------
Name:
Title: President
ANSERPHONE OF NEW ORLEANS, INC.
By: /s/ Charles F. Read, Jr.
- ------------------------------
Name: Charles F. Read, Jr.
Title: Vice-president
STOCKHOLDERS:
/s/ Charles F. Read, Jr.
- ------------------------------
Charles F. Read, Jr.
/s/ C. Baldwin Read
- ------------------------------
C. Baldwin Read
33
<PAGE> 1
EXHIBIT 2.7
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this
2nd day of November, 1998, by and between Anserphone, Inc., a Delaware
corporation ("Buyer"), Anserphone Systems, Inc., an Alabama corporation (the
"Seller"), and the Stockholders of the Seller listed on the signature pages
hereto (the "Stockholders", and each individually, a "Stockholder").
W I T N E S S E T H :
-------------------
WHEREAS, the Seller is principally engaged in the business of
supplying operator, answering and telemarketing services (the "Business") and is
the end user subscribers for certain toll free telephone numbers listed on
Schedule 2.1(q) hereto (the "Toll Free Telephone Numbers");
WHEREAS, the Stockholders are presently the owners of all of
the issued and outstanding capital stock of the Seller; and
WHEREAS, the Seller desires to sell to Buyer, and Buyer
desires to purchase from the Sellers substantially all of its assets and
operations subject to certain liabilities, all in the manner and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, on the Effective Date (as defined in Section 1.6
below), the Seller shall, and the Stockholders shall cause the Seller to, sell,
transfer, convey, assign and deliver ("Transfer") to Buyer, and Buyer shall
purchase, acquire and accept from the Seller, the Business and all of such
Seller's rights, properties, assets, contracts, leases and businesses of every
kind, character and description, whether tangible or intangible, real, personal
or mixed, accrued, contingent or otherwise, and wherever located, less and
except the Excluded Assets (as defined in Section 1.2 below) (after giving
effect to the exclusion of the Excluded Assets, such assets are hereinafter
collectively referred to as the "Transferred Assets"), free and clear of all
liens, claims and encumbrances, including, without limitation:
(a) all machinery, equipment, furniture, office
equipment, telephone equipment, computers and computer equipment, spare parts,
supplies, tools and vehicles;
(b) all of the Seller's right, title and interest in and
to any income and payments due to the Seller, including, without limitation,
all accounts and accounts receivable whether or not reflected on the Seller's
books and records, but expressly excluding the Excess
- ----------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and
filed separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
Receivables (as defined in Section 9.1 hereof);
(c) all letters of credit, leases of real and personal
property, rental agreements, commitments, insurance policies (other than the
disability policies listed on Schedule 1.2(c) hereto), purchase orders, sales
orders, service agreements, maintenance agreements, distribution agreements,
supply agreements and all other contracts, agreements and understandings,
whether written or oral, and all rights, claims and causes of action thereunder,
whether pending or inchoate;
(d) all prepaid assets and all deposits, refunds, rebates and
other rights to payment relating to the Transferred Assets;
(e) all intangible assets (including, without limitation, all
issued and applied for patents, trademarks, copyrights, trade names, trade
secrets, service marks, customer lists, relationships and arrangements with
customers, covenants not to compete, authors, designers and suppliers,
inventions, formulae, processes and permits, computer software and source code,
and all licenses, agreements and applications with respect to any of the
foregoing, any goodwill associated with any of the foregoing, and all claims and
causes of action relating to any of the foregoing, including claims and causes
of action for past infringement) arising from or utilized in the operations of
the Business, including the names "Anserphone" and all derivations thereof;
(f) to the extent transferable, all licenses, authorizations
and permits issued by any governmental agency relating to the Business or the
Transferred Assets, and all applications therefor pending; and
(g) all books, records and files (other than minute and stock
books and other similar corporate records) relating to the Business and the
Transferred Assets and the operations thereof for all periods ending on or
before the Effective Date, but excluding such items which relate to the Excluded
Assets or the liabilities of the Seller not assumed by Buyer.
1.2 EXCLUDED ASSETS. Notwithstanding anything in Section 1.1
to the contrary, the Seller shall retain all of their right, title and interest
in and to all of, and shall not Transfer to Buyer any of, the following assets,
rights and properties (the "Excluded Assets"):
(a) all cash, and cash equivalents, of the Seller on the
Effective Date;
(b) the Excess Receivables (as defined in Section 9.1 below);
(c) any proceeds and any other consideration paid or payable
in accordance with this Agreement and all rights of the Seller under this
Agreement or any agreement or instrument executed pursuant hereto or thereto,
including, without limitation, the Seller's rights to enforce Buyer's
representations, warranties and covenants hereunder and the obligations of Buyer
to pay, perform or discharge the Assumed Liabilities;
(d) all minute books, stock books and similar corporate
records of the Seller; and
(e) the items set forth on Schedule 1.2(f).
1.3 NO ASSUMPTION OF LIABILITIES. Except as expressly set
forth in Schedule
<PAGE> 3
1.3 hereto Buyer shall not assume and shall have no liability for, any
liabilities or obligations of the Seller, known or unknown, fixed or contingent
("Liabilities") including, without limitation, the following:
(a) any liability in respect of accounts payable;
(b) any liability in respect of any indebtedness whether or
not secured by the Transferred Assets;
(c) subject to Section 1.10(b) hereof, any liability for any
Federal, state, local or foreign income, capital gains, franchise taxes, taxes
on capital, sales and use tax, or employee withholding taxes (including, without
limitation, any deferred income tax liability and any penalties and interest
thereon);
(d) any liability for expenses incurred by, or for claims made
against, the Seller in connection with or resulting from or attributable to this
Agreement or the transactions contemplated hereby, if any;
(e) any liability for any investment banking, brokerage or
similar charge or commission, or any attorneys' or accountants' fees and
expenses, payable or incurred by the Seller in connection with the preparation,
negotiation, execution or delivery of this Agreement or the transactions
contemplated hereby;
(f) any liability of the Seller to Buyer arising out of any
misrepresentation or breach of any warranty of the Seller contained in this
Agreement or any of the schedules or exhibits hereto or in any certificate,
agreement, instrument or other document delivered pursuant hereto or out of the
failure of the Seller to perform any of their agreements or covenants contained
herein or therein or to perform or satisfy any of the Liabilities;
(g) any liability or obligation to employees including,
without limitation, liabilities and obligations in respect of compensation and
severance (including, without limitation, severance obligations arising as a
result of the transactions contemplated hereby) and any liability or obligation
under any employee pension, benefit or other plan; and
(h) any other liability arising from or relating to the
operation of the Business on or prior to the Effective Date to the extent not
otherwise specifically set forth in this Section 1.3.
The Seller shall remain fully liable for, and shall promptly pay when due, all
such Liabilities.
1.4 [Intentionally Omitted]
3
<PAGE> 4
1.5 PURCHASE PRICE.
(a) As the purchase price for all of the Transferred
Assets (the "Purchase Price"), (i) Buyer shall pay to the Seller an aggregate
sum, subject to adjustment as provided in Section 1.7 below, of [*******] in
cash (the "Cash Purchase Price").
(b) The Cash Purchase Price shall be payable in the form
of a bank cashier's check, certified check or federal funds wire transfer to an
account of the Seller designated by it in writing prior to Closing and shall be
due and payable as follows: (i) [*******] at Closing and (ii) [******] on the
earlier of (x) one hundred fifty (150) days after Closing or (y) the final
determination of the Financial Statements as described in Section 1.7 below.
1.6 CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the Seller's
counsel, in New Orleans, at 10:00 A.M., November 2, 1998, or at such other place
and/or on such other date and time as shall be agreed upon by Buyer and the
Seller (the "Effective Date"), which Closing shall be effective as of 12:01 a.m.
on the date of Closing.
1.7 EBITDA ADJUSTMENT TO PURCHASE PRICE.
(a) Within one hundred fifty (150) days after Closing,
Buyer shall cause KPMG Peat Marwick LLP to deliver to the Seller an audited
balance sheet and related statements of income, retained earnings and cash flows
for the Seller for its fiscal years ended December 31, 1997 (the "1997 Financial
Statements"), and for the 12-month periods ended October 31, 1998 (the "12-Month
Financial Statements"), all of which financial statements shall be prepared in
accordance with generally accepted accounting principles ("GAAP") and the rules
and regulations of the Securities Exchange Commission applicable to financial
reporting of public companies.
(b) The Seller shall have forty-five (45) days from
delivery of the 1997 Financial Statements and the 12-Month Financial Statements
(collectively, the "Financial Statements") to raise any objection thereto by
delivery of written notice to Buyer setting forth such objections in reasonable
detail. In the event that the Seller shall fail to so deliver such written
objections with respect to any of the Financial Statements within such 45-day
period, then any such Financial Statements in respect of which no such objection
is so delivered shall be deemed final and binding on the parties. In the event
that any such objections are so delivered, Buyer and the Seller shall attempt,
in good faith, to resolve such objections and, if unable to do so within fifteen
(15) days of delivery of such objections, shall, within five (5) business days
thereafter designate a nationally recognized firm of independent public
accountants, mutually satisfactory to Buyer and the Seller (the "Independent
Accountants"). In the event that Buyer and the Seller are unable to agree on the
Independent Accountants within such 5-business day period, the Independent
Accountants shall be designated jointly by the independent accountants of Buyer
and the Seller within three (3) business days thereafter. The Independent
Accountants shall resolve all remaining objections to the Financial Statements
made by the Seller in accordance herewith within thirty (30) days from its date
of designation. The determination of the Independent Accountants shall be final
and binding on the parties. The fees and expenses of the Independent Accountant
shall be borne by the Stockholders, jointly and severally, unless the
determination of the Independent Accountants shall result in an increase in the
amount of the Purchase Price of more than ten (10%) percent over the amount of
the Purchase Price as determined from the Financial Statements originally
delivered to the Seller.
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<PAGE> 5
(c) The Cash Purchase Price shall be adjusted in each of the
following instances, based on the Financial Statements, as finally determined in
accordance herewith, by the amount (the "Adjustment Amount") determined as
follows:
(i) in the event that the sum of [******] (the
"Adjustment Target") shall exceed 12-Month EBITDA (as defined below) by more
than [******] (e.g. [**]), the Cash Purchase Price shall be reduced by an amount
equal to [****] for each $1.00 of the entire excess over 12 - month EBITDA
(rounded down to the nearest whole dollar); and
(ii) in the event that 12-Month EBITDA shall exceed the
Adjustment Target by more than [*****] (e.g. [**]), the Cash Purchase Price
shall be increased by an amount equal to [****] for each $1.00 of the entire
excess over the Adjustment Target (rounded down to the nearest whole dollar);
and
Within thirty (30) business days of the final determinations of the Financial
Statements, the Seller shall pay to Buyer (whether or not the sum of such
Adjustment Amounts shall exceed the Cash Purchase Price) any Adjustment Amount
calculated pursuant to Section 1.7(c)(i) above, in the aggregate, by wire
transfer of immediately available funds to an account designated in writing by
Buyer and Buyer shall pay to the Seller the Adjustment Amount calculated
pursuant to 1.7(c)(ii) above.
(d) For purposes hereof, "12-Month EBITDA" shall mean the
earnings of the Seller for the 12-month period ended October 31, 1998, as set
forth in the 12-Month Financial Statements before deduction for interest, taxes,
depreciation and amortization, in each case determined in accordance with GAAP,
as adjusted for extraordinary non-recurring income and expenditures as set forth
on Schedule 1.7(d) hereto, with respect to non-recurring income, to the extent
actually received and with respect to non-recurring expenditures, to the extent
actually incurred, and to the extent of the amounts thereof which Buyer
determines will not be incurred by it in the operation of the Business in the
ordinary course from and after the Effective Date.
1.8 PURCHASE PRICE ALLOCATION.
(a) The parties acknowledge and agree that the Purchase Price
shall be allocated among the Transferred Assets in accordance with Schedule 1060
of the Internal Revenue Code of 1986, as amended (the "Code") and as set forth
in a written notice to the Seller promptly after the final determination of the
Financial Statements (the "Allocation Notice"). The parties shall not take any
position for purposes of Federal, state or local income taxes respecting the
allocation of the Purchase Price which is inconsistent with the allocation set
forth in such Allocation Notice.
(b) If, as a result of any allocation in the Allocation
Notice, Seller is required, pursuant to Section 1245 of the Code, to recapture
depreciation taken by Seller with respect to depreciable assets included in the
Transferred Assets, Buyer shall indemnify, and hold Seller harmless, on an
after-tax basis, for the difference between the tax incurred by Seller with
respect to the amount of such depreciation recapture on such assets at the
ordinary income rate and the amount of such tax Seller would have incurred had
such depreciation recapture amount been taxed at the long term capital gains
rate, together with any interest or penalties thereon incurred by Seller as a
result of (i) Buyer's failure to promptly pay to Seller amounts due pursuant to
this
5
<PAGE> 6
Section 1.10 or (ii) any tax audit related to the proper characterization of
such allocation.
(c) Seller may claim any amounts pursuant to this Section 1.10
at any time within fifteen days from delivery of the Allocation Notice by
delivery of written notice ("Adjustment Notice") to Buyer setting forth a
reasonably detailed calculation of the amount claimed, together with a copy of
Seller's tax returns on which such recapture income is reported. Buyer shall
have fifteen days from delivery of the Adjustment Notice to raise any objection
thereto by delivery of written notice setting forth such objections in
reasonable detail. In the event that Buyer shall fail to deliver such written
objections with such period, the calculation set forth in the Adjustment Notice
shall be deemed final and binding on the parties (unless the Internal Revenue
Service, pursuant to a tax audit, shall reallocate any allocation in the
Allocation Notice) and Buyer shall thereupon promptly pay to Seller the amount
set forth in the Adjustment Notice as directed therein. In the event that any
such objections are delivered, Buyer and the Seller shall attempt, in good
faith, to resolve such objections and if unable to do so within fifteen days
from the delivery thereof, shall promptly appoint a mutually acceptable
independent certified public accountant (who shall be the Independent
Accountant, if one has been designated pursuant to Section 1.7 above) whose
determination with respect to such objection will be final and binding on the
parties. The cost of any such accountant will be shared equally by Buyer and the
Seller.
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE
STOCKHOLDERS. The Seller and the Stockholders hereby, jointly and severally,
represent and warrant to, and covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Seller is
a corporation duly organized, validly existing and in good standing and
authorized to exercise its corporate powers, rights and privileges under the
laws of the State of Alabama with full corporate power and authority to own,
lease and operate its properties and to carry on its business as presently
conducted by it. Schedule 2.1(a) hereto sets forth all states and other
jurisdictions in which the Seller is duly qualified and in good standing to do
business as a foreign corporation. There are no other states or jurisdictions in
which the character and location of the properties owned or leased by it, or the
conduct of its business makes such qualification necessary, except where failure
to so qualify would not have a material adverse effect on the financial
condition, business or operations of the Seller. Copies of the Seller's Articles
of Incorporation and all amendments thereto, and of the Seller's By-Laws, as
amended to date, are attached to Schedule 2.1(a) and are complete and correct.
To the best knowledge of the Seller and the Stockholders, the Seller's minute
books contain complete and accurate records of all meetings and other corporate
actions, including, without limitation, actions by unanimous written consent of
the Stockholders and board of directors of the Seller (including all committees
of its board of directors).
(b) AUTHORITY. The execution and delivery by the Seller
and the Stockholders of this Agreement and all of the agreements, schedules,
exhibits, documents and instruments specifically provided for hereunder to be
executed and/or delivered by any or all of them (all of the foregoing, including
this Agreement, being hereinafter sometimes collectively referred to as the
"Executed Agreements"), the performance by the Seller and any or all of the
Stockholders (to the extent that they are parties thereto) of their respective
obligations under the Executed Agreements, and the consummation of the
transactions contemplated by the Executed Agreements, have been duly and validly
authorized by all necessary corporate action on the part of the Seller and by
the Stockholders, and the Seller has all necessary corporate power and authority
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<PAGE> 7
with respect thereto. This Agreement has been, and upon Execution and delivery
of each of the other Executed Agreements such other Executed Agreements will be,
duly executed and delivered. Neither the execution and delivery by the Seller
and any or all of the Stockholders (to the extent that they are parties thereto)
of the Executed Agreements, nor the consummation of the transactions
contemplated hereby or thereby, nor the performance by the Seller and any or all
of the Stockholders (to the extent that they are parties thereto) of their
respective obligations under the Executed Agreements, shall (nor with the giving
of notice or the lapse of time or both would) (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or By-Laws of the
Seller, (ii) give rise to a default, or any right of termination, cancellation
or acceleration, or otherwise result in a loss of any material contractual
benefits to the Seller, under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which the Seller or any Stockholder is a party or by which it or
any of their properties or assets may be bound, (iii) violate, in any material
respect, any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Seller or any of the Stockholders or any of their respective
properties or assets, (iv) result in the creation or imposition of any lien,
claim, restriction, charge or encumbrance upon any of the properties or assets
of the Seller, or (v) interfere with or otherwise materially and adversely
affect the ability of the Seller to carry on its business as now conducted.
(c) INTERESTS IN OTHER ENTITIES. Except as set forth in
Schedule 2.1(c) hereto, the Seller does not (i) own, directly or indirectly, of
record or beneficially, any shares of voting stock or other equity securities of
any other corporation or entity, (ii) have any ownership interest, direct or
indirect, of record or beneficially, in any entity, or (iii) have any
obligation, direct or indirect, present or contingent, to purchase or subscribe
for any interest in, advance or loan monies to, or in any way make investments
in, any person or entity, or to share any profits or capital investments in
other persons or entities, or both.
(d) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. Except
as set forth in Schedule 2.1(d) hereto, no approval, consent, compliance,
exemption, authorization or other action by, or notice to or filing with, any
governmental authority or any other entity, and no lapse of a waiting period, is
necessary or required to be obtained by the Seller or any Stockholder in
connection with the execution, delivery or performance by any of them, of this
Agreement, any of the Executed Agreements or the transactions contemplated
hereby.
(e) PROJECTIONS. The Seller has delivered to Buyer a set of
projections (the "Projections"), a copy of which is attached hereto as Schedule
2.1(e), which the Seller and the Stockholders have been advised are material to
Buyer in its decision to enter into this Agreement. The Projections are based on
the best estimates of the Seller and the Stockholders derived from reasonable
expectations at the time the Projections were made, and the Seller and the
Stockholders believe that Buyer is justified in relying thereon, there being,
however, no guarantee of the achievement of the Projections.
(f) FINANCIAL STATEMENTS. The Seller has delivered to Buyer
true and complete copies of its unaudited balance sheets as of December 31,
1996, and the related statements of income, retained earnings and cash flows for
the period then ending (the "1996 Financial Statements"), true and complete
copies of its unaudited balance sheets as of December 31, 1997, and the related
statements of income, retained earnings and cash flows for the period then
ending (the "1997 Financial Statements") and true and complete copies of its
unaudited balance sheets for the eight month period ended August 31, 1998 (the
"Interim Balance Sheet"), and the related statements of income, retained
earnings and cash flows for the period then ending
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(collectively, with the Interim Balance Sheet, the "Interim Financial
Statements"). All of such financial statements, including any notes thereto,
were prepared on a consistent basis throughout the periods involved and such
fairly present the financial position of the Seller at the dates thereof and the
results of its operations for the periods as indicated. The books and records of
the Seller are in all material respects complete and correct, have been
maintained in accordance with good business practices, and accurately reflect
the basis for the financial condition and results of operations of the Seller as
set forth in the financial statements referred to herein.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. To the best of the
Seller's and the Stockholders' knowledge, the Seller does not have any
liabilities, commitments or obligations, whether accrued, absolute, contingent
or otherwise which have not been (i) in the case of liabilities, commitments and
obligations of a type customarily reflected on the corporate balance sheet of
the Seller, reflected on the Interim Balance Sheet in accordance with GAAP,
incurred, consistent with past practice, in the ordinary course of business
since the date of the Interim Balance Sheet and which are not material either
individually or in the aggregate or (ii) in the case of all other types of
liabilities and obligations, described in Schedule 2.1(g) hereto.
(h) ABSENCE OF CERTAIN CHANGES. Except as and to the extent
set forth in Schedule 2.1(h) hereto, since August 31, 1998, the Seller has not:
(i) suffered any material adverse change in their working
capital, condition (financial or otherwise), assets, liabilities, business,
operations or prospects;
(ii) incurred any material liabilities or obligations
except items incurred in the ordinary course of business and consistent with
past practice, none of which exceeds $5,000 (counting obligations or liabilities
arising from one transaction or a series or similar transactions, and all
periodic installments or payments under any lease or other agreement providing
for periodic installments or payments, as a single obligation or liability), or
experienced any increase in, or change in any assumption underlying or methods
of calculating, any bad debt, contingency or other reserves;
(iii) permitted or allowed, or agreed to permit or
allow, any of their property or assets (real, personal or mixed, tangible or
intangible) to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind in excess of $5,000 in the
aggregate, except encumbrances disclosed on Schedule 2.1(h) hereto and which
will be discharged on or prior to the Effective Date ;
(iv) written off, or agreed to write off, as
uncollectible any notes or accounts receivable, except for write-offs in the
ordinary course of business and consistent with past practice, none of which are
material;
(v) canceled any debts or waived or suffered to lapse any
claims or rights of substantial value, or sold, transferred, or otherwise
disposed of any of their properties or assets (real, personal or mixed, tangible
or intangible) or agreed to do any of the foregoing, except in the ordinary
course of business and consistent with past practice;
(vi) disposed of or suffered to lapse any rights to use
any Toll Free Telephone Number listed on Schedule 2.1(q) hereof, patent,
trademark, trade name or copyright, or disposed of or disclosed (except as
necessary in the conduct of their business) to any person any trade secret,
formula, process or know-how or agreed to do any of the foregoing;
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(vii) granted, or agreed to grant, any general increase
in the compensation of officers or employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or commitment) or
any increase in the compensation payable or to become payable to any officer or
employee, and, unless otherwise set forth in Schedule 2.1(h), no such increase
is customary on a periodic basis or is required by agreement or understanding;
(viii) made, or agreed to make, any single capital
expenditure or commitment in excess of $5,000 for additions to property, plant,
equipment or intangible assets or made, or agreed to make, aggregate capital
expenditures and commitments in excess of $5,000 (on a consolidated basis), for
additions to property, plant, equipment or intangible assets;
(ix) made any change in any method of accounting or
accounting practice; or
(x) sold, transferred or leased, or agreed to sell,
transfer or lease, any properties or assets (real, personal or mixed, tangible
or intangible) to, or entered into any agreement or arrangement with, any of its
officers, directors, debtholders, stockholders or employees or any "affiliate"
or "associate" of any of its officers, directors, noteholders, stockholders or
employees (as such terms are defined in Rule 405 promulgated under the
Securities Act and as used herein "Associate" and "Affiliate").
(i) TAX MATTERS. Except as set forth in Schedule 2.1(i)
hereto, the Seller has filed with the appropriate governmental agencies all
Federal, state, local or foreign tax returns and reports required to be filed by
them ("Returns"), have paid in full or made adequate provision for the payment
of, all taxes of every nature, including, but not limited to, income, sales,
franchise and withholding taxes ("Taxes"), together with interest, penalties,
assessments and deficiencies owed by them with respect to all periods covered by
such Returns, and all such Returns were correct and complete in all respects.
The Seller is not currently the beneficiary of any extension of time within
which to file any Returns. The Seller has previously provided Buyer with true
and complete copies of all such Returns filed within the past 3 years. The
provisions for income and other Taxes reflected on the Interim Balance Sheet are
adequate for all accrued and unpaid taxes of the Seller as of the date of the
Interim Balance Sheet, whether (i) incurred in respect of or measured by income
of the Seller for any periods prior to the close of business on that date, or
(ii) arising out of transactions entered into, or any state of facts existing,
on or prior to that date. The provisions for Taxes reflected on the books of
account of the Seller are adequate for all Taxes of Seller which accrued since
the date of the Interim Balance Sheet. There are no filed or other known tax
liens upon any property or assets of the Seller. The Seller has not waived any
statute of limitations in respect of Taxes or executed or filed with any
governmental authority any agreement extending the period for the assessment or
collection of any Taxes, and is a party to any pending or, to the Seller's or
any Stockholder's best knowledge, threatened action or proceeding by any
governmental authority for the assessment or collection of Taxes. To the best
knowledge of the Seller and the Stockholders, no issue has arisen in any
examination of the Seller by any governmental authority that if raised with
respect to any other period not so examined would, if upheld, result in a
material deficiency for any other period not so examined. There is no unresolved
written claim by a governmental authority in any jurisdiction where the Seller
do not file Returns that the Seller is or may be subject to taxation by such
jurisdiction. There has been no examination or audit with respect to Taxes with
respect to any year. The Seller has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing
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to any employee, independent contractor, creditor, stockholder or other third
party.
(j) LITIGATION. Except as set forth in Schedule 2.1(j) hereto,
there are no suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending, or to the best knowledge of
the Seller and the Stockholders, threatened against or affecting, or which may
affect, the Seller, or any of its properties, assets or businesses or the
transactions contemplated hereby. To the best knowledge of the Seller and the
Stockholders, there are no outstanding judgments, orders, stipulations,
injunctions, decrees or awards against the Seller which are not satisfied.
(k) COMPLIANCE WITH APPLICABLE LAW. The Seller is, and at all
times since January 1, 1995, have been in compliance in all material respects
with all Federal, state, local and foreign laws, statutes, ordinances,
regulations, and administrative rulings (collectively "Laws"), promulgated by
any governmental or regulatory authority applicable to the Seller or to the
conduct of the Business or operations of the Seller or to the use of their
properties and assets, including, without limitation, all environmental Laws and
all Laws relating to the Toll Free Telephone Numbers. The Seller has not
received, and the Seller and the Stockholders do not know of the issuance or
threatened issuance of, any notices of violation or alleged violation of any
laws by the Seller. Neither the Seller nor the Stockholders know of any pending
legislation in the State of Louisiana applicable to the Seller or to the conduct
of business or operations of the Seller which, if enacted, could have a material
adverse effect on the business, results of operations, financial position or
prospects of the Seller or the value of its properties or assets
(l) ENVIRONMENTAL MATTERS. Except as set forth on Schedule
2.1(l) hereto:
(i) neither the Seller nor its operations or the real property
leased by the Seller as set forth in Schedule 2.1(n) hereto (the "Facility") are
subject to any outstanding written order, consent decree or settlement agreement
with any person relating to (A) any Environmental Laws (as defined in below),
(B) any Environmental Claim (as defined below), or (C) any Hazardous Materials
Activity (as defined below) that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the business,
results of operations, financial position or prospects of the Seller or the
value of its properties or assets;
(ii) the Seller has not received any letter or request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9604) or any comparable state
law;
(iii) there are, and to the Seller's and the Stockholders'
knowledge, have been no conditions, occurrences, or Hazardous Materials
Activities which could reasonably be expected to form the basis of an
Environmental Claim against the Seller or that, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
business, results of operations, financial position or prospects of the Sellers
or the value of its properties or assets;
(iv) neither the Seller nor, to the Seller's and the
Stockholders' knowledge, any predecessor of the Seller, has filed at any time
any notice under any Environmental Law indicating past or present treatment of
Hazardous Materials at the Facility, and none of the Seller's operations
involves the generation, transportation, storage, or disposal of hazardous
waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent; and
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(v) compliance with all current or reasonably foreseeable
future requirements pursuant to or under Environmental Laws will not have,
individually or in the aggregate, a reasonable possibility of giving rise to a
material adverse effect on the business, results of operations, financial
position or prospects of the Seller or the value of its properties or assets.
(vi) Notwithstanding anything in this Section 2.1(l) to the
contrary, no event or condition has occurred or is occurring with respect to the
Seller relating to any Environmental Law, any Release (as defined in subsection
(vii) below) of Hazardous Materials, or any Hazardous Material Activity,
including any matter disclosed on Schedule 2.1(l), which, individually or in the
aggregate, has had or could reasonably be expected to have a material adverse
effect on the business, results of operations, financial position or prospects
of the Seller or the value of its properties or assets.
(vii) The following terms used in this Section 2.1(l) shall
have the following meanings:
(A) "Environmental Laws" shall mean any and all current
statutes, ordinances, orders, rules regulations, guidance documents, judgments,
governmental authorizations, or any other requirements of governmental
authorities relating to (1) environmental matters, including those relating to
any Hazardous Materials Activity (as defined below) or (2) the generation, use,
storage, transportation, Release or disposal of Hazardous Materials (as defined
below), in any manner applicable to the Seller or the Facility.
(B) "Environmental Claim" shall mean any investigation,
notice, notice of violation, claim, action, suit, proceeding, demand, abatement
order or other order or directive (conditional or otherwise), by any
governmental authority or any other person, arising (1) pursuant to or in
connection with any actual or alleged violation of any Environmental Laws, (2)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (3) in connection with any actual or alleged damage,
injury, threat or harm to natural resources or the environment.
(C) "Hazardous Materials" shall mean (1) any chemical,
material or substance at any time defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous
waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous
waste", "infectious waste", "toxic substances", or any other term or expression
intended to define, list or classify substances by reason of properties harmful
to health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws), (2) any oil, petroleum,
petroleum fraction or petroleum derived substance, (3) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources, (4) any flammable
substances or explosives, (5) any radioactive materials, (6) any
asbestos-containing materials, (7) urea formaldehyde foam insulation, (8)
electrical equipment which contains oil or dielectric fluid containing
polychlorinated biphenyls, (9) pesticides, and (10) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any other persons in the
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vicinity of the Facility or to the indoor or outdoor environment.
(D) "Hazardous Materials Activity" shall mean any past,
current, proposed or threatened activity, event or occurrence involving any
Hazardous Materials, including the use, manufacture, possession, storage,
holding, presence, existence, location, Release (as defined below), threatened
Release, discharge, placement, generation, transportation, processing,
construction, treatment, abatement, removal, remediation, disposal, disposition
or handling of any Hazardous Materials, and any corrective action or response
action with respect to any of the foregoing.
(E) "Release" shall mean any release, spill, emission,
leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge,
dispersal, dumping, leaching or migration of Hazardous Materials into the indoor
or outdoor environment (including, without limitation, the abandonment or
disposal of any barrels, containers or other closed receptacles containing any
Hazardous Materials), including the movement of any Hazardous Materials through
the air, soil, surface water or ground water.
(m) PERMITS. A list of all permits, approvals, licenses,
certificates, franchises, authorizations, consents and orders ("Permits")
necessary and material to the operation of the business of the Seller in the
manner in which it is presently conducted is set forth on Schedule 2.1(m)
hereto. All such Permits are valid and remain in full force and effect. The
Seller has not engaged in any activity which would cause revocation or
suspension of any such Permits and no action or proceeding looking to or
contemplating the revocation or suspension of any thereof is pending or
threatened. To the best knowledge of the Seller and the Stockholders, no
additional Permits will be required to permit the Seller to continue their
business substantially in the manner it is presently conducted after the
consummation of the transactions contemplated hereby.
(n) TITLE TO PROPERTIES. The Transferred Assets constitute all
assets which have been used in the Business since December 31, 1997, and which
are necessary for the conduct of the Business, except as set forth in Schedule
2.1(n) hereto, and except for the Excluded Assets. The Seller does not own any
real property. Except as set forth in Schedule 2.1(n) hereto, the Seller has
good title to all of the properties and assets (personal and mixed, tangible and
intangible) reflected on the Interim Balance Sheet or thereafter acquired or
which it purports to own (except properties or assets sold or otherwise disposed
of in the ordinary course of business consistent with past practice subsequent
to the date of the Interim Balance Sheet which in the aggregate did not have a
book value in excess of $5,000), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature whatsoever. Schedule 2.1(n) also
contains an accurate list and a brief description of all (i) leases (whether by
or to the Seller) and contracts and commitments for the purchase or sale or
lease (whether as lessor or lessee), of the Seller with respect to real property
and (ii) leases (whether by or to the Seller) and title retention or conditional
sales agreements and other security devices of the Seller with respect to items
of personal property having a book value in excess of $5,000. There are no
existing defaults by the Seller under any of the agreements set forth in
Schedule 2.1(n) and no event of default has occurred which (whether with or
without notice, lapse of time or both) would constitute a default by the Seller
thereunder. All lessors thereunder have consented (where such consent is
necessary) to the consummation of the transactions contemplated by this
Agreement without requiring modification of the rights and obligations of the
Seller thereunder. All of the tangible property (whether owned or leased)
included in the Transferred Assets are located at the real property leased by
the Seller as set forth in Schedule 2.1(n) hereto.
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(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the Interim
Balance Sheet arose in the ordinary course of business for services performed or
goods delivered and none are subject to any offsets. The accounts receivable of
the Seller which were thereafter added arose in the ordinary course of business
for services performed or goods delivered and none are subject to any offsets.
Set forth on Schedule 2.1(o) is a true and complete list of the Seller's
accounts receivable as of November 1, 1998, and aging with respect thereto. At
least ninety five (95%) percent of the Closing Receivable (as defined in Section
9.1 hereof) will be good and collectible in the ordinary course of business at
the aggregate amount recorded on the Seller's books of accounts.
(ii) Schedule 2.1(o) hereto contains a complete and
accurate list of all machinery, equipment and other fixed assets of the Seller
(the "Equipment") having a book value in excess of $500. Each such item of
Equipment is in good operating condition, normal wear and tear excepted, and is
fit for its intended use. Each such item has been maintained, in all material
respects, in accordance with prudent business practice and no such maintenance
has been deferred.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto lists all
licenses, patents, copyrights, or trademarks owned or used by the Seller in the
conduct of the Business and all applications therefor (the "Intellectual
Property"). No officer or director, Stockholder or employee of the Seller nor
any of their Affiliates or Associates has any ownership or other interest in any
of the Intellectual Property. To the best knowledge of the Sellers and the
Stockholders, none of the Intellectual Property is being infringed upon by, or
infringes, any licenses, patents, copyrights, trademarks or other intellectual
property rights of any other person or entity. Except as set forth in Schedule
2.1(p), the validity of the Intellectual Property and the title thereto of the
Seller has not been questioned in any litigation or governmental inquiry or
proceeding to which the Seller, is a party, and, to the best knowledge of the
Seller and the Stockholders, no such litigation, governmental inquiry or
proceeding is threatened. The conduct of the business of the Seller as presently
conducted does not conflict with valid licenses, trademarks, trademark rights,
trade names, trade name rights, service marks or patents of others in any way
likely to affect adversely, in any material respect, the Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q) hereto sets
forth a complete list of all Toll Free Telephone Numbers owned or used by the
Seller in the conduct of the Business. No officer or director, Stockholder or
employee of the Seller nor any of its Affiliates or Associates has any ownership
or other interest in the Toll Free Telephone Numbers. The Seller has not
warehoused, brokered or hoarded (as those terms are defined in the Second Report
and Order and Further Notice of Proposed Rulemaking in CC Docket No. 95-155,
Released April 11, 1997, by the Federal Communications Commission ("FCC")) any
of the Toll Free Telephone Numbers in violation of any applicable FCC rules or
regulations.
(r) INSURANCE. Schedule 2.1(r) hereto contains a complete and
correct list of all policies of insurance in which the Seller or their officers
or directors (in such capacity) are an insured party, beneficiary or loss
payable payee. Complete and accurate copies of all such policies have been
previously provided to the Buyer. Such policies are in full force and effect
and, in the reasonable judgment of the Seller and the Stockholders, provide the
type and amount of coverage reasonably required for the Business.
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(s) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 2.1(s)
hereto contains a complete and correct list showing (i) the name of each bank in
which the Seller has an account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto, and (ii) the names of all
persons, if any, holding powers of attorney from the Seller.
(t) EMPLOYEE ARRANGEMENTS; ERISA. The Seller has (i) no union,
collective bargaining, employment, management, severance or consulting
agreements to which the Seller is a party or are otherwise bound, and (ii) no
deferred compensation agreements, pension and retirement plans, profit-sharing
plans, stock purchase and stock option plans. Schedule 2.1(t) hereto contains a
true and complete list of all compensation, incentive, bonus, severance,
disability, hospitalization, medical insurance, life insurance and other
employee benefit plans, programs or arrangements maintained by the Seller or
under which the Seller has any material obligations (other than obligations to
make current wage or salary payments) in respect of, or which otherwise cover,
any of the current or former officers, employees or consultants of the Seller,
or its beneficiaries (each an "Employee Benefit Plan" and collectively the
"Employee Benefit Plans"). No Employee Benefit Plan is subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). All
contributions to and payments from the Employee Benefit Plans which may have
been required to be made in accordance with the Employee Benefit Plans have been
made or are properly accrued and reflected on the Balance Sheets or the books
and records of the Seller. Schedule 2.1(t) hereto also lists the names,
compensation and all accrued and unused vacation and sick time of all persons
employed by the Seller. The Seller has no Employee Benefit Plans which are
qualified for Federal income tax exemption under Sections 401 and 501 of the
Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in Schedule
2.1(u) hereto (i) the Seller is not a party to or bound by any distributorship,
dealership, sales agency, franchise or similar agreement which relates to the
sale, distribution or servicing of the Toll Free Telephone Numbers or services
related thereto, (ii) the Seller does not have any sole-source supplier of
significant goods or services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (iii) there are not pending and, to the Seller's and the
Stockholders' best knowledge there are not threatened, any labor negotiations
involving or affecting the Seller and, to the Seller's and the Stockholders'
best knowledge, no organizing activities involving union representation exist in
respect of any of their employees, (iv) the Seller neither gives nor is bound by
any express warranties relating to its services and, to the best knowledge of
the Seller and the Stockholders, there has been no assertion of any breach of
warranties which could have a material adverse effect on the Business or
condition (financial or otherwise) of the Seller and, to the best knowledge of
the Seller and the Stockholders, there are no problems or potential problems
with respect to any product sold or services provided by the Seller which could
have a material adverse effect on the Business, (v) the Seller is not a party to
or bound by any agreement which limits its freedom to compete in any line of
business or with any person or entity, (vi) the Seller is not a party to or
bound by any agreement which based on current economic circumstances will result
in a material loss when performed, and (vii) the Seller is not a party to or
bound by any agreement or involved in any transaction in which any officer,
director, debtholder or Stockholder, or any Affiliate or Associate of any such
person has, or had when made, a direct or indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a complete and
correct list and brief description of any and all material contracts,
commitments, obligations and
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undertakings, written or oral, involving amounts in excess of $5,000, to which
the Seller is a party or otherwise bound. True and complete copies of all
contracts, commitments, obligations and undertakings set forth in Schedule
2.1(v) hereto have been furnished to Buyer, and except as expressly stated in
Schedule 2.1(v), each of them is in full force and effect, and to the Seller's
and the Stockholders' best knowledge, (a) no person or entity which is a party
thereto or otherwise bound thereby is, to the best knowledge of the Seller and
the Stockholders, in default thereunder, and (b) no event, occurrence, condition
or act exists which, with the giving of notice or the lapse of time or both,
would give rise to a default or right of cancellation thereunder, the Seller is
not in default thereunder and no event, occurrence, condition or act exists by
or on behalf of the Seller which, with the giving of notice or the lapse of time
or both would give rise to a default by the Seller thereunder, there have been
no threatened cancellations thereof and there are no outstanding disputes
thereunder. To the best of the Seller's and the Stockholders' knowledge there is
no reason why any of the contracts listed on Schedule 2.1(v), could not be
continued between Buyer and the Seller's contractual partners on the same terms
and conditions as currently apply. Neither the Seller nor any Stockholder has
any reason to believe that any of the Seller's contractual partners will
terminate its relationship with the Seller as a result of the acquisition of the
Seller's assets by Buyer.
(w) BROKERS. No agent, broker, person or firm acting on behalf
of the Seller or the Stockholders or under the authority of any of the
foregoing, is or shall be entitled to a brokerage commission, finder's fee, or
other like payment in connection with any of the transactions contemplated
hereby, from the Seller or any of the Stockholders.
(x) DISCLOSURE. No representation or warranty made by the
Seller or the Stockholders herein or in any of the Executed Agreements omits or
will omit to state a material fact necessary in order to make the statements
therein not misleading.
(y) [intentionally omitted].
(z) DISCLOSURE SCHEDULES. All schedules to this Agreement are
integral parts to this Agreement. Nothing in a schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein, unless the
schedule identifies the reason for the exception. The Seller and the
Stockholders are responsible for preparing and arranging the schedules
corresponding to the lettered and numbered paragraphs contained herein.
Disclosure made in a specific schedule shall not be deemed to have been
disclosed with respect to any other schedule unless a cross-reference appears.
(aa) PRINCIPAL PLACE OF BUSINESS; RESIDENCE. The Seller's
principal place of business is located at 4318 Downtowner Loop North, Suite G,
Mobile, Alabama 36609
2.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
of the Stockholders severally represents and warrants to, and covenants and
agrees with Buyer, with respect to such Stockholder as follows:
(a) CAPACITY; VALIDITY. Such Stockholder has the legal
capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by such Stockholder.
(b) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such Stockholder
does not own or possess any rights in or to the Toll Free Telephone Numbers
listed on Schedule 2.1(q)
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hereto.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to, and covenants and agrees with, the Seller as
follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to own, lease and
operate its properties and to carry on its business as presently conducted by it
and is qualified in each other jurisdiction in which qualification is required
for it to own, lease and operate its properties and carry on its business as
presently conducted by it, except to the extent that failure to so qualify would
not have a material adverse effect on the financial condition, business or
operations of Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of this
Agreement and of each of the other Executed Agreements to which it shall be a
party, the performance by Buyer of its obligations under this Agreement or such
Executed Agreements and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
action on the part of Buyer, and Buyer has all necessary corporate power with
respect thereto. This Agreement and the Executed Agreements are, or when
executed and delivered by Buyer shall be, the valid and binding obligations of
Buyer, enforceable in accordance with their respective terms, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws. Neither the execution and delivery by Buyer of the
Executed Agreements, nor the consummation of the transactions contemplated
thereby, nor the performance by Buyer of its obligations under the Executed
Agreements, shall (nor with the giving of notice or the lapse of time or both
would) (i) conflict with or result in a breach of any provision of the Articles
of Incorporation or By-Laws of Buyer, (ii) violate any order, writ, injunction,
decree, law, statute, rule or regulation or (iii) interfere with or otherwise
materially and adversely affect the ability of Buyer to carry on its business as
now conducted.
(c) BROKERS. No agent, broker, person or firm acting on behalf
of Buyer or under its authority is or shall be entitled to a brokerage
commission, finder's fee, or other like payment in connection with any of the
transactions contemplated hereby.
3. PRE-CLOSING COVENANTS. The Stockholders and the Seller
jointly and severally covenant and agree to perform or take any and all such
actions to effectuate the following from the date hereof until the Effective
Date:
3.1 INVESTIGATION BY BUYER. Buyer may, prior to the Effective
Date, through its representatives (including its counsel, accountants and
consultants) make such investigations of the properties, offices and operations
of the Seller and such audit of the financial condition of the Seller as it
deems necessary or advisable in connection with the transactions contemplated
hereby, including, without limitation, any investigation enabling it to
familiarize itself with such properties, offices, operations and financial
condition; such investigation shall not, however, affect the Seller's or the
Stockholders' representations, warranties and agreements hereunder. The Seller
and the Stockholders shall permit Buyer and its authorized representatives to
have, after the date hereof, full access to the premises and to all books and
records and Returns of the Seller and Buyer shall have the right to make copies
thereof and excerpts therefrom. The Seller and the Stockholders shall furnish
Buyer with such financial and operating data and other information with respect
to the Seller as Buyer may from time to time reasonably request.
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3.2 CARRY ON IN ORDINARY COURSE. Except with Buyer's prior
written consent, the Seller shall, and each Stockholder shall cause the Seller
to, carry on its business diligently and substantially in the same manner as
heretofore conducted, and shall not (a) enter into or agree to enter into any
extraordinary transaction, contract, lease or commitment, (i) declare any
dividends, nor make any distributions or payments to the Stockholders other than
employment compensation to the extent that any such action could cause any
condition set forth in Section 4.1 hereof not to be satisfied on or prior to
Closing, (ii) redeem any shares of any Seller's capital stock or issue any
capital stock or enter into any agreement which grants a right to acquire any
Seller's capital stock to the extent that any such action could cause any
condition set forth in Section 4.1 hereof not to be satisfied on or prior to
Closing, (iii) increase the compensation of any employee of the Seller, other
than ordinary year-end increases or enter into any severance agreement or
employment agreement with any employee of the Seller; (iv) loan or advance any
amounts to any officer, director, Stockholder or employee of the Seller or enter
into any agreement with any of the foregoing or any person related to any of the
foregoing, to the extent that any such action could cause any condition set
forth in Section 4.1 hereof not to be satisfied on or prior to Closing, (v)
acquire or dispose of any assets, other than acquisitions or dispositions in the
ordinary course of business not material in amount or to the Business, and (vi)
encumber or commit to encumber any of its assets to the extent that any such
action could cause any condition set forth in Section 4.1 hereof not to be
satisfied on or prior to Closing, (vii) take any action, or suffer any action to
be taken, which could cause any of the representations or warranties of any
Stockholders or the Seller contained herein not to be true and correct on and as
of the Effective Date, (viii) repay (including by way of offset) any
indebtedness for borrowed money except for regularly scheduled payments thereof
in accordance therewith to the extent that any such action could cause any
condition set forth in Section 4.1 hereof not to be satisfied on or prior to
Closing, or (ix) enter into any agreement to take any of the foregoing actions.
3.3 OTHER TRANSACTIONS. From the date hereof until the
Effective Date, the Seller and the Stockholders shall not, and shall cause the
Seller's directors, officers, stockholders, employees, agents and Affiliates or
Associates not to, directly or indirectly, solicit or initiate the submission of
proposals from, or solicit, encourage, entertain or enter into any arrangement,
agreement or understanding with, or engage in any negotiations with, or furnish
any information to, any person, other than Buyer or a representative thereof,
with respect to the acquisition of all or any part of the business or assets of
the Seller or any of its securities. Should the Seller or any of its Affiliates
or Associates, during such period, receive any offer or inquiry relating to such
acquisition, or obtain information that such an offer is likely to be made, they
will provide Buyer with immediate written notice thereof, which notice will
include the identity of the prospective offeror and the price and terms of any
offer.
3.4 CONSENTS. The Stockholders shall cause the Seller to, and
the Seller shall, use its best efforts to obtain in writing, prior to the
Effective Date, all consents, approvals, waivers, authorizations and orders
necessary or reasonably required in order to permit it to effectuate this
Agreement and to consummate the transactions contemplated hereby (collectively,
"Consents"). All such Consents will be in writing and copies thereof will be
delivered to Buyer promptly after the Seller's receipt thereof but no later than
immediately prior to Closing.
3.5 SUPPLEMENTAL DISCLOSURE. The Stockholders and the Seller
agree that, with respect to their representations and warranties made in this
Agreement, they will have a continuing obligation, ending on the Effective Date,
to promptly supplement or amend the schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or
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known at the date of this Agreement and on the Effective Date, would have
been required to be set forth or described in the schedules hereto.
3.6 PUBLIC ANNOUNCEMENTS. The Stockholders and Buyer agree
that they will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and any press release or any public statement
shall be subject to mutual agreement of the parties, except as may be required
by the disclosure obligations of Buyer under applicable securities laws.
4. CONDITIONS TO CLOSING.
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation
of Buyer to close under this Agreement is subject to the satisfaction of the
following conditions any of which may be waived by Buyer in writing at or prior
to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Effective
Date, the Stockholders and the Seller shall have complied with and duly
performed all agreements and conditions on their part to be complied with and
performed pursuant to or in connection with this Agreement on or before the
Effective Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Stockholders and the Seller contained in this Agreement, or
otherwise made in connection with the transactions contemplated hereby, shall be
true and correct in all material respects on and as of the Effective Date with
the same force and effect as though such representations and warranties had been
made on and as of the Effective Date.
(c) LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and
the Effective Date there shall not have been any loss, damage or destruction to
or of any of the assets, property or business of the Seller in excess of $5,000
in the aggregate, whether or not covered by insurance, nor shall the assets,
properties, business or prospects of the Seller have been adversely affected in
any way as a result of any fire, accident, or other casualty, war, civil strife,
riot or act of God or the public enemy or otherwise.
(d) NO LEGAL PROCEEDINGS. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby, and on the Effective Date there will be no
court or governmental actions or proceedings pending or threatened against or
affecting the Seller which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of the Seller.
(e) CERTIFICATE. Buyer shall have received a certificate dated
the Effective Date and executed by the Stockholders and an authorized officer of
the Seller to the effect that the conditions expressed in Sections 4.1(a),
4.1(b), 4.1(c) and 4.1(d) have been fulfilled.
(f) CONSENTS. Buyer shall have received all Consents necessary
to effectuate this Agreement and to consummate the transactions contemplated
hereby.
(g) RELATED TRANSACTION. Buyer shall have consummated the
acquisition of the assets of Anserphone of New Orleans, Inc.
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(h) NAME CHANGE. Buyer shall have received a duly authorized
and executed document which amends the certificate of incorporation of the
Seller to change the Seller's name to a name other than Anserphone, or any
derivative thereof or any similar name, and is otherwise in form for filing with
the Secretary of State of the State of Louisiana.
(i) CERTIFICATES OF STATUS. Buyer shall have received
certificates from the Secretary of State of the State of Alabama and of each
jurisdiction set forth in Schedule 2.1(a) hereto, providing that the Seller has
filed its most recent annual report, has not filed articles of dissolution and
is in good standing in each such jurisdiction.
(j) OPINION OF COUNSEL. The Stockholders shall have furnished
Buyer with a favorable opinion of Helmsing Sims & Leach P.C., counsel for the
Seller and the Stockholders, dated as of the Effective Date, and in form and
substance satisfactory to Buyer.
(k) BILLS OF SALE. Buyer shall have received such bills of
sale, deeds of transfer, assignments and other documents in form and substance
satisfactory to Buyer conveying the Transferred Assets to Buyer.
(l) APPROVAL OF BUYER'S LENDER. Buyer shall have received the
approval of its lender to effectuate this Agreement and to consummate the
transactions contemplated hereby.
4.2 CONDITIONS OF THE STOCKHOLDERS' AND THE SELLER'S
OBLIGATIONS TO CLOSE. The obligations of the Stockholders and the Seller to
close under this Agreement are subject to the following conditions any of which
may be waived by the Seller in writing at or prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Effective
Date, Buyer shall have complied with and duly performed all agreements and
conditions on its part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Effective Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement, shall be true and correct in
all material respects on and as of the Effective Date with the same force and
effect as though such representations and warranties had been made on and as of
the Effective Date.
(c) CLOSING CERTIFICATE. The Stockholders shall have received
a certificate dated the Effective Date and executed by an authorized officer of
Buyer to the effect that the conditions contained in Section 4.2(a) and (b) have
been fulfilled.
5. FURTHER ASSURANCES. From time to time after the Closing,
and without further consideration, the Seller shall execute and deliver such
other instruments of conveyance, assignment, transfer and delivery and take such
other actions as Buyer may reasonably request in order more effectively to
Transfer to Buyer, to place Buyer in possession or control of, all of the
rights, properties, assets and businesses intended to be Transferred hereunder,
to assist in the collection of any and all such rights, properties and assets,
and to enable Buyer to exercise and to enjoy all of the rights and benefits of
the Seller with respect thereto.
6. TRANSFER TAXES. The Seller shall pay all income and gains
taxes, if any,
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incurred in connection with the transactions contemplated by this Agreement,
subject to section 1.10 hereof. Except as hereinabove provided, the party hereto
which is responsible under applicable law shall bear and pay in their entirety
all other taxes and registration and transfer fees, if any, payable by reason of
the Transfer of the Transferred Assets pursuant to this Agreement. Each party
hereto will cooperate to the extent practicable in minimizing all taxes (other
than income taxes) and fees levied by reason of the Transfer of the Transferred
Assets.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS. The representations and
warranties of the Stockholders in this Agreement or in any document delivered
pursuant hereto shall survive the Effective Date for a period of three (3) years
and shall then terminate; PROVIDED, HOWEVER, that (i) any such representation
and warranty shall survive the time it would otherwise terminate only with
respect to claims of which notice has been given as provided in this Agreement
prior to such termination and (ii) such time limitation shall not apply to the
representations and warranties set forth in Sections 2.1(i), 2.1(l) and 2.1(n)
hereof, which shall survive until the expiration of the applicable statute of
limitations.
7.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this
Section 7, each party which, pursuant to this Section 7, shall agree to
indemnify any other person or entity shall be referred to, as applicable, as the
"Indemnitor", and each such person and entity who is entitled to be indemnified
by any Indemnitor shall be referred to as the "Indemnified Person" with respect
to such Indemnitor.
7.3 INDEMNITY OF THE SELLER AND THE STOCKHOLDERS. The Seller
and the Stockholders hereby jointly and severally agree to indemnify, hold
harmless, pay and reimburse, Buyer and its directors, officers, agents and
employees from and against any and all claims, liabilities, losses, damages and
expenses incurred by such Indemnified Persons (including reasonable attorneys'
fees and disbursements) which shall be caused by or related to or shall arise
out of (a) any material breach or alleged breach of any representation or
warranty of the Seller and the Stockholders contained in this Agreement, (b) any
breach of any covenant or agreement of the Seller or the Stockholders contained
in the Agreement, and (c) any failure by the Seller to satisfy the Liabilities,
and shall reimburse such Indemnified Persons for all costs and expenses
(including reasonable attorneys' fees and disbursements) as they shall be
incurred, in connection with paying, investigating, preparing for or defending
any action, claim, investigation, inquiry or other proceeding, whether or not in
connection with pending or threatened litigation, which shall be caused by or
related to or shall arise out of such breach or alleged breach, whether or not
any such Indemnified Person shall be named as a party thereto and whether or not
any liability shall result therefrom.
7.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold
harmless, pay and reimburse the Stockholders and the Seller and the Seller's
directors, officers, agents and employees from and against any and all claims,
liabilities, losses, damages and expenses incurred by them (including reasonable
attorneys' fees and disbursements) which shall be caused by or related to or
shall arise out of (a) any material breach or alleged breach of any
representation or warranty of Buyer contained in this Agreement and (b) any
breach of any covenant or agreement of Buyer contained in the Agreement and
shall reimburse such Indemnified Persons for all costs and expenses (including
reasonable attorneys' fees and disbursements) as shall be incurred, in
connection with paying, investigating, preparing for or defending any action,
claim, investigation, inquiry or other proceeding, whether or not in connection
with pending or threatened litigation,
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which shall be caused by or related to or shall arise out of such breach or
alleged breach, whether or not such Indemnified Persons shall be named as a
party thereto and whether or not any liability shall result therefrom.
7.5 PROCEDURES FOR INDEMNIFICATION. Promptly after becoming
aware of a claim for indemnification hereunder (including a claim or suit by a
third party), such Indemnified Person shall notify the Indemnitor of the
commencement of such claim, but failure to so notify the Indemnitor shall not
relieve the Indemnitor from any liability which the Indemnitor may have
hereunder or otherwise, unless the Indemnitor shall be materially prejudiced by
such failure or unless such failure is intentional. If the Indemnitor does not
object in writing to any indemnification claim (other than a third party claim)
within five days of receiving notice thereof, the Indemnified Person shall be
entitled to promptly recover from the Indemnitor (including by way of offset)
the amount of such claim, and no later objection by the Indemnitor shall be
permitted. In the event that the Indemnitor contests such claim, the parties
shall attempt to resolve the dispute in good faith, but if they have not done so
within ten days after the Indemnitor received notice thereof, then any of such
parties may pursue such other remedies as may be available to it, hereunder, at
law or otherwise.
7.6 DEFENSE OF THIRD PARTY CLAIMS. The Indemnitor shall assume
the defense of any third party action or proceeding, including the employment of
counsel reasonably satisfactory to the Indemnified Person, and shall pay the
fees and disbursements of such counsel. In the event, however, that such
Indemnified Person shall reasonably determine in its judgment that having common
counsel would present such counsel with a conflict of interest or alternative
defenses shall be available to an Indemnified Person or if the Indemnitor shall
fail to assume the defense of the action or proceeding in a timely manner, then
such Indemnified Person may employ separate counsel to represent or defend it in
any such action or proceeding and the Indemnitor shall pay the reasonable fees
and disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall
not be required to pay the fees and disbursements of more than one separate
counsel for all Indemnified Persons in any jurisdiction in any single action or
proceeding. The Indemnified Person shall also have the right to participate in
any action or proceeding defended by the Indemnitor and to retain its own
counsel at such Indemnified Person's own expense, so long as such participation
does not interfere with the Indemnitor's control of such litigation. The
Indemnitor further agrees that it shall not, without the prior written consent
of the Indemnified Person settle or compromise or consent to the entry of any
judgment in any action or proceeding in respect of which indemnification may be
sought hereunder unless such settlement, compromise or consent shall include an
unconditional release of each Indemnified Person under Section 7.2 or Section
7.3, as the case may be, from all liability arising out of such claim, action,
suit or proceeding. In the event that, upon the failure of the Indemnitor to
assume to defense of any action or proceeding in a timely manner, the
Indemnified Person shall defend, such Identified Person shall be entitle to
settle, compromise or consent to the entry of any judgment, without the consent
of the Indemnitor and without affecting its rights against Indemnitor hereunder.
8. NON-COMPETITION; CONFIDENTIALITY.
8.1 NON-COMPETITION. Following the Effective Date and for a
period of five (5) years thereafter (the "Non-Competition Period"), the Seller
and the Stockholders shall not, directly or indirectly, (a) engage in any
business or activity that competes with Buyer's or any of its affiliate's
outsourced client telemarketing/teleservices business, anywhere in the
contiguous United States; (b) enter the employ of any person or entity
engaged in any business or activity that competes with any such business or
render any consulting or other services to any person or entity
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for use in or with the effect of competing with any such business; or (c) have
an interest in any business or activity that competes with any such business, in
any capacity, including, without limitation, as an investor, partner,
stockholder, officer, director, principal, agent, employee, or creditor;
PROVIDED, HOWEVER, that nothing herein shall prevent the purchase or ownership
by any Stockholder of less than 5% of the outstanding equity securities of any
class of securities of a company registered under Section 12 of the Securities
and Exchange Act of 1934, as amended.
8.2 NO COMPETING INTERESTS. Each Stockholder hereby represents
and warrants to Buyer that he has no ownership or other interest in any business
or activity that competes, directly or indirectly, with the Business.
8.3 NON-DISRUPTION. During the Non-Competition Period, the
Seller and the Stockholders shall not, directly or indirectly, interfere with,
disrupt or attempt to disrupt any present or prospective relationship,
contractual or otherwise, between the Seller or any of its Affiliates, on the
one hand, and any of their customers, suppliers or employees, on the other hand.
8.4 CONFIDENTIALITY. The Seller and the Stockholders shall not
at any time, directly or indirectly, use communicate, disclose or disseminate
any Confidential Information in any manner whatsoever (except to his personal
financial or legal advisors and as may be required under legal process by
subpoena or other court order; provided that, the Seller or any Stockholder will
take reasonable steps to give the Buyer sufficient prior written notice in order
to contest such requirement or order). "Confidential Information" means any and
all information (oral or written) relating to the Buyer or any person
controlling, controlled by, or under common control with the Buyer or any of
their respective activities, including, but not limited to, information relating
to trade secrets, proprietary information, software, software codes,
advertising, sales, marketing and other materials customers and supplier lists,
data processing reports, customer sales analyses, invoice, price lists or
information, and information pertaining to any governmental investigation,
except such information which is generally known in the industry or in the
public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain), other than as a result of a breach of the provisions hereof.
8.5 REMEDIES UPON BREACH. The Seller and the Stockholders
acknowledge and agree that (a) Buyer shall be irreparably injured in the event
of a breach by the Seller or a Stockholder of any of the obligations under this
Section 8; (b) monetary damages shall not be an adequate remedy for such breach;
(c) Buyer shall be entitled to injunctive relief, in addition to any other
remedy which it may have, in the event of any such breach; and (d) the existence
of any claims which the Seller or Stockholder may have against Buyer, whether
under this Agreement or otherwise, shall not be a defense to the enforcement by
Buyer of any of its rights under this Agreement.
9. POST-CLOSING COVENANTS.
9.1 COLLECTION OF ACCOUNTS RECEIVABLE. (a) From and after
Closing, Buyer shall collect, and promptly deposit, all accounts receivable of
the Seller as of the Effective Date ("Closing Receivables"), in the ordinary
course of business and shall not discount, except in the ordinary course of
business consistent with the past practice of the Seller, any such accounts
receivable or permit any account debtor any right of set-off for claims arising
out of or in connection with the conduct of the Business after Closing.
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(b) At such time as Buyer shall have received, in cleared
funds, [**************] of the amount of Closing Receivables and/or the Closing
Receivables as defined in the Asset Purchase Agreement dated November 2, 1998,
among Buyer, Protocol Holdings, Inc., Anserphone of New Orleans, Inc. and
Charles F. Reed, Jr. and C. Baldwin Reed ("Collection Threshold"), all amounts
thereafter collected thereon shall be shared by Buyer and the Seller (i) [****]
to the Seller ("Excess Receivables") and (ii) [****] to Buyer. Buyer shall make
payments to the Seller in respect of the Excess Receivables promptly after then
end of each month. Until such time as Buyer shall make payments of amounts due
to the Seller pursuant to this Section 9.1, Buyer shall hold the amounts thereof
in trust for the Seller, but shall not be obligated to segregate any such
amounts. All payments received from account debtors of Buyer shall be applied
first against the oldest outstanding undisputed obligations of such account
debtor to Buyer, notwithstanding any direction of such account debtor to the
contrary. In the event that Buyer shall receive written notice from any account
debtor which shall dispute the amount of any Closing Receivable, or shall be
otherwise unable to collect any Closing Receivable, the Seller shall cooperate
with, and assist, Buyer in the resolution of such dispute, if any, and the
collection of such receivable. Buyer shall not otherwise be obligated to
commence any action against, or alter its relationship with, any such account
debtor. At the request of Buyer, and upon Buyer's assignment to the Seller of
any disputed Closing Receivable or Closing Receivable which is more than 90 days
past due, Seller shall pay to Buyer the full amount thereof, to the extent, but
only to the extent, that the Collection Threshold has not then been met. At the
request of the Seller, Buyer shall assign to the Seller all Closing Receivables
which are more than 150 days past due upon Seller's payment to Buyer of the full
amount thereof, to the extent, but only to the extent, that the Collection
Threshold has not been met. To the extent that the Seller shall utilize the
capabilities of the Buyer (I.E., personnel, facilities, etc.) in the collection
of such assigned Closing Receivables the Seller shall pay to the Buyer a
factoring fee of fifteen (15%) percent of all collections thereon.
(c) In furtherance and not in limitation of Buyer's rights
hereunder, Buyer is hereby expressly authorized, and is hereby irrevocably
appointed as attorney-in-fact, with full power of substitution, to act in
Seller's name and stead, to take any and all actions it may, in its discretion,
deem necessary to collect all Closing Receivables, to endorse the Seller's name
on any and all instruments and other payments thereon or with respect thereto
and to deposit all payments, in any form received, in accounts of Buyer, subject
to Buyers obligations pursuant to Section 9.2 (b) above. This power of attorney
is coupled with an interest.
(d) It is expressly acknowledged and agreed that any amount
received by a stockholder in respect of a Closing Receivable shall be deemed to
have been received by him as an employee of Buyer and on its behalf.
9.2 PAYMENTS OF INVOICES
(a) To the extent that the Seller or Buyer (the "Invoiced
Party") shall receive invoices, or shall otherwise be required to pay amounts,
which represent, in whole or in part, liabilities (such as utility and phone
bills, ordinary maintenance contracts, sales commissions, etc., relating to
periods either before or after the Closing) and which, pursuant to the terms
hereof, are to be satisfied by the other (the "Responsible Party"), the Invoiced
Party may, in its discretion, (a) pay such amounts and demand payment from the
Responsible Party, provided that no individual amount exceeds $1,000, (b) demand
payment from the Responsible Party prior to any such payment by the Invoiced
Party or (c) demand that the Responsible Party make such payment directly,
provided that if only a portion is due from the Responsible Party and a portion
from the Invoiced Party, the Invoiced Party shall make payment of its portion to
the Responsible Party
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simultaneously with such request.
(b) Upon any demand by an Invoiced Party pursuant to Section
9.2(a) above, whether for payment to the Invoiced Party or to a third party
obligee, shall promptly make such payment.
(c) Each party shall maintain copies of invoices and records
of payments in respect of all payments made by them pursuant to this Section 9.2
and, upon request, promptly provide copies thereof to the other.
(d) Each party shall have the right to set-off against amounts
due to the other, amounts due to it from the other which shall not be paid in
accordance herewith.
9.3 EMPLOYEE VACATION ACCRUALS. Buyer agrees to credit all
former employees of the Seller, which become employees of the Buyer, with the
vacation and sick day accruals set forth in Schedule 9.3 hereof, in accordance
with the policies, with respect to vacation and sick days set forth in such
Schedule 2.1(t) hereto.
10. MISCELLANEOUS PROVISIONS.
10.1 CONFIDENTIALITY. The Seller, the Stockholders and Buyer
agree not to, directly or indirectly, without the prior written consent of the
other, use or disclose to any person, firm or corporation, any materials or
information obtained in Buyer's due diligence investigation of the Seller not a
part of the Purchased Assets, or any of the terms of this Agreement, except as
may be required by the disclosure obligations of Buyer under applicable
securities laws or as may be required to be disclosed to the attorneys and/or
accountants of the parties hereto in connection with the transactions
contemplated hereby.
10.2 NOTIFICATION. Each party hereto shall give the other
party or parties hereto prompt written notice of (a) the existence of any fact
or the occurrence of any event which constitutes, or with the giving of notice
or the passage of time or both would constitute, a breach of any representation
or warranty of the party giving such notice made herein or pursuant hereto and
(b) the taking of any action by the party giving such notice that would breach
or violate, or constitute a default under, any agreement or covenant of such
party made herein or pursuant hereto. The giving of any such notice shall not
affect, modify or limit in any way any representation, warranty, agreement or
covenant of the parties made herein or pursuant hereto.
10.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
10.4 NOTICES. All notices, requests, demands and other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed duly given when delivered by
hand, or posted in the United States mail by registered or certified mail with
postage pre-paid, return receipt requested, (a) if to Buyer, to Protocol
Acquisition Sub 2, Inc., c/o Protocol Communications, Inc. 2197 Ringling Blvd.,
Sarasota, Florida 34237, Attention: Stephen McLean; copy to Hertzog, Calamari &
Gleason, 100 Park Avenue, New York, NY 10016, Attention: John D. Vaughan, Esq.,
facsimile number: (212) 213-1199, and (b) if to the Seller or the Stockholders,
to Charles F. Read and C. Baldwin Read, 19348 N. 4th Street, Covington,
Louisiana 70433; copy to Michael L. Eckstein, 1515 Poydras Street, Suite
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<PAGE> 25
2195, New Orleans, Louisiana 70112, facsimile number: (504) 566-0040; or to such
other address(es) as shall be specified by like notice to the other parties.
10.5 AMENDMENTS. This Agreement may be amended or modified at
any time prior to the Effective Date, but only by a written instrument executed
by all of the parties hereto.
10.6 ENTIRE AGREEMENT. This Agreement (together with the other
agreements, certificates, instruments and documents delivered pursuant hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
10.7 APPLICABLE LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the internal laws of the State of Delaware. The parties hereby consent to the
exclusive jurisdiction of Federal and Louisiana courts located in the St.
Tammany Parish and agree that service of process by certified mail, return
receipt requested, shall constitute personal service for all purposes hereof.
10.8 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Date by any of the following:
(a) By mutual written agreement of Buyer and the Seller;
(b) By either Buyer or the Seller, if the Closing has not
occurred by November 15, 1998, upon written notice by such terminating party,
provided that at the time such notice is given a material breach of this
Agreement by such terminating party shall not be the principal reason for the
Closing's failure to occur;
(c) Subject to the provisions of Section 10.9 hereof, by
Buyer, by written notice to the Seller, if there has been a material violation
or breach of any of the Stockholders' or the Seller's covenants or agreements
made herein or in connection herewith or if any representation or warranty of
the Stockholders or the Seller made herein or in connection herewith proves to
be materially inaccurate or misleading; or
(d) Subject to the provisions of Section 10.9 hereof, by the
Seller, by written notice to Buyer, if there has been a material violation or
breach of any of Buyer's covenants or agreements made herein or in connection
herewith or if any representation or warranty of Buyer made herein or in
connection herewith proves to be materially inaccurate or misleading.
10.9 EFFECTS OF TERMINATION. If this Agreement is terminated
as provided in Section 10.8 hereof, then this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of any party
hereto (or any of their respective stockholders, officers, directors or
employees), except based on the agreements contained in Sections 7.3 and 7.4
hereof; PROVIDED, however, that if Buyer terminates this Agreement pursuant to
Section 10.8(c) hereof, or the Seller terminates this Agreement pursuant to
Section 10.8(d) hereof, the non-terminating party shall remain liable for any
breach hereof.
10.10 HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
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<PAGE> 26
10.11 FEES AND DISBURSEMENTS. Buyer shall pay its own
expenses, and the fees and disbursements of the counsel, accountants or auditors
retained by it in connection with the preparation, execution and delivery of
this Agreement and the fees and expenses and disbursements of the counsel to the
Seller and the Stockholders shall be paid by the Stockholders.
10.12 ASSIGNMENT. This Agreement may not be assigned by the
Seller or any Stockholder without the prior written consent of Buyer.
10.13 BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
10.14 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
[NEXT PAGE IS SIGNATURE PAGE]
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this
Asset Purchase Agreement the day and year first above written.
ANSERPHONE, INC.
------------------------------------------
By: /s/ Raymond P. Wilson
Name:
Title:
ANSERPHONE SYSTEMS, INC.
------------------------------------------
By: /s/ Charles F. Read
Name:
Title:
Stockholders:
/s/ Charles F. Read U/p/a Dated 10/29/98
------------------------------------------
M'adele Read Irvin
/s/ Charles F. Read U/p/a Dated 10/29/98
------------------------------------------
Lauren Ledoux Read
/s/ Charles F. Read U/p/a Dated 10/29/98
------------------------------------------
Sidonie Read Poidivent
/s/ Charles F. Read U/p/a Dated 10/29/98
------------------------------------------
Valerie Adele Read
[Did Not Sign]
------------------------------------------
Renee Read Mann
/s/ Charles F. Read U/p/a Dated 10/29/98
------------------------------------------
Margaret Fauver
27
<PAGE> 28
/s/ Charles F. Read U/p/a Dated 10/29/98
-----------------------------------------
Caroline Elizabeth Read
28
<PAGE> 1
EXHIBIT 2.8
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made this 30th day
of October, 1998, by and between PROTOCOL COMMUNICATIONS, INC., a Delaware
corporation ("Buyer"), PROTOCOL HOLDINGS, INC., a Delaware corporation and
holder of all the issued and outstanding capital stock of Buyer ("Parent"),
STRATEGIC ALTERNATIVES INC. d/b/a Strategic Alternatives Inc. of Florida, a
Florida corporation, ("SAIF"), and Joseph Post (the "Seller").
W I T N E S S E T H:
-------------------
WHEREAS, SAIF is principally engaged in the business of supplying
database marketing services and is the end user and subscriber for certain toll
free telephone numbers listed on Schedule 2.1(r) hereto (the "Toll Free
Telephone Numbers");
WHEREAS, the Seller is presently the owner of an aggregate of 200
shares of common stock, par value $1.00 per share, of SAIF (the "SAIF Stock"),
which represents all of the issued and outstanding capital stock of SAIF; and
WHEREAS, the Seller desires to sell his shares of SAIF Stock to Buyer
and Buyer desires to purchase all of the SAIF Stock from the Seller, all in the
manner and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION
1.1 STOCK PURCHASE. On the terms and subject to the conditions of
this Agreement, on the Closing Date (as hereinafter defined), the Seller shall
sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase
and acquire from the Seller, all right, title and interest of the Seller, legal
and equitable, beneficially and of record, in and to the SAIF Stock. The
certificates evidencing the SAIF Stock shall be delivered at the Closing (as
hereinafter defined) to Buyer, free and clear of all liens, claims, security
interests and encumbrances, accompanied by duly executed stock powers (endorsed
in blank, with signatures guaranteed) and any necessary stock transfer tax
stamps affixed thereto.
1.2 PURCHASE PRICE. (a) As the purchase price for all of the
SAIF Stock (the "Purchase Price"), (i) Buyer shall pay to the Seller an
aggregate sum, subject to adjustment as provided in Section 1.4 below, of
[******] in cash (the "Cash Purchase Price") and (ii) Buyer shall cause Parent
to issue [******] shares of Common Stock of Parent (the "Parent Common Stock")
which shall be equal to not less than [****] of the issued and outstanding
shares of Common Stock of Parent at Closing, the further transfer of which shall
be restricted under the Securities Act of
- -----------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
1933, as amended (the "Securities Act") and as provided under Section 2.2(e)
hereof.
(b) The Cash Purchase Price shall be payable in cash by wire
transfer of immediately available funds to an account of the Seller designated
by him in writing prior to Closing and shall be due as follows: (i) [******] at
Closing; (ii) [******] on January 31, 1999; (iii) [******] on December 31, 1999;
(iv) [******] on December 31, 2000 and (v) [******] on December 31, 2001.
(c) The deferred portions of the Cash Purchase Price shall be
evidenced by an interest bearing installment promissory note from the
Corporation ("Installment Note") in an amount equal to [******]. Interest on the
unpaid principal amount of the Installment Note shall be payable quarterly from
and after the Closing Date at the prime rate, from time to time in effect, as
published in the WALL STREET JOURNAL. The principal balance of the Installment
Note shall be payable (i) [******] on January 31, 1999; (ii) [******] on
December 31, 1999; (iii) [******] on December 31, 2000 and (iv) [******] on
December 31, 2001. The Installment Note shall provide for deduction, in order of
maturity, from principal of any Adjustment Amounts calculated under Section 1.4
hereof and in respect of any claims by Buyer hereunder. Buyer shall have the
right to prepay, at any time and without penalty, the Installment Note in whole
or in part.
(d) Certificates representing the shares of Parent Common Stock
shall be delivered to the Seller at Closing.
1.3 CLOSING DATE. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Boone,
Boone, Boone & Hines, 1001 Avenida Del Circo, Venice, Florida 34285 at 10:00
A.M., November 4, 1998, or at such other place and/or on such other date and
time as shall be agreed upon by Buyer and the Seller (the "Closing Date").
1.4 PURCHASE PRICE ADJUSTMENT.
(a) Within one hundred eighty (180) days after Closing,
Buyer, at its expense, shall cause KPMG Peat Marwick LLP to deliver to the
Seller audited balance sheets and related statements of income, retained
earnings and cash flows for SAIF's fiscal year ended December 31, 1997 (the
"1997 Financial Statements"); and for the 12-month period ended September 30,
1998 (the "12-Month Financial Statements") all of which financial statements
shall be prepared in accordance with generally accepted accounting principles
("GAAP") and the rules and regulations of the Securities Exchange Commission
applicable to financial reporting of public companies.
(b) The Seller shall have forty-five (45) days from delivery
of the 1997 Financial Statements and the 12-Month Financial Statements
(collectively, the "Financial Statements") to raise any objection thereto by
delivery of written notice to Buyer setting forth such objections in reasonable
detail. In the event that the Seller shall fail to so deliver such written
objections with respect to any of the Financial Statements within such 45-day
period, then any such Financial Statements in respect of which no such objection
is so delivered shall be deemed final and binding on the parties. In the event
that any such objections are so delivered, Buyer and the Seller shall attempt,
in good faith, to resolve such objections and, if unable to do so within fifteen
(15) days of delivery of such objections, shall, within five (5) business days
thereafter designate a nationally recognized firm of independent public
accountants, mutually satisfactory to Buyer and the Seller (the "Independent
Accountants"). In the event that Buyer and the Seller are
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<PAGE> 3
unable to agree on the Independent Accountants within such 5-business day
period, the Independent Accountants shall be designated jointly by the
independent accountants of Buyer and SAIF within three (3) business days
thereafter. The Independent Accountants shall resolve all remaining objections
to the Financial Statements made by the Seller in accordance herewith within
forty-five (45) days from their date of designation. The determination of the
Independent Accountants shall be final and binding on the parties. The fees and
expenses of the Independent Accountants shall be borne one-half by the Seller
and one-half by Buyer.
(c) The Cash Purchase Price shall be adjusted in each of the
following instances, based on the Financial Statements, as finally determined in
accordance herewith, by the amounts ("Adjustment Amounts") determined as
follows:
(i) in the event that on the Closing Date, SAIF
shall have outstanding Funded Debt (as defined below) in excess of [******], the
Cash Purchase Price shall be reduced by an amount equal to such excess;
(ii) in the event that the sum of [******] shall
exceed 1997 EBITDA (as defined below), the Cash Purchase Price shall be reduced
by an amount equal to [****] for each $1.00 of such excess (rounded down to the
nearest whole dollar);
(iii) in the event that the sum of [******] shall
exceed 12-Month EBITDA (as defined below), the Cash Purchase Price shall be
reduced by an amount equal to [****] for each $1.00 of such excess (rounded down
to the nearest whole dollar); and
(iv) in the event that the sum of [******] shall
exceed Net Current Assets (as defined below), the Cash Purchase Price shall be
reduced [************].
Notwithstanding the foregoing, in the event that any item occurring within the
period from October 1, 1997 through December 31, 1997 shall negatively effect
1997 EBITDA or 12-Month EBITDA, such item shall be used to reduce the Cash
Purchase Price more than once. Within three (3) business days of the final
determinations of the Financial Statements, the Seller shall pay to Buyer
(whether or not the sum of such Adjustment Amounts shall exceed the Cash
Purchase Price) each Adjustment Amount by wire transfer of immediately available
funds to an account designated in writing by Buyer. Notwithstanding the
foregoing, Buyer may elect, at its sole discretion, to deduct each Adjustment
Amount from any portion of the Cash Purchase Price.
(d) For purposes hereof, (i) "Funded Debt" shall mean the
excess of all indebtedness of the Seller for borrowed money outstanding as of
the Closing Date (including, without limitation, capitalized lease obligations);
(ii) "1997 EBITDA" shall mean the earnings of the Seller for the 12-month period
ended December 31, 1997, as set forth in the final, audited 1997 Financial
Statements before deduction for interest, taxes, depreciation and amortization,
in each case determined in accordance with GAAP, as adjusted for non-recurring
revenue, charges and adjustments set forth on Schedule 1.4(d) with respect to
non-recurring and deferred revenue, to the extent actually received, and, with
respect to non-recurring charges and adjustments, to the extent actually earned
or incurred and to the extent of the amounts thereof which Buyer determines will
not be incurred by it in the operation of the Business in the ordinary course
from and after Closing; (iii) "12-Month EBITDA" shall mean the earnings of the
Seller for the 12-month period ended September 30, 1998, as set forth in the
final, audited 12-Month Financial Statements before deduction for interest,
taxes, depreciation and amortization, in each case determined in accordance
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<PAGE> 4
with GAAP, as adjusted for non-recurring revenue, charges and adjustments set
forth on Schedule 1.4(d) hereto, with respect to non-recurring and deferred
revenue, to the extent actually received, and with respect to non-recurring
charges and adjustments, to the extent actually earned or incurred and to the
extent of the amounts thereof which Buyer determines will not be incurred by it
in the operation of the Business in the ordinary course from and after Closing;
and (iv) "Net Current Assets" shall mean the excess of (A) cash from operations
as of the Closing Date plus accounts receivable of SAIF as of the Closing Date,
which are good and collectible and have been incurred in the ordinary course of
business for services performed or products delivered and which are due and
payable within 90 days from the date of invoice over (B) the accounts payable of
the SAIF as of the Closing Date, including up to $90,000 accounts payable in
respect of 1997 bonuses payable to Seller and Bonnie Post, but specifically
excluding up to $200,000 in respect of indebtedness incurred under the credit
facility referred to in Schedule 2.1(w) hereto.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SAIF AND THE SELLER. SAIF
and the Seller hereby, jointly and severally, represent and warrant to, and
covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. SAIF is a
corporation duly organized, validly existing and in good standing and authorized
to exercise its corporate powers, rights and privileges under the laws of the
State of Florida with full corporate power and authority to own, lease and
operate its properties and to carry on its business as presently conducted by
it. There are no other states or jurisdictions in which SAIF is duly qualified
and in good standing to do business as a foreign corporation. There are no other
states or jurisdictions in which the character and location of the properties
owned or leased by it, or the conduct of its business makes such qualification
necessary, except where failure to so qualify would not have a material adverse
effect on the financial condition, business or operations of SAIF. Copies of
SAIF's Articles of Incorporation and all amendments thereto, and of SAIF's
By-Laws, as amended to date, are attached to Schedule 2.1(a) and are complete
and correct. SAIF's minute books contain complete and accurate records of all
meetings and other corporate actions, including, without limitation, actions by
unanimous written consent of the Seller and the board of directors of SAIF
(including all committees of its board of directors).
(b) CAPITALIZATION. The authorized capital stock of SAIF
consists of 1000 shares of Common Stock, par value $1.00 per share, of which 200
shares are issued and outstanding and are owned by the Seller. All issued shares
of SAIF Stock have been duly authorized and validly issued and are fully paid
and nonassessable. All prior offerings and sales of SAIF Stock have been made in
accordance with all Federal and state securities laws. There are no outstanding
obligations, options, warrants, rights, calls, commitments, conversion rights,
plans or other agreements of any character to which SAIF is a party or otherwise
bound which provide for the purchase or issuance by SAIF of any authorized but
not outstanding, or authorized and outstanding shares of capital stock of SAIF.
There is no personal liability attached to the SAIF Stock. No person has any
preemptive or similar rights in respect of any securities of SAIF.
(c) AUTHORITY. The execution and delivery by SAIF and the
Seller of this Agreement and all of the agreements, schedules, exhibits,
documents and instruments specifically provided for hereunder to be executed
and/or delivered by either or both of them (all of the foregoing, including this
Agreement, being hereinafter sometimes collectively referred to as
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<PAGE> 5
the "Executed Agreements"), the performance by SAIF and the Seller (to the
extent that they are parties thereto) of their respective obligations under the
Executed Agreements, and the consummation of the transactions contemplated by
the Executed Agreements, have been duly and validly authorized by all necessary
corporate action on the part of SAIF and by the Seller, and SAIF has all
necessary corporate power with respect thereto. The Executed Agreements are, or
when executed and delivered by the delivering parties shall be, the valid and
binding obligations of the delivering parties, enforceable in accordance with
their respective terms, except to the extent that enforceability may be limited
by the operation of bankruptcy, insolvency or similar laws. Neither the
execution and delivery by SAIF and the Seller (to the extent that they are
parties thereto) of the Executed Agreements, nor the consummation of the
transactions contemplated thereby, nor the performance by SAIF and the Seller
(to the extent that they are parties thereto) of their respective obligations
under the Executed Agreements, shall (nor with the giving of notice or the lapse
of time or both would) (i) conflict with or result in a breach of any provision
of the Articles of Incorporation or By-Laws of SAIF, (ii) give rise to a
default, or any right of termination, cancellation or acceleration, or otherwise
result in a loss of contractual benefits to SAIF, under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which SAIF or the Seller is a
party or by which it or any of its properties or assets may be bound, (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to SAIF or the Seller or any of their respective properties or
assets, (iv) result in the creation or imposition of any lien, claim,
restriction, charge or encumbrance upon any of the properties or assets of SAIF,
or (v) interfere with or otherwise materially and adversely affect the ability
of SAIF to carry on its business as now conducted.
(d) INTERESTS IN OTHER ENTITIES. Except as set forth in
Schedule 2.1(d) hereto, SAIF does not (i) own, directly or indirectly, of record
or beneficially, any shares of voting stock or other equity securities of any
other corporation or entity, (ii) have any ownership interest, direct or
indirect, of record or beneficially, in any entity, or (iii) have any
obligation, direct or indirect, present or contingent, to purchase or subscribe
for any interest in, advance or loan monies to, or in any way make investments
in, any person or entity, or to share any profits or capital investments in
other persons or entities, or both.
(e) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS.
Except as set forth in Schedule 2.1(e) hereto, no approval, consent, compliance,
exemption, authorization or other action by, or notice to or filing with, any
governmental authority or any other entity, and no lapse of a waiting period, is
necessary or required to be obtained by SAIF or the Seller in connection with
the execution, delivery or performance by either of them of this Agreement, any
of the Executed Agreements or the transactions contemplated hereby.
(f) PROJECTIONS. SAIF has delivered to Buyer a set of
projections (the "Projections"), a copy of which its attached hereto as Schedule
2.1(f). The Projections are based on the best estimates of SAIF and the Seller
derived from reasonable expectations at the time the Projections were made, and
SAIF and the Seller believe that Buyer is justified in relying thereon, there
being, however, no guarantee of the achievement of the Projections.
(g) FINANCIAL STATEMENTS; MINIMUM NET WORTH. SAIF has
delivered to Buyer true and complete copies of its unaudited balance sheets as
of December 31, 1996, and related statements of income, retained earnings and
cash flows for the period then ending (the "1996 Financial Statements"), true
and complete copies of its unaudited balance sheets as of December 31, 1997, and
related statements of income, retained earnings and cash flows for the
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<PAGE> 6
period then ending (the "Unaudited 1997 Financial Statements") and true and
complete copies of its unaudited balance sheet as of September 30, 1998 (the
"Interim Balance Sheet"), and related statements of income, retained earnings
and cash flows for the period then ending (collectively, with the Interim
Balance Sheet, the "Interim Financial Statements"). All of such financial
statements, including any notes thereto, were prepared on a consistent basis
throughout the periods involved and such financial statements fairly present the
financial position of SAIF at the dates thereof and the results of its
operations for the periods as indicated. The books and records of SAIF are in
all material respects complete and correct, have been maintained in accordance
with good business practices, and accurately reflect the basis for the financial
condition and results of operations of SAIF as set forth in the financial
statements referred to herein.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. SAIF does not have
any liabilities, commitments or obligations, whether accrued, absolute,
contingent or otherwise which have not been (i) in the case of liabilities,
commitments and obligations of a type required pursuant to GAAP to be reflected
on the corporate balance sheet of SAIF, reflected on the Interim Balance Sheet
or incurred, consistent with past practice, in the ordinary course of business
since the date of the Interim Balance Sheet and which are not material either
individually or in the aggregate or (ii) in the case of all other types of
liabilities and obligations, described in Schedule 2.1(h) hereto.
(i) ABSENCE OF CERTAIN CHANGES. Except as and to the extent
set forth in Schedule 2.1(i) hereto, since December 31, 1997, SAIF has not:
(i) suffered any material adverse change in its
working capital, condition (financial or otherwise), assets, liabilities,
business, operations or prospects;
(ii) incurred any material liabilities or obligations
except items incurred in the ordinary course of business and consistent with
past practice, which do not exceed, in the aggregate $10,000 (counting
obligations or liabilities arising from one transaction or a series of similar
transactions, and all periodic installments or payments under any lease or other
agreement providing for periodic installments or payments, as a single
obligation or liability), or experienced any increase in, or change in any
assumption underlying or methods of calculating, any bad debt, contingency or
other reserves;
(iii) paid, discharged or satisfied any claim,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities and obligations reflected or
reserved against in the Unaudited 1997 Financial Statements, the Interim Balance
Sheet or incurred in the ordinary course of business and consistent with past
practice since the date of the Interim Balance Sheet;
(iv) permitted or allowed any of its property or
assets (real, personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge of
any kind;
(v) written off as uncollectible any notes or
accounts receivable, except for write-offs in the ordinary course of business
and consistent with past practice, none of which are material;
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<PAGE> 7
(vi) canceled any debts or waived or suffered to
lapse any claims or rights of substantial value, or sold, transferred, or
otherwise disposed of any of its properties or assets (real, personal or mixed,
tangible or intangible), except in the ordinary course of business and
consistent with past practice;
(vii) disposed of or suffered to lapse any rights to
use any Toll Free Telephone Number listed on Schedule 2.1(r) hereof, patent,
trademark, trade name or copyright, or disposed of or disclosed (except as
necessary in the conduct of its business) to any person any trade secret,
formula, process or know-how;
(viii) granted any general increase in the compensation
of officers or employees (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee, and,
unless otherwise set forth in Schedule 2.1(i), no such increase is customary on
a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or
commitment in excess of $15,000 for additions to property, plant, equipment or
intangible assets or made aggregate capital expenditures and commitments in
excess of $50,000 (on a consolidated basis), for additions to property, plant,
equipment or intangible assets;
(x) declared, paid or set aside for payment any
dividend or other distribution in respect of, or redeemed any shares of, its
capital stock;
(xi) made any change in any method of accounting or
accounting practice;
(xii) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of its officers, directors, debtholders, the Seller or employees or any
"affiliate" or "associate" of any of its officers, directors, noteholders, the
Seller or employees (as such terms are defined in Rule 405 promulgated under the
Securities Act and as used herein "Associate" and "Affiliate"), except for
compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended December 31, 1997;
(xiii) paid any amount in respect of indebtedness for
borrowed money except for regularly scheduled payments of principal and interest
in accordance with the terms thereof; or
(xiv) agreed, whether in writing or otherwise, to take
any action described in this Section unless such action is specifically excepted
from this Section or described in Schedule 2.1(i).
(j) TAX MATTERS. Except as set forth in Schedule 2.1(j)
hereto, SAIF has filed with the appropriate governmental agencies all Federal,
state, local or foreign tax returns and reports required to be filed by it
("Returns"), has paid in full or made adequate provision for the payment of, all
taxes of every nature, including, but not limited to, income, sales, franchise
and withholding taxes ("Taxes"), together with interest, penalties, assessments
and deficiencies owed
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by it with respect to all periods covered by such Returns, and all such Returns
were correct and complete in all respects. SAIF is not currently the beneficiary
of any extension of time within which to file any Returns. The Seller has
previously provided Buyer with true and complete copies of all such Returns
filed within the past five (5) years. The provisions for income and other Taxes
reflected on the Interim Balance Sheet are adequate for all accrued and unpaid
taxes of SAIF as of the date of the Interim Balance Sheet, whether (i) incurred
in respect of or measured by income of SAIF for any periods prior to the close
of business on that date, or (ii) arising out of transactions entered into, or
any state of facts existing, on or prior to that date. The provision for Taxes
reflected on the books of account of SAIF is adequate for all Taxes of said
entity which accrued since the date of the Interim Balance Sheet. There are no
filed or other known tax liens upon any property or assets of SAIF. SAIF has not
waived any statute of limitations in respect of Taxes or executed or filed with
any governmental authority any agreement extending the period for the assessment
or collection of any Taxes, and it is not a party to any pending or, to SAIF's
or the Seller' best knowledge, threatened action or proceeding by any
governmental authority for the assessment or collection of Taxes. To the best
knowledge of SAIF and the Seller, no issue has arisen in any examination of SAIF
by any governmental authority that if raised with respect to any other period
not so examined would, if upheld, result in a material deficiency for any other
period not so examined. There is no unresolved written claim by a governmental
authority in any jurisdiction where SAIF does not file Returns that SAIF is or
may be subject to taxation by such jurisdiction. There has been no examination
or audit with respect to Taxes with respect to any year, except for 1994, the
details of which are set forth in Schedule 2.1(j). SAIF is not required to make
any adjustment pursuant to Section 481 of the Internal Revenue Code of 1986, as
amended (the "Code"), by reason of a change in accounting method or otherwise
and, to the best knowledge of SAIF and the Seller, neither the Internal Revenue
Service nor any other governmental authority has proposed any such adjustment or
change in accounting method in respect of SAIF, which proposal is currently
pending and SAIF does not have an application pending with any governmental
authority requesting permission for any change in accounting method that relates
to its business and/or operations. SAIF 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, Seller or other third party. SAIF
has never filed any consolidated, combined or unitary Return for any period
ending on or prior to the Closing Date.
(k) LITIGATION. Except as set forth in Schedule 2.1(k)
hereto, there are no suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending, or to the best knowledge of
SAIF and the Seller, threatened against or affecting, or which may affect, SAIF
or any of its properties, assets or businesses or the transactions contemplated
hereby. To the best knowledge of SAIF and the Seller, there are no outstanding
judgments, orders, stipulations, injunctions, decrees or awards against SAIF
which are not satisfied.
(l) COMPLIANCE WITH APPLICABLE LAW. SAIF is, and at all
times since its formation has been in compliance in all material respects with
all Federal, state, local and foreign laws, statutes, ordinances, regulations,
and administrative rulings (collectively "Laws"), promulgated by any
governmental or regulatory authority applicable to SAIF or to the conduct of the
business or operations of SAIF or to the use of its properties and assets,
including, without limitation, all environmental Laws and all Laws relating to
the Toll Free Telephone Numbers. SAIF has not received, and does not know of the
issuance or threatened issuance of, any notices of violation or alleged
violation of any laws by SAIF.
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(m) PERMITS. A list of all permits, approvals, licenses,
certificates, franchises, authorizations, consents and orders ("Permits")
necessary to the operation of the business of SAIF in the manner in which it is
presently conducted is set forth on Schedule 2.1(m) hereto. All such Permits are
valid and remain in full force and effect. SAIF has not engaged in any activity
which would cause revocation or suspension of any such Permits and no action or
proceeding looking to or contemplating the revocation or suspension of any
thereof is pending or threatened. No additional Permits will be required to
permit SAIF to continue its business substantially in the manner it is presently
conducted after the consummation of the transactions contemplated hereby.
(n) TITLE TO PROPERTIES. SAIF does not own any real
property. Except as set forth in Schedule 2.1(n) hereto, SAIF has good title to
all of the properties and assets (personal and mixed, tangible and intangible)
reflected on the Interim Balance Sheet or thereafter acquired or which it
purports to own (except properties or assets sold or otherwise disposed of in
the ordinary course of business consistent with past practice subsequent to the
date of the Interim Balance Sheet which in the aggregate did not have a book
value in excess of $20,000), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever. Schedule 2.1(n) also contains
an accurate list setting forth all (i) real property leased (whether as lessor
or lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by SAIF and (ii) significant personal property
leased by or to SAIF or subject to a title retention or conditional sales
agreement or other security device. All leases listed in Schedule 2.1(n) are
valid, binding and enforceable in accordance with their terms, and are in full
force and effect, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws and there are no existing
material defaults by SAIF thereunder; no material event of default has occurred
which (whether with or without notice, lapse of time or both) would constitute a
material default by SAIF thereunder; and all lessors under such leases have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement without requiring modification of
the rights and obligations of SAIF under such leases. All of SAIF's property is
located at SAIF's facilities at 902 Albee Road, Nokomis, Florida 34275.
(o) ENVIRONMENTAL MATTERS. Except as set forth on Schedule
2.1(o) hereto:
(i) neither SAIF nor its operations nor the real property
leased by SAIF as set forth in Schedule 2.1(n) hereto (the "Facility") are
subject to any outstanding written order, consent decree or settlement agreement
with any person to which SAIF is a party or by which it is bound relating to (A)
any Environmental Laws (as defined in below), (B) any Environmental Claim (as
defined below), or (C) any Hazardous Materials Activity (as defined below) that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the business, results of operations, financial
position or prospects of SAIF or the value of its properties or assets;
(ii) SAIF has not received any letter or request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9604) or any comparable state
law;
(iii) there are, and to SAIF's and the Seller's knowledge,
there have been no - conditions, occurrences, or Hazardous Materials Activities
which could reasonably be
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expected to form the basis of an Environmental Claim against SAIF or that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the business, results of operations, financial
position or prospects of SAIF or the value of its properties or assets;
(iv) neither SAIF nor, to SAIF's and the Seller' knowledge,
any predecessor of SAIF, has filed at any time any notice under any
Environmental Law indicating past or present treatment of Hazardous Materials at
the Facility, and none of SAIF's operations involves the generation,
transportation, storage, or disposal of hazardous waste, as defined under 40
C.F.R. Parts 260-270 or any state equivalent; and
(v) compliance with all current or reasonably foreseeable
future requirements pursuant to or under Environmental Laws will not, individual
or in the aggregate, have a reasonable possibility of giving rise to a material
adverse effect on the business, results of operations, financial position or
prospects of SAIF or the value of its properties or assets.
(vi) Notwithstanding anything in this Section 2.1(o) to the
contrary, no event or condition has occurred or is occurring with respect to
SAIF relating to any Environmental Law, any Release (as defined in subsection
(vii) below) of Hazardous Materials, or any Hazardous Material Activity,
including any matter disclosed on Schedule 2.1(o), which individually or in the
aggregate has had or could reasonably be expected to have a material adverse
effect on the business, results of operations, financial position or prospects
of SAIF or the value of its properties or assets.
(vii) The following terms used in this Section 2.1(o) shall
have the following meanings:
(A) "Environmental Laws" shall mean any and all current
or future statutes, ordinances, orders, rules regulations, guidance documents,
judgments, governmental authorizations, or any other requirements of
governmental authorities relating to (1) environmental matters, including those
relating to any Hazardous Materials Activity (as defined below), (2) the
generation, use, storage, transportation or disposal of Hazardous Materials (as
defined below), or (3) occupational safety and health, industrial hygiene, land
use or the protection of human, plant, or animal health or welfare, in any
manner applicable to SAIF or the Facility, including the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601
ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET
SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET
SEQ.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.),
the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control
Act (15 U.S.C. Section 2601 ET SEQ.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. Section 136 ET SEQ.), the Occupational Safety and
Health Act (29 U.S.C. Section 651 ET SEQ.), the Oil Pollution Act (33 U.S.C.
Section 2701 ET SEQ.) and the Emergency Planning and Community Right-to-Know Act
(42 U.S.C. Section 11001 ET SEQ.), each as amended or supplemented, any
analogous present or future state or local statutes or laws, and any regulations
promulgated pursuant to the foregoing.
(B) "Environmental Claim" shall mean any investigation,
notice, notice of violation, claim, action, suit, proceeding, demand, abatement
order or other order or directive (conditional or otherwise), by any
governmental authority or any other person, arising (1) pursuant to or in
connection with any actual or alleged violation of any Environmental Laws, (2)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or
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(3) in connection with any actual or alleged damage, injury, threat or harm to
heath, safety, natural resources or the environment.
(C) "Hazardous Materials" shall mean (1) any chemical,
material or substance at any time defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous
waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous
waste", "infectious waste", "toxic substances", or any other term or expression
intended to define, list or classify substances by reason of properties harmful
to health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws), (2) any oil, petroleum,
petroleum fraction or petroleum derived substance, (3) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources, (4) any flammable
substances or explosives, (5) any radioactive materials, (6) any
asbestos-containing materials, (7) urea formaldehyde foam insulation, (8)
electrical equipment which contains oil or dielectric fluid containing
polychlorinated biphenyls, (9) pesticides, and (10) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any other persons in the vicinity of the
Facility or to the indoor or outdoor environment.
(D) "Hazardous Materials Activity" shall mean any past,
current, proposed or threatened activity, event or occurrence involving any
Hazardous Materials, including the use, manufacture, possession, storage,
holding, presence, existence, location, Release (as defined below), threatened
Release, discharge, placement, generation, transportation, processing,
construction, treatment, abatement, removal, remediation, disposal, disposition
or handling of any Hazardous Materials, and any corrective action or response
action with respect to any of the foregoing.
(E) "Release" shall mean any release, spill, emission,
leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge,
dispersal, dumping, leaching or migration of Hazardous Materials into the indoor
or outdoor environment (including, without limitation, the abandonment or
disposal of any barrels, containers or other closed receptacles containing any
Hazardous Materials), including the movement of any Hazardous Materials through
the air, soil, surface water or ground water.
(p) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the
Interim Balance Sheet are good and collectible in the ordinary course of
business at the aggregate recorded amounts thereof and are not subject to any
offsets. The accounts receivable of SAIF which were thereafter added are good
and collectible in the ordinary course of business at the aggregate amounts
recorded on the books of account and are not subject to any offsets. Set forth
on Schedule 2.1(p) hereto is a true and complete list of SAIF's accounts
receivable as of September 30, 1998, and aging with respect thereto.
(ii) Schedule 2.1(p) hereto contains a complete and
accurate list of all items of machinery, equipment and other fixed assets of
SAIF (the
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"Equipment") having a book value in excess of $300. Each such item of Equipment
is in good operating condition, normal wear and tear excepted, and is fit for
its intended use. Each such item has been maintained, in all material respects,
in accordance with its manufacturer's recommended maintenance practice and with
prudent business practice and no such maintenance has been deferred.
(q) INTELLECTUAL PROPERTY. Schedule 2.1(q) hereto lists all
licenses, patents, copyrights, or trademarks owned or used by SAIF in the
conduct of its business and all applications therefor (the "Intellectual
Property"). No officer or director, Seller or employee of SAIF nor any of their
Affiliates or Associates has any ownership or other interest in any of the
Intellectual Property. To the best knowledge of SAIF and the Seller, none of the
Intellectual Property is being infringed upon by, or infringes, any licenses,
patents, copyrights, trademarks or other intellectual property rights of any
other person or entity. Except as set forth in Schedule 2.1(q), the validity of
the Intellectual Property and the title thereto of SAIF have not been questioned
in any litigation or governmental inquiry or proceeding to which SAIF, is a
party, and, to the best knowledge of SAIF and the Seller, no such litigation,
governmental inquiry or proceeding is threatened. The conduct of the business of
SAIF as presently conducted does not conflict with valid licenses, trademarks,
trademark rights, trade names, trade name rights, service marks or patents of
others in any way likely to affect adversely, in any material respect, the
Intellectual Property.
(r) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(r) hereto sets
forth a complete list of all Toll Free Telephone Numbers owned or used by SAIF
in the conduct of its business. No officer or director, Seller or employee of
SAIF nor any of their Affiliates or Associates has any ownership or other
interest in the Toll Free Telephone Numbers. SAIF has not warehoused, brokered
or hoarded (as those terms are defined in the Second Report and Order and
Further Notice of Proposed Rulemaking in CC Docket No. 95-155, Released April
11, 1997, by the Federal Communications Commission ("FCC")) any of the Toll Free
Telephone Numbers in violation of any applicable FCC rules or regulations.
(s) INSURANCE. Schedule 2.1(s) hereto contains a complete
and correct list and description of all policies of insurance in which SAIF or
its officers or directors (in such capacity) is an insured party, beneficiary or
loss payable payee. Such policies are in full force and effect and provide the
type and amount of coverage reasonably required for the business of SAIF. True
and correct copies of all such policies have been provided to Buyer.
(t) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 2.1(t)
hereto contains a complete and correct list showing (i) the name of each bank in
which SAIF has an account or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto, and (ii) the names of all
persons, if any, holding powers of attorney from SAIF.
(u) EMPLOYEE ARRANGEMENTS; ERISA. SAIF has no union,
collective bargaining, employment, management, or consulting agreements to which
SAIF is a party or is otherwise bound. Schedule 2.1(u) hereto contains a true
and complete list of all pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, severance,
disability, hospitalization, medical insurance, life insurance and other
employee benefit plans, programs or arrangements maintained by SAIF or under
which the SAIF has any material obligations (other than obligations to make
current wage or salary payments) in respect of, or which otherwise cover, any of
the current or former officers, employees or consultants of SAIF, or
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their beneficiaries (each an "Employee Benefit Plan" and collectively the
"Employee Benefit Plans"). Except as set forth in Schedule 2.1(u) hereto, no
Employee Benefit Plan is subject to Title IV of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 412 of the Internal
Revenue Code of 1986, as amended (the "Code"). SAIF has provided Buyer true and
complete copies of all Forms 5500 (with attached schedules) filed during the
three most recently ended plan years for each Employee Benefit Plan. Except as
set forth on Schedule 2.1(u) hereto, all Employee Benefit Plans comply, in all
material respects, in form, operation and administration with their respective
provisions, the applicable provisions of ERISA, the Code and other applicable
laws. All contributions to and payments from the Employee Benefit Plans which
may have been required to be made in accordance with the Employee Benefit Plans,
and when applicable, ERISA and the Code, have been made or are properly accrued
and reflected on the Balance Sheets or the books and records of SAIF. Schedule
2.1(u) hereto also lists the names and compensation of all persons employed by
SAIF. Except as set forth on Schedule 2.1(u) hereto, SAIF has no Employee
Benefit Plans which are qualified for Federal income tax exemption under
Sections 401 and 501 of the Code.
(v) CERTAIN BUSINESS MATTERS. Except as set forth in
Schedule 2.1(v) hereto (i) SAIF is not a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale, distribution or servicing of the Toll Free Telephone
Numbers or services related thereto, (ii) SAIF does not have any sole-source
supplier of significant goods or services (other than utilities) with respect to
which practical alternative sources are not available on comparable terms and
conditions, (iii) there are not pending and, to SAIF's and the Seller's best
knowledge there are not threatened, any labor negotiations involving or
affecting SAIF and, to SAIF's and the Seller' best knowledge, no organizing
activities involving union representation exist in respect of any of its
employees, (iv) SAIF neither gives nor is bound by any express warranties
relating to its services and, to the best knowledge of SAIF and the Seller,
there has been no assertion of any breach of warranties which could have a
material adverse effect on the business or condition (financial or otherwise) of
SAIF and, to the best knowledge of SAIF and the Seller, there are no problems or
potential problems with respect to any product sold or services provided by
SAIF, (v) SAIF is not a party to or bound by any agreement which limits its
freedom to compete in any line of business or with any person or entity, and
(vi) SAIF is not a party to or bound by any agreement or involved in any
transaction in which any officer, director, debtholder or Seller, or any
Affiliate or Associate of any such person has, or had when made, a direct or
indirect material interest.
(w) CONTRACTS. Schedule 2.1(w) hereto contains a complete
and correct list and brief description of any and all loan agreements, notes,
mortgages and other agreements and instruments relating to indebtedness for
borrowed money (including, without limitation, capitalized lease obligations)
and other material contracts, commitments, obligations and undertakings
("Material Contracts") to which SAIF is a party or otherwise bound. True and
complete copies of all Material Contracts set forth in Schedule 2.1(w) hereto
have been furnished to Buyer, and except as expressly stated in Schedule 2.1(w),
each of them is in full force and effect, no person or entity which is a party
thereto or otherwise bound thereby is, to the best knowledge of SAIF and the
Seller, in default thereunder, and no event, occurrence, condition or act exists
which, with the giving of notice or the lapse of time or both, would give rise
to a default or right of cancellation thereunder, and SAIF is not in default
thereunder and no event, occurrence, condition or act exists by or on behalf of
SAIF which, with the giving of notice or the lapse of time or both would give
rise to a default by SAIF thereunder, and to SAIF's and the Seller's best
knowledge, there have been no threatened cancellations thereof and there are no
outstanding
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disputes thereunder. To the best of SAIF's and the Seller's knowledge there is
no reason why any of the Material Contracts listed on Schedule 2.1(w), could not
be continued between Buyer and SAIF's contractual partners on the same terms and
conditions as currently apply. Neither SAIF nor the Seller has been advised that
any of SAIF's contractual partners will terminate its relationship with SAIF as
a result of the acquisition of SAIF by Buyer.
(x) BROKERS. No agent, broker, person or firm acting on
behalf of SAIF or the Seller or under the authority of any of the foregoing, is
or shall be entitled to a brokerage commission, finder's fee, or other like
payment in connection with any of the transactions contemplated hereby, from
SAIF or the Seller.
(y) DISCLOSURE. No representation or warranty made by SAIF
or the Seller herein or in any of the Executed Agreements contains any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading.
(z) AFFILIATED TRANSACTIONS. Except as set forth in Schedule
2.1(z) hereto, no Seller (i) is a party to any agreement, transaction or
arrangement (oral or written) with or involving SAIF or any Associate or
Affiliate of SAIF or any of the Seller, or (ii) has any claim, monetary or
otherwise, of any sort against SAIF.
(aa) CLAIMS AGAINST SAIF. Except as set forth in Schedule
2.1(aa) hereto, SAIF has no debts, obligations or liabilities owing to the
Seller and, to the best knowledge of SAIF, nothing exists that could give rise
to a claim by the Seller of any such debts, obligation or liability of SAIF to
the Seller.
(bb) DISCLOSURE SCHEDULES. All schedules to this Agreement
are integral parts to this Agreement. Nothing in a schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
unless the schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. The Seller is responsible for
preparing and arranging the schedules corresponding to the lettered and numbered
paragraphs contained herein.
2.2 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants to, and covenants and agrees with Buyer as follows:
(a) CAPACITY; VALIDITY. The Seller has the legal capacity to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by the
Seller and constitutes a valid and binding obligation of the Seller enforceable
against him in accordance with its terms.
(b) TITLE TO SECURITIES. The Seller holds of record and owns
beneficially (or will own beneficially on the Closing Date) all of the SAIF
Stock free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), taxes, liens,
charges, claims, demands, security interests, options, warrants, purchase
rights, contracts, commitments or other encumbrances. The Seller is not a party
to any option, warrant, purchase right or other agreement or understanding that
could require the Seller to sell, transfer or otherwise dispose of any shares of
the SAIF Stock. The Seller is not a party to any voting trust, proxy or other
agreement or understanding with respect to the voting of any shares of the SAIF
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Stock. The sale and transfer of such shares of SAIF Stock to Buyer as provided
herein shall vest Buyer with good and marketable title to the SAIF Stock, free
and clear of all liens, charges, claims and encumbrances.
(c) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. The Seller does
not own or possess any rights in or to the Toll Free Telephone Numbers listed on
Schedule 2.1(r) hereto.
(d) INVESTMENT INTENT. The Seller acknowledges that none of
the shares of Parent Common Stock are registered under the Securities Act or any
state securities laws. The shares of Parent Common Stock are being acquired by
the Seller for investment purposes only and not with a view to the distribution
or resale thereof. The Seller has no present intention to sell or otherwise
dispose of the Parent Common Stock, except in compliance with the provisions of
the Securities Act. The Seller acknowledges that no representation or warranty
is being made with respect to the value of the shares of Parent Common Stock.
(e) RESTRICTIONS ON TRANSFER.
(i) The Seller agrees that he will not transfer or
otherwise dispose of (each, a "Transfer") any of the shares of Parent Common
Stock (or any interest therein) except upon the terms and conditions specified
herein and the Seller will cause any subsequent holder of such shares of Parent
Common Stock to agree to take and hold the shares of Parent Common Stock subject
to the terms and conditions of this Agreement, if such shares of Parent Common
Stock are required to include a legend pursuant to Section 2.2(e)(ii) hereof.
(ii) Each certificate representing the shares of
Parent Common Stock issued to the Seller or to any subsequent stockholder shall
include a legend in the following form; PROVIDED, HOWEVER, that such legend
shall not be required (and shall be removed by Buyer) if (A) a Transfer is being
made in connection with a sale of shares of Parent Common Stock registered under
the Securities Act, or in connection with a sale in compliance with Rule 144
under the Securities Act, as such Rule may be amended from time to time (each a
"Public Sale") or (B) in the opinion of counsel satisfactory to Buyer that the
shares represented thereby may be publicly sold without registration under the
Securities Act and any applicable state securities laws.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION THEREOF OR A VALID EXEMPTION
THEREFROM.
(iii) Notwithstanding anything to the contrary in this
Section 2.2(e), the Seller shall not Transfer any of the shares of Parent Common
Stock except to the extent permitted, and in accordance with, the Shareholder
Agreement referred to in Section 4.1(h) hereof.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to the Seller as follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a corporation
duly
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organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted by it and is
qualified in each other jurisdiction in which qualification is required for it
to own, lease and operate its properties and carry on its business as presently
conducted by it, except to the extent that failure to so qualify would not have
a material adverse effect on the financial condition, business or operations of
Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of this
Agreement and of each of the other Executed Agreements to which it shall be a
party, the performance by Buyer of its obligations under this Agreement or such
Executed Agreements and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
action on the part of Buyer, and Buyer has all necessary corporate power with
respect thereto. This Agreement and the Executed Agreements are, or when
executed and delivered by Buyer shall be, the valid and binding obligations of
Buyer, enforceable in accordance with their respective terms, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws and, as to the availability of equitable remedies,
subject to general principles of equity and the discretion of the court having
jurisdiction thereof. Neither the execution and delivery by Buyer of the
Executed Agreements, nor the consummation of the transactions contemplated
thereby, nor the performance by Buyer of its obligations under the Executed
Agreements, shall (nor with the giving of notice or the lapse of time or both
would) (i) conflict with or result in a breach of any provision of the Articles
of Incorporation or By-Laws of Buyer, (ii) violate any order, writ, injunction,
decree, law, statute, rule or regulation or (iii) interfere with or otherwise
materially and adversely affect the ability of Buyer to carry on its business as
now conducted.
(c) INVESTMENT INTENT. The SAIF Stock is being acquired by
Buyer for investment purposes only and not with a view to the distribution or
resale thereof. Buyer has no present intention to sell or otherwise dispose of
the SAIF Stock, except in compliance with the provisions of the Securities Act.
(d) BROKERS. No agent, broker, person or firm acting on
behalf of Buyer or under its authority is or shall be entitled to a brokerage
commission, finder's fee, or other like payment in connection with any of the
transactions contemplated hereby.
(e) DISCLOSURE. No representation or warranty made by Buyer
herein or in any of the Executed Agreements contains any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements therein not misleading.
2.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby
represents and warrants to Seller that the authorized capital stock of Parent
consists of (i) 15,000,000 shares of Common Stock, par value $.001 per share, of
which 100,000 shares are designated Class B Common Stock ("Class B Stock") and
(ii) 7,000,000 shares of Series A Preferred Stock, par value $.001 per share. No
more than 10,000,00 shares of Common Stock are issued and outstanding, shares
are Class B Stock and 6,520,000 shares of Series A Preferred Stock are issued
and outstanding. The shares of the Parent Common Stock being transferred to the
Seller in accordance herewith shall be duly and validly issued and fully paid
and non-assessable.
3. COVENANTS
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3.1 COVENANTS OF THE SELLER AND SAIF. The Seller and SAIF jointly
and severally covenant and agree to perform or take any and all such actions to
effectuate the following from the date hereof until the Closing Date or the
termination of this agreement, whichever shall first occur:
(a) INVESTIGATION BY BUYER. Buyer may, prior to the Closing
Date, through its representatives (including its counsel, accountants and
consultants) make such investigations of the properties, offices and operations
of SAIF and such audit of the financial condition of SAIF as it deems necessary
or advisable in connection with the transactions contemplated hereby, including,
without limitation, any investigation enabling it to familiarize itself with
such properties, offices, operations and financial condition provided that no
unreasonable interference with the normal business operations of SAIF be thereby
caused; such investigation shall not, however, affect SAIF's or the Seller's
representations, warranties and agreements hereunder provided that Buyer
notifies the Seller of any fact it discovers in such investigation which it
believes is in conflict with the representations and warranties made by SAIF
and/or the Seller hereunder. SAIF and the Seller shall permit Buyer and its
authorized representatives to have, after the date hereof, full access to the
premises and to all books and records and tax returns of SAIF and Buyer shall
have the right to make copies thereof and excerpts therefrom. SAIF and the
Seller shall furnish Buyer with such financial and operating data and other
information with respect to SAIF as Buyer may from time to time reasonably
request.
(b) CARRY ON IN ORDINARY COURSE. Except with Buyer's prior
written consent, SAIF shall, and the Seller shall cause SAIF to, carry on its
business diligently and substantially in the same manner as heretofore
conducted, and shall not (i) enter into or agree to enter into any extraordinary
transaction, contract, lease or commitment, (ii) declare any dividends, nor make
any distributions or payments to the Seller other than employment compensation,
(iii) redeem any shares of SAIF Stock or issue any capital stock or enter into
any agreement which grants a right to acquire any of SAIF's capital stock and
not material in amount, (iv) increase the compensation of any employee of SAIF,
other than ordinary year-end increases or enter into any severance agreement or
employment agreement with any employee of SAIF; (v) loan or advance any amounts
to any officer, director, stockholder or employee of SAIF or enter into any
agreement with any of the foregoing or any person related to any of the
foregoing, (vi) acquire or dispose of any assets, other than in the ordinary
course of business and not material in amount, and (vii) encumber or commit to
encumber any of its assets, (viii) take any action, or suffer any action to be
taken, which could cause any of the representations or warranties of the Seller
or SAIF contained herein not to be true and correct on and as of the Closing
Date, or (ix) enter into any agreement to take any of the foregoing actions.
(c) OTHER TRANSACTIONS. SAIF and the Seller shall not, and
shall cause SAIF's directors, officers, employees, agents and Affiliates or
Associates not to, directly or indirectly, solicit or initiate the submission of
proposals from, or solicit, encourage, entertain or enter into any arrangement,
agreement or understanding with, or engage in any negotiations with, or furnish
any information to, any person, other than Buyer or a representative thereof,
with respect to the acquisition of all or any part of the business or assets of
SAIF or any of its securities. Should SAIF or any of its Affiliates or
Associates, during such period, receive any offer or inquiry relating to such
acquisition, or obtain information that such an offer is likely to be made, they
will provide Buyer with immediate written notice thereof, which notice will
include the identity of the prospective offeror and the price and terms of any
offer.
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(d) CONSENTS. The Seller shall cause SAIF to, and SAIF
shall, use their best efforts to obtain in writing, prior to the Closing Date,
all consents, approvals, waivers, authorizations and orders necessary or
reasonably required in order to permit it to effectuate this Agreement and to
consummate the transactions contemplated hereby (collectively, "Consents"). All
such Consents will be in writing and copies thereof will be delivered to Buyer
promptly after SAIF's receipt thereof but no later than immediately prior to
Closing.
(e) SUPPLEMENTAL DISCLOSURE. The Seller and SAIF agree that,
with respect to their representations and warranties made in this Agreement,
they will have a continuing obligation to promptly supplement or amend the
schedules hereto with respect to any matter hereafter discovered which, if
existing or known at the date of this Agreement and on the Closing Date, would
have been required to be set forth or described in the schedules hereto.
(f) PUBLIC ANNOUNCEMENTS. The Seller and Buyer agree that
they will consult with each other before issuing any press releases or otherwise
making any public statements with respect to this Agreement or the transactions
contemplated hereby and any press release or any public statement shall be
subject to mutual agreement of the parties, except as may be required by the
disclosure obligations of Buyer under applicable securities laws.
4. CONDITIONS TO CLOSING
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation of
Buyer to close under this Agreement is subject to the satisfaction of following
conditions any of which may be waived by Buyer in writing at or prior to
Closing:
(a) DUE DILIGENCE. Buyer shall have completed, to its
satisfaction, its business, legal, tax and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the Closing
Date, the Seller and SAIF shall have complied with and duly performed all
agreements and conditions on their part to be complied with and performed
pursuant to or in connection with this Agreement on or before the Closing Date.
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Seller and SAIF contained in this Agreement, or otherwise made
in connection with the transactions contemplated hereby, shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date.
(d) LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and
the Closing Date there shall not have been any loss, damage or destruction to or
of any of the assets, property or business of SAIF in excess of $10,000 in the
aggregate, whether or not covered by insurance, nor shall the assets,
properties, business or prospects of SAIF have been adversely affected in any
way as a result of any fire, accident, or other casualty, war, civil strife,
riot or act of God or the public enemy or otherwise.
(e) NO LEGAL PROCEEDINGS. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby, and on the Closing Date there will be no court
or governmental actions or
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proceedings pending or threatened against or affecting SAIF which involve a
demand for any judgment or liability, whether or not covered by insurance, and
which may result in any material adverse change in the business, operations,
properties or assets or in the condition, financial or otherwise, of SAIF.
(f) CERTIFICATE. Buyer shall have received a certificate
dated the Closing Date and executed by the Seller and an authorized officer of
SAIF to the effect that the conditions expressed in Sections 4.1(b), 4.1(c),
4.1(d) and 4.1(e) have been fulfilled.
(g) CONSENTS. Buyer shall have received all Consents
necessary to effectuate this Agreement and to consummate the transactions
contemplated hereby.
(h) EMPLOYMENT AGREEMENT; NON-COMPETITION AGREEMENT. Buyer
shall have entered into an Employment Agreement with Seller and a
Non-Competition Agreement with Bonnie Post, each in form and substance
satisfactory to Buyer and the Seller.
(i) SHAREHOLDERS AGREEMENT. The Seller shall have entered
into a Shareholders Agreement, in form and substance satisfactory to Buyer.
(j) RESIGNATIONS OF OFFICERS AND DIRECTORS. Buyer shall
have received resignations effective as of the Closing Date from all of the
executive officers and each of the members of the board of directors of SAIF.
(k) TERMINATION OF 401K PLAN. SAIF shall furnished Buyer
with evidence satisfactory to Buyer that appropriate actions are being taken to
terminate the 401K Plan listed on Schedule 2.1(u) hereto and the disbursement of
all amounts due to participants thereunder as soon as practical following the
Closing at no cost to or obligation on the part of the Buyer.
(l) CERTIFICATES OF STATUS. Buyer shall have received
certificates from the Secretary of State of Florida and of each jurisdiction set
forth in Schedule 2.1(a) hereto, providing that SAIF has filed its most recent
annual report, has not filed articles of dissolution and is in good standing in
each such jurisdiction.
(m) OPINION OF COUNSEL. The Seller shall have furnished
Buyer with a favorable opinion of Boone, Boone, Boone & Hines, P.A., counsel for
SAIF and the Seller, dated as of the Closing Date, and in form and substance
reasonably satisfactory to Buyer.
(n) GENERAL RELEASE OF SAIF BY THE SELLER. The Seller shall
have fully released and discharged SAIF from any and all obligations owing to
him by SAIF, other than the 1997 bonuses payable to Seller and Bonnie Post
referred to in Section 1.4(d) hereof, and all claims, actions or suits that they
now has or may hereafter have against SAIF in form and substance satisfactory to
Buyer and its counsel.
4.2 CONDITIONS OF THE SELLER'S AND SAIF'S OBLIGATIONS TO CLOSE.
The obligations of the Seller and SAIF to close under this Agreement are subject
to the following conditions any of which may be waived by SAIF in writing at or
prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Closing
Date,
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Buyer shall have complied with and duly performed all agreements and conditions
on its part to be complied with and performed pursuant to or in connection with
this Agreement on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement, shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
(c) CLOSING CERTIFICATE. The Seller shall have received a
certificate dated the Closing Date and executed by an authorized officer of
Buyer to the effect that the conditions contained in Section 4.2(a) and (b) have
been fulfilled.
5. TRANSFER TAXES. Notwithstanding anything to the contrary
contained herein, the Seller shall assume and pay all sales, use, privilege,
transfer, stock transfer, real property transfer, documentary, gains, stamp,
duties, recording and similar Taxes and fees (including any penalties, interest
or additions) imposed upon any party hereto incurred in connection with the
purchase of SAIF Stock as contemplated by this Agreement (collectively,
"Transfer Taxes") and shall, at their own expense, accurately file all necessary
Returns and other documentation with respect to any Transfer Tax other than
Returns which Buyer is responsible for filing under applicable law. The Seller
agrees to timely sign and deliver such certificates or forms as may be necessary
or appropriate to establish a lawful exemption from (or otherwise lawfully
reduce), or file Returns with respect to, such Transfer Taxes.
6. INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties
of the Seller in this Agreement or in any document delivered pursuant hereto
shall survive the Closing Date for a period of three years and shall then
terminate; PROVIDED, HOWEVER, that (i) any such representation and warranty
shall survive the time it would otherwise terminate only with respect to claims
of which notice has been given as provided in this Agreement prior to such
termination and (ii) such time limitation shall not apply to the representations
and warranties set forth in Section 2.2(b) hereof, which shall survive
indefinitely, and Sections 2.1(h), 2.1(j), 2.1(n), 2.1(o) hereof, which shall
survive until the expiration of the applicable statute of limitations.
6.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this Section
6, each party which, pursuant to this Section 6, shall agree to indemnify any
other person or entity shall be referred to, as applicable, as the "Indemnitor",
and each such person and entity who is entitled to be indemnified by any
Indemnitor shall be referred to as the "Indemnified Person" with respect to such
Indemnitor.
6.3 INDEMNITY OF THE SELLER. The Seller and, with respect only to
claims made hereunder by Buyer prior to the Closing, SAIF, hereby jointly and
severally agree to indemnify, hold harmless and reimburse Buyer and its
directors, officers, stockholders, agents and employees from and against any and
all claims, liabilities, losses, damages and expenses incurred by such
Indemnified Persons (including reasonable attorneys' fees and disbursements)
which shall be caused by or related to or shall arise out of any breach or
alleged breach of any representation, warranty, covenant or agreement of SAIF or
the Seller contained in this Agreement and shall reimburse such Indemnified
Persons for all costs and expenses (including reasonable attorneys' fees and
dis-
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bursements) as they shall be incurred, in connection with paying, investigating,
preparing for or defending any action, claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
which shall be caused by or related to or shall arise out of such breach or
alleged breach, whether or not any such Indemnified Person shall be named as a
party thereto and whether or not any liability shall result therefrom. The
Seller and SAIF further agree that they shall not, without the prior written
consent of Buyer settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder unless such settlement, compromise or
consent shall include an unconditional release of each Indemnified Person under
this Section 6.3 from all liability arising out of such claim, action, suit or
proceeding.
6.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold
harmless and reimburse the Seller and SAIF and SAIF's directors, officers,
agents and employees from and against any and all claims, liabilities, losses,
damages and expenses incurred by them (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of any
breach or alleged breach of any representation, warranty, covenant or agreement
of Buyer contained in this Agreement and shall reimburse such Indemnified
Persons for all costs and expenses (including reasonable attorneys' fees and
disbursements) as shall be incurred, in connection with paying investigating,
preparing for or defending any action, claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
which shall be caused by or related to or shall arise out of such breach or
alleged breach, whether or not such Indemnified Persons shall be named as a
party thereto and whether or not any liability shall result therefrom. Buyer
further agrees that it shall not, without the prior written consent of the
Seller and SAIF, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder unless such settlement, compromise or
consent shall include an unconditional release of the Seller and SAIF under this
Section 6.4 from all liability arising out of such claim, action, suit or
proceeding.
6.5 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after receipt
by an Indemnified Person of notice of the commencement of any action or
proceeding with respect to which indemnification may be sought hereunder, such
Indemnified Person shall notify the Indemnitor of the commencement of such
action or proceeding, but failure to so notify the Indemnitor shall not relieve
the Indemnitor from any liability which the Indemnitor may have hereunder or
otherwise, unless the Indemnitor shall be materially prejudiced by such failure.
If the Indemnitor shall so elect, the Indemnitor shall assume the defense of
such action or proceeding, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall pay the fees and
disbursements of such counsel. In the event, however, that such Indemnified
Person shall reasonably determine in its judgment that having common counsel
would present such counsel with a conflict of interest or alternative defenses
shall be available to an Indemnified Person or if the Indemnitor shall fail to
assume the defense of the action or proceeding in a timely manner, then such
Indemnified Person may employ separate counsel to represent or defend it in any
such action or proceeding and the Indemnitor shall pay the reasonable fees and
disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons in any jurisdiction in any single action or
proceeding. In any action or proceeding the defense of which the Indemnitor
shall assume, the Indemnified Person shall have the right to participate in such
litigation and to retain its own counsel at such Indemnified Person's own
expense except as otherwise provided above in this Section 6.5, so long as such
participation does not interfere with the Indemnitor's
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control of such litigation.
7. NON-COMPETITION; CONFIDENTIALITY
7.1 NON-COMPETITION. Following the Closing Date and for a period
of four (4) years thereafter (the "Non-Competition Period"), the Seller shall
not, directly or indirectly, (a) engage in any business or activity that
competes with the business in which SAIF or any of its Affiliates is currently
engaged, anywhere in the United States (the "Business"); (b) enter the employ of
any person or entity engaged in any business or activity that competes with the
Business or render any consulting or other services to any person or entity for
use in or with the effect of competing with the Business; or (c) have an
interest in any business or activity that competes with the Business, in any
capacity, including, without limitation, as an investor, partner, stockholder,
officer, director, principal, agent, employee, or creditor; PROVIDED, HOWEVER,
that nothing herein shall prevent the purchase or ownership by the Seller of
less than 3% of the outstanding equity securities of any class of securities of
a company registered under Section 12 of the Securities and Exchange Act of
1934, as amended, nor the Seller's ownership of any amount of the Buyer's equity
securities, nor the Seller's employment by Buyer or an affiliate of Buyer.
7.2 NO COMPETING INTERESTS. The Seller hereby represent and warrant
to Buyer that they have no ownership or other interest in any business or
activity that competes, directly or indirectly, with the Business.
7.3 NON-DISRUPTION. During the Non-Competition Period, the Seller
shall not, directly or indirectly, interfere with, disrupt or attempt to disrupt
or solicit any present or prospective relationship, contractual or otherwise,
between SAIF or any of its Affiliates, on the one hand, and any of its
customers, suppliers or employees, on the other hand.
7.4 CONFIDENTIALITY. The Seller shall not use for their own behalf
or divulge to any other person or entity any confidential information or trade
secrets of or relating to Buyer in any manner whatsoever (except as authorized
and required in connection with the Seller's relationship with Buyer or any of
its Affiliates during the term of such relationship or except as may be required
under legal process by subpoena or other court order; PROVIDED, HOWEVER, that
the Seller shall give Buyer prompt prior written notice thereof in order to
contest such requirement or order). As used herein, confidential information
shall consist of all information, knowledge or data relating to Buyer or any of
its Affiliates (including, without limitation, all information relating to
inventions, procedures and operations, processes and methods, financial
information, customer lists, lists of prospective customers known to the Seller,
prices and trade practices) which is not in the public domain or otherwise
published or publicly available, except for information which the Seller can
demonstrate by written records was previously known to him, is now, or becomes
in the future, public knowledge, other than through acts or omissions of the
Seller, is lawfully obtained by the Seller from sources independent of the
Buyer, or is subsequently developed by the Seller independent of confidential
information or trade secrets of or relating to Buyer in connection with this
transaction.
7.5 REMEDIES UPON BREACH. The Seller acknowledges and agrees that
(a) Buyer shall be irreparably injured in the event of a breach by the Seller of
any of their obligations under this Section 7; (b) monetary damages shall not be
an adequate remedy for such breach; (c) Buyer shall be entitled to injunctive
relief, in addition to any other remedy which it may have, in the event of any
such breach; and (d) the existence of any claims which the Seller may have
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against Buyer, whether under this Agreement or otherwise, shall not be a defense
to the enforcement by Buyer of any of its rights under this Agreement.
8. INSTALLMENT NOTE DEFAULT In the event of a failure by Buyer to
pay, within thirty (30) days of the dates due (the "Default Date"), any amounts
due under the Installment Note referred to in Section 1.2(c) hereof (a) the
Non-Competition Period shall expire with respect to Section 7.1 on the Default
Date, together with any obligations on the part of the Seller pursuant to
Sections 7.2, 7.3 and 7.4 above with respect to customers of SAIF and (b) Buyer
shall assign to the Seller such customer contracts set forth on Schedule 2.1(w)
as remain in effect on the Default Date.
9. MISCELLANEOUS PROVISIONS
(a) CONFIDENTIALITY. SAIF, the Seller and Buyer agree not
to, directly or indirectly, without the prior written consent of the other, use
or disclose to any person, firm or corporation, any of the terms of this
Agreement, except as may be required by the disclosure obligations of Buyer
under applicable securities laws or as may be required to be disclosed to the
attorneys and/or accountants of the parties hereto in connection with the
transactions contemplated hereby.
(b) NOTIFICATION. Each party hereto shall give the other
party or parties hereto prompt written notice of (i) the existence of any fact
or the occurrence of any event which constitutes, or with the giving of notice
or the passage of time or both would constitute, a breach of any representation
or warranty of the party giving such notice made herein or pursuant hereto and
(ii) the taking of any action by the party giving such notice that would breach
or violate, or constitute a default under, any agreement or covenant of such
party made herein or pursuant hereto. The giving of any such notice shall not
affect, modify or limit in any way any representation, warranty, agreement or
covenant of the parties made herein or pursuant hereto.
(c) EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
(d) NOTICES. All notices, requests, demands and other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed duly given when delivered by
hand, telecopied or posted in the United States mail by registered or certified
mail with postage pre-paid, return receipt requested, (i) if to Buyer, to
Protocol Communications, Inc., 2197 Ringling Blvd., Sarasota, Florida 34237,
Attention: President, facsimile number: (941) 906-1422, with a copy to Hertzog,
Calamari & Gleason, 100 Park Avenue, New York, New York 10016, Attention: John
D. Vaughan, Esq., facsimile number: (212) 213-1199; and (ii) if to the Seller,
to 902 Albee Road, Nokomis, Florida 34275, Attention: Mr. Joseph Post, facsimile
number: (941) 484-8696, or to such other address(es) as shall be specified by
like notice to the other parties.
(e) AMENDMENTS. This Agreement may be amended or modified at
any time prior to the Closing Date, but only by a written instrument executed by
all of the parties hereto.
(f) ENTIRE AGREEMENT. This Agreement (together with the
other
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agreements, certificates, instruments and documents delivered pursuant hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
(g) APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts entered into and to be performed wholly within said State. The parties
hereby consent to the exclusive jurisdiction of Federal and Florida State courts
located in the County of Sarasota and agree that service of process by certified
mail, return receipt requested, shall constitute personal service for all
purposes hereof.
(h) TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date by any of the following:
(i) By mutual written agreement of Buyer and the
Seller;
(ii) By either Buyer or the Seller, if the Closing
has not occurred within 30 days of the date hereof, upon written notice by such
terminating party, provided that at the time such notice is given a material
breach of this Agreement by such terminating party shall not be the principal
reason for the Closing's failure to occur;
(iii) Subject to the provisions of Section 9(i)
hereof, by Buyer, by written notice to the Seller and SAIF, if there has been a
material violation or breach of any of the Seller's or SAIF's covenants or
agreements made herein or in connection herewith or if any representation or
warranty of the Seller or SAIF made herein or in connection herewith proves to
be materially inaccurate or misleading; or
(iv) Subject to the provisions of Section 9(i)
hereof, by the Seller, by written notice to Buyer, if there has been a material
violation or breach of any of Buyer's covenants or agreements made herein or in
connection herewith or if any representation or warranty of Buyer made herein or
in connection herewith proves to be materially inaccurate or misleading.
(i) EFFECTS OF TERMINATION. If this Agreement is
terminated as provided in Section 9(h) hereof, then this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of any party hereto (or any of their respective stockholders, officers,
directors or employees), except based on the agreements contained in Section 6.3
and 6.4 hereof; PROVIDED, HOWEVER, that if Buyer terminates this Agreement
pursuant to Section 9(h)(iii) hereof, or the Seller terminates this Agreement
pursuant to Section 9(h)(iv) hereof, the non-terminating party shall remain
liable for any breach hereof.
(j) HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
(k) FEES AND DISBURSEMENTS. Buyer shall pay its own
expenses, and the fees and disbursements of the counsel, accountants or auditors
retained by it in connection with the preparation, execution and delivery of
this Agreement. The fees and expenses and
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disbursements of the counsel to SAIF and the Seller shall be paid by the Seller.
(l) ASSIGNMENT. This Agreement may not be assigned by SAIF
or the Seller without the prior written consent of Buyer. This Agreement may not
be assigned by Buyer, except for an assignment by Buyer to any Affiliate,
without the prior written consent of the Seller.
(m) BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
(n) SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(o) RECORDS RETENTION. On the Closing Date the Seller shall
deliver to the Buyer all books, records and other documents ("Books and
Records") pertaining to the business of SAIF, including, without limitation,
(i) all instruments, documents and evidences of
title of any of the assets of SAIF and the SAIF Stock;
(ii) all books of account, ledgers, minute books and
other records of SAIF;
(iii) any and all other documents, records and writing
of any kind whatsoever which on the Closing Date shall be possessed by the
Seller or SAIF for use to any extent or in any manner in connection with the
business of SAIF.
Buyer shall permit the Seller or his duly authorized representatives at any time
and from time to time between the hours of 9:00 a.m. and 5:00 p.m., local time,
on weekdays excepting holidays, or upon reasonable prior written notice, during
the period of six (6) years following the Closing to examine, inspect, photocopy
and/or copy such Books and Records then in the possession of Buyer as shall
pertain to the operation of the SAIF business for the period ending on the
Closing Date.
[NEXT PAGE IS SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement the day and year first above written.
PROTOCOL COMMUNICATIONS, INC.
By: /s/ STEPHEN G. MCLEAN
-------------------------------------
Stephen G. McLean
President
PROTOCOL HOLDINGS, INC.
with respect only to Section 2.4
hereof
By: /s/ STEPHEN G. MCLEAN
-------------------------------------
Stephen G. McLean
President
STRATEGIC ALTERNATIVES, INC. d/b/a
Strategic Alternatives, Inc. of Florida
By: /s/ JOSEPH POST
-------------------------------------
Joseph Post
President
SELLER:
/s/ JOSEPH POST
----------------------------------------
Joseph Post
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EXHIBIT 2.9
Protocol Communications, Inc.
2197 Ringling Blvd.
Sarasota, Florida 34237
November 4, 1998
Joseph Post
Strategic Alternatives, Inc.
902 Albee Road
Nokomis, Florida 34275
Dear Joe,
Reference is made to the Stock Purchase Agreement, dated October 30,
1998 (the "Purchase Agreement"), between Protocol Communications, Inc., Protocol
Holdings, Inc., Strategic Alternatives, Inc. d/b/a Strategic Alternatives, Inc.
of Florida and Joseph Post. Capitalized terms not defined herein are used as
defined in the Purchase Agreement.
The parties hereby agree to amend Section 1.4(c)(iv) of the Purchase
Agreement as follows:
"(iv) in the event that the sum of [******] shall exceed Net Current
Assets (as defined below), the Cash Purchase Price shall be reduced [*******]."
Except as modified hereby, the Purchase Agreement remains in full force
and effect.
Very Truly Yours,
PROTOCOL COMMUNICATIONS, INC.
Accepted and Agreed: By: /s/ STEPHEN G. MCLEAN
----------------------------------
Stephen G. McLean
President
/s/ JOSEPH POST
- -----------------------------
Joseph Post
STRATEGIC ALTERNATIVES, INC. d/b/a
STRATEGIC ALTERNATIVES, INC. OF FLORIDA
By: /s/ JOSEPH POST
------------------------------
Joseph Post
President
- -----------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 1
EXHIBIT 2.10
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this
6th day of November 1998, by and between Quick Response, Inc., a Delaware
corporation ("Buyer"), and Quick Response LLC (the "Seller") and Christopher R..
Zentgraf, John J. Zentgraf, Robert J. Lieblein, Jordan J. Kreiner, April S.
Reeser, Elmer A. Barry and Dorsey M. Lombardo (the "Members", and each
individually, a "Member").
W I T N E S S E T H :
--------------------
WHEREAS, the Seller is principally engaged in the business of
supplying third party verification services (the "Business") and is the end user
subscriber for certain toll free telephone numbers listed on Schedule 2.1(q)
hereto (the "Toll Free Telephone Numbers");
WHEREAS, the Members are presently the owners of all of the
issued and outstanding membership interests of the Seller; and
WHEREAS, the Seller desires to sell to Buyer, and Buyer
desires to purchase from the Seller substantially all of its assets and
operations subject to certain liabilities, all in the manner and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, on the Closing Date (as defined in Section 1.6
below), the Seller shall, and the Members shall cause the Seller to, sell,
transfer, convey, assign and deliver ("Transfer") to Buyer, and Buyer shall
purchase, acquire and accept from the Seller, the Business and all of the
Seller's rights, properties, assets, contracts, leases and businesses of every
kind, character and description, whether tangible or intangible, real, personal
or mixed, accrued, contingent or otherwise, and wherever located, less and
except the Excluded Assets (as defined in Section 1.2 below) (after giving
effect to the exclusion of the Excluded Assets, such assets are hereinafter
collectively referred to as the "Transferred Assets"), free and clear of all
liens, claims and encumbrances, including, without limitation:
(a) all machinery, equipment, furniture, office
equipment, telephone equipment, computers and computer equipment, software,
spare parts, supplies, tools and vehicles;
(b) all of the Seller's right, title and
interest in and to any income and payments due the Seller, including, without
limitation, all accounts and accounts receivable whether or not reflected on the
Seller's books and records;
- -----------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
(c) all letters of credit (if any), leases of
real and personal property, rental agreements, commitments, insurance policies
(if any and to the extent transferable), purchase orders, sales orders, service
agreements, maintenance agreements, distribution agreements, supply agreements
and all other contracts, agreements and understandings, whether written or oral,
and all rights, claims and causes of action thereunder, whether pending or
inchoate;
(d) all prepaid assets and all deposits,
refunds, rebates and other rights to payment relating to the Transferred Assets
or Assumed Liabilities, (as defined in Section 1.3 below);
(e) all intangible assets (including, without
limitation, all issued and applied for patents, trademarks, copyrights, trade
names, trade secrets, service marks, customer lists, relationships and
arrangements with customers, covenants not to compete, authors, designers and
suppliers, inventions, formulae, processes and permits, computer software and
source code, and all licenses, agreements and applications with respect to any
of the foregoing, any goodwill associated with any of the foregoing, and all
claims and causes of action relating to any of the foregoing, including claims
and causes of action for past infringement) arising from or utilized in the
operations of the Business, including the name "Quick Response", except that
Seller makes no representation or warranty concerning its rights in the name
"Quick Response", which has not been registered;
(f) to the extent transferable, all licenses,
authorizations and permits issued by any governmental agency relating to the
Business or the Transferred Assets, and all applications therefor pending; and
(g) all books, records and files relating to the
Business and the Transferred Assets and the operations thereof for all periods
ending on or before the Closing Date, but excluding such items which relate to
the Excluded Assets or the liabilities of the Seller not assumed by Buyer.
1.2 EXCLUDED ASSETS. Notwithstanding anything in Section 1.1
to the contrary, the Seller shall retain all of its right, title and interest in
and to all of, and shall not Transfer to Buyer any of, the following assets,
rights and properties (the "Excluded Assets"):
(a) all cash and cash equivalents;
(b) all liquidated damages and all other
litigation judgments, awards or settlement payments in lieu thereof or otherwise
in any manner connected with or arising from a dispute between the Seller and
AlphaNet Solutions, Inc.;
(c) any proceeds and any other consideration
paid or payable in accordance with this Agreement and all rights of the Seller
under this Agreement or any agreement or instrument executed pursuant hereto or
thereto, including, without limitation, the
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<PAGE> 3
Seller's rights to enforce Buyer's representations, warranties and covenants
hereunder and the obligations of Buyer to pay, perform or discharge the Assumed
Liabilities;
(d) all minute books, records relating to equity
of the Seller and similar records of the Seller; and
(e) all goodwill and organizational costs and
related accumulated amortization shown on the Financial Statements.
(f) the items set forth on Schedule 1.2(e), if
any.
1.3 ASSUMPTION OF LIABILITIES. Subject to the terms and
conditions of this Agreement, on the Closing Date, Buyer shall assume and agree
to pay, perform and discharge when due only the following liabilities and
obligations of the Seller and no others:
(a) liabilities and obligations of the Seller
in respect of the accounts payable of the Seller incurred by the Seller in the
ordinary course of business to the extent set forth in the balance sheet of the
Seller for the l2-month period ended September 30, 1998, a copy of which is
attached to Schedule 1.3(a) hereto, and accounts payable, accrued expenses, and
accrued payroll and all payroll taxes and withholdings related thereto from the
date of the last regular payroll period prior to the Closing Date, incurred by
the Seller for goods and services provided to the Seller in the ordinary course
of business since the date thereof, in each case exclusive of any such accounts
payable or accrued expenses in respect of personal expenses of the Members. As
of the closing date, the accounts payable and accrued expenses (exclusive of
account payable and accrued expenses relating to GTE) will not be more than
$15,000.00 greater than the accounts payable and accrued expenses (exclusive of
accounts payable and accrued expenses relating to GTE) as of the September 30,
1998 Financial Statements (and accrued payroll shall not be included in the
above calculations).
(b) liabilities and obligations of the Seller in
respect of all lease payments beginning with those accruing as of the Closing
Date and relating to periods thereafter under the leases set forth on Schedule
1.3(b) hereto;
(c) obligations of the Seller for performance
after the Closing under the agreements set forth on Schedule 1.3(e) hereto.
1.4 EXCLUDED LIABILITIES. "Excluded Liabilities" shall mean,
and Buyer shall not assume and shall have no liability for, any liabilities or
obligations of the Seller, known or unknown, fixed or contingent, not
specifically set forth in Section 1.3 above, including, without limitation, the
following:
(a) any liability in respect of the Seller's
accounts payable other than to the extent not specifically set forth in Section
1.3 above;
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<PAGE> 4
(b) any liability in respect of any indebtedness
of the Seller, whether or not secured by the Transferred Assets, other than to
the extent specifically set forth in Section 1.3 above;
(c) any liability of the Seller for any Federal,
state, local or foreign income, capital gains, franchise taxes, taxes on
capital, sales and use tax, or employee withholding taxes (including, without
limitation, any deferred income tax liability and any penalties and interest
thereon);
(d) any liability for expenses incurred by, or
for claims made against, the Seller in connection with or resulting from or
attributable to this Agreement or the transactions contemplated hereby, if any;
(e) any liability for any investment banking,
brokerage or similar charge or commission, or any attorneys' or accountants'
fees and expenses, payable or incurred by the Seller in connection with the
preparation, negotiation, execution or delivery of this Agreement or the
transactions contemplated hereby;
(f) any liability of the Seller, if any, to
Buyer arising out of any misrepresentation or breach of any warranty of the
Seller contained in this Agreement or any of the schedules or exhibits hereto or
in any certificate, agreement, instrument or other document delivered pursuant
hereto or out of the failure of the Seller to perform any of its agreements or
covenants contained herein or therein or to perform or satisfy any of the
Excluded Liabilities;
(g) any liability or obligation to employees
including, without limitation, liabilities and obligations in respect of
compensation (other than accrued payroll including all payroll taxes and
withholdings related thereto from the date of the last regular payroll period
prior to the Closing Date), accrued vacation and other accrued employee benefits
and severance (including, without limitation, severance obligations arising as a
result of the transactions contemplated hereby) and any liability or obligation
under any employee pension, benefit or other plan; and
(h) any other liability arising from or relating
to the operation of the Business on or prior to the Closing Date to the extent
not otherwise specifically set forth in Section 1.3 (a), (b) or (c) above.
The Seller shall remain fully liable for, and shall promptly pay when due, all
such Excluded Liabilities.
1.5 PURCHASE PRICE.
(a) As the purchase price for all of the
Transferred Assets (the "Purchase Price"), Buyer shall pay to the Seller an
aggregate sum, subject to adjustment as provided in Section 1.7 below, of
[******] in cash.
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<PAGE> 5
(b) The Purchase Price shall be payable in the
form of a federal funds wire transfer to an account of the Seller designated by
it in writing prior to Closing and shall be due and payable as follows: (i)
[******] at Closing and (ii) [******] to the account of Christopher K. Zentgraf,
P.C., as escrow agent ("Escrow Agent") designated in the escrow agreement
annexed hereto as Exhibit A (as the same may be amended from time to time, the
"Escrow Agreement") to be held and disbursed by the Escrow Agent pursuant to the
terms thereof.
1.6 CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Ronald Perry,
Esq., York, Pennsylvania, at 10:00 A.M., November 6, 1998, or at such other
place and/or on such other date and time as shall be agreed upon by Buyer and
the Seller (the "Closing Date").
1.7 EBITDA ADJUSTMENT TO PURCHASE PRICE.
(a) Buyer shall cause KPMG Peat Marwick LLP to
deliver to the Seller no later than December 30, 1998, (i) an audited balance
sheet and related statements of income, retained earnings and cash flows for the
Seller's 12-month period ended September 30, 1998 (the "Financial Statements"),
all of which financial statements shall be prepared in accordance with generally
accepted accounting principles ("GAAP") and the rules and regulations of the
Securities Exchange Commission applicable to financial reporting of public
companies, and (ii) a statement of the Adjustment Amounts, as defined in Section
1.7(c) below, (the "Statement of Adjustment Amounts"). (b) The Seller shall have
forty-five (45) days from delivery of the Financial Statements and the Statement
of Adjustment Amounts to raise any objection thereto by delivery of written
notice to Buyer setting forth such objections in reasonable detail. In the event
that the Seller shall fail to so deliver such written objections with respect to
any of the Financial Statements and the Statement of Adjustment Amounts within
such 45-day period, then any such Financial Statements and the Statement of
Adjustment Amounts in respect of which no such objection is so delivered shall
be deemed final and binding on the parties. In the event that any such
objections are so delivered, Buyer and the Seller shall attempt, in good faith,
to resolve such objections and, if unable to do so within fifteen (15) days of
delivery of such objections, shall, within five (5) business days thereafter
designate a nationally recognized firm of independent public accountants,
mutually satisfactory to Buyer and the Seller (the "Independent Accountants").
In the event that Buyer and the Seller are unable to on the Independent
Accountants within such 5-business day period, the Independent Accountants shall
be designated jointly by the independent accountants of Buyer and the Seller
within three (3) business days thereafter. The Independent Accountants shall
resolve all remaining objections to the Financial Statements and the Statement
of Adjustment Amounts made by the Seller in accordance herewith within thirty
(30) days from its date of designation. The determination of the Independent
Accountants shall be final and binding on the parties. The fees and expenses of
the Independent Accountant shall be paid out of Purchase Price, unless the
determination of the Independent Accountants shall result in an increase in the
amount of the Purchase Price of more than five
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<PAGE> 6
(5%) percent over the amount of the Purchase Price as determined from the
Financial Statements and the Statement of Adjustment Amounts originally
delivered to the Seller in which case such fees and expenses shall be paid by
the Buyer.
(c) The Purchase Price shall be adjusted in each
of the following instances, based on the Financial Statements, as finally
determined in accordance herewith, by the amounts (the "Adjustment Amounts")
determined as follows:
(i) in the event that the Seller shall
have outstanding on the Closing Date any non-real estate Capital Lease
Obligations in excess of [******], the Purchase Price (subject to (iv), below)
shall be reduced by an amount equal to such excess;
(ii) in the event that the sum of
[******] shall exceed 12-Month EBITDA (as defined below) by more than [******]
(E.G., [**]), the Purchase Price shall (subject to (iv), below) be --- reduced
by an amount equal to [****] for each $1.00 of such excess (rounded down to the
nearest whole dollar); and
(iii) in the event that the sum of
[******] shall exceed (or be less than) Net Current Assets (as defined below),
the Purchase Price shall (subject to iv, below) be reduced (or increased) by an
amount equal to [****] for each $1.00 of such excess (or shortage) (rounded down
to the nearest whole dollar), which shall be paid within 30 days of the Closing
based on the Interim Financial Statements and shall be subject to final
adjustment in accordance with this Section 1.7.
(iv) notwithstanding the foregoing
provisions set forth in (i), (ii) and (iii) above, in no event shall the
Purchase Price be reduced by more than [******].
(d) For purposes hereof, (i) "12-Month EBITDA"
shall mean the earnings of the Seller for the 12-month period ended September
30, 1998, as set forth in the Financial Statements adjusted for non-recurring
charges and adjustments set forth on Schedule 1.7(d), in each case determined in
accordance with GAAP; and (ii) "Net Current Assets" shall mean the accounts
receivable of the Seller as of the Closing Date, which are good and collectible
and have been incurred in the ordinary course of business for services performed
or products delivered and which are due and payable within 30 days from the date
of invoice plus prepaid expenses, which, under GAAP, would be set forth on a
balance sheet of the Seller as of the Closing Date, less the liabilities assumed
by Buyer pursuant to Section 1.3(a) (above).
1.8 PURCHASE PRICE ALLOCATION. The parties acknowledge and
agree that the Purchase Price shall be allocated among the Transferred Assets as
they shall mutually agree (the "Allocation Agreement") in accordance with
Schedule 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). The
parties shall not take any position for purposes of Federal, state or local
income taxes respecting the allocation of the Purchase Price which is
inconsistent with the allocation set forth in such Allocation Agreement.
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<PAGE> 7
2. REPRESENTATIONS AND WARRANTIES.
------------------------------
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
and the Members hereby, jointly and severally, represent and warrant to, and
covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The
Seller is a limited liability company duly organized on the date set forth in
the Seller's Certificate of Formation, validity existing and in good standing
and authorized to exercise its powers, rights and privileges under the laws of
the State of Pennsylvania with full power and authority to own, lease and
operate its properties and to carry on its business as presently conducted by
it. Schedule 2.1(a) hereto sets forth all states and other jurisdictions in
which the Seller is duly qualified and in good standing to do business as a
foreign company. To the best knowledge of the Seller and the Members, there are
no other states or jurisdictions in which the character and location of the
properties owned or leased by it, or the conduct of its business makes such
qualification necessary, except where failure to so qualify would not have a
material adverse effect on the financial condition, business or operations of
the Seller. Neither the Seller nor any Member has received any notice that the
Seller is required to qualify to do business in any jurisdiction not set forth
on Schedule 2.1(a) hereto. Copies of the Seller's Certificate of Formation and
all amendments thereto, are attached to Schedule 2.1(a) and are complete and
correct.
(b) AUTHORITY. The execution and delivery by the
Seller and the Members of this Agreement and all of the agreements, schedules,
exhibits, documents and instruments specifically provided for hereunder to be
executed and/or delivered by any or all of them (all of the foregoing, including
this Agreement, being hereinafter sometimes collectively referred to as the
"Executed Agreements"), the performance by the Seller and any or all of the
Members (to the extent that they are parties thereto) of their respective
obligations under the Executed Agreements, and the consummation of the
transactions contemplated by the Executed Agreements, have been duly and validly
authorized by all necessary action on the part of the Seller and by the Members,
and the Seller has all necessary power and authority with respect thereto. The
Executed Agreements are, or when executed and delivered by the Seller shall be,
the valid and binding obligations of the Seller, enforceable in accordance with
their respective terms, except to the extent that enforceability may be limited
by the operation of bankruptcy, insolvency or similar laws. Neither the
execution and delivery by the Seller and any or all of the Members (to the
extent that they are parties thereto) of the Executed Agreements, nor the
consummation of the transactions contemplated hereby or thereby, nor the
performance by the Seller and any or all of the Members (to the extent that they
are parties thereto) of their respective obligations under the Executed
Agreements, shall (nor with the giving of notice or the lapse of time or both
would) (i) conflict with or result in a breach of any provision of the
Certificate of Formation or Operating Agreement of the Seller, (ii) give rise to
a default, or any right of termination, cancellation or acceleration, or
otherwise result in a loss of contractual benefits to the Seller, under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement (except to the extent that Buyer's waivers of Section 4.1(g)
may result in such) or other instrument or obligation to which the Seller or any
Member is
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<PAGE> 8
a party or by which it or any of their properties or assets may be bound, (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Seller or any of the Members or any of their respective
properties or assets, (iv) result in the creation or imposition of any lien,
claim, restriction, charge or encumbrance upon any of the properties or assets
of the Seller, or (v) interfere with or otherwise materially and adversely
affect the ability of the Seller to carry on its business as now conducted.
(c) INTERESTS IN OTHER ENTITIES. Except as set
forth in Schedule 2.1(c) hereto, the Seller does not (i) own, directly or
indirectly, of record or beneficially, any shares of voting stock or other
equity securities of any other entity, (ii) have any ownership interest, direct
or indirect, of record or beneficially, in any entity, or (iii) have any
obligation, direct or indirect, present or contingent, to purchase or subscribe
for any interest in, advance or loan monies to, or in any way make investments
in, any person or entity, or to share any profits or capital investments in
other persons or entities, or both.
(d) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY
CONSENTS. Except as set forth in Schedule 2.1(d) hereto, no approval, consent,
compliance, exemption, authorization or other action by, or notice to or filing
with, any governmental authority or any other entity, and no lapse of a waiting
period, is necessary or required to be obtained by the Seller or any Member in
connection with the execution, delivery or performance by any of them, of this
Agreement, any of the Executed Agreements or the transactions contemplated
hereby.
(e) FINANCIAL STATEMENTS. The Seller has
delivered to Buyer true and complete copies of its unaudited balance sheet as of
December 31, 1997, and the related statements of income, retained earnings and
cash flows for the period then ending (the "1997 Financial Statements") and true
and complete copies of its unaudited balance sheet for the nine month period
ended September 30, 1998 (the "Interim Balance Sheet"), and the related
statements of income, retained earnings and cash flows for the period then
ending (collectively, with the Interim Balance Sheet, the "Interim Financial
Statements"). All of such financial statements, including any notes thereto,
were prepared on a consistent basis throughout the periods involved and such
fairly present the financial position of the Seller at the dates thereof and the
results of its operations for the periods as indicated. The books and records of
the Seller are in all material respects complete and correct, have been
maintained in accordance with good business practices, and accurately reflect
the basis for the financial condition and results of operations of the Seller as
set forth in the financial statements referred to herein.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. The
Seller is not aware of any liabilities, commitments or obligations, whether
accrued, absolute, contingent or otherwise which have not been (i) in the case
of liabilities, commitments and obligations of a type customarily reflected on
the company balance sheet of the Seller, reflected on the Interim Balance Sheet
in accordance with GAAP, incurred, consistent with past practice, in the
ordinary course of business since the date of the Interim Balance Sheet and
which are not material either individually or in the aggregate or (ii) in the
case of all other types of liabilities and obligations, described in Schedule
2.1(f) hereto.
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(g) ABSENCE OF CERTAIN CHANGES. Except as and to
the extent set forth in Schedule 2.1(g), 2.1(f) and/or the Interim Financial
Statements, since December 31, 1997, the Seller has not:
(i) suffered any material adverse change
in its working capital, financial condition, assets, liabilities;
(ii) incurred any material liabilities or
obligations except items incurred in the ordinary course of business and
consistent with past practice, none of which exceeds $10,000.00 (counting
obligations or liabilities arising from one transaction or a series or similar
transactions, and all periodic installments or payments under any lease or other
agreement providing for periodic installments or payments, as a single
obligation or liability), or experienced any increase in, or change in any
assumption underlying or methods of calculating, any bad debt, contingency or
other reserves;
(iii) permitted or allowed any of its
property or assets (real, personal or mixed, tangible or intangible) to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind,
(iv) written off as uncollectible any
notes or accounts receivable, except for write-offs in the ordinary course of
business and consistent with past practice, none of which are material;
(v) canceled any debts or waived or
suffered to lapse any claims or rights of substantial value, or sold,
transferred, or otherwise disposed of any of its properties or assets (real,
personal or mixed, tangible or intangible), except in the ordinary course of
business and consistent with past practice;
(vi) disposed of or suffered to lapse any
rights to use any Toll Free Telephone Number listed on Schedule 2.1(p) hereof,
patent, trademark, trade name or copyright, or disposed of or disclosed (except
as necessary in the conduct of its business) to any person any trade secret,
formula, process or know-how;
(vii) granted any general increase in the
compensation of officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or any increase
in the compensation payable or to become payable to any officer or employee, as
set forth in Schedule 2.1(g) and, unless otherwise set forth in Schedule 2.1(g),
no such increase is customary on a periodic basis or is required by agreement or
understanding;
(viii) made any single capital expenditure
or commitment in excess of $10,000 for additions to property, plant, equipment
or intangible assets or made aggregate capital expenditures and commitments in
excess of $10,000 (on a consolidated basis), for additions to property, plant,
equipment or intangible assets;
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<PAGE> 10
(ix) made any change in any method of
accounting or accounting practice;
(x) paid, loaned or advanced any amount
to, or sold, transferred or leased any properties or assets (real, personal or
mixed, tangible or intangible) to, or entered into any agreement or arrangement
with, any of its managers, debtholders, Members or employees or any "affiliate"
or "associate" of any of its managers, noteholders, Members or employees (as
such terms are defined in Rule 405 promulgated under the Securities Act and as
used herein "Associate" and "Affiliate"), except for compensation to officers
and employees at rates not materially exceeding the rates of compensation paid
during the year ended December 31, 1997; or
(xi) agreed, whether in writing or
otherwise, to take any action described in this Section unless such action is
specifically excepted from this Section or described in Schedule 2.1(g), 2.1(f)
or the Interim Financial Statements.
(h) TAX MATTERS. Except as set forth in
Schedule 2.1(h) hereto, the Seller has filed with the appropriate governmental
agencies all Federal, state, local or foreign tax returns and reports required
to be filed by it ("Returns"), has paid in full or made adequate provision for
the payment of, all taxes of every nature, including, but not limited to,
income, sales, franchise and withholding taxes ("Taxes"), together with
interest, penalties, assessments and deficiencies owed by it with respect to all
periods covered by such Returns, and all such Returns were correct and complete
in all respects. The Seller is not currently the beneficiary of any extension of
time within which to file any Returns. The Seller has previously provided Buyer
with true and complete copies of all such Returns filed since the inception of
Seller. The provisions for income and other Taxes (if any) reflected on the
Interim Balance Sheet are adequate for all accrued and unpaid taxes of the
Seller as of the date of the Interim Balance Sheet, whether (i) incurred in
respect of or measured by income of the Seller for any periods prior to the
close of business on that date, or (ii) arising out of transactions entered
into, or any state of facts existing, on or prior to that date. The provisions
for Taxes reflected on the books of account of the Seller is adequate for all
Taxes of the Seller which accrued since the date of the Interim Balance Sheet.
There are no filed or other known tax liens upon any property or assets of the
Seller. The Seller has not waived any statute of limitations in respect of Taxes
or executed or filed with any governmental authority any agreement extending the
period for the assessment or collection of any Taxes, and they are not a party
to any pending or, to the Seller's or any Member's best knowledge, threatened
action or proceeding by any governmental authority for the assessment or
collection of Taxes. To the best knowledge of the Seller and the Members, no
issue has arisen in any examination of the Seller by any governmental authority
that if raised with respect to any other period not so examined would, if
upheld, result in a material deficiency for any other period not so examined.
Seller has not received any unresolved written claim by a governmental authority
in any jurisdiction where the Seller does not file Returns that the Seller is or
may be subject to taxation by such jurisdiction. There has been no examination
or audit with respect to Taxes with respect to any year. The Seller has withheld
and paid all Taxes required to
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have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, Member or other third party.
(i) LITIGATION. Except as set forth in Schedule
2.1(i) hereto, there are no suits or actions, or administrative, arbitration or
other proceedings or governmental investigations, pending, or to the best
knowledge of the Seller and the Members, threatened against or affecting, or
which may affect, the Seller or any of its properties, assets or businesses or
the transactions contemplated hereby. To the best knowledge of the Seller and
the Members, there are no outstanding judgments, orders, stipulations,
injunctions, decrees or awards against the Seller which are not satisfied.
(j) COMPLIANCE WITH APPLICABLE LAW. Subject to
Section 2.1(k) below, the Seller is, and at all times since its formation has,
in all material respects, been in compliance with all Federal, state, local and
foreign laws, statutes, ordinances, regulations, and administrative rulings
(collectively "Laws"), promulgated by any governmental or regulatory authority
applicable to the Seller or to the conduct of the business or operations of the
Seller or to the use of its properties and assets, including, without
limitation, all environmental Laws and all Laws relating to the Toll Free
Telephone Numbers. The Seller has not received, and the Seller and the Members
do not know of the issuance or threatened issuance of, any notices of violation
or alleged violation of any laws by the Seller.
(k) ENVIRONMENTAL MATTERS. Except as set forth
on Schedule 2.1(k) hereto:
(i) neither the Seller nor its operations or, to
the best of Seller's knowledge, the real property leased by the Seller as set
forth in Schedule 2.1(m) hereto (the "Facility") are subject to any outstanding
written order, consent decree or settlement agreement with any person relating
to (A) any Environmental Laws (as defined in below), (B) any Environmental Claim
(as defined below), or (C) any Hazardous Materials Activity (as defined below)
that, individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the business, results of operations, financial
position or prospects of the Seller or the value of its properties or assets;
(ii) the Seller has not received any letter or
request for information under Section 104 of the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9604) or any
comparable state law;
(iii) to the best of Seller's knowledge, there are
no and there have been no conditions, occurrences, or Hazardous Materials
Activities which could reasonably be expected to form the basis of an
Environmental Claim against the Seller or that, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
business, results of operations, financial position or prospects of the Seller
or the value of its properties or assets;
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(iv) neither the Seller nor, to the Seller's
knowledge, any business entity which was a predecessor of the Seller and to
which the Seller is a successor business entity, has filed at any time any
notice under any Environmental Law indicating past or present treatment of
Hazardous Materials at the Facility, and none of the Seller's operations
involves the generation, transportation, storage, or disposal of hazardous
waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent; and
(v) Notwithstanding anything in this Section
2.1(k) to the contrary, to the best of Seller's knowledge, no event or condition
has occurred or is occurring with respect to the Seller relating to any
Environmental Law, any Release (as defined in subsection (vii) below) of
Hazardous Materials, or any Hazardous Material Activity, including any matter
disclosed on Schedule 2.1(k), which individually or in the aggregate has had or
could reasonably be expected to have a material adverse effect on the business,
results of operations, financial position or prospects of the Seller or the
value of its properties or assets.
(vi) The following terms used in this Section
2.1(k) shall have the following meanings:
(A) "Environmental Laws" shall mean any
and all current statutes, ordinances, orders, rules regulations, guidance
documents, judgments, governmental authorizations, or any other requirements of
governmental authorities relating to (1) environmental matters, including those
relating to any Hazardous Materials Activity (as defined below), (2) the
generation, use, storage, transportation or disposal of Hazardous Materials (as
defined below), or (3) occupational safety and health, industrial hygiene, land
use or the protection of human, plant, or animal health or welfare, in any
manner applicable to the Seller or the Facility, including the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601
ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET
SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET
SEQ.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.),
the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control
Act (15 U.S.C. Section 2601 ET SEQ.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. Section 136 ET SEQ.), the Occupational Safety and
Health Act (29 U.S.C. Section 651 ET SEQ.), the Oil Pollution Act (33 U.S.C.
Section 2701 ET SEQ.), and the Emergency Planning and Community Right-to-Know
Act (42 U.S.C. Section 11001 ET SEQ.), each as have been amended or
supplemented, any analogous present or future state or local statutes or laws,
and any regulations which have been promulgated pursuant to the foregoing.
(B) "Environmental Claim" shall mean any
investigation, notice, notice of violation, claim, action, suit, proceeding,
demand, abatement order or other order or directive (conditional or otherwise),
by any governmental authority or any other person, arising (1) pursuant to or in
connection with any actual or alleged violation of any Environmental Laws, (2)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (3) in connection with any actual or alleged damage,
injury, threat or harm to heath, safety, natural resources or the environment.
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(C) "Hazardous Materials" shall mean (1)
any chemical, material or substance, now or at any time prior to the date
hereof, defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor environment (including harmful properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive
toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws), (2) any oil, petroleum, petroleum fraction or
petroleum derived substance, (3) any drilling fluids, produced waters and other
wastes associated with the exploration, development or production of crude oil,
natural gas or geothermal resources, (4) any flammable substances or explosives,
(5) any radioactive materials, (6) any asbestos-containing materials, (7) urea
formaldehyde foam insulation, (8) electrical equipment which contains oil or
dielectric fluid containing polychlorinated biphenyls, (9) pesticides, and (10)
any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by governmental authority or which may or could pose a
hazard to the health and safety of the owners, occupants or any other persons in
the vicinity of the Facility or to the indoor or outdoor environment.
(D) "Hazardous Materials Activity" shall
mean any past, current, proposed or threatened activity, event or occurrence
involving any Hazardous Materials, including the use, manufacture, possession,
storage, holding, presence, existence, location, Release (as defined below),
threatened Release, discharge, placement, generation, transportation,
processing, construction, treatment, abatement, removal, remediation, disposal,
disposition or handling of any Hazardous Materials, and any corrective action or
response action with respect to any of the foregoing.
(E) "Release" shall mean any release,
spill, emission, leaking, pumping, pouring, injection, escaping, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous
Materials into the indoor or outdoor environment (including, without limitation,
the abandonment or disposal of any barrels, containers or other closed
receptacles containing any Hazardous Materials), including the movement of any
Hazardous Materials through the air, soil, surface water or ground water.
(l) PERMITS. A list of all material permits,
approvals, licenses, certificates, franchises, authorizations, consents and
orders ("Permits") held by Seller and necessary to the operation of the business
of the Seller in the manner in which it is presently conducted is set forth on
Schedule 2.1(l) hereto. All such Permits are valid and remain in full force and
effect. The Seller has not engaged in any activity which would cause revocation
or suspension of any such Permits and no action or proceeding looking to or
contemplating the revocation or suspension of any thereof is pending or to the
best of Seller's actual knowledge threatened. To the best of Seller's actual
knowledge no additional Permits will be required to permit the Seller to
continue its business substantially in the manner it is presently conducted
alter the consummation of the transactions contemplated hereby.
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(m) TITLE TO PROPERTIES. The Transferred Assets
constitute all assets which have been used in the Business since December 31,
1997, except for the Excluded Assets and assets transferred or disposed of in
the ordinary course of business not to exceed $10,000. The Seller does not own
any real property. Except as set forth in Schedule 2.1(m) hereto, the Seller has
good title to all of the properties and assets (personal and mixed, tangible and
intangible) reflected on the Interim Balance Sheet or thereafter acquired or
which they purports to own (except properties or assets sold or otherwise
disposed of in the ordinary course of business consistent with past practice
subsequent to the date of the Interim Balance Sheet which in the aggregate did
not have a book value in excess of $10,000), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever. Schedule
2.1(m) also contains an accurate list and a brief description of all leases
(whether by or to the Seller) and contracts and commitments for the purchase or
sale or lease (whether as lessor or lessee), of the Seller with respect to real
property and leases (whether by or to the Seller) and title retention or
conditional sales agreements and other security devices of the Seller with
respect to items of personal property having a book value in excess of $10,000.
All agreements listed in Schedule 2.1(m) are valid, binding and enforceable in
accordance with their terms, and are in full force and effect, except to the
extent that enforceability may be limited by the operation of bankruptcy,
insolvency or similar laws; there are no existing defaults by the Seller
thereunder, no event of default has occurred which (whether with or without
notice, lapse of time or both) would constitute a default by the Seller
thereunder; and all lessors under such leases have consented (where such consent
is necessary) to the consummation of the transactions contemplated by this
Agreement without requiring modification of the rights and obligations of the
Seller under such leases, except to the extent Buyer waives such consents.
Notwithstanding efforts by Buyer to obtain consents of equipment lessors Balboa
and Keystone, Buyer has been unable to obtain such consents (and the release of
seller from liability under such leases). Buyer hereby consents to the
consummation of the transactions contemplated by this Agreement without
requiring the consents of such lessors. Additionally, Buyer agrees to assume all
future liabilities under such equipment leases. Buyer further agrees to, within
thirty (30) days of Closing, make a good faith effort to obtain such consents
with respect to the assumed Balboa and Keystone leases. In the event Buyer is
unable to do so, Buyer shall, within thirty-five (35) days of the Closing pay
off all such leases to obtain the release of Seller from all liability under
such leases. Buyer shall within ten days thereafter provide Seller with written
evidence of such release. Buyer shall indemnify, save and hold harmless Seller
of, from and against any and all future liabilities of any and every nature
whatsoever arising out of the assignment to Buyer of the assumed Balboa and
Keystone leases and any and all claims, judgments, suits and demands of any
nature whatsoever arising out of the assignment to Buyer of such leases,
together with attorneys' fees and all other costs incurred by Seller in any
manner relating thereto. The indemnity obligations of Buyer hereunder shall also
inure to the benefit of the Members of Seller. All of the tangible property
(whether owned or leased) included in the Transferred Assets are located at the
real property leased by the Seller as set forth in Schedule 2.1(m) hereto.
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(n) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on
the Interim Balance Sheet are good and collectible in the ordinary course of
business at the aggregate recorded amounts thereof and are not subject to any
offsets. The accounts receivable of the Seller which were thereafter added arose
in ordinary course for services performed or good delivered at the aggregate
amounts recorded on the books of account and are not subject to any offsets. Set
forth on Schedule 2.1(n) is a true and complete list of the Seller's accounts
receivable as of September 30, 1998, and aging with respect thereto.
(ii) Schedule 2.1(n) hereto contains a
complete and accurate list of all machinery, equipment and other fixed assets of
the Seller (the "Equipment"). Each such item of equipment is in good operating
condition, normal wear and tar excepted, and is fit for Seller's original
intended use. Each such item has been maintained as needed to be utilized in the
Business in the manner determined appropriate by Seller.
(o) INTELLECTUAL PROPERTY. Schedule 2.1(o)
hereto lists all licenses, patents, copyrights, or trademarks owned or used by
the Seller in the conduct of its business and all applications therefor (the
"Intellectual Property"). No manager, Member or employee of the Seller nor any
of its Affiliates or Associates has any ownership or other interest in any of
the Intellectual Property. To the best knowledge of the Seller, none of the
Intellectual Property is being infringed upon by, or infringes, any licenses,
patents, copyrights, trademarks or other intellectual property rights of any
other person or entity. Except as set forth in Schedule 2.1(o), the validity of
the Intellectual Property and the title thereto of the Seller has not been
questioned in any litigation or governmental inquiry or proceeding to which the
Seller, is a party, and, to the best knowledge of the Seller and the Members, no
such litigation, governmental inquiry or proceeding is threatened. To the best
of Seller's actual knowledge, the conduct of the business of the Seller as
presently conducted does not conflict with valid licenses, trademarks, trademark
rights, trade names, trade name rights, service marks or patents of others in
any way likely to affect adversely, in any material respect, the Intellectual
Property. Seller represents and warrants that it has not received any notices
from any party regarding infringement claims with respect to the name "Quick
Response".
(p) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(p)
hereto sets forth a complete list of all Toll Free Telephone Numbers owned or
used by the Seller in the conduct of its business. No manager, Member or
employee of the Seller nor any of their Affiliates or Associates has any
ownership or other interest in the Toll Free Telephone Numbers. The Seller has
not warehoused, brokered or hoarded (as those terms are defined in the Second
Report and Order and Further Notice of Proposed Rulemaking in FCC Docket No.
95-155, Released April 11, 1997, by the Federal Communications Commission
("FCC")) any of the Toll Free Telephone Numbers in violation of any applicable
FCC rules or regulations.
(q) INSURANCE. Schedule 2.1(q) hereto contains a
complete and correct list of all policies of insurance in which the Seller or
its managers or Members (in such
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capacity) are an insured party, beneficiary or loss payable payee. Complete and
accurate copies of all such policies have been previously provided to the Buyer.
Such policies are in full force and effect.
(r) EMPLOYEE ARRANGEMENTS; ERISA. Except as set
forth in Schedule 2.1(r) the Seller has no union, collective bargaining,
employment, management, severance or consulting agreement to which the Seller is
a party or are otherwise bound, and no deferred compensation agreements, pension
and retirement plans, profit-sharing plans, equity interest and option plans.
Schedule 2.1(r) hereto contains a true and complete list of all compensation,
incentive, bonus, severance, disability, hospitalization, medical insurance,
life insurance and other employee benefit plans, programs or arrangements
maintained by the Seller or under which the Seller has any material obligations
(other than obligations to make current wage or salary payments) in respect of,
or which otherwise cover, any of the current or former managers, employees or
consultants of the Seller, or their beneficiaries (each an "Employee Benefit
Plan" and collectively the "Employee Benefit Plans"). No Employee Benefit Plan
is subject to Title IV of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"). All contributions to and payments from the Employee
Benefit Plans which may have been required to be made in accordance with the
Employee Benefit Plans have been made or are properly accrued and reflected on
the Balance Sheets or the books and records of the Seller. Schedule 2.1(t)
hereto also lists the names and compensation of all persons employed by the
Seller. The Seller has no Employee Benefit Plans which are qualified for Federal
income tax exemption under Sections 401 and 501 of the Code.
(s) CERTAIN BUSINESS MATTERS. Except as set
forth in Schedule 2.1(s) hereto (i) the Seller is not a party to or bound by any
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale, distribution or servicing of the Toll Free Telephone
Numbers or services related thereto, (ii) the Seller does not have any
sole-source supplier of significant goods or services (other than utilities)
with respect to which practical alternative sources are not available on
comparable terms and conditions, (iii) there are not pending and, to the
Seller's and the Members' best knowledge there are not threatened, any labor
negotiations involving or affecting the Seller and, to the Seller's and the
Members' best knowledge, no organizing activities involving union representation
exist in respect of any of their employees, (iv) the Seller neither gives nor is
bound by any express warranties relating to its services and, to the best
knowledge of the Seller and the Members, there has been no assertion of any
breach of warranties which could have a material adverse effect on the business
or condition (financial or otherwise) of the Seller and, to the best knowledge
of the Seller and the Members, there are no material problems or potential
material problems with respect to any product sold or services provided by the
Seller, (v) the Seller is not a party to or bound by any agreement which limits
its freedom to compete in any line of business or with any person or entity,
(vi) the Seller is not a party to or bound by any agreement which, based on
current economic circumstances will result in a loss when performed and which
cannot be terminated upon 30 days notice or less, and (vii) the Seller is not a
party to or bound by any agreement or involved in any transaction in
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which any manager, debtholder or Member, or any Affiliate or Associate of any
such person has, or had when made, a direct or indirect material interest.
(t) CONTRACTS. Schedule 2.1(t) hereto contains a
complete and correct list and brief description of any and all material
contracts, commitments, obligations and undertakings, written or oral, to which
the Seller is a party or otherwise bound. True and complete copies of all
contracts, commitments, obligations and undertakings set forth in Schedule
2.1(t) hereto have been furnished to Buyer, and except as expressly stated in
Schedule 2.1(t), each of them is in full force and effect, no person or entity
which is a party thereto or otherwise bound thereby is, to the best knowledge of
the Seller and the Members, in default thereunder, and no event, occurrence,
condition or act exists which, with the giving of notice or the lapse of time or
both, would give rise to a default or right of cancellation thereunder, and the
Seller is not in default thereunder and no event, occurrence, condition or act
exists by or on behalf of the Seller which, with the giving of notice or the
lapse of time or both would give rise to a default by the Seller thereunder, and
to the Seller's and the Members' best knowledge, there have been no threatened
cancellations thereof and there are no outstanding disputes thereunder. To the
best of the Seller's and the Members' knowledge there is no reason why any of
the contracts listed on Schedule 2.1(t), could not be continued between Buyer
and the Seller's contractual partners on the same terms and conditions as
currently apply. Neither the Seller nor any Member has any reason to believe
that any of the Seller's contractual partners will terminate its relationship
with the Seller as a result of the acquisition of the Seller's assets by Buyer.
Notwithstanding the foregoing, neither Seller nor any Member makes any
representation nor warranty regarding the retention of Seller's customers or
future levels of business.
(u) BROKERS. No agent, broker, person or firm
acting on behalf of the Seller or the Members or under the authority of any of
the foregoing, is or shall be entitled to a brokerage commission, finder's fee,
or other like payment in connection with any of the transactions contemplated
hereby, from the Seller or any of the Members.
(v) DISCLOSURE. No representation or warranty
made by the Seller or the Members herein or in any of the Executed Agreements
contains any untrue statement of a material fact or omits or will omit to state
a material fact necessary in order to make the statements therein not
misleading.
(w) AFFILIATED TRANSACTIONS. Except as set forth
in Schedule 2.1(w) hereto, no Member is a party to any agreement, transaction or
arrangement (oral or written) with or involving the Seller or any Associate or
Affiliate of the Seller or any of its Members, or has any claim, monetary or
otherwise, of any sort against the Seller.
(x) CLAIMS AGAINST THE SELLER. Except as set
forth in Schedule 2.1(x) hereto, the Seller has no debts, obligations or
liabilities owing to the Members and, to the best knowledge of the Seller,
nothing exists that could give rise to a claim by the Members of any such debts,
obligation or liability of the Seller to the Members.
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(y) DISCLOSURE SCHEDULES. All schedules to this
Agreement are integral parts of this Agreement. Nothing in a schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein, unless the schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing, or inclusion of a
copy, of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein, unless the representation
or warranty is being made in connection with the existence of the document or
other item itself. The Seller and the Members are responsible for preparing and
arranging the schedules corresponding to the lettered and numbered paragraphs
contained herein. Disclosure made in a specific schedule shall not be deemed to
have been disclosed with respect to any other schedule unless an explicit
cross-reference appears.
(z) PRINCIPAL PLACE OF BUSINESS; RESIDENCE. The
Seller's principal place of business is located at 1720 S. Queen Street, York,
PA 17403.
2.2 REPRESENTATIONS AND WARRANTIES OF THE MEMBERS. Each of the
Members severally represents and warrants to, and covenants and agrees with
Buyer, with respect to such Member as follows:
(a) CAPACITY; VALIDITY. Such Member has the
legal capacity to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed by such Member and constitutes a valid and binding obligation of such
Member enforceable against him in accordance with its terms.
(b) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such
Member does not own or possess any rights in or to the Toll Free Telephone
Numbers listed on Schedule 2.1(p) hereto.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to, and covenants and agrees with, the Seller as
follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its business as presently conducted
by it and is qualified in each other jurisdiction in which qualification is
required for it to own, lease and operate its properties and carry on its
business as presently conducted by it, except to the extent that failure to so
qualify would not have a material adverse effect on the financial condition,
business or operations of Buyer.
(b) AUTHORITY. The execution and delivery by
Buyer of this Agreement and of each of the other Executed Agreements to which it
shall be a party, the performance by Buyer of its obligations under this
Agreement or such Executed Agreements and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of Buyer, and Buyer has all
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necessary corporate power with respect thereto. This Agreement and the Executed
Agreements are, or when executed and delivered by Buyer shall be, the valid and
binding obligations of Buyer, enforceable in accordance with their respective
terms, except to the extent that enforceability may be limited by the operation
of bankruptcy, insolvency or similar laws. Neither the execution and delivery by
Buyer of the Executed Agreements, nor the consummation of the transactions
contemplated thereby, nor the performance by Buyer of its obligations under the
Executed Agreements, shall (nor with the giving of notice or the lapse of time
or both would) (i) conflict with or result in a breach of any provision of the
Articles of Incorporation or By-Laws of Buyer, (ii) violate any order, writ,
injunction, decree, law, statute, rule or regulation or (iii) interfere with or
otherwise materially and adversely affect the ability of Buyer to carry on its
business as now conducted.
(c) BROKERS. No agent, broker, person or firm
acting on behalf of Buyer or under its authority is or shall be entitled to a
brokerage commission, finder's fee, or other like payment in connection with any
of the transactions contemplated hereby.
3. PRE-CLOSING COVENANTS. The Members and the Seller jointly
and severally covenant and agree to perform or take any and all such actions to
effectuate the following from the date hereof until the Closing Date:
3.1 INVESTIGATION BY BUYER. Buyer may, prior to the Closing
Date, through its representatives (including its counsel, accountants and
consultants) make such investigations of the properties, offices and operations
of the Seller and such audit of the financial condition of the Seller as it
deems necessary or advisable in connection with the transactions contemplated
hereby, including, without limitation, any investigation enabling it to
familiarize itself with such properties, offices, operations and financial
condition; such investigation shall not, however, affect the Seller's or the
Members' representations, warranties and agreements hereunder. The Seller and
the Members shall permit Buyer and its authorized representatives to have, after
the date hereof, full access to the premises and to all books and records and
Returns of the Seller and Buyer shall have the right to make copies thereof and
excerpts therefrom. The Seller and the Members shall furnish Buyer with such
financial and operating data and other information with respect to the Seller as
Buyer may from time to time reasonably request. In the event that Closing does
not occur, all materials of any and every nature provided by Seller to Buyer
should be returned to the Seller.
3.2 CARRY ON IN ORDINARY COURSE. Except with Buyer's prior
written consent, the Seller shall, and each Member shall cause the Seller to,
carry on its business diligently and substantially in the same manner as
heretofore conducted, and shall not (a) enter into or agree to enter into any
extraordinary transaction, contract, lease or commitment, (i) declare any
dividends, nor make any distributions or payments to the Members other than
employment compensation consulting fees, legal fees and other payments
consistent with prior practices to the extent that any such action could cause
any condition set forth in Section 4.1 hereof not to be satisfied on or prior to
Closing, (ii) redeem any shares of the Seller's capital stock or issue any
capital stock or enter into any agreement which grants a right to acquire the
Seller's capital stock to the extent
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that any such action could cause any condition set forth in Section 4.1 hereof
not to be satisfied on or prior to Closing, (iii) increase the compensation of
any employee of the Seller, other than ordinary increases or enter into any
severance agreement or employment agreement with any employee of the Seller;
(iv) loan or advance any amounts to any manager, Member or employee of the
Seller or enter into any agreement with any of the foregoing or any person
related to any of the foregoing, to the extent that any such action could cause
any condition set forth in Section 4.1 hereof not to be satisfied on or prior to
Closing, (v) acquire or dispose of any assets, other than acquisitions or
dispositions in the ordinary course of business not material in amount or to the
Business, and encumber or commit to (vi) encumber any of its assets to the
extent that any such action could cause any condition set forth in Section 4.1
hereof not to be satisfied on or prior to Closing, (vii) take any action, or
suffer any action to be taken, which could cause any of the representations or
warranties of any Members or the Seller contained herein not to be true and
correct on and as of the Closing Date, or (viii) enter into any agreement to
take any of the foregoing actions.
3.3 OTHER TRANSACTIONS. The Seller and the Members shall not,
and shall cause the Seller's managers, Members, employees, agents and Affiliates
or Associates not to, directly or indirectly, solicit or initiate the submission
of proposals from, or solicit, encourage, entertain or enter into any
arrangement, agreement or understanding with, or engage in any negotiations
with, or furnish any information to, any person, other than Buyer or a
representative thereof, with respect to the acquisition of all or any part of
the business or assets of the Seller or any of its securities. Should the Seller
or any of its Affiliates or Associates, during such period, receive any offer or
inquiry relating to such acquisition, or obtain information that such an offer
is likely to be made, it will provide Buyer with immediate written notice
thereof, which notice will include the identity of the prospective offeror and
the price and terms of any offer.
3.4 CONSENTS. The Members shall cause the Seller to, and the
Seller shall, use its best efforts to obtain in writing, prior to the Closing
Date, all consents, approvals, waivers, authorizations and orders necessary or
reasonably required in order to permit it to effectuate this Agreement and to
consummate the transactions contemplated hereby (collectively, "Consents"). All
such Consents will be in writing and copies thereof will be delivered to Buyer
promptly after the Seller's receipt thereof but no later than immediately prior
to Closing.
3.5 SUPPLEMENTAL DISCLOSURE. The Members and the Seller agree
that, with respect to their representations and warranties made in this
Agreement, they will have a continuing obligation through Closing to promptly
supplement or amend the schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement
and on the Closing Date, would have been required to be set forth or described
in the schedules hereto.
3.6 PUBLIC ANNOUNCEMENTS. The Seller, Members and Buyer agree
that they will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and any press
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<PAGE> 21
release or any public statement shall be subject to mutual agreement of the
parties, except as may be required by the disclosure obligations of Buyer under
applicable securities laws.
4. CONDITIONS TO CLOSING.
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The
obligation of Buyer to close under this Agreement is subject to the satisfaction
of the following conditions any of which may be waived by Buyer in writing at or
prior to Closing:
(a) DUE DILIGENCE. Buyer shall have completed,
to its satisfaction, its business, legal, tax and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the
Closing Date, the Members and the Seller shall have complied with and duly
performed all agreements and conditions on their part to be complied with and
performed pursuant to or in connection with this Agreement on or before the
Closing Date.
(c) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Members and the Seller contained in this
Agreement, or otherwise made in connection with the transactions contemplated
hereby, shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
(d) LOSS, DAMAGE OR DESTRUCTION. Between the
date hereof and the Closing Date there shall not have been any loss, damage or
destruction to or of any of the assets, property or business of the Seller in
excess of $15,000 in the aggregate, whether or not covered by insurance, nor
shall the assets, properties, business or prospects of the Seller have been
adversely affected in any way as a result of any fire, accident, or other
casualty, war, civil strife, riot or act of God or the public enemy or
otherwise.
(e) NO LEGAL PROCEEDINGS. No court or
governmental action or proceeding shall have been instituted or threatened to
restrain or prohibit the transactions contemplated hereby, and on the Closing
Date there will be no court or governmental actions or proceedings pending or
threatened against or affecting the Seller which involve a demand for any
judgment or liability, whether or not covered by insurance, and which may result
in any material adverse change in the business, operations, properties or assets
or in the condition, financial or otherwise, of the Seller.
(f) CERTIFICATE. Buyer shall have received a
certificate dated the Closing Date and executed by an authorized officer of the
Seller to the effect that the conditions expressed in Sections 4.1(b), 4.1(c),
4.1(d) and 4.1(e) have been fulfilled.
(g) CONSENTS. Buyer shall have received all
Consents necessary to effectuate this Agreement and to consummate the
transactions contemplated hereby.
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(h) EMPLOYMENT AGREEMENT. Buyer shall have
entered into an Employment Agreement with April Reeser, in form and substance
satisfactory to Buyer.
(i) CONSULTING AGREEMENT. Buyer shall have
entered into a Consulting Agreement with Wharton Capital Partners, Inc. for 5
months at the rate of $6,000 per month with the entire amount payable on the
Closing Date, in form and substance satisfactory to Seller in its sole
discretion.
(j) SIGNING BONUS. Buyer shall have paid a
$20,000 signing bonus to April Reeser and a $10,000 signing bonus to Michael
Lombardo on the Closing Date.
(k) NAME CHANGE. Buyer shall have received a
duly authorized and executed document which amends the certificate of formation
of the Seller to change the Seller's name to a name other than Quick Response,
or any derivative thereof or any similar name, and is otherwise in form for
filing with the Secretary of State of the State of Pennsylvania.
(l) CERTIFICATES OF STATUS. Buyer shall have
received certificates from the Secretary of State of the State of Pennsylvania,
providing that the Seller is in good standing in such jurisdiction.
(m) OPINION OF COUNSEL. The Members shall have
furnished Buyer with a favorable opinion of Christopher K. Zentgraf, Esq.,
counsel for the Seller and the Members, dated as of the Closing Date, and in
form and substance attached hereto as Exhibit B.
(n) BILLS OF SALE. Buyer shall have received
such bills of sale, deeds of transfer, assignments and other documents in form
and substance satisfactory to Buyer conveying the Transferred Assets to Buyer.
(o) APPROVAL OF BUYER'S LENDER. Buyer shall have
received the approval of its lender, CIBC, to effectuate this Agreement and to
consummate the transactions contemplated hereby.
4.2 CONDITIONS OF THE SELLER'S OBLIGATIONS TO CLOSE. The
obligations of the Seller to close under this Agreement are subject to the
following conditions any of which may be waived by the Seller in writing at or
prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the
Closing Date, Buyer shall have complied with and duly performed all agreements
and conditions on its part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer contained in this Agreement, shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of the Closing Date.
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<PAGE> 23
(c) CLOSING CERTIFICATE. The Seller shall have
received a certificate dated the Closing Date and executed by an authorized
officer of Buyer to the effect that the conditions contained in Section 4.2(a)
and (b) have been fulfilled.
(d) OTHER AGREEMENTS. Buyer shall have executed
the agreements referred to in Sections 4.1(h) and (i), and Buyer shall have paid
the amounts referred to in Sections 4.1(i) and (j).
(e) NO LEGAL PROCEEDINGS. No court or
governmental action or proceeding shall have been instituted or threatened by
any party (other than the Seller or any Member) to restrain or prohibit the
transactions contemplated hereby, and on the Closing Date there will be no court
or governmental actions or proceedings brought by any party (other than the
Seller or any Member) pending or threatened against or affecting the Seller
which involve a demand for any judgment or liability, whether or not covered by
insurance, and which may result in any material adverse change in the business,
operations, properties or assets or in the condition, financial or otherwise, of
the Seller.
5. FURTHER ASSURANCES. From time to time alter the Closing,
and without further consideration, the Seller shall execute and deliver such
other instruments of conveyance, assignment, transfer and delivery and take such
other actions as Buyer may reasonably request in order more effectively to
Transfer to Buyer, to place Buyer in possession or control of, all of the
rights, properties, assets and businesses intended to be Transferred hereunder,
provide reasonable assistance in the collection of any and all such rights,
properties and assets, and to enable Buyer to exercise and to enjoy all of the
rights and benefits of the Seller with respect thereto.
6. TRANSFER TAXES. The Seller shall pay all income, gains,
sales and excise taxes, if any, incurred in connection with the transactions
contemplated by this Agreement. With respect to any item that is exempt from
sales or use tax on any basis, Buyer shall deliver to the Seller such
certificates for such exemption as the Seller may reasonably request. Except as
hereinabove provided, the party hereto which is responsible under applicable law
shall bear and pay in their entirety all other taxes and registration and
transfer fees, if any, payable by reason of the Transfer of the Transferred
Assets pursuant to this Agreement. Each party hereto will cooperate to the
extent practicable in minimizing all taxes (other than income taxes) and fees
levied by reason of the Transfer of the Transferred Assets.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS. The representations and
warranties of the Seller and Members in this Agreement or in any document
delivered pursuant hereto shall survive the Closing Date for a period of six (6)
months and shall then terminate; PROVIDED, HOWEVER, that any such representation
and warranty shall survive the time it would otherwise terminate only with
respect to claims of which notice has been given as provided in this Agreement
prior to such termination.
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<PAGE> 24
7.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this
Section 7, each party which, pursuant to this Section 7, shall agree to
indemnify any other person or entity shall be referred to, as applicable, as the
"Indemnitor", and each such person and entity who is entitled to be indemnified
by any Indemnitor shall be referred to as the "Indemnified Person" with respect
to such Indemnitor.
7.3 INDEMNITY OF THE SELLER AND THE MEMBERS. Specifically
subject to the terms, conditions and provisions of Section 7.5 herein, the
Seller and the Members hereby jointly and severally agree to indemnify, hold
harmless and reimburse Buyer and its directors, officers, agents and employees
from and against any and all claims, liabilities, losses, damages and expenses
incurred by such Indemnified Persons (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of (a)
any material breach or alleged material breach of any representation or warranty
of the Seller and the Members contained in this Agreement, (b) any material
breach of any covenant or agreement of the Seller or the Members contained in
the Agreement and (c) any failure by the Seller to satisfy the Excluded
Liabilities, and shall reimburse such Indemnified Persons for all costs and
expenses (including reasonable attorneys' fees and disbursements) as they shall
be incurred, in connection with paying, investigating, preparing for or
defending any action, claim, investigation, inquiry or other proceeding, whether
or not in connection with pending or threatened litigation, which shall be
caused by or related to or shall arise out of such breach or alleged material
breach set forth in Section 7.3(a) and 7.3(b) above, whether or not any such
Indemnified Person shall be named as a party thereto and whether or not any
liability shall result therefrom. The Members and the Seller further agree that
they shall not, without the prior written consent of Buyer settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder unless such settlement, compromise or consent shall include an
unconditional release of each Indemnified Person under this Section 7.3 from all
liability arising out of such claim, action, suit or proceeding.
7.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold
harmless and reimburse the Members and the Seller and the Seller's managers,
agents and employees from and against any and all claims, liabilities, losses,
damages and expenses incurred by them (including reasonable attorneys' fees and
disbursements) which shall be caused by or related to or shall arise out of (a)
any material breach or alleged breach of any representation or warranty of Buyer
contained in this Agreement and (b) any breach of any covenant or agreement of
Buyer contained in the Agreement and shall reimburse such Indemnified Persons
for all costs and expenses (including reasonable attorneys' fees and
disbursements) as shall be incurred, in connection with paying, investigating,
preparing for or defending any action, claim, investigation, inquiry or other
proceeding, whether or not in connection with pending or threatened litigation,
which shall be caused by or related to or shall arise out of such breach or
alleged breach, whether or not such Indemnified Persons shall be named as a
party thereto and whether or not any liability shall result therefrom. Buyer
further agrees that it shall not, without the prior written consent of the
Seller, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder unless such settlement, compromise or
consent shall
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include an unconditional release of the Members and the Seller under this
Section 7.4 from all liability arising out of such claim, action, suit or
proceeding.
7.5 LIMITATIONS UPON INDEMNITY AND OTHER OBLIGATIONS
OF SELLER AND THE MEMBERS TO BUYER.
(a) Buyer agrees that in the event Buyer has any
claims (other than for actual fraud or arising out of Section 8 below) against
Seller and/or the Members (or any of them) of any nature whatsoever in any
manner arising out of or in any manner relating to this Agreement, including,
but specifically not limited to, the transactions contemplated thereby, the
covenants, representations and/or warranties of the Seller and/or the Members
herein, Buyer's only recourse shall be to proceed against the [******] escrow
referred to in Section 1.5(b) above (which, regardless of the amount then in
escrow in such account, shall be referred to as the "[******] Escrow Fund").
Notwithstanding anything contained in this Agreement to the contrary (including,
but specifically not limited to, the provisions of this entire paragraph 7)
Seller and the Members shall have no liability to Buyer of any nature (other
than for actual fraud or arising out of Section 8 below) whatsoever (including,
but specifically not limited to, liability under the indemnity provisions of
paragraph 7) and Buyer's only recourse (in the event Buyer believes it otherwise
has a claim against Seller and/or the Members (or any of them) shall be to
proceed against the [******] Escrow Fund in accordance with the provisions of
this paragraph 7.5.
(b) Buyer shall not be entitled to pursue a
claim against the [******] Escrow Fund until such time as all such valid claims
for indemnification by Buyer against Seller and/or the Members shall exceed
[******] and then Buyer may proceed against the [******] Escrow Fund to the
extent and only in an amount by which the total of such claims for
indemnification exceeds [******]. The parties specifically agree that Buyer
shall have no right to assert claims for indemnification (or otherwise make
claims except for actual fraud and claims arising out of Section 8 below) for
the first [********] of valid indemnity obligations and/or other valid claims
(which first [******] is hereinafter referred to as the [******] Indemnity and
Claim Deductible").
(c) In the event Buyer institutes any litigation
or any other proceedings against Seller and/or the Members, the captions of any
such proceedings shall clearly indicate that Seller and/or the Members have been
added to the captions solely as a result of their interest in the [******]
Escrow Fund and that no judgments or other claims are being sought against the
Seller and/or the Members.
(d) The above provisions shall in no manner
affect the calculations, determinations and payments set forth in paragraph
1.7(c), above.
(e) The above provisions are not in any manner
intended to expand the covenants, representations and/or warranties of Seller
and/or the Members and the above provisions are not intended to expand the
rights of Buyer otherwise provided for herein.
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<PAGE> 26
(f) Buyer acknowledges that the above provisions
and their inclusion in this Agreement are a material inducement for the
execution of this Agreement by Seller and the Members and that Seller and the
Members would not have executed this Agreement without all of the above
provisions being set forth in this Agreement.
(g) With regard to breaches of the
non-competition and/or confidentiality provisions of Section 8 below, no Member
shall have any individual liability of any nature whatsoever with respect to
breaches by any other Member or Members of Section 8 below, except to the extent
that such Member or Members have also violated Section 8.
8. NON-COMPETITION; CONFIDENTIALITY.
8.1 NON-COMPETITION. Following the Closing Date and for a
period of five (5) years thereafter (the "Non-Competition Period"), the Seller
and the Members shall not, directly or indirectly, (a) engage in any business or
activity that competes with the Business anywhere in the contiguous United
States; (b) enter the employ of any person or entity engaged in any business or
activity that competes with the Business or render any consulting or other
services to any person or entity for use in or with the effect of competing with
the Business; or (c) have an interest in any business or activity that competes
with the Business, in any capacity, including, without limitation, as an
investor, partner, shareholder, officer, director, principal, agent, employee,
or creditor; PROVIDED, HOWEVER, that nothing herein shall prevent the purchase
or ownership by any Member of less than 3% of the outstanding equity securities
of any class of securities of a company registered under Section 12 of the
Securities and Exchange Act of 1934, as amended.
8.2 NO COMPETING INTERESTS. Each Member hereby represents
and warrants to Buyer that he has no ownership or other interest in any business
or activity that competes, directly or indirectly, with the Business.
8.3 NON-DISRUPTION. During the Non-Competition Period, the
Seller and the Members shall not, directly or indirectly, interfere with,
disrupt or attempt to disrupt any present or prospective relationship,
contractual or otherwise, between the Seller or any of its Affiliates, on the
one hand, and any of its customers, suppliers or employees, on the other hand.
8.4 CONFIDENTIALITY. The Seller and the Members shall not use
for their own behalf or divulge to any other person or entity any confidential
information or trade secrets of or relating to Buyer in any manner whatsoever
(except as authorized and required in connection with the Members' relationship
with Buyer or any of its affiliates during the term of such relationship or
except as may be required under legal process by subpoena or other court order;
provided, however, that the Member shall give Buyer prompt prior written notice
thereof in order to contest such requirement or order). As used herein,
confidential information shall consist of all information, knowledge or data
relating to Buyer or any of its affiliates (including, without limitation, all
information relating to inventions, procedures and operations, processes and
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<PAGE> 27
methods, financial information, customer and prospective customer lists, prices
and trade practices) which is not in the public domain or otherwise published or
publicly available.
8.5 REMEDIES UPON BREACH. The Seller and the Members
acknowledge and agree that (a) Buyer shall be irreparably injured in the event
of a breach of any of their obligations under this Section 8; (b) monetary
damages shall not be an adequate remedy for such breach; (c) Buyer shall be
entitled to injunctive relief, in addition to any other remedy which it may
have, in the event of any such breach and (d) the existence of any claims which
Seller or the Members may have against Buyer, whether under this Agreement or
otherwise, shall not be a defense to the enforcement by Buyer of any of its
rights under this Agreement.
9. MISCELLANEOUS PROVISIONS.
9.1 CONFIDENTIALITY. The Seller, the Members and Buyer agree
not to, directly or indirectly, without the prior written consent of the other,
use or disclose to any person, firm or corporation, any materials or information
obtained in Buyer's due diligence investigation of the Seller not a part of the
Purchased Assets, or any of the terms of this Agreement, except as may be
required by the disclosure obligations of Buyer under applicable securities laws
or as may be required to be disclosed to the attorneys and/or accountants of the
parties hereto in connection with the transactions contemplated hereby.
9.2 NOTIFICATION. Each party hereto shall give the other party
or parties hereto prompt written notice of the existence of any fact or the
occurrence of any event which constitutes, or with the giving of notice or the
passage of time or both would constitute, a breach of any representation or
warranty of the party giving such notice made herein or pursuant hereto and the
taking of any action by the party giving such notice that would breach or
violate, or constitute a default under, any agreement or covenant of such party
made herein or pursuant hereto. The giving of any such notice shall not affect,
modify or limit in any way any representation, warranty, agreement or covenant
of the parties made herein or pursuant hereto.
9.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
9.4 NOTICES. All notices, requests, demands and other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed duly given when delivered by
hand, or posted in the United States mail by registered or certified mail with
postage pre-paid, return receipt requested, if to Buyer, to Protocol Acquisition
Sub 3, Inc., c/o Protocol Communications, Inc. 2197 Ringling Blvd., Sarasota,
Florida 34237, Attention: Stephen McLean; copy to Hertzog, Calamari & Gleason,
100 Park Avenue, New York, NY 10016, Attention: John D. Vaughan, Esq., facsimile
number: (212) 213-1199; (b) if to the Seller to Wharton Capital Partners, 125
North Enola Drive, Suite 105, Enola, PA 17025; (c) if to the members, as
follows:
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John I. Zentgraf Elmer A. Barry
4233 Nantucket Drive P.O. Box 143
Mechanicsburg, PA 17055 New Providence, PA 17560
Robert J. Lieblein April Reeser
100 Kings Mill Court 115 S. Franklin Street, Red Lion
Harrisburg, PA 17110 York, PA 17356
Christopher R. Zentgraf Dorsey Michael Lombardo
2O3 Elm Drive 115 N. Hartman Street
Lansdale, PA 19446 York, PA 17403
Jordan Kreiner
2379 Carlisle Road
York, PA 17404
or to such other address(es) as shall be specified by like notice to the other
parties.
9.5 AMENDMENTS. This Agreement may be amended or modified
at any time prior to the Closing Date, but only by a written instrument executed
by all of the parties hereto.
9.6 ENTIRE AGREEMENT. This Agreement (together with the other
agreements, certificates, instruments and documents delivered pursuant hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
9.7 APPLICABLE LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the internal laws of the State of Pennsylvania. The parties hereby consent to
the jurisdiction of Federal and New York State courts located in the County of
New York and the Federal and Pennsylvania State Courts located in the County of
York, and agree that service of process by certified mail, return receipt
requested, shall constitute personal service for all purposes hereof.
9.8 TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date by any of the following:
(a) By mutual written agreement of Buyer and the
Seller;
(b) By either Buyer or the Seller, if the
Closing has not occurred by November 6, 1998, upon written notice by such
terminating party, provided that at the time such notice is given a material
breach of this Agreement by such terminating party shall not be the principal
reason for the Closing's failure to occur;
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(c) Subject to the provisions of Section 9.9
hereof, by Buyer, by written notice to the Seller, if there has been a material
violation or breach of any of the Members' or the Seller's covenants or
agreements made herein or in connection herewith or if any representation or
warranty of the Members or the Seller made herein or in connection herewith
proves to be materially inaccurate or misleading; or
(d) Subject to the provisions of Section 9.9
hereof, by the Seller, by written notice to Buyer, if there has been a material
violation or breach of any of Buyer's covenants or agreements made herein or in
connection herewith or if any representation or warranty of Buyer made herein or
in connection herewith proves to be materially inaccurate or misleading.
9.9 EFFECTS OF TERMINATION. If this Agreement is terminated as
provided in Section 9.8 hereof, then this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto
(or any of their respective managers, Members, officers, directors or employees,
as the case may be), except based on the agreements contained in Sections 7.3
and 7.4 hereof (as limited by Section 7.5 below); PROVIDED, HOWEVER, that if
Buyer terminates this Agreement pursuant to Section 9.8(c) hereof, or the Seller
terminates this Agreement pursuant to Section 9.8(d) hereof, the non-terminating
party shall remain liable for any breach hereof.
9.10 HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
9.11 FEES AND DISBURSEMENTS. Buyer shall pay its own expenses,
and the fees and disbursements of the counsel, accountants or auditors retained
by it in connection with the preparation, execution and delivery of this
Agreement. The fees and expenses and disbursements of the counsel to the Seller
and the Members shall be paid by the Seller and the Members shall be responsible
for their individual costs, expenses and attorneys' fees. In connection with any
action or proceeding arising out of this Agreement, the prevailing party shall
be entitled to recover from the non-prevailing party its reasonable attorneys
fees, costs, and disbursements including all filing fees and other costs of
litigation), expert witness fees and paralegal fees, permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.14 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
[NEXT PAGE IS SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this
Asset Purchase Agreement the day and year first above written.
QUICK RESPONSE, INC,
By: /S/ Raymond P. Wilson
----------------------------------------
Name: Raymond P. Wilson
Title: Vice President-Finance
QUICK RESPONSE LLC
By: /S/ John J. Zentgraf, President
----------------------------------------
Name: John J. Zentgraf
Title: President
MEMBERS
(Specifically subject to
the terms, conditions and
provisions set forth
herein, including, but
specifically not limited
to, those set forth in
Section 7.5 above)
/S/ Christopher R. Zengtraf
----------------------------------------
Christopher R. Zentgraf
/S/ John J. Zentgraf
----------------------------------------
John J. Zentgraf
/S/ Robert J. Lieblein
----------------------------------------
Robert J. Lieblein
/S/ Jordan J. Kreiner
----------------------------------------
Jordan J. Kreiner
/S/ April S. Reeser
----------------------------------------
April S. Reeser
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/S/ Elmer A. Barry
----------------------------------------
Elmer A. Barry
/S/ Dorsey M. Lombardo
----------------------------------------
Dorsey M. Lombardo
31
<PAGE> 1
EXHIBIT 2.11
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is made this
15th day of December 1998, by and between Scribers, Inc., a Delaware corporation
("Buyer"), The Scribers, Inc., a Michigan corporation (the "Seller"), and the
stockholders of the Seller set forth on the signature page hereto
("Stockholders").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Seller is principally engaged in the teleservices
business (the "Business") and is the end user subscriber for certain toll free
telephone numbers listed on Schedule 2.1(q) hereto (the "Toll Free Telephone
Numbers");
WHEREAS, the Seller desires to sell to Buyer, and Buyer
desires to purchase from the Seller the Business and substantially all of its
assets and operations subject to certain liabilities, all in the manner and
subject to the terms and conditions hereinafter set forth; and
WHEREAS, the Stockholders, as holders of not less than seventy
seven (77%) percent of the issued and outstanding shares of capital stock of the
Seller have authorized and approved such sale.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1. TERMS OF ACQUISITION.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, on the Closing Date (as defined in Section 1.6
below), the Seller shall, and the Stockholders shall cause the Seller to, sell,
transfer, convey, assign and deliver ("Transfer") to Buyer, and Buyer shall
purchase, acquire and accept from the Seller, all of the Seller's rights,
properties, assets, contracts, leases and businesses of every kind, character
and description, whether tangible or intangible, real, personal or mixed,
accrued, contingent or otherwise, and wherever located, less and except the
Excluded Assets (as defined in Section 1.2 below) (after giving effect to the
exclusion of the Excluded Assets, such assets are hereinafter collectively
referred to as the "Transferred Assets"), free and clear of all liens, claims
and encumbrances, including, without limitation:
(a) all cash and cash equivalents;
(b) all machinery, equipment, furniture, office
equipment, telephone equipment, computers and computer equipment, spare parts,
supplies, tools and vehicles;
(c) all of the Seller's right, title and interest in
and to any income and payments due the Seller, including, without limitation,
all accounts and accounts receivable whether or not reflected on the Seller's
books and records;
- ---------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
(d) all letters of credit, leases of real and personal property,
rental agreements, commitments, insurance policies, purchase orders, sales
orders, service agreements, maintenance agreements, distribution agreements,
supply agreements and all other contracts, agreements and understandings,
whether written or oral (including, without limitation, the contracts and
agreements listed on Schedule 2.1(v) hereto and contracts and agreements of
Seller not required to be listed thereon pursuant to Section 2.1(v) hereof
(collectively, the "Assumed Contracts") but excluding those contracts and
agreements listed thereon as excluded contracts (collectively, the "Excluded
Contracts")), and all rights, claims and causes of action thereunder, whether
pending or inchoate;
(e) all prepaid assets and all deposits, refunds, rebates and other
rights to payment relating to the Transferred Assets or Assumed Liabilities (as
defined in Section 1.3 below);
(f) all intangible assets (including, without limitation, all issued
and applied for patents, trademarks, copyrights, trade names, trade secrets,
service marks, customer lists, relationships and arrangements with customers,
covenants not to compete, authors, designers and suppliers, inventions,
formulae, processes and permits, computer software and source code, and all
licenses, agreements and applications with respect to any of the foregoing, any
goodwill associated with any of the foregoing, and all claims and causes of
action relating to any of the foregoing, including claims and causes of action
for past infringement) arising from or utilized in the operations of the
Business, including the named "Scribers" and "TSI" and all derivations thereof;
(g) to the extent transferable, all licenses, authorizations and
permits issued by any governmental agency relating to the Business or the
Transferred Assets, and all applications therefor pending; and
(h) all books, records and files relating to the Business and the
Transferred Assets and the operations thereof for all periods ending on or
before the Closing Date, but excluding such items which relate to the Excluded
Assets or the liabilities of the Seller not assumed by Buyer.
1.2 EXCLUDED ASSETS. Notwithstanding anything in Section 1.1 to the
contrary, the Seller shall retain all of its right, title and interest in and to
all of, and shall not Transfer to Buyer any of, the following assets, rights and
properties (the "Excluded Assets"):
(a) the real property located at 16280 National Parkway, Lansing,
Michigan 48906 (the "Lansing Property") including, the generator affixed to the
Lansing Property;
(b) the Excluded Contracts and all rights, claims and causes of action
thereunder, whether pending or inchoate;
(c) equipment of the Seller located at the home of its Chief Financial
Officer which, in the aggregate, had an original cost of less than $8,000;
(d) any proceeds and any other consideration paid or payable in
accordance with this Agreement and all rights of the Seller under this Agreement
or any agreement or instrument executed pursuant hereto or thereto, including,
without limitation, the Seller's right to enforce Buyer's representations,
warranties and covenants hereunder and the obligations of Buyer to pay, perform
or discharge the Assumed Liabilities; and
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(e) all minute books, stock books and similar corporate records of the
Seller.
1.3 ASSUMPTION OF LIABILITIES. Subject to the terms and conditions of this
Agreement, on the Closing Date, Buyer shall assume and agree to pay, perform and
discharge when due only the following liabilities and obligations of the Seller
(the "Assumed Liabilities") and no others:
(a) liabilities and obligations of the Seller in respect of (i)
accounts payable and accrued expenses, (ii) accrued salaries and payroll taxes
for the then current payroll period and (iii) capitalized lease obligations
arising under the Assumed Contracts which, pursuant to generally accepted
accounting principles applied consistently with the preparation of the 1997
Financial Statements (as defined in Section 2.1(f) hereof), would be required to
be, and are, set forth in the Interim Balance Sheet (as defined in Section
2.1(f) hereof) and liabilities of the type described in clauses (i) and (ii)
above incurred by the Seller since September 30, 1998 for goods and services
received by the Business in the ordinary course (exclusive of any such
liabilities in respect of personal expenses of the stockholders of the Company
since the date thereof) to the extent, and only to the extent, reflected on the
Buyer's Closing Date Statement (as defined in Section 1.7(a) hereto) provided,
however, that, notwithstanding the foregoing, in no event shall (A) the sum of
(i), (ii) and (iii) above exceed, in the aggregate, the sum of [******] PLUS any
Adjustment Amount payable pursuant to Section 1.7(c)(ii) hereof and (B) the sum
of (i) and (ii) above exceed the sum of the amount of Seller's accounts
receivable as of the Closing Date which are good and collectible within ninety
(90) days of the Closing Date (the "Good Closing Receivables") as set forth in
Buyer's Closing Date Statement (as defined in Section 1.7(a) hereof) PLUS any
Adjustment Amount payable pursuant to Section 1.7(c)(iii) hereof; and
(b) obligations of the Seller for performance after the Closing Date
under the Assumed Contracts.
1.4 EXCLUDED LIABILITIES. "Excluded Liabilities" shall mean, and Buyer
shall not assume and shall have no liability for, any liabilities or obligations
of the Seller not specifically set forth in Section 1.3 above, including,
without limitation, the following:
(a) any liability or obligation in connection with the Lansing
Property, including, without limitation, the mortgage on such property;
(b) any liability or obligation arising under, out of or in connection
with the Excluded Contracts;
(c) any liability or obligation of the Seller for any Federal, state,
local or foreign income, capital gains or franchise taxes or taxes on capital
(including, without limitation, any deferred income tax liability and any
penalties and interest thereon);
(d) any liability or obligation for expenses incurred by, or for
claims made against, the Seller in connection with or resulting from or
attributable to this Agreement or the transactions contemplated hereby, if any;
(e) any liability or obligation for any investment banking, brokerage
or similar charge or commission, or any attorneys' or accountants' fees and
expenses, payable or incurred by the Seller in connection with the preparation,
negotiation, execution or delivery of this Agreement or the transactions
contemplated hereby;
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(f) any liability or obligation of the Seller to Buyer arising out of
any misrepresentation or breach of any warranty of the Seller contained in this
Agreement or any of the schedules or exhibits hereto or in any certificate,
agreement, instrument or other document delivered pursuant hereto or out of the
failure of the Seller to perform any of its agreements or covenants contained
herein or therein or to perform or satisfy any of the Excluded Liabilities;
(g) any liability or obligation to or in respect of employees
including, without limitation, liabilities and obligations in respect of
compensation and severance (including, without limitation, severance obligations
arising as a result of the transactions contemplated hereby) and any liability
or obligation under any employee pension, benefit or other plan other than
accrued payroll and payroll taxes for the normal payroll period in which the
Closing occurs;
(h) any liability or obligation for or in respect of indebtedness of
the Seller for borrowed money (excluding capitalized lease obligations arising
under the Assumed Contracts); but including, without limitation, the mortgage on
the Lansing property described on Schedule 2.1(n) hereto;
(i) any liability or obligation of Seller, which would cause any
Assumed Liabilities to exceed the limitations therefor set forth in section
1.3(a) hereof, except obligations described in Section 1.3(b) above; and
(j) any liability or obligation arising from or relating to the
operation of the Business on or prior to the Closing Date to the extent not
specifically set forth in Section 1.3(a) or (b) above.
The Seller shall remain fully liable for, and shall promptly pay or
perform when due, the Excluded Liabilities.
1.5 PURCHASE PRICE. As the purchase price for all of the Transferred Assets
(the "Purchase Price"), Buyer shall pay in cash by wire transfer of immediately
available funds, (i) [******] at Closing to an account of the Seller designated
in writing by the Seller prior to Closing; and (ii) [******] (the "Contingent
Amount") to the account of BankBoston, as escrow agent ("Escrow Agent")
designated in the escrow agreement annexed hereto as Exhibit A (as the same may
be amended from time to time, the "Escrow Agreement"), to be held and disbursed
by the Escrow Agent pursuant to the terms thereof and Section 1.8 below. The
Purchase Price shall be subject to adjustment as provided in Section 1.7 and the
Seller shall be entitled to receive from the Escrow Agent the Contingent Amount
only to the extent provided in Section 1.8 hereof.
1.6 CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hertzog, Calamari &
Gleason in New York, New York, at 10:00 A.M., December 14, 1998, or at such
other place and/or on such other date and time as shall be agreed upon by Buyer
and the Seller (the "Closing Date").
1.7 PURCHASE PRICE ADJUSTMENT.
(a) On or before March 15, 1999, Buyer shall cause KPMG Peat Marwick
LLP to deliver to the Seller an audited balance sheet and related statements of
income, retained earnings and cash flows of the Business (conducted, with
respect to the portion of such period occurring after the Closing Date,
consistently with its conduct during the prior portion of such period) for the
12-month period ended December 31, 1998 (the "1998 Financial
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Statements"), all of which financial statements shall be prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the preparation of the 1997 Financial Statements ("GAAP") and the rules and
regulations of the Securities Exchange Commission applicable to financial
reporting of public companies. Simultaneously with the delivery of the 1998
Financial Statements to the Seller, Buyer shall deliver to Seller a statement
from its Chief Financial Officer which shall set forth, as of the Closing Date,
the amount of the Good Closing Receivables and the amount of the liabilities of
the type set forth in Sections 1.3(a)(i), (ii) and (iii) hereof ("Buyer's
Closing Date Statement").
(b) The Seller shall have ten (10) business days from delivery of the
1998 Financial Statements and Buyer's Closing Date Statement to raise any
objection thereto by delivery of written notice to Buyer setting forth such
objections in reasonable detail. All financial information contained therein in
respect of which no such objection is so delivered within such 10-day period
shall be deemed final and binding on the parties. In the event that any such
objections are so delivered, Buyer and the Seller shall attempt, in good faith,
to resolve such objections and, if unable to do so within ten (10) days of
delivery of such objections, shall, within five (5) business days thereafter
designate a nationally recognized firm of independent public accountants,
mutually satisfactory to Buyer and the Seller (the "Independent Accountants").
In the event that Buyer and the Seller are unable to agree on the Independent
Accountants within such 5-business day period, the Independent Accountants shall
be designated jointly by the independent accountants of Buyer and the Seller
within three (3) business days thereafter. The Independent Accountants shall
resolve all remaining objections made by the Seller in accordance herewith
within thirty (30) days from their date of designation. The determination of the
Independent Accountants shall be final and binding on the parties. The fees and
expenses of the Independent Accountant shall be borne by the Seller, unless the
final determination of the Financial Statements shall result in a change in the
Purchase Price, as adjusted, in favor of the Seller by five (5%) percent or
more, in which case such fees and expenses shall be borne by Buyer.
(c) The Purchase Price shall be reduced, based on the 1998 Financial
Statements and the Buyer's Closing Date Statement, as finally determined in
accordance herewith, by the following amounts ("Adjustment Amounts"):
(i) in the event that the sum of [******] shall exceed 12-Month
EBITDA (as defined below) by more than [******], the Purchase Price shall be
reduced by an amount equal to [****] for each $1.00 of the entire amount of such
excess (rounded down to the nearest whole dollar);
(ii) in the event that the liabilities described in Sections
1.3(a)(i), (ii) and (iii) hereof shall exceed, as of the Closing Date, the
amount of [******], the Purchase Price shall be reduced by the entire amount of
such excess; and
(iii) in the event that the liabilities described in Section
1.3(a)(i) and (ii) shall exceed, as of the Closing Date, the amount of the Good
Closing Receivables, the Purchase Price shall be reduced by the entire amount of
such excess.
Within three (3) business days of the final determination of the Financial
Statements, the Seller shall pay to Buyer (whether or not the Adjustment Amounts
shall exceed the Purchase Price) the Adjustment Amounts, by wire transfer of
immediately available funds to an account designated in writing by Buyer.
(d) For purposes hereof, (i) "12-Month EBITDA" shall mean the
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earnings of the Business for the 12-month period ended December 31, 1998, as set
forth in the Financial Statements before deduction for interest, taxes,
depreciation and amortization, in each case, determined in accordance with GAAP,
as adjusted for non-recurring revenue, charges and adjustments set forth on
Schedule 1.7(d) with respect to non-recurring and deferred revenue, to the
extent actually received on or before the Closing Date, and with respect to
non-recurring charges and adjustments, to the extent actually earned or incurred
on or before the Closing Date, plus an amount equal to the AT&T Adjustment, and
(ii) the "AT&T Adjustment" shall mean the excess of (A) the aggregate amount of
the payments made by Seller to AT&T since April 1, 1998 under the agreement
between Seller and AT&T described in Item __ of Schedule 2.1(v) hereto (as in
effect on the date hereof, the "AT&T Agreement") to the extent charged against
earnings in the calculation of 12-Month EBITDA over (B) the amount such payments
would have been had the agreement attached as Exhibit A to Schedule 2.1(v) (the
"New AT&T Agreement") been in effect on April 1, 1998.
1.8 CONTINGENT PAYMENT.
(a) The Contingent Payment shall be due upon the occurrence of the
following events and shall be distributed to the Seller in the following amounts
(if and only to the extent that such events shall occur):
(i) at such time on or after March 31, 1999 as Cumulative 1999
EBITDA shall be an amount equal to or greater than [******], the Seller shall be
entitled to receive [******] of the Contingent Payment;
(ii) at such time on or after June 30, 1999 as Cumulative 1999
EBITDA shall be an amount equal to or greater than [******], Seller shall be
entitled to receive a portion of the Contingent Payment equal to [******] less
any amount earned and paid pursuant to Section 1.8(a)(i) above; and
(iii) at such time on or after September 30, 1999 as Cumulative
1999 EBITDA shall be an amount equal to or greater than [******], Seller shall
be entitled to receive a portion of the Contingent Payment equal to [******]
less any amounts earned and paid pursuant to Sections 1.8(a)(i) and (ii) above.
(b) For purposes hereof, "Cumulative 1999 EBITDA" shall mean the
cumulative earnings of Buyer attributable to the Business before deduction for
interest, taxes, depreciation and amortization, as set forth in Buyer's monthly
unaudited consolidating financial statements for the calendar year 1999,
prepared in accordance with GAAP, but, notwithstanding the foregoing,
specifically excluding from any such earnings (i) any amounts received or
receivable in respect of any accounts receivable, claims or other rights
constituting any portion of the Transferred Assets or arising out of or in
connection with this Agreement, (ii) any charge to earnings in respect of any
allocated portion of the corporate overhead of Buyer's affiliates, (iii) charges
to earnings in respect of payments to AT&T actually made under the AT&T
Agreement to the extent in excess of the amounts which would have been payable
under the New AT&T Agreement and (iv) charges to earnings in respect of payments
of base salary to David Van Derveer at a rate higher than [******] per year
(collectively, the "1999 Exclusions").
(c) Promptly, but in any event within thirty (30) days after the end
of each calendar month commencing in March 1999, Buyer shall determine
Cumulative 1999 EBITDA through the end of each such month and shall provide to
the Seller a written statement containing such calculation in reasonable detail
(a "Monthly EBITDA Statement"). In the event
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that the Seller shall be entitled to a distribution of the Contingent Payment
based upon any such monthly statement, Buyer shall promptly, but in any event
within five (5) business days after the final determination of Cumulative 1999
EBITDA, provide written instructions to the Escrow Agent and take all actions
required under the Escrow Agreement to release such amount to the Seller.
(d) The Seller shall have ten (10) business days from delivery of each
Monthly EBITDA Statement to raise any objection thereto by delivery of written
notice to Buyer setting forth such objections in reasonable detail. All
financial information contained therein in respect of which no such objection is
so delivered within such 10-day period shall be deemed final and binding on the
parties. In the event that any such objections are so delivered, Buyer and the
Seller shall attempt, in good faith, to resolve such objections and, if unable
to do so within ten (10) days of delivery of such objections, shall, within five
(5) business days thereafter designate Independent Accountants in accordance
with the procedures set forth in Section 1.7(b) above, the fees and expenses of
which shall be borne as provided in Section 1.7(b). Buyer shall provide the
Seller with a reasonable opportunity to review its books and records for
purposes of raising any objections with respect to the monthly EBITDA Statement.
1.9 EARN-OUT ADJUSTMENT.
(a) In addition to the Purchase Price payable pursuant to Section 1.5
above, Buyer shall pay an additional amount, determined as follows:
(i) in the event that 1999 EBITDA shall be an amount equal to or
greater than [******], but lower than [******], Buyer shall pay to Seller
[******];
(ii) in the event that 1999 EBITDA shall be an amount equal to or
greater than [******], but lower than [******], Buyer shall pay to Seller
[******]; or
(iii) in the event that 1999 EBITDA shall be an amount equal to
or greater than [******], Buyer shall pay to Seller an amount equal to the sum
of (A) [******], plus (B) an amount equal to [****] for each $1.00 of 1999
EBITDA in excess of [******]; PROVIDED, HOWEVER, that such payment shall not
exceed [******] in the aggregate.
(b) For purposes hereof, "1999 EBITDA" shall mean the earnings of
Buyer attributable to the Business before deduction for interest, taxes,
depreciation and amortization, calculated consistently with the calculation of
cumulative 1999 EBITDA, as set forth in Parent's annual, audited consolidating
financial statements prepared in accordance with GAAP (the "1999 Financial
Statements").
(c) Promptly upon receipt by Buyer of the 1999 Financial Statements,
Buyer shall deliver a copy thereof to the Seller, together with Buyer's written
statement containing Buyer's calculation of 1999 EBITDA ("1999 EBITDA
Statement") in reasonable detail. Any amount payable pursuant to Section 1.9(a)
above shall be payable as directed by the Seller in writing within five (5)
business days after the final determination of 1999 EBITDA.
(d) The Seller shall have ten (10) business days from delivery of the
1999 Financial Statements and the 1999 EBITDA Statement to raise any objection
thereto by delivery of written notice to Buyer setting forth such objections in
reasonable detail. All financial
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information contained therein in respect of which no such objection is so
delivered within such 10-day period shall be deemed final and binding on the
parties. In the event that any such objections are so delivered, Buyer and the
Seller shall attempt, in good faith, to resolve such objections and, if unable
to do so within ten (10) days of delivery of such objections, shall, within five
(5) business days thereafter designate Independent Accountants in accordance
with the procedures set forth in Section 1.7(b) above, the fees and expenses of
which shall be borne as provided in Section 1.7(b).
1.10 PURCHASE PRICE ALLOCATION. The parties acknowledge and agree that the
Purchase Price shall be allocated among the Transferred Assets in accordance
with Schedule 1060 of the Internal Revenue Code of 1986, as amended (the "Code")
and as the parties may mutually agree in writing promptly after the final
determination of the Financial Statements (the "Allocation Notice"). The parties
shall not take any position for purposes of Federal, state or local income taxes
respecting the allocation of the Purchase Price which is inconsistent with the
allocation set forth in such Allocation Notice.
2. REPRESENTATIONS AND WARRANTIES.
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to, and covenants and agrees with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Seller is a corporation
duly organized, validly existing and in good standing and authorized to exercise
its corporate powers, rights and privileges under the laws of the State of
Michigan with full corporate power and authority to own, lease and operate its
properties and to carry on the Business as presently conducted by it. Schedule
2.1(a) hereto sets forth all states and other jurisdictions in which the Seller
is duly qualified and in good standing to do business as a foreign corporation.
There are no other states or jurisdictions in which the character and location
of the properties owned or leased by it, or the conduct of the Business makes
such qualification necessary. The Seller's minute books contain complete and
accurate records of all meetings and other corporate actions, including, without
limitation, actions by unanimous written consent of the Stockholders and board
of directors of the Seller (including all committees of its board of directors).
(b) AUTHORITY. The execution and delivery by the Seller of this
Agreement and all of the agreements, schedules, exhibits, documents and
instruments specifically provided for hereunder to be executed and/or delivered
by it (all of the foregoing, including this Agreement, being hereinafter
sometimes collectively referred to as the "Executed Agreements"), the
performance by the Seller of its obligations under the Executed Agreements, and
the consummation of the transactions contemplated by the Executed Agreements,
have been duly and validly authorized by all necessary corporate action on the
part of the Seller, and the Seller has all necessary corporate power with
respect thereto. The Executed Agreements are, or when executed and delivered by
the Seller shall be, the valid and binding obligations of the Seller,
enforceable in accordance with their respective terms, except to the extent that
enforceability may be limited by the operation of bankruptcy, insolvency or
similar laws. Except as set forth in 2.1(b), neither the execution and delivery
by the Seller of the Executed Agreements, nor the consummation of the
transactions contemplated thereby, nor the performance by the Seller of its
obligations under the Executed Agreements, shall (nor with the giving of notice
or the lapse of time or both would) (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or By-Laws of the Seller, (ii)
give rise to a default, or any right of termination, cancellation or
acceleration, or otherwise result in a loss of contractual benefits to the
Seller, under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Seller is a party or by which it or any of its properties or assets
may be
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bound, (iii) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to the Seller or any of its properties or assets, (iv)
result in the creation or imposition of any lien, claim, restriction, charge or
encumbrance upon any of the properties or assets of the Seller, or (v) interfere
with or otherwise materially and adversely affect the ability of the Buyer to
carry on the Business as now conducted by Seller.
(c) INTERESTS IN OTHER ENTITIES. Except as set forth in Schedule
2.1(c) hereto, the Seller does not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation or entity, (ii) have any ownership interest, direct or indirect, of
record or beneficially, in any entity, or (iii) have any obligation, direct or
indirect, present or contingent, to purchase or subscribe for any interest in,
advance or loan monies to, or in any way make investments in, any person or
entity, or to share any profits or capital investments in other persons or
entities, or both.
(d) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. Except as set
forth in Schedule 2.1(d) hereto, no approval, consent, compliance, exemption,
authorization or other action by, or notice to or filing with, any governmental
authority or any other entity, and no lapse of a waiting period, is necessary or
required to be obtained by the Seller in connection with the execution, delivery
or performance by it, of this Agreement, any of the Executed Agreements or the
transactions contemplated hereby.
(e) PROJECTIONS. The Seller has delivered to Buyer a set of
projections (the "Projections"), a copy of which is attached hereto as Schedule
2.1(e), which the Seller has been advised are material to Buyer in its decision
to enter into this Agreement. The Projections are based on the best estimates of
the Seller derived from reasonable expectations at the time the Projections were
made, there being, however, no guarantee of the achievement of the Projections.
(f) FINANCIAL STATEMENTS. The Seller has delivered to Buyer true and
complete copies of its unaudited balance sheet as of December 31, 1996, and the
related statements of income, retained earnings and cash flows for the year then
ended (the "1996 Financial Statements"), true and complete copies of its audited
balance sheet as of December 31, 1997, and the related statements of income,
retained earnings and cash flows for the year ended December 31, 1997 (the "1997
Financial Statements") and true and complete copies of its unaudited balance
sheet as of September 30, 1998 (the "Interim Balance Sheet"), and the related
statements of income, retained earnings and cash flows for the period then
ending (collectively, with the Interim Balance Sheet, the "Interim Financial
Statements"). All of such financial statements, including any notes thereto,
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved and fairly present the financial position of the Seller at
the dates thereof and the results of its operations for the periods as
indicated. The books and records of the Seller are in all material respects
complete and correct, have been maintained in accordance with good business
practices, and accurately reflect the basis for the financial condition and
results of operations of the Seller as set forth in the financial statements
referred to herein.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. The Seller does not have any
liabilities, commitments or obligations, whether accrued, absolute, contingent
or otherwise which have not been (i) in the case of liabilities, commitments and
obligations of a type customarily reflected on the corporate balance sheet of
the Seller, reflected on the Interim Balance Sheet in accordance with GAAP,
incurred, consistent with past practice, in the ordinary course of business
since the date of the Interim Balance Sheet and which are not material either
individually or in the aggregate or (ii) in the case of all other types of
liabilities and obligations, described in Schedule
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2.1(g) hereto.
(h) ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth
in Schedule 2.1(h) hereto, since December 31, 1997, the Seller has not:
(i) suffered any material adverse change in its working capital,
condition (financial or otherwise), assets, liabilities, business, operations or
prospects;
(ii) incurred any material liabilities or obligations except
items incurred in the ordinary course of business and consistent with past
practice, none of which exceeds $10,000 (counting obligations or liabilities
arising from one transaction or a series or similar transactions, and all
periodic installments or payments under any lease or other agreement providing
for periodic installments or payments, as a single obligation or liability), or
experienced any increase in, or change in any assumption underlying or methods
of calculating, any bad debt, contingency or other reserves;
(iii) paid, discharged or satisfied any claim, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities and obligations reflected or reserved against in
the Interim Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the date of the Interim Balance Sheet;
(iv) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind;
(v) written off as uncollectible any notes or accounts
receivable, except for write-offs in the ordinary course of business and
consistent with past practice, none of which are material;
(vi) canceled any debts or waived or suffered to lapse any claims
or rights of substantial value, or sold, transferred, or otherwise disposed of
any of its properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent with past
practice;
(vii) disposed of or suffered to lapse any rights to use any Toll
Free Telephone Number listed on Schedule 2.1(q) hereof, patent, trademark, trade
name or copyright, or disposed of or disclosed (except as necessary in the
conduct of the Business) to any person any trade secret, formula, process or
know-how;
(viii) granted any general increase in the compensation of
officers or employees (including any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee, and,
unless otherwise set forth in Schedule 2.1(h), no such increase is customary on
a periodic basis or is required by agreement or understanding;
(ix) made any single capital expenditure or commitment in excess
of $10,000 for additions to property, plant, equipment or intangible assets or
made aggregate capital expenditures and commitments in excess of $10,000 (on a
consolidated basis), for additions to property, plant, equipment or intangible
assets;
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(x) redeemed any shares of its capital stock or declared, paid or
set aside for payment any dividend or other distribution in respect of its
capital stock;
(xi) made any change in any method of accounting or accounting
practice;
(xii) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of its officers, directors, debtholders, stockholders or employees or any
"affiliate" or "associate" of any of its officers, directors, noteholders,
stockholders or employees (as such terms are defined in Rule 405 promulgated
under the Securities Act and as used herein "Associate" and "Affiliate"), except
for compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended December 31, 1997;
(xiii) paid any amount in respect of debt for borrowed money
except for regularly scheduled payments of principal and interest in accordance
with the terms thereof; or
(xiv) agreed, whether in writing or otherwise, to take any action
described in this Section unless such action is specifically excepted from this
Section or described in Schedule 2.1(h).
(i) TAX MATTERS. Except as set forth in Schedule 2.1(i) hereto, the
Seller has filed with the appropriate governmental agencies all Federal, state,
local or foreign tax returns and reports required to be filed by it ("Returns"),
has paid in full or made adequate provision for the payment of, all taxes of
every nature, including, but not limited to, income, sales, franchise and
withholding taxes ("Taxes"), together with interest, penalties, assessments and
deficiencies owed by it (whether or not shown on any Returns), and all such
Returns were correct and complete in all respects. The Seller is not currently
the beneficiary of any extension of time within which to file any Returns. The
Seller has previously provided Buyer with true and complete copies of all such
Returns filed within the past 5 years. The provisions for income and other Taxes
reflected on the Interim Balance Sheet are adequate for all accrued and unpaid
taxes of the Seller as of the date of the Interim Balance Sheet, whether (i)
incurred in respect of or measured by income of the Seller for any periods prior
to the close of business on that date, or (ii) arising out of transactions
entered into, or any state of facts existing, on or prior to that date. The
provision for Taxes reflected on the books of account of the Seller is adequate
for all Taxes of said entity which accrued since the date of the Interim Balance
Sheet. There are no filed or other known tax liens upon any property or assets
of the Seller. The Seller has not waived any statute of limitations in respect
of Taxes or executed or filed with any governmental authority any agreement
extending the period for the assessment or collection of any Taxes, and it is
not a party to any pending or, to the Seller's best knowledge, threatened action
or proceeding by any governmental authority for the assessment or collection of
Taxes. To the best knowledge of the Seller, no issue has arisen in any
examination of the Seller by any governmental authority that if raised with
respect to any other period not so examined would, if upheld, result in a
material deficiency for any other period not so examined. There is no unresolved
written claim by a governmental authority in any jurisdiction where the Seller
does not file Returns that the Seller is or may be subject to taxation by such
jurisdiction. There has been no examination or audit with respect to Taxes with
respect to any year. The Seller 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, stockholder or other third party.
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(j) LITIGATION. Except as set forth in Schedule 2.1(j) hereto, there
are no suits or actions, or administrative, arbitration or other proceedings or
governmental investigations, pending, or to the best knowledge of the Seller,
threatened against or affecting, or which may affect, the Seller or any of its
properties, assets or businesses or the transactions contemplated hereby. To the
best knowledge of the Seller, there are no outstanding judgments, orders,
stipulations, injunctions, decrees or awards against the Seller which are not
satisfied.
(k) COMPLIANCE WITH APPLICABLE LAW. The Seller is, and at all times
since its formation has been in compliance in all material respects with all
Federal, state, local and foreign laws, statutes, ordinances, regulations, and
administrative rulings (collectively "Laws"), promulgated by any governmental or
regulatory authority applicable to the Seller or to the conduct of the business
or operations of the Seller or to the use of its properties and assets,
including, without limitation, all environmental Laws and all Laws relating to
the Toll Free Telephone Numbers. The Seller has not received, and the Seller
does not know of the issuance or threatened issuance of, any notices of
violation or alleged violation of any laws by the Seller. To the Seller's best
knowledge, there is no pending or proposed legislation applicable to the Seller
or to the conduct of business or operations of the Seller which, if enacted,
could have a material adverse effect on the business, results of operations,
financial position or prospects of the Seller or the value of its properties or
assets
(l) ENVIRONMENTAL MATTERS. Except as set forth on Schedule 2.1(l)
hereto:
(i) neither the Seller nor its operations or the real property
owned or, to Seller's best knowledge, leased by the Seller as set forth in
Schedule 2.1(n) hereto (the "Facility") are subject to any outstanding written
order, consent decree or settlement agreement with any person relating to (A)
any Environmental Laws (as defined in below), (B) any Environmental Claim (as
defined below), or (C) any Hazardous Materials Activity (as defined below) that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the business, results of operations, financial
position or prospects of the Seller or the value of its properties or assets;
(ii) the Seller has not received any letter or request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9604) or any comparable state
law;
(iii) there are, and to the Seller's best knowledge, have been no
conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim against the
Seller or that, individually or in the aggregate, could reasonably be expected
to have a material adverse effect on the business, results of operations,
financial position or prospects of the Seller or the value of its properties or
assets;
(iv) neither the Seller nor, to the Seller's best knowledge, any
predecessor of the Seller, has filed at any time any notice under any
Environmental Law indicating past or present treatment of Hazardous Materials at
the Facility, and none of the Seller's operations involves the generation,
transportation, storage, or disposal of hazardous waste, as defined under 40
C.F.R. Parts 260-270 or any state equivalent; and
(v) compliance with all current requirements pursuant to or under
Environmental Laws will not, individual or in the aggregate, have a reasonable
possibility of
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giving rise to a material adverse effect on the business, results of operations,
financial position or prospects of the Seller or the value of its properties or
assets.
(vi) Notwithstanding anything in this Section 2.1(l) to the
contrary, to Seller's best knowledge, no event or condition has occurred or is
occurring with respect to the Seller relating to any Environmental Law, any
Release (as defined in subsection (vii) below) of Hazardous Materials, or any
Hazardous Material Activity, including any matter disclosed on Schedule 2.1(l),
which individually or in the aggregate has had or could reasonably be expected
to have a material adverse effect on the business, results of operations,
financial position or prospects of the Seller or the value of its properties or
assets.
(vii) The following terms used in this Section 2.1(l) shall have
the following meanings:
(A) "Environmental Laws" shall mean any and all statutes,
ordinances, orders, rules regulations, guidance documents, judgments,
governmental authorizations, or any other requirements of governmental
authorities relating to (1) environmental matters, including those relating to
any Hazardous Materials Activity (as defined below), (2) the generation, use,
storage, transportation or disposal of Hazardous Materials (as defined below),
or (3) occupational safety and health, industrial hygiene, land use or the
protection of human, plant, or animal health or welfare, in any manner
applicable to the Seller or the Facility, including the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601
ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET
SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET
SEQ.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.),
the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control
Act (15 U.S.C. Section 2601 ET SEQ.), the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. Section 136 ET SEQ.), the Occupational Safety and
Health Act (29 U.S.C. Section 651 ET SEQ.), the Oil Pollution Act (33 U.S.C.
Section 2701 ET SEQ.) and the Emergency Planning and Community Right-to-Know Act
(42 U.S.C. Section 11001 ET SEQ.), each as amended or supplemented, any
analogous state or local statutes or laws, and any regulations promulgated
pursuant to the foregoing.
(B) "Environmental Claim" shall mean any investigation,
notice, notice of violation, claim, action, suit, proceeding, demand, abatement
order or other order or directive (conditional or otherwise), by any
governmental authority or any other person, arising (1) pursuant to or in
connection with any actual or alleged violation of any Environmental Laws, (2)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (3) in connection with any actual or alleged damage,
injury, threat or harm to health, safety, natural resources or the environment.
(C) "Hazardous Materials" shall mean (1) any chemical,
material or substance at any time defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous
waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous
waste", "infectious waste", "toxic substances", or any other term or expression
intended to define, list or classify substances by reason of properties harmful
to health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws), (2) any oil, petroleum,
petroleum fraction or petroleum derived substance, (3) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil,
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natural gas or geothermal resources, (4) any flammable substances or explosives,
(5) any radioactive materials, (6) any asbestos-containing materials, (7) urea
formaldehyde foam insulation, (8) electrical equipment which contains oil or
dielectric fluid containing polychlorinated biphenyls, (9) pesticides, and (10)
any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by governmental authority or which may or could pose a
hazard to the health and safety of the owners, occupants or any other persons in
the vicinity of the Facility or to the indoor or outdoor environment.
(D) "Hazardous Materials Activity" shall mean any past,
current, proposed or threatened activity, event or occurrence involving any
Hazardous Materials, including the use, manufacture, possession, storage,
holding, presence, existence, location, Release (as defined below), threatened
Release, discharge, placement, generation, transportation, processing,
construction, treatment, abatement, removal, remediation, disposal, disposition
or handling of any Hazardous Materials, and any corrective action or response
action with respect to any of the foregoing.
(E) "Release" shall mean any release, spill, emission,
leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge,
dispersal, dumping, leaching or migration of Hazardous Materials into the indoor
or outdoor environment (including, without limitation, the abandonment or
disposal of any barrels, containers or other closed receptacles containing any
Hazardous Materials), including the movement of any Hazardous Materials through
the air, soil, surface water or ground water.
(m) PERMITS. A list of all permits, approvals, licenses,
certificates, franchises, authorizations, consents and orders ("Permits")
necessary to the operation of the business of the Seller in the manner in which
it is presently conducted is set forth on Schedule 2.1(m) hereto. All such
Permits are valid and remain in full force and effect. The Seller has not
engaged in any activity which would cause revocation or suspension of any such
Permits and no action or proceeding looking to or contemplating the revocation
or suspension of any thereof is pending or threatened. No additional Permits
will be required to permit the Seller to continue the Business substantially in
the manner it is presently conducted after the consummation of the transactions
contemplated hereby.
(n) TITLE TO PROPERTIES. The Transferred Assets constitute
all assets (other than the Excluded Assets) which have been used in the Business
since December 31, 1997, and which are necessary for the conduct of the
Business. Except as set forth in Schedule 2.1(n) hereto, the Seller does not own
any real property. Except as set forth in Schedule 2.1(n) hereto, the Seller has
good title to all of the properties and assets (personal and mixed, tangible and
intangible) reflected on the Interim Balance Sheet or thereafter acquired or
which it purports to own (except properties or assets sold or otherwise disposed
of in the ordinary course of business consistent with past practice subsequent
to the date of the Interim Balance Sheet which in the aggregate did not have a
book value in excess of $10,000), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature whatsoever, except those referred
to in the Interim Balance Sheet. All leases listed in Schedule 2.1(n) are valid,
binding and enforceable in accordance with their terms, and are in full force
and effect, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws; there are no existing
defaults by the Seller thereunder and no event of default has occurred which
(whether with or without notice, lapse of time or both) would constitute a
default by the Seller thereunder. Except as set forth in Schedule 2.1(n) hereto,
all lessors under such leases have consented (where such consent is necessary)
to the consummation of the transactions contemplated by this Agreement without
requiring modification of the rights and obligations of the Seller thereunder.
Except as set
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forth in Schedule 2.1(n) hereto, all of the tangible property (whether owned or
leased) included in the Transferred Assets are located at the real property
owned or leased by the Seller as set forth in Schedule 2.1(n) hereto.
(o) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the Interim Balance
Sheet are good and collectible in the ordinary course of business at the
aggregate recorded amounts thereof, less the amount of the reserve for bad
accounts reflected therein, and are not subject to any offsets. The accounts
receivable of the Seller which were thereafter added are good and collectible in
the ordinary course of business at the aggregate amounts recorded on the books
of account, less the amount of the reserve for bad accounts reflected therein
(which reserve has been established on a basis consistent with prior practice
and in accordance with GAAP) and are not subject to any offsets. Set forth on
Schedule 2.1(o) is a true and complete list of the Seller's accounts receivable
as of November 30, 1998, and aging with respect thereto.
(ii) Schedule 2.1(o) hereto contains a complete and accurate list
of all machinery, equipment and other fixed assets of the Seller (the
"Equipment") having a book value in excess of $500. Each such item of Equipment
is in good operating condition, normal wear and tear excepted, and is fit for
its intended use. Each such item has been maintained, in all material respects,
in accordance with its manufacturer's recommended maintenance practice and with
prudent business practice and no such maintenance has been deferred.
(p) INTELLECTUAL PROPERTY. Schedule 2.1(p) hereto lists all licenses,
patents, copyrights, or trademarks owned or used by the Seller in the conduct of
the Business and all applications therefor (the "Intellectual Property"). No
officer or director, stockholder or employee of the Seller nor any person or
entity which, directly or indirectly, is controlled by or is under common
control with any of the foregoing ("Affiliates or Associates") has any ownership
or other interest in any of the Intellectual Property. To the best knowledge of
the Seller, none of the Intellectual Property is being infringed upon by, or
infringes, any licenses, patents, copyrights, trademarks or other intellectual
property rights of any other person or entity. Except as set forth in Schedule
2.1(p), the validity of the Intellectual Property and the title thereto of the
Seller have not been questioned in any litigation or governmental inquiry or
proceeding to which the Seller, is a party, and, to the best knowledge of the
Seller, no such litigation, governmental inquiry or proceeding is threatened.
The conduct of the business of the Seller as presently conducted does not
conflict with valid licenses, trademarks, trademark rights, trade names, trade
name rights, service marks or patents of others in any way likely to affect
adversely, in any material respect, the Intellectual Property.
(q) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(q) hereto sets forth a
complete list of all Toll Free Telephone Numbers owned or used by the Seller in
the conduct of the Business. No officer or director, stockholder or employee of
the Seller nor any of their Affiliates or Associates has any ownership or other
interest in the Toll Free Telephone Numbers. The Seller has not warehoused,
brokered or hoarded (as those terms are defined in the Second Report and Order
and Further Notice of Proposed Rulemaking in CC Docket No. 95-155, Released
April 11, 1997, by the Federal Communications Commission ("FCC")) any of the
Toll Free Telephone Numbers in violation of any applicable FCC rules or
regulations.
(r) INSURANCE. Schedule 2.1(r) hereto contains a complete and correct
list of all policies of insurance in which the Seller or its officers or
directors (in such
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capacity) is an insured party, beneficiary or loss payable payee. Copies of all
such policies have been previously provided to the Buyer. Such policies are in
full force and effect and in the reasonable judgment of the Seller provide the
type and amount of coverage reasonably required for the business of the Seller.
(s) [INTENTIONALLY OMITTED]
(t) EMPLOYEE ARRANGEMENTS; ERISA. Except as set forth on Schedule
2.1(t), the Seller has (i) no union, collective bargaining, employment,
management, severance or consulting agreements to which the Seller is a party or
is otherwise bound, and (ii) no deferred compensation agreements, pension and
retirement plans, profit-sharing plans, stock purchase and stock option plans.
Schedule 2.1(t) hereto contains a true and complete list of all compensation,
incentive, bonus, severance, disability, hospitalization, medical insurance,
life insurance and other employee benefit plans, programs or arrangements
maintained by the Seller or under which the Seller has any material obligations
(other than obligations to make current wage or salary payments) in respect of,
or which otherwise cover, any of the current or former officers, employees or
consultants of the Seller, or their beneficiaries (each an "Employee Benefit
Plan" and collectively the "Employee Benefit Plans"). Other than the 401K Plan
listed on Schedule 2.1(t), no Employee Benefit Plan is subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). All
contributions to and payments from the Employee Benefit Plans which may have
been required to be made in accordance with the Employee Benefit Plans have been
made or are properly accrued and reflected on the Balance Sheets or the books
and records of the Seller. Schedule 2.1(t) hereto also lists the names,
compensation and all accrued and unused sick time of all persons employed by the
Seller. Other than the 401K Plan listed on Schedule 2.1(t), the Seller has no
Employee Benefit Plans which are qualified for Federal income tax exemption
under Sections 401 and 501 of the Code.
(u) CERTAIN BUSINESS MATTERS. Except as set forth in Schedule 2.1(u)
hereto (i) the Seller is not a party to or bound by any distributorship,
dealership, sales agency, franchise or similar agreement which relates to the
sale, distribution or servicing of the Toll Free Telephone Numbers or services
related thereto, (ii) the Seller does not have any sole-source supplier of
significant goods or services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (iii) there are not pending and, to the Seller's best knowledge
there are not threatened, any labor negotiations involving or affecting the
Seller and, to the Seller's best knowledge, no organizing activities involving
union representation exist in respect of any of its employees, (iv) the Seller
neither gives nor is bound by any express warranties relating to its services
and, to the best knowledge of the Seller, there has been no assertion of any
breach of warranties which could have a material adverse effect on the business
or condition (financial or otherwise) of the Seller and, to the best knowledge
of the Seller, there are no problems or potential problems with respect to any
product sold or services provided by the Seller, (v) the Seller is not a party
to or bound by any agreement which limits its freedom to compete in any line of
business or with any person or entity, (vi) the Seller is not a party to or
bound by any agreement which based on current economic circumstances will result
in a loss when performed, and (vii) the Seller is not a party to or bound by any
agreement or involved in any transaction in which any officer, director,
debtholder or stockholder, or any Affiliate or Associate of any such person has,
or had when made, a direct or indirect material interest.
(v) CONTRACTS. Schedule 2.1(v) hereto contains a complete and correct
list, and brief description, of any and all contracts, commitments, obligations
and
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undertakings, written or oral, to which the Seller is a party or otherwise bound
which involve in excess of $10,000. True and complete copies of all contracts,
commitments, obligations and undertakings set forth in Schedule 2.1(v) hereto
have been furnished to Buyer, and except as expressly stated in Schedule 2.1(v),
each of them is in full force and effect, no person or entity which is a party
thereto or otherwise bound thereby is, to the best knowledge of the Seller, in
default thereunder, and no event, occurrence, condition or act exists which,
with the giving of notice or the lapse of time or both, would give rise to a
default or right of cancellation thereunder, and the Seller is not in default
thereunder and no event, occurrence, condition or act exists by or on behalf of
the Seller which, with the giving of notice or the lapse of time or both would
give rise to a default by the Seller thereunder, and to the Seller's best
knowledge, there have been no threatened cancellations thereof and there are no
outstanding disputes thereunder. To the best of the Seller's knowledge there is
no reason why any of the contracts listed on Schedule 2.1(v), could not be
continued between Buyer and the Seller's contractual partners on the same terms
and conditions as currently apply. The Seller has no reason to believe that any
of the Seller's contractual partners will terminate its relationship with the
Seller as a result of the acquisition of the Seller's assets by Buyer. Attached
as Exhibit A to Schedule 2.1(v) is a true and complete copy of the New AT&T
Agreement. The New AT&T Agreement is an actual offer to the Seller from AT&T
that may be accepted by the Seller (by the Seller's execution and delivery to
AT&T) at any time prior to Closing.
(w) BROKERS. No agent, broker, person or firm acting on behalf of the
Seller or its stockholders or under the authority of any of the foregoing, is or
shall be entitled to a brokerage commission, finder's fee, or other like payment
in connection with any of the transactions contemplated hereby.
(x) DISCLOSURE. To the best knowledge of the Seller, no representation
or warranty made by the Seller herein or in any of the Executed Agreements
contains any untrue statement of a material fact or omits or will omit to state
a material fact necessary in order to make the statements therein not
misleading.
(y) AFFILIATED TRANSACTIONS. Except as set forth in Schedule 2.1(y)
hereto, no Stockholder (i) is a party to any agreement, transaction or
arrangement (oral or written) with or involving the Seller or any Associate or
Affiliate of the Seller or any Stockholder, or (ii) has any claim, monetary or
otherwise, of any sort against the Seller.
(z) DISCLOSURE SCHEDULES. All schedules to this Agreement are integral
parts to this Agreement. Nothing in a schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, unless the
schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail, including by explicit cross-reference
to another schedule to this Agreement. Without limiting the generality of the
foregoing, the mere listing, or inclusion of a copy, of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein, unless the representation or warranty is being made in
connection with the existence of the document or other item itself. The Seller
is responsible for preparing and arranging the schedules corresponding to the
lettered and numbered paragraphs contained herein. Disclosure made in a specific
schedule shall not be deemed to have been disclosed with respect to any other
schedule unless an explicit cross-reference appears.
(aa) PRINCIPAL PLACE OF BUSINESS. The Seller's principal place of
business is located at 16280 National Parkway, Lansing, Michigan 48906.
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2.2 [INTENTIONALLY OMITTED]
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to, and covenants and agrees with, the Seller as follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate its
properties and to carry on the Business as presently conducted by it and is
qualified in each other jurisdiction in which qualification is required for it
to own, lease and operate its properties and carry on the Business as presently
conducted by it, except to the extent that failure to so qualify would not have
a material adverse effect on the financial condition, business or operations of
Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of this Agreement
and of each of the other Executed Agreements to which it shall be a party, the
performance by Buyer of its obligations under this Agreement or such Executed
Agreements and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of Buyer, and Buyer has all necessary corporate power with respect
thereto. This Agreement and the Executed Agreements are, or when executed and
delivered by Buyer shall be, the valid and binding obligations of Buyer,
enforceable in accordance with their respective terms, except to the extent that
enforceability may be limited by the operation of bankruptcy, insolvency or
similar laws. Neither the execution and delivery by Buyer of the Executed
Agreements, nor the consummation of the transactions contemplated thereby, nor
the performance by Buyer of its obligations under the Executed Agreements, shall
(nor with the giving of notice or the lapse of time or both would) (i) conflict
with or result in a breach of any provision of the Articles of Incorporation or
By-Laws of Buyer, (ii) violate any order, writ, injunction, decree, law,
statute, rule or regulation or (iii) interfere with or otherwise materially and
adversely affect the ability of Buyer to carry on the Business as now conducted.
(c) BROKERS. No agent, broker, person or firm acting on behalf of
Buyer or under its authority is or shall be entitled to a brokerage commission,
finder's fee, or other like payment in connection with any of the transactions
contemplated hereby.
3. COVENANTS. The Seller covenants and agrees, and the Stockholders shall
cause the Seller, to perform or take any and all such actions to effectuate the
following from the date hereof until the Closing Date:
3.1 INVESTIGATION BY BUYER. Buyer may, prior to the Closing Date, through
its representatives (including its counsel, accountants and consultants) make
such investigations of the properties, offices and operations of the Seller and
such audit of the financial condition of the Seller as it deems necessary or
advisable in connection with the transactions contemplated hereby, including,
without limitation, any investigation enabling it to familiarize itself with
such properties, offices, operations and financial condition; such investigation
shall not, however, affect the Seller's representations, warranties and
agreements hereunder. Buyer shall, prior to Closing, notify the Seller to the
extent that its Chief Financial Officer shall have actual knowledge of a
material breach of a representation or warranty of the Seller hereunder,
PROVIDED, HOWEVER, that Buyer's Chief Financial Officer shall not be deemed to
have actual knowledge of any such breach merely because of his actual knowledge
of any underlying facts or circumstances or that, given such knowledge, he
should have known of any such breach. The Seller shall permit Buyer and its
authorized representatives to have, after the date hereof, full access to the
premises and to all
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books and records and Returns of the Seller and Buyer shall have the right to
make copies thereof and excerpts therefrom. The Seller and the Stockholders
shall furnish Buyer with such financial and operating data and other information
with respect to the Seller as Buyer may from time to time reasonably request.
3.2 CARRY ON IN ORDINARY COURSE. Except with Buyer's prior written consent,
the Seller shall carry on the Business diligently and substantially in the same
manner as heretofore conducted, and shall not (a) enter into or agree to enter
into any extraordinary transaction, contract, lease or commitment, (i) declare
any dividends, nor make any distributions or payments to its stockholders other
than employment compensation, (ii) redeem any shares of the capital stock of
Seller or issue any capital stock or enter into any agreement which grants a
right to acquire any of the capital stock of Seller, (iii) increase the
compensation of any employee of the Seller, other than ordinary year-end
increases or enter into any severance agreement or employment agreement with any
employee of the Seller; (iv) loan or advance any amounts to any officer,
director, stockholder or employee of the Seller or enter into any agreement with
any of the foregoing or any person related to any of the foregoing, (v) acquire
or dispose of any assets, other than in the ordinary course of business, and
(vi) encumber or commit to encumber any of its assets, (vii) take any action, or
suffer any action to be taken, which could cause any of the representations or
warranties of the Seller contained herein not to be true and correct on and as
of the Closing Date, (viii) repay (including by way of offset) any indebtedness
except for regularly scheduled payments thereof in accordance therewith, or (ix)
enter into any agreement to take any of the foregoing actions.
3.3 OTHER TRANSACTIONS. Until the earlier to occur of the Closing or the
termination of this Agreement pursuant to Section 9.8 hereof, the Seller shall
not, and shall cause the Seller's directors, officers, stockholders, employees,
agents and Affiliates or Associates not to, directly or indirectly, solicit or
initiate the submission of proposals from, or solicit, encourage, entertain or
enter into any arrangement, agreement or understanding with, or engage in any
negotiations with, or furnish any information to, any person, other than Buyer
or a representative thereof, with respect to the acquisition of all or any part
of the business or assets of the Seller or any of its securities. Should the
Seller or any of its Affiliates or Associates, during such period, receive any
offer or inquiry relating to such acquisition, or obtain information that such
an offer is likely to be made, they will provide Buyer with immediate written
notice thereof, which notice will include the identity of the prospective
offeror and the price and terms of any offer.
3.4 CONSENTS. The Seller shall use its best efforts to obtain in writing,
prior to the Closing Date, all consents, approvals, waivers, authorizations and
orders necessary or reasonably required in order to permit it to effectuate this
Agreement and to consummate the transactions contemplated hereby (collectively,
"Consents"). All such Consents will be in writing and copies thereof will be
delivered to Buyer promptly after the Seller's receipt thereof but no later than
immediately prior to Closing. In the event that, notwithstanding the foregoing,
Seller is unable to obtain the Consents listed in items __ through __ in
Schedule 2.1(d) hereto, Buyer will waive the obtaining of such Consents at
Closing upon receipt at Closing of a certificate of the Seller's Chief Executive
Officer that the failure to obtain such Consents will not have a material,
adverse effect on the condition (financial or otherwise) or operations of the
Business after Closing.
3.5 SUPPLEMENTAL DISCLOSURE. The Seller agrees that, with respect to its
representations and warranties made in this Agreement, it will have a continuing
obligation to promptly supplement or amend the schedules hereto with respect to
any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement and on the Closing Date, would have been required to be
set forth or described in the schedules hereto.
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3.6 PUBLIC ANNOUNCEMENTS. The Seller and Buyer agree that they will consult
with each other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby and any press release or any public statement shall be subject to mutual
agreement of the parties, except as may be required by the disclosure
obligations of Buyer under applicable securities laws. The Seller shall cause
its officers, directors and stockholders to comply with this Section 3.6.
4. CONDITIONS TO CLOSING.
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation of Buyer to
close under this Agreement is subject to the satisfaction of the following
conditions any of which may be waived by Buyer in writing at or prior to
Closing:
(a) DUE DILIGENCE. Buyer shall have completed, to its satisfaction,
its business, legal, tax and accounting due diligence.
(b) AGREEMENTS AND CONDITIONS. On or before the Closing Date, the
Seller shall have complied with and duly performed all agreements and conditions
on its part to be complied with and performed pursuant to or in connection with
this Agreement on or before the Closing Date.
(c) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Seller contained in this Agreement, or otherwise made in connection with
the transactions contemplated hereby, shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date.
(d) LOSS, DAMAGE OR DESTRUCTION. Between the date hereof and the
Closing Date there shall not have been any loss, damage or destruction to or of
any of the assets, property or business of the Seller in excess of $10,000 in
the aggregate, whether or not covered by insurance, nor shall the assets,
properties, business or prospects of the Seller have been adversely affected in
any way as a result of any fire, accident, or other casualty, war, civil strife,
riot or act of God or the public enemy or otherwise.
(e) NO LEGAL PROCEEDINGS. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby, and on the Closing Date there will be no court
or governmental actions or proceedings pending or threatened against or
affecting the Seller which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of the Seller.
(f) CERTIFICATE. Buyer shall have received a certificate dated the
Closing Date and executed by an authorized officer of the Seller to the effect
that the conditions expressed in Sections 4.1(b), 4.1(c), 4.1(d) and 4.1(e) have
been fulfilled.
(g) CONSENTS. Buyer shall have received all Consents necessary to
effectuate this Agreement and to consummate the transactions contemplated
hereby.
(h) EMPLOYMENT AGREEMENT. Buyer shall have entered into an
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<PAGE> 21
Employment Agreement with David VanDerveer, in form and substance satisfactory
to Buyer.
(i) ESCROW AGREEMENT. The Seller and the Escrow Agent shall have
entered into the Escrow Agreement.
(j) LEASE AGREEMENT. Buyer and the Seller shall have entered into a
lease agreement covering the offices of Seller located at 16280 National
Parkway, Lansing, Michigan 48906, substantially in the form of Exhibit B hereto
(the "Michigan Lease").
(k) STOCKHOLDER ACKNOWLEDGMENTS. A written acknowledgment and
agreement from each of the Stockholders that, except for amounts set forth in
Schedule 4.1(k) thereto, any and all amounts received by them in any capacity,
directly or indirectly, relating to the Purchase Price due at closing from the
Seller on or after the Closing Date shall, to the extent of such amounts, be
received by them subject to claims against the Seller by Buyer hereunder, at law
or otherwise as though the entire amount thereof were liquidating distributions
pursuant to the Michigan Business Corporation Law.
(l) NON-COMPETITIVE AGREEMENT. Buyer shall have received from David
VanDerveer a Non-Competition Agreement in form and substance satisfactory to
Buyer.
(m) NAME CHANGE. Buyer shall have received a duly authorized and
executed document which amends the certificate of incorporation of the Seller to
change Seller's name to a name other than The Scribers, TSI or any derivative
thereof or any similar name, and is otherwise in form for filing with the
Secretary of State of the State of Michigan.
(n) CERTIFICATES OF STATUS. Buyer shall have received certificates
from the Secretary of State of the State of Michigan and of each jurisdiction
set forth in Schedule 2.1(a) hereto, providing that the Seller has filed its
most recent annual report, has not filed articles of dissolution and is in good
standing in each such jurisdiction.
(o) OPINION OF COUNSEL. The Stockholders shall have furnished Buyer
with a favorable opinion of Abbott, Nicholson, Quilter, Esshaki & Youngblood,
counsel for the Seller and the Stockholders, dated as of the Closing Date, and
in form and substance satisfactory to Buyer.
(p) BILLS OF SALE. Buyer shall have received such bills of sale, deeds
of transfer, assignments and other documents in form and substance satisfactory
to Buyer conveying the Transferred Assets to Buyer.
(q) APPROVAL OF BUYER'S LENDER. Buyer shall have received the approval
of its lender, Canadian Imperial Bank of Commerce, to effectuate this Agreement
and to consummate the transactions contemplated hereby.
4.2 CONDITIONS OF THE SELLER'S OBLIGATIONS TO CLOSE. The obligations of the
Stockholders and the Seller to close under this Agreement are subject to the
following conditions any of which may be waived by the Seller in writing at or
prior to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Closing Date, Buyer
shall have complied with and duly performed all agreements and conditions on its
part to be complied with and performed pursuant to or in connection with this
Agreement on or before the Closing Date.
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<PAGE> 22
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer contained in this Agreement, shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date.
(c) CLOSING CERTIFICATE. The Seller shall have received a certificate
dated the Closing Date and executed by an authorized officer of Buyer to the
effect that the conditions contained in Section 4.2(a) and (b) have been
fulfilled.
(d) ESCROW AGREEMENT. Buyer and the Escrow Agent shall have entered
into the Escrow Agreement.
(e) MICHIGAN LEASE. Buyer shall have entered into the Michigan Lease.
(f) GUARANTY. The Seller shall have received from the Affiliates of
Buyer named therein, a guaranty in the form of Exhibit C hereto.
5. FURTHER ASSURANCES. From time to time after the Closing, and without
further consideration, the Seller shall execute and deliver such other
instruments of conveyance, assignment, transfer and delivery and take such other
actions as Buyer may reasonably request in order more effectively to Transfer to
Buyer, to place Buyer in possession or control of, all of the rights,
properties, assets and businesses intended to be Transferred hereunder, to
assist in the collection of any and all such rights, properties and assets, and
to enable Buyer to exercise and to enjoy all of the rights and benefits of the
Seller with respect thereto.
6. TRANSFER TAXES. The Seller shall pay all income, gains, sales and excise
taxes, if any, incurred in connection with the transactions contemplated by this
Agreement and Buyer shall reimburse the Seller for any such sales taxes paid by
it up to $50,000. With respect to any item that is exempt from sales or use tax
on any basis, Buyer shall deliver to the Seller such certificates for such
exemption as the Seller may reasonably request. Except as hereinabove provided,
the party hereto which is responsible under applicable law shall bear and pay in
their entirety all other taxes and registration and transfer fees, if any,
payable by reason of the Transfer of the Transferred Assets pursuant to this
Agreement. Each party hereto will cooperate to the extent practicable in
minimizing all taxes (other than income taxes) and fees levied by reason of the
Transfer of the Transferred Assets.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties of the
Stockholders in this Agreement or in any document delivered pursuant hereto
shall survive the Closing Date for a period of two (2) years and shall then
terminate; PROVIDED, HOWEVER, that (i) any such representation and warranty
shall survive the time it would otherwise terminate only with respect to claims
of which notice has been given as provided in this Agreement prior to such
termination and (ii) such time limitation shall not apply to the representations
and warranties set forth in Section 2.2(b) hereof, which shall survive
indefinitely, and Sections 2.1(i), 2.1(l) and 2.1(n) hereof, which shall survive
until the expiration of the applicable statute of limitations.
7.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this Section 7, each
party which, pursuant to this Section 7, shall agree to indemnify any other
person or entity shall be
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referred to, as applicable, as the "Indemnitor", and each such person and entity
who is entitled to be indemnified by any Indemnitor shall be referred to as the
"Indemnified Person" with respect to such Indemnitor.
7.3 INDEMNITY OF THE SELLER. The Seller hereby agrees to indemnify, hold
harmless and pay and reimburse Buyer and its directors, officers, agents and
employees from and against any and all claims, liabilities, losses, damages and
expenses incurred, as and when incurred, by such Indemnified Persons (including
reasonable attorneys' fees and disbursements) which shall be caused by or
related to or shall arise out of (a) any breach or alleged breach of any
representation or warranty of the Seller contained in this Agreement, (b) any
breach of any covenant or agreement of the Seller contained in the Agreement and
(c) any failure by the Seller to satisfy the Excluded Liabilities. The Seller
further agrees that it shall not settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder, without the prior
written consent of Buyer, which consent shall not be unreasonably withheld.
7.4 INDEMNITY OF BUYER. Buyer hereby agrees to indemnify, hold harmless and
pay and reimburse the Seller and the Seller's directors, officers, agents and
employees from and against any and all claims, liabilities, losses, damages and
expenses incurred, as and when incurred, by them (including reasonable
attorneys' fees and disbursements) which shall be caused by or related to or
shall arise out of (a) any breach or alleged breach of any representation or
warranty of Buyer contained in this Agreement, (b) any breach of any covenant or
agreement of Buyer contained in the Agreement and (c) any Assumed Liability and
the operation of the business after Closing, and shall reimburse such
Indemnified Persons for all costs and expenses (including reasonable attorneys'
fees and disbursements) as shall be incurred, in connection with paying,
investigating, preparing for or defending any action, claim, investigation,
inquiry or other proceeding, whether or not in connection with pending or
threatened litigation, which shall be caused by or related to or shall arise out
of such breach or alleged breach, whether or not such Indemnified Persons shall
be named as a party thereto and whether or not any liability shall result
therefrom. Buyer further agrees that it shall not settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder,
without the prior written consent of the Seller, which consent shall not be
unreasonably withheld.
7.5 LIMITATION ON INDEMNIFICATION. No Indemnified Person shall be entitled
to assert any claim for indemnification arising out of a breach of
representation or warranty under Section 7.3(a) or 7.4(a) hereof until such time
as all such claims for indemnification shall exceed $50,000 in the aggregate.
Further, the dollar amount of the indemnification obligations in respect of such
claims for a breach of representations or warranties under each of Section
7.3(a) and 7.4(a) may not exceed, in the aggregate, [******] (the "Claims
Limitation"), unless the Indemnitor shall have provided information to Buyer or
the Seller, as the case may be, in connection herewith, or made representations
or warranties hereunder which, in either case the Indemnitor knew or should have
known were inaccurate or misleading, or omitted facts necessary to make them not
misleading, in which event the Claims Limitation shall not apply.
7.6 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after receipt by an
Indemnified Person of notice of the commencement of any action or proceeding
with respect to which indemnification may be sought hereunder, such Indemnified
Person shall notify the Indemnitor of the commencement of such action or
proceeding, but failure to so notify the Indemnitor shall not relieve the
Indemnitor from any liability which the Indemnitor may have hereunder or
otherwise, unless the Indemnitor shall be materially prejudiced by such failure.
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<PAGE> 24
If the Indemnitor shall so elect, the Indemnitor shall assume the defense of
such action or proceeding, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall pay the fees and
disbursements of such counsel. In the event, however, that such Indemnified
Person shall reasonably determine in its judgment that having common counsel
would present such counsel with a conflict of interest or alternative defenses
shall be available to an Indemnified Person or if the Indemnitor shall fail to
assume the defense of the action or proceeding in a timely manner, then such
Indemnified Person may employ separate counsel to represent or defend it in any
such action or proceeding and the Indemnitor shall pay the reasonable fees and
disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons in any jurisdiction in any single action or
proceeding. In any action or proceeding the defense of which the Indemnitor
shall assume, the Indemnified Person shall have the right to participate in such
litigation and to retain its own counsel at such Indemnified Person's own
expense except as otherwise provided above in this Section 7.5, so long as such
participation does not interfere with the Indemnitor's control of such
litigation.
8. NON-COMPETITION; CONFIDENTIALITY.
8.1 NON-COMPETITION. Following the Closing Date and for a period of five
(5) years thereafter (the "Non-Competition Period"), the Seller shall not,
directly or indirectly, (a) engage in any business or activity that competes
with any business in which the Seller or any of its Affiliates is then engaged,
anywhere in the contiguous United States; (b) enter the employ of any person or
entity engaged in any business or activity that competes with any such business
or render any consulting or other services to any person or entity for use in or
with the effect of competing with any such business; or (c) have an interest in
any business or activity that competes with any such business, in any capacity,
including, without limitation, as an investor, partner, stockholder, officer,
director, principal, agent, employee, or creditor; PROVIDED, HOWEVER, that
nothing herein shall prevent the purchase or ownership by any Stockholder of
less than 3% of the outstanding equity securities of any class of securities of
a company registered under Section 12 of the Securities and Exchange Act of
1934, as amended.
8.2 NO COMPETING INTERESTS. Each Stockholder hereby severally represents
and warrants to Buyer that he or she has no ownership or other interest in any
business or activity that competes, directly or indirectly, with the Business.
8.3 NON-DISRUPTION. During the Non-Competition Period, the Seller and the
Stockholders shall not, directly or indirectly, interfere with, disrupt or
attempt to disrupt any present or prospective relationship, contractual or
otherwise, between the Buyer or any of its Affiliates, on the one hand, and any
of their customers, suppliers or employees, on the other hand.
8.4 CONFIDENTIALITY. The Seller shall not, and shall cause its officers,
directors and stockholders not to, at any time, directly or indirectly, use
communicate, disclose or disseminate any Confidential Information in any manner
whatsoever (except to his personal financial or legal advisors and as may be
required under legal process by subpoena or other court order; provided that,
the Seller will take reasonable steps to give the Buyer sufficient prior written
notice in order to contest such requirement or order). "Confidential
Information" means any and all information (oral or written) relating to the
Business, the Buyer or any person controlling, controlled by, or under common
control with the Buyer or any of their respective activities, including, but not
limited to, information relating to trade secrets, proprietary information,
software, software codes, advertising, sales, marketing and other materials
customers and supplier lists, data processing reports, customer sales analyses,
invoice, price lists or information, and
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information pertaining to any governmental investigation, except such
information which is generally known in the industry or in the public domain
(such information not being deemed to be in the public domain merely because it
is embraced by more general information which is in the public domain), other
than as a result of a breach of the provisions hereof.
8.5 REMEDIES UPON BREACH. The Seller and the Stockholders acknowledge and
agree that (a) Buyer shall be irreparably injured in the event of a breach by
the Seller or a stockholder of any of the obligations under this Section 8; (b)
monetary damages shall not be an adequate remedy for such breach; (c) Buyer
shall be entitled to injunctive relief, in addition to any other remedy which it
may have, in the event of any such breach; and (d) the existence of any claims
which the Seller or an Indemnified Person may have against Buyer, whether under
this Agreement or otherwise, shall not be a defense to the enforcement by Buyer
of any of its rights under this Agreement.
9. MISCELLANEOUS PROVISIONS.
9.1 CONFIDENTIALITY. The Seller, the Stockholders and Buyer agree not to,
directly or indirectly, without the prior written consent of the other, use or
disclose to any person, firm or corporation, any materials or information
obtained in Buyer's due diligence investigation of Seller not a part of the
Purchased Assets, or any of the terms of this Agreement, except as may be
required by the disclosure obligations of Buyer under applicable securities laws
or as may be required to be disclosed to the attorneys and/or accountants of the
parties hereto in connection with the transactions contemplated hereby.
9.2 NOTIFICATION. Each party hereto shall give the other party or parties
hereto prompt written notice of (a) the existence of any fact or the occurrence
of any event which constitutes, or with the giving of notice or the passage of
time or both would constitute, a breach of any representation or warranty of the
party giving such notice made herein or pursuant hereto and (b) the taking of
any action by the party giving such notice that would breach or violate, or
constitute a default under, any agreement or covenant of such party made herein
or pursuant hereto. The giving of any such notice shall not affect, modify or
limit in any way any representation, warranty, agreement or covenant of the
parties made herein or pursuant hereto.
9.3 RESERVE. In addition to, and not in limitation of the obligations of
the Seller, its directors and the Stockholders pursuant to the Michigan Business
Corporation Law, the Seller acknowledges and agrees that it shall maintain, in
cash, and as a reserve against any claims by Buyer against it hereunder, at law
or otherwise, an amount at least equal to [******], at least until such time as
the Seller shall have paid any Adjustment Amounts due hereunder or as there
shall be finally determined that no such Adjustment Amounts shall be due.
9.4 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
9.5 NOTICES. All notices, requests, demands and other communications which
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed duly given when delivered by hand, or posted in the
United States mail by registered or certified mail with postage pre-paid, return
receipt requested, (a) if to Buyer, to Scribers, Inc., c/o Protocol
Communications, Inc., 2197 Ringling Blvd., Sarasota, Florida 34237, Attention:
Stephen McLean; copy to Hertzog, Calamari & Gleason, 100 Park Avenue, New York,
NY 10016, Attention: John D. Vaughan, Esq., facsimile number: (212) 213-1199,
and (b) if to the Seller, to
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16280 National Parkway, Lansing, Michigan 48906 or to such other address(es) as
shall be specified by like notice to the other parties.
9.6 AMENDMENTS. This Agreement may be amended or modified at any time prior
to the Closing Date, but only by a written instrument executed by all of the
parties hereto.
9.7 ENTIRE AGREEMENT. This Agreement (together with the other agreements,
certificates, instruments and documents delivered pursuant hereto) constitutes
the entire agreement among the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, oral and
written, among the parties hereto with respect to the subject matter hereof.
9.8 APPLICABLE LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
internal laws of the State of Delaware. The parties hereby consent to the
exclusive jurisdiction of Federal and New York State courts located in the
County of New York and agree that service of process by certified mail, return
receipt requested, shall constitute personal service for all purposes hereof.
9.9 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date by any of the following:
(a) By mutual written agreement of Buyer and the Seller;
(b) By either Buyer or the Seller, if the Closing has not occurred by
December 31, 1998, upon written notice by such terminating party, provided that
at the time such notice is given a material breach of this Agreement by such
terminating party shall not be the principal reason for the Closing's failure to
occur;
(c) Subject to the provisions of Section 9.9 hereof, by Buyer, by
written notice to the Seller, if there has been a material violation or breach
of any of the Stockholders' or the Seller's covenants or agreements made herein
or in connection herewith or if any representation or warranty of the
Stockholders or the Seller made herein or in connection herewith proves to be
materially inaccurate or misleading; or
(d) Subject to the provisions of Section 9.9 hereof, by the Seller, by
written notice to Buyer, if there has been a material violation or breach of any
of Buyer's covenants or agreements made herein or in connection herewith or if
any representation or warranty of Buyer made herein or in connection herewith
proves to be materially inaccurate or misleading.
9.10 EFFECTS OF TERMINATION. If this Agreement is terminated as provided in
Section 9.8 hereof, then this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto (or any of
their respective Stockholders, officers, directors or employees), except based
on the agreements contained in Section 7.3 and 7.4 hereof; PROVIDED, however,
that if Buyer terminates this Agreement pursuant to Section 9.8(c) hereof, or
the Seller terminates this Agreement pursuant to Section 9.8(d) hereof, the
non-terminating party shall remain liable for any breach hereof.
9.11 HEADINGS. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
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9.12 FEES AND DISBURSEMENTS. Buyer shall pay its own expenses, and the fees
and disbursements of the counsel, accountants or auditors retained by it in
connection with the preparation, execution and delivery of this Agreement and
the fees and expenses and disbursements of the counsel to the Seller shall be
paid by the Buyer at Closing out of the Purchase Price.
9.13 ASSIGNMENT. This Agreement may not be assigned by the Seller without
the prior written consent of Buyer.
9.14 BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns. Nothing in this Agreement,
express or implied, is intended to confer upon any person other than the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
9.15 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.16 OFFSET. Buyer shall have the right (but not the obligation), at any
time, to offset any amounts due from it hereunder against amounts due from buyer
hereunder.
[NEXT PAGE IS SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this
Asset Purchase Agreement the day and year first above written.
BUYER:
SCRIBERS, INC.
By: /s/ Raymond P. Wilson
---------------------------------------------------
Title: VP
SELLER:
THE SCRIBERS, INC.
By: /s/ David Vanderveer
---------------------------------------------------
Title: President/CEO
STOCKHOLDERS:
with respect only to Sections 1.1, 2.1(y), 3, 8.2, 8.3,
8.4, 8.5 and 9.3 hereof
/s/ David Vanderveer
-------------------------------------------------------
DAVID VANDERVEER
/s/ Mitch Cornell
-------------------------------------------------------
MITCH CORNELL
/s/ Jeff Cohen
-------------------------------------------------------
JEFF COHEN
/s/ Walter Rolph
-------------------------------------------------------
WALTER ROLPH
/s/ Peter Davis
-------------------------------------------------------
PETER DAVIS
/s/ Gary Hanlin
-------------------------------------------------------
GARY HANLIN
/s/ Jay Kuiper
-------------------------------------------------------
JAY KUIPER
28
<PAGE> 1
EXHIBIT 2.12
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made this 28th day
of March, 1999, by and between Protocol Holdings, Inc., a Delaware corporation
("Parent"), Protocol Communications, Inc., a Delaware corporation and
wholly-owned subsidiary of Parent ("Buyer"), 3223574 Canada, Inc. a Canadian
corporation (the "Company"), Media Express, Inc., a Canadian corporation ("ME"),
METC Financial Services Inc., a Canadian corporation ("METC") (ME and METC are
collectively referred to as the "Affiliates"), and the stockholders of the
Company listed on the signature pages hereto (collectively, the "Sellers").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Affiliates and the Company are principally engaged in the
business of supplying call center services (the "Business") and are the end user
subscribers for certain toll free telephone numbers listed on Schedule 2.1(r)
hereto (the "Toll Free Telephone Numbers");
WHEREAS, at the Closing (as hereinafter defined) the Sellers shall be
the owners of all of the issued and outstanding capital stock of the Company
(the "ME Stock"); and
WHEREAS, the Sellers desire to sell to Buyer, and Buyer desires to
purchase from the Sellers, all of the ME Stock, all in the manner and subject to
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1.A. DEFINITIONS.
1.A.1. For the purposes of this Agreement the following terms shall
have the following meaning:
(a) "Permitted Encumbrances" means:
(i) liens for taxes, assessments or governmental
charges not due and payable;
(ii) liens reserved in or exercisable under any lease
and for compliance with the terms of such lease; and
(iii) security given in the ordinary course of
business to a public utility or any municipality or other governmental body in
connection with the operation of the Business; and
- ------------------
In this Exhibit, "[***]" represents material omitted from this Exhibit and filed
separately with the Securities and Exchange Commission and for which
Confidential Treatment has been requested.
<PAGE> 2
(iv) any legal hypothec in favor of the Landlord
relating to the leased premises located at 1134 St. Catherine Street West,
Montreal, Quebec H3B 1H4.
(b) "Conversion Rate" means the mid-point between the buying
and selling spot rates of the Bank of Canada as of noon on the day before the
Closing Date for the purchase or sale of Canadian currency in exchange for
United States currency.
1.B. INTERPRETATION.
1.B.1 Any reference herein to "to the knowledge of" shall be deemed to
mean to the best of the information, knowledge and belief of Claude Cohen and
David Knafo.
1. TERMS OF ACQUISITION.
1.1 STOCK PURCHASE. On the terms and subject to the conditions
of this Agreement, on the Closing Date (as hereinafter defined), each Seller
shall sell, convey, transfer, assign and deliver ("Transfer") to Buyer, and
Buyer shall purchase and acquire from such Seller, all right, title and interest
of such Seller, legal and equitable, beneficially and of record, in and to the
number of shares of ME Stock set forth opposite the name of such Seller on
Schedule 1.1 hereto. The certificates evidencing the ME Stock shall be delivered
at the Closing (as hereinafter defined) to Buyer, free and clear of all prior
claims, hypothecs, liens, claims, security interests and encumbrances,
accompanied by duly executed stock powers (endorsed in blank, with signatures
guaranteed), any necessary stock transfer tax stamps affixed thereto, and any
other documents useful or necessary to give effect to the Transfers contemplated
herein.
1.2 PURCHASE PRICE. (a) As the purchase price for all of the ME
Stock (the "Purchase Price"), the Buyer shall pay to the Sellers a sum which is
the aggregate of the following, subject to the adjustments referred to in
Section 1.4, Section 1.5 and Section 1.6 below:
(i) an amount of [******************************];
(ii) an amount of [******************************] ;
(iii) an amount of Canadian funds equivalent to
[******************************] converted at the Conversion Rate;
(iv) an amount of [*****************************
*****].
(b) The Purchase Price shall be satisfied as follows:
(i) subject to the adjustments referred to in
Section 1.2(a) above, the amounts mentioned in Sections 1.2(a)(i), (ii) and
(iii) (collectively, the "Cash Purchase Price") shall be paid at the times
hereafter mentioned;
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(ii) subject to the adjustments referred to in
Section 1.2(a) above, the amount mentioned in Section 1.2(a) (iv) shall be paid
by the issuance and allotment to the Sellers of [*} shares of Common Stock of
Parent (the "Parent Common Stock"). The Parent Common Stock shall be issued at
[*} per share (which the parties agree constitutes the fair market value of the
Parent Common Stock) as fully paid and non-assessable shares and shall be issued
to the Sellers as hereafter mentioned, the further transfer of which shall be
restricted by the Securities Act of 1933, as amended (the "Securities Act") and
as provided under Section 2.2(g) hereof.
(c) The Purchase Price shall be:
(i) allocated among and payable to, the Sellers
based upon the percentages set forth on Schedule 1.2 hereof; and
(ii) shall be allocated to the shares comprising the
ME Stock as follows:
(A) first to such of the ME Stock as
comprise the Class B, Class E, Class F and Class G shares, an amount equal to
the [*************************************************], less an aggregate
amount of [*****************];
(B) as to the portion of the Purchase Price
payable by way of allotment of Parent Common Stock, to such of the ME stock as
comprise the Class B, Class E, Class F and Class G shares, as and when payable
as herein provided;
(C) then to such of the ME Stock as comprise
Class A shares, the balance of the Purchase Price;
(D) any adjustments to the Purchase Price as
provided herein shall be allocated entirely to such of the ME Stock as comprise
Class A shares. To the extent that the adjustment in the Purchase Price is
represented by a reduction in the number of shares of Parent Common Stock to be
issued pursuant to the provisions hereof, the Cash Purchase Price allocated to
such of the ME Stock as comprise the Class B, Class E, Class F and Class G
shares shall be deemed to have been increased, and the Cash Purchase Price
allocated to such of the ME Stock as comprise the Class A shares shall be deemed
to have been reduced, by the amount of such adjustment, calculated at the rate
of the Canadian equivalent of [*********************] (converted at the
Conversion Rate) for each share of Parent Common Stock not issued as the result
of such adjustment.
(d) The Cash Purchase Price payable pursuant to Sections
1.2(a)(i) and 1.2(a)(ii) shall be payable in cash by wire transfer of
immediately available funds to a joint account of the Sellers designated by
Claude Cohen and David Knafo ("Sellers' Rep") in writing prior to Closing and
shall be due as follows: (i) at Closing an amount equal to [************]; and
(ii)
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[**********] payable upon the final determination of FY99 EBITDA pursuant to
(and as defined in) Section 1.4 hereof, and subject to adjustment as therein
provided. The Cash Purchase Price payable pursuant to Section 1.2(a)(iii) shall
be payable as and to the extent set forth in Section 1.5 hereof, provided that
(i) [************] (the "Initial Escrow Deposit") shall be paid on the Closing
Date to Sellers to be paid immediately to the account of United States Trust
Company of New York, as escrow agent ("Escrow Agent") designated in the escrow
agreement referred to in Section 4.1(q) hereof (as the same may be amended from
time to time, the "Escrow Agreement") and (ii) the balance (the "Additional
Escrow Deposits") (together with the Initial Escrow Deposit, the "Escrow
Amounts") shall be paid to Sellers to be paid immediately to the Escrow Agent in
accordance with Section 1.5 hereof, such Escrow Amounts to be held and disbursed
by the Escrow Agent pursuant to the terms of the Escrow Agreement and Section
1.5 hereof. The Cash Purchase Price payable pursuant to Section 1.2(a)(iii)
shall be subject to adjustment as provided in Section 1.5 and the Sellers shall
be entitled to receive from the Escrow Agent the Escrow Amounts only to the
extent provided in Section 1.5 hereof.
(e) The Parent Common Stock shall be issued (i) [********]
shares in the aggregate at Closing; (ii) [*****] shares, in the aggregate, upon
the final determination of FY99 EBITDA pursuant to Section 1.4 hereof if the
condition set forth in Section 1.4(d) is met; (iii) [********] shares, in the
aggregate, upon the final determination of the FY00 EBITDA pursuant to (and as
defined in) Section 1.5 hereof and subject to adjustment as therein provided;
and (iv) [****] shares, in the aggregate, upon the final determination of the
FY01 EBITDA pursuant to (and as defined in) Section 1.6 hereof and subject to
adjustment as therein provided. The Sellers' Rep shall be entitled to direct the
Parent to issue up to [*****] shares of Parent Common Stock to employees of the
Business designated by the Sellers' Rep, in lieu of the Sellers (the "First
Designation"). The shares so designated shall be issued by the Parent to such
employees upon the execution by such employees of an investment letter whereby
such employees shall agree to be bound by the terms and conditions of the
Shareholders Agreement referred to in Section 4.1(h) hereof and the amount of
such Parent Common Stock so issued to such employees shall be deducted from the
Parent Common Stock otherwise issuable to the Sellers. The Parent shall, in
likewise manner, and for no consideration, also issue to employees of the
Business designated by the Sellers' Rep (who may be different employees than
those designated in the First Designation) the same number of shares of Parent
Common Stock as were issued in connection with the First Designation upon the
execution by such employees of an investment letter whereby such employees shall
agree to be bound by the terms and conditions of the Shareholders Agreement
referred to in Section 4.1(h) hereof.
1.3 CLOSING DATE. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place either at the offices of Buyer's
counsel in Boston, Massachusetts or at the offices of Sellers' counsel in
Montreal, Quebec as agreed to by the parties, at 10:00 A.M., on April 21, 1999,
or at such other place and/or on such other date and time as shall be agreed
upon by Buyer and the Sellers' Rep. (the "Closing Date").
1.4 FY99 PURCHASE PRICE ADJUSTMENT.
(a) On or before May 31, 1999, Sellers shall, at their sole
expense, cause Messrs. Boisjoli, Sabban, Sabbag, Ziri and Malka (the "Sellers'
Accountants") to deliver to the representatives of the Buyer ("Buyer") an
audited balance sheet as of April 30, 1999 (the
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<PAGE> 5
"April 30 Balance Sheet") and an audited balance sheet and related statements of
income, retained earnings and cash flows of the Company for the Company's fiscal
year ended January 31, 1999 (the "FY99 Financial Statements"), all of which
financial statements shall be prepared on a consolidated basis and in accordance
with generally accepted accounting principles in the United States ("GAAP")
consistently applied with the Seller's past practices, except to the extent such
past practices are inconsistent with GAAP. The parties acknowledge that the
foregoing documentation (collectively the "Financial Statements") may be
delivered IN SERIATIM, in which event the provisions hereafter mentioned shall
apply with respect to each of the documentation as and when the same are
delivered. The cost of the preparation of the Financial Statements shall be
borne by the Sellers.
(b) The Buyer shall be permitted to have its auditors KPMG
Peat Marwick LLP (the "Buyer's Accountants") review the Financial Statements and
ask questions to personnel of the Company, the Affiliates, the Sellers and the
Sellers' Accountants with respect to the preparation thereof. The Buyer's
Accountants shall have prompt access to the working papers of the Sellers'
Accountants with respect to the preparation of the Financial Statements.
If the Buyer wishes to dispute any matter in any of the Financial Statements, it
may do so by notice ("Notice of Dispute") to either Claude Cohen or David Knafo
on behalf of the Sellers given within thirty (30) calendar days of the delivery
of the applicable Financial Statements to the Buyer and Buyer's having been
provided access to the related work papers of Sellers' Accountants. A Notice of
Dispute shall specify the basis for each objection. The parties shall use their
best efforts to amicably resolve any matters identified in a Notice of Dispute
as promptly as practicable. If any such dispute shall not have been resolved
within thirty (30) calendar days following the date on which the Notice of
Dispute is given, then such unresolved matters shall be referred to a major
independent accounting firm agreed to by the parties for resolution (the
"Independent Accountants"). In the event that the parties are not able to agree
on the Independent Accountants within five (5) days after the expiration of the
foregoing thirty (30) calendar day period, the Independent Accountants shall be
designated jointly by the Buyer's Accountants and the Sellers' Accountants
within five (5) business days thereafter. The Independent Accountants shall
resolve all disputes that have been submitted to them within thirty (30)
calendar days after the matter has been referred to them. The determination of
the Independent Accountants shall be in writing, delivered to Sellers' Rep and
Buyer, and shall be final and binding on the parties.
If no Notice of Dispute is given within the initial thirty (30) day period
prescribed above, then the Financial Statements as prepared by the Sellers'
Accountants shall be final and binding on the parties with respect to any
adjustments required to be made pursuant to the provisions of this agreement
relating to such Financial Statements. If a Notice of Dispute is given in
accordance with this Section 1.4(b), then the Financial Statements shall be
amended for all purposes of this agreement following the agreement of the
parties or failing such agreement, following the decision of the Independent
Accountants and such amended Financial Statements shall be final and binding on
the parties with respect to any adjustments required to be made hereunder
relating to such Financial Statements.
In the event of a dispute, the fees and disbursements of the Sellers'
Accountants shall be borne by the Sellers. In the event of a dispute, the fees
and disbursements of the Buyer's Accountants shall
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<PAGE> 6
be borne by the Buyer. The fees and disbursements of the Independent
Accountants, if any, shall be shared equally by the Buyer on the one hand and
the Sellers, jointly and severally, on the other hand.
(c) The Cash Purchase Price shall be adjusted in each of the
following instances, based on the Financial Statements, as finally determined in
accordance herewith, by the amount (the "FY99 Adjustment Amount") determined as
follows:
(i) in the event that the sum of the Canadian dollar
equivalent of [**********************************************************] based
on the Conversion Rate shall exceed FY99 EBITDA (as defined below), the Cash
Purchase Price shall be reduced by an amount equal to [***] Canadian for each
$1.00 Canadian of the amount by which the sum of the Canadian dollar equivalent
of [**************************************************] based on the Conversion
Rate shall exceed FY99 EBITDA (rounded down to the nearest whole dollar),
provided, however, that such reduction shall only occur if the sum of the
Canadian dollar equivalent of [********] based on the Conversion Rate shall
exceed FY99 EBITDA;
(ii) in the event that the sum of [*********]
Canadian shall exceed Net Current Assets (as defined below), the Cash Purchase
Price shall be reduced by an amount equal to [****] Canadian for each $1.00
Canadian of such excess (rounded down to the nearest whole dollar) (the "NCA
Reduction");
(iii) in the event that Net Current Assets shall
exceed the sum of [********] Canadian, the Cash Purchase Price shall be
increased by an amount equal to [*****] Canadian for each $1.00 Canadian of such
excess (rounded down to the nearest whole dollar), provided, however, that such
increase shall not exceed [*******] Canadian (the "NCA Increase");
(iv) in the event that Net Current Assets shall
exceed April 30 Net Current Assets (as defined below), the Cash Purchase Price
shall be reduced as follows:
(A) If an NCA Increase is made pursuant to
(iii) above and if the amount by which Net Current Assets exceeds April 30 Net
Current Assets (the "Deficiency Amount") is less than or equal to the NCA
Increase, then the amount of the NCA Increase shall be reduced by the Deficiency
Amount;
(B) If an NCA Increase is made pursuant to
(iii) above and if the Deficiency Amount is greater than the NCA Increase, then
the amount of the NCA Increase shall be reduced to zero by a portion of the
Deficiency Amount and the Cash Purchase Price shall be (i) reduced by the
remainder of the Deficiency Amount (the "Deficiency Amount Remainder") and (ii)
increased by an amount, if any, equal to the amount of cash used by the Company
to purchase fixed assets during the period from January 31, 1999 to April 30,
1999 (the "Fixed Asset Amount"), provided, however, that the Fixed Asset Amount
shall not exceed the lesser of [********] Canadian or the Deficiency Amount
Remainder;
(C) If an NCA Reduction is made pursuant to
(ii) above, the Cash Purchase Price shall be (i) reduced by the Deficiency
Amount and (ii) increased by the
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<PAGE> 7
Fixed Asset Amount, if any, provided, however, that the Fixed Asset Amount shall
not exceed the lesser of [********] Canadian or the Deficiency Amount.
(d) In the event that the FY99 EBITDA shall exceed the
Canadian dollar equivalent of the sum of [*********************************
***************] based on the Conversion Rate, Parent shall issue to the
Sellers, within three (3) business days of the final determination of the
Financial Statements in accordance with Section 1.4(b) above, in the aggregate
[******] shares of the Parent Common Stock.
(e) Within three (3) business days of the final
determination of the Financial Statements in accordance with Section 1.4(b)
above, (i) each Seller shall pay to Buyer (whether or not the sum of such FY99
Adjustment Amounts shall exceed the portion of the Cash Purchase Price received
by such Seller) his or her share (based on the percentages set forth on Schedule
1.2 hereto) of each FY99 Adjustment Amount calculated pursuant to Sections
1.4(c)(i), 1.4(c)(ii) and 1.4(c)(iv) above, it being understood that the Sellers
shall be jointly and severally responsible for the payment of such amounts; and
(ii) Buyer shall pay to the Sellers the aggregate FY99 Adjustment Amount
calculated pursuant to Section 1.4(c)(iii) above, by wire transfer of
immediately available funds to an account designated in writing by Sellers' Rep
or Buyer, as the case may be.
(f) For purposes hereof, (i) "FY99 EBITDA" shall mean the
earnings of the Company for its fiscal year ended January 31, 1999, as set forth
in the FY99 Financial Statements before deduction for interest, taxes,
depreciation and amortization, in each case, determined in accordance with GAAP,
as adjusted for non-recurring income, charges and adjustments set forth on
Schedule 1.4(f) hereto and with respect to non-recurring income, charges and
adjustments, to the extent actually earned or incurred on or before the Closing
Date and in accordance with those provisions set forth on Schedule 1.4(f). In
the calculation of FY99 EBITDA, governmental grants and subsidies received
(collectively, the "Grants") shall be accounted for in accordance with GAAP.
(ii) "Net Current Assets" shall be determined based on the FY99 Financial
Statements and shall mean the excess of (A) cash and cash equivalents as of
January 31, 1999 and (B) accounts receivable of the Company as of January 31,
1999 which have been incurred in the ordinary course of business for services
performed or products delivered and (C) any amounts not to exceed $100,000
Canadian owing as of January 31, 1999 on account of Grants and (D) advances
owing from Ruppman Express Company in the amount of $151,400 Canadian over (E)
such of the liabilities of the Company on January 31, 1999 as shall constitute
current liabilities under GAAP and (F) the liability of the Company in the
amount of $68,602.00 Canadian in respect of the Government of Canada loan
referenced in Schedules 2.1(e) and 2.1(w), (iii) "April 30 Net Current Assets"
shall be determined based on the April 30 Balance Sheet and shall mean the
excess of (A) cash and cash equivalents as of April 30, 1999 and (B) accounts
receivable of the Company as of April 30, 1999 which have been incurred in the
ordinary course of business for services performed or products delivered and (C)
any amounts not to exceed $100,000 owing as of April 30, 1999 on account of
Grants and (D) a dividend receivable owing from 3425321 Canada Inc. in the
amount of $108,924 Canadian over (E) such of the liabilities of the Company on
April 30, 1999 as shall constitute current liabilities under GAAP and (F) to the
extent that such liability has not been discharged as of April 30, 1999, the
liability of the Company in the amount of $68,602.00 Canadian in respect of the
Government of Canada loan referenced in Schedules 2.1(e) and 2.1(w).
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<PAGE> 8
(g) Any accounts receivable of the Company which have been
incurred prior to the Closing Date and which are not collected on or before the
date which is one hundred twenty (120) days after April 30, 1999 shall be sold
by Buyer and purchased by Sellers for an aggregate purchase price equal to the
total face amount of the receivables being sold.
(h) For all purposes of this Agreement, all calculations of
earnings, EBITDA, profits, Net Current Assets and the like shall be calculations
of and shall be deemed to mean the aggregate earnings, EBITDA, profits, Net
Current Assets and the like of the Company and the Affiliates, notwithstanding
that such expressions in this Agreement may refer to the Company alone.
1.5 FY00 PURCHASE PRICE ADJUSTMENTS. (a) As part of the Purchase
Price payable pursuant to Section 1.2 above, in the event that FY00 EBITDA (as
defined below) shall (i) exceed fifteen (15%) percent of gross revenues for such
period and (ii) equal at least the Canadian dollar equivalent of [**************
********************] based upon the Conversion Rate (the "Target Amount"),
Buyer shall pay to the Sellers the amount mentioned in Section 1.2(a)(iii)
hereof subject to a reduction in such amount should the FY00 EBITDA be less than
the Target Amount such that the Sellers shall be entitled to receive, based upon
the actual FY00 EBITDA actually achieved, the amount correspondingly indicated
on Schedule 1.5 annexed hereto ("FY00 Purchase Price Amount"). In addition to
the foregoing, in the event that FY00 EBITDA shall exceed fifteen (15%) percent
of gross revenues for such period and if the Target Amount is achieved, there
shall be issued to the Sellers in the aggregate [*****] shares of the Parent
Common Stock subject to a reduction in the number of such shares should the FY00
EBITDA be less than the Target Amount such that the Sellers shall be entitled to
receive, based upon the actual FY00 EBITDA actually achieved, the amount of
shares correspondingly indicated on Schedule 1.5 annexed hereto.
Notwithstanding the foregoing, and subject to the provisions of the Escrow
Agreement, the Buyer shall, within thirty (30) days after the completion of the
Company's quarterly financial statements and, in any event, within sixty (60)
days after the end of the quarter, pay to the Sellers to be paid immediately to
the Escrow Agent, in addition to the Initial Escrow Deposit payable at Closing,
and the Escrow Agent shall pay to the Sellers, subject to adjustment, at the end
of each of the three (3), six (6) and nine (9) months of the Company's fiscal
year ending January 31, 2000, on account of the amount payable pursuant to
Section 1.2(a)(iii) hereof, an amount determined by Buyer on account of the FY00
EBITDA then achieved by the Company and determined as follows:
(i) At the end of the first three (3) months of the
Company's fiscal year ending January 31, 2000, the FY00 EBITDA then achieved by
the Company shall be multiplied by four (4). The corresponding payment to such
product as determined by reference to Schedule 1.5 annexed hereto shall be
determined and such payment shall be divided by two (2). The amount represented
by the resulting quotient shall be the "Q1 Escrow Amount". Buyer shall then pay
to the Sellers to be paid immediately to the Escrow Agent, or the Escrow Agent
shall then pay to the Buyer, as the case may be, an amount necessary so that the
balance of the Escrow Account equals the Q1 Escrow Amount, crediting towards the
balance Buyer's Initial Escrow Deposit (the "Q1 Escrow Adjustment").
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<PAGE> 9
(ii) At the end of the first six (6) months of the
Company's fiscal year ending January 31, 2000, the FY00 EBITDA then achieved by
the Company shall be multiplied by two (2). The corresponding payment to such
product as determined by reference to Schedule 1.5 annexed hereto shall be
determined and such payment shall be divided by two (2). The amount represented
by the resulting quotient shall be the "Q2 Escrow Amount". Buyer shall then pay
to the Sellers to be paid immediately to the Escrow Agent, or the Escrow Agent
shall then pay to the Buyer, as the case may be, an amount necessary so that the
balance of the Escrow Account equals the Q2 Escrow Amount, crediting towards the
balance Buyer's Initial Escrow Deposit and the Q1 Escrow Adjustment, if any,
paid by Buyer to Escrow Agent (the "Q2 Escrow Adjustment"). The Escrow Agent
shall then pay to Sellers an amount equal to twenty-five percent (25%) of the Q2
Escrow Amount (the "Q2 Escrow Disbursement").
(iii) At the end of the first nine (9) months of the
Company's fiscal year ending January 31, 2000, the FY00 EBITDA then achieved by
the Company shall be multiplied by one and one-third (1.33). The corresponding
payment to such product as determined by reference to Schedule 1.5 annexed
hereto shall be determined and such payment shall be multiplied by 0.75. The
amount represented by the resulting product shall be the "Q3 Escrow Amount".
Buyer shall then pay to the Sellers to be paid immediately to the Escrow Agent,
or the Escrow Agent shall then pay to the Buyer, as the case may be, an amount
necessary so that the balance of the Escrow Account equals the Q3 Escrow Amount,
crediting towards the balance Buyer's Initial Escrow Deposit, the Q1 Escrow
Adjustment, if any, paid by Buyer to Escrow Agent and the Q2 Escrow Adjustment,
if any, paid by Buyer to Escrow Agent, and assuming for purposes of this
calculation that the Q2 Escrow Disbursement was not disbursed to the Sellers
(the "Q3 Escrow Adjustment"). The Escrow Agent shall then pay to Sellers, or the
Sellers shall then pay to the Escrow Agent, as the case may be, an amount
necessary so that the total amount received by the Sellers from the Escrow Agent
pursuant to Sections 1.5(a)(ii) and 1.5(a)(iii) hereof equals twenty-five
percent (25%) of the Q3 Escrow Amount (the "Q3 Escrow Disbursement").
(b) For purposes hereof, "FY00 EBITDA" shall mean the
earnings of the Company before deduction for interest, taxes, depreciation and
amortization, as set forth in the Company's financial statements for the twelve
month period ended January 31, 2000, prepared in accordance with GAAP and
calculated in the manner that the FY99 EDITDA was calculated, including Grants
received and accounted for in accordance with GAAP up to a limit of $425,000
Canadian, but subject to the adjustments and provisions hereinafter mentioned in
Section 1.5(c) hereof, LESS (i) any extraordinary gain, and (ii) any amounts
received or receivable in respect of any accounts receivable, claims or other
rights accrued prior to January 31, 1999 other than recoveries of amounts
previously written off, PLUS, but only to the extent that the following expenses
are actually charged or caused to be charged to the Company or any of the
Affiliates by Buyer or Parent or any party related or affiliated to either of
them, (iii) all expenses, including professional fees, incurred by the Buyer in
respect of the transaction contemplated hereby; (iv) charges to earnings in
respect of management, consulting, financial, legal or accounting fees, overhead
charges, administrative charges, national sales charges, support services, and
similar fees paid to or charged by Parent or Buyer or any party related or
affiliated to any of them to the Company or any of the Affiliates; (v) any
amounts paid by Sellers in respect of a warranty provided hereunder which, in
the absence of such payment, would affect FY00 EBITDA; (vi) all expenses
incurred by the Buyer
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or the Parent to the extent that the Sellers are obliged to indemnify against
such expenses pursuant to this agreement and are not in default in honoring such
indemnity and if there shall be a default of the Sellers in honoring such
indemnity, then a retroactive adjustment shall be made pursuant to this clause
(vi) to the extent that the Sellers subsequently remedy such default; (vii) all
expenses which the Buyer, the Parent, the Company or the Affiliates incur in
complying with this Agreement or in connection with disputes arising hereunder
which would not have incurred in the absence of this Agreement as well as all
expenses incurred in prosecuting or defending litigation with the Sellers, as
well as a payment of such expenses; (viii) all expenses for professional fees
and disbursements save for those incurred in the operation of the Business and
fair and reasonable fees for audits of the Company's annual consolidated
financial statements (but excluding from such fair and reasonable fees, for
certainty, professional fees and disbursements for performing all special
services which are performed in respect of the calculation of the FY00 EBIDTA or
otherwise in respect of this Agreement), as well as the payment of such
expenses; (ix) 27% of gross revenues derived from any customer contract that is
then currently being serviced by the Company, but which services are diverted by
Buyer or Parent or any of their affiliates to an affiliate of Buyer; and (x)
charges to earnings in respect of commissions paid by Buyer to any senior
executives of the Company attributable to any customer not served by the Company
and specifically including in any such earnings 27% of gross revenues derived
from any ME Eligible Customer Contract net of commissions paid to Claude Cohen
and David Knafo attributable to such ME Eligible Customer Contract. "ME Eligible
Customer Contract" shall mean a customer contract initiated by Claude Cohen and
David Knafo with respect to services which the Company has the capacity to
provide in the ordinary course of the Business, but which services are provided
by affiliates of Buyer and which contract the parties agree is a ME Eligible
Customer Contract within thirty (30) days of the time entered into.
(c) The Buyer and the Parent hereby jointly and severally
covenant and agree with the Sellers that, during the fiscal year of the Company
ending January 31, 2000:
(i) Claude Cohen and David Knafo (collectively, the
"Senior Employees") will be employed by the Company or its Affiliates and will
together have responsibility for the day-to-day operations of the Business as
well as for all matters reasonably ancillary thereto; and
(ii) The employment of the Senior Employees shall not
be terminated other than for lawful cause as provided in Section 3.1.3 of their
respective employment agreements referred to in Section 4.1(i) hereof.
Any breach of any of the foregoing covenants and undertakings of the Buyer and
the Parent in Section 1.5(c)(i) or 1.5(c)(ii) hereof shall create a rebuttable
presumption that the Target Amount has been achieved. Buyer may offer evidence
to rebut this presumption.
(iii) It is the intention of Buyer to continue to
operate the Business in the manner in which it is currently being operated with
day-to-day responsibility therefor vested in the Senior Employees pursuant to
their employment agreements referred to in Section 4.1(i). In the event that
Buyer (which shall not include the Senior Employees or persons acting on behalf
of or on the direction of the Senior Employees) shall, without the consent of
either
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Claude Cohen or David Knafo (it being the intention of the parties that the
consent of either Claude Cohen or David Knafo shall be sufficient to authorize
Buyer to take the contemplated action), enter into a transaction outside of the
ordinary course of the Business or change the operation of the Business in a
manner which has a material adverse effect on the amount of the FY00 Purchase
Price Amount payable to the Sellers hereunder, the Sellers' Rep and Buyer shall
make an equitable adjustment to compensate for such material adverse effect. In
the event the Sellers' Rep and Buyer cannot agree on such equitable adjustment,
the Independent Accountants (to the extent previously selected, and to the
extent not previously selected, selected in accordance with Section 1.4(b)
above) will review the items or amounts in dispute and compute such adjustment.
Such determination shall be made in writing within thirty (30) days after the
date on which the Independent Accountants begin their review and shall be final
and binding on the parties. The fees, costs and expenses of the Independent
Accountants shall be paid by the party whose calculation of the equitable
adjustment is furthest from the Independent Accountants' calculation.
(d) Promptly upon receipt by the Buyer of the Company's
financial statements for the fiscal year ending January 31, 2000 (the "FY00
Financial Statements"), Buyer shall deliver a copy thereto to the Sellers' Rep
together with Buyer's written statement containing the Company's calculation of
FY00 EBIDTA in reasonable detail (the "FY00 EBITDA Statement"). Concurrently
with such delivery, the Escrow Agent shall pay to the Sellers the amount
referred to in Section 1.2(a)(iii) hereof or such lesser amount as the Buyer
determines the Sellers are entitled to receive pursuant to the provisions of
Section 1.5 hereof and shall issue to the Sellers 300,000 shares of the Parent
Common Stock or such lesser number of shares as the Buyer determines the Sellers
are entitled to receive pursuant to the provisions of Section 1.5 hereof, the
whole subject to the right of the Sellers to contest such amounts as hereafter
mentioned.
The Sellers shall be entitled for the period of thirty (30) days next following
the Sellers receipt of the FY00 EBIDTA Statement to advise the Buyer in writing
signed by Sellers' Rep that the Sellers object thereto, which notice shall
outline those items thereof which the Sellers are then of the view are not or
may not be correct, but such outline shall not preclude the Sellers from
subsequently raising other objections with respect to the FY00 EBIDTA Statement
(provided that such 30 day period has not expired). In the absence of a written
notice of objection within the said period of thirty (30) days, the Sellers
shall be deemed to have accepted as correct the amount of the FY00 EBIDTA. The
Sellers' Rep shall be entitled to make all such examinations and investigations
as such representatives consider to be necessary or appropriate in order to
arrive at an independent opinion as to the accuracy of, or so as to verify, the
calculations, or any of the amounts, contained in the FY00 EBIDTA Statement or
in the FY00 Financial Statements and the Buyer shall afford and cause the
Company and the Affiliates to afford all such cooperation to the Sellers' Rep as
reasonably is required so that such examinations and investigations may be
properly conducted by such representatives and, without limiting the generality
of the foregoing, for such purposes the Buyer upon the request of the Sellers'
Rep shall cause the Buyer's Accountants to make available for the inspection of
the Sellers' Rep all relevant working papers of the Buyer's Accountants and to
answer such relevant questions which the Sellers' Rep may have of the Buyer's
Accountants and shall also cause the Buyer's Accountants to provide copies of
such working papers to the Sellers' Rep as and to the extent that from time to
time they reasonably request. If the Buyer and the Sellers are unable to achieve
resolution on those matters to which the Sellers have objected, then, at the
request of either party, such unresolved matters shall be referred to the
Independent Accountants for
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resolution. Any decision made by the Independent Accountants shall be final and
binding on the parties and if such decision results in the determination that
the amount of the FY00 EBIDTA is greater than the amount provided for therefor
in the FY00 EBITDA Statement, the Buyer shall forthwith pay such additional
amounts and the Parent shall issue such additional shares of its common stock in
order that the amount and the shares that the Sellers are entitled to receive
pursuant to Schedule 1.5 hereof have been paid and received by the Sellers. If
such decision results in the determination that the amount of the FY00 EDITDA is
less than the amount provided for therefor in the FY00 EBITDA Statement, the
Sellers shall be jointly and severally liable to Buyer and shall forthwith repay
to Buyer such amounts and such shares that the Buyer is entitled to recoup
pursuant to Schedule 1.5 hereof.
1.6. FY01 PURCHASE PRICE ADJUSTMENTS. The Parent shall issue [*****]
shares of the Parent Capital Stock to the Sellers within thirty (30) days of the
delivery to the Buyer of the financial statements for the Company for the twelve
(12) month period ending January 31, 2001; provided, however, that the Parent
shall not be obligated to issue such capital stock to the Sellers in the event
that the EBIDTA (calculated according to GAAP and consistent with the
calculation of FY00 EBITDA) for the twelve (12) month period ending January 31,
2001 (the "FY01 EBITDA") is not at least twenty percent (20%) higher than the
FY00 EBIDTA. Grants received and accounted for in accordance with GAAP shall be
included in the calculation of FY01 EBITDA and the Sellers represent, warrant
and covenant that the amount of the Grants included in FY01 EBITDA shall be
equal to or greater than $200,000 Canadian. The provisions of Section 1.5(d)
hereof shall apply with respect to the financial statements for the year ended
January 31, 2001 and the rights of review and contestation provided hereunder in
favor of the Sellers and the Buyer, MUTATIS MUTANDIS.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY, THE
AFFILIATES AND THE SELLERS The Sellers hereby, jointly and severally, represent
and warrant to, and covenant and agree with, Buyer as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. The Company and
the Affiliates are corporations duly organized, validly existing and in good
standing and authorized to exercise their corporate powers, rights and
privileges under the laws of Canada with full corporate power and authority to
own, lease and operate their properties and to carry on the Business as
presently conducted by them in each jurisdiction where they carry on business.
Schedule 2.1(a) hereto sets forth all provinces and other jurisdictions in which
the Company and the Affiliates are duly qualified and in good standing to do
business as a foreign corporation. There are no other states or jurisdictions in
which the character and location of the properties owned or leased by any of
them, or the conduct of the Business makes such qualification necessary, except
where the failure to be so qualified would not have a material adverse effect on
the business, results of operations, financial position or prospects of the
Company and the Affiliates, taken as a whole, or the value of their properties
or assets, taken as a whole ("Material Adverse Effect"). Copies of the Company's
and the Affiliates' Articles of Incorporation and all amendments thereto, and of
the Company's and Affiliates' By-Laws, as amended to date, are attached to
Schedule 2.1(a) and are complete and correct. The Company's and the Affiliates'
minute books contain complete and accurate records of all meetings and other
material corporate actions, including, without limitation,
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actions by unanimous written consent of their stockholders and their board of
directors (including all committees of their board of directors).
(b) CAPITALIZATION. The authorized capital stock of the
Company consists of an unlimited number of Common, Class A, Class B, Class C,
Class D, Class E, Class F and Class G shares, of which 100 shares of Class A,
100 shares of Class B, 787,495 shares of Class E, 1,462,405 shares of Class F
and 9,000,000 shares of Class G are issued and outstanding and are owned by
Claude Cohen, David Knafo, La Fiducie Familiale Cohen, La Fiducie Familiale
Knafo, and Eliezer Cohen Canada Corporation. At the Closing, the authorized
capital stock of the Company will consist of an unlimited number of Common,
Class A, Class B, Class C, Class D, Class E, Class F and Class G shares of
which, at the Closing, 100 shares of Class A, 100 shares of Class B, 787,495
shares of Class E, 1,462,405 shares of class F and 9,000,000 shares of Glass G
will be issued and outstanding and shall be owned by the Sellers. The authorized
capital stock of ME consists of an unlimited number of Common, Class A, Class B,
Class C, Class D, Class E, Class F and Class G shares of which 100 shares of
Class A, 35 shares of Class D, 65 shares of Class E and 100 shares of Class F
are issued and outstanding and are owned by the Company. The authorized capital
stock of METC consists of an unlimited number of Common, Class A, Class B, Class
C, Class D, Class E, Class F and Class G shares, of which 200 Common shares are
issued and outstanding and are owned by the Company and ME. All issued shares of
ME Stock, as well as the stock of each of the Affiliates, have been duly
authorized and validly issued and are fully paid and nonassessable. All prior
offerings and sales of ME Stock have been made in accordance with all applicable
Federal and provincial laws of Canada. There are no outstanding obligations,
options, warrants, rights, calls, commitments, conversion rights, plans or other
agreements of any character to which the Company or any of the Affiliates is a
party or otherwise bound which provide for the purchase or issuance by the
Company or any of the Affiliates of any authorized but not outstanding, or
authorized and outstanding shares of capital stock of the Company or any of the
Affiliates. There is no personal liability attached to the ME Stock or to the
stock of any of the Affiliates. No person has any preemptive or similar rights
in respect of any securities of the Company or any of the Affiliates.
(c) AUTHORITY The execution and delivery by the Company, the
Affiliates and the Sellers of this Agreement and all of the agreements,
schedules, exhibits, documents and instruments specifically provided for
hereunder to be executed and/or delivered by any or all of them (all of the
foregoing, including this Agreement, being hereinafter sometimes collectively
referred to as the "Executed Agreements"), the performance by the Company, the
Affiliates and the Sellers (to the extent that they are parties thereto) of
their respective obligations under the Executed Agreements, and the consummation
of the transactions contemplated by the Executed Agreements, have been duly and
validly authorized by all necessary corporate and any other required action on
the part of the Company, the Affiliates and the Sellers, and the Company, the
Affiliates and the Sellers have all necessary corporate and any other required
power with respect thereto. The Executed Agreements are, or when executed and
delivered by the delivering parties shall be, the valid and binding obligations
of the delivering parties, enforceable in accordance with their respective
terms, except to the extent that enforceability may be limited by general
equitable principles or the operation of bankruptcy, insolvency, reorganization,
moratorium or similar laws. Neither the execution and delivery by the Company,
the Affiliates or any Seller (to the extent that they are parties thereto) of
the Executed Agreements, nor the consummation of the transactions
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contemplated thereby, nor the performance by the Company, the Affiliates or any
Seller (to the extent that they are parties thereto) of their respective
obligations under the Executed Agreements, shall (nor with the giving of notice
or the lapse of time or both would) (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or By-Laws of the Company or the
Affiliates or the constituting documents of any of the Sellers, (ii) except as
set forth on Schedule 2.1(c) hereto, give rise to a material default, or any
right of termination, cancellation or acceleration, or otherwise result in a
loss of contractual benefits to the Company or the Affiliates, under any of the
terms, conditions or provisions of any note, bond, hypothec, mortgage,
indenture, license, permit, grant, agreement or other instrument or obligation
to which the Company, the Affiliates or any Seller is a party or by which the
Company, the Affiliates or any Seller or any of their properties or assets may
be bound, where such default, termination, cancellation or acceleration could
reasonably be expected to have a Material Adverse Effect (iii) violate any
order, writ, injunction, decree, law, statute, rule or regulation applicable to
the Company, the Affiliates or any Seller or any of their respective properties
or assets, (iv) result in the creation or imposition of any prior claim,
hypothec, lien, claim, restriction, charge or encumbrance upon any of the
properties or assets of the Company, the Affiliates or any Seller, or (v) to the
best knowledge of the Company, the Affiliates or any Seller, interfere with or
otherwise materially adversely affect the ability of the Company or the
Affiliates to carry on the Business as now conducted by them.
(d) INTERESTS IN OTHER ENTITIES. Except as set forth in
Schedule 2.1(d) hereto, and except for its interest in the Affiliates, the
Company and the Affiliates do not (i) own, directly or indirectly, of record or
beneficially, any shares of voting stock or other equity securities of any other
corporation or entity, (ii) have any ownership interest, direct or indirect, of
record or beneficially, in any entity, or (iii) have any obligation, direct or
indirect, present or contingent, to purchase or subscribe for any interest in,
advance or loan monies to, or in any way make investments in, any person or
entity, or to share any profits or capital investments in or with any other
persons or entities, or both.
(e) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS.
Except as set forth in Schedule 2.1(e) hereto, no approval, consent, compliance,
exemption, authorization or other action by, or notice to or filing with, any
governmental authority or any other entity, and no lapse of a waiting period, is
necessary or required to be obtained by the Company, the Affiliates or any
Seller in connection with the execution, delivery or performance by any of them,
of this Agreement, any of the Executed Agreements or the transactions
contemplated hereby.
(f) PROJECTIONS. The Sellers have delivered to Buyer a set
of projections (the "Projections"), a copy of which is attached hereto as
Schedule 2.1(f). The Projections are based on the reasonable estimates of the
Company, the Affiliates and the Sellers derived from reasonable expectations at
the time the Projections were made, and the Company, the Affiliates and the
Sellers believe that Buyer is justified in relying thereon, there being,
however, no representation, warranty or guarantee of the achievement of the
Projections. The parties acknowledge that, in the event that such projections
are not achieved and the FY00 EBITDA is affected as a consequence, then Buyer
will be compensated solely by the decrease in the amounts payable pursuant to
Section 1.5 in accordance with the provisions thereof relating to a reduction in
the Purchase Price if the result of FY00 EBITDA is less than the Target Amount.
No other right, recourse or remedy shall avail in favor of the Buyer as a result
of the failure of the projections to be achieved.
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(g) FINANCIAL STATEMENTS. The Sellers have delivered to
Buyer true and complete copies of the Company's audited (except for 1997)
balance sheet, and the related statements of income, retained earnings and
statement of change in financial position for its fiscal years ended January 31,
1997 and 1998 and its unaudited balance sheet and related statements of income,
retained earnings and statement of change in financial position for its fiscal
year ended January 31, 1999 ("Year End Financial Statements"). All of such
financial statements, including any notes thereto, were prepared on a
consolidated basis in accordance with GAAP applied on a consistent basis
throughout the periods involved and fairly present the financial position of the
Company at the dates thereof and the results of its operations for the periods
as indicated. Set forth on Schedule 2.1(g) hereto, is a description of the
Company's and each of the Affiliates accounting policies employed in the
preparation thereof, including, without limitation, policies in respect of bad
debt reserves, depreciation and fixed asset capitalization. The books and
records of the Company and of each of the Affiliates are in all material
respects complete and correct, have been maintained in accordance with good
business practices, and accurately reflect the basis for the financial condition
and results of operations of the Company and of each of the Affiliates as set
forth in the financial statements referred to herein.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. The Company and the
Affiliates do not have any liabilities, commitments or obligations, whether
accrued, absolute, contingent or otherwise which have not been (i) in the case
of liabilities, commitments and obligations of a type customarily reflected on
the corporate balance sheet of the Company, reflected on the Year End Financial
Statements in accordance with GAAP, or incurred, consistent with past practice,
in the ordinary course of business since the date of the Year End Financial
Statements and which are not material, either individually or in the aggregate,
are properly reflected on the books of the Company and of each of the Affiliates
and do not involve liabilities for breach of contract, breach of warranty, tort,
infringement or similar claims ("Permitted Post Balance Sheet Liabilities") or
(ii) in the case of all other types of liabilities and obligations, described in
Schedule 2.1(h) hereto.
(i) ABSENCE OF CERTAIN CHANGES. Except as and to the extent
set forth in Schedule 2.1(i) hereto or in the Year End Financial Statements,
since January 31, 1998, the Company and the Affiliates have not:
(i) suffered any material adverse change in their
working capital, condition (financial or otherwise), assets, liabilities,
businesses or operations;
(ii) incurred any material liabilities or obligations
except Permitted Post Balance Sheet Liabilities, none of which exceeds $10,000
(counting obligations or liabilities arising from one transaction or a series or
similar transactions, and all periodic installments or payments under any lease
or other agreement providing for periodic installments or payments, as a single
obligation or liability), or experienced any increase in, or change in any
assumption underlying or methods of calculating, any bad debt, contingency or
other reserves;
(iii) paid, discharged or satisfied any claim,
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities and
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obligations reflected or reserved against in the Year End Financial Statements
or Permitted Post Balance Sheet Liabilities;
(iv) permitted or allowed any of their property or
assets (real, personal or mixed, tangible or intangible) to be subjected to any
prior claim, hypothec, mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind;
(v) written off as uncollectible any notes or
accounts receivable, except for write-offs in the ordinary course of business
and consistent with past practice, none of which are material;
(vi) canceled any debts or waived or suffered to
lapse any claims or rights of substantial value, or sold, transferred, or
otherwise, except in the ordinary course of business and consistent with past
practice, disposed of any of their properties or assets (real, personal or
mixed, tangible or intangible);
(vii) disposed of or suffered to lapse any rights to
use any Toll Free Telephone Number listed on Schedule 2.1(r) hereto, or any
patent, trademark, trade name or copyright, or disposed of or disclosed (except
as necessary in the ordinary conduct of the Business) to any person any trade
secret, formula, process or know-how;
(viii) made any single capital expenditure or
commitment in excess of $10,000 for additions to property, plant, equipment or
intangible assets or made aggregate capital expenditures and commitments in
excess of $10,000 (on a consolidated basis), for additions to property, plant,
equipment or intangible assets;
(ix) redeemed or reduced the paid-up capital of any
shares of their capital stock or declared, paid or set aside for payment any
dividend or other distribution in respect of their capital stock;
(x) made any change in any method of accounting or
accounting practice;
(xi) paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of their officers, directors, debtholders, stockholders or employees or any
"affiliate" or "associate" of any of their officers, directors, noteholders,
stockholders or employees (as such terms are defined in Rule 405 promulgated
under the Securities Act and as used herein "Affiliate" and "Associate"), except
for compensation to officers and employees at rates not materially exceeding the
rates of compensation paid during the year ended January 31, 1998;
(xii) paid any amount in respect of debt for borrowed
money except for regularly scheduled payments of principal and interest in
accordance with the terms thereof; or
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(xiii) agreed, whether in writing or otherwise, to take
any action described in this Section unless such action is specifically excepted
from this Section or described in Schedule 2.1(i).
(j) TAX MATTERS. The Company and the Affiliates have filed
with the appropriate governmental agencies all Federal, provincial, local or
foreign tax returns and reports required to be filed by them ("Returns"), have
paid in full or made adequate provision for the payment of, all taxes of every
nature, including, but not limited to, income, sales, franchise and withholding
taxes, Goods and Services Tax and the applicable provincial sales taxes,
provincial health insurance premiums, Canada and Quebec pension plan
contributions, employment insurance premiums, workman compensation and other
payroll taxes, deductions at source, non-resident withholding, immovable or real
property, municipal, corporation, capital, sales, retail, excise, profits, gross
receipts, customs duties, transfer and business taxes ("Taxes"), together with
interest, penalties, assessments and deficiencies owed by them (whether or not
shown on any Returns). The Company and the Affiliates are not currently the
beneficiary of any extension of time within which to file any Returns. The
Company and the Affiliates have previously provided Buyer with true and complete
copies of all such Returns filed within the past 4 years. There are no filed or
other known tax liens, prior claims or hypothecs upon any assets of the Company
or the Affiliates. The Company and the Affiliates have not waived any statute of
limitations in respect of Taxes or executed or filed with any governmental
authority any agreement extending the period for the assessment or collection of
any Taxes, and they are not a party to any pending or, to the Company, the
Affiliates or any Seller's best knowledge, threatened action or proceeding by
any governmental authority for the assessment or collection of Taxes. There is
no unresolved written claim by a governmental authority in any jurisdiction
where the Company or the Affiliates do not file Returns that the Company or the
Affiliates are or may be subject to taxation by such jurisdiction. Except as set
forth on Schedule 2.1(j), there has been no examination or audit with respect to
Taxes with respect to any year. The Company and the Affiliates have 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,
stockholder or other third party.
(k) LITIGATION. Except as set forth on Schedule 2.1(k)
hereto, there are no suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending, or to the best knowledge of
the Company, the Affiliates and the Sellers, threatened against or affecting, or
which is reasonably likely to affect, the Company or the Affiliates or any of
their properties, assets or businesses or the transactions contemplated hereby
which, if determined against the Company or any of its Affiliates, could
reasonably be expected to have a Material Adverse Effect. There are no
outstanding judgments, orders, stipulations, injunctions, decrees or awards
against the Company or the Affiliates which are not satisfied.
(l) COMPLIANCE WITH APPLICABLE LAW. Except as set forth on
Schedule 2.1(l) hereto, the Company and the Affiliates are in compliance with
all Federal, provincial and local laws, statutes, ordinances, regulations, and
administrative rulings (collectively "Laws"), promulgated by any governmental or
regulatory authority applicable to the Company or the Affiliates or to the
conduct of the business or operations of the Company or the Affiliates or to the
use of their properties and assets, including, without limitation, all
environmental Laws and all Laws relating to the Toll Free Telephone Numbers
where such non-compliance could reasonably be
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expected to have a Material Adverse Effect. Subject to the foregoing, the
conduct of the business or operations of the Company and the Affiliates complies
with all Laws of the foreign jurisdictions in which they operate. The Company
and the Affiliates have not received any written notices of violation or alleged
violation of any laws by the Company or the Affiliates. Neither the Company, the
Affiliates nor any Seller knows of any pending or proposed legislation
applicable to the Company or the Affiliates or to the conduct of the Business
which, if enacted, could have a Material Adverse Effect.
(m) ENVIRONMENTAL MATTERS. Except as set forth on Schedule
2.1(m) hereto:
(i) neither the Company, the Affiliates nor the
Sellers has received any written notice that their operations or the real
property owned or leased by the Company or the Affiliates as set forth in
Schedule 2.1(o) hereto (the "Facility") are subject to any outstanding written
order, consent decree or settlement agreement with any person relating to (A)
any Environmental Laws (as defined in below), (B) any Environmental Claim (as
defined below), or (C) any Hazardous Materials Activity (as defined below) that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(ii) there are no conditions, occurrences, or
Hazardous Materials Activities caused or conducted by the Company or the
Affiliates or, to the Company's, the Affiliates' and the Sellers' knowledge, any
other conditions, occurrences or hazardous activities which could reasonably be
expected to form the basis of an Environmental Claim against the Company or the
Affiliates or that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect;
(iii) neither the Company nor the Affiliates nor, to
the Company's, the Affiliates' and the Sellers' knowledge, any predecessor of
the Company or the Affiliates, has filed at any time any notice under any
Environmental Law indicating past or present treatment of Hazardous Materials at
the Facility, and none of the Company or the Affiliates operations involves the
generation, transportation, storage, or disposal of Hazardous Materials; and
(iv) The following terms used in this Section 2.1(m)
shall have the following meanings:
(A) "Environmental Laws" shall mean any and
all statutes, ordinances, orders, rules, laws, regulations, guidance documents,
judgments, governmental authorizations, or any other requirements of
governmental authorities currently in force and having jurisdiction over the
Business relating to (1) environmental matters, including those relating to any
Hazardous Materials Activity (as defined below), (2) the generation, use,
storage, transportation or disposal of Hazardous Materials (as defined below),
or (3) occupational safety and health, industrial hygiene, land use or the
protection of human, plant, or animal health or welfare, in any manner
applicable to the Company, the Affiliates or the Facility, including Loi Sur La
Qualite de l'Environment L.R. Q C.Q-2 and the Canadian Environmental Protection
Act, R.S. 1985 C. 16 (4th Supp.) and their respective regulations, each as
amended or supplemented, any analogous provincial or local statutes or laws, and
any regulations promulgated pursuant to the foregoing.
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(B) "Environmental Claim" shall mean any
investigation, notice, notice of violation, claim, action, suit, proceeding,
demand, abatement order or other order or directive (conditional or otherwise),
by any governmental authority or any other person, arising (1) pursuant to or in
connection with any actual or alleged violation of any Environmental Laws, (2)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (3) in connection with any actual or alleged damage,
injury, threat or harm to health, safety, natural resources or the environment.
(C) "Hazardous Materials" shall mean any of
following substances used by the Company or any of the Affiliates in the conduct
of the Business (1) any chemical, material or substance at any time defined as
or included in the definition in any Environmental Laws of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste",
"pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste",
"infectious waste", "toxic substances", or any other term or expression intended
to define, list or classify substances by reason of properties harmful to
health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws), (2) any oil, petroleum,
petroleum fraction or petroleum derived substance, (3) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources, (4) any flammable
substances or explosives, (5) any radioactive materials, (6) any
asbestos-containing materials, (7) urea formaldehyde foam insulation, (8)
electrical equipment which contains oil or dielectric fluid containing
polychlorinated biphenyls, (9) pesticides, and (10) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
governmental authority or which may or could pose a hazard to the health and
safety of the owners, occupants or any other persons in the vicinity of the
premises occupied by the Company and its Affiliates or to the indoor or outdoor
environment.
(D) "Hazardous Materials Activity" shall
mean any current, proposed or threatened activity, event or occurrence involving
any Hazardous Materials, including the use, manufacture, possession, storage,
holding, presence, existence, location, Release (as defined below), threatened
Release, discharge, placement, generation, transportation, processing,
construction, treatment, abatement, removal, remediation, disposal, disposition
or handling of any Hazardous Materials, and any corrective action or response
action with respect to any of the foregoing.
(E) "Release" shall mean any release, spill,
emission, leaking, pumping, pouring, injection, escaping, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Materials into
the indoor or outdoor environment (including, without limitation, the
abandonment or disposal of any barrels, containers or other closed receptacles
containing any Hazardous Materials), including the movement of any Hazardous
Materials through the air, soil, surface water or ground water.
(n) PERMITS. A list of all permits, approvals, licenses,
certificates, franchises, authorizations, consents and orders ("Permits")
necessary to the operation of the
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business of the Company and the Affiliates in the manner in which it is
presently conducted is set forth on Schedule 2.1(n) hereto. All such Permits are
valid and remain in full force and effect. The Company and the Affiliates have
not engaged in any activity which would cause revocation or suspension of any
such Permits and no action or proceeding looking to or contemplating the
revocation or suspension of any thereof is pending or, to the knowledge of the
Company and the Affiliates, is threatened.
(o) TITLE TO PROPERTIES. Except as set forth in Schedule
2.1(o) hereto, the assets set forth in the Year End Financial Statements
constitute all assets which have been used in the Business since January 31,
1998 other than those assets that may have been disposed of since January 31,
1998 or acquired since January 31, 1999 in each case in the ordinary course of
business, and which are necessary for the conduct of the Business as currently
conducted by the Company and the Affiliates. The Company and the Affiliates do
not own any real property. Except as set forth in Schedule 2.1(o) and except for
the Permitted Encumbrances, the Company and the Affiliates have good and
marketable title to all of the properties and assets (personal and mixed,
tangible and intangible) reflected on the Year End Financial Statements or
thereafter acquired or which they purport to own (except properties or assets
sold or otherwise disposed of in the ordinary course of business, consistent
with past practice, subsequent to the date of the Year End Financial Statements
which in the aggregate did not have a book value in excess of $10,000), free and
clear of all prior claims, hypothecs, mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever. Schedule 2.1(o) also contains an accurate
list setting forth, all (i) leases (whether by or to the Company or the
Affiliates) and contracts and commitments for the purchase or sale or lease
(whether as lessor or lessee) of the Company or the Affiliates with respect to
real property and (ii) leases (whether by or to the Company or the Affiliates)
title retention, trial sales, installment sales, sales with right of redemption
or conditional sales agreements and other security devices (whether as lessor or
lessee) of the Company or the Affiliates with respect to items of personal
property. All leases listed in Schedule 2.1(o) are valid, binding and
enforceable in accordance with their terms, and are in full force and effect,
except to the extent that enforceability may be limited by general equitable
principles or the operation of bankruptcy, insolvency, reorganization,
moratorium or similar laws; there are no existing defaults by the Company or the
Affiliates thereunder and no event of default has occurred which (whether with
or without notice, lapse of time or both) would constitute a default by the
Company or the Affiliates thereunder where such default could reasonably be
expected to have a Material Adverse Effect. All lessors under such leases shall
as a condition of Closing have consented (where such consent is necessary) to
the consummation of the transactions contemplated by this Agreement without
requiring modification of the rights and obligations of the Company or the
Affiliates thereunder. All of the tangible property (whether owned or leased) of
the Company and the Affiliates are located at the real property owned or leased
by the Company and the Affiliates as set forth in Schedule 2.1(o).
(p) ACCOUNTS RECEIVABLE; FIXED ASSETS.
(i) The accounts receivable reflected on the Year
End Financial Statements have been incurred in the ordinary course of business
for services performed or products delivered at the aggregate recorded amounts
thereof, less the amount of the reserve for bad accounts reflected therein, and
are not subject to any offsets. The accounts receivable of the Company and the
Affiliates which were thereafter added have been incurred in the ordinary course
of business for
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services performed or products delivered at the aggregate amounts recorded on
the books of account, less the amount of the reserve for bad accounts reflected
therein (which reserve has been established on a basis consistent with prior
practice and in accordance with GAAP) and are not subject to any offsets. Set
forth on Schedule 2.1(p) is a true and complete list of the Company's and the
Affiliates accounts receivable as of March 22, 1999, and aging with respect
thereto.
(ii) Schedule 2.1(p) hereto contains a complete and
accurate list of all machinery, equipment and other fixed assets of the Company
and the Affiliates (the "Equipment") having a book value in excess of $5,000.
Each such item of Equipment is in good operating condition and is adequate for
the use to which it is being put. Each such item has been maintained in
accordance with prudent business practice and no such maintenance has been
deferred.
(q) INTELLECTUAL PROPERTY. Schedule 2.1(q) hereto lists all
domestic and foreign licenses, patents, copyrights, trade names, service marks,
trademarks and trade secrets (and all applications therefor) and all other
proprietary intellectual property owned or used by the Company and the
Affiliates in the present and known future conduct of the Business (the
"Intellectual Property"). Except as set forth in Schedule 2.1(q), none of the
Intellectual Property is subject to any restriction, mortgage, lien, pledge,
charge, security interest, conditional sale agreement, encumbrance or material
rights of others of any kind or nature whatsoever, and no officer or director,
stockholder or employee of the Company or the Affiliates nor any of their
Affiliates or Associates has any ownership or other interest in any of the
Intellectual Property. None of the Intellectual Property infringes or, to the
best knowledge of the Company, the Affiliates and the Sellers, is being
infringed upon or misappropriated by any other person or entity. Except as set
forth in Schedule 2.1(q), the validity of the Intellectual Property and the
title thereto of the Company and the Affiliates have not been and cannot validly
be questioned in any litigation or governmental inquiry or proceeding to which
the Company or the Affiliates is a party, and, to the best knowledge of the
Company, the Affiliates and the Sellers, no such litigation, governmental
inquiry or proceeding is threatened. The conduct of the Business of the Company
and the Affiliates as presently conducted does not conflict with, infringe or
misappropriate valid licenses, trademarks, trademark rights, trade names, trade
name rights, service marks, trade secrets or patents or other proprietary rights
of others in any way likely to affect adversely, in any material respect, the
Intellectual Property, nor has any officer or director, stockholder or employee
of the Company or the Affiliates received any notice thereof.
(r) TOLL FREE TELEPHONE NUMBERS. Schedule 2.1(r) hereto sets
forth a complete list of all Toll Free Telephone Numbers owned or used by the
Company and the Affiliates in the conduct of the Business. No officer or
director, stockholder or employee of the Company or the Affiliates nor any of
their Affiliates or Associates has any ownership or other interest in the Toll
Free Telephone Numbers. The Company and the Affiliates have not warehoused,
brokered or hoarded (as those terms are defined in the Second Report and Order
and Further Notice of Proposed Rulemaking in CC Docket No. 95-155, Released
April 11, 1997, by the Federal Communications Commission ("FCC") any of the
Toll Free Telephone Numbers in violation of any applicable FCC rules or
regulations or equivalent Canadian (federal and provincial) laws and
regulations.
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(s) INSURANCE. Schedule 2.1(s) hereto contains a complete
and correct list of all policies of insurance in which the Company or the
Affiliates or their officers or directors (in such capacity) is an insured
party, beneficiary or loss payable payee. Copies of all such policies have been
previously provided to the Buyer. Such policies are in full force and effect.
(t) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 2.1(t)
hereto contains a complete and correct list showing (i) the name of each bank in
which the Company and the Affiliates have an account or safe deposit box and the
names of all persons authorized to draw thereon or have access thereto, and (ii)
the names of all persons, if any, holding powers of attorney from the Company or
the Affiliates.
(u) EMPLOYEE ARRANGEMENTS. Except as set forth on Schedule
2.1(u) hereto, the Company and the Affiliates have (i) no union, collective
bargaining, employment, management, severance or consulting agreements to which
the Company or the Affiliates is a party or is otherwise bound, and (ii) no
deferred compensation agreements, pension and retirement plans, profit-sharing
plans, stock purchase and stock option plans. Schedule 2.1(u) contains a true
and complete list of all compensation, incentive, bonus, severance, disability,
hospitalization, medical insurance, life insurance and other employee benefit
plans, programs or arrangements maintained by the Company and the Affiliates or
under which the Company or the Affiliates have any material obligations (other
than obligations to make current wage or salary payments) in respect of, or
which otherwise cover, any of the current or former officers, employees or
consultants of the Company or the Affiliates, or their beneficiaries (each an
"Employee Benefit Plan" and collectively the "Employee Benefit Plans"). Schedule
2.1(u) contains the policy of the Company and the Affiliates with respect to
increases in the compensation of their officers or employees. Schedule 2.1(u)
hereto also lists the names, compensation, years of service and all accrued and
unused vacation and sick time of all persons employed by the Company and the
Affiliates. All Employee Benefit Plans comply, in all material respects, in
form, operation and administration with their respective provisions and with the
applicable provisions of all applicable Laws. All contributions to and payments
from the Employee Benefit Plans which may have been required to be made in
accordance with the Employee Benefit Plans have been made or are properly
accrued and reflected on the balance sheets or the books and records of the
Company and the Affiliates.
(v) CERTAIN BUSINESS MATTERS. Except as set forth in
Schedule 2.1(v) hereto (i) the Company or any of the Affiliates is not a party
to or bound by any distributorship, dealership, sales agency, franchise or
similar agreement which relates to the sale, use, distribution or servicing of
the Toll Free Telephone Numbers or services related thereto, (ii) the Company or
any of the Affiliates does not have any sole-source supplier of significant
goods or services (other than utilities) with respect to which practical
alternative sources are not available on comparable terms and conditions, (iii)
there are not pending and, to the Company's, the Affiliates' and the Sellers'
best knowledge there are not threatened, any labor negotiations involving or
affecting the Company or the Affiliates and, to the Company's, the Affiliates'
and the Sellers' best knowledge, no organizing activities involving union
representation exist in respect of any of its employees, (iv) the Company or any
of the Affiliates neither gives nor is bound by any express warranties relating
to its services, other than such warranties as are provided by applicable law,
and, to the best knowledge of the Company, the Affiliates and the Sellers, there
has been no assertion of any breach of warranties and, to the best knowledge of
the Company, the Affiliates and the Sellers, there are no
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problems or potential problems with respect to any product sold or services
provided by the Company or the Affiliates, (v) the Company or any of the
Affiliates is not a party to or bound by any agreement which limits its freedom
to compete in any line of business or with any person or entity, (vi) the
Company or any of the Affiliates is not a party to or bound by any agreement
which based on current economic circumstances will result in a loss when
performed, and (vii) the Company or any of the Affiliates is not a party to or
bound by any agreement or involved in any transaction in which any officer,
director, debtholder or stockholder, or any Affiliate or Associate of any such
person has, or had when made, a direct or indirect material interest.
(w) CONTRACTS. Schedule 2.1(w) hereto contains a complete
and correct list and brief description of any and all material contracts,
grants, agreements, hypothecs, mortgages, notes, commitments, obligations and
undertakings to which the Company or any of the Affiliates is a party or
otherwise bound. True copies of all written contracts, grants, agreements,
hypothecs, mortgages, notes commitments, obligations and undertakings set forth
in Schedule 2.1(w) hereto have been furnished to Buyer in full, and except as
expressly stated in Schedule 2.1(w), each of them is in full force and effect,
no person or entity which is a party thereto or otherwise bound thereby is, to
the best knowledge of the Company, the Affiliates and the Sellers, in material
default thereunder, and no event, occurrence, condition or act exists which,
with the giving of notice or the lapse of time or both, would give rise to a
material default or right of cancellation thereunder where such default or right
of cancellation could reasonably be expected to have a Material Adverse Effect,
and the Company and the Affiliates are not in default thereunder and no event,
occurrence, condition or act exists by or on behalf of the Company or the
Affiliates which, with the giving of notice or the lapse of time or both would
give rise to a default by the Company or the Affiliates thereunder, and to the
Company's, the Affiliates' and the Sellers' best knowledge, there have been no
threatened cancellations thereof and there are no outstanding disputes
thereunder where such disputes, if determined against the Company or any
Affiliates, could reasonably be expected to have a Material Adverse Effect.
Except as set forth on Schedule 2.1(w) hereto, neither the Company, the
Affiliates nor the Sellers are aware of any reason why any of the contracts
listed on Schedule 2.1(w), could not be continued on the same terms and
conditions as currently apply after Closing. To the best of the Company's, the
Affiliates' and the Sellers' knowledge, there is no reason to believe that any
of the Company's or the Affiliates' contractual partners will terminate their
relationship with the Company or the Affiliates as a result of the consummation
of the transactions contemplated hereby.
(x) BROKERS. Except as set forth in Schedule 2.1(x) hereto,
no agent, broker, person or firm acting on behalf of the Company, the Affiliates
or any Seller or under the authority of any of the foregoing, is or shall be
entitled to a brokerage commission, finder's fee, or other like payment in
connection with any of the transactions contemplated hereby from the Company,
the Affiliates or any Seller. The payment of any such brokerage commission shall
be the sole responsibility of the Sellers and shall be paid by the Sellers
personally out of their proceeds from the sale.
(y) DISCLOSURE. No representation or warranty made by the
Company, the Affiliates or the Sellers herein or in any of the Executed
Agreements contains any untrue statement of a material fact or omits or will
omit to state a material fact necessary in order to make the statements therein
not misleading.
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(z) AFFILIATED TRANSACTIONS. Except as set forth in Schedule
2.1(z) hereto, no Seller (i) is a party to any agreement, transaction or
arrangement (oral or written) with or involving the Company, the Affiliates or
any Associate or affiliate of the Company or the Affiliates, or (ii) has no
claim, monetary or otherwise, of any sort against the Company or the Affiliates.
Notwithstanding anything to the contrary contained herein, each Seller hereby
releases and discharges the Company and the Affiliates from all claims, actions
or suits that such Seller now has or may hereafter have against the Company or
the Affiliates.
(aa) CLAIMS AGAINST THE COMPANY AND THE AFFILIATES. The
Company and the Affiliates have no debts, obligations or liabilities owing to
any Seller and nothing exists that could give rise to a claim by any Seller of
any such debts, obligation or liability.
(bb) INDEBTEDNESS. Schedule 2.1(bb) hereto contains a
complete and correct list of all of the Long Term Debt of the Company and the
Affiliates as of January 31, 1999. The amount of the Long Term Debt of the
Company and the Affiliates as of January 31, 1999 is $1,966,649.00 Canadian.
"Long Term Debt" shall have the meaning ascribed to the term according to GAAP.
(cc) DISCLOSURE SCHEDULES. All schedules to this Agreement
are integral parts to this Agreement. Nothing in a schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
unless the schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail, including by explicit
cross-reference to another schedule to this Agreement. The Sellers are solely
responsible for preparing and arranging the schedules corresponding to the
lettered and numbered paragraphs contained herein. Disclosure made in a specific
schedule shall not be deemed to have been disclosed with respect to any other
schedule unless an explicit cross-reference appears.
(dd) PRINCIPAL PLACE OF BUSINESS; RESIDENCE. The Company's
and the Affiliates' principal place of business is located at 1134 St. Catherine
St., W., Suite 101, Montreal, Quebec, Canada H3B 1H4.
(ee) COLLECTION AND REMITTANCE. The Company and each of the
Affiliates has collected from each receipt from its past and present customers
(or other persons paying amounts to it) the amount of all Taxes required to be
collected and has paid such Taxes (including, for greater certainty, any amount
to be collected and remitted under the Excise Tax Act (Canada) and any sales Tax
under any applicable provincial Laws) when due, in the form required under the
appropriate legislation or made adequate provision for the payment of such
amounts to the proper receiving authorities.
(ff) RELATED PARTY TRANSACTIONS. The Company and each of the
Affiliates has not acquired or had the use of property for proceeds greater than
the fair market value thereof from, or disposed of property for proceeds less
than the fair market value thereof to, or received or performed services for
other than the fair market value from or to, or paid or received interest or any
other amount other than at a fair market rate to or from, any person with whom
it does not deal
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at arm's length within the meaning of the Income Tax Act (Canada), the result of
which caused the payment of any taxes by the Company or the Affiliates.
(gg) CCPC STATUS. Since its date of incorporation or
formation, the Company and each of the Affiliates has been a "Canadian
controlled private corporation" within the meaning of the Income Tax Act
(Canada).
(hh) DEBT FORGIVENESS. The Company and each of the Affiliates
has not at any time benefited from a forgiveness of debt or entered into any
transaction or arrangement (including conversion of debt into shares) which
would have resulted in the application of Sections 80 to 80.04 of the Income Tax
Act (Canada).
(ii) ELECTIONS. Except as set forth in Schedule 2.1(ii)
hereto, the Company and each of the Affiliates has not made any elections or
designations under Section 83 or 85 of the Income Tax Act (Canada) or any
relevant provincial taxing statute, or for purposes of any administrative ruling
or notices or administrative practices pursuant to the Income Tax Act (Canada)
or any such statute.
2.2 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each Seller,
jointly and severally with the other Sellers, represents and warrants to, and
covenants and agrees with Buyer as follows:
(a) CAPACITY; VALIDITY. Such Seller has the legal capacity
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by such
Seller and constitutes a valid and binding obligation of such Seller enforceable
against him in accordance with its terms.
(b) RIGHTS TO TOLL FREE TELEPHONE NUMBERS. Such Seller does
not own or possess any rights in or to the Toll Free Telephone Numbers listed on
Schedule 2.1(r) hereto.
(c) INVESTMENT INTENT. Such Seller acknowledges that none
of the shares of Parent Common Stock are registered under the Securities Act,
any state securities laws or any securities laws of Canada or of the provinces
therein. The shares of Parent Common Stock are being acquired by such Seller for
investment purposes only and not with a view to the distribution or resale
thereof and such Seller has no present intention to sell or otherwise dispose of
the Parent Common Stock, except in compliance with the provisions of all such
securities laws.
(d) INFORMATION. Such Seller (i) has such knowledge and
experience in financial and business affairs that he is capable of evaluating
the merits and risks involved in purchasing the Parent Common Stock, (ii) is
able to bear the economic risks involved in purchasing the Parent Common Stock,
and (iii) has had the opportunity to ask questions of, and receive answers from,
Parent and persons acting on Parent's behalf concerning the terms and conditions
of the Parent Common Stock and to obtain any additional information in
connection therewith.
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(e) ACCREDITATION. Such Seller is an accredited investor
within the meaning of Regulation D of the Securities Act.
(f) NO U.S. RESIDENTS; OFFERS. Such Seller permanently
resides at the address of such Seller specified on the signature pages hereto.
Such Seller is not a citizen or resident of the United States. Such Seller has
not received any offer to sell, or any solicitation of any offer to buy, any
securities of Parent in the United States.
(g) RESTRICTIONS ON TRANSFER.
(i) Such Seller agrees that he will not Transfer any
of the shares of Parent Common Stock (or any interest therein) except upon the
terms and conditions specified herein and such Seller will cause any subsequent
holder of such Seller's shares of Parent Common Stock to agree to take and hold
the shares of Parent Common Stock subject to the terms and conditions of this
Agreement, if such shares of Parent Common Stock are required to include a
legend pursuant to Section 2.2(g)(ii) hereof.
(ii) Each certificate representing the shares of
Parent Common Stock issued to such Seller or to any subsequent stockholder shall
include a legend in the following form; PROVIDED, HOWEVER, that such legend
shall not be required (and shall be removed) if a Transfer is being made in
connection with a sale of shares of Parent Common Stock registered under the
Securities Act, or in connection with a sale in compliance with Rule 144 under
the Securities Act, as such Rule may be amended from time to time (each a
"Public Sale"):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION THEREOF OR A VALID EXEMPTION
THEREFROM.
The Sellers also acknowledge that, under applicable securities laws of Canada,
the shares of Parent Common Stock may be subject to certain statutory hold
periods.
(iii) Notwithstanding anything to the contrary in this Section
2.2(g), such Seller shall not Transfer any of the shares of Parent Common Stock
except to the extent permitted, and in accordance with, the Shareholders
Agreement referred to in Section 4.1(h) hereof.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer and Parent hereby
represent and warrant, jointly and severally, to, and covenant and agree with,
the Sellers as follows:
(a) ORGANIZATION, STANDING AND POWER. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to own, lease and
operate its properties and to carry on the business as presently conducted by it
in each jurisdiction where it carries on business and is qualified in each other
jurisdiction in which qualification is required for it to own, lease and operate
its properties and carry on the business as presently conducted by it, except to
the extent that failure to so qualify
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would not have a material adverse effect on the financial condition, business or
operations of Buyer.
(b) AUTHORITY. The execution and delivery by Buyer of this
Agreement and of each of the other Executed Agreements to which it shall be a
party, the performance by Buyer of its obligations under this Agreement or such
Executed Agreements and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
and any other required action on the part of Buyer, and Buyer has all necessary
corporate and any other required power with respect thereto. This Agreement and
the Executed Agreements are, or when executed and delivered by Buyer shall be,
the valid and binding obligations of Buyer, enforceable in accordance with their
respective terms, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws. Neither the execution and
delivery by Buyer of the Executed Agreements, nor the consummation of the
transactions contemplated thereby, nor the performance by Buyer of its
obligations under the Executed Agreements, shall (nor with the giving of notice
or the lapse of time or both would) (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or By-Laws of Buyer, (ii) violate
any order, writ, injunction, decree, law, statute, rule or regulation or (iii)
interfere with or otherwise materially and adversely affect the ability of Buyer
to carry on the Business as now conducted.
(c) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. Other
than the approval of Buyer's lenders ("Bank Lenders"), no approval, consent,
compliance, exemption, authorization or other action by, or notice to or filing
with, any governmental authority or any other entity, and no lapse of a waiting
period, is necessary or required to be obtained by Buyer in connection with the
execution, delivery or performance by it of this Agreement, any of the Executed
Agreements or the transactions contemplated hereby, other than the filing of a
notification of the acquisition with the Director of Investments pursuant to the
Investment Canada Act which the Buyer covenants to file after Closing. Buyer
does have an available credit facility with its Bank Lenders that will enable
Buyer to finance the transactions contemplated hereby.
(d) BROKERS. No agent, broker, person or firm acting on
behalf of Buyer or under its authority is or shall be entitled to a brokerage
commission, finder's fee, or other like payment in connection with any of the
transactions contemplated hereby.
(e) RELIANCE ON REPRESENTATIONS AND WARRANTIES. Except for
the specific representations and warranties contained in Sections 2.1 and 2.2
hereof, the Company, the Affiliates and the Sellers have not provided the Buyer
and the Buyer is not relaying upon any other representation, warranty,
undertaking or covenant of the Company, the Affiliates or the Sellers including,
without limitation, any representation, warranty, undertaking or covenant in
respect to projected revenues or earnings, the Buyer having made its own
inquires and investigations in respect to such projections.
2.4 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and
warrants to the Sellers as follows:
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(a) CAPITALIZATION. The authorized capital stock of Parent
consists of (i) 15,000,000 shares of Common Stock, par value $.001 per share, of
which 100,000 shares are designated Class B Common Stock which are non-voting
stock ("Class B Stock"), of which 90,500 shares of Class B Stock are issued and
outstanding and (ii) 7,000,000 shares of Series A Preferred Stock, par value
$.001 per share, of which 6,520,000 shares are issued and outstanding. No more
than 11,000,000 shares of capital stock of Parent are issued and outstanding or
are reserved for issuance against outstanding options and warrants and
conversions of Class B Stock and Series A Preferred Stock. The shares of Parent
Common Stock being transferred to each Seller in accordance herewith, upon
consummation of the transactions contemplated hereby, shall, when issued, be
duly and validly issued and fully paid and non-assessable. The transfer of such
shares of Parent Common Stock to such Seller as provided herein shall upon
consummation of the transactions contemplated hereby, and subject to any
adjustments contained herein, vest such Seller with good and marketable title to
the Parent Common Stock, free and clear of all liens, charges, claims and
encumbrances.
(b) ORGANIZATION, STANDING AND POWER. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to own, lease
and operate its properties and to carry on its business as presently conducted
by it and is qualified in each other jurisdiction in which qualification is
required for it to own, lease and operate its properties and carry on its
business as presently conducted by it, except to the extent that failure to so
qualify would not have a material adverse effect on the financial condition,
business or operations of Parent.
(c) AUTHORITY. The execution and delivery by Parent of this
Agreement and of each of the other Executed Agreements to which it shall be a
party, the performance by Parent of its obligations under this Agreement or such
Executed Agreements and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
action on the part of Parent, and Parent has all necessary corporate power with
respect thereto. This Agreement and the Executed Agreements to which Parent
shall be a party are, or when executed and delivered by Parent shall be, the
valid and binding obligations of Parent, enforceable in accordance with their
respective terms, except to the extent that enforceability may be limited by the
operation of bankruptcy, insolvency or similar laws. Neither the execution and
delivery by Parent of such Executed Agreements, nor the consummation of the
transactions contemplated thereby, nor the performance by Parent of its
obligations under such Executed Agreements, shall (nor with the giving of notice
or the lapse of time or both would) (i) conflict with or result in a breach of
any provision of the Certificate of Incorporation or By-Laws of Parent, (ii)
violate any order, writ, injunction, decree, law, statute, rule or regulation or
(iii) interfere with or otherwise materially and adversely affect the ability of
Parent to carry on its business as now conducted.
(d) GOVERNMENTAL AUTHORIZATIONS; THIRD PARTY CONSENTS. Other
than the approval of the Bank Lenders, no approval, consent, compliance,
exemption, authorization or other action by, or notice to or filing with, any
governmental authority or any other entity, and no lapse of a waiting period, is
necessary or required to be obtained by Parent in connection with the execution,
delivery or performance by it of this Agreement, any of the Executed Agreements
or the transactions contemplated hereby.
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(e) BROKERS. No agent, broker, person or firm acting on
behalf of Parent or under its authority is or shall be entitled to a brokerage
commission, finder's fee, or other like payment in connection with any of the
transactions contemplated hereby.
3. COVENANTS. The Sellers, jointly and severally, covenant and
agree to, and to cause the Company and each of the Affiliates to, perform or
take any and all such actions to effectuate the following from the date hereof
until the Closing Date:
3.1 INVESTIGATION BY BUYER. Subject to the confidentiality agreement
dated November 1, 1998, as amended by a rider thereto dated March 8, 1999, Buyer
may, prior to the Closing Date, through its representatives (including its
counsel, accountants and consultants) make such investigations of the
properties, offices and operations of the Company and of the Affiliates and such
audit of the financial condition of the Company and the Affiliates as it deems
necessary or advisable in connection with the transactions contemplated hereby,
including, without limitation, any investigation enabling it to familiarize
itself with such properties, offices, operations and financial condition; such
investigation shall not, however, affect the Sellers' representations,
warranties and agreements hereunder. The Company, the Affiliates and the Sellers
shall permit Buyer and its authorized representatives to have, after the date
hereof, full access to the premises and to all books and records and Returns of
the Company and the Affiliates, and Buyer shall have the right to make copies
thereof and excerpts therefrom. The Company and the Sellers' shall furnish Buyer
with such financial and operating data and other information with respect to the
Company and the Affiliates as Buyer may from time to time reasonably request.
3.2 CARRY ON IN ORDINARY COURSE. Except with Buyer's prior written
consent, the Company and the Affiliates shall, and the Sellers shall cause the
Company and the Affiliates to, carry on the Business diligently and
substantially in the same manner as heretofore conducted, and shall not (i)
enter into or agree to enter into any extraordinary transaction, contract, lease
or commitment, (ii) except as disclosed hereunder, declare any dividends, nor
make any distributions or payments to any Seller, other than employment
compensation at rates not materially higher than rates paid for the Company's
fiscal year ended January 31, 1999, (iii) redeem any shares of the capital stock
of the Company or of any of the Affiliates or issue any capital stock or enter
into any agreement which grants a right to acquire any of the capital stock of
the Company or of any of the Affiliates, except as set forth on Schedule 3.2
hereof; provided, however, that nothing herein shall prevent the Sellers from
completing, prior to the Closing Date, certain corporate reorganization measures
relating to the Company and the Affiliates described on Schedule 3.2 hereof,
provided that, following such reorganization, the Buyer shall still acquire all
of the issued and outstanding shares of the capital stock of the Company and
provided that the Buyer shall not be adversely affected in consequence thereof;
(iv) increase the compensation of any employee of the Company or of any of the
Affiliates, other than ordinary year-end increases or enter into any severance
agreement or employment agreement with any employee of the Company or of any of
the Affiliates; (v) loan or advance any amounts to any officer, director,
stockholder or employee of the Company or of any of the Affiliates or enter into
any agreement with any of the foregoing or any person related to any of the
foregoing, (vi) acquire or dispose of any assets, other than in the ordinary
course of business, and (vii) encumber or commit to encumber any of its assets,
(viii) take any action, or suffer any action to be taken, which could cause any
of the representations or warranties of the Company, the Affiliates or the
Sellers contained herein not to be true and correct on and as of
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the Closing Date, (ix) repay (including by way of offset) any indebtedness,
except for regularly scheduled payments thereof in accordance therewith, or (x)
enter into any agreement to take any of the foregoing actions.
3.3 OTHER TRANSACTIONS. The Sellers shall not, and shall cause the
Company, the Affiliates and each of their directors, officers, stockholders,
employees, agents and affiliates or Associates not to, directly or indirectly,
at any time prior to the Closing, or should the Closing not occur, until the
date which is five (5) business days after the Closing Date, solicit or initiate
the submission of proposals from, or solicit, encourage, entertain or enter into
any arrangement, agreement or understanding with, or engage in any negotiations
with, or furnish any information to, any person, other than Buyer or a
representative thereof, with respect to the acquisition of all or any
substantial part of the business or assets of the Company or any of its
securities. Should the Company or any of its Affiliates or Associates or any
Seller, during such period, receive any offer or inquiry relating to such
acquisition, or obtain information that such an offer is likely to be made, they
will provide Buyer with immediate written notice thereof.
3.4 CONSENTS. The Sellers shall cause the Company and each of the
Affiliates to, and the Seller shall, use its best efforts to obtain in writing,
prior to the Closing Date, all consents, approvals, waivers, authorizations and
orders listed on Schedule 2.1(e) hereto which are not otherwise noted as waived
by Buyer (collectively, "Consents"). All such Consents will be in writing and
copies thereof will be delivered to Buyer promptly after the Company's receipt
thereof but no later than immediately prior to Closing.
3.5 SUPPLEMENTAL DISCLOSURE. The Sellers agree that, with respect to
their representations and warranties made in this Agreement, they will have a
continuing obligation to promptly supplement or amend the schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement and on the Closing Date, would have been
required to be set forth or described in the schedules hereto.
3.6 PUBLIC ANNOUNCEMENTS. The Sellers, the Company, the Affiliates
and Buyer agree that they will consult with each other before issuing any press
releases or otherwise making any public statements with respect to this
Agreement or the transactions contemplated hereby and any press release or any
public statement shall be subject to mutual agreement of the parties, except as
may be required by the disclosure obligations of Buyer under applicable
securities laws.
4. CONDITIONS TO CLOSING.
4.1 CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligation of
Buyer to close under this Agreement is subject to the satisfaction of the
following conditions any of which may be waived by Buyer in writing at or prior
to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Closing
Date, the Sellers shall have complied with and duly performed in all material
respects all agreements and conditions on their part to be complied with and
performed pursuant to or in connection with this Agreement on or before the
Closing Date.
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(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Sellers contained in this Agreement, or otherwise made in
connection with the transactions contemplated hereby, shall be true and correct
in all material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
(c) NO LEGAL PROCEEDINGS. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby, and on the Closing Date there will be no court
or governmental actions or proceedings pending or threatened against or
affecting the Company which involve a demand for any judgment or liability,
whether or not covered by insurance, and which may result in any material
adverse change in the business, operations, properties or assets or in the
condition, financial or otherwise, of the Company or any of the Affiliates.
(d) ABSENCE OF MATERIAL CHANGES. The Company and each of the
Affiliates shall have not suffered any material adverse change in its working
capital, condition (financial or otherwise), assets, liabilities, business,
operations or prospects since the date hereof.
(e) CERTIFICATE. Buyer shall have received a certificate
dated the Closing Date and executed by each Seller and an authorized officer of
the Seller to the effect that the conditions expressed in Sections 4.1(a),
4.1(b), 4.1(c) and 4.1(d) have been fulfilled and which shall constitute
representations and warranties of the Sellers, jointly or severally, as to the
matters stated therein.
(f) GOVERNMENTAL APPROVALS. All governmental agencies,
departments, bureaus, commissions and similar bodies, the consent, authorization
or approval of which is necessary under any applicable law, rule, order or
regulation for the consummation of the transactions contemplated by this
Agreement and the operation of the Business of the Company and of each Affiliate
by Buyer shall have been consented to, authorized, permitted or approved such
transactions.
(g) CONSENTS. Buyer shall have received all consents
necessary to effectuate this Agreement and to consummate the transactions
contemplated hereby.
(h) SHAREHOLDER AGREEMENT. Each Seller shall have entered
into a Shareholder Agreement, in form and substance attached as Exhibit A
hereto.
(i) EMPLOYMENT AGREEMENT. Buyer shall have entered into an
Employment Agreement with each of Claude Cohen and David Knafo, in form and
substance attached as Exhibit B hereto.
(j) CERTIFICATES OF STATUS. Buyer shall have received
certificates from Industry Canada, the Inspector General of Financial
Institutions and of each jurisdiction set forth in Schedule 2.1(a) hereto,
providing that each of the Company and the Affiliates has filed its most recent
annual report, has not filed articles of dissolution and is in good standing in
each such jurisdiction.
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(k) OPINION OF COUNSEL. The Sellers shall have furnished
Buyer with a favorable opinion of Mendelsohn Rosentzveig Shacter, counsel for
the Sellers and the Company, dated as of the Closing Date, and in form and
substance satisfactory to counsel for Buyer.
(l) APPROVAL OF BANK LENDERS. Buyer shall have received the
approval of the Bank Lenders to effectuate this Agreement and to consummate the
transactions contemplated hereby.
(m) CLOSING DELIVERIES. Buyer shall have received at or
prior to the Closing such other documents, instruments, or certificates as Buyer
may reasonably request, including, without limitation, a certificate signed by
an authorized representative of the Company attesting to the authenticity of the
resolutions authorizing the transactions contemplated by this Agreement.
(n) LONG TERM DEBT. The Sellers shall have caused the Long
Term Debt to be restructured, on terms and conditions satisfactory to the Buyer,
such that, as a result, the security granted therefor shall be limited to
specific fixed assets acceptable to the Buyer. The long term portion of the Long
Term Debt of the Company and the Affiliates shall consist of (i) no more than
[***********] Canadian of indebtedness in the form of capitalized lease
obligations and equipment financing, (ii) indebtedness in the form of deferred
tax liabilities, and (iii) any other indebtedness agreed to by the parties prior
to Closing, provided, however, that the sum of the indebtedness in (i) and (ii)
shall not exceed [***********] Canadian.
(o) TRADE-MARK UTILIZATION AGREEMENT. The Buyer shall be
satisfied with the terms and conditions of the Trade-Mark Utilization Agreement.
(p) CONSENT OF LESSORS. The consents of the lessors referred
to in Schedule 2.1(e) hereof shall have been obtained.
(q) ESCROW AGREEMENT. The parties shall have entered into an
Escrow Agreement in form and substance mutually satisfactory to the parties.
(r) DUE DILIGENCE. Buyer shall have completed, to its
satisfaction, its business, legal, tax and accounting due diligence, including,
but not limited to, its due diligence with respect to the Company's Year 2000
compliance program.
(s) ORGANIZATION AND CAPITALIZATION. The Sellers shall cure,
to the satisfaction of the Buyer, certain technical deficiencies in the
organizational and capitalization structure of the Company and the Affiliates as
contained in the minute books of the Company and the Affiliates.
(t) PAYOFF OF GOVERNMENT OF CANADA LOAN. The Company shall
have paid off in full the balance of the Government of Canada loan referenced in
Schedules 2.1(e) and 2.1(w).
(u) COMPLETION OF THE COMPANY REORGANIZATION. The Sellers
and the Company shall have completed the reorganization of the Company,
including, but not limited to,
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the transfer of all of the Company's interest in 3425321 Canada Inc. to Claude
Cohen and David Knafo.
(v) COMPLETION OF THE RUPPMAN TRANSACTION. The Sellers, the
Company and the Affiliates shall have completed the sale of their interest in
Ruppman Express more fully described in Schedule 3.2 and shall have obtained a
release of the guarantee securing certain loan obligations of Ruppman Express
furnished by the Company, the Affiliates and/or any of the Sellers in favor of
the National Bank of Canada.
4.2 CONDITIONS OF THE SELLERS' OBLIGATIONS TO CLOSE. The obligations
of the Sellers to close under this Agreement are subject to the following
conditions any of which may be waived by the Sellers' Rep in writing at or prior
to Closing:
(a) AGREEMENTS AND CONDITIONS. On or before the Closing
Date, Buyer shall have complied with and duly performed in all material respects
all agreements and conditions on its part to be complied with and performed
pursuant to or in connection with this Agreement on or before the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement, shall be true and correct in
all material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and as of
the Closing Date.
(c) NO LEGAL PROCEEDINGS. No court or governmental action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated hereby.
(d) CLOSING CERTIFICATE. The Sellers' Rep shall have
received a certificate dated the Closing Date and executed by an authorized
officer of Buyer to the effect that the conditions contained in Sections 4.2(a),
4.2(b) and 4.2(c) have been fulfilled and which shall constitute representations
and warranties of Buyer as to the matters stated therein.
(e) CLOSING DELIVERIES. The Sellers' Rep shall have received
at or prior to the Closing such other documents, instruments, or certificates as
the Sellers' Rep may reasonably request, including, without limitation, a
certificate signed by an authorized representative of Buyer attesting to the
authenticity of the resolutions authorizing the transactions contemplated by
this Agreement.
(f) OPINION OF COUNSEL. The Buyer and the Parent shall have
furnished Sellers with a favorable opinion of counsel of the Buyer and Parent,
dated as of the Closing Date, and in form and substance satisfactory to counsel
for Sellers.
(g) ABSENCE OF MATERIAL ADVERSE CHANGE. The Parent or any of
its affiliates shall have not suffered any material adverse change in its
working capital, condition (financial or otherwise), assets, liabilities,
business, operations or prospects since the date hereof.
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(h) [intentionally omitted].
(i) RELEASE OF GUARANTIES. Buyer shall have secured the
release of any guarantees furnished by any of the Sellers in favor of the
bankers of the Company or any of the Affiliates. (j) OPINION OF SELLERS' U.S.
COUNSEL. Sellers shall have obtained an opinion from their United States counsel
that the provisions in this Agreement that are related to laws of the United
States are reasonable and standard in a transaction of this nature.
5. FURTHER ASSURANCES. From time to time after the Closing, and
without further consideration, the Sellers shall execute and deliver such other
instruments of conveyance, assignment, transfer and delivery and take such other
actions as Buyer may reasonably request in order more effectively to Transfer to
Buyer, to place Buyer in possession or control of the ME Stock and all of the
rights, properties, assets and businesses intended to be Transferred hereunder,
to assist in the collection of any and all such rights, properties and assets,
and to enable Buyer to exercise and to enjoy all of the rights and benefits of
the Sellers with respect thereto.
6. TRANSFER TAXES. The Sellers shall pay all income, gains,
transfer, sales and excise taxes, if any, incurred in connection with the
transactions contemplated by this Agreement.
7. INDEMNIFICATION.
7.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties
of the Sellers in this Agreement or in any document delivered pursuant hereto
shall survive the Closing Date for a period of two (2) years and shall then
terminate; PROVIDED, HOWEVER, that (i) any such representation and warranty
shall survive the time it would otherwise terminate only with respect to claims
of which notice has been given as provided in this Agreement prior to such
termination and (ii) such time limitation shall not apply to the representations
and warranties set forth in Section 2.2(b) hereof, which shall survive
indefinitely, and Sections 2.1(b), 2.1(j), 2.1(l), 2.1(m) and 2.1(o) hereof,
which shall survive until the expiration of the applicable statute of
limitations. The representations and warranties of the Buyer in this Agreement
or in any document delivered pursuant hereto shall survive the Closing Date
until the expiration of the applicable statute of limitations and shall then
terminate.
7.2 INDEMNITORS; INDEMNIFIED PERSONS. For purposes of this Section
7, each party which, pursuant to this Section 7, shall agree to indemnify any
other person or entity shall be referred to, as applicable, as the "Indemnitor",
and each such person and entity who is entitled to be indemnified by any
Indemnitor shall be referred to as the "Indemnified Person" with respect to such
Indemnitor.
7.3 INDEMNITY OF THE SELLERS. The Sellers hereby jointly and
severally agree to indemnify, hold harmless and reimburse Buyer and Parent and
their respective directors, officers, agents and employees from and against any
and all claims, liabilities, losses, damages and expenses incurred by such
Indemnified Persons (including reasonable attorneys' fees and disbursements)
which shall be caused by or related to or shall arise out of (a) any material
breach (or alleged breach in connection with a claim asserted by a third party)
of any representation or warranty of the Sellers
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contained in this Agreement, except those contained in Section 2.1(f) hereof,
and (b) any breach of any covenant or agreement of the Sellers contained in the
Agreement and (c) the corporate reorganizations implemented by the Sellers prior
to the Closing with respect to the shareholders of the Company and with respect
to the transactions relating to the sale by the Company of its interests in
3425321 Canada, Inc. The Sellers further agree that they shall not, without the
prior written consent of Buyer and Parent settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder unless
such settlement, compromise or consent shall include an unconditional release of
each Indemnified Person under this Section 7.3 from all liability arising out of
such claim, action, suit or proceeding.
7.4 INDEMNITY OF BUYER AND PARENT. Buyer and Parent hereby jointly
and severally agree to indemnify, hold harmless and reimburse the Company and
the Sellers and the Company's directors, officers, agents and employees from and
against any and all claims, liabilities, losses, damages and expenses incurred
by them (including reasonable attorneys' fees and disbursements) which shall be
caused by or related to or shall arise out of (a) any material breach (or
alleged breach in connection with a claim asserted by a third party) of any
representation or warranty of Buyer or Parent contained in this Agreement and
(b) any breach of any covenant or agreement of Buyer or Parent contained in the
Agreement. Buyer and Parent further agree that they shall not, without the prior
written consent of the Sellers' Rep, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder unless
such settlement, compromise or consent shall include an unconditional release of
the Sellers under this Section 7.4 from all liability arising out of such claim,
action, suit or proceeding.
7.5 PROCEDURES FOR INDEMNIFICATION; DEFENSE. Promptly after receipt
by an Indemnified Person of notice of the commencement of any action or
proceeding with respect to which indemnification may be sought hereunder, such
Indemnified Person shall notify the Indemnitor of the commencement of such
action or proceeding, but failure to so notify the Indemnitor shall not relieve
the Indemnitor from any liability which the Indemnitor may have hereunder or
otherwise, unless the Indemnitor shall be materially prejudiced by such failure.
If the Indemnitor shall so elect, the Indemnitor shall assume the defense of
such action or proceeding, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall pay the fees and
disbursements of such counsel. In the event, however, that such Indemnified
Person shall determine based on the written opinion of its counsel that having
common counsel would present such counsel with a conflict of interest or if the
Indemnitor shall fail to assume the defense of the action or proceeding in a
timely manner, then such Indemnified Person may employ separate counsel to
represent or defend it in any such action or proceeding and the Indemnitor shall
pay the reasonable fees and disbursements of such counsel; PROVIDED, HOWEVER,
that the Indemnitor shall not be required to pay the fees and disbursements of
more than one separate counsel for all Indemnified Persons in any jurisdiction
in any single action or proceeding. In any action or proceeding the defense of
which the Indemnitor shall assume, the Indemnified Person shall have the right
to participate in (but not control) such litigation and to retain its own
counsel at such Indemnified Person's own expense except as otherwise provided
above in this Section 7.5, so long as such participation does not interfere with
the Indemnitor's control of such litigation.
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7.6 RELATIONSHIP WITH PURCHASE PRICE ADJUSTMENT. Notwithstanding any
payment which may be due to Buyer under the Purchase Price Adjustments set forth
in Sections 1.4 and 1.5 hereof, the indemnity provisions of this Section 7 shall
remain in full force and effect without any modification or diminution thereof;
provided, however, that Buyer and Parent shall not be entitled to any indemnity
under this Section 7 in respect of any damage, cost, liability, refund or
expense as a result of any condition or event which is reflected, and only to
the extent so reflected, in the calculation of any adjustment to the Purchase
Price provided in this agreement. Notwithstanding any provisions of this
agreement to the contrary and in addition to the proviso mentioned in the
preceding sentence:
(a) neither the Buyer nor the Parent shall be entitled to
make any claim hereunder if (i) any of Stephen McLean, Raymond Wilson or Robert
Gust has actual knowledge (the Buyer's due diligence investigation alone being
insufficient to establish actual knowledge although such actual knowledge may
result from such investigation) prior to the Closing Date of the
non-performance, non-fulfillment or breach which is the basis for such warranty
claim, and (ii) the person with actual knowledge in (i) does not advise Sellers
of the non-performance, non-fulfillment or breach prior to completing the
purchase of the Purchased Business.
(b) the amount of any damages which may be claimed by the
Buyer or the Parent pursuant to any claim hereunder shall be calculated to be
the cost or loss to the Buyer or Parent after giving effect to any insurance
proceeds available to the Buyer or Parent in relation to the matter which is the
subject of such claim, plus the cost of any deductible.
(c) except for a claim pursuant to Section 7.7 hereof or a
claim arising out of a misrepresentation or breach of warranty contained in
Section 2.1(bb) hereof, neither the Buyer nor the Parent shall be entitled to
make any claim against the Sellers and the Sellers shall have no obligation to
indemnify either the Buyer or the Parent in respect of any claim until the
aggregate amount of all damages, losses, liabilities and costs incurred by the
Buyer and the Parent as the result of all misrepresentations and breaches of
warranties contained in this agreement or the breach of any covenants and
undertakings of the Sellers contained herein or any document or certificate
given in order to carry out the transactions contemplated hereby exceeds a
threshold of [**********************************] , at which point the Sellers
shall be obliged to indemnify the Buyer and the Parent in respect of any claims
hereunder to the extent that such claims exceed the said amount of
[*******************************] , except any claims in connection with Section
2.1(bb) hereof which shall not be subject to any such threshold requirement; and
(d) the maximum aggregate liability of the Sellers in
respect to all claims that may be made by the Buyers and the Parent against the
Sellers hereunder shall not exceed the Purchase Price, as the same may be
adjusted pursuant to the provisions hereof.
7.7 LITIGATION INDEMNITY OF THE SELLERS. The Sellers hereby jointly
and severally agree to indemnify, hold harmless and reimburse Buyer, Parent, the
Company and the Affiliates and their respective directors, officers, agents and
employees from and against any and all claims, liabilities, losses, damages and
expenses incurred by such Indemnified Persons (including reasonable attorneys'
fees and disbursements) which shall be caused by or related to or shall arise
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out of any and all of the three litigation matters described in Schedule 2.1(k)
(the "Litigation Matters"). The Sellers further agree that they shall not,
without the prior written consent of Buyer and Parent, settle or compromise or
consent to the entry of any judgment in any of the Litigation Matters unless
such settlement, compromise or consent shall include an unconditional release
from all liability arising out of such Litigation Matter in favor of the party
or parties that were sued in such Litigation Matter, provided, however, that, to
the extent that such settlement, compromise or consent shall not include an
unconditional release of each and every Indemnified Person under this Section
7.7, the indemnity provided under this Section 7.7 by the Sellers shall continue
in full force and effect with respect to those Indemnified Persons not expressly
included in the aforementioned release. The Indemnitor shall assume and control
the defense of such actions or proceedings, including the employment of counsel
chosen by the Indemnitor, and shall pay the fees and disbursements of such
counsel. In the event, however, that such Indemnified Person shall determine
based on the written opinion of its counsel that having common counsel would
present such counsel with a conflict of interest or if the Indemnitor shall fail
to assume the defense of the Litigation Matters in a timely manner, then such
Indemnified Person may employ separate counsel to represent or defend it in any
such Litigation Matter and the Indemnitor shall pay the reasonable fees and
disbursements of such counsel; PROVIDED, HOWEVER, that the Indemnitor shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons in any Litigation Matter. In any such Litigation
Matter, the Indemnified Person and the Company and the Affiliates shall
cooperate with the Indemnitor by making available any documents and records that
the Indemnitor may require. The Indemnified Person shall have the right to
participate in (but not control) such litigation and to retain its own counsel
at such Indemnified Person's own expense except as otherwise provided above in
this Section 7.7, so long as such participation does not interfere with the
Indemnitor's control of such litigation.
8. NON-COMPETITION; CONFIDENTIALITY.
8.1 NON-COMPETITION. Following the Closing Date and for a period
of three (3) years thereafter (the "Non-Competition Period"), each of the
Sellers shall not, directly or indirectly, (a) engage in any business or
activity that competes with the Company or any of the Affiliates, anywhere in
the United States or Canada; (b) enter the employ of any person or entity
engaged in any business or activity that competes with the Company or any of the
Affiliates or render any consulting or other services to any person or entity
for use in or with the effect of competing with the Company or any of the
Affiliates; or (c) have an interest in any business or activity that competes
with the Company or any of the Affiliates, in any capacity, including, without
limitation, as an investor, partner, stockholder, officer, director, principal,
agent, employee, or creditor; PROVIDED, HOWEVER, that nothing herein shall
prevent the purchase or ownership by a Seller of less than 3% of the outstanding
equity securities of any class of securities of a company registered under
Section 12 of the Securities and Exchange Act of 1934, as amended.
8.2 NO COMPETING INTERESTS. Each Seller hereby represents and
warrants to Buyer that such Seller has no ownership or other interest in any
business or activity that competes, directly or indirectly, with the Company or
any of the Affiliates.
8.3 NON-SOLICITATION. Following the Closing Date and for a period of
three (3) years thereafter, the Sellers agree, jointly and severally, not to,
directly or indirectly, hire, offer to
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hire, divert, entice away, solicit or in any other manner persuade or attempt to
persuade ("Solicitation") any person who is, or was, at any time within the
twelve (12) months prior to such Solicitation, an officer, director, employee,
agent, licensor, licensee, customer, or supplier of the Company or any of the
Affiliates to discontinue, cease or alter his, her or its relationship
therewith.
8.4 NON-DISRUPTION. Following the Closing Date and for a period of
three (3) years thereafter, the Sellers agree, jointly and severally, not to,
directly or indirectly, interfere with, disrupt or attempt to disrupt any
present or prospective relationship, contractual or otherwise, between the
Business, on the one hand, and any of its customers, suppliers or employees, on
the other hand.
8.5 CONFIDENTIALITY. The Sellers agree, jointly and severally, not
to at any time, directly or indirectly, use communicate, disclose or disseminate
any Confidential Information in any manner whatsoever (except to his personal
financial or legal advisors and as may be required under legal process by
subpoena or other court order; provided that, the Sellers will take reasonable
steps to give the Buyer sufficient prior written notice in order to contest such
requirement or order). "Confidential Information" means any and all information
(oral or written) relating to the Buyer or Parent or any person controlling,
controlled by, or under common control with the Buyer or Parent or any of their
respective activities, including, but not limited to, information relating to
trade secrets, proprietary information, software, software codes, advertising,
sales, marketing and other materials customers and supplier lists, data
processing reports, customer sales analyses, invoice, price lists or
information, and information pertaining to any governmental investigation,
except such information which is generally known in the industry or in the
public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain), other than as a result of a breach of the provisions hereof.
8.6 REMEDIES UPON BREACH. The Sellers, jointly or severally,
acknowledge and agree that (a) Buyer shall be irreparably injured in the event
of a breach by a Seller of any of the obligations under this Section 8; (b)
monetary damages shall not be an adequate remedy for such breach; (c) Buyer
shall be entitled to injunctive relief, in addition to any other remedy which it
may have, in the event of any such breach; and (d) the existence of any claims
which the Sellers may have against Buyer, whether under this Agreement or
otherwise, shall not be a defense to the enforcement by Buyer of any of its
rights under this Agreement, other than the non-payment by Buyer of the Purchase
Price. The obligations of the Sellers under this Section 8 are made absolutely
conditional upon the payment by the Buyer of the Purchase Price (as the same may
be adjusted pursuant to the provisions hereof) and the performance by the Buyer
and the Parent of all of their respective obligations under the Executed
Agreements.
8.7 RECOGNITION. The Sellers hereby expressly recognize that:
(a) The provisions of Section 8 are of the essence of this
Agreement and Buyer would not have entered into this Agreement without the
inclusion of such Section;
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(b) The Parent and the Buyer would be subject to irreparable
prejudice should one or several of the provisions of such Section be infringed,
or should the Sellers be in breach of any of its obligations thereunder;
(c) The provisions of Section 8 grant only such reasonable
protection as is admittedly necessary to preserve the legitimate interests of
the Parent and the Buyer; and
(d) without intending to limit the remedies available to the
Parent and the Buyer, a breach of any of the covenants contained in Section 8
may result in material irreparable injury to the Parent, the Buyer, the Company
and the Affiliates, for which there is no adequate remedy at law, that it may
not be possible to measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, the Parent, the Buyer, the Company and
the Affiliates shall be entitled to obtain any or all of a temporary restraining
order and a preliminary or permanent injunction restraining the Sellers from
engaging in activities prohibited by such Section or such other relief as may be
required to enforce specifically any of the covenants in such Section.
9. GUARANTY.
9.1 GUARANTEED OBLIGATIONS. Parent ("Guarantor") does hereby
irrevocably and unconditionally guarantee the due and punctual payment and
performance by Buyer of all of the obligations and undertakings of the Buyer
hereunder and the Executed Agreements and all reasonable costs and expenses,
legal or otherwise (including reasonable legal fees) as shall have been expended
or incurred by any of the Sellers in the enforcement of any right or privilege
under this Agreement and the Executed Agreements (collectively, the "Guaranteed
Obligations").
9.2 DEMAND BY SELLERS. The Sellers shall not be bound to exercise or
exhaust their recourses against the Buyer or others or any securities or other
guaranties it may at any time hold before being entitled to payment from the
Guarantor and the Guarantor renounces all benefits of discussion and division,
provided, however, that Sellers shall have no greater rights against the
Guarantor than they had against the Buyer and provided further that the
Guarantor shall be able to claim and assert the same defenses to payment as the
Buyer could have claimed and asserted.
9.3 WAIVER OF DEMANDS, NOTICES, DILIGENCE, ETC. The Guarantor hereby
assents to all the terms and conditions of the Guaranteed Obligations and waives
(a) demand for the payment of the Guaranteed Obligations (other than a demand
required as a condition to the Guaranteed Obligations becoming due or pursuant
to Section 9.2 above); (b) notice of the occurrence of a default of any event of
default under the Guaranteed Obligations; (c) protest of the nonpayment of the
Guaranteed Obligations or any part thereof; (d) notice of presentment, demand
and protest; (e) notice of acceptance of any guaranty hereon provided for or of
the terms and provisions thereof or hereof by the Seller; (f) notice of any
indulgence of extensions granted to Buyer or any partnership or corporate
successor to Buyer or any person or party which shall have assumed the
obligations of Buyer; (g) any requirement of diligence or promptness on the part
of the Sellers to the extent not required by the provisions of the Guaranteed
Obligations or this Section 9; (h) any enforcement of the Guaranteed
Obligations; (i) any right which the Guarantor might have to require the Sellers
to proceed against any collateral security therefor; and (j) any and all notices
of every kind and description which may be required to be given by any statute
or rule of law in any
39
<PAGE> 40
jurisdiction. The waivers set forth in this section shall be effective
notwithstanding the fact that the Sellers cease to exist by reason of their
liquidation, merger, consolidation or otherwise. The Guarantor's liability to
make a payment under this guaranty shall arise forthwith after demand for
payment has been made in writing on the Guarantor and such demand shall be
deemed to have been effectively made upon receipt of such demand by the
Guarantor.
9.4 OBLIGATIONS OF THE GUARANTOR UNCONDITIONAL. Upon the Guaranteed
Obligations becoming unconditionally due and payable against Buyer, such
Guaranteed Obligations shall become likewise unconditionally due and payable by
Guarantor under this Section 9, and shall not be affected by any action taken
under the Guaranteed Obligations in the exercise of any right or remedy therein
conferred, or by any failure or omission on the part of the Sellers to enforce
any right given thereunder or hereunder or any remedy conferred thereby or
hereby, or by any release of any security or any other guaranty at any time
existing for the benefit of the Guaranteed Obligations, or by the merger or
consolidation of the Sellers, or by sale, lease, or transfer by the Sellers to
any person of any or all of its properties, or by any action of the Sellers
granting indulgence or extension to, or acquiescing in any default by, Buyer, or
any successor or successors to Buyer or by any other party which shall have
assumed any of its obligations, or by and modification, alteration, or by any
circumstance whatsoever (with or without notice to or knowledge of the
Guarantor) which may or might in any manner or to any extent vary the risk of
the Guarantor hereunder, it being the purpose and intent of the Guarantor that
the obligations of the Guarantor hereunder shall be absolute and unconditional
under any and all circumstances in which such Guaranteed Obligations shall be
absolute and unconditional as against Buyer and shall not be discharged except
by payment or performance as herein provided, and then only to the extent of
such payment or performance. Notwithstanding the foregoing, the Guarantor shall
have the right to assert any defenses and any rights of set-off against the
Sellers that Buyer could have asserted against the Sellers. If for any reason
Buyer has no legal existence or is under no legal (as opposed to contractual)
obligation to discharge the Guaranteed Obligations, or if the Guaranteed
Obligations shall be due and payable but shall have become irrecoverable from
Buyer, by operation of law or for any other reason, or if any security or other
guaranty shall be found invalid, the Guarantor shall nonetheless be and remain
bound by this Section 9.
9.5 OTHER REQUIREMENTS. The Guarantor hereby agrees that, without
notice to or further assent from the Guarantor, the time of payment of any of
the Guaranteed Obligations or any other provision of the Guaranteed Obligations
may be extended, changed, modified, waived, discharged, settled or compromised
and the Guarantor will remain bound under this guaranty notwithstanding one or
more such extensions, changes, modifications, waivers, discharges, compositions
or settlements. The obligations of the Guarantor shall not be impaired,
diminished or discharged by any course of dealing between any of the Sellers and
Guarantor, or by any event or circumstance which might operate to discharge a
guarantor or which might otherwise constitute a defense to this guaranty.
This guaranty shall not be discharged or otherwise affected by any change in the
name of the Buyer or in the objects, capital structure or constitution of the
Buyer or by the sale of the Buyer's business or any part thereof or by the Buyer
being amalgamated with a corporation, but shall, notwithstanding any such event,
continue to apply to all Guaranteed Obligations whether
40
<PAGE> 41
theretofore or thereafter incurred; and in the case of the Buyer being
amalgamated with a corporation, this guaranty shall constitute a liability of
the resulting corporation, and a term "Buyer" shall include each such resulting
corporation.
The Guarantor assumes the responsibility for being and keeping informed of the
financial condition of the Buyer and of all other circumstances bearing upon the
risk of non-payment of the Guaranteed Obligations and agrees that the Sellers
shall have no duty to advise the Guarantor of information known to any of them
regarding such condition or circumstances.
The Guarantor agrees that the Sellers are not obliged in any manner to inquire
into the powers of the Buyer or any director, officer or agent acting or
purporting to act on its behalf.
If any payment of the Guaranteed Obligations is made by or for the benefit of
the Buyer and its subsequently repaid by a Seller to the Buyer or any other
party pursuant to any federal, state or other law, including those relating to
bankruptcy, insolvency, preference or fraudulent transfer, then to the extent of
such repayment the liability of the Guarantor with respect to such Guaranteed
Obligations shall continue in full force and effect.
Any claim or other right which the Guarantor may have or hereafter acquire
against the Buyer or any other person primarily or contingently liable on any of
the Guaranteed Obligation that arises from the existence or performance of the
Guarantor's Obligations under this guaranty including, without limitation, any
right of subrogation, reimbursements, exoneration, contribution or
indemnification will be suspended until the Guaranteed Obligations have been
paid in full.
THE GUARANTOR WAIVES THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT BY OR
AGAINST THE SELLERS OR ANY ONE OR MORE OF THEM.
Any demand under this guaranty, any proceedings or actions with respect thereto
and any other matter relating to this guaranty may be made, instituted or taken
by any of the Sellers, provided, however, that the Guarantor shall only be
responsible for the payment of attorney's fees to one single counsel.
This guaranty will not be impaired, diminished or discharged as a result of the
death or incapacity of any of the Sellers and the Guarantor confirms that this
guaranty will ensure to the benefit of each of the Sellers and their respective
successors, assigns, executors and legal representatives.
10. POST-CLOSING COVENANTS. The Buyer covenants and agrees to
perform or take any and all such actions to effectuate the following from the
Closing Date:
10.1 CONTINUED USE OF NAME. Buyer shall continue to operate the
Business under the name "Media Express" until the end of the Company's fiscal
year ending January 31, 2000 and shall not change the name of the Business
during the Company's fiscal year ending January 31, 2000, except with Sellers'
prior written consent, which may be withheld for any reason.
41
<PAGE> 42
10.2 TRANSFER OF NAME.Upon the cessation of the usage by the Buyer or
its affiliates of the name "Media Express", Buyer shall grant to Sellers a
fully-paid, royalty-free license to use the name "Media Express", provided that
Sellers shall only use the name "Media Express" in connection with a business
that is not related to or in competition with Buyer, the Business, the Company
or the Affiliates.
11. MISCELLANEOUS PROVISIONS.
11.1 CONFIDENTIALITY. The Sellers, the Company, the Affiliates and
Buyer agree not to, directly or indirectly, without the prior written consent of
the other, use or disclose to any person, firm or corporation, any materials or
information obtained in Buyer's due diligence investigation of the Company, or
any of the terms of this Agreement, except as may be required by the disclosure
obligations of Buyer under applicable securities laws or as may be required to
be disclosed to the attorneys and/or accountants of the parties hereto in
connection with the transactions contemplated hereby.
11.2 NOTIFICATION. Each party hereto shall give the other party or
parties hereto prompt written notice of (a) the existence of any fact or the
occurrence of any event which constitutes, or with the giving of notice or the
passage of time or both would constitute, a breach of any representation or
warranty of the party giving such notice made herein or pursuant hereto and (b)
the taking of any action by the party giving such notice that would breach or
violate, or constitute a default under, any agreement or covenant of such party
made herein or pursuant hereto. The giving of any such notice shall not affect,
modify or limit in any way any representation, warranty, agreement or covenant
of the parties made herein or pursuant hereto.
11.3 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
11.4 NOTICES. All notices, requests, demands and other communications
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed duly given when delivered by hand, or posted
in the mail by registered or certified mail with postage pre-paid, return
receipt requested, (a) if to Buyer or Parent, to Protocol Communications, Inc.,
12 Main Street, Leominster, Massachusetts 01453, Attention: Raymond P. Wilson,
facsimile number: (978) 534-7491; copy to Kirkpatrick & Lockhart LLP, 1251
Avenue of the Americas, 45th Floor, New York, NY 10020, Attention: John D.
Vaughan, Esq., facsimile number: (212) 536-3901, and (b) if to a Seller, to
Sellers' Rep c/o Media Express Inc., 1134 St. Catherine St., W., Suite 101,
Montreal, Quebec, Canada H3B 1H4, facsimile number: (514) 876-8746; copy to
Mendelsohn Rosentzveig Shacter, 1000 Sherbrooke Street West, 27th Floor,
Montreal, Quebec H3A 3G4, Attention: Michael Garonce or Philipp Duffy, facsimile
number: (514) 987-1213, or to such other address(es) as shall be specified by
like notice to the other parties.
11.5 RIGHT TO OFFSET. The Sellers hereby acknowledge and agree that
Buyer and Parent shall have the right to offset against any amounts due from
Buyer or Parent to the Sellers hereunder, any amounts due from any Sellers to
Buyer under this Agreement.
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<PAGE> 43
11.6 AMENDMENTS. This Agreement may be amended or modified at any
time prior to the Closing Date, but only by a written instrument executed by all
of the parties hereto.
11.7 ENTIRE AGREEMENT. This Agreement (together with the other
agreements, certificates, instruments and documents delivered pursuant hereto)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
11.8 APPLICABLE LAW. This Agreement and the legal relations among
the parties hereto shall be governed by and construed in accordance with the
internal laws of the State of New York.
11.9 HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
11.10 FEES AND DISBURSEMENTS. Buyer shall pay its own expenses, and
the fees and disbursements of the counsel, accountants or auditors retained by
it in connection with the preparation, execution and delivery of this Agreement.
The fees and expenses and disbursements of the counsel to the Sellers shall be
paid by the Sellers, jointly and severally.
11.11 ASSIGNMENT. This Agreement may not be assigned by any party
without the prior written consent of the other party, except that this Agreement
may be assigned by Buyer to any entity controlled by Parent or Buyer without the
prior written consent of the Sellers. In the event of such an assignment, Buyer
and the assignee shall remain jointly and severally liable for the obligations
of the Buyer under this Agreement.
11.12 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
11.13 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.14 LANGUAGE. The Parties have requested that all documents
evidencing or relating in any way to the foregoing be drawn up in the English
language only. Les Parties ont exige que tous les documents faisant foi ou se
rapportant de quelque maniere aux presentes soient rediges en anglais seulement.
[NEXT PAGE IS SIGNATURE PAGE.]
43
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement the day and year first above written.
PROTOCOL HOLDINGS, INC.
By: /s/ RAYMOND P. WILSON
-----------------------------------
Raymond P. Wilson
Vice President - Finance
PROTOCOL COMMUNICATIONS, INC.
By: /s/ RAYMOND P. WILSON
-----------------------------------
Raymond P. Wilson
Vice President - Finance
3223574 CANADA, INC.
By: /s/ CLAUDE COHEN
-----------------------------------
Claude Cohen
President
MEDIA EXPRESS INC.
By: /s/ CLAUDE COHEN
-----------------------------------
METC FINANCIAL SERVICES, INC.
By: /s/ DAVID KNAFO
-----------------------------------
44
<PAGE> 45
STOCKHOLDERS:
/s/ CLAUDE COHEN
--------------------------------------
Claude Cohen
/s/ DAVID KNAFO
--------------------------------------
David Knafo
LA FIDUCIE FAMILIALE COHEN
By: /s/ CLAUDE COHEN
-----------------------------------
Name:
LA FIDUCIE FAMILIALE KNAFO
By: /s/ DAVID KNAFO
-----------------------------------
Name:
FONDATION MIRYAM BERDUGO COHEN
By: /s/ CLAUDE COHEN
-----------------------------------
Name:
FONDATION NESSIM KNAFO
By: /s/ DAVID KNAFO
-----------------------------------
Name:
ELIEZER COHEN CANADA CORPORATION
By: /s/ CLAUDE COHEN
-----------------------------------
Name:
45
<PAGE> 1
EXHIBIT 2.13
AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment"),
is made this 21st day of May, 1999, by and between Protocol Holdings, Inc., a
Delaware corporation ("Parent"), Protocol Communications, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent ("Buyer"), 3223574 Canada,
Inc., a Canadian corporation (the "Company"), Media Express, Inc., a Canadian
corporation ("ME"), METC Financial Services Inc., a Canadian corporation
("METC") (ME and METC are collectively referred to as the "Affiliates"), and the
stockholders of the Company listed on the signature pages hereto (collectively,
the "Sellers").
Reference is made to a Stock Purchase Agreement dated as of
March 28, 1999 between Parent, Buyer, the Company, the Affiliates and the
Sellers (the "Agreement") whereby the Sellers have agreed to sell to the Buyer
and the Buyer has agreed to purchase from the Sellers all of the issued and
outstanding stock of the Company, all in the manner and subject to the terms and
conditions set forth in the Agreement.
A true and correct copy of such Agreement is attached hereto.
Capitalized terms not otherwise defined herein shall have the same meaning
ascribed to them in the Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows.
1. ARTICLE 1 - TERMS OF ACQUISITION.
A. The portion of the Cash Purchase Price referred to in Section
1.2(a)(ii) and payable pursuant to Section 1.2(d) shall be payable at Closing,
subject to review of the FY99 Financial Statements and adjustment as provided in
Section 1.4 of the Agreement.
B. Section 1.4 of the Agreement is amended to provide that, if the
Buyer wishes to dispute any matter in any of the Financial Statements, it may do
so by notice to either Claude Cohen or David Knafo on behalf of the Sellers
given within thirty (30) calendar days of the Closing.
2. RATIFICATION. The parties hereby ratify and confirm all of their obligations
under the Agreement. Except as amended hereby, the Agreement remains unaltered
and unchanged and is in full force and effect.
[END OF PAGE]
<PAGE> 2
[SIGNATURE PAGE OF AMENDMENT TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
PROTOCOL HOLDINGS, INC.
By: /s/ Raymond P. Wilson
-------------------------
Name:
Title:
PROTOCOL COMMUNICATIONS, INC.
By: /s/ Raymond P. Wilson
-------------------------
Name:
Title:
3223574 CANADA, INC.
By: /s/ Claude Cohen
-------------------------
Name:
Title:
MEDIA EXPRESS, INC.
By: /s/ David Knafo
-------------------------
Name:
Title:
METC FINANCIAL SERVICES INC.
By: /s/ Claude Cohen
-------------------------
Name:
Title:
2
<PAGE> 3
STOCKHOLDERS:
/s/ Claude Cohen
-----------------------------------
Claude Cohen
/s/ David Knafo
-----------------------------------
David Knafo
LA FIDUCIE FAMILIALE COHEN
By: /s/ Claude Cohen
-------------------------------
Name:
LA FIDUCIE FAMILIALE KNAFO
By: /s/ David Knafo
-------------------------------
Name:
FONDATION MIRYAM BERDUGO COHEN
By: /s/ Claude Cohen
-------------------------------
Name:
FONDATION NESSIM KNAFO
By: /s/ David Knafo
-------------------------------
Name:
ELIEZER COHEN CANADA CORPORATION
By: /s/ Claude Cohen
-------------------------------
Name:
3
<PAGE> 1
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/08/1998
981218832 - 2901064
RESTATED CERTIFICATED OF INCORPORATION
OF
TELESERVICES HOLDINGS CORPORATION
(Pursuant to Sections 241 and 245 of the
General Corporation Law of the State of Delaware)
(before receipt of payment of stock)
Teleservices Holdings Corporation, a corporation organized and existing
under and by virtue of the provisions of the General Corporation Law of the
State of Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Teleservices Holdings
Corporation and that this corporation was originally incorporated pursuant to
the General Corporation Law on May 28, 1998.
SECOND: That the Board of Directors duly adopted resolutions proposing to
amend and restate the Certificate of Incorporation of this corporation,
declaring said amendment and restatement to be advisable and in the best
interests of this corporation, which resolution setting forth the proposed
amendment and restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Teleservices Holdings Corporation.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is 15 E. North Street, in the City of Dover, County of Kent. The name
of its registered agent at such address is Incorporating Services, Ltd.
<PAGE> 2
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized
to issue is Twenty-Two Million (22,000,000) shares. Fifteen Million
(15,000,000) shares shall be Common Stock, of which 14,900,000 shares
shall be Common Stock (the "Common Stock") and 100,000 shares shall be
Class B Common Stock (the "Class B Common Stock"), and Seven Million
(7,000,000) shares shall be Preferred Stock, each with a par value of
$0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Restated Certificate of
Incorporation may be issued from time to time in one or more series.
The rights, preferences, privileges, and restrictions granted to and
imposed on the Series A Preferred Stock, which series shall consist of
7,000,000 shares (the "Series A Preferred Stock"), are as set forth
below in this Article IV(B).
1. Dividend Provisions.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) on the Common Stock
of this corporation, at the rate of $0.157 per share per annum
for the Series A Preferred Stock (as adjusted for any stock
splits, stock dividends, recapitalizations or the like), payable
when, as, and if declared by the Board of Directors. Such
dividends shall not be cumulative. The holders of the outstanding
Series A Preferred Stock can waive any dividend preference that
such holders shall be entitled to receive under this Section 1
upon the affirmative vote or written consent of the holders of at
least seventy percent (70%) of the Series A Preferred Stock then
outstanding.
2
<PAGE> 3
(b) After payment of any dividends pursuant to Section 1(a), any
additional dividends shall be distributed among all holders of
Common Stock and all holders of Series A Preferred Stock in
proportion to the number of shares of Common Stock which would be
held by each such holder if all shares of Series A Preferred
Stock were converted to Common Stock at the then effective
conversion rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of
Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets of this
corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to $1.57 for each
outstanding share of Series A Preferred Stock (the "Original
Series A Issue Price") plus declared but unpaid dividends on such
share (subject to adjustment of such fixed dollar amounts for any
stock splits, stock dividends, combinations, recapitalizations or
the like). If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then,
the entire assets and funds of this corporation legally available
for distribution shall be distributed ratably among the holders
of the Series A Preferred Stock in proportion to the amount of
such stock owned by each such holder.
(b) Upon completion of the distribution required by subsection (a) of
this Section 2 and any other distribution that may be required
with respect to series of Preferred Stock that may from time to
time come into existence, all of the remaining assets of this
corporation available for distribution to stockholders shall be
distributed among the holders of Common Stock pro rata based on
the number of shares of Common Stock held by each.
(c)
(i) For purposes of this Section 2, a liquidation, dissolution
or winding up of this corporation shall be deemed to be
occasioned by, or to include (unless the holders of at least
seventy percent (70%) of the Series A Preferred Stock then
outstanding shall determine otherwise), (A) the acquisition
of this corporation by another entity by means of any
transaction or series of related transactions (including,
without limitation, any reorganization, merger or
consolidation) that results in the transfer of fifty percent
(50%) or more of the outstanding voting power of this
corporation; or (B) a sale of all or substantially all of
the assets of this corporation.
3
<PAGE> 4
(ii) In any of such events, if the consideration received by this
corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as
follows:
(A) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through the Nasdaq National
Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over
the thirty (30) day period ending three (3) days prior to the
closing;
(2) If actively traded over-the-counter, the value shall be deemed to
be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by this corporation
and the holders of at least seventy percent (70%) of the voting
power of all then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to investment letter or
other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or
former affiliate) shall be to make an appropriate discount from the
market value determined as above in (A)(1), (2) or (3) to reflect the
approximate fair market value thereof, as mutually determined by this
corporation and the holders of at least seventy percent (70%) of the
voting power of all then outstanding shares of such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c) are
not complied with, this corporation shall forthwith
either:
(A) cause such closing to be postponed until such time as the requirements
of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights, preferences and
privileges of the holders of the Series A Preferred Stock shall revert
to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in
subsection 2(c)(iv) hereof.
4
<PAGE> 5
(iv) This corporation shall give each holder of record a Series A
Preferred Stock written notice of such impending transaction
not later than twenty (20) days prior to the stockholders'
meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is
earlier, and shall also notify such holders in writing of
the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section
2, and this corporation shall thereafter give such holders
prompt notice of any material changes. The transaction shall
in no event take place sooner than twenty (20) days after
this corporation has given the first notice provided for
herein or sooner than ten (10) days after this corporation
has given notice of any material changes provided for
herein; provided, however, that such periods may be
shortened upon the written consent of the holders of
Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least seventy
percent (70%) of the voting power of all then outstanding
shares of such Preferred Stock.
3. Redemption.
(a) At any time after June 8, 2002, but within ninety (90) days after
the receipt by this corporation of a written request from the
holders of not less than a majority of the then outstanding
Series A Preferred Stock that all or, if less than all, a
specified percentage of such holders' shares of Series A
Preferred Stock be redeemed, and concurrently with surrender by
such holders of the certificates representing such shares, this
corporation shall, to the extent it may lawfully do so, redeem in
three (3) annual installments (each payment date being referred
to herein as a "Redemption Date") the shares specified in such
request by paying in cash therefor a sum per share equal to
$0.524 per share of Series A Preferred Stock (as adjusted for any
stock splits, stock dividends, recapitalizations or the like) per
annual installment plus all declared but unpaid dividends on such
share (the "Series A Redemption Price"). The number of shares of
Series A Preferred Stock that this corporation shall be required
to redeem on any one Redemption Date shall be equal to the amount
determined by dividing (i) the aggregate number of shares of
Series A Preferred Stock outstanding immediately prior to such
Redemption Date that have been requested to be redeemed pursuant
to this Section 3(a) by (ii) the number of remaining Redemption
Dates (including the Redemption Date to which such calculation
applies). Any redemption of Series A Preferred Stock effected
pursuant to this subsection 3(a) shall be made on a pro rata
basis among the holders of the Series A Preferred Stock in
proportion to the number of shares of Series A Preferred Stock
proposed to be redeemed by such holders.
5
<PAGE> 6
(b) At least fifteen (15) but no more than thirty (30) days prior to
each Redemption Date, written notice shall be mailed, first class
postage prepaid, to each holder of record (at the close of
business on the business day next preceding the day on which
notice is given) of the Series A Preferred Stock to be redeemed,
at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be
effected on the applicable Redemption Date, specifying the number
of shares to be redeemed from such holder, the Redemption Date,
the Redemption Price, the place at which payment may be obtained
and calling upon such holder to surrender to this corporation, in
the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). Except as provided in
subsection (3)(c), on or after each Redemption Date, each holder
of Series A Preferred Stock to be redeemed on such Redemption
Date shall surrender to this corporation the certificate or
certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the
applicable Redemption Price of such shares shall be payable to
the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(c) From and after each Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the
holders of shares of Series A Preferred Stock designated for
redemption on such Redemption Date in the Redemption Notice as
holders of Series A Preferred Stock (except the right to receive
the applicable Redemption Price without interest upon surrender
of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred
on the books of this corporation or be deemed to be outstanding
for any purpose whatsoever. If the funds of this corporation
legally available for redemption of shares of Series A Preferred
Stock on a Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred Stock to be redeemed on
such date, those funds that are legally available will be used to
redeem the maximum possible number of such shares ratably among
the holders of such shares to be redeemed such that each holder
of a share of Series A Preferred Stock receives the same
percentage of the applicable Series A Redemption Price. The
shares of Series A Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of
this corporation are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately
be used to redeem the balance of the shares that this corporation
has become obliged to redeem on any Redemption Date but that it
has not redeemed.
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<PAGE> 7
4. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share and on or prior to the
fifth day prior to the Redemption Date, if any, as may have been
fixed in any Redemption Notice with respect to such share of the
Series A Preferred Stock, at the office of this corporation or
any transfer agent for such dock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by
dividing the Original Series A Issue Price by the Conversion
Price applicable to such share, determined as hereafter provided,
in effect on the date the certificate is surrendered for
conversion. The initial Conversion Price per share for shares of
Series A Preferred Stock shall be the Original Series A Issue
Price; provided, however, that the Conversion Price for the
Series A Preferred Stock shall be subject to adjustment as set
forth in subsection 4(d).
(b) Automatic Conversion. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such Series A
Preferred Stock immediately upon the earlier of (i) this
corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement
on Form S-1 or Form SB-2 under the Securities Act of 1933, as
amended, (A) the public offering price of which was not less than
$15,000,000 in the aggregate and (B) at a valuation of this
corporation's equity of $30,000,000, which such valuation shall
be calculated by multiplying the offering price per share by the
number of shares outstanding (calculated on a fully diluted,
as-converted basis) immediately prior to the offering, or (ii)
the date specified by written consent or agreement of the holders
of at least seventy percent (70%) of the then outstanding shares
of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common
Stock, he or she shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of
any transfer agent for the Series A Preferred Stock, and shall
give written notice to this corporation as its principal
corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred
Stock, or to the nominee or nominees of such holder, a
certificate or certificates
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<PAGE> 8
for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders
of such shares of Common Stock as of such date. If the conversion
is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Series A Preferred
Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering,
in which event the persons entitled to receive the Common Stock
upon conversion of the Series A Preferred Stock shall not be
deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price
of the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) (A) If this corporation shall issue, after the date upon
which any shares of Series A Preferred Stock were first
issued (the "Purchase Date"), any Additional Stock (as
defined below) without consideration or for a
consideration per share less than the Conversion Price
for such series in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each
such issuance shall forthwith (except as otherwise
provided in this clause (i)) be adjusted to a price
determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to
such issuance (including shares of Common Stock deemed
to be issued pursuant to subsection 4(d)(i)(E)(1) or
(2)) plus the number of shares of Common Stock that the
aggregate consideration received by this corporation
for such issuance would purchase at such Conversion
Price; and the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior
to such issuance (including shares of Common Stock
deemed to be issued pursuant to subsection
4(d)(i)(E)(1) or (2)) plus the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion Price for the Series A
Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments that
are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into
account in any subsequent adjustment made
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<PAGE> 9
prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or
shall be made at the end of three (3) years from the
date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided
for in subsections (E)(3) and (E)(4), no adjustment of
such Conversion Price pursuant to this subsection
4(d)(i) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale
thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to
purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or
exchangeable securities, the following provisions shall
apply for all purposes of this subsection 4(d)(i) and
subsection 4(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability,
including without limitation, the passage of time,
but without taking into account potential
antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in subsections
4(d)(i)(C) and (d)(i)(D)), if any, received by
this corporation upon the issuance of such options
or rights plus the minimum exercise price provided
in such options or rights (without taking into
account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of, or in
exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability,
including, without limitation, the passage
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<PAGE> 10
of time, but without taking into account potential
antidilution adjustments) for, any such
convertible or exchangeable securities or upon the
exercise of options to purchase or rights to
subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the
time such securities was issued or such options or
rights were issued and for a consideration equal
to the consideration, if any, received by this
corporation for any such securities and related
options or rights (excluding any cash received on
account of accrued interest or accrued dividends),
plus the minimum additional consideration, if any,
to be received by this corporation (without taking
into account potential antidilution adjustments)
upon the conversion or exchange of such securities
or the exercise of any related options or rights
(the consideration in each case to be determined
in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D)).
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the
consideration payable to this corporation upon
exercise of such options or rights or upon
conversion of or in exchange for such convertible
or exchangeable securities, including, but not
limited to, a change resulting from the
antidilution provisions thereof (unless such
options or rights or convertible or exchangeable
securities were merely deemed to be included in
the numerator and denominator for purposes of
determining the number of shares of Common Stock
outstanding for purposes of subsection
4(d)(i)(A)), the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected
by or computed using such options, rights or
securities, shall be recomputed to reflect such
change, but no further adjustment shall be made
for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of
any such options or rights or the conversion or
exchange of such securities.
(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or
exchange or the expiration of any options or
rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected
by or computed using such options, rights or
securities or options or rights related to such
securities (unless such options or rights were
merely deemed to be included in the numerator and
denominator for purposes of determining the number
of shares of Common Stock outstanding for purposes
of subsection 4(d)(i)(A)), shall be recomputed to
reflect the issuance of only the number of shares
of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued
upon the exercise of such options or rights, upon
the
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<PAGE> 11
conversion or exchange of such securities or upon
the exercise of the options or rights related to
such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor
pursuant to subsections 4(d)(i)(E)(1) and (2)
shall be appropriately adjusted to reflect any
change, termination or expiration of the type
described in either subsection 4(d(i)(E)(3)
or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection
4(d)(i)(E)) by this corporation after the Purchase Date
other than:
(A) Common Stock issued pursuant to a transaction described
in subsection 4(d)(iii) hereof;
(B) Shares of Common Stock issuable or issued to employees,
consultants, directors or vendors (if in transactions
with primarily non-financing purposes) of this
corporation directly or pursuant to a stock option plan
or restricted stock plan approved by the Board of
Directors of this corporation;
(C) Securities issued pursuant to a bona fide, firmly
underwritten public offering of shares of Common Stock,
registered under the Act, resulting in proceeds to the
Company of at least $15,000,000 in the aggregate;
(D) Securities issued pursuant to the conversion or
exercise of convertible or exercisable securities;
(E) Securities issued in connection with a bonafide
business acquisition of or by the Company, whether by
merger, consolidation, sale of assets, sale or exchange
of stock or otherwise; or
(F) Stock, warrants or other securities or rights issued to
persons or entities with which the Company has business
relationships provided such issuances are for other
than primarily equity financing purposes.
(iii) In the event this corporation should at any time or from
time to time after the Purchase Date fix a record date for
the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of
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<PAGE> 12
Common Stock or other securities or rights convertible into,
or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment
of any consideration by such holder for the additional
shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable
upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution,
split or subdivision if no record date is fixed), the
Conversion Price of the Series A Preferred Stock shall be
appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such
series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and
those issuable with respect to such Common Stock
Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination
of the outstanding shares of Common Stock, then, following
the record date of such combination, the Conversion Price
for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding
shares.
(e) Other Distributions. In the event this corporation shall declare
a distribution payable in securities of other persons, evidences
of indebtedness issued by this corporation or other persons,
assets (excluding cash dividends) or options or rights not
referred to in subsection 4(d)(iii), then, in each such case for
the purpose of this subsection 4(e), the holders of the Series A
Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number
of shares of Common Stock of this corporation into which their
shares of Series A Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common
Stock of this corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction
provided for elsewhere in this Section 4 or Section 2) provision
shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which
a holder of Common Stock deliverable upon conversion would have
been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the
holders of
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<PAGE> 13
the Series A Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment
of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock)
shall be applicable after that event as nearly equivalent as may
be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(h) No Fractional Shares and Certificates to Adjustments.
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A Preferred Stock, and the
number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of
Series A Preferred Stock the holder is as the time
converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock pursuant to
this Section 4, this corporation, at its expense, shall
promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment
is based. This corporation shall, upon the written request
at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such bolder a like
certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of
Preferred Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other
property that at the time would be received upon the
conversion of a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities
for the purpose of determining the
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<PAGE> 14
holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive
any other right, this corporation shall mail to each holder of
Series A Preferred Stock, at least twenty (20) days prior to the
date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such
dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of the Series A
Preferred Stock, such number of its shares of Common Stock as
shall from tine to time be sufficient to effect the conversion of
all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series A Preferred Stock, in
addition to such other remedies as shall be available to the
holder of such Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes, including, without limitation, engaging in best
efforts to obtain the requisite shareholder approval of any
necessary amendment to this Restated Certificate of
Incorporation.
(k) Notices. Any notice required by the provisions of this Section 4
to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
5. Voting Rights. The holder of each share of Series A Preferred Stock
shall have the right to one vote for each share of Common Stock into
which such Series A Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the bylaws of
this corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of
Series A Preferred Stock held by each
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<PAGE> 15
holder could be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
6. Protective Provisions. So long as any shares of Series A Preferred
Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least seventy percent (70%) of the then
outstanding shares of Series A Preferred Stock:
(a) sell, convey, or otherwise dispose of all or substantially all of
its property or business or merge into or consolidate with any
other corporation (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related
transactions in which more than fifty percent (50%) of the voting
power of this corporation is disposed of;
(b) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the
shares;
(c) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Preferred Stock;
(d) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or
exercisable for any equity security having a preference over, or
being on a parity with, the Series A Preferred Stock with respect
to dividends, liquidation, redemption or voting;
(e) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to (i) the repurchase of shares of
Common Stock from employees, officers, directors, consultants or
other persons performing services for this corporation or any
subsidiary pursuant to agreements under which this corporation
has the option to repurchase such shares at cost or at cost upon
the occurrence of certain events, such as the termination of
employment or (ii) the redemption of any share or shares of
Preferred Stock in accordance with Section 3; or
(f) pay dividends on the Common Stock of the corporation.
7. Status of Redeemed or Converted Stock. In the event any shares of
Series A Preferred Stock shall be redeemed or converted pursuant to
Section 3 or Section 4 hereof, the shares so redeemed or converted
shall be cancelled and shall not be issuable
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<PAGE> 16
by this corporation. The Restated Certificate of Incorporation shall
be appropriately amended to effect the corresponding reduction in this
corporation's authorized capital stock.
C. Common Stock. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Stock are as set forth below in
this Article IV(C).
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled
to receive, when and as declared by the Board of Directors, out
of any assets of this corporation legally available therefor,
such dividends as may be declared from time to time by the Board
of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
up of this corporation, the assets of this corporation shall be
distributed as provided in Section 2 of Division (B) of
Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote for each such share, and shall be
entitled to notice of any stockholders' meeting in accordance
with the bylaws of this corporation, and shall be entitled to
vote upon such matters and in such manner as may be provided
by law.
D. Class B Common Stock. The rights, preferences, privileges and
restrictions granted to and imposed on the Class B Common Stock are as
set forth below in this Article IV(D).
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Class B Common Stock shall be
entitled to receive, when and as declared by the Board of
Directors, out of any assets of this corporation legally
available therefor, such dividends as may be declared from time
to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
up of this corporation, the assets of this corporation shall be
distributed as provided in Section 2 of Division (B) of
Article IV hereof.
3. Redemption. The Class B Common Stock is not redeemable.
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<PAGE> 17
4. Voting Rights. The Class B Common Stock shall not be entitled to
vote upon any matters.
5. Automatic Conversion. Each share of Class B Common Stock shall
automatically be converted into one share of Common Stock
immediately upon the earlier of (i) this corporation's sale of
its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement on Form S-l or Form
SB-2 under the Securities Act of 1933, as amended, (A) the public
offering price of which was not less than $15,000,000 in the
aggregate or (B) at a valuation of this corporation's equity of
$30,000,000, which such valuation shall be calculated by
multiplying the offering price per share by the number of shares
outstanding (calculated on a fully diluted, as-converted basis)
immediately prior to the offering; (ii) the acquisition of this
corporation by another entity by means of any transaction or
series of related transactions (including, without limitation,
any reorganization, merger or consolidation) that results in the
transfer of fifty percent (50%) or more of the outstanding voting
power of this corporation; or (iii) a sale of all or
substantially all of the assets of this corporation.
6. Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock provision shall
be made so that the holders of the Class B Common Stock shall
thereafter be entitled to receive upon conversion of the Class B
Common Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled
on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of
this Section D with respect to the rights of the holders of the
Class B Common Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the
number of shares purchasable upon conversion of the Class B
Common Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
7. Stock Splits. In the event this corporation should at any time
or from time to time fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or
the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of
Common Stock or Common Stock Equivalents without payment of any
consideration by such holder for the additional shares of Common
Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such
dividend distribution, split or subdivision if no record date is
fixed), the number of shares of Common Stock
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<PAGE> 18
issuable upon conversion of the Class B Common Stock shall be
proportionately increased.
8. Status of Converted Stock. In the event any shares of Class B
Common Stock shall be converted pursuant to Section 5 hereof, the
shares so converted shall be cancelled and shall not be issuable
by this corporation. The Restated Certificate of Incorporation of
this corporation shall be appropriately amended to effect the
corresponding reduction in this corporation's authorized capital
stock.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent permitted by
the General Corporation Law as it now exists or as it may hereafter be amended,
not be personally liable to this corporation or its stockholders for monetary
damages for breach
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of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the General Corporation Law is amended, after approval by
the stockholders of this Article, to authorize corporation action further
eliminating or limiting the personal liability of directors, then the liability
of a director of this corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the adoption
of any provision of this Amended and Restated Certificate of Incorporation
inconsistent with this Article IX, by the stockholders of this corporation shall
not apply to or adversely affect any right or protection of a director of this
corporation existing at the time of such amendment, repeal, modification or
adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which General Corporation Law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of this
Article XI shall not adversely affect any right or protection of a director,
officer, agent, or other person existing at the time of, or increase the
liability of any director of this
19
<PAGE> 20
corporation with respect to any acts or omissions of such director, officer or
agent occurring prior to, such amendment, repeal or modification.
* * *
THIRD: The foregoing amendment and restatement was duly adopted in
accordance with the provisions of Section 241 and 245 of the General Corporation
Law.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
executed by the President and the Secretary of this corporation on this eighth
day of June, 1998.
/s/ RICHARD F. GACCIONE
-----------------------------
Richard F. Gaccione, Chairman
/s/ DANIEL A. SKAFF
-----------------------------
Daniel A. Skaff, Secretary
20
<PAGE> 1
EXHIBIT 3.2
NY3: 214280.02
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TELESERVICES HOLDINGS CORPORATION
----------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------------
I, Steve McLean, being the President of Teleservices Holdings Corporation,
a Delaware corporation (the "Corporation"), for the purpose of amending the
Certificate of Incorporation of the Corporation pursuant to Section 242 of
Delaware General Corporation Law, do hereby certify as follows:
1. The name of this Corporation is Teleservices Holdings Corporation.
2. The Corporation's Certificate of Incorporation was filed on May 28,
1998, with the Secretary of State of Delaware.
3. "Article I" of the Corporation's Certificate of Incorporation is to be
amended to change the name of the Corporation to Protocol Holdings,
Inc. As amended, such Article shall read as follows:
"Article I: The name of this Corporation is Protocol Holdings, Inc."
4. This amendment was authorized by the unanimous written consent of the
Board of Directors and the shareholders of the Corporation on
June 30th, 1998.
IN WITNESS WHEREOF, I have made and signed this Certificate of Amendment
this 30th day of June, 1998 and I affirm that the statements contained herein
are true under penalties of perjury.
/s/ Stephen G. McLean
---------------------
Stephen G. McLean
President
Acknowledged:
/s/ Daniel A. Skaff
- -------------------
Daniel A. Skaff
Secretary
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
PROTOCOL HOLDINGS, INC.
------------
PROTOCOL HOLDINGS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that:
FIRST: that the following resolutions was duly adopted by the Board of
Directors of the Corporation, setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, declaring such amendment to be
advisable and directing that such amendment be submitted to the stockholders of
the Corporation for their approval. The resolution is as follows:
"RESOLVED that there is hereby adopted an amendment to the Corporation's
Certificate of Incorporation pursuant to which the Corporation's authorized
capital stock shall be changed from 7,000,000 shares of Preferred Stock, $.001
par value, all of which shares have been classified as Series A Preferred Stock
and 15,000,000 shares of common stock, $.001 par value, of which 14,900,000
shares have been classified as Common Stock and 100,000 shares have been
classified as Class B Common Stock, to 7,150,000 shares of Preferred Stock, of
which 7,000,000 shares have been designated as Series A Preferred Stock, $.001
par value, and 150,000 shares shall be designated as Series AB Preferred Stock,
$.001 par value, and 15,000,000 shares of common stock, $.001 par value, of
which 14,900,000 have been designated as Common Stock and 100,000 shares have
been designated as Class B Common Stock, and that Article IV A. and the first
paragraph of Article IV B. of the Corporation's Certificate of Incorporation be,
and each hereby is, amended to read in its entirety as follows:
"A. Classes of Stock. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 22,150,000, consisting of
7,150,000 shares of Preferred Stock, of which 7,000,000 shares shall be
designated as Series A Preferred Stock, $.001 par value (herein called the
"Series A Preferred Stock"), and 150,000 shares shall be designated as Series AB
Preferred Stock, $.001 par value (herein called the "Series AB Preferred
Stock"), and 15,000,000 shares of common stock, $.001 par value, of which
14,900,000 shares shall be designated as Common Stock (herein called the "Common
Stock") and 100,000 shares shall be designated as Class B Common Stock (herein
called the "Class B Common Stock")."
"B. Rights, Preferences and Restrictions of Preferred Stock. The Board of
Directors shall have the authority by resolutions or resolutions to fix and
designate all the rights, preferences, privileges and restrictions of the Series
AB Preferred Stock permitted by the
<PAGE> 2
Delaware General Corporation Law. The rights, preferences, privileges and
restrictions granted to and imposed on the Series A Preferred Stock are as set
forth below in this Article IV B."
SECOND: The foregoing amendment was duly adopted in accordance with the
provisions of Sections 242 and 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, PROTOCOL HOLDINGS, INC. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Stephen G. McLean,
its President and Chief Executive Officer, who hereby acknowledges under
penalties of perjury that the facts herein stated are true and that this
certificate is his act and deed, this 25 day of October, 1999.
PROTOCOL HOLDINGS, INC.
By: /s/ Stephen G. McLean
-------------------------------------
Stephen G. McLean
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF
SERIES AB PREFERRED STOCK
OF
PROTOCOL HOLDINGS, INC.
------------
The undersigned, being a duly elected officer of Protocol Holdings, Inc.
(the "Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 151 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Amendment to the Certificate of Incorporation of the Corporation,
the Board of Directors adopted the following resolution creating a series of
150,000 shares of preferred stock designated as Series AB Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority conferred
upon the Board of Directors of this Corporation in accordance with the
provisions of the Certificate of Amendment to the Certificate of Incorporation,
there is hereby established a series of the authorized preferred stock of the
Corporation, $.001 par value per share, which series shall be designated as
"Series AB Preferred Stock," and which shall consist of 150,000 shares ("Series
AB Preferred Stock") and shall have the following rights, preferences,
privileges and restrictions:
1. Dividends. Shares of Series AB Preferred Stock shall not be
entitled to dividends. So long as any shares of Series AB Preferred
Stock are outstanding, no dividends whatsoever shall be paid or
declared, and no distribution shall be made, on any other capital
stock of the Corporation.
2. Redemption. The shares of Series AB Preferred Stock shall be
redeemable as follows:
2A. Mandatory Redemption. Except as and to the extent expressly
prohibited by applicable law, immediately prior to the
consummation of the transactions contemplated by the
Recapitalization Agreement (as may be amended from time to time
in accordance therewith, the "Recapitalization Agreement"), dated
as of September 29, 1999, among the Corporation, the Several
Participants named in Schedule I thereto, and the Several Parties
specified as "Original Stockholders" on the signature pages
thereof and
<PAGE> 2
each Addendum thereto (the "Redemption Event"), all outstanding
shares of Series AB Preferred Stock shall automatically cease to
have any and all rights, preferences and privileges pertaining to
Series AB Preferred Stock set forth herein and each such share
shall thereupon represent a right to receive upon the surrender
thereof the sum of $7.90, in cash (the "Redemption Price").
2B. Notice of Redemption Event and Payment of Redemption Price.
The Corporation shall notify each holder of record of shares of
Series AB Preferred Stock of the date of the Redemption Event,
electronically or in writing at the address of such holder set
forth on the books of the Corporation, at least three business
days prior to the occurrence thereof. Upon the occurrence of the
Redemption Event and surrender of any certificate representing
shares of Series AB Preferred Stock, the Corporation shall pay
the Redemption Price for each such share represented thereby.
2C. Redeemed or Otherwise Acquired Shares to be Retired. Any shares
of the Series AB Preferred Stock redeemed pursuant to this
paragraph 2 or otherwise acquired by the Corporation in any
manner whatsoever shall be permanently canceled and retired and
shall not under any circumstances be reissued, and upon the
occurrence of the Redemption Event no other shares of Series AB
Preferred Stock may be issued. The Corporation may from time to
time take such appropriate corporate action as may be necessary
to reduce the number of authorized shares of Series AB Preferred
Stock accordingly.
3. Conversion.
3A. Mandatory Conversion of Series AB Preferred Stock. Upon the
earlier to occur of the termination of the Recapitalization
Agreement, for any reason, or such date as a majority in interest
of the holders the Series AB Preferred Stock shall agree but
which date shall not be prior to November 30, 1999, all
outstanding shares of Series AB Preferred Stock shall
automatically cease to have any and all rights, preferences and
privileges pertaining to Series AB Preferred Stock set forth
herein and shall thereupon represent a right to receive upon the
surrender thereof, and each share shall automatically convert
into, such number of fully paid and nonassessable whole shares of
Series A Preferred Stock obtained by multiplying the number of
shares of Series AB Preferred Stock so converted by $7.90 and
dividing the result by the conversion price of $4.00 (the
"Series AB Conversion Price").
3B. Issuance of Certificates; Time Conversion Effected. Promptly upon
such conversion the Corporation shall provide electronic or
written notice thereof to each holder of record of shares of
Series AB Preferred Stock, at
-2-
<PAGE> 3
the address of such holder set forth on the books of the
Corporation, and upon surrender of the certificate or
certificates for the share or shares of the Series AB Preferred
Stock so converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in
such name or names as such holder may direct, subject to
compliance with applicable law to the extent such designation
shall involve a transfer, a certificate or certificates for the
number of whole shares of Series A Preferred Stock issuable upon
the conversion of such share or shares of Series AB Preferred
Stock.
3C. Fractional Shares. No fractional shares shall be issued upon
conversion of the Series AB Preferred Stock into Series A
Preferred Stock. If any fractional interest in a share of Series
A Preferred Stock would, except for the provision of the first
sentence of this subparagraph 3C, be deliverable upon any such
conversion, the Corporation, in lieu of delivering the fractional
share thereof, shall pay to the holder surrendering the Series AB
Preferred Stock for conversion an amount in cash equal to the
Series AB Conversion Price multiplied by such fractional
interest.
3D. Subdivision or Combination of Stock. So long as any shares of
Series AB Preferred Stock are outstanding, the Corporation shall
not subdivide or combine its outstanding shares of Series A
Preferred Stock or common stock into a greater or lesser number
of shares, without the written consent of the holders of a
majority of the outstanding shares of Series AB Preferred Stock.
3E. Reorganization or Reclassification. So long as any shares of
Series AB Preferred Stock are outstanding, the Corporation shall
not engage in any capital reorganization or reclassification of
the capital stock of the Corporation, without the written consent
of the holders of a majority of the outstanding shares of Series
AB Preferred Stock, except as contemplated by the
Recapitalization Agreement.
3F. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized but unissued Series A
Preferred Stock, solely for the purpose of issuance upon the
conversion of the Series AB Preferred Stock as herein provided,
such number of shares of Series A Preferred Stock as shall then
be issuable upon the conversion of all outstanding shares of
Series AB Preferred Stock. All shares of Series A Preferred Stock
so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges arising
out of or by reason of the issue thereof, and, without limiting
the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be
requisite to assure that the par value per share of the Series A
Preferred Stock is at all times equal to or less than the
effective Series AB Conversion Price. The Corporation will take
all such action
-3-
<PAGE> 4
within its control as may be necessary on its part to assure that
all such shares of Series A Preferred Stock may be so issued
without violation of any applicable law or regulation.
3G. No Reissuance of Series AB Preferred Stock. Shares of Series AB
Preferred Stock which are converted into shares of Series A
Preferred Stock as provided herein shall not be reissued and upon
such conversion no further shares of Series AB Preferred Stock
may be issued. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the
number of authorized shares of Series AB Preferred Stock
accordingly.
3H. Issue Tax. The issuance of certificates for shares of Series A
Preferred Stock upon conversion of the Series AB Preferred Stock
shall be made without charge to the holders thereof for any
issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the holder of the
Series AB Preferred Stock which is being converted.
3I. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series AB Preferred
Stock or of any shares of Series A Preferred Stock issued or
issuable upon the conversion of any shares of Series AB Preferred
Stock in any manner which interferes with the timely conversion
of such Series AB Preferred Stock.
3J. Definition of Series A Preferred Stock. As used in this
paragraph 3, the term "Series A Preferred Stock" shall mean and
include the Corporation's authorized Series A Preferred Stock,
$.001 par value as constituted on the date of filing of this
Certificate of Designation, Preferences and Rights of Series AB
Preferred.
4. Voting Rights. Except to the extent provided by law, the holders of
common stock, Series A Preferred Stock and Series AB Preferred Stock
shall vote together as a class on all matters to be voted on by the
shareholders of the Corporation on the following basis: (1) each
holder of Series A Preferred Stock shall be entitled to one vote for
each share of common stock which would be issuable to such holder upon
the conversion of all the shares of Series A Preferred Stock, so held
on the record date for the determination of shareholders entitled to
vote, (2) each holder of Series AB Preferred Stock shall be entitled
to the number of votes per share as such holder would have upon
conversion of all shares of Series AB Preferred Stock into shares of
Series A Preferred Stock so held on the record date for the
determination of shareholders entitled to vote and (3) each holder of
common stock shall be entitled to one vote per share.
-4-
<PAGE> 5
5. Restrictions. At any time when shares of Series AB Preferred Stock
are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required
by law or by Certificate of Incorporation of the Corporation, as may
be amended, and in addition to any other vote required by law, without
the prior consent of the holders of a majority of the outstanding
shares of Series AB Preferred Stock, given in person or by proxy and
voting separately as a class, either in writing or at a special
meeting called for that purpose, at which meeting the holders of the
shares of such Series AB Preferred Stock shall vote separately as
a class:
(i) The Corporation will not reorganize or reclassify the capital
stock of the Corporation or consolidate or merge with, or sell
all or substantially all of its assets to any entity whatsoever,
except as contemplated by the Recapitalization Agreement.
(ii) The Corporation will not create, obligate itself to create,
authorize or issue any new class or classes of stock or new
series of common stock or preferred stock or any security
convertible into or evidencing the right to purchase shares of
any new class or series of common stock or preferred stock or
any new capital stock of the Corporation having preference over
or being on parity with the Series AB Preferred Stock in any
respect, except as contemplated by the Recapitalization
Agreement.
(iii) The Corporation will not amend, alter or repeal the
Corporation's Certificate of Incorporation, any Certificate of
Designation or By-laws in any manner, or file any directors'
resolutions pursuant to the general Corporation Law of the State
of Delaware except as contemplated by the Recapitalization
Agreement.
RESOLVED FURTHER, that the President, any Vice President and the Secretary
or any Assistant Secretary of the Corporation be, and each hereby is, authorized
and directed to do or cause to be done all such acts and deeds and to make,
execute and deliver, or cause to be made, executed and delivered, all such
agreements, documents, instruments and certificates in the name and on behalf of
the Corporation or otherwise as they deem necessary, desirable or appropriate to
execute or carry out the purpose and intent of the foregoing resolution.
-5-
<PAGE> 6
IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury as of this 25th day
of October, 1999.
PROTOCOL HOLDINGS, INC.
By: /s/ Stephen G. McLean
-------------------------
Stephen G. McLean
President
-6-
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
PROTOCOL HOLDINGS, INC.
------------
PROTOCOL HOLDINGS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that:
FIRST: that the following resolution was duly adopted by the Board of
Directors of the Corporation, setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, declaring such amendment to be
advisable and directing that such amendment be submitted to the stockholders of
the Corporation for their approval. The resolution is as follows:
"RESOLVED that there is hereby adopted an amendment to the Corporation's
Certificate of Incorporation pursuant to which the Corporation's authorized
capital stock shall be changed from 7,150,000 shares of Preferred Stock, $.001
par value, of which 7,000,000 shares have been classified as Series A Preferred
Stock and 150,000 shares have been designated as Series AB Preferred Stock, and
15,000,000 shares of common stock, $.001 par value, of which 14,900,000 shares
have been classified as Common Stock and 100,000 shares have been classified as
Class B Common Stock, to 22,150,000 shares of Preferred Stock, of which
7,000,000 shares shall be designated as Series A Preferred Stock, 15,000,000
shares shall be designated as Series B Convertible Preferred Stock, and 150,000
shares shall be designated as Series AB Preferred Stock, and 40,000,000 shares
of common stock of which 39,900,000 shares shall be designated Common Stock and
100,000 shares shall be designated as Class B Common Stock, and that Article
FOURTH of the Corporation's Certificate of Incorporation be, and it hereby is,
amended to read in its entirety as follows:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 62,150,000 shares, consisting of
22,150,000 shares of Preferred Stock, $.001 par value, of which 7,000,000 shares
have been designated as Series A Preferred Stock (herein called the "Series A
Preferred Stock"), 15,000,000 shares have been designated as Series B
Convertible Preferred Stock (herein called the "Series B Preferred Stock") and
150,000 shares have been designated as Series AB Preferred Stock (herein called
the "Series AB Preferred Stock"), and 40,000,000 shares of common stock, $.001
par value, of which 39,900,000 shares have been designated as Common Stock
(herein called the "Common Stock")
<PAGE> 2
and 100,000 shares have been designated as Class B Common Stock (herein called
the "Class B Common Stock"). All cross-references in each subdivision of this
Article FOURTH refer to other paragraphs in such subdivision unless otherwise
indicated.
The following is a statement of the designations, and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of each class of stock of the Corporation:
I.
SERIES B CONVERTIBLE PREFERRED STOCK
1. Dividends. The holders of outstanding shares of Series B Preferred Stock
shall be entitled to receive, and the Corporation shall be bound to pay,
out of any funds legally available therefor, cumulative, compounding
dividends on the Series B Preferred Stock in cash, at the rate per annum of
ten percent (10%) of the Preferred Liquidation Preference Amount (as
defined in Section 3 below) per share of Series B Preferred Stock (the
"Series B Preferred Dividends"). Such dividends will accrue on a daily
basis and compound on an annual basis commencing as of the date of issuance
of the Series B Preferred Stock until the date of redemption pursuant to
Section 2 below, liquidation pursuant to Section 3 below, or conversion
pursuant to Section 4 below, shall be computed on the basis of actual
number of days elapsed in a year of 360 days, and shall be cumulative, to
the extent unpaid, whether or not they have been declared and whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. Preferred Dividends then accrued
shall be paid upon any liquidation, conversion or redemption of the Series
B Preferred Stock. So long as any shares of Series B Preferred Stock are
outstanding (i) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on the Common Stock, the Series A Preferred
Stock or any other capital stock of the Corporation ranking junior to the
Series B Preferred Stock and (ii) no shares of Common Stock or Series A
Preferred Stock shall be purchased or redeemed by the Corporation, and no
moneys shall be paid to or made available for a sinking fund for the
purchase or redemption of any Common Stock or Series A Preferred Stock,
unless in each instance all Series B Preferred Dividends have been paid in
full and any arrears in the mandatory redemption of the Series B Preferred
shall have been made good; provided, however, that the Corporation may
redeem shares of Common Stock, Class B Common Stock and Series A Preferred
Stock (X) pursuant to the Recapitalization Agreement dated as of September
29, 1999 (as amended from time to time, the "Recapitalization Agreement")
among the Corporation, BCI Growth V, L.P., Willis Stein & Partners II, L.P.
and the other parties named therein, (Y) owned by employees or directors of
the Corporation pursuant to written agreements between the Corporation and
such employees or directors and approved by the Board of Directors of the
Corporation, and (Z) with the consent of holders of at least 66-2/3% of the
outstanding Series B Preferred Stock.
2
<PAGE> 3
(b) ADJUSTMENT. All numbers relating to the calculation of dividends
pursuant to this Section 1 shall be subject to equitable adjustment in
the event of any stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving a
change in the Series B Preferred Stock.
2. Redemption. The shares of Series B Preferred Stock shall be redeemable as
follows:
2A. Mandatory Redemption. Except as and to the extent expressly
prohibited by applicable law, the Corporation shall redeem on December
31, 2006 (the "Preferred Redemption Date") (in the manner and with the
effect provided in subparagraphs 2B through 2D below) all shares of
Series B Preferred Stock which shall then be outstanding. In case of
(i) the consolidation or merger of the Corporation with or into any
other corporation (other than a merger in which the Corporation is the
surviving corporation and which will not result in more than 50% of
the capital stock of the Corporation outstanding immediately after the
effective date of such merger being owned of record or beneficially by
persons other than the holders of such capital stock immediately prior
to such merger), (ii) a sale of all or substantially all of the
properties and assets of the Corporation and its subsidiaries as an
entirety to any person (other than any holder or holders of shares of
Series B Preferred Stock or their affiliates) or (iii) the sale of
more than 50% of the capital stock of the Corporation to any person
(other than any holder or holders of shares of Series B Preferred
Stock), the Corporation shall, not later than 20 days prior to the
effective date of any such consolidation, merger or sale of properties
and assets, give notice thereof to the holder or holders of shares of
Series B Preferred Stock and, in the event that within 15 days after
receipt of such notice, any holder or holders of shares of Series B
Preferred Stock shall elect, by written notice to the Corporation, to
have any or all of its or their shares of Series B Preferred Stock
redeemed, the Corporation shall redeem the same (in the manner and
with the effect provided in subparagraphs 2B through 2D below) not
later than the effective date and time of such consolidation, merger,
sale of properties and assets, or sale of capital stock.
2B. Redemption Price. The Series B Preferred Stock to be redeemed on the
Preferred Redemption Date shall be redeemed by paying for each share
in cash the sum of $7.5746 plus in each case an amount equal to any
dividends accrued and unpaid thereon up to such Preferred Redemption
Date, such amount being herein sometimes referred to as the "Preferred
Redemption Price." Not less than 60 days before any Preferred
Redemption Date, written notice shall be given by mail, postage
prepaid to the holders of record of the Series B Preferred Stock to be
redeemed, such notice to be addressed to each such shareholder at his
post office address as shown by the records of the Corporation,
specifying the number of shares to be redeemed, the paragraph or
paragraphs of this subdivision I pursuant to which such redemption
shall be made, the Preferred Redemption Price and the place and date
of such redemption, which date shall not be a day on which banks in
the City of New York are required or authorized to close. If such
notice of redemption shall have been duly given and if on or before
such Preferred Redemption Date the funds necessary for redemption
shall have been set aside so as to be and continue to be available
therefor, then, notwithstanding that any certificate for shares of
Series B Preferred Stock to be redeemed shall not have been
surrendered for cancellation, after the close of business on such
Preferred Redemption Date, the shares so called for redemption shall
no
3
<PAGE> 4
longer be deemed outstanding, any dividends thereon shall cease to
accrue, and all rights with respect to such shares shall forthwith
after the close of business on the Preferred Redemption Date cease,
except only the right of the holders thereof to receive, upon
presentation of the certificate representing shares so called for
redemption, the Preferred Redemption Price therefor, without interest
thereon.
2C. Redeemed or Otherwise Acquired Shares to be Retired. Any shares of
the Series B Preferred Stock redeemed pursuant to this paragraph 2 or
otherwise acquired by the Corporation in any manner whatsoever shall
be permanently canceled and retired and shall not under any
circumstances be reissued; and the Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce
the number of authorized shares of Series B Preferred Stock
accordingly.
2D. Shares to be Redeemed. In case of the redemption, for any reason, of
only a part of the outstanding shares of the Series B Preferred Stock
on a Preferred Redemption Date, all shares of Series B Preferred Stock
to be redeemed shall be selected pro rata, and there shall be so
redeemed from each registered holder, rounded as nearly as practicable
to the nearest whole share, that proportion of all of the shares to be
redeemed which the number of shares held of record by such holder
bears to the total number of shares of Series B Preferred Stock at the
time outstanding. Any shares of Series B Preferred Stock not redeemed
on December 31, 2006 shall be redeemed as soon thereafter as possible
and in the manner in which shares are otherwise redeemed on a
Preferred Redemption Date, and, in such event, as provided in this
subdivision I (i) any dividends shall continue to accrue on such
shares and (ii) such shares shall continue to be convertible into
Common Stock. In the event that any holder of shares of Series B
Preferred Stock shall convert a portion of such shares into shares of
Common Stock, pursuant to subparagraph 4A below after a notice of
redemption of only a part of the outstanding Series B Preferred Stock
shall have been given and prior to the Preferred Redemption Date
referred to therein, then, unless such holder shall otherwise specify
in writing at the time of such conversion, the shares of Series B
Preferred Stock so converted shall be deemed (so far as possible) to
be the shares of Series B Preferred Stock so to be redeemed from such
holder on such Preferred Redemption Date.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series B Preferred Stock shall be entitled, before any distribution or
payment is made upon any Common Stock, to be paid an amount equal to the
greater of (x) $7.5746 per share, plus an amount equal to any dividends
accrued and unpaid (the "Preferred Liquidation Preference Amount"), or (y)
the amount such holders would have received with respect to their shares of
Series B Preferred Stock on an as converted basis, and the holders of
Series B Preferred Stock shall not be entitled to any further payment, such
amounts being sometimes referred to in this subdivision I as the "Series B
Liquidation Payments." If upon such liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Series B Preferred Stock shall be
insufficient to permit payment to such holders of the preferential amount
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to which they are respectively entitled, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the
holders of Series B Preferred Stock. Upon any such liquidation, dissolution
or winding up of the Corporation, after the holders of Series B Preferred
Stock shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation may be distributed to
the holders of Series A Preferred Stock, Common Stock and Class B Common
Stock as their interests may appear. Written notice of such liquidation,
dissolution or winding up, stating a payment date, the amount of the
Liquidation Payments and the place where said Liquidation Payments shall be
payable, shall be given by mail, postage prepaid, not less than 30 days
prior to the payment date stated therein, to the holders of record of
Series B Preferred Stock, such notice to be addressed to each such holder
at his post office address as shown by the records of the Corporation,
provided, however, that failure to give notice pursuant to this sentence
shall not invalidate the action involved.
4. Conversion.
4A. Right to Convert Series B Preferred Stock. Subject to the terms and
conditions of this paragraph 4, the holder of any share or shares of
Series B Preferred Stock shall have the right, at its option at any
time, to convert any such shares of Series B Preferred Stock (except
that upon any redemption of Series B Preferred Stock or liquidation of
the Corporation the right of conversion shall terminate, as to shares
to be redeemed or as to all shares in the case of a liquidation, at
the close of business on the last full business day next preceding the
date fixed for payment of the amount distributable on the Series B
Preferred Stock) into such number of fully paid and nonassessable
whole shares of Common Stock as is obtained by multiplying the number
of shares of Series B Preferred Stock so to be converted by $7.5746
and dividing the result by the conversion price of $7.5746 per share,
or if there has been an adjustment of the conversion price, by the
conversion price as last adjusted and in effect at the date any share
or shares of Series B Preferred Stock are surrendered for conversion
(such price, or such price as last adjusted, being referred to herein
as the "Series B Conversion Price"). Such rights of conversion shall
be exercised by the holder thereof by giving written notice that the
holder elects to convert a stated number of shares of Series B
Preferred Stock into Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at
its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to
the holder or holders of the Series B Preferred Stock) at any time
during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address), subject
to compliance with applicable laws to the extent such designation
shall involve a transfer, in which the certificate or certificates for
shares of Common Stock shall be issued.
4B. Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt by the Corporation of the written notice referred to in
subparagraph 4A and surrender of the certificate or certificates for
the share or shares of the Series B Preferred Stock to be converted,
the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, subject to compliance with applicable laws to the
extent such designation shall involve a transfer, a certificate or
certificates for the number of whole shares of Common Stock issuable
upon the conversion of such share or
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shares of Series B Preferred Stock. To the extent permitted by law,
such conversion shall be deemed to have been effected and the Series B
Conversion Price, as the case may be, shall be determined as of the
close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and
at such time the rights of the holder of such share or shares of
Series B Preferred Stock shall cease (except for the right to receive
any and all accrued and unpaid dividends with respect thereto), and
the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby.
4C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of the Series B Preferred Stock
into Common Stock. At the time of each conversion, the Corporation
shall pay in cash an amount equal to all dividends, if any, declared
and unpaid on the shares surrendered for conversion to the date upon
which such conversion is deemed to take place as provided in
subparagraph 4B. In case the number of shares of Series B Preferred
Stock represented by the certificate or certificates surrendered
pursuant to subparagraph 4A exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to
the holder thereof, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Series B
Preferred Stock, represented by the certificate or certificates
surrendered which are not to be converted. If any fractional interest
in a share of Common Stock would, except for the provisions of the
first sentence of this subparagraph 4C, be deliverable upon any such
conversion, the Corporation, in lieu of delivering the fractional
share thereof, shall pay to the holder surrendering the Series B
Preferred Stock for conversion an amount in cash equal to the current
fair value of such fractional interest as determined in good faith by
the Board of Directors of the Corporation.
4D(1). Stock Dividends. In case the Corporation shall declare a dividend
or make any other distribution upon any stock of the Corporation
payable in Common Stock, options or convertible securities, the Series
B Conversion Price shall be reduced as if the Corporation had
subdivided its outstanding shares of Common Stock into a greater
number of shares as provided in subparagraph 4(D)(2) hereof.
4D(2). Subdivision or Combination of Stock. In case the Corporation shall
at any time subdivide its outstanding shares of Common Stock into a
greater number of shares or shall declare or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock,
respectively, the Series B Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the
Series B Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
4D(3). Record Date. In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution
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payable in Common Stock, options or convertible securities, or (ii) to
subscribe for or purchase Common Stock, options or convertible
securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
4E. Reorganization or Reclassification. If any capital reorganization or
reclassification of the capital stock of the Corporation shall be
effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization
or reclassification (and in addition to the requirements of the last
sentence of subparagraph 2A of this subdivision I), lawful and
adequate provision (in form satisfactory to the holders of at least
66-2/3% of the outstanding shares of Series B Preferred Stock) shall
be made whereby each holder of a share or shares of Series B Preferred
Stock shall thereafter have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of the
shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of such share or shares of the Series B
Preferred Stock, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore so receivable had such
reorganization or reclassification not taken place, and in any such
case appropriate provision shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Series B Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such conversion rights
(including an immediate adjustment, by reason of such reorganization
or reclassification of the Series B Conversion Price to the value for
the Common Stock reflected by the terms of such reorganization or
reclassification if the value so reflected is less than the Series B
Conversion Price in effect immediately prior to such reorganization or
reclassification). In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares
of common stock of the surviving corporation are issuable to holders
of Common Stock of the Corporation outstanding immediately prior to
such merger or consolidation, the Series B Conversion Price in effect
immediately prior to such merger or consolidation shall be adjusted in
the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock of the Corporation. The
Corporation will not effect any such consolidation or merger, or any
sale of all or substantially all its assets and properties, unless
prior to the consummation thereof the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or
the corporation purchasing such assets shall assume by written
instrument (in form reasonably satisfactory to the holders of at least
66-2/3% of the shares of Series B Preferred Stock at the time
outstanding) executed and mailed or delivered to each holder of shares
of Series B Preferred Stock at the last address of such holder
appearing on the books of the Corporation, the obligation to deliver
to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled
to receive.
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4F. Notice of Adjustment. Upon any adjustment of the Series B Conversion
Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to
each holder of shares of Series B Preferred Stock at the address of
such holder as shown on the books of the Corporation, which notice
shall state the Series B Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
4G. Other Notices. In case at any time:
a) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the
holders of its Common Stock;
b) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or other rights;
c) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or
merger of the Corporation with, or a sale of all or substantially
all its assets to, another corporation; or
d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
first class mail, postage prepaid, addressed to each holder of any
shares of Series B Preferred Stock at the address of such holder as
shown on the books of the Corporation, (a) at least 20 days' prior
written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of
any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (b) in the case of
any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place. Such notice
in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the
date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also
specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
as the case may be.
4H. Stock to be Reserved. The Corporation will at all times reserve and
keep available out of its authorized but unissued Common Stock, solely
for the purpose of issuance upon the conversion of the Series B
Preferred Stock as herein provided, such number of shares of Common
Stock shall then be issuable upon the conversion of all outstanding
shares of Series B
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Preferred Stock. All shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges arising out of or by reason of
the issue thereof, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time
take all such action as may be requisite to assure that the par value
per share of the Common Stock is at all times equal to or less than
the effective Series B Conversion Price. The Corporation will take all
such action within its control as may be necessary on its part to
assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements
of any national securities exchange upon which the Common Stock of the
Corporation may be listed. The Corporation will not take any action
which results in any adjustment of the Series B Conversion Price if
the total number of shares of Common Stock issued and issuable after
such action upon conversion of the Series B Preferred Stock would
exceed the total number of shares of Common Stock then authorized by
the Corporation's Certificate of Incorporation.
4I. No Reissuance of Series B Preferred Stock. Shares of Series B
Preferred Stock which are converted into shares of Common Stock as
provided herein shall not be reissued.
4J. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of the Series B Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the Series B Preferred Stock which is being converted.
4K. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Series B Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any
shares of Series B Preferred Stock in any manner which interferes with
the timely conversion of such Series B Preferred Stock.
4L. Definition of Common Stock. As used in this paragraph 4, the term
"Common Stock" shall mean and include the Corporation's authorized
Common Stock, $.001 par value, as constituted on the date of filing of
this Certificate of Amendment and shall also include any capital stock
of any class of the Corporation thereafter authorized which shall not
be limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares
of Common Stock receivable upon conversion of shares of the Series B
Preferred Stock of the Corporation, or in case of any reorganization
or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraphs 4D(2) shall include
only shares designated as Common Stock of the Corporation on the date
of filing of this Certificate of Amendment.
4M. Mandatory Conversion. The Series B Preferred Stock shall be
automatically converted (and any accrued and unpaid dividends shall be
paid) if at any time the Corporation shall effect a firm commitment
underwritten public offering registered under the Securities Act of
1933, as amended ("IPO"), of shares of its Common Stock in which
(i) the aggregate price
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paid for such shares by the public shall be at least $50,000,000 and
(ii) the price per share paid by the public for such shares shall be
at least $18.9365 per share (appropriately adjusted to reflect stock
splits and combinations and stock dividends); such conversion and
payment of dividends to be effected at the time and subject to the
closing of the sale of such shares.
5. Voting Rights. Except to the extent provided by law, and except as
otherwise provided by this Certificate of Incorporation voting rights
shall be governed by paragraph 4 of subdivision IV of this Article FOURTH.
6. Restrictions. At any time when shares of Series B Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by this
Certificate of Incorporation, and in addition to any other vote required by
law, without the prior consent of (i) the holders of 66-2/3% of the
outstanding shares of Series B Preferred Stock or (ii) all of the members
of the Board of Directors designated by the majority of the holders of
Series B Preferred Stock, given in person or by proxy and voting separately
as a class, either in writing or at a special meeting called for that
purpose, at which meeting the holders of the shares of such Series B
Preferred Stock shall vote separately as a class:
i The Corporation will not reorganize or reclassify the capital stock of
the Corporation or consolidate or merge with, or sell all or
substantially all of its assets to any entity whatsoever.
ii The Corporation will not (x) create, obligate itself to create,
authorize or issue any new class or classes of stock or new series of
common stock or preferred stock or any security convertible into or
evidencing the right to purchase shares of any new class or series of
common stock or preferred stock or any new capital stock of the
Corporation having preference over or being on parity with the Series
B Preferred Stock in any respect or (y) issue any shares of Series B
Preferred Stock to any person or entity;
iii The Corporation will not incur, create, assume, become or be liable in
any manner with respect to, or permit to exist, any indebtedness or
liability in excess of $100,000 at any time outstanding (except to the
extent expressly permitted under the Recapitalization Agreement;
iv The Corporation will not amend, alter or repeal the Corporation's
Certificate of Incorporation, any Certificate of Designation or
By-laws in any manner, or file any directors' resolutions pursuant to
the General Corporation Law of the State of Delaware.
II.
SERIES A PREFERRED STOCK
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1. Dividends. The holders of Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds
legally available for such purpose, noncumulative cash dividends at the
rate of $0.157 per share per annum. In no event, so long as shares of
Series A Preferred Stock shall remain outstanding, shall any dividend
whatsoever be declared or paid upon, nor shall any distribution be made
upon, any Common Stock, other than a dividend or distribution payable in
shares of Common Stock. The holders of the Series A Preferred Stock can
waive any dividend preference that such holders shall be entitled to
receive under this paragraph 1 upon the affirmative vote or written consent
of the holders of at least seventy percent (70%) of the Series A Preferred
Stock then outstanding.
2. Redemption. The shares of Series A Preferred Stock shall be redeemable as
follows:
2A. Optional Redemption. At any time after December 31, 2006, but on a
date (the "Redemption Date") within 30 days after the receipt by the
Corporation of a written request from the holders of not less than a
majority of the then outstanding Series A Preferred Stock that all or,
if less than all, a specified percentage of such holders' shares of
Series A Preferred Stock be redeemed, and concurrently with surrender
by such holders of the certificates representing such shares, the
Corporation shall, to the extent it may lawfully do so, redeem the
shares specified in such request by paying in cash therefor a sum per
share equal to $1.57 per share of Series A Preferred Stock (as
adjusted for any stock splits, stock dividends, recapitalizations or
the like) plus all declared but unpaid dividends on such share (the
"Series A Redemption Price"). Any redemption of Series A Preferred
Stock effected pursuant to this paragraph 2A shall be made on a pro
rata basis among the holders of the Series A Preferred Stock in
proportion to the number of shares of Series A Preferred Stock to be
redeemed by such holders. Notwithstanding the foregoing, no shares of
Series A Preferred Stock shall be redeemed so long as there are shares
of Series B Preferred Stock outstanding; provided, however, that
shares of Series A Preferred Stock may be redeemed (X) pursuant to the
Recapitalization Agreement, (Y) that are owned by employees or
directors of the Corporation pursuant to written agreements between
the Corporation and such employees or directors and approved by the
Board of Directors of the Corporation, or (Z) with the consent of
holders of at least 66-2/3% of the outstanding Series B Preferred
Stock.
2B. Notice of Redemption. At least fifteen (15) but no more than thirty
(30) days prior to each Redemption Date, written notice shall be
mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which
notice is given) of the Series A Preferred Stock to be redeemed, at
the address last shown on the records of the Corporation for such
holder, notifying such holder of the redemption to be effected on the
applicable Redemption Date, specifying the number of shares to be
redeemed from such holder, the Redemption Date, the Redemption Price,
the place at which payment may be obtained and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as
provided in paragraph 2C, on or after each Redemption Date, each
holder of Series A Preferred Stock to be redeemed on such Redemption
Date shall surrender to the Corporation the certificate or
certificates representing such shares, in
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the manner and at the place designated in the Redemption Notice, and
thereupon the applicable Redemption Price of such shares shall be
payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all of the
shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
2C. Rights After Redemption. From and after each Redemption Date, unless
there shall have been a default in payment of the Redemption Price,
all rights of the holders of shares of Series A Preferred Stock
designated for redemption on such Redemption Date in the Redemption
Notice as holders of Series A Preferred Stock (except the right to
receive the applicable Redemption Price without interest upon
surrender of their certificate or certificate) shall cease with
respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A
Preferred Stock on a Redemption Date are insufficient to redeem the
total number of shares of Series A Preferred Stock to be redeemed on
such date, those funds that are legally available will be used to
redeem the maximum possible number of such shares ratably among the
holders of such shares to be redeemed such that each holder of a share
of Series A Preferred Stock receives the same percentage of the
applicable Series A Redemption Price. The shares of Series A Preferred
Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the
redemption of shares of Series A Preferred Stock, such funds will
immediately be used to redeem the balance of the shares that the
Corporation has become obliged to redeem on any Redemption Date but
that it has not redeemed.
2D. Redeemed or Otherwise Acquired Shares to be Retired. Any shares of
Series A Preferred Stock redeemed pursuant to this paragraph 2 or
otherwise acquired by the Corporation in any manner whatsoever shall
be permanently retired and shall not under any circumstances be
reissued; and the Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the number
of authorized shares of Series A Preferred Stock accordingly.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have
been made to holders of Series B Preferred Stock of the full amounts to
which they shall respectively be entitled as stated and expressed herein or
as may be stated and expressed pursuant hereto, the holders of the shares
of Series A Preferred Stock shall be entitled, before any distribution or
payment is made upon any Common Stock, to be paid an amount equal to $1.57
per share, plus an amount equal to any unpaid dividends, and the holders of
Series A Preferred Stock shall not be entitled to any further payment, such
amounts being sometimes referred to in this subdivision III as the
"Series A Liquidation Payments." If upon such liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, after
payment to the holders of Series B Preferred Stock of the Series B
Liquidation Payments to which they are entitled, the assets to be
distributed among the
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holders of Series A Preferred Stock shall be insufficient to permit payment
to such holders of the Series A Liquidation Payments to which they are
respectively entitled, then the entire assets of the Corporation to be so
distributed shall be distributed ratably among the holders of Series A
Preferred Stock. Upon such liquidation, dissolution or winding up of the
Corporation, after the holders of Series A Preferred Stock shall have been
paid in full the amounts to which they shall be entitled, the remaining net
assets of the Corporation may be distributed to the holders of Common
Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Payments and the
place where said Liquidation Payments shall be payable, shall be given by
mail, postage prepaid, not less than 30 days prior to the payment date
stated therein, to the holders of record of Series A Preferred Stock, such
notice to be addressed to each such holder at his post office address as
shown by the records of the Corporation, provided, however, that failure to
give notice pursuant to this sentence shall not invalidate the action
involved.
4. Conversion
4A. Right to Convert. Subject to the terms and conditions of this
paragraph 4, the holder of any share or shares of Series A Preferred
Stock shall have the right, at its option at any time, to convert any
such shares of Series A Preferred Stock (except that upon any
redemption of Series A Preferred Stock or liquidation of the
Corporation the right of conversion shall terminate, as to shares to
be redeemed or as to all shares in the case of a liquidation, at the
close of business on the last full business day next preceding the
date fixed for payment of the amount distributable on the Series A
Preferred Stock) into such number of fully paid and nonassessable
whole shares of Common Stock as is obtained by multiplying the number
of shares of Series A Preferred Stock so to be converted by $1.57 and
dividing the result by the conversion price of $1.57 per share or by
the conversion price as last adjusted and in effect at the date any
share or shares of Series A Preferred Stock are surrendered for
conversion (such price, or such price as last adjusted, being referred
to in this paragraph 4 as the "Series A Conversion Price"). Such
rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated
number of shares of Series A Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate
by notice in writing to the holder or holders of the Series A
Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name
or names (with address), subject to compliance with applicable laws to
the extent such designation shall involve a transfer, in which the
certificate or certificates for shares of Common Stock shall be
issued.
4B. Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt by the Corporation of the written notice referred to in
subparagraph 4A and surrender of the certificate or certificates for
the share or shares of the Series A Preferred Stock to be converted,
the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, subject to compliance with applicable laws to the
extent such designation shall involve a transfer, a certificate or
certificates for the number of whole shares of Common Stock issuable
upon the conversion of such share or
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shares of Series A Preferred Stock. To the extent permitted by law,
such conversion shall be deemed to have been effected and the Series A
Conversion Price shall be determined as of the close of business on
the date on which such written notice shall have been received by the
Corporation and the certificate or certificates for such share or
shares shall have been surrendered as aforesaid, and at such time the
rights of the holder of such share or shares of Series A Preferred
Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
4C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Series A Preferred Stock
into Common Stock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Series A Preferred
Stock so converted or the Common Stock issued upon such conversion. In
case the number of shares of Series A Preferred Stock represented by
the certificate or certificates surrendered pursuant to subparagraph
4A exceeds the number of shares converted, the Corporation shall, upon
such conversion, execute and deliver to the holder thereof, at the
expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Preferred Stock, represented by the
certificate or certificates surrendered which are not to be converted.
If any fractional interest in a share of Common Stock would, except
for the provisions of the first sentence of this subparagraph 4C, be
deliverable upon any such conversion, the Corporation, in lieu of
delivering the fractional share thereof, shall pay to the holder
surrendering the Series A Preferred Stock for conversion an amount in
cash equal to the current fair value of such fractional interest as
determined in good faith by the Board of Directors of the Corporation.
4D. Adjustment of Price Upon Issuance of Common Shares. Except as
provided in subparagraph 4E hereof, if and whenever the Corporation
shall issue or sell any shares of its Common Stock without
consideration or for a consideration per share less than the Series A
Conversion Price in effect immediately prior to the time of such issue
or sale, then, forthwith upon such issue or sale, the Series A
Conversion Price shall be reduced to the price (calculated to the
nearest cent) determined by dividing (i) an amount equal to the sum of
(a) the number of shares of Common Stock outstanding immediately prior
to such issue or sale (including as outstanding all shares of Common
Stock issuable upon conversion of outstanding Series B Preferred Stock
and outstanding Series A Preferred Stock) multiplied by the then
existing Series A Conversion Price, and (b) the consideration, if any,
received by the Corporation upon such issue or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such
issue or sale (including as outstanding all shares of Common Stock
issuable upon conversion of outstanding Series B Preferred Stock and
outstanding Series A Preferred Stock without giving effect to any
adjustment in such shares by reason of such issue and sale).
For purposes of this paragraph 4D, paragraphs 4D(1) to 4D(3), inclusive, of
subdivision I of this Article FOURTH shall also be applicable as if the Series A
Conversion Price
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<PAGE> 15
were the Series B Conversion Price referred to in said paragraphs and as if the
Series A Preferred Stock were the Series B Preferred Stock referred to therein.
No adjustment of the Series A Conversion Price, however, shall be made in
an amount less than $.001 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.01 per share or more.
4E. Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to
make any adjustment of the Series A Conversion Price in the case of
(i) the issuance of shares of Common Stock to be reserved for issuance
to employees, consultants, directors or vendors of the Corporation
either directly or pursuant to stock options, in either case pursuant
to a plan approved by the Board of Directors of the Corporation,
(ii) the issuance of securities pursuant to an IPO resulting in
proceeds to the Corporation of at least $50,000,000 in the aggregate
and where the price per share paid by the public for such shares shall
be at least $18.9365 per share (appropriately adjusted to reflect
stock splits and combinations and stock dividends), (iii) securities
issued pursuant to the conversion or exercise of convertible or
exercisable securities, (iv) securities issued in connection with
a bona fide business acquisition of or by the Corporation, whether by
merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, or (v) stock, warrants or other securities or rights issued
to persons or entities with which the Corporation has business
relationships provided such issuances are for other than primarily
equity financing purposes.
4F. Reorganization or Reclassification. If any capital reorganization or
reclassification of the capital stock of the Corporation shall be
effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization
or reclassification (and in addition to the requirements of the last
sentence of paragraph 2A of this subdivision 3), lawful and adequate
provisions (in form satisfactory to the holders of at least 66-2/3% of
the outstanding shares of Series A Preferred Stock) shall be made
whereby each holder of a share or shares of Series A Preferred Stock
shall thereafter have the right to receive, on the basis and upon the
terms and conditions specified herein and in lieu of the shares of
Common Stock of the Corporation immediately theretofore receivable
upon the conversion of such share or shares of Series A Preferred
Stock, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
stock immediately theretofore so receivable had such reorganization or
reclassification not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without
limitation provisions for adjustments of the Series A Conversion
Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights (including an
immediate adjustment, by reason of such reorganization or
reclassification of the Series A Conversion Price to the value of the
Common Stock reflected by the terms of such reorganization or
reclassification if the value so reflected is less than the Series A
Conversion Price in effect immediately prior to such
15
<PAGE> 16
reorganization or reclassification). In the event of a merger or
consolidation of the Corporation as a result of which a greater or
lesser number of shares of common stock of the surviving corporation
are issuable to holders of Common Stock of the Corporation outstanding
immediately prior to such merger or consolidation, the Series A
Conversion Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common
Stock of the Corporation. The Corporation will not effect any such
consolidation, merger or sale of all or substantially all its assets
or properties, unless prior to the consummation thereof the successor
corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets
shall assume by written instrument (in form reasonably satisfactory to
the holders or at least 66-2/3% of the shares of Series A Preferred
Stock at the time outstanding) executed and mailed by first class
certified or registered mail or delivered to each holder of shares of
Series A Preferred Stock at the last address of such holder appearing
on the books of the Corporation, the obligation to deliver to such
holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to receive.
4G. Notice of Adjustment. Upon any adjustment of the Series A Conversion
Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to
each holder of shares of Series A Preferred Stock at the address of
such holder as shown on the books of the Corporation, which notice
shall state the Series A Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
4H. Other Notices. In case at any time:
(a) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(b) the Corporation shall offer for subscription pro rata, to the
holders of its Common Stock any additional shares of stock of any
class or other rights;
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or
merger of the Corporation with, or a sale of all or substantially
all its assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
first class mail, postage prepaid, addressed to each holder of any shares
of Series A Preferred Stock at the addresses of such holder as shown on the
books of the Corporation, (a) at least 20 days' prior written notice of
16
<PAGE> 17
the date on which the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least 20 days' prior written notice of the date when the
same shall take place. Such notice in accordance with the foregoing clause
(a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause
(b) shall also specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
4I. Stock to be Reserved. The Corporation will at all times reserve and
keep available out of its authorized but unissued Common Stock, solely
for the purpose of issuance upon the conversion of Series A Preferred
Stock as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding shares
of Series A Preferred Stock. The Corporation covenants that all shares
of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, and, without limiting
the generality of the foregoing, the Corporation covenants that it
will from time to time take all such action as may be requisite to
assure that the par value per share of the Common Stock is at all
times equal to or less than the effective Series A Conversion Price.
The Corporation will take all such action within its control as may be
necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or regulation, or of
any requirements of any national securities exchange upon which the
Common Stock of the Corporation may be listed. The Corporation will
not take any action which results in any adjustment of the Series A
Conversion Price if the total number of shares of Common Stock issued
and issuable after such action upon conversion of Series A Preferred
Stock would exceed the total number of shares of Common Stock then
authorized by the Corporation's Certificate of Incorporation.
4J. No Reissuance of Series A Preferred Stock. Shares of Series A
Preferred Stock which are converted into shares of Common Stock as
provided herein shall not be reissued.
4K. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the Series A Preferred Stock which is being converted.
4L. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Preferred Stock in any manner which interferes with
the timely conversion of such Series A Preferred Stock.
17
<PAGE> 18
4M. Definition of Common Stock. As used in this paragraph 4, the term
"Common Stock" shall mean and include the Corporation's authorized
Common Stock, $.01 par value, as constituted on the date of filing of
this Certificate of Amendment and shall also include any capital stock
of any class of the Corporation thereafter authorized which shall not
be limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares
of Common Stock receivable upon conversion of shares of the Series A
Preferred Stock of the Corporation, or in case of any reorganization
or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 4D(5), shall include
only shares designated as Common Stock of the Corporation on the date
of filing of this Certificate of Amendment.
4N. Mandatory Conversion. The Series A Preferred Stock shall be
automatically converted (and any accrued and unpaid dividends shall be
paid) if at any time the Corporation shall effect a firm commitment
underwritten public offering registered under the Securities Act of
1933, as amended ("IPO"), of shares of its Common Stock in which
(i) the aggregate price paid for such shares by the public shall be at
least $50,000,000 and (ii) the price per share paid by the public for
such shares shall be at least $18.9365 per share (appropriately
adjusted to reflect stock splits and combinations and stock
dividends); such conversion and payment of dividends to be effected at
the time and subject to the closing of the sale of such shares.
5. Voting Rights. Except to the extent provided by law, and except as
otherwise provided by this Certificate of Incorporation voting rights
shall be governed by paragraph 4 of subdivision IV of this Article FOURTH.
6. Restrictions. At any time when shares of Series A Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by this
Certificate of Incorporation and in addition to any other vote required by
law, without the prior consent of the holders of 70% of the outstanding
shares of Series A Preferred Stock by vote or written consent as provided
by law), the Corporation will not (i) alter or change the rights,
preferences or privileges of the Series A Preferred Stock so as to affect
adversely the shares or (ii) increase or decrease (other than by redemption
or conversion) the total number of authorized shares of Series A Preferred
Stock.
III.
SERIES AB PREFERRED STOCK
Effective upon the filing of this Certificate of Amendment, each
outstanding share of Series AB Preferred Stock shall automatically represent
the right to receive upon the surrender
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<PAGE> 19
thereof the sum of $7.90, in cash, and all other rights, preferences and
privileges pertaining thereto shall thereupon cease.
IV.
COMMON STOCK AND CLASS B COMMON STOCK
Except as otherwise expressly provided herein, all shares of Common Stock
and Class B Common Stock shall be identical and shall entitle the holders
thereof to the same rights and privileges.
1. Dividends. The holders of shares of Common Stock and Class B Common Stock
shall be entitled to receive such dividends as from time to time may be
declared by the Board of Directors of the Corporation out of any funds
legally available therefor, subject to the prior rights of the holders of
the Series B Preferred Stock and Series A Preferred Stock as stated and
expressed herein or as may be stated and expressed pursuant hereto.
2. Liquidation. In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after payment shall have
been made to holders of Series B Preferred Stock and Series A Preferred
Stock of the full amounts to which they shall respectively be entitled as
stated and expressed herein or as may be stated and expressed pursuant
hereto, the holders of Common Stock and Class B Common Stock shall be
entitled, to the exclusion of the holders of Series B Preferred Stock and
Series A Preferred Stock, to share ratably according to the number of
shares of Common Stock and Class B Common Stock held by them in all
remaining assets of the Corporation available for distribution to its
shareholders.
3. Conversion.
3A. Conversion of Class B Common Stock. Each share of Class B Common
Stock shall be automatically converted into an equal number of
fully-paid and nonassessable whole shares of Common Stock upon (i) an
IPO of shares of Common Stock in which the aggregate price paid for
such shares by the public shall be at least $50,000,000 and the price
per share paid by the public for such shares shall be at least
$18.9365 per share (appropriately adjusted to reflect stock splits and
combinations and stock dividends), (ii) the consolidation or merger of
the Corporation with or into any other corporation (other than a
merger in which the Corporation is the surviving corporation and which
will not result in more than 50% of the capital stock of the
Corporation outstanding immediately after the effective date of such
merger being owned of record or beneficially by persons other than the
holders of such capital stock immediately prior to such merger),
(iii) a sale of all or substantially all of the properties and assets
of the Corporation and its subsidiaries as an entirety to any person
(other than any holder or holders of shares of Series B Preferred
Stock), (iv) the sale of more than 50% of the capital stock of the
Corporation to any person (other than any holder or holders of shares
of Series B Preferred Stock); such conversion and payment of dividends
to be effected at the time and subject to the closing of the sale of
such shares and (v) the Initial Closing (as defined in the
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<PAGE> 20
Recapitalization Agreement) of the transactions contemplated by the
Recapitalization Agreement.
3B. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of the Class B Common Stock
into Common Stock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Class B Common
Stock so converted or the Common Stock issued upon such conversion. If
any fractional interest in a share of Common Stock would, except for
the provisions of the first sentence of this subparagraph 3B, be
deliverable upon any such conversion, the Corporation, in lieu of
delivering the fractional share thereof, shall pay to the holder
surrendering the Class B Common Stock for conversion an amount in cash
equal to the current fair value of such fractional interest as
determined in good faith by the Board of Directors of the Corporation.
3C. Subdivision or Combination of Stock. In case the Corporation shall at
any time subdivide its outstanding shares of Common Stock into a
greater number of shares or shall declare or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock,
then the Class B Common Stock shall be similarly subdivided, and
conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the
Class B Common Stock shall be similarly combined.
3D. Reorganization or Reclassification. If any capital reorganization or
reclassification of the capital stock of the Corporation shall be
effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization
or reclassification, lawful and adequate provision (in form
satisfactory to the holders of at least 66-2/3% of the outstanding
shares of the Class B Common Stock) shall be made whereby each holder
of a share or shares of Class B Common Stock shall thereafter have the
right to receive, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock of the
Corporation immediately theretofore receivable upon the conversion of
such share or shares of Class B Common Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore so
receivable had such reorganization or reclassification not taken
place, and in any such case appropriate provision shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights. In the event
of a merger or consolidation of the Corporation as a result of which a
greater or lesser number of shares of common stock of the surviving
corporation are issuable to holders of Common Stock of the Corporation
outstanding immediately prior to such merger or consolidation, the
number of shares of Common Stock into which the Class B Common Stock
may be converted shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common
Stock of the Corporation. The Corporation will not effect any such
consolidation or
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<PAGE> 21
merger, or any sale of all or substantially all its assets and
properties, unless prior to the consummation thereof the successor
corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets
shall assume by written instrument (in form reasonably satisfactory to
the holders of at least 66-2/3% of the shares of Class B Common Stock
at the time outstanding) executed and mailed or delivered to each
holder of shares of Class B Common Stock at the last address of such
holder appearing on the books of the Corporation, the obligation to
deliver to such holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be
entitled to receive.
3E. Notice of Adjustment. Upon any adjustment made pursuant to 3C or 3D,
then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each
holder of shares of Class B Common Stock at the address of such holder
as shown on the books of the Corporation, which notice shall state the
number of shares of Common Stock or other securities, cash or property
issuable upon conversion of the Class B Common Stock resulting from
such adjustment, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
3F. Stock to be Reserved. The Corporation will at all times reserve and
keep available out of its authorized but unissued Common Stock, solely
for the purpose of issuance upon the conversion of the Class B Common
Stock as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding shares
of Class B Common Stock. All shares of Common Stock which shall be so
issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges arising out
of or by reason of the issue thereof. The Corporation will take all
such action within its control as may be necessary on its part to
assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements
of any national securities exchange upon which the Common Stock of the
Corporation may be listed.
3G. No Reissuance of Class B Common Stock. Shares of Class B Common Stock
which are converted into shares of Common Stock as provided herein
shall not be reissued.
3H. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of the Class B Common Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the Class B Common Stock which is being converted.
3I. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Class B Common Stock or of any
shares of Common Stock issued or issuable upon the conversion of any
shares of Class B Common Stock in any manner which interferes with the
timely conversion of such Class B Common Stock.
3J. Definition of Common Stock. As used in this paragraph 3, the term
"Common Stock" shall mean and include the Corporation's authorized
Common Stock, $.001 par
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<PAGE> 22
value, as constituted on the date of filing of this Certificate of
Incorporation and shall also include any capital stock of any class of
the Corporation thereafter authorized which shall not be limited to a
fixed sum or percentage of par value in respect of the rights of the
holders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of the Class B Common
Stock, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided
for in subparagraphs 3C or 3D, shall include only shares designated as
Common Stock of the Corporation on the date of filing of this
Certificate of Incorporation.
4. Voting. Except as otherwise provided by law or this Certificate of
Incorporation, the holders of Common Stock, Series A Preferred Stock and
Series B Preferred Stock shall vote together as a class on all matters to
be voted on by the shareholders of the Corporation on the following basis:
(1) each holder of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to one vote for each share of Common Stock which would be
issuable to such holder upon the conversion of all the shares of Series A
Preferred Stock or Series B Preferred Stock, as the case may be, so held on
the record date for the determination of shareholders entitled to vote and
(2) each holder of Common Stock shall be entitled to one vote per share.
Except as otherwise provided by law or this Certificate of Incorporation,
the holders of Class B Common Stock shall not be entitled to vote on any
matter on which the shareholders of the Corporation shall be entitled to
vote, and shares of Class B Common Stock shall not be included in
determining the number of shares voting or entitled to vote on any such
matters.
SECOND: That the Amendment to the Certificate of Incorporation of the
Corporation effected by this Certificate was duly authorized by the written
consent of the holders of a majority of the outstanding stock entitled to vote
thereon, after having been declared advisable by the Directors of the
Corporation, all in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
THIRD: That the capital of the Corporation will not be reduced under, or
by reason of, the foregoing amendments to the Certificate of Incorporation of
the Corporation.
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<PAGE> 23
IN WITNESS WHEREOF, PROTOCOL HOLDINGS, INC. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Stephen McLean, its
President and Chief Executive Officer, who hereby acknowledges under penalties
of perjury that the facts herein stated are true and that this certificate is
his act and deed, this 29th day of November, 1999.
PROTOCOL HOLDINGS, INC.
By /s/ Stephen G. McLean
-------------------------------------
Stephen McLean
President and Chief Executive Officer
23
<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
PROTOCOL HOLDINGS, INC.
---------------------------------------------------------------
Pursuant to Section 242 of the Delaware General Corporation Law
---------------------------------------------------------------
Protocol Holdings, Inc., a Delaware corporation (the "Corporation"), does
hereby certify as follows:
1. The name of the Corporation is Protocol Holdings, Inc.
2. The Corporation's Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on May 28, 1998.
3. The Corporation's restated Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on June 8, 1998.
4. An amendment to the Corporation's Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on July 13,
1998.
5. An amendment to the Corporation's Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on
October 25, 1999.
6. An amendment to the Corporation's Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on
November 30, 1999.
<PAGE> 2
7. "Article I" of the Corporation's Certificate of Incorporation, as
amended heretofore, is to be further amended and restated in its
entirety to read as follows:
"Article I: The name of this Corporation is Protocol Communications,
Inc."
8. This amendment was authorized by the written consent of the Board of
Directors and the stockholders of the Corporation in accordance with
the provisions of Section 242 of the Delaware General Corporation Law
on
April 5, 2000.
<PAGE> 3
IN WITNESS WHEREOF, Protocol Holdings, Inc. has caused this Certificate of
Amendment to be signed by Stephen G. McLean, President, this 5th day of April,
2000.
PROTOCOL HOLDINGS, INC.
/s/ Raymond P. Wilson
-----------------------------------------
Raymond P. Wilson
Vice President and Chief Financial Officer
Acknowledged:
/s/ Deborah Zonies
- ----------------------------------
Deborah Zonies
Vice President and General Counsel
<PAGE> 1
EXHIBIT 3.7
BYLAWS
OF
TELESERVICES HOLDINGS CORPORATION
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover, County of
Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held at such place and time and, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors and stated
in the notice of the meeting. Meetings of stockholders for
<PAGE> 2
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1998,
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect by a plurality vote a board of directors, and transact such other
business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten 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
2
<PAGE> 3
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 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 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
3
<PAGE> 4
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business
4
<PAGE> 5
may be transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
5
<PAGE> 6
Section 11. Unless otherwise provided in the certificate of incorporation,
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
DIRECTORS
Section 1. The number of directors that shall constitute the whole board
may be varied from time to time, provided the minimum authorized number shall be
one (1). The number of directors that shall constitute the whole
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<PAGE> 7
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the
7
<PAGE> 8
right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present.
8
<PAGE> 9
In the event of the failure of the stockholders to fix the time or place of such
first meeting of the newly elected Board of Directors, or in the event such
meeting is not held at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the president on
two (2) days' notice to each director by mail or forty-eight (48) hours notice
to each director either personally or by telegram; special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of two directors unless the board consists of only one director,
in which case special meetings shall be called by the president or
9
<PAGE> 10
secretary in like manner and on like notice on the written request of the sole
director.
Section 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of incorporation
of these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
10
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Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors 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. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
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member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
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<PAGE> 13
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without
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cause, by the holders of a majority of shares entitled to vote at an election of
directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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<PAGE> 15
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a president, a treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a treasurer and a secretary
and may choose vice presidents, assistant secretaries and assistant treasurers.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
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<PAGE> 16
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice Chairman
of the Board, if any, shall preside at all meetings of the Board of Directors
and of the stockholders at which he shall be present. He shall have
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<PAGE> 17
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
Section 9. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than
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one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) 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. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall
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<PAGE> 19
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
SECTION 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
SECTION 13. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of
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the corporation in such depositories as may be designated by the Board of
Directors. Unless otherwise appointed, the chief financial officer shall be the
treasurer.
SECTION 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
SECTION 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
SECTION 16. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the
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order determined by the Board of Directors (or if there be no such
determination, then in the order of their election) shall, in the absence of the
treasurer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total
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amount of the consideration to be paid therefor, and the amount paid thereon
shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided, that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
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Section 2. Any or all of the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or
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to give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder 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 change, conversion
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or exchange of stock or for the purpose of any other lawful action, the Board of
Directors 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 prior to any other action. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws
of Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized under
the laws of the State of Delaware,
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as those laws may be amended and supplemented from time to time, indemnify any
director made, or threatened to be made, a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of being a
director of the corporation or a predecessor corporation or, at the
corporation's request, a director or officer of another corporation, provided,
however, that the corporation shall indemnify any such agent in connection with
a proceeding initiated by such agent only if such proceeding was authorized by
the Board of Directors of the corporation. The indemnification provided for in
this Section 6 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, and
(iii) inure to the benefit of the heirs, executors and administrators of such
a person. The corporation's obligation to provide indemnification under this
Section 6 shall be offset to the extent of any other source of indemnification
or any otherwise applicable
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insurance coverage under a policy maintained by the corporation or any
other person.
Expenses incurred by a director of the corporation in defending a civil or
criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation which alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary or contractual obligations to the corporation or any
other willful and deliberate breach in
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bad faith of such agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a contract
between the corporation and each director who serves in such capacity at any
time while this bylaw is in effect, and any repeal or modification thereof shall
not affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or proceeding theretofore
or thereafter brought based in whole or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of the
corporation to indemnify any person, other than a director, made a party to any
action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors, officers
and employees who are determined by the corporation or otherwise to be or to
have been "fiduciaries" of any employee benefit plan of the corporation which
may exist from time to time, Section 145
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of the General Corporation Law of Delaware shall, for the purposes of this
Section 6, be interpreted as follows: an "other enterprise" shall be deemed to
include such an employee benefit plan, including, without limitation, any plan
of the corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the certificate of
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incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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EXHIBIT 4.1
RECAPITALIZATION AGREEMENT
among
PROTOCOL HOLDINGS, INC.,
and
THE SEVERAL PARTICIPANTS NAMED
IN SCHEDULE I HERETO,
and
THE SEVERAL PARTIES SPECIFIED
AS "ORIGINAL STOCKHOLDERS"
ON THE SIGNATURE PAGES HEREOF
AND EACH ADDENDUM HERETO
Dated as of September 29, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I THE SECURITIES, CLOSING.................................................... 2
SECTION 1.01. Issuance and Sale to New Investors on the Initial Closing Date............. 2
SECTION 1.02. Redemption and Purchase by the Company..................................... 3
SECTION 1.03. Initial Closing Date....................................................... 4
SECTION 1.04. The Company's Right to Request Purchases of Additional Preferred Shares.... 4
SECTION 1.05. Provision of Financing on Subsequent Closing Dates......................... 6
SECTION 1.06. Subsequent Closing Dates................................................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES............................................. 7
SECTION 2.01. Representations and Warranties of the Original Stockholders................ 7
SECTION 2.02. Representations and Warranties of the Tendering Stockholders as to the
Company.................................................................... 8
SECTION 2.03. Representations and Warranties of the New Investors........................ 24
ARTICLE III COVENANTS.................................................................. 26
SECTION 3.01. Certain Covenants.......................................................... 26
SECTION 3.02. Rights of Inspection....................................................... 26
SECTION 3.03. Notice of Certain Events................................................... 26
SECTION 3.04. Use of Proceeds............................................................ 27
SECTION 3.05. Consents and Approvals..................................................... 27
SECTION 3.06. Hart-Scott-Rodino Act...................................................... 27
SECTION 3.07. Amended and Restated Certificate of Incorporation.......................... 27
SECTION 3.08. Tax Sharing Agreements..................................................... 28
SECTION 3.09. Option Plan................................................................ 28
SECTION 3.10. Restrictions............................................................... 28
SECTION 3.11. Debt Financing............................................................. 28
SECTION 3.12. Equity Financing........................................................... 28
ARTICLE IV CONDITIONS PRECEDENT....................................................... 28
SECTION 4.01. Conditions Precedent to the Obligations of the New Investors with
Respect to the Initial Closing Date........................................ 29
SECTION 4.02. Conditions Precedent to the Obligations of the Original Stockholders
and the Company with Respect to the Initial Closing Date................... 31
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4.03. Conditions Precedent to the Obligations of the New Investors with
Respect to Each Subsequent Closing......................................... 32
SECTION 4.04. Conditions Precedent to the Obligations of the Company with Respect to
Each Subsequent Closing.................................................... 33
ARTICLE V SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION............................... 34
SECTION 5.01. Survival of Representations................................................ 34
SECTION 5.02. Tax Indemnity.............................................................. 34
SECTION 5.03. General Indemnity.......................................................... 37
ARTICLE VI TERMINATION AND ABANDONMENT................................................ 42
SECTION 6.01. Termination and Abandonment................................................ 42
SECTION 6.02. Effect of Termination...................................................... 43
ARTICLE VII MISCELLANEOUS.............................................................. 43
SECTION 7.01. Consent to Common Stock Redemption......................................... 43
SECTION 7.02. Expenses, Etc.............................................................. 43
SECTION 7.03. Publicity and Confidentiality.............................................. 44
SECTION 7.04. Appointment, Duties and Indemnification of Representative.................. 44
SECTION 7.05. Execution in Counterparts.................................................. 46
SECTION 7.06. Notices.................................................................... 46
SECTION 7.07. Amendments, Supplements, Etc............................................... 47
SECTION 7.08. Entire Agreement........................................................... 47
SECTION 7.09. Applicable Law............................................................. 47
SECTION 7.10. Consent to Service of Process.............................................. 48
SECTION 7.11. Binding Effect, Benefits................................................... 48
SECTION 7.12. Assignability.............................................................. 48
SECTION 7.13. Stockholders Agreements.................................................... 48
SECTION 7.14. Waiver of Dividend......................................................... 48
SECTION 7.15. Stockholder Approval....................................................... 49
SECTION 7.16. Supplement................................................................. 49
SECTION 7.17. Waiver..................................................................... 49
</TABLE>
ii
<PAGE> 4
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
<S> <C>
I New Investors
IIA Original Stockholders (Pre-Closing)
IIB Original Stockholders (Post-Closing)
III Stockholders After the Closing
IV Subsequent Financings
2.02(a) Organization
2.02(b) Subsidiaries
2.02(e) Capitalization
2.02(f) Financial Statements
2.02(g) Certain Changes
2.02(h) Actions Pending
2.02(i) Liens and Encumbrances
2.02(j) Properties, Contracts, etc.
2.02(k) Real Property
2.02(n) Intellectual Property; Software
2.02(p) Taxes
2.02(q) Governmental Approvals
2.02(r) Noncompliance
2.02(s) Labor Controversies
2.02(t) Employee Benefit Plans
2.02(u) Insurance
2.02(v) Customers
2.02(w) Accounts Receivable
2.02(y) Related Party Transactions
2.02(z) Broker's or Finder's Fees
3.01 Exceptions to Certain Covenants
7.02 Fees and Expenses
7.13 Stockholders Agreements
7.16 Additional Original Stockholders
</TABLE>
iii
<PAGE> 5
INDEX TO EXHIBITS AND ANNEXES
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
Exhibit A Form of Amended and Restated Certificate of
Incorporation
Exhibit B Form of Escrow Agreement
Exhibit C Form of Stockholders Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Assumption Agreement
Exhibit F Form of Stock Option Plan
Exhibit G Form of Addendum
Annex
Annex I Form of Amended Schedule II - Part B
Annex II Form of Opinion of Kirkpatrick & Lockhart LLP
</TABLE>
iv
<PAGE> 6
RECAPITALIZATION AGREEMENT dated as of September 29, 1999
among PROTOCOL HOLDINGS, INC., a Delaware corporation (the "Company"), the
several participants named in Schedule I hereto (being hereinafter called
individually a "New Investor" and collectively the "New Investors") and the
several persons specified as "Original Stockholders" on the signature page
hereof or any addendum hereto pursuant to Section 7.16 (such individuals being
collectively referred to as the "Original Stockholders").
WHEREAS, as of the date hereof, there are issued and
outstanding 3,804,750 shares of common stock, $.001 par value (the "Common
Stock"), of the Company, 90,500 shares of Class B Common Stock, $.001 par value
(the "Class B Common Stock"), and 6,462,606 shares of Series A Preferred Stock,
$.001 par value ("Series A Preferred Stock"), of the Company, which shares are
held by the Original Stockholders in the amounts set forth opposite the name of
each Original Stockholder on Part A of Schedule II hereto;
WHEREAS, prior to the Initial Closing Date (as hereinafter
defined), the Company desires to amend and restate its Certificate of
Incorporation (the "Amended and Restated Certificate of Incorporation"), to
authorize the Series B Preferred Stock (as defined below) substantially in the
form of Exhibit A hereto and to provide that the Company's authorized capital
stock shall be changed from:
(x) 7,000,000 shares of Preferred Stock, $.001 par value, all
of which have been designated as Series A Preferred Stock and (y)
15,000,000 shares of common stock, of which 14,900,000 shares have been
designated as Common Stock and 100,000 shares have been designated as
Class B Common Stock,
to the following:
(a) 22,000,000 shares of Preferred Stock, $.001 par value, of
which 7,000,000 shares shall be designated as Series A Preferred Stock
and 15,000,000 shares shall be designated as Series B Convertible
Preferred Stock, $.001 par value (the "Convertible Preferred Stock"),
and (b) 40,000,000 shares of Common Stock, of which 39,900,000 shares
shall be designated Common Stock and 100,000 shares shall be designated
as Class B Common Stock, in each case with the rights and designations
specified therein;
WHEREAS, on the Initial Closing Date, the Company wishes to
issue and sell for cash to the New Investors listed on Schedule I up to an
aggregate 10,247,848 shares of Convertible Preferred Stock at an aggregate
purchase price of $80,957,999.20 (said shares of Convertible Preferred Stock
being hereinafter collectively referred to as
<PAGE> 7
the "Recapitalization Securities"), and the New Investors, severally and not
jointly, wish to purchase the Recapitalization Securities on the terms and
subject to the conditions hereinafter set forth;
WHEREAS, immediately after the issuance and sale of the
Securities to the New Investors, certain of the Original Stockholders desire to
tender to the Company for redemption and purchase, and the Company desires to
redeem and purchase, up to an aggregate 7,716,202 shares of capital stock of the
Company held by such Original Stockholders for an aggregate redemption price up
to $60,957,995.80, all on the terms and subject to the conditions set forth
herein;
WHEREAS, from time to time during the three-year period after
the Initial Closing Date, subject to the terms and conditions hereinafter set
forth, the Company may wish to issue, sell and deliver to the New Investors up
to an additional 3,797,468 shares (the "Additional Preferred Shares") of
Convertible Preferred Stock, to finance the expansion of the business of the
Company;
WHEREAS, it is the intention of the parties that the
transactions contemplated hereby be accounted for as a recapitalization
transaction and, in accordance with such, it is the intention of the New
Investors, the Original Stockholders and the Company that, immediately after the
consummation of the transactions contemplated by this Agreement, assuming the
redemption of all shares of capital stock available for redemption and the
issuance of all the Additional Preferred Shares up to 83.9% of the outstanding
shares of capital stock of the Company shall be owned by the New Investors and
as few as 16.1% of the outstanding shares of capital stock of the Company shall
be owned by the Original Stockholders all in accordance with Schedule III
hereto;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
THE SECURITIES, CLOSING
SECTION 1.01. Issuance and Sale to New Investors on the
Initial Closing Date. (a) Subject to the terms and conditions set forth herein,
on the Initial Closing Date, the Company shall issue and sell to each New
Investor, and each New Investor shall purchase from the Company, the number of
Recapitalization Securities set forth opposite the name of such New Investor on
Schedule I hereto under the heading "Number of Shares of Series B Preferred
Stock Purchased".
2
<PAGE> 8
(b) As payment in full for the Recapitalization Securities so
to be purchased by each New Investor, and against delivery thereof as aforesaid,
on the Initial Closing Date, each New Investor shall pay to the Company by wire
transfer in immediately available funds the amount set forth opposite the name
of such New Investor on Schedule I hereto under the heading "Aggregate Purchase
Price."
SECTION 1.02. Redemption and Purchase by the Company. (a)
Subject to the terms and conditions set forth herein, on the Initial Closing
Date simultaneously with the issuance and sale of the Recapitalization
Securities to the New Investors pursuant to Section 1.01, each Original
Stockholder set forth on Part B of Schedule II hereto (the "Tendering
Stockholders") shall tender to the Company for redemption and purchase, and the
Company shall redeem and purchase, up to the maximum number of shares of capital
stock of the Company set forth opposite the name of such Original Stockholder in
such Part B of Schedule II under the heading "Maximum Number of Shares
Redeemed," up to an aggregate 7,716,202 shares. Such tender shall be effected by
delivery of the certificates evidencing the shares so tendered, duly endorsed
and blank or accompanied by stock powers duly endorsed and blank with all
signatures guaranteed and all requisite stock transfer taxes paid and stamps
affixed.
(b) The definitive number of shares of capital stock to be
tendered for redemption by each Tendering Stockholder shall be determined no
later than the fifth business day prior to the Initial Closing Date by delivery
to the Company by each Tendering Stockholder of a notice in writing specifying
the actual number of shares of Common Stock, Class B Common Stock or Series A
Preferred Stock that each Tendering Stockholder has elected to redeem. Upon such
election, Part B of Schedule II hereto shall be amended (in the form of Annex I
hereto) to reflect the actual number of shares to be tendered for redemption on
the Initial Closing Date. It is understood that the Tendering Stockholders set
forth on Part B of Schedule II marked as "Exiting Stockholders" shall tender for
redemption 100% of the shares of capital stock of the Company owned by such
stockholders on the Initial Closing Date.
(c) As payment in full of the price for the redemption and
purchase of such Common Stock, Class B Common Stock or Series A Preferred Stock
so tendered for redemption and purchase, and against delivery thereof as
aforesaid, on the Initial Closing Date, the Company shall pay an amount in cash
equal to the number of shares of Common Stock, Class B Common Stock or Series A
Preferred Stock, as the case may be, tendered for redemption and purchase
multiplied by $7.90, up to a maximum of $60,957,995.80 (the "Redemption Price"),
payable as follows:
3
<PAGE> 9
(i) the Company shall deposit $2,268,143 in cash (the "Escrow
Amount") in an escrow account pursuant to the Escrow Agreement (the
"Escrow Agreement") substantially in the form of Exhibit B hereto among
the Tendering Stockholders, the New Investors, the Company and the
escrow agent named therein (the "Escrow Agent"), to be held and
distributed by such Escrow Agent in accordance with the terms thereof.
(ii) the Company shall pay $1,500,000 to Benedetto, Gartland &
Company ("BGC") to satisfy in part the fees and expenses set forth on
Schedule 2.02(z) and 7.02 hereto); and
(iii) the Company shall pay the fees and expenses payable by it
pursuant to the terms of any contract or commitment obtained by it and
permitted pursuant to Section 3.01 hereto; and
(iv) the Company shall pay to the Tendering Stockholders on a
pro rata basis by wire transfer in immediately available funds to the
account specified in writing by the Tendering Stockholders no later
than three business days prior to the Initial Closing Date, an amount
equal to the difference between (x) the Redemption Price, as finally
determined based on the actual number of shares tendered for redemption
in accordance with Section 1.02(b) and (y) the sum of the payments made
pursuant to subparagraphs (i) and (ii) above.
(d) All rights of the Tendering Stockholders with respect to
such shares of Common Stock, Class B Common Stock and Series A Preferred Stock
so redeemed and purchased shall forthwith cease upon such payment.
SECTION 1.03. Initial Closing Date. The closing of the sale
and purchase of the Recapitalization Securities and the redemption contemplated
by Section 1.02 above shall take place at the offices of Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, on
the business day following the satisfaction or waiver of each of the conditions
precedent to such closing set forth in Sections 4.01 and 4.02 hereof or at such
other date and time or at such other place as may be mutually agreed upon among
the New Investors, the Original Stockholders and the Company but in no event
later than October 20, 1999 (such closing being herein called the "Initial
Closing" and such date and time being herein called the "Initial Closing Date").
SECTION 1.04. The Company's Right to Request Purchases of
Additional Preferred Shares. (a) In addition to the Recapitalization Securities
to be issued and sold to the New Investors on the Initial Closing Date, the
Company may request that the
4
<PAGE> 10
New Investors acquire the Additional Preferred Shares (said Additional Preferred
Shares, together with the Recapitalization Securities, being hereinafter
collectively called, the "Securities"), all pursuant to this Section 1.04.
(b) The maximum number of Additional Preferred Shares that may
be purchased by each New Investor and the aggregate purchase price for such
Additional Preferred Shares pursuant to this Section 1.04 is set forth opposite
the name of such New Investor on Schedule IV hereto under the headings "Maximum
Number of Shares of Series B Preferred Stock" and "Maximum Additional Preferred
Purchase Price", respectively. Any purchase of Additional Preferred Shares by
the New Investors on any Subsequent Closing Date (as hereinafter defined) shall
be pro rata among the New Investors in proportion to the maximum amount listed
on Schedule IV hereto. The aggregate number of Additional Preferred Shares for a
Subsequent Closing Date shall be reduced by the aggregate number of Additional
Preferred Shares purchased on previous Subsequent Closing Dates. On the date
(the "Termination Date") that is the earlier to occur of (i) the third
anniversary of the Initial Closing Date, (ii) such time as the Company shall
have consummated an initial public offering of its Common Stock registered under
the Securities Act of 1933, as amended (the "Securities Act") (an "IPO") and
(iii) a Change of Control, the number, if any, of Additional Preferred Shares
available for purchase hereunder, after taking into account all reductions
thereof, shall no longer be subject to any of the provisions of this Section
1.04.
As used in this Section 1.04, the term "Change of Control"
shall mean (i) a consolidation or merger of the Company with or into any other
unrelated corporation (other than a merger in which the Company is the surviving
corporation and which will not result in more than 50% of the capital stock of
the Company outstanding being owned of record or beneficially by persons other
than the holders of such capital stock immediately prior to such merger), (ii) a
sale of all or substantially all of the properties and assets of the Company as
an entirety to any other unrelated person, or (iii) the acquisition of
"beneficial ownership" by any "person" or "group" (other than the New Investors
and their respective affiliates) of voting stock of the Company representing
more than 50% of the voting power of all outstanding shares of such voting
stock, whether by way of merger or consolidation or otherwise. The terms
"person" and "group" shall have the meanings set forth in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or
not applicable, (ii) the term "beneficial owner" shall have the meaning set
forth in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable, except that a person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time, and (iii) any
"person" or "group" will be deemed to beneficially own any voting stock of the
Company
5
<PAGE> 11
so long as such person or group beneficially owns, directly or indirectly, in
the aggregate a majority of the voting stock of a registered holder of the
voting stock of the Company.
(c) At any time prior to the Termination Date, in the event
that the Company desires to finance (x) capital expenditures approved by the
Board of Directors for the business of the Company, including without limitation
additional acquisitions, (y) operating expenses approved by the Board of
Directors of the Company or (z) for general corporate purposes, the Board of
Directors may, on one or more occasions, notify the New Investors that it wishes
financing. Such notice (a "Put Notice") shall be in writing and shall specify
(i) the applicable purpose (including a brief description thereof), (ii) that
the Put Notice has been authorized by the Board of Directors of the Company,
(iii) the amount of Additional Preferred Shares to be purchased, (iv) that the
anticipated net proceeds from such financing will not be greater than is
reasonably necessary for the applicable purpose and costs incurred in connection
therewith and (v) the Subsequent Closing Date for such financing, provided,
however, that no Subsequent Closing Date shall be scheduled to occur less than
10 or more than 30 days after the date of the Put Notice to which it relates.
(d) Within 10 days after receipt of a Put Notice pursuant to
paragraph (c) above, the New Investors, subject to the other conditions set
forth in this Agreement, shall be required to purchase the Additional Preferred
Shares in accordance with Section 1.05 below.
SECTION 1.05. Provision of Financing on Subsequent Closing
Dates. In the event that the Company shall have delivered a Put Notice, then,
subject to the other terms and conditions of this Agreement, on the Subsequent
Closing Date specified in such Put Notice, the Company shall issue, sell and
deliver to each New Investor, and each New Investor shall purchase from the
Company the number of Additional Preferred Shares specified in the Put Notice at
a purchase price equal to $7.90 for each Additional Preferred Share. On each
Subsequent Closing Date, the Company shall issue stock certificates in
definitive form, registered in the name of each New Investor, evidencing the
Additional Preferred Shares being purchased by such New Investor in the amount
specified in the Put Notice.
SECTION 1.06. Subsequent Closing Dates. Each closing of a sale
and purchase of Additional Preferred Shares shall take place at the offices of
Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York,
New York 10111, at 10 a.m., New York time, on such dates, (which shall not be a
day on which banking institutions in the State of New York are required or
authorized to close) as shall be specified in any Put Notice (each such closing
being herein called a "Subsequent Closing" and each such date and time being
herein called a "Subsequent Closing Date").
6
<PAGE> 12
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Representations and Warranties of the Original
Stockholders. Each of the Original Stockholders, severally and not jointly,
represents and warrants to the New Investors as to itself as follows:
(a) Authorization of Agreement, Etc. Such Original Stockholder
has full legal capacity and unrestricted power to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
by such Original Stockholder of this Agreement, and the execution and delivery
by such Original Stockholder of the Escrow Agreement, the Stockholders Agreement
substantially in the form of Exhibit C hereto (the "Stockholders Agreement"),
the Registration Rights Agreement substantially in the form of Exhibit D (the
"Registration Rights Agreement"), and the Assumption Agreement substantially in
the form of Exhibit E (the "Assumption Agreement", and together with the Escrow
Agreement, the Stockholders Agreement and the Registration Rights Agreement, the
"Ancillary Agreements"), to the extent it is a party thereto, will not violate
any provision of law, any order of any court or other agency of government, or
any provision of any indenture, agreement or other instrument to which such
Original Stockholder is a party or by which such Original Stockholder or any of
its respective properties or assets is bound or affected, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the shares of capital stock of the Company owned by such
Original Stockholder.
(b) Validity. This Agreement has been duly executed and
delivered by such Original Stockholder and constitutes the legal, valid and
binding obligation of such Original Stockholder, enforceable in accordance with
its terms. Each of the Ancillary Agreements when executed and delivered by such
Original Stockholder will constitute the legal, valid and binding obligation of
such Original Stockholder, enforceable in accordance with its terms.
(c) Title to Shares. Such Original Stockholder owns, of record
and beneficially, the number of shares of Common Stock, Class B Common Stock and
Series A Preferred Stock set forth opposite its name on Part A of Schedule II
hereto, free and clear of any pledges, security interests, liens, charges or
other encumbrances. Upon the filing by the Company of the Amended and Restated
Certificate of Incorporation, but immediately prior to the tender of Common
Stock, the Class B Common Stock or
7
<PAGE> 13
Series A Preferred Stock by the Tendering Stockholders pursuant to Section 1.02
hereof, such Original Stockholder will own, of record and beneficially, the
number of shares of Common Stock, Class B Common Stock or Series A Preferred
Stock set forth opposite its name on Part B of Schedule II hereto, free and
clear of any pledges, security interests, liens, charges or other encumbrances.
SECTION 2.02. Representations and Warranties of the Tendering
Stockholders as to the Company. Each of the Tendering Stockholders, severally
and not jointly, represents and warrants to the New Investors as to the Company
as follows:
(a) Organization, Power, Etc. of the Company. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and is qualified or licensed to do business in
each of the jurisdictions set forth on Schedule 2.02(a). Except as set forth on
Schedule 2.02(a), neither the nature of the business transacted by the Company
nor the character of the properties owned or held by it makes licensing or
qualification as a foreign corporation in any other jurisdiction necessary
except where the failure to so qualify would not have a material adverse effect
on the financial condition, operations or business of the Company and its
Subsidiaries taken as a whole ("Material Adverse Effect"). The Company has the
corporate power and authority to (i) own and hold its properties and to carry on
its business as currently conducted, (ii) execute, deliver and perform this
Agreement and the Ancillary Agreements, (iii) issue, sell and deliver the
Securities and (iv) redeem and purchase the shares of Common Stock, Class B
Common Stock or Series A Preferred Stock to be tendered for redemption pursuant
to Section 1.02 hereof.
(b) Subsidiaries. (i) Schedule 2.02(b) includes a complete and
accurate list of each Subsidiary of the Company, indicating the jurisdiction of
incorporation, each jurisdiction in which such Subsidiary is qualified as a
foreign corporation, its capital structure (including all authorized and
outstanding shares), and the nature and level of ownership in such Subsidiary by
the Company, any subsidiary of the Company and any other person (for purposes of
this Agreement, "person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, or an unincorporated organization). Each
Subsidiary of the Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation, is
duly qualified as a foreign corporation to do business, and is in good standing
in each jurisdiction in which the character of its properties owned or leased or
the nature of its activities makes such qualification necessary except where the
failure to so qualify would not have a Material Adverse Effect. Except as set
forth on Schedule 2.02(b), all the outstanding shares of capital stock of the
Company's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and are owned by the Company or by a wholly-owned subsidiary of
the Company, free and clear
8
<PAGE> 14
of any liens, claims, charges, restrictions, rights of others, security
interests, prior assignments or other encumbrances of any nature whatsoever
(collectively, "Claims").
(ii) Except as set forth on Schedule 2.02(b) hereto, neither
the Company nor any of its Subsidiaries (as hereinafter defined) owns of record
or beneficially, directly or indirectly, (x) any shares of outstanding capital
stock or securities convertible into capital stock of any other corporation or
(y) any participating interest in any partnership, joint venture or other
non-corporate business enterprise.
(iii) For purposes of this Agreement, the term "Subsidiary",
when used with respect to the Company, shall mean any corporation or other
business entity, a majority of whose outstanding equity securities is at the
time owned, directly or indirectly, by the Company and/or one or more other
subsidiaries of the Company.
(c) Authorization of Agreements, Etc. (i) Each of (A) the
execution and delivery by the Company of this Agreement and the Ancillary
Agreements and the performance by the Company of its obligations hereunder and
thereunder, (B) the issuance and sale of the Securities, and (C) the redemption
and purchase by the Company of the shares of Common Stock, Class B Common Stock
and Series A Preferred Stock to be tendered for redemption pursuant to Section
1.02 hereof have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation or By-laws of the Company or any of
its Subsidiaries, or any judgment, award or decree or any provision of any
indenture, agreement or other instrument to which it or any of its Subsidiaries
or any of their respective properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
Subsidiaries other than violations, conflicts, breaches or defaults (exclusive
of violations of the Certificate of Incorporation or By-laws of the Company or
any of its Subsidiaries) which would not have a Material Adverse Effect.
(ii) Upon acceptance of the filing of the Amended and Restated
Certificate of Incorporation, the Securities will have been duly authorized by
the Company and, when issued, sold and paid for in accordance with this
Agreement, will be validly issued, fully paid and nonassessable shares of
Convertible Preferred Stock, and will be owned by each of the New Investors in
the amounts set forth opposite the name of such New Investor on Schedule I
hereto free and clear of any claims, liens or encumbrances by the Company. The
issuance, sale and delivery of the Securities are not subject to any preemptive
rights of stockholders of the Company or to any right of first
9
<PAGE> 15
refusal or other similar right in favor of any person, except as set forth in
Schedule 7.13 hereto.
(iii) The Common Stock, Class B Common Stock and Series A
Preferred Stock to be tendered for redemption and purchase pursuant to Section
1.02 hereof, when so tendered and upon payment of the redemption and purchase
price therefor pursuant to said Section 1.02, will be validly redeemed and
purchased and fully paid for and all rights of the Tendering Stockholders with
respect to such shares of Common Stock, Class B Common Stock and Series A
Preferred Stock so redeemed and purchased shall forthwith cease.
(d) Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
The Ancillary Agreements, when executed and delivered in accordance with this
Agreement, will constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms.
(e) Capitalization. (i) Prior to the filing by the Company of
the Amended and Restated Certificate of Incorporation, the authorized capital
structure of the Company consisted of (x) 7,000,000 shares of Preferred Stock,
all of which shares have been classified as Series A Preferred Stock and (y)
15,000,000 shares of common stock, of which 14,900,000 shares have been
classified as Common Stock and 100,000 shares have been classified as Class B
Common Stock. Upon the filing by the Company of the Amended and Restated
Certificate of Incorporation, but immediately prior to the consummation of the
transactions contemplated hereby, the authorized capital stock of the Company
will consist of (x) 22,000,000 shares of Preferred Stock, of which 7,000,000
shares shall be designated as Series A Preferred Stock, 6,462,606 of which
shares will be issued and outstanding and 15,000,000 shares shall be designated
as Series B Convertible Preferred Stock, none of which will be issued and
outstanding, and (y) 40,000,000 shares of common stock, of which 39,900,000
shares shall be designated Common Stock, 3,804,750 of which shares will be
issued and outstanding and 100,000 shares shall be designated as Class B Common
Stock, 90,500 of which shares will be issued and outstanding. Except as
contemplated by this Agreement or set forth in Schedule 2.02(e) hereto, (x) no
subscription, warrant, option, convertible security or other right (contingent
or other) to purchase or acquire any shares of any class of capital stock of the
Company or any of its Subsidiaries is authorized or outstanding, (y) there is
not any commitment of the Company or any of its Subsidiaries (whether oral or
written, fixed or contingent or otherwise) to issue any shares, warrants,
options or other such rights or to distribute to holders of any class of its
capital stock, any evidences of indebtedness or assets and (z) the Company and
its Subsidiaries have no obligation (contingent or other) to purchase,
10
<PAGE> 16
redeem or otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend or make any other distribution in respect
thereof. Part A of Schedule II hereto contains a true and complete list of all
the holders of shares of capital stock of the Company and their respective share
holdings as of the date hereof. Part B of Schedule II hereto contains a true and
complete list of all the holders of shares of capital stock of the Company and
their respective share holdings after giving effect to the filing by the Company
of the Amended and Restated Certificate of Incorporation, but immediately prior
to the Initial Closing. Schedule III hereto contains a true and complete list of
all the holders of shares of capital stock of the Company and their respective
share holdings immediately after giving effect to the transactions contemplated
hereby assuming the redemption of all shares of capital stock available for
redemption.
(f) Financial Statements. Attached as Schedule 2.02(f) hereto
are (i) the consolidated balance sheets of the Company and its Subsidiaries as
of December 31, 1998 and their related consolidated statements of income,
stockholders' equity and cash flows for the year then ended, certified by KPMG
Peat Marwick, the independent certified public accountants retained by the
Company, and (ii) the unaudited consolidated balance sheets of the Company and
its Subsidiaries as of July 31, 1999, and the related statements of income,
stockholders' equity, and cash flows for the seven months then ended, certified
by the principal financial officer of the Company. Except as set forth in
Schedule 2.02(f), all such financial statements (including any related schedules
and/or notes, if any) have been prepared in accordance with generally accepted
accounting principles consistently applied and consistent with prior periods
("GAAP"), except that such interim statements are subject to year end
adjustments (consisting only of normal recurring accruals, which in the
aggregate, would not be Material) and do not have all footnotes required under
generally accepted accounting principles. Except as set forth in Schedule
2.02(f) hereto, such balance sheets fairly present the consolidated financial
position of the Company and its Subsidiaries as of their respective dates, and
such statements of operations, changes in stockholders' equity and cash flows
fairly present the consolidated results of operations of the Company and its
Subsidiaries for the respective periods then ended, subject, in the case of
unaudited financial statements, to normal year-end adjustments (which
adjustments, in the aggregate, would not be material). Except (i) as set forth
in the consolidated financial statements of the Company and its Subsidiaries as
of December 31, 1998, or (ii) as incurred in the ordinary course of business and
consistent with past practice since December 31, 1998, or (iii) as set forth on
Schedule 2.02(f) hereto, neither the Company nor any of its Subsidiaries has any
material liabilities or obligations of any kind or nature, whether known or
unknown (whether absolute, secured, contingent or otherwise) and whether due or
to become due that would have a Material Adverse Effect.
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(g) Absence of Certain Changes or Events. Since December 31,
1998, except as otherwise set forth in Schedule 2.02(g) hereto, neither the
Company nor any of its Subsidiaries has:
(i) incurred any obligation or liability (fixed or contingent)
material to the Company and its Subsidiaries taken as a whole
("Material"), except normal trade or business obligations incurred in
the ordinary course of business and consistent with past practice, and
except in connection with this Agreement and the transactions
contemplated hereby;
(ii) discharged or satisfied any lien, security interest,
charge or other encumbrance or paid any Material obligation or
liability (fixed or contingent), other than in the ordinary course of
business and consistent with past practice;
(iii) mortgaged, pledged or subjected to any lien, security
interest, charge or other encumbrance any of its Material assets or
properties (other than as set forth on Schedule 2.02(g)(iii) hereto
("Permitted Liens"));
(iv) transferred, leased or otherwise disposed of any of its
Material assets or properties except for a fair consideration in the
ordinary course of business and consistent with past practice or,
except in the ordinary course of business and consistent with past
practice, acquired any Material assets or properties;
(v) declared, set aside or paid any distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, or redeemed or otherwise acquired any of its capital
stock or split, combined or otherwise similarly changed its capital
stock or authorized the creation or issuance of or issued or sold any
capital stock or any securities or obligations convertible into or
exchangeable therefor, or given any person any right to acquire any
capital stock from the Company or any of its Subsidiaries, or agreed to
take any such action;
(vi) canceled or compromised any debt or claim in excess of
$25,000 other than in the ordinary course of business consistent with
past practice;
(vii) waived or released any rights of Material value except as
contemplated hereby;
(viii) transferred or granted any Material rights under any
concessions, leases, licenses, agreements, patents, inventions,
trademarks, trade names, servicemarks or copyrights or with respect to
any know-how;
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<PAGE> 18
(ix) made or granted any material wage or salary increase
applicable to any group or classification of employees generally,
entered into any employment contract involving payments of more than
$50,000 per annum with, or made any loan in excess of $10,000 to, or
entered into any material transaction of any other nature with, any
officer or employee of the Company or affiliates;
(x) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) which affects in
any material respect the ability of the Company and its Subsidiaries
taken as a whole to conduct the business conducted by such entities; or
(xi) suffered any Material Adverse Effect.
(h) Actions Pending, Etc. Schedule 2.02(h) hereto sets forth a
complete list and an accurate description of all actions, suits or proceedings
involving claims relating to the business of the Company or any of its
Subsidiaries by or against the Company or any of its Subsidiaries pending or
threatened against the Company or any of its Subsidiaries in writing by counsel
for the plaintiff or claimant at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality which is reasonably likely to have a Material Adverse
Effect. Schedule 2.02(h) sets forth a complete list and an accurate description
of all orders, judgments or decrees of any court or governmental agency
currently in effect with respect to which the Company or any of its Subsidiaries
has been named or is a party which apply, in whole or in part, to any of the
assets of the Company or any of its Subsidiaries which is reasonably likely to
have a Material Adverse Effect.
(i) Title to Properties, Absence of Liens and Encumbrances.
Except as set forth in Schedule 2.02(i) hereto, the Company and each of its
Subsidiaries, as the case may be, (x) has good and marketable title to all its
real property and (y) has good and valid title to all its other Material assets
and properties, in each case free and clear of all Claims of any nature
whatsoever, other than Permitted Liens.
(j) List of Properties, Contracts and Other Data. Annexed
hereto as Schedule 2.02(j) is a list setting forth with respect to the Company
and each of its Subsidiaries the following:
(i) all real property owned by the Company or any of its
Subsidiaries, all leases of real property leased by and/or used in the
business of the Company and its Subsidiaries and all leases or group of
related leases of personal property to which the Company or any of its
Subsidiaries is a party either as lessee (in which case such Schedule
2.02(j) shall include only leases which involve monthly
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<PAGE> 19
payments of $10,000 or more) or lessor, in each case with a brief
description of the property to which each such lease relates;
(ii) (A) all Material patents, trademarks and trade names,
trademark and trade name registrations, servicemark registrations,
copyrights and copyright registrations, unexpired as of the date
hereof, all applications pending on said date for any such patent,
trademark, trade name, servicemark or copyright registrations, owned or
held by the Company or any of its Subsidiaries and (B) all licenses
granted by or to the Company or any of its Subsidiaries or to which the
Company or any of its Subsidiaries is a party which relate, in whole or
in part, to any items of the categories mentioned in (A) above or to
other proprietary rights reasonably necessary to, or used by the
Company or by any of its Subsidiaries (such items listed in (A) and (B)
above and such other proprietary rights being collectively referred to
herein as the "Intellectual Property Rights"), whether owned by it or
otherwise;
(iii) all collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans,
deferred compensation agreements, employee pension plans or retirement
plans, employee profit sharing plans, employee stock purchase and stock
option plans, group life insurance, hospitalization insurance or other
plans or arrangements providing for benefits to employees of the
Company or any of its Subsidiaries;
(iv) all contracts, understandings and commitments relating to
(i) contracts, understandings and commitments with governmental
entities, (ii) financing arrangements, including, without limitation,
mortgages, indentures and loan agreements which exceed $25,000, (iii)
the ten largest customers of the Company and its Subsidiaries, ranked
by annual revenue, (iv) any contract or group of related contracts,
understandings and commitments (other than customer contracts), which
exceed $100,000 in amount and (v) any other Material contracts,
understandings and commitments; and
(v) the names of all employees of the Company or any of its
Subsidiaries making more than $90,000 per year.
True and complete copies of all documents and reasonably
complete descriptions of all oral understandings (if any) referred to in
Schedule 2.02(j) have been provided to the New Investors and their counsel. In
addition, a true and complete schedule of the current annual compensation rates
for the employees listed pursuant to clause (v) above has been provided to the
New Investors and their counsel. Except as disclosed in such Schedule, neither
the Company nor any of its Subsidiaries has been
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notified of any claim that any contract referred to in such Schedule is not
valid and enforceable in accordance with its terms for the periods stated
therein, or that there is under any such contract any existing default or event
of default or event which with notice or lapse of time or both would constitute
such a default.
(k) Use of Real Property. Except as set forth in Schedule
2.02(k) hereto, the leased real properties listed in Schedule 2.02(j) hereto are
used and operated in compliance and conformity in all material respects with all
applicable leases, contracts, commitments, licenses and permits. Neither the
Company nor any of its Subsidiaries has received written notice of any Material
violation of any applicable law, order, regulation or requirement relating to
its operations or to the assets of the Company or any of its Subsidiaries and,
to the knowledge of the Company, there is no such violation which would have a
Material Adverse Effect.
(l) Leasehold Interests. Each lease or agreement to which the
Company or any of its Subsidiaries is a party and under which it is a lessee of
any real property, or any Material item of personal property, owned by any third
party is a valid and subsisting agreement, without any Material default of the
Company or any of its Subsidiaries thereunder and, to the best knowledge of the
Company, without any default thereunder of any other party thereto. No claim
been asserted in writing against the Company or any of its Subsidiaries adverse
to its rights in such leasehold interests which would have a Material Adverse
Effect.
(m) [intentionally omitted]
(n) Intellectual Property Rights; Software. (i) Except as set
forth in Schedule 2.02(n), (x) the Company and each of its Subsidiaries hold
free from contractual restrictions which would have a Material Adverse Effect,
all Intellectual Property Rights set forth in Schedule 2.02(j), (y) all
Intellectual Property Rights are valid and enforceable and (z) neither the
Company nor any of its Subsidiaries has received written notice that the Company
or any of its Subsidiaries is infringing upon any material Intellectual Property
Rights of any other person.
(ii) Schedule 2.02(n) lists all Material operating, management,
developmental and applications computer programs, software, databases and
related documentation owned, held or licensed by the Company or any of its
Subsidiaries (collectively, the "Software"), except for "off-the-shelf" programs
generally available to the public. The Software includes all Material software,
applications, databases and related documentation used in the conduct of the
business of the Company. Except as set forth on Schedule 2.02(n), (x) the
Company and each of its Subsidiaries own or have valid rights to use the
Software and have received no written notice of infringement of the
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<PAGE> 21
rights of others and (y) the Company and each of its Subsidiaries have taken and
are taking reasonable precautions consistent with industry practices for such
information to protect any material trade secrets and other confidential
information included in the Software.
To the knowledge of the Company, all computer software,
hardware, data bases and systems used by the Company and/or its Subsidiaries are
free from any problems associated with changes in the calendar date from
December 31, 1999 to January 1, 2000 (collectively, the "Y2K Problem"), other
than any such problems the existence of which would not result in a Material
Adverse Effect. The Company and its Subsidiaries have made all upgrades
reasonably necessary to respond to the Y2K Problem. The Company and its
Subsidiaries have conducted reasonable system tests with respect to the Y2K
Problem and are satisfied with the results of such tests.
(o) Trade Secrets. No third party has notified the Company or
any of its Subsidiaries in writing that any person employed or otherwise
affiliated with the Company or any of its Subsidiaries has, in respect of his or
her activities to date, violated any of the terms or conditions of his or her
employment contract with any third party, or disclosed or utilized any trade
secrets or proprietary information or documentation of any third party, or
interfered in the employment relationship between any third party and any of its
employees.
(p) Taxes. (i) Except as set forth on Schedule 2.02(p), (i)
each of the Company and each of its Subsidiaries has duly and timely filed or
caused to be filed all federal and all other material Tax returns, reports,
estimates and information and other statements or returns (collectively, "Tax
Returns") required to be filed by or on behalf of the Company or such
Subsidiary, as the case may be, and any affiliated, consolidated, combined or
unitary group of which the Company or any of its Subsidiaries is or has been a
member (a "Tax Group") has duly and timely filed or caused to be filed all
federal and all other material Tax Returns required to be filed by or on behalf
of the Company, or such Subsidiary, as the case may be, pursuant to any
applicable federal, state, local or foreign tax laws for all years and periods
for which such Tax Returns have become due, and (ii) all such Tax Returns
(including all informational Tax Returns) were correct in all material respects
as filed and correctly reflect in all material respects any Tax or Taxes
required to be paid or collected by the Company, any of its Subsidiaries or any
Tax Group.
(ii) For purposes of this Agreement, "Tax" and "Taxes" shall
mean (A) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, gains, franchise,
profits, license, withholding on amounts paid or received, payroll, employment,
excise, severance, stamp,
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<PAGE> 22
occupation, premium, property, environmental or windfall profit taxes, custom
duties or other taxes, governmental fees or other like assessments or charges of
any kind whatsoever, together with any interest or any penalty, addition to tax
or additional amount imposed by any governmental authority responsible for the
imposition of any such taxes (domestic or foreign) and (B) any liability of the
Company or any of its Subsidiaries for the payment of any amounts of the type
described in (A) as a result of being a member of an affiliated, consolidated,
combined or unitary group for federal, state, local or foreign Tax purposes, and
(C) any liability of the Company or any of its Subsidiaries as a result of being
a party to any tax sharing or allocation agreement.
(iii) Except as set forth on Schedule 2.02(p), the Company, each
of its Subsidiaries and any Tax Group have paid all Taxes shown on the Tax
Returns and all other material Taxes, or where payment is not yet due, have
established, consistent with past practice, an adequate reserve on their
respective books and records for the payment of all such Taxes with respect to
any taxable period (or portion thereof) ending on or prior to the Initial
Closing Date (or otherwise relating or attributable to periods up to and
including the Initial Closing Date).
(iv) Except as set forth on Schedule 2.02(p), the Company has
not waived or extended the period of assessment under applicable law with
respect to any Tax Return of the Company, any of its Subsidiaries or any Tax
Group. Schedule 2.02(p) indicates those Tax Returns of the Company, any of its
Subsidiaries or any Tax Group that either have been audited or are currently the
subject of an audit or a pending or threatened audit. Except as set forth on
Schedule 2.02(p), there is no dispute or claim (including any anticipated claim)
concerning any Taxes of the Company, any of its Subsidiaries or any Tax Group
either (A) claimed or raised by any authority in writing or (B) as to which the
Original Stockholders have actual knowledge.
(v) Except as set forth on Schedule 2.02(p), for periods up to
and including the Initial Closing Date, the Company and each of its Subsidiaries
have been includable members of the "affiliated group" (within the meaning of
Section 1504 of the Code) of which the Company is currently the parent; for such
periods each of the Company and each of its Subsidiaries was entitled to report
its income on consolidated federal income tax returns filed on behalf of such
affiliated group and, for such periods, all federal income tax returns required
to be filed by the Company or any such Subsidiary have been (or will be) duly
and timely filed by the Company on a consolidated basis. Except as set forth on
Schedule 2.02(p) hereto, for all periods all other Tax Returns of each of the
Company and each of its Subsidiaries have been filed on a separate company,
non-combined, non-consolidated and non-unitary basis.
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(vi) Except as set forth in Schedule 2.02(p), neither the
Company nor any of its Subsidiaries has (A) received or is the subject of an
application for a tax ruling or entered into a legally binding agreement (such
as a closing agreement) with a taxing authority, which ruling or agreement could
affect the Taxes of the Company after the Initial Closing Date, or (B) filed any
election or caused any deemed election under Section 338 of the Code for which
the applicable Tax liability has not been paid.
(vii) Except as set forth in Schedule 2.02(p), (A) no extensions
of time have been granted to the Company, any of its Subsidiaries or any Tax
Group to file any Tax Return required by applicable law to be filed by it prior
to or on the Initial Closing Date, which have expired, or will expire, on or
before the Initial Closing Date without such Tax Return having been filed; (B)
no deficiency or adjustment for any Taxes of the Company, any of its
Subsidiaries or any Tax Group has been proposed, asserted or assessed in
writing, and no federal, state, local or foreign audits or other administrative
proceedings or court proceedings are pending with regard to any such Taxes of
the Company, any of its Subsidiaries or any Tax Group; (C) no waiver or consent
extending any statute of limitations for the assessment or collection of any
Taxes has been executed by the Company, any of its Subsidiaries or any Tax Group
or on behalf of the Company or such Tax Group, nor have any requests for such
waivers or consents been proposed in writing; (D) neither the Company nor any of
its Subsidiaries owns or leases any interest in real property in the State of
New York; and (E) neither the Company nor any of its Subsidiaries owns or leases
any interest in real property in any other jurisdiction in which a Tax will be
payable with respect to such interest in real property as a result of the
transactions contemplated hereby.
(viii) Except as set forth in Schedule 2.02(p), neither the
Company nor any of its Subsidiaries has ever been a party to any tax-sharing or
allocation agreements.
(ix) Neither the Company nor any of its Subsidiaries is a party
to any agreement, contract or arrangement that would result, by reason of the
consummation of any of the transactions contemplated herein, separately or in
the aggregate, in the payment of any "excess parachute payments" by the Company
or any of its Subsidiaries within the meaning of Section 280G of the Code.
(x) Except as set forth in Schedule 2.02(p), neither the
Company nor any of its Subsidiaries is currently or will be required to include
any adjustment in taxable income for any Post-Closing Tax Period under Section
481 of the Code (or any similar provision of the Tax laws of any jurisdiction)
as a result of a change in method of accounting for any taxable period (or
portion thereof) ending on or before the Initial Closing Date (a "Pre-Closing
Tax Period") or pursuant to the provisions of any agreement
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entered into with any taxing authority with regard to the Tax liability of the
Company for any Pre-Closing Tax Period.
(xi) No agreement or consent pursuant to Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), has ever been made which
is currently in effect with respect to the Company or any of its Subsidiaries or
any assets or properties of the Company or any of its Subsidiaries. Further,
neither the Company nor any of its subsidiaries shall make any agreement or
consent pursuant to said Section 341(f) in respect of the transactions
contemplated by this Agreement.
(xii) The Company and each of its Subsidiaries have complied
with all applicable laws relating to the withholding of Taxes (including
withholding of Taxes pursuant to Sections 1441 and 1442 of the Code) and have,
within the time and within the manner prescribed by law, withheld and paid over
to the proper taxing authorities all amounts required to be withheld and paid
over under all applicable laws in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
(xiii) No power of attorney has been granted which is currently
in effect by or with respect to the Company or any of its Subsidiaries with
respect to any matter relating to Taxes.
(xiv) No claim has ever been made by any governmental authority
in a jurisdiction where the Company does not file Tax Returns that the Company
or any of its Subsidiaries is or may be subject to taxation by that
jurisdiction.
(xv) The Company has previously delivered or made available to
the New Investors complete and accurate copies of each of: (i) all audit
reports, letter rulings and technical advice memoranda relating to federal,
state and local Taxes due from or with respect to the Company or any of its
Subsidiaries, (ii) the federal, state and local Tax Returns filed by the Company
or any of its Subsidiaries and (iii) any closing agreements entered into by the
Company or any of its Subsidiaries.
(q) Governmental Approvals. Except (i) as set forth in
Schedule 2.02(q) hereto and (ii) any filings required pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), no
approval, authorization, consent or order or action of or filing with any court,
administrative agency or other governmental authority is required for the
execution, delivery and performance by the Company of this Agreement or any of
the Ancillary Agreements, or in connection with the issuance, sale and delivery
of the Securities.
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(r) Compliance With Law; Environmental Matters. (i) Except as
set forth in Schedule 2.02(r) hereto, the Company and each of its Subsidiaries
has all governmental licenses, franchises and permits required under applicable
law for the business to be conducted in all Material respects (collectively,
"Governmental Permits") other than Governmental Permits that can be readily
obtained without resulting in a Material Adverse Effect.
(ii) The business of the Company and each of its Subsidiaries
is being conducted in compliance in all Material respects with all applicable
laws, ordinances, rules and regulations of all governmental authorities relating
to their respective properties or applicable to their respective businesses,
including without limitation the terms of all Governmental Permits and federal
securities laws, other than non-compliance that can be cured without resulting
in a Material Adverse Effect. Except as set forth in Schedule 2.02(r) hereto,
neither the Company nor any of its Subsidiaries has received any written notice
of any alleged Material violation of any of the foregoing, nor are any of the
Original Stockholders aware of any basis for any such allegation.
(iii) The Company and each of its Subsidiaries conducts its
businesses and operations in compliance in all Material respects with all
applicable environmental laws, ordinances and regulations, and neither the
Company nor any of its Subsidiaries has received written notice of any claim,
action, suit, proceeding, hearing or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic material or waste (collectively, an "Environmental Event") by the Company
or any of its Subsidiaries or with respect to any premises owned or occupied by
them which would have a Material Adverse Effect. Without limiting the generality
of the foregoing, to the knowledge of the Company, neither the Company, any of
its Subsidiaries nor any predecessor corporation has disposed of or placed on or
in any property or facility used in its business any waste materials, hazardous
materials or hazardous substances in violation of law.
(s) Labor Controversies. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement, and no such
agreement is applicable to any employees of the Company or any of its
Subsidiaries. There are not any controversies between the Company or any of its
Subsidiaries and any of such employees which might reasonably be expected to
have a Material Adverse Effect or any unresolved labor union grievances or
unfair labor practice or labor arbitration proceedings pending, nor has the
Company received written notice of any which are threatened, relating to the
business of the Company or any of its Subsidiaries. To the knowledge of the
Company, there are not any organizational efforts presently being made or
threatened involving any of such employees. Except as set forth in Schedule
2.02(s) hereto, neither the Company
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nor any of its Subsidiaries has received written notice of any claim that the
Company or any of its Subsidiaries has not complied in all Material respects
with any laws relating to the employment of labor, including any provisions
thereof relating to wages, hours, collective bargaining, the payment of social
security and similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that the Company or any of its
Subsidiaries is liable for any Material arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing.
(t) Employee Benefit Plans. (i) The Company, its Subsidiaries
and each other entity, that together with the Company, would be treated as a
single employer under Sections 414(b), (c) or (o) of the Code (an "ERISA
Affiliate") have complied and currently are in compliance in all material
respects, both as to form and operation, with the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code, with respect to each "employee benefit plan" as defined under Section 3(3)
of ERISA which the Company or any ERISA Affiliate (A) has ever adopted,
maintained, established, contributed to, been required during the six-year
period ending on the Initial Closing Date to contribute to or could have any
liability with respect to, (B) currently maintains or to which the Company or
any of its Subsidiaries currently contributes or is required to contribute or
(C) currently participates in or is required to participate in (a "Plan").
Schedule 2.02(t) hereto lists each Plan.
(ii) Neither the Company nor any ERISA Affiliate has during the
six-year period ending on the Initial Closing Date maintained, adopted or
established, contributed or been required to contribute to, or otherwise
participated in or been required to participate in, a "multiemployer plan" (as
defined in Section 3(37) of ERISA). No amount is due or owing from the Company
or any ERISA Affiliate on account of a "multiemployer plan" (as defined in
Section 3(37) of ERISA) or on account of any withdrawal therefrom.
(iii) Neither the Company nor any ERISA Affiliate has
maintained, contributed to or been required to contribute to, nor do any of its
employees participate in, any defined benefit plan as defined in Section 3(35)
of ERISA.
(iv) Notwithstanding anything else set forth herein, other than
routine claims for benefits and liability for premiums due to the Pension
Benefit Guaranty Corporation, neither the Company nor any ERISA Affiliate has
incurred any liability with respect to a Plan that is currently due and owing
and has not yet been satisfied, including without limitation under ERISA
(including without limitation Title I or Title IV thereof), the Code or other
applicable law, and no event has occurred, and, to the knowledge of the Company,
there exists no condition or set of circumstances (other than the accrual of
benefits under the normal terms of the Plans), which could result in the
imposition of any
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liability of the Company with respect to a Plan, including without limitation
under ERISA (including without limitation Title I or Title IV thereof), the Code
or other applicable law with respect to a Plan.
(v) Except (i) as required by applicable law or (ii) as set
forth in Schedule 2.02(t) hereto or provided in any insurance policy listed in
Schedule 2.02(u) hereto, neither the Company nor any ERISA Affiliate has
committed itself, orally or in writing, (x) to provide or cause to be provided
to any person any payments or provision of any "welfare" or "pension" benefits
(as defined in Sections 3(1) and 3(2) of ERISA) in addition to, or in lieu of,
those payments or benefits set forth under any Plan, (y) to continue the payment
of, or accelerate the payment of, benefits under any Plan, except as expressly
set forth thereunder or (z) to provide or cause to be provided any severance or
other post-employment benefit, salary continuation, termination, disability,
death, retirement, health or medical benefit to any person (including without
limitation any former or current employee) except as set forth under any Plan.
(vi) Notwithstanding any other provisions to the contrary set
forth herein, the New Investors shall not assume any liability which the Company
or any of its Subsidiaries may have incurred or may incur which arises out of,
is a result of, or is in any way related to, any Plan.
(u) Insurance. All policies of fire, liability, workers'
compensation, and other forms of insurance providing insurance coverage to or
for the Company or any of its Subsidiaries for events or occurrences arising or
taking place in the case of occurrence type insurance, and for claims made
and/or suits commenced in the case of claims-made type insurance, prior to the
Initial Closing Date, are listed in Schedule 2.02(u) hereto and, except as set
forth in said Schedule 2.02(u), all premiums with respect thereto covering all
periods up to and including the date as of which this representation is being
made have been paid, and no notice of cancellation or termination has been
received with respect to any such policy. All such policies are in full force
and effect. All such policies will remain in full force and effect and will not
in any way be affected by, or terminate or lapse by reason of, any of the
transactions contemplated hereby.
(v) Customers. Schedule 2.02(v) hereto contains an accurate
and complete list of the companies which the Company expects to be its top
twenty customers in terms of revenue for calendar year 1999. Except as set forth
in said Schedule, since July 31, 1999 neither the Company nor any of its
Subsidiaries has lost or been notified in writing that it will lose any customer
on Schedule 2.02(v), and no customer on said Schedule has notified the Company
or any of its Subsidiaries in writing that it would in
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the event of a change of control of the Company cease to be a customer of the
Company or its Subsidiaries.
(w) Accounts Receivable. The accounts receivable reflected on
the balance sheet of the Company as of December 31, 1998 referred to in Section
2.02(f) above, and all accounts receivable arising between December 31, 1998 and
the date hereof, arose from bona fide transactions in the ordinary course of
business. Except as set forth in Schedule 2.02(w), no such account has been
assigned or pledged to any other person, firm or corporation and no defense or
set off to any such account to the Company's knowledge exists or has been
asserted in writing by the account obligor in excess of reserves provided
therefor.
(x) Offering of Securities. Neither the Company nor any person
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Convertible Preferred Stock, Common
Stock or any similar securities of the Company has offered any such securities
for sale to, or solicited any offers to buy any such securities from, or
otherwise approached or negotiated with respect thereto with any person or
persons under circumstances that involved the use of any form of general
advertising or solicitation as such terms are defined in Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"); and, assuming the
accuracy of the representations and warranties of the New Investors set forth in
Section 2.03 hereof, neither the Company nor any person acting on the Company's
behalf has taken or will take any action (including, without limitation, any
offer, issuance, sale of any securities of the Company under circumstances which
might require the integration of such transactions with the placement of the
Convertible Preferred Stock and Common Stock under the Securities Act or the
rules and regulations of the Securities and Exchange Commission thereunder)
which would require that the offering, issuance, sale of the Convertible
Preferred Stock and Common Stock to the New Investors be registered under the
Securities Act.
(y) Related Party Transactions. Except as set forth in
Schedule 2.02(y) hereto and except for this Agreement and the transactions
contemplated hereby, there are no existing arrangements or proposed transactions
between the Company or any of its Subsidiaries and (i) any officer or director
of the Company or any of its Subsidiaries or any of the Original Stockholders or
any member of the immediate family of any of the foregoing persons (such
officers, directors, governing board members, stockholders and family members
being hereinafter individually referred to as a "Related Party") or (ii) any
business (corporate or otherwise) which a Related Party owns, directly or
indirectly, or in which a Related Party has an ownership interest.
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(z) Broker's or Finders' Fees. Except as set forth in Schedule
2.02(z) hereto, all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by the Original Stockholders directly
with the Company and the New Investors, without the intervention of any person
on behalf of the Original Stockholders and/or the Company in such manner as to
give rise to any claim by any person against the Company or any of the New
Investors for a finder's fee, brokerage commission or similar payment.
(aa) Knowledge. For purposes of this Agreement, "to the
knowledge of the Company," "known to the Company," and words of similar import
shall mean the actual knowledge of the Company's Chief Executive Officer and
Chief Financial Officer after having made such inquiries of the executive
officers of each of its Subsidiaries as shall be reasonably necessary to
determine the accuracy of the relevant representation and warranty.
SECTION 2.03. Representations and Warranties of the New
Investors. Each New Investor, severally and not jointly, represents and warrants
to the Company and the Original Stockholders as follows:
(a) Authorization; Organization. The execution, delivery and
performance by such New Investor of this Agreement and the Ancillary Agreements
to which it is a party and the purchase and receipt by such New Investor of the
Securities, have been duly authorized by all requisite action on the part of
such New Investor, and will not violate any provision of law, any order of any
court or other agency of government, the governing instrument of such New
Investor, or any provision of any indenture, agreement or other instrument by
which such New Investor or any of such New Investor's properties or assets is
bound, or conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
such New Investor. Each New Investor that is a partnership or limited liability
company represents that it has been duly organized and is validly existing under
the laws of its jurisdiction of organization.
(b) Validity. This Agreement has been duly executed and
delivered by such New Investor and constitutes the legal, valid and binding
obligation of such New Investor, enforceable in accordance with its terms. Each
Ancillary Agreement to which such New Investor is a party, when executed and
delivered in accordance with this Agreement, will constitute the legal, valid
and binding obligation of such New Investor, enforceable in accordance with its
terms.
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(c) Investment Representations. (i) Such New Investor is
acquiring the Securities being purchased by it hereunder, for its own account,
for investment, and not with a view toward the resale or distribution thereof.
(ii) Such New Investor understands that it must bear the
economic risk of its investment for an indefinite period of time because the
Securities are not registered under the Securities Act or any applicable state
securities laws, and may not be resold unless subsequently registered under the
Securities Act and such other laws or unless an exemption from such registration
is available. Such New Investor also understands that, except as provided in the
Registration Rights Agreement, it is not contemplated that any registration will
be made under the Securities Act or that the Company will take steps which will
make the provision of Rule 144 under the Securities Act available to permit
resale of the Securities. Such New Investor agrees that it will not pledge,
transfer, convey or otherwise dispose of the Securities except in a transaction
that is the subject of either (i) an effective registration statement under the
Securities Act and any applicable state securities laws, or (ii) an opinion of
counsel to the effect that such registration is not required (which opinion and
counsel shall be reasonably satisfactory to the Company, it being agreed that
Reboul, MacMurray, Hewitt, Maynard & Kristol shall be satisfactory counsel, and
may be relied on by the Company in making such determination), it being intended
that the agreements contained in this sentence shall be construed consistently
with the provisions relating to the same subject matter contained in the
Registration Rights Agreement.
(iii) Such New Investor represents that it is able to fend for
itself in the transactions contemplated by this Agreement, and that it has the
ability to bear the economic risks of its investment in the Securities for an
indefinite period of time.
(iv) Such New Investor represents that it has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment in the Securities. Each New
Investor further represents that it is an "accredited investor" as such term is
defined in Rule 501 of Regulation D of the Securities and Exchange Commission
under the Securities Act with respect to its purchase of the Securities and that
each New Investor that is a partnership or limited liability company has not
been formed solely for the purpose of acquiring the Securities it is receiving
hereunder.
(d) No Knowledge of Misrepresentations or Omissions. None of
the New Investors has any knowledge that the representations and warranties of
the Original Stockholders made in this Agreement qualified as to Material
Adverse Effect or Materiality are not true and correct, or that those not so
qualified are not true and correct
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in all material respects, and none of the New Investors has any knowledge of any
material errors in, or material omissions from the Schedules to this Agreement.
ARTICLE III
COVENANTS
SECTION 3.01. Certain Covenants. During the period from the
date of this Agreement to the Initial Closing Date, the Original Stockholders
will cause the Company to, and the Company will, conduct its business and
operations in the ordinary course consistent with past practice and use its
reasonable efforts to preserve its relationships with business partners,
suppliers, employees and customers. Without limiting the generality of the
foregoing, except as otherwise contemplated by this Agreement or as set forth in
Schedule 3.01 hereto, prior to the Initial Closing or the termination of this
Agreement, without the prior written consent of the New Investors, the Original
Stockholders will not permit the Company to, and the Company will not do any of
the things specified in Section 2.02(g) above, except as set forth in Schedule
3.01 hereof.
SECTION 3.02. Rights of Inspection. During the period from the
date of this Agreement to the Initial Closing Date, the Company shall, and shall
cause its officers, directors, employees, representatives, advisors and agents
to, afford, from the date hereof, the representatives, advisors and agents of
the New Investors complete access at all reasonable times during normal business
hours to its officers, employees, agents, properties, books, records and
workpapers, and shall furnish the New Investors all financial, operating and
other information and data that the New Investors may reasonably request through
such representatives, advisors or agents. The Company shall promptly furnish to
the New Investors a copy of all Material written correspondence, filings,
communications (or memoranda setting forth the substance thereof) between the
Company or any of its officers, employees, representatives, advisors or agents
and any governmental entity with respect to the obtaining of any waivers,
consent or approvals and the making of any registrations or filings that are
necessary for the consummation of the transactions contemplated by this
Agreement.
SECTION 3.03. Notice of Certain Events. During the period from
the date of the Agreement to the Initial Closing Date, the Company shall give
the New Investors prompt notice of (i) the occurrence, or failure to occur, of
any event that it believes would be likely to cause (x) any of the
representations or warranties of the Original Stockholders contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof or (y) any covenant, condition or
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agreement contained in this Agreement not to be complied with or satisfied in
any material respect, (ii) any failure of the Company or the Original
Stockholders to comply in any material respect with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder, (iii) any event of default under any agreement of the Company with
respect to indebtedness of the Company or any Subsidiary for borrowed money or a
purchase money obligation in excess of $25,000, and any event which, upon notice
or lapse of time or both, would constitute such an event of default, that would
permit the holder of such indebtedness or obligation to accelerate the maturity
thereof, and (iv) any communications between the Company or any of its
Subsidiaries and any governmental authority with respect to Material matters.
SECTION 3.04. Use of Proceeds. The Company shall apply (i) up
to $60,957,995.80 of the proceeds from the sale of the Recapitalization
Securities for the purchase of the Common Stock, Class B Common Stock and Series
A Preferred Stock to be tendered by the Original Stockholders for redemption
pursuant to Section 1.02, (ii) $20,000,000 to finance (w) capital expenditures
approved by the Board of Directors for the expansion of the Company's business
through additional acquisitions, (x) operating expenses approved by the Board of
Directors of the Company or (y) general corporate purposes approved by the Board
of Directors of the Company and (z) to pay all fees and expenses incurred by the
Company in connection with the transactions contemplated hereby.
SECTION 3.05. Consents and Approvals. Prior to the Initial
Closing Date, the Company and the New Investors shall promptly apply for or
otherwise seek and use their respective best efforts to obtain all
authorizations, consents, waivers and approvals (whether by or from any person,
entity, court or governmental agency or authority) as may be required in
connection with the consummation of this Agreement and the Ancillary Agreements
and the transactions contemplated hereby and thereby.
SECTION 3.06. Hart-Scott-Rodino Act. Without limiting Section
3.05 or any of the foregoing, each of the parties shall file any Notification
and Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act ("HSR Act"), shall use its
reasonable best efforts to obtain an early termination of the applicable waiting
period, and shall make any further filings pursuant thereto that may be
necessary, proper or advisable.
SECTION 3.07. Amended and Restated Certificate of
Incorporation. Between the date hereof and the Initial Closing Date, the Company
shall use its best efforts to cause the Amended and Restated Certificate of
Incorporation to be filed with the Secretary of State of Delaware and to be
effective. The Amended and Restated
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Certificate of Incorporation shall authorize the Convertible Preferred Stock
with the terms set forth in Exhibit A.
SECTION 3.08. Tax Sharing Agreements. Any existing Tax sharing
agreements, arrangements or understanding (whether written or oral) relating to
the Company or any of its Subsidiaries shall be terminated as of the Initial
Closing Date, and no amount shall be owed under any such agreement, arrangement
or understanding after the Initial Closing Date.
SECTION 3.09. Option Plan. (a) The Company will adopt a Stock
Option Plan substantially in the form annexed hereto as Exhibit F (the "Option
Plan").
(b) In the event that the Company becomes eligible to file a
registration statement on Form S-8 of the Securities Act then, as soon as
practicable thereafter, the Company shall file a registration statement on such
Form with respect to the shares of Common Stock issued, or issuable, upon
exercise of options issued under the Option Plan, and the Company's 1998 Stock
Option Plan and 1999 Stock Option Plan.
SECTION 3.10. Restrictions. Without the consent of a majority
in interest of the Original Stockholders, the Company will not amend, alter or
repeal the terms of the Convertible Preferred Stock in a manner adverse to the
Original Stockholders.
SECTION 3.11. Debt Financing. The New Investors shall
negotiate in good faith with First Dominion Capital LLC the definitive terms of
the senior debt financing on terms substantially as set forth in the Commitment
Letter dated August 6, 1999 from First Dominion Capital LLC (the "First Dominion
Commitment Letter").
SECTION 3.12. Equity Financing. Each New Investor shall, by
making any necessary capital calls or other financing arrangements, have the
cash necessary to purchase the shares of Convertible Preferred Stock to be
purchased by such New Investor on the Initial Closing Date pursuant to Section
1.01.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01. Conditions Precedent to the Obligations of the
New Investors with Respect to the Initial Closing Date. The obligations of each
New Investor hereunder is, at its option, subject to the satisfaction, on or
before the Initial Closing Date, of each of the following conditions:
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(a) Accuracy of Representations and Warranties. The
representations and warranties of the Original Stockholders and the Tendering
Stockholders contained in this Agreement or in any certificate delivered to the
New Investors pursuant hereto that are qualified with respect to Material
Adverse Effect or Materiality shall be true and correct in all respects and all
representations and warranties of the Original Stockholders and the Tendering
Stockholders that are not so qualified shall be true and correct in all Material
respects, in each case on and as of the Initial Closing Date as though made at
and as of that date, and the Representative (as hereinafter defined) on behalf
of each of the Original Stockholders and the Tendering Stockholders, severally
and not jointly, shall have delivered to the New Investors a certificate to that
effect.
(b) Compliance with Covenants. The Original Stockholders and
the Tendering Stockholders and the Company shall have performed and complied in
all material respects with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by them at or prior to the
Initial Closing Date, and the Representative on behalf of each of the Original
Stockholders and the Tendering Stockholders, severally and not jointly, shall
have delivered to the New Investors a certificate to that effect.
(c) Proceedings To Be Satisfactory. All proceedings to be
taken by the Original Stockholders, the Tendering Stockholders or the Company in
connection with the transactions contemplated hereby and the Ancillary
Agreements and all documents incident thereto shall be reasonably satisfactory
in form and substance to the New Investors and their counsel, and the New
Investors and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(d) Opinion of Counsel. The New Investors shall have received
the opinion of Kirkpatrick & Lockhart LLP, counsel for the Company, dated the
Initial Closing Date, satisfactory in form and substance to the New Investors
and their counsel, to the effect set forth in Annex II hereto.
(e) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise impair the consummation of the transactions
contemplated hereby.
(f) Amended and Restated Certificate of Incorporation. The
Amended and Restated Certificate of Incorporation shall have been duly adopted,
and shall have been duly filed with the Secretary of State of the State of
Delaware and become legally effective. The Amended and Restated Certificate of
Incorporation shall authorize the Convertible Preferred Stock with the terms set
forth in Exhibit A.
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(g) Ancillary Agreements. On or prior to the Initial Closing
Date, each of the Ancillary Agreements shall have been executed and delivered by
the Company and, in the case of (i) the Escrow Agreement and the Assumption
Agreement, by the Tendering Stockholders and (ii) the Stockholders Agreement and
the Registration Rights Agreement, by Original Stockholders that do not tender
all of their capital stock in the Company hereunder.
(h) Stockholders Agreements. Each of the shareholder
agreements listed on Schedule 7.13 hereto with respect to which Original
Stockholders are signatory (other than those described in Item 12) shall have
been terminated by the parties thereto and shall no longer be in effect.
(i) Debt Financing. The Company shall have received not less
than $71,000,000 in proceeds of senior debt financing (the "Senior Debt
Financing") from First Dominion Capital LLC pursuant to documentation reasonably
acceptable to the New Investors, unless the failure to obtain such proceeds
results from the failure of the New Investors to accept the terms of such
financing as set forth in the First Dominion Commitment Letter or the failure of
the New Investors to negotiate the terms thereof in good faith.
(j) Consents and Assignments; HSR Act. The Company shall have
obtained all consents required to be obtained by it pursuant to Section 2.02(q)
hereof in form reasonably satisfactory to the New Investors. Without limiting
the generality of the foregoing, all applicable waiting periods under the HSR
Act with respect to the transactions contemplated hereby shall have expired or
been terminated.
(k) Supporting Documents. On or prior to the Initial Closing
Date, the New Investors and their counsel shall have received copies of the
following supporting documents:
(i) (1) copies of the Certificate of Incorporation of the
Company and each of its Subsidiaries and all amendments thereto,
certified as of a recent date by the Secretary of State of the State of
Delaware, or such other state in which it is incorporated, (2) a
certificate of said Secretary dated as of a recent date as to the due
incorporation and good standing of the Company and each of its
Subsidiaries and listing all documents of the Company and each of its
Subsidiaries on file with said Secretary and (3) telephone confirmation
from said Secretary as of the close of business on the next business
day preceding the Initial Closing Date as to the continued good
standing of the Company and each of its Subsidiaries; and
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(ii) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Initial Closing Date and certifying: (1) that
attached thereto is a true and complete copy of the By-laws of the
Company and each of its Subsidiaries as in effect on the date of such
certification; (2) that attached thereto is a true and complete copy of
the resolutions adopted by the Board of Directors and the stockholders
of the Company authorizing the execution, delivery and performance of
this Agreement and the Ancillary Agreement and that all such votes are
still in full force and effect and are all the votes adopted in
connection with the transactions contemplated by this Agreement; (3)
that the Certificate of Incorporation of the Company and each of its
Subsidiaries have not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i)(2)
above; and (4) as to the incumbency and specimen signature of each
officer of the Company executing this Agreement and any certificate or
instrument furnished pursuant hereto, and a certification by another
officer of the Company as to the incumbency and signature of the
officer signing the certificate referred to in this paragraph (ii).
All such documents shall be satisfactory in form and substance
to the New Investors and their counsel.
SECTION 4.02. Conditions Precedent to the Obligations of the
Original Stockholders and the Company with Respect to the Initial Closing Date.
The obligations of the Original Stockholders and the Company hereunder are, at
their option, subject to the satisfaction, on or before the Initial Closing
Date, of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of the New Investors contained in this Agreement
or in any certificate or document delivered to the Original Stockholders and the
Company pursuant hereto shall be true and correct on and as of the Initial
Closing Date as though made at and as of that date, and the New Investors shall
have delivered to the Original Stockholders and the Company a certificate to
such effect.
(b) Compliance with Covenants. The New Investors shall have
performed and complied with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by it at or prior to the Initial
Closing Date, and the New Investors, severally and not jointly, shall have
delivered to the Original Stockholders and the Company a certificate to that
effect.
(c) All Proceedings To Be Satisfactory. All corporate and
other proceedings to be taken by the New Investors in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory
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in form and substance to the Original Stockholders, the Company and their
counsel, and the Original Stockholders, the Company and said counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(d) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby.
(e) Ancillary Agreements. On or prior to the Initial Closing,
the Ancillary Agreements shall have been executed and delivered by each party
thereto other than the Original Stockholders.
(f) Debt Financing. The Company shall have entered into
definitive agreements in respect of the Senior Debt Financing on terms
substantially as set forth in the Commitment Letter and shall have received not
less than $71,000,000 in proceeds from the Senior Debt Financing.
(g) HSR Act. All applicable waiting periods under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
SECTION 4.03. Conditions Precedent to the Obligations of the
New Investors with Respect to Each Subsequent Closing. The obligations of each
of the New Investors to purchase and pay for the Additional Preferred Shares
being purchased by such New Investor on each Subsequent Closing Date are, at
such New Investor's option, subject to the satisfaction, on or before such date,
of the following conditions:
(a) Consummation of Initial Closing and Each Prior Subsequent
Closing. On the Initial Closing Date the Company shall have issued and sold the
Recapitalization Securities, and on each prior Subsequent Closing Date, the
Company shall have issued and sold the Additional Preferred Shares being issued
and sold on such Subsequent Closing Date.
(b) Preliminary Documentation. A Put Notice shall have been
given and shall have been delivered to the New Investors pursuant to Section
1.04(c) hereof.
(c) Opinion of Counsel. The New Investors shall have received
from Kirkpatrick & Lockhart LLP (or such other counsel satisfactory to the New
Investors) an opinion dated such Subsequent Closing Date confirming the opinion
delivered by such counsel in accordance with Section 4.01(d) hereof, with such
other changes as may be required as a result of the transactions contemplated by
this Agreement.
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(d) All Proceedings to Be Satisfactory. All corporate and
other proceedings to be taken by the Company and all waivers and consents to be
obtained by the Company in connection with the transactions contemplated hereby
and all documents incident thereto shall be reasonably satisfactory in form and
substance to the New Investors and their counsel, and the New Investors and said
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
(e) Supporting Documents. On or prior to such Subsequent
Closing Date, the New Investors and their counsel shall have received copies of
the supporting documents referred to in Section 4.01(k) above as if such
Subsequent Closing Date were the Initial Closing Date.
All such documents shall be reasonably satisfactory in form
and substance to the New Investors and their counsel.
In the event that the Certificate of Incorporation and/or
By-laws of the Company shall not have been amended since the Initial Closing
Date, the Company may, in lieu of furnishing such documents, cause the
certificate with respect thereto contemplated by paragraphs 4.01(k)(i) and
4.01(k)(ii) above to be replaced by a certificate as to the fact that such
documents were previously furnished and as to the absence of any amendments
thereto.
(f) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise impair the consummation of the transactions
contemplated hereby.
(g) Consents; HSR Act Waiting Period. The Company shall have
obtained all consents required to be obtained pursuant to Section 3.05 hereof.
Without limiting the generality of the foregoing, all applicable waiting periods
under the HSR Act with respect to the transactions contemplated hereby shall
have expired or been terminated.
SECTION 4.04. Conditions Precedent to the Obligations of the
Company with Respect to Each Subsequent Closing. The obligations of the Company
to issue and sell the Additional Preferred Shares on each Subsequent Closing
Date are, at its option, subject to the satisfaction, on or before such date, of
the following conditions:
(a) Consummation of Initial Closing and Each Prior Subsequent
Closing. On the Initial Closing Date the New Investors shall have purchased and
paid for the Recapitalization Securities, and on each prior Subsequent Closing
Date, the
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New Investors shall have purchased and paid for the Additional Preferred Shares
being issued and sold on such Subsequent Closing Date.
(b) Representations and Warranties to Be True and Correct. The
representations and warranties contained in Section 2.03 hereof as made by the
New Investors shall be true and correct in all material respects on such
Subsequent Closing Date with the same effect as though such representations and
warranties had been made on and as of such date.
(c) Performance. Each New Investor shall have performed and
complied in all material respects with all agreements and conditions contained
herein required to be performed or complied with by it prior to or at such
Subsequent Closing Date.
(d) All Proceedings to Be Satisfactory. All corporate, limited
liability company or partnership and other proceedings to be taken by each New
Investor and all waivers and consents to be obtained by any New Investor in
connection with the transactions contemplated hereby and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Company
and its counsel.
ARTICLE V
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 5.01. Survival of Representations. Subject as set
forth below, all representations and warranties made by any party hereto in this
Agreement or pursuant hereto shall survive for a period of one year, except that
(i) the representations and warranties contained in Sections 2.02(p), 2.02(r)
and 2.02(t) shall survive for the applicable statute of limitations period,
including any extensions thereof obtained or consented to by the party against
whom indemnification is sought, and (ii) representations and warranties
contained in Sections 2.01(c) and 2.02(e) shall survive without limitation.
SECTION 5.02. Tax Indemnity. (a) Regardless of any disclosure
made to the New Investors or the Company, the Tendering Stockholders, severally
and not jointly, agree to, and shall, indemnify, defend and hold the New
Investors, the Company and their respective affiliates harmless from and
against:
(i) a breach of any representations or warranties relating to
Taxes set forth in subsections (viii), (ix), (x), (xi) and (xiii) of
Section 2.02(p);
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(ii) without duplication of amounts payable under Section
5.02(a)(i), any and all Taxes incurred by, imposed upon or attributable
to the Company, any of its Subsidiaries or any Tax Group for any
taxable period (or portion thereof) ending on or before the Initial
Closing Date, except to the extent that such Taxes were (w) paid on or
prior to the last date covered by the most recent financial statements
attached hereto as Schedule 2.02(f), (x) specifically reserved for on
the most recent financial statements attached as Schedule 2.02(f)
hereto, (y) incurred by the Company and its Subsidiaries in the
ordinary course of their business between the date specified in clause
(w) of this Section 5.02(a)(ii) and the Initial Closing Date, or (z)
incurred in connection with transactions explicitly contemplated by
this Agreement or in connection with transactions for which the New
Investors' prior written consent has been obtained pursuant to Section
3.01;
(iii) in connection with Taxes described in Section 5.02(a)(i)
and (ii) and with any efforts to mitigate such Taxes pursuant to
Section 5.03(g), all reasonable fees and expenses (including all
reasonable legal, accounting and other professional fees and expenses)
incurred by the Company or any of its Subsidiaries or any other party
hereto.
It is understood and agreed that the Tendering Stockholders
shall not have any liability under this Section 5.02 unless the aggregate amount
of all Taxes for which the Tendering Stockholders would be liable exceeds
$100,000; provided, however, that the total liability of the Tendering
Stockholders under this Section 5.02 shall not exceed $9,000,000 or, with
respect to any particular Tendering Stockholder, the amount of cash actually
received by such Tendering Stockholder pursuant to this Agreement. The parties
agree that the tax payable associated with the disclosure made in Schedule
2.02(p)(1) with respect to the taxable year ended December 31, 1998 and the
portion of the 1999 taxable year up to the Initial Closing Date shall be an
obligation of the Original Stockholders pursuant to Section 5.02(a)(ii) and that
the aggregate amount of such liability shall be counted for purposes of
calculating the $100,000 threshold amount set forth in the immediately preceding
sentence. The obligation of the Tendering Stockholders to make indemnification
payments to the Company pursuant to this Section 5.02 shall be satisfied by the
payment in cash solely to and for the benefit of the New Investors of the
aggregate amount of all Taxes for which the Tendering Stockholders would be
liable hereunder. It is understood that any such payment to the New Investors
shall be treated for tax and financial reporting purposes as an adjustment of
the purchase price paid by the New Investors pursuant to Section 1.01(b).
(b) The Company agrees to, and shall, indemnify, defend and
hold the Original Stockholders harmless from and against (i) any and all Taxes
incurred by, imposed upon or attributable to the Company or any of its
Subsidiaries for any taxable
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period (or portion thereof) beginning after the Initial Closing Date or (ii)
Taxes for any period beginning before the Initial Closing Date that are
described by subclauses (x), (y) or (z) of Section 5.02(a)(ii).
(c) For purposes of paragraphs (a) and (b) above, (i) any
interest, penalty or additional charge included in Taxes shall be deemed to be a
Tax for the period in which the item on which the interest, penalty or
additional charge is based, and not a Tax for the periods during which the item
accrues and (ii) with respect to any taxable year that does not end on the
Initial Closing Date, the amount of any Taxes attributable to the portion of
such year that ends on the Initial Closing Date shall be determined in the case
of Taxes determined on a periodic basis, such as real estate Taxes, pro rata
based on the number of days in the portion of such taxable year ending on the
Initial Closing Date relative to the number of days in the portion of such
taxable year beginning after the Initial Closing Date, and, in the case of all
other Taxes on a closing of the books method.
(d) The indemnities provided for in this Section 5.02 shall be
the exclusive indemnities for Taxes under this Agreement and, anything in this
Agreement to the contrary notwithstanding, shall survive until the expiration of
the applicable statutes of limitation (including extensions thereof) for the
Taxes referred to herein and any Taxes subject to indemnification under this
Section 5.02 shall not be subject to the provisions of Section 5.03, with the
exception of: clause (i) of the second paragraph of Section 5.03(a), the third
paragraph of Section 5.03(a), 5.03(c) and 5.03(g).
(e) Timing Adjustments. In the event a final determination
(which shall include the execution of a Form 870-AD or successor form) results
in a timing difference (e.g. an acceleration of income or delay of deductions)
that actually increases the amount paid by the indemnifying party pursuant to
Section 5.02(a) or Section 5.02(b), the party that actually received such
enhanced indemnification payment (the "Indemnitee") shall promptly make a
payment to such indemnifying party as and when such Indemnitee actually realizes
any Tax benefit as a result of such timing difference in an amount equal to the
amount of such Tax benefit; it being understood that the amount of such payment
made by the Indemnitee shall in no event exceed the amount originally received
by the Indemnitee on account of such timing difference. Such Tax benefit for
federal, state and local income tax purposes, shall be computed for any year
using the Indemnitee's actual tax liability with and without giving effect to
such timing difference.
(f) Procedures Relating to Indemnification of Tax Claims. If a
claim shall be made by any taxing authority (including the commencement of an
audit or examination), which, if successful, might result in an indemnification
payment to any Indemnitee pursuant to Section 5.02(a) or Section 5.02(b), such
Indemnitee shall promptly notify the party or parties that would be responsible
for such indemnification
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payment (the "Indemnitor") in writing of such claim (a "Tax Claim") (it being
understood that if the Original Stockholders are the Indemnitor, such notice
shall be given to the Representative (as defined in Section 7.04) acting on
behalf of the Original Stockholders); provided, however, that failure to give
such notification shall not affect the indemnification provided hereunder except
to the extent the Indemnitors shall have been actually prejudiced as a result of
such failure (except that the Indemnitors shall not be liable for any expenses
incurred during the period in which the Indemnitee failed to give such notice).
With respect to any Tax Claim, the Indemnitee shall control
all proceedings taken in connection with such Tax Claim (including the selection
of counsel) and, without limiting the foregoing, may in its sole discretion
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with any taxing authority with respect thereto; provided, however,
that in no case shall any Indemnitee or any affiliate thereof settle or
compromise any Tax Claim or pay the Tax claimed and sue for a refund without the
prior written consent of the Indemnitor (it being understood that if the
Original Stockholders are the Indemnitor, such consent may be given by the
Representative acting on behalf of the Original Stockholders), which consent
shall not be unreasonably withheld or conditioned. The Indemnitor shall be
entitled to participate in the defense of any Tax Claim and employ counsel (not
reasonably objected to by the Indemnitee), at its own expense, separate from the
counsel employed by the Indemnitee; it being understood that the Indemnitee
shall control such defense.
The New Investors, the Company, the Original Stockholders and
each of their respective Affiliates shall cooperate with each other in
contesting any Tax Claim, which cooperation shall include, without limitation,
the retention and provision upon request of records and information which are
reasonably relevant to such Tax Claim, and making employees available on a
mutually convenient basis to provide additional information or explanation of
any material provided hereunder or to testify at proceedings relating to such
Tax Claim. It is understood that the party requesting such cooperation shall pay
the out-of-pocket expenses incurred by the party from which cooperation is
requested.
SECTION 5.03. General Indemnity.
(a) Indemnification by the Tendering Stockholders. Each
Tendering Stockholder, severally and not jointly, shall indemnify the New
Investors and the Company, their respective affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives against and hold them harmless from any loss, liability, claim,
damage or expense (including reasonable legal fees and expenses) suffered or
incurred by any such indemnified party (other than any relating to
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Taxes, for which indemnification provisions are set forth in Section 5.02) to
the extent arising (i) from any breach of any representation or warranty of the
Original Stockholders or the Tendering Stockholders contained in this Agreement
or in any certificate delivered by the Original Stockholders or the Tendering
Stockholders pursuant hereto and (ii) from any breach of any covenant of the
Original Stockholders or the Tendering Stockholders contained in this Agreement
attributable to periods prior to the Closing; provided, however, that the
Tendering Stockholders shall not have any liability under clause (i) above
unless the aggregate of all losses, liabilities, costs and expenses relating
thereto for which the Tendering Stockholders would, but for this proviso, be
liable exceeds on a cumulative basis an amount equal to $1,000,000 and then only
to the extent of any excess over $250,000; provided, further, however, that no
Tendering Stockholder's liability under clauses (i) and/or (ii) above shall
exceed in any event 20% of the cash proceeds actually received by such Tendering
Stockholder pursuant to the redemptions and purchases described in Section
1.02(b) herein. It is understood and agreed, however that (i) the limitations on
the liability of each Tendering Stockholder set forth in this Section 5.03(a)
shall not apply to a breach of the representations and warranties of such
Tendering Stockholder contained in Section 2.01(c) and (ii) the obligation of
the Tendering Stockholders to make indemnification payments to the Company
pursuant to this Section 5.03 shall be satisfied by the payment in cash solely
to and for the benefit of the New Investors of the aggregate amount of losses,
liabilities, costs and expenses for which the Tendering Stockholders are liable
hereunder. It is understood that any such payment to the New Investors shall be
treated for tax and financial reporting purposes as an adjustment of the
purchase price paid by the New Investors pursuant to Section 1.01(b).
Each of the New Investors acknowledges and agrees that, (i)
other than the representations and warranties of the Original Stockholders and
the Tendering Stockholders specifically contained in this Agreement, there are
no representations or warranties of the Original Stockholders and the Tendering
Stockholders either expressly or implied with respect to the transactions
contemplated hereby, the Company, its Subsidiaries or their respective assets,
liabilities and business and (ii) neither the New Investors nor any other person
shall have any claim or right to indemnification pursuant to this Article V with
respect to any information, documents or materials furnished prior to the
Closing by the Original Stockholders, the Company or its Subsidiaries or any of
their officers, directors, employees, agents or advisors.
Each of the New Investors and the Company further acknowledges
and agrees that, should the Closing occur, the sole and exclusive remedy with
respect to any and all claims relating to this Agreement, the transactions
contemplated hereby, the Company and its Subsidiaries and their respective
assets, liabilities and business (other
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than claims of, or causes of action arising from, fraud) shall be pursuant to
the indemnification provisions set forth in this Article 5.
(b) Indemnification by the New Investors. Each of the New
Investors shall, and shall cause the Company and the Subsidiaries to, indemnify
each of the Original Stockholders, their affiliates and each of their respective
officers, directors, employees, stockholders, agents and representatives against
and hold them harmless from any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses) suffered or incurred by any such
indemnified party (other than any relating to Taxes, for which indemnification
provisions are set forth in Section 5.02) to the extent arising from (i) any
breach of any representation or warranty of the New Investors contained in this
Agreement or in any certificate delivered by the New Investors pursuant hereto,
and (ii) any breach of any covenant of the New Investors contained in this
Agreement; provided, however, that the New Investors shall not have any
liability under clauses (i) or (ii) above for any breach if the Original
Stockholders had knowledge of such breach at the time of the Closing.
(c) Losses Net of Insurance, Tax Benefit etc. The amount of
any loss, liability, claim, damage, expense or Tax for which indemnification is
provided under this Article 5 shall be net of any amounts recovered or
recoverable by the indemnified party (which, in the case of the New Investors,
shall include the Company and its Subsidiaries) under insurance policies with
respect to such loss, liability, claim, damage, expense or Tax (collectively, a
"Loss") and shall be (i) increased to take account of any net Tax cost incurred
by the indemnified party arising from the receipt of indemnity payments
hereunder (grossed up for such increase) and (ii) reduced to take account of any
net Tax benefit realized by the indemnified party arising from the incurrence or
payment of any such Loss. In computing the amount of any such Tax cost or Tax
benefit, the indemnified party shall be deemed to recognize all other items of
income, gain, loss, deduction or credit before recognizing any item arising from
the receipt of any indemnity payment hereunder or the incurrence or payment of
any indemnified Loss. Any indemnification payment hereunder shall initially be
made without regard to this paragraph and shall be increased or reduced to
reflect any such net Tax cost (including gross-up) or net Tax benefit only after
the indemnified party has actually realized such cost or benefit. For purposes
of this Agreement, an indemnified party shall be deemed to have "actually
realized" a net Tax cost or a net Tax benefit to the extent that, and at such
time as, the amount of Taxes payable by such indemnified party is increased
above or reduced below, as the case may be, the amount of Taxes that such
indemnified party would be required to pay but for the receipt of the indemnity
payment or the incurrence or payment of such Loss, as the case may be. The
amount of any increase or reduction hereunder shall be adjusted to reflect a
final determination (which shall include the execution of
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Form 870-AD or successor form) with respect to the indemnified party's liability
for Taxes and payments to reflect such adjustment shall be made if necessary.
Any indemnity payment under this Agreement shall be treated as an adjustment to
the purchase price for Tax purposes, unless a final determination (which shall
include the execution of a Form 870-AD or successor form) with respect to the
indemnified party or any of its Affiliates causes any such payment not to be
treated as an adjustment to the purchase price for United States Federal Income
Tax purposes.
(d) Termination of Indemnification. The obligations to
indemnify and hold harmless a party hereto (i) pursuant to Sections 5.03(a)(i)
and 5.03(b)(i) hereof, shall terminate when the applicable representation or
warranty terminates pursuant to Section 5.01 hereof, and (ii) pursuant to
Sections 5.03(a)(ii) and 5.03(b)(ii) hereof, shall not terminate; provided,
however, that such obligations to indemnify and hold harmless shall not in any
event terminate with respect to any item as to which the person to be
indemnified or the related party thereto shall have, before the expiration of
the applicable period, previously made a claim by delivering a notice of such
claim (stating in reasonable detail the basis of such claim) to the indemnifying
party.
(e) Procedures Relating to Indemnification (Other than under
Section 5.02). In order for a party (the "indemnified party") to be entitled to
any indemnification provided for under this Agreement (other than under Section
5.02) in respect of, arising out of or involving a claim or demand made by any
person against the indemnified party (a "Third Party Claim"), such indemnified
party must notify the indemnifying party in writing, and in reasonable detail,
of the Third Party Claim within five business days after receipt by such
indemnified party of written notice of the Third Party Claim; provided, however,
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the indemnifying party shall have been
actually prejudiced as a result of such failure (except that the indemnifying
party shall not be liable for any expenses incurred during the period in which
the indemnified party failed to give such notice). Thereafter, the indemnified
party shall deliver to the indemnifying party, within five business days after
the indemnified party's receipt thereof, copies of all notices and documents
(including court papers) received by the indemnified party relating to the Third
Party Claim.
If a Third Party Claim is made against an indemnified party,
the indemnifying party shall be entitled to participate in the defense thereof
and, if it so chooses and acknowledges its obligation to indemnify the
indemnified party thereof, to assume the defense thereof with counsel selected
by the indemnifying party. Should the indemnifying party so elect to assume the
defense of a Third Party Claim, the indemnifying party shall not be liable to
the indemnified party for legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof.
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If the indemnifying party assumes such defense, the indemnified party shall have
the right to participate in the defense thereof and to employ counsel (not
reasonably objected to by the indemnifying party), at its own expense, separate
from the counsel employed by the indemnifying party, it being understood that
the indemnifying party shall control such defense. The indemnifying party shall
be liable for the fees and expenses of counsel employed by the indemnified party
for any period during which the indemnifying party has failed to assume the
defense thereof (other than during the period prior to the time the indemnified
party shall have given notice of the Third Party Claim as provided above).
If the indemnifying party so elects to assume the defense of
any Third Party Claim, all of the indemnified parties shall cooperate with the
indemnifying party in the defense or prosecution thereof. Such cooperation shall
include the retention and (upon the indemnifying party's request) the provision
to the indemnifying party of records and information which are reasonably
relevant to such Third Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Whether or not the indemnifying party shall have
assumed the defense of a Third Party Claim, the indemnified party shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the indemnifying party's prior written consent (which
consent shall not be unreasonably withheld). If the indemnifying party shall
have assumed the defense of a Third party Claim, the indemnified party shall
agree to any settlement, compromise or discharge of a Third Party Claim which
the indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third party Claim, and which releases the indemnifying party completely in
connection with such Third Party Claim.
All claims under Sections 5.03(a) or 5.03(b) hereof other than
Third Party Claims shall be governed by Section 5.03(f) hereof.
(f) Other Claims. In the event any indemnified party should
have a claim against any indemnifying party under Section 5.03(a) or 5.03(b)
hereof that does not involve a Third Party Claim being asserted against or
sought to be collected from such indemnified party, the indemnified party shall
deliver notice of such claim with reasonable promptness to the indemnifying
party. The failure by any indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may have to
such indemnified party under Sections 5.03(a) or 5.03(b) hereof, except to the
extent that the indemnifying party demonstrates that it has been materially
prejudiced by such failure. If the indemnifying party does not notify the
indemnified party within 10 calendar days following its receipt of such notice
that the indemnifying party disputes its liability to the indemnified party
under Sections 5.03(a) or 5.03(b) hereof, such claim specified by the
indemnified party in such notice shall be
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conclusively deemed a liability of the indemnifying party under Section 5.03(a)
or 5.03(b) hereof and the indemnifying party shall pay the amount of such
liability to the indemnified party on demand or, in the case of any notice in
which the amount of the claim (or any portion thereof) is estimated, on such
later date when the amount of such claim (or such portion thereof) becomes
finally determined. If the indemnifying party has timely disputed its liability
with respect to such claim, as provided above, the indemnifying party and the
indemnified party shall proceed in good faith to negotiate a resolution of such
dispute.
(g) Mitigation. The Original Stockholders, the New Investors
and the Company and its Subsidiaries shall cooperate with each other with
respect to resolving any claim or liability with respect to which one party is
obligated to indemnify the other party hereunder, including by making
commercially reasonable efforts to mitigate or resolve any such claim or
liability, including pursuing remedies under the Company's acquisition
agreements. In the event that parties shall fail to make such commercially
reasonable efforts to mitigate or resolve any claim or liability, then
notwithstanding anything else to the contrary contained herein, the other party
shall not be required to indemnify any person for any loss, liability, claim,
damage or expense that could reasonably be expected to have been avoided if such
party had made such efforts.
In the event that the "indemnifying party" or the "indemnified
party" as described in this Section 5.03 is the Original Stockholders or the
Tendering Stockholders, then any notices required to be given to or by, and all
other actions or decisions required to be taken or made by, such "indemnifying
party" or "indemnified party" as provided in this Section 5.03, may be given to
or by, or may be taken or made by, the Representative.
ARTICLE VI
TERMINATION AND ABANDONMENT
SECTION 6.01. Termination and Abandonment. This Agreement may
be terminated at any time prior to the Closing:
(a) by mutual consent of the Original Stockholders and the New
Investors;
(b) by the New Investors, (i) if the conditions set forth in
Section 4.01 shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or eliminated
(or by its nature cannot be cured or eliminated) by the Original
Stockholders on or before October 20,
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1999, (ii) if there has been a material breach of a representation or
warranty made by the Original Stockholders the effect of which is a
Material Adverse Effect, or (iii) if there has been a breach by the
Original Stockholders in any material respect of the covenants set forth
in this Agreement which by its nature cannot be cured or eliminated;
(c) by the Original Stockholders, if the conditions set forth in
Section 4.02 shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or eliminated
(or by its nature cannot be cured or eliminated) by the New Investors on
or before October 20, 1999.
SECTION 6.02. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 6.01, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to any other party hereto or its shareholders or directors or officers
in respect thereof, except as follows: (i) the obligations imposed by Sections
7.02 and 7.03 hereof shall survive the termination and (ii) nothing herein shall
relieve any party from liability for any breach hereof.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Consent to Common Stock Redemption. Each of the
New Investors and the Original Stockholders that will be a holder of outstanding
shares of Common Stock or Convertible Preferred Stock, as the case may be,
immediately after giving effect to the transactions contemplated hereby,
consents to the redemption and purchase by the Company of all the issued and
outstanding shares of capital stock tendered by the Original Stockholders
pursuant to Section 1.02 hereof.
SECTION 7.02. Expenses, Etc. Each party hereto will pay its
own expenses in connection with the transactions contemplated hereby, provided,
however, that the Company agrees that it will pay the reasonable fees and
disbursements of the New Investors' legal and accounting advisors; provided,
further, however, that in the event the transactions contemplated hereby are not
consummated, the Company shall only be obligated to the New Investors pursuant
to this Section 7.02 if (i) within 9 months of the date hereof, the Company
agrees to a transaction or a series of transactions that are subsequently
consummated with a third party or parties concerning the sale of at least 80% of
the shares of capital stock of the Company at a price of at least $7.90 per
share or (ii) such failure to consummate the transactions contemplated hereby
results from the
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termination of the Agreement by the New Investors pursuant to Section
6.01(b)(ii) or (iii) hereof. In addition, at the Initial Closing, the Company
shall pay a financing fee of $567,150 to Willis Stein and $567,150 to BCI. The
Original Stockholders, on the one hand, and the New Investors, on the other
hand, will indemnify the other and hold it harmless from and against any claims
for finders' fees or brokerage commissions in relation to or in connection with
such transactions as a result of any agreement or understanding between such
indemnifying party and any third party. Notwithstanding the foregoing, it is
understood and agreed that all fees and expenses of BGC shall be paid in
accordance with Schedule 7.02. BGC hereby acknowledges that such payment shall
be in full satisfaction of any all fees, expenses or obligations of any kind
whatsoever (other than the indemnification obligations set forth therein which
shall survive in accordance with their terms) with respect to the Company and
the Original Stockholders that may be due to or payable to BGC, including
without limitation pursuant to the engagement letter between the Company and BGC
dated March 15, 1999.
SECTION 7.03. Publicity and Confidentiality. The parties
hereto agree to cooperate in issuing any press release or other public
announcement concerning this Agreement or the transactions contemplated hereby.
Each party shall furnish to the other drafts of all such press releases or
announcements prior to their release. Nothing contained herein shall prevent any
party from at any time furnishing any information required by any government
authority. The Company, the New Investors and the Original Stockholders will not
disclose or authorize the disclosure to third parties of any information
relating to the terms and provisions of this Agreement and the transactions
contemplated hereby without the consent of each other party (with the
Representative acting on behalf of the Original Stockholders) which will not be
unreasonably withheld; provided, however, such parties may disclose such
information on a confidential basis to stockholders, investors and prospective
investors, including affiliates. Nothing contained herein will prohibit either
of the Parties from disclosing information (i) which is or becomes part of the
public domain, (ii) was known to the one of the other parties prior to such
disclosure, (iii) is received by one of the other parties from a third party
under no obligation of secrecy to the one of the parties to this Agreement whose
information is disclosed or (vi) is required by law or to governments and
governmental agencies pursuant to subpoenas or other discovery and inquiry
procedures; provided, however, that the party making such disclosure will use
its reasonable efforts at the Company's expense to ensure that such governments
and governmental agencies treat such materials as confidential to the extent
permitted by law.
SECTION 7.04. Appointment, Duties and Indemnification of
Representative. (a) Each Original Stockholder hereby appoints Sienna Limited
Partnership II to act as "Representative" on its, his or her behalf hereunder
and under the
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Ancillary Agreements as set forth herein and therein. Each Original Stockholder
hereby irrevocably authorizes the Representative to take such actions on its,
his or her behalf and to exercise such powers as are specifically designated to
the Representative by the terms and provisions of Sections 4.01, 5.02 and 5.03
of this Agreement, together with such actions and powers as are reasonably
incidental thereto. Sienna Limited Partnership II hereby accepts such
appointment as Representative.
(b) The Company and the New Investors shall be entitled to
rely upon instructions from the Representative with respect to the giving of any
notices to any Original Stockholder as an "indemnified party" or an
"indemnifying party" hereunder or otherwise in connection with this Agreement.
None of the Company or the New Investors shall be liable for any acts or
omissions of the Representative in connection with the performance by the
Representative of its obligations hereunder. Each Original Stockholder hereby
appoints the Representative as its agent for purposes of the first sentence of
this paragraph.
(c) To the fullest extent permitted by law, each Original
Stockholder shall, on a pro rata basis, indemnify and hold harmless the
Representative and its agents and representatives from and against any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation, interest,
penalties and reasonable attorneys' fees and expenses to the extent relating to,
resulting from or arising out of any act or omission of the Representative
acting in such capacity under this Agreement or any instrument or other document
delivered pursuant to this Agreement, including the Ancillary Agreements, other
than for actions or omissions undertaken or performed in bad faith.
(d) By execution of this Agreement, each Original Stockholder
hereby appoints the Representative his, her or its attorney-in-fact to act on
such Original Stockholder's behalf and to take such actions and exercise such
discretion as is required of the Representative pursuant to Sections 4.01, 5.02
and 5.03 of this Agreement, including, without limitation, the following:
(i) to execute, acknowledge, deliver, record and file all
ancillary agreements, certificates and documents which the
Representative or the Original Stockholders deem necessary or
appropriate on behalf of the Original Stockholders in connection with
Sections 4.01, 5.02 and 5.03 of this Agreement;
(ii) to receive service of process on behalf of the Original
Stockholders in connection with any claims under Article V this
Agreement.
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SECTION 7.05. Execution in Counterparts. For the convenience
of the parties, this Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 7.06. Notices. Any notice or other communications
required or permitted hereunder shall be deemed to be sufficient if contained in
a written instrument delivered in person or duly sent by national overnight
courier service or first class certified mail, postage prepaid, or by telecopy
addressed to such party at the address or telecopy number set forth below:
If to the Company, to it at:
Protocol Holdings, Inc.
2197 Ringling Blvd
Sarasota, Florida 34237
Attention: President
Telecopy: (941) 906-1422
with a copy to:
Kirkpatrick & Lockhart LLP
1251 Avenue of the Americas
45th Floor
New York, New York 10020
Attention: John D. Vaughan, Esq.
Telecopy: (212) 536-3901
and
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Dennis J. Friedman, Esq.
Telecopy: (212) 541-5369
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If to any New Investor, to the address of such New Investor
appearing on Schedule I hereto with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Othon A. Prounis, Esq.
Telecopy: 212-841-5725
If to the Original Stockholders, to the address of such
Original Stockholder appearing on Schedule II hereto or such other address or
addresses as either party hereto shall have designated by notice in writing to
the other party hereto.
SECTION 7.07. Amendments, Supplements, Etc. At any time this
Agreement may be amended or supplemented by such additional agreements, articles
or certificates, as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by the Company, the
New Investors and a majority in interest of the Original Stockholders.
SECTION 7.08. Entire Agreement. This Agreement, its Exhibits,
Schedules and Annexes, and the Ancillary Agreements and the documents executed
on the Initial Closing Date in connection herewith, constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof. No representation,
warranty, promise, inducement or statement of intention or fact has been made by
either party which is not embodied in this Agreement or such other documents,
and neither party shall be bound by, or be liable for, any alleged
representation, warranty, promise, inducement or statement of intention or fact
not embodied herein or therein.
SECTION 7.09. Applicable Law. THIS AGREEMENT AND ALL MATTERS
RELATING TO THIS AGREEMENT, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO ITS CONFLICT OF LAW RULES.
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SECTION 7.10. Consent to Service of Process. Each of the
parties irrevocably consents to the jurisdiction of the courts of the State of
New York and located in the County of New York or any Federal court located in
such County in connection with any action, suit or other proceeding arising out
of or relating to this Agreement or any action taken or omitted hereunder, and
waives personal service of any summons, complaint or other process and agrees
that the service thereof may be made by certified or registered mail return
receipt requested directed to such person at such person's address for purposes
of notices hereunder. In connection with any such action or proceeding, each of
the parties hereby irrevocably (i) submits to the jurisdiction of such court,
(ii) waives any present or future objection to venue or jurisdiction in any such
court, and any present or future claim that any such court is an inconvenient or
otherwise inappropriate forum and (iii) agrees not to bring any action in
respect of any claim or potential claim of the parties hereunder, whether by way
of declaratory judgement or otherwise, in any other court.
SECTION 7.11. Binding Effect, Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 7.12. Assignability. Neither this Agreement nor any of
the parties' rights hereunder shall be assignable by either party hereto without
the prior written consent of the other party hereto.
SECTION 7.13. Stockholders Agreements. Effective at the
Initial Closing, the shareholders agreements with respect to which Original
Stockholders are signatory set forth on Schedule 7.13 are terminated and no
party thereto shall have any further rights or obligations thereunder; provided,
however, the Investors Rights Agreement described in Item 12 of Schedule 7.13
shall not be terminated but shall effective at the Initial Closing, without
further action, be amended to omit therefrom the provisions of Section 1
thereof.
SECTION 7.14. Waiver of Dividend. Effective at the Initial
Closing, each Original Stockholder that is a holder of the Company's Series A
Preferred Stock waives any and all right to receive any and all dividends
declared or payable with respect to the Series A Preferred Stock including
without limitation the dividend declared by the Company's Board of Directors
described in Item (v)(A) of Schedule 2.02(g) hereto.
48
<PAGE> 54
SECTION 7.15. Stockholder Approval. The execution hereof by
each Original Stockholder shall constitute such Original Stockholder's consent
and approval, as a stockholder of the Company, to the consummation of each and
all the transactions consummated hereby, including without limitation the
Amendment and Restatement of the Company's Certificate of Incorporation set
forth on Exhibit A and the adoption of the Option Plan.
SECTION 7.16. Supplement. Stockholders of the Company set
forth on Schedule 7.16 who are not signatory hereto as of the date hereof may
become "Original Stockholders" hereof by execution and delivery on or before the
Initial Closing of an addendum in the form of Exhibit G hereto, agreeing to be
bound hereby as if they were original signatories hereof.
SECTION 7.17. Waiver. At any time prior to the Initial
Closing, the Original Stockholders, the Tendering Stockholders and the Company,
on the one hand, and the New Investors, on the other hand, may (i) extend the
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the other
contained herein or in any documents delivered pursuant hereto and (iii) waive
compliance by the other with any of the agreements or conditions contained
herein which may legally be waived. Any such extension or waiver shall be valid
only if set forth in an instrument in writing specifically referring to this
Agreement and signed on behalf of such party.
49
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
PROTOCOL HOLDINGS, INC.
By /s/ Stephen G. McLean
------------------------------
Name: Stephen G. McLean
Title:President and Chief Executive Officer
WILLIS STEIN & PARTNERS II, L.P.
By /s/ Robert C. Froetscher
------------------------------
Name: Robert C. Froetscher
Title: Managing Director
WILLIS STEIN & PARTNERS DUTCH, L.P.
By /s/ Robert C. Froetscher
------------------------------
Name: Robert C. Froetscher
Title: Managing Director
BCI GROWTH IV, L.P.
By Glenpointe Associates, LLP,
General Partner
By Glenpointe Associates, LLC
General Partner
By /s/ Peter O. Wilde
------------------------------
Name: Peter O. Wilde
Title: General Partner
50
<PAGE> 56
BCI GROWTH V, L.P.
By Glenpointe Associates V, LLC
General Partner
By /s/ Peter O. Wilde
------------------------------
Name: Peter O. Wilde
Title: General Partner
BCI INVESTORS, L.L.C.
By /s/ Peter O. Wilde
------------------------------
Name: Peter O. Wilde
Title: General Partner
ORIGINAL STOCKHOLDERS: SIENNA LIMITED PARTNERSHIP II
By Sienna Associates
General Partner
By /s/ Daniel L. Skoff
------------------------------
Name: Daniel L. Skoff
Title: Chairman of the General Partners
FIRST DOMINION CAPITAL
By /s/ John L. Sabre
------------------------------
Name: John L. Sabre
Title: Senior Managing Director
51
<PAGE> 57
REGENT CAPITAL PARTNERS L.P.
By Regent Capital Holdings II L.P.
General Partner
By Regent Capital Holdings Inc.
General Partner
By /s/ J. Oliver Maggard
------------------------------
Name: J. Oliver Maggard
Title: Managing Director
BENEDETTO GARTLAND & COMPANY, INC.
By /s/
------------------------------
Name:
Title:
/s/ Kevin N. Blayne
------------------------------
Kevin N. Blayne
/s/ Claude Cohen
------------------------------
Claude Cohen
/s/ Robert J. Conrads
------------------------------
Robert J. Conrads
ELIEZER COHEN CANADA CORPORATION
By /s/ Claude Cohen
------------------------------
Name: Claude Cohen
Title:
52
<PAGE> 58
/s/ Richard F. Gaccione
------------------------------
Richard F. Gaccione
GACCIONE FAMILY LIMITED PARTNERSHIP
By /s/ Richard F. Gaccione
------------------------------
Name: Richard F. Gaccione
Title: General Partner
/s/ Robert C. Gust
------------------------------
Robert C. Gust
/s/ David Knafo
------------------------------
David Knafo
/s/ Andrew M. Knee
------------------------------
Andrew M. Knee
/s/ Richard Kommit
------------------------------
Richard Kommit
LA FIDUCIE FAMILLIALE COHEN
By /s/ Claude Cohen
------------------------------
Name: Claude Cohen
Title: Trustee
53
<PAGE> 59
LA FIDUCIE FAMILLIALE KNAFO
By /s/ David Knafo
------------------------------
Name: David Knafo
Title: Trustee
/s/ Jerry D. Lewis
------------------------------
Jerry D. Lewis
/s/ Stephen G. McLean
------------------------------
Stephen G. McLean
/s/ David Van Derveer
------------------------------
David Van Derveer
/s/ Raymond P. Wilson
------------------------------
Raymond P. Wilson
QUIGLEY FAMILY TRUST
By /s/ Phillip J. Quigley
------------------------------
Name: Phillip J. Quigley
Title: Trustee
54
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
December 1, 1999
To the several persons named
at the foot hereof
Dear Sirs:
This will confirm that in consideration of (a) the purchase by
the persons and entities listed in Schedule I of the Recapitalization Agreement,
dated as of September 29, 1999 (as amended, the "Recapitalization Agreement")
among Protocol Holdings, Inc., a Delaware corporation (the "Company"), and the
other parties listed in Schedules I and II thereto (such persons and entities
being hereinafter collectively called the "New Investors"), on the date hereof,
of an aggregate 10,693,634 shares of Series B Convertible Preferred Stock, $.001
par value ("Series B Preferred Stock"), of the Company, and as an inducement to
the New Investors to consummate the transactions contemplated by the
Recapitalization Agreement; (b) the purchase on Subsequent Closing Dates (as
defined in the Recapitalization Agreement) by the New Investors of up to an
aggregate 3,960,606 shares of Series B Preferred Stock and (c) the entry by the
Original Stockholders (as defined in the Recapitalization Agreement) into (x)
the Recapitalization Agreement and (y) the Stockholders Agreement, dated as of
the date hereof (the "Stockholders Agreement"), among the Company, the New
Investors and the Original Stockholders, and as an inducement to them to
consummate the transactions contemplated by the Recapitalization Agreement and
the Stockholders Agreement, the Company hereby covenants and agrees with each of
you, and with each subsequent holder of Restricted Stock (as such term is
defined herein), and with each holder of Original Stockholders Stock (as defined
herein), as follows:
1. Certain Definitions. As used herein, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.
"Common Stock" shall mean shares of the Common Stock of the
Company, as constituted as of the date of this Agreement, subject to
adjustment pursuant to the provisions of Section 10 hereof.
<PAGE> 2
"Conversion Shares" shall mean the shares of Common Stock
issued upon conversion of the Series B Preferred Stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Original Stockholders Stock" shall mean (i) the shares of
Common Stock and Series A Preferred Stock owned by the Original
Stockholders on the date of this Agreement after giving effect to the
Initial Closing under the Recapitalization Agreement, including the
shares of Common Stock issuable upon conversion of the Series A
Preferred Stock and (ii) up to 100,000 shares of Common Stock purchased
by the Original Stockholders pursuant to the terms of (x) the Asset
Purchase Agreement dated as of November 2, 1998 (the "Anserphone
Agreement") among the Company, Anserphone of New Orleans, Inc.,
Anserphone, Inc. and Charles F. Read, Jr. and C. Baldwin Read and (y)
the Assumption Agreement dated as of the date hereof among the Company
and the Original Stockholders.
"Registration Expenses" shall mean the expenses so described
in Section 8 hereof.
"Restricted Stock" shall mean any securities of the Company,
the certificates for which are required to bear the legend set forth in
Section 2 hereof, except such term shall not include Original
Stockholders Stock.
"Securities Act" shall mean the Securities Act of 1933 or any
similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in
Section 8 hereof.
"Series A Preferred Stock" shall mean the shares of Series A
Preferred Stock, $.001 par value, as constituted as of the date of this
Agreement after giving effect to the Initial Closing under the
Recapitalization Agreement.
2. Restrictive Legend. Each certificate representing the
Series B Preferred Stock, the Original Stockholders Stock, and the Conversion
Shares upon conversion of the Series B Preferred Stock, and each certificate
issued upon exchange or transfer of the Common Stock, the Series B Preferred
Stock and the Conversion Shares,
2
<PAGE> 3
as the case may be, other than in a public sale or as otherwise permitted by the
last paragraph of paragraph 3 hereof shall be stamped or otherwise imprinted
with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NEITHER THE SECURITIES EVIDENCED HEREBY, NOR ANY
INTEREST THEREIN, MAY BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS EITHER (i) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND LAWS RELATING THERETO OR (ii) THE
CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
IN FORM AND SUBSTANCE TO THE CORPORATION, STATING THAT SUCH
REGISTRATION IS NOT REQUIRED."
3. Notice of Proposed Transfer. Prior to any proposed transfer
of any Restricted Stock or Original Stockholders Stock, as the case may be,
(other than under the circumstances described in Section 4, 5, or 6 hereof), the
holder thereof shall give written notice to the Company of its intention to
effect such transfer. Each such notice shall describe the manner of the proposed
transfer and, if requested by the Company, shall be accompanied by an opinion of
counsel reasonably satisfactory to the Company to the effect that the proposed
transfer of the Restricted Stock or Original Stockholders Stock, as the case may
be, may be effected without registration under the Securities Act, whereupon the
holder of such Restricted Stock or Original Stockholders Stock, as the case may
be, shall be entitled to transfer such Restricted Stock or Original Stockholders
Stock, as the case may be, in accordance with the terms of its notice but
subject always to the terms of the Stockholders Agreement; provided, however,
that no such opinion or other documentation shall be required if such notice
shall cover a distribution by any New Investor that is a partnership or a
limited liability company to its partners or members. Each certificate for
Restricted Stock or Original Stockholders Stock, as the case may be, transferred
as above provided shall bear a legend substantially as set forth in Section 2,
unless (i) such transfer is in accordance with the provisions of Rule 144 (or
any other rule permitting public sale without registration under the Securities
Act) or (ii) the opinion of counsel referred to above is to the further effect
that the transferee and any subsequent transferee (other than an affiliate of
the Company) would be entitled to transfer such securities in a public sale
without registration under the Securities Act.
3
<PAGE> 4
The foregoing restrictions on transferability of Restricted
Stock and Original Stockholders Stock shall terminate as to any particular
shares of Restricted Stock or Original Stockholders Stock when such shares shall
have been effectively registered under the Securities Act and sold or otherwise
disposed of in accordance with the intended method of disposition by the seller
or sellers thereof set forth in the registration statement concerning such
shares. Whenever a holder of Restricted Stock or Original Stockholders Stock is
able to demonstrate to the Company (and its counsel) that the provisions of Rule
144(k) of the Securities Act (or any successor rule) are available to such
holder, such holder of Restricted Stock or Original Stockholders Stock shall be
entitled to receive from the Company, without expense, a new certificate not
bearing the restrictive legend set forth in Section 2.
4. Restricted Stock Required Registration. (a) At any time
either (i) the holders of Restricted Stock constituting at least a majority of
the total Restricted Stock outstanding at such time (treating the holders of
Series B Preferred Stock as the holders of Conversion Shares for such purpose)
or (ii) either BCI Growth V, L.P. or Willis Stein & Partners II, L.P. may
request the Company to register under the Securities Act all or any portion of
the Restricted Stock held by such requesting holder or holders for sale in the
manner specified in such notice; provided, however, that with respect to the
Series B Preferred Stock the only securities which the Company shall be required
to register pursuant hereto shall be Conversion Shares.
(b) Promptly following receipt of any notice under this
Section 4, the Company shall promptly notify any holders of Restricted Stock
from whom notice has not been received and Original Stockholders Stock, and
shall use its best efforts to register under the Securities Act, for public sale
in accordance with the method of disposition specified in such notice from
requesting holders, the number of shares of Restricted Stock specified in such
notice and, as applicable, in any notices received from other holders and
holders of Original Stockholders Stock within 20 days after their receipt of
such notice from the Company; provided, however, that if the proposed method of
disposition specified by the requesting holders shall be an underwritten public
offering, the number of shares of Restricted Stock or Original Stockholders
Stock or both, as the case may be, to be included in such an offering may be
reduced (first, pro rata among the requesting holders of Original Stockholders
Stock based on the number of shares of Original Stockholders Stock requested to
be registered and, second, pro rata among the requesting holders based on the
number of shares of Restricted Stock so requested to be registered) if and to
the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the Restricted Stock and the
Original Stockholders Stock, as the case may be, to be sold. If such method of
disposition shall be an underwritten public offering, the Company may designate
the managing underwriter of
4
<PAGE> 5
such offering, subject to the approval of the selling holders of a majority of
the Restricted Stock (treating the holders of Series B Preferred Stock as the
holders of Conversion Shares for such purpose) included in the offering, which
approval shall not be unreasonably withheld. The Company shall be obligated to
register Restricted Stock and Original Stockholders Stock pursuant to this
Section 4 on two occasions only. Notwithstanding anything to the contrary
contained herein, the obligation of the Company under this Section 4 shall be
deemed satisfied only when a registration statement covering all shares of
Restricted Stock specified in notices received as aforesaid (or such reduced
number of shares as contemplated above), for sale in accordance with the method
of disposition specified by the requesting holder, shall have become effective
and, if such method of disposition is a firm commitment underwritten public
offering, all such shares shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any
registration statement referred to in this Section 4, for sale in accordance
with the method of disposition specified by the requesting holders, shares of
Common Stock to be sold by the Company for its own account, except as and to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Restricted Stock and Original Stockholders
Stock to be sold. Except as provided in this paragraph (c), the Company will not
effect any other registration of its Common Stock, whether for its own account
or that of other holders, from the date of receipt of a notice from requesting
holders pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby, other than registrations
of Common Stock on Form S-4 or Form S-8 (or other applicable forms) issuable
pursuant to employee benefit plans of the Company, or registrations pursuant to
which notice was previously received pursuant to Section 5 hereof.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Board will be entitled to postpone the filing period (or suspend
the effectiveness) of any registration of the Restricted Stock or Original
Stockholders Stock, as the case may be, pursuant to this Section 4 for a
reasonable period of time not in excess of 90 calendar days and no more than one
such period in any period of 360 days, if the Board of Directors of the Company
(the "Board") determines, in its reasonable business judgment, that such
registration and offering could materially interfere with bona fide financing
plans of the Company or would require disclosure of information, the premature
disclosure of which could, in the Board's reasonable business judgment,
materially and adversely affect the Company. If the Board postpones the filing
of a registration statement pursuant to this Section 4, it will promptly notify,
in writing, the
5
<PAGE> 6
holders of Restricted Stock and Original Stockholders Stock that requested such
registration when the events or circumstances permitting such postponement have
ended.
5. Form S-3 Registration. (a) If the Company shall receive
from any holder or holders of more than 500,000 shares of Restricted Stock
and/or Original Stockholders Stock a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to Restricted Stock or Original Stockholders Stock, as
the case may be, owned by such holder or holders, the Company will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other holders of
Restricted Stock and Original Stockholders Stock; and
(ii) as soon as practicable, effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and any other
government requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such
portion of such holder's or holders' Restricted Stock or Original
Stockholders Stock, as the case may be, as are specified in such
request, together with all or such portion of the Restricted Stock or
Original Stockholders Stock of any holder or holders joining in such
request as are specified in a written request given within thirty (30)
days after receipt of such written notice from the Company; provided
that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 5(a)
more than once in any 180-day period, or (B) if the Company is not
entitled to use Form S-3; and provided, further, that the only
securities which the Company shall be required to register pursuant
hereto shall be Common Stock. Subject to the foregoing, the Company
shall file a registration statement covering the Restricted Stock and
Original Stockholders Stock so requested to be registered as soon as
practicable after receipt of the request or requests of the holders of
the Restricted Stock and Original Stockholders Stock, as the case may
be.
(b) Registrations effected pursuant to this Section 5 shall
not be counted as requests for registration effected pursuant to either Section
4.
(c) Notwithstanding anything to the contrary contained in this
Agreement, the Board will be entitled to postpone the filing period (or suspend
the effectiveness or use) of any registration statement relating to the
Restricted Stock or the
6
<PAGE> 7
Original Stockholders Stock, as the case may be, pursuant to this Section 5 for
a reasonable period of time not in excess of 90 calendar days, if the Board
determines, in its reasonable business judgment, that such registration and
offering could materially interfere with bona fide financing plans of the
Company or would require disclosure of information, the premature disclosure of
which could, in the Board's reasonable business judgment, materially and
adversely affect the Company. If the Board postpones the filing (or suspends the
effectiveness or use) of a registration statement pursuant to this Section 5, it
will promptly notify, in writing, the holders of Restricted Stock or Original
Stockholders Stock, as the case may be, that requested such registration when
the events or circumstances permitting such postponement have ended.
6. Incidental Registration. If the Company at any time (other
than pursuant to Section 4 or 5 hereof) proposes to register any of its Common
Stock under the Securities Act for sale to the public, whether for its own
account or for the account of other securityholders or both (except with respect
to registration statements on Form S-4 or S-8 or another form not available for
registering the Restricted Stock or Original Stockholders Stock for sale to the
public), it will give written notice at such time to all holders of Restricted
Stock and Original Stockholders Stock of its intention to do so. Upon the
written request of any such holder, given within 30 days after receipt of any
such notice by the Company, to register any of its Restricted Stock or Original
Stockholders Stock, the Company will use its best efforts to cause the
Restricted Stock or Original Stockholders Stock as to which registration shall
have been so requested, to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the holder of such
Restricted Stock or Original Stockholders Stock, as the case may be, so
registered; provided that nothing herein shall prevent the Company from
abandoning or delaying such registration at any time; provided, further, that
the only securities which the Company shall be required to register pursuant
hereto shall be Common Stock. The number of shares of Restricted Stock or
Original Stockholders Stock, as the case may be, to be included in such an
underwriting may be reduced, pro rata among the requesting holders of Restricted
Stock and Original Stockholders Stock, if and to the extent that the managing
underwriter shall be of the opinion that such inclusion would adversely affect
the marketing of the securities to be sold by the Company therein; provided,
however, that such number of shares of Restricted Stock or Original Stockholders
Stock, as the case may be, shall not be reduced if any shares are to be included
in such underwriting for the account of any person other than the Company.
Notwithstanding anything to the contrary contained in this
Section 6, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Stock or Original Stockholders
7
<PAGE> 8
Stock or any of the above, as the case may be, and a holder of Restricted Stock
or Original Stockholders Stock, as the case may be, does not sell his Restricted
Stock or Original Stockholders Stock, as the case may be, to the underwriters of
the Company's securities in connection with such offering, such holder, at the
written request of such underwriter, shall refrain from selling such Restricted
Stock or Original Stockholders Stock, as the case may be, so registered pursuant
to this Section 6 during the period of distribution of the Company's securities
by such underwriters and the period in which the underwriting syndicate
participates in the after market; provided, however, that such holder shall, in
any event, be entitled to sell its Restricted Stock or Original Stockholders
Stock, as the case may be, commencing on the 90th day after the effective date
of such registration statement.
7. Registration Procedures and Expenses. If and whenever the
Company is required by the provisions of Section 4, 5 or 6 hereof to use its
best efforts to effect the registration of any of the Restricted Stock or
Original Stockholders Stock or both, as the case may be, under the Securities
Act, the Company will, as promptly as possible:
(a) prepare (and afford one counsel for the selling holders
(as designated by a majority in interest of the selling holders)
reasonable opportunity to review and comment thereon) and file with the
Commission a registration statement (which, in the case of an
underwritten public offering pursuant to Section 4 hereof, shall be on
Form S-1 or another form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare (and afford the selected counsel for the selling
holders reasonable opportunity to review and comment thereon) and file
with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and as comply with the
provisions of the Securities Act with respect to the disposition of all
Restricted Stock or Original Stockholders Stock or any of the above, as
the case may be, covered by such registration statement in accordance
with the sellers' intended method of disposition set forth in such
registration statement for such period;
8
<PAGE> 9
(c) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Stock or Original Stockholders Stock or
any of the above, as the case may be, covered by such registration
statement;
(d) register or qualify the Restricted Stock or Original
Stockholders Stock or any of the above, as the case may be, covered by
such registration statement under the securities or blue sky laws of
such jurisdictions as the sellers of Restricted Stock or Original
Stockholders Stock or any of the above, as the case may be, or, in the
case of an underwritten public offering, the managing underwriter,
shall reasonably request;
(e) promptly notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained 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;
(f) if the offering is underwritten, to furnish, at the
request of any seller, on the date that Restricted Stock or Original
Stockholders Stock or any of the above, as the case may be, is
delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for
the purposes of such registration, addressed to the underwriters and to
such seller, stating that such registration statement has become
effective under the Securities Act and that (A) to the best knowledge
of such counsel, no stop order suspending the effectiveness thereof has
been issued and no proceedings for that purpose have been instituted or
are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus, and each amendment or
supplement thereof, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder (except that such counsel need
express no opinion as to financial statements, the notes thereto, and
the financial schedules and other financial and statistical data
contained therein) and (C) to such other effects as may reasonably be
requested by counsel for the underwriters or by such seller or its
counsel, and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters,
stating that they are independent public accountants within the meaning
of the Securities Act
9
<PAGE> 10
and that, in the opinion of such accountants, the financial statements
of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to form
in all material respects with the applicable accounting requirements of
the Securities Act, and such letter shall additionally cover such other
financial matters (including information as to the period ending no
more than five business days prior to the date of such letter) with
respect to the registration in respect of which such letter is being
given as such underwriters or seller may reasonably request; and
(g) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company'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 and permit such seller, attorney, accountant or agent to
participate in the preparation of such registration statement.
For purposes of paragraphs (a) and (b) above and of Section 4(c) hereof, the
period of distribution of Restricted Stock or Original Stockholders Stock or any
of the above, as the case may be, in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock or Original Stockholders Stock or any of the above, as the
case may be, in any other registration shall be deemed to extend until the
earlier of the sale of all Restricted Stock or Original Stockholders Stock or
any of the above, as the case may be, covered thereby or six months after the
effective date thereof.
In connection with each registration hereunder, the selling
holders of Restricted Stock and Original Stockholders Stock, if applicable, will
furnish to the Company in writing such information with respect to themselves
and the proposed distribution by them as shall be reasonably necessary in order
to assure compliance with federal and applicable state securities laws.
In connection with each registration pursuant to Sections 4, 5
and 6 hereof covering an underwritten public offering, the Company and any
selling holder of Restricted Stock or Original Stockholders stock or any of the
above, as the case may be, agree to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between major underwriters and
10
<PAGE> 11
companies of the Company's size and investment stature; provided, however, that
such agreement shall not contain any such provision applicable to the Company or
such selling holders which is inconsistent with the provisions hereof and
provided, further, however, that the time and place of the closing under said
agreement shall be as mutually agreed upon among the Company, such managing
underwriter and the selling holders of Restricted Stock and Original
Stockholders Stock, if applicable.
8. Expenses. All expenses incurred by the Company in complying
with Sections 4, 5 and 6 hereof, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars and fees and expenses of one counsel for the sellers of Restricted
Stock or Original Stockholders Stock, as the case may be, but excluding any
Selling Expenses, are herein called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Restricted Stock or
Original Stockholders Stock or any of the above, as the case may be, are herein
called "Selling Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement filed pursuant to Section 4, 5 or 6 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 4, 5 or 6 hereof shall be borne by the participating sellers in
proportion to the number of shares sold by each, or by such persons other than
the Company (except to the extent the Company shall be a seller) as they may
agree.
9. Indemnification. In the event of a registration of any of
the Restricted Stock or Original Stockholders Stock or any of the above, as the
case may be, under the Securities Act pursuant to Section 4, 5 or 6 hereof, the
Company will indemnify and hold harmless each seller of such Restricted Stock or
Original Stockholders Stock, as the case may be, thereunder and each underwriter
of Restricted Stock or Original Stockholders Stock or any of the above, as the
case may be, thereunder and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock or Original Stockholders Stock or any of the
above, as the case may be, was registered under the Securities Act pursuant to
Section 4, 5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein
11
<PAGE> 12
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each such seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such seller, such underwriter
or such controlling person in writing specifically for use in such registration
statement or prospectus.
In the event of a registration of any of the Restricted Stock
or Original Stockholders Stock or any of the above, as the case may be, under
the Securities Act pursuant to Section 4, 5 or 6 hereof, each seller of such
Restricted Stock or Original Stockholders Stock, as the case may be, thereunder,
severally and not jointly, will indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of the Securities
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer or director or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Restricted Stock or Original
Stockholder Stock or any of the above, as the case may be, was registered under
the Securities Act pursuant to Section 4, 5 or 6, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that such seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such seller, as such, furnished in writing to the Company by such seller
specifically for use in such registration statement or prospectus; provided,
further, however, that the liability of each seller hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of
12
<PAGE> 13
shares sold by such seller under such registration statement bears to the total
public offering price of all securities sold thereunder, but not to exceed the
proceeds (net of underwriting discounts and commissions) received by such seller
from the sale of Restricted Stock or Original Stockholders Stock, as the case
may be, covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party other than under this Section 9. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 9 for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party, or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such
13
<PAGE> 14
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
If the indemnification provided for in the first two
paragraphs of this Section 9 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Restricted Stock or Original
Stockholders Stock, as the case may be, on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or actions as well as any other relevant equitable considerations,
including the failure to give any notice under the third paragraph of this
Section 9. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
relates to information supplied by the Company, on the one hand, or the
underwriters and the sellers of such Restricted Stock or Original Stockholders
Stock, as the case may be, on the other, and to the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each selling holder of Restricted Stock
or Original Stockholders Stock, as the case may be, agree that it would not be
just and equitable if contributions pursuant to this paragraph were determined
by pro rata allocation (even if all of the sellers of such Restricted Stock or
Original Stockholders Stock, as the case may be, were treated as one entity for
such purpose) or by any other method of allocation which did not take account of
the equitable considerations referred to above in this paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or action in respect thereof, referred to above in this
paragraph, shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this paragraph, the
sellers of such Restricted Stock or Original Stockholders Stock, as the case may
be, shall not be required to contribute any amount in excess of the amount, if
any, by which the total price at which the Common Stock sold by each of them was
offered to the public exceeds the amount of any damages which they would have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No person guilty of fraudulent misrepresentations (within
the meaning of Section 10(f) of the Securities Act), shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
14
<PAGE> 15
The indemnification of underwriters provided for in this
Section 9 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. In that event the
indemnification of the sellers of Restricted Stock or Original Stockholders
Stock or any of the above, as the case may be, in such underwriting shall at the
sellers' request be modified to conform to such terms and conditions.
10. Changes in Common Stock. If, and as often as, there are
any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof, as may be required, so that
the rights and privileges granted hereby shall continue with respect to the
Common Stock as so changed.
11. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any
court or other agency of government, the Amended and Restated Articles
of Incorporation or Bylaws of the Company, or any provision of any
indenture, agreement or other instrument to which it or any of its
properties or assets is bound, or conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to
considerations of public policy in the case of the indemnification
provisions hereof.
12. Rule 144 Reporting. The Company agrees with you as
follows:
(a) The Company shall use its best efforts to make and keep
public information available, as those terms are understood and defined
in Rule 144 under the Securities Act, at all times from and after the
date it is first required to do so.
15
<PAGE> 16
(b) The Company shall use its best efforts to file with the
Commission in a timely manner all reports and other documents as the
Commission may prescribe under Section 13(a) or 15(d) of the Exchange
Act at any time after the Company has become subject to such reporting
requirements of the Exchange Act.
(c) The Company shall furnish to such holder of Restricted
Stock forthwith upon request (i) a written statement by the Company as
to whether it is in compliance with the reporting requirements of Rule
144 (at any time from and after the date it first becomes subject to
such reporting requirements, and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly
report of the Company filed with the Commission, and (iii) such other
reports and documents so filed as a holder may reasonably request to
avail itself of any rule or regulation of the Commission allowing a
holder of Restricted Stock to sell any such securities without
registration.
13. Miscellaneous. (a) All covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. Without limiting the generality of the
foregoing, the registration rights conferred herein on the holders of Restricted
Stock and Original Stockholders Stock shall inure to the benefit of any and all
subsequent holders from time to time of the Restricted Stock and the Original
Stockholders Stock for so long as the certificates representing the Restricted
Stock or the Original Stockholders Stock, as the case may be, shall be required
to bear the legend specified in Section 2 hereof.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class registered
mail, postage prepaid, addressed as follows:
if to the Company, to it at:
Protocol Holdings, Inc.
2197 Ringling Blvd.
Sarasota, Florida 34237
Attention: President
Telecopy: 941-906-1422
16
<PAGE> 17
if to any holder of Restricted Stock, to it at its address as
set forth in Annex I hereto;
if to any holder of Original Stockholders Stock, to it at its
address as set forth in Annex I hereto;
if to any subsequent holder of Restricted Stock or Original
Stockholders Stock to it at such address as may have been
furnished to the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Restricted Stock or
Original Stockholders Stock) or to the holders of Restricted Stock or Original
Stockholders Stock (in the case of the Company).
(c) This Agreement and all matters relating to this Agreement,
unless otherwise specified, shall be governed by and construed in accordance
with the internal laws of the State of New York without regard to its conflict
of law rules.
(d) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be modified or
amended except in writing with the consent of at least a majority of the holders
of (i) Restricted Stock (treating the holders of Series B Preferred Stock as the
holder of Conversion Shares for such purpose and (ii) the Original Stockholders
Stock; provided that this Agreement may be amended to grant registration rights
with respect to new securities to be issued by the Company after the date hereof
with the consent of holders of at least a majority of Restricted Stock (treating
the holders of Series B Preferred Stock as the holders of Conversion Shares for
such purpose) and the Original Stockholders Stock; provided, further, however,
that such grants of registration rights shall not affect the relative rights of
the Restricted Stock and the Original Stockholders Stock hereunder with respect
to each other.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17
<PAGE> 18
Please indicate your acceptance of the foregoing by signing
and returning the enclosed counterpart of this letter, whereupon this letter
(herein sometimes called "this Agreement") shall be a binding agreement between
the Company and each of you.
Very truly yours,
PROTOCOL HOLDINGS, INC.
By: /s/ Raymond P. Wilson
----------------------------------
Name: Raymond P. Wilson
Title: Chief Financial Officer
AGREED TO AND ACCEPTED
as of the date first
above written.
WILLIS STEIN & PARTNERS II, L.P.
By: /s/ Robert C. Froetscher
----------------------------------
Name: Robert C. Froetscher
Title: Managing Director
WILLIS STEIN & PARTNERS DUTCH, L.P.
By: /s/ Robert C. Froetscher
----------------------------------
Name: Robert C. Froetscher
Title: Managing Director
<PAGE> 19
BCI GROWTH IV, L.P.
By Glenpointe Associates, LLP,
General Partner
By Glenpointe Associates, LLC
General Partner
By: /s/ Peter O. Wilde
-----------------------------------
Name: Peter O. Wilde
Title: Managing Member
BCI GROWTH V, L.P.
By Glenpointe Associates V, LLC
General Partner
By: /s/ Peter O. Wilde
-----------------------------------
Name: Peter O. Wilde
Title: Managing Member
BCI INVESTORS, L.L.C.
By: /s/ Peter O. Wilde
-----------------------------------
Name: Peter O. Wilde
Title: Managing Member
ING (U.S.) CAPITAL LLC
By: /s/ Bradford Pollard
-----------------------------------
Name: Bradford Pollard
Title: Vice President
<PAGE> 20
BENEDETTO GARTLAND & COMPANY, INC.
By /s/ Charles Mobus *
---------------------------------------
Name:
Title:
/s/ Kevin N. Blayne *
- -----------------------------------------
Kevin N. Blayne
/s/ Claude Cohen *
- -----------------------------------------
Claude Cohen
/s/ Robert J. Conrads *
- -----------------------------------------
Robert J. Conrads
ELIEZER COHEN CANADA CORPORATION
By *
---------------------------------------
Name:
Title:
/s/ Robert C. Gust *
- -----------------------------------------
Robert C. Gust
/s/ David Knafo *
- -----------------------------------------
David Knafo
* Executed pursuant to the Election to Redemption Form
<PAGE> 21
/s/ Andrew M. Knee *
- -----------------------------------------
Andrew M. Knee
/s/ Richard Kommitt *
- -----------------------------------------
Richard Kommit
LA FIDUCIE FAMILLIALE COHEN
By *
---------------------------------------
Name:
Title:
LA FIDUCIE FAMILLIALE KNAFO
By *
---------------------------------------
Name:
Title:
/s/ Jerry D. Lewis *
- -----------------------------------------
Jerry D. Lewis
/s/ Stephen G. McLean *
- -----------------------------------------
Stephen G. McLean
/s/ David Van Derveer *
- -----------------------------------------
David Van Derveer
/s/ Raymond P. Wilson *
- -----------------------------------------
Raymond P. Wilson
* Executed pursuant to the Election to Redemption Form
<PAGE> 22
/s/ David Dearborn *
- -----------------------------------------
David Dearborn
/s/ Jeanine El-Khoury *
- -----------------------------------------
Jeanine El-Khoury
/s/ Stephen Kozik *
- -----------------------------------------
Stephen Kozik
/s/ Shane M. Lewis *
- -----------------------------------------
Shane M. Lewis
/s/ Michael Morehouse *
- -----------------------------------------
Michael Morehouse
/s/ Francis Quinn *
- -----------------------------------------
Francis Quinn
/s/ Soeb Rangwala *
- -----------------------------------------
Soeb Rangwala
/s/ Robert R. Roscoe *
- -----------------------------------------
Robert R. Roscoe
* Executed pursuant to the Election to Redemption Form
<PAGE> 23
/s/ Ross R. Rosenau *
- -----------------------------------------
Ross R. Rosenau
/s/ Brian Schuvart *
- -----------------------------------------
Brian Schuvart
/s/ Daniel L. Sullivan *
- -----------------------------------------
Daniel L. Sullivan
/s/ Fidele Toghoua *
- -----------------------------------------
Fidele Toghoua
/s/ Richard Trepanier *
- -----------------------------------------
Richard Trepanier
DONALD N. MOLITOR, AS TRUSTEE OF
THE AMENDED AND RESTATED DONALD
N. MOLITOR FAMILY TRUST U/A/D 10/15/87
By *
---------------------------------------
Name:
Title:
* Executed pursuant to the Election to Redemption Form
<PAGE> 24
JUDITH M. MOLITOR, AS TRUSTEE OF
THE AMENDED AND RESTATED JUDITH
M. MOLITOR FAMILY TRUST U/A/D 10/15/87
By *
---------------------------------------
Name:
Title:
/s/ D. Scott Molitor *
- -----------------------------------------
D. Scott Molitor
/s/ Joseph Post *
- -----------------------------------------
Joseph Post
/s/ C. Baldwin Read *
- -----------------------------------------
C. Baldwin Read
/s/ Charles F. Read *
- -----------------------------------------
Charles F. Read
/s/ Joseph Sarno *
- -----------------------------------------
Joseph Sarno
/s/ Stephanie Smith *
- -----------------------------------------
Stephanie Smith
/s/ John H. and Carol C. Turner *
- -----------------------------------------
John H. and Carol C. Turner
* Executed pursuant to the Election to Redemption Form
<PAGE> 1
EXHIBIT 4.3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of December 1, 1999, by and
among Protocol Holdings, Inc., a Delaware corporation (the "Company"), the
several persons named in Schedule I hereto (collectively, the "New Investors"),
and the several persons named in Schedule II hereto (collectively, the "Original
Stockholders"). The New Investors and the Original Stockholders are herein
sometimes referred to collectively as the "Stockholders".
WHEREAS, the Company, the New Investors and the Original
Stockholders have entered into a Recapitalization Agreement dated as of
September 29, 1999 (as amended, the "Recapitalization Agreement");
WHEREAS, pursuant to the Recapitalization Agreement, on the
Initial Closing Date (as defined therein), (i) the New Investors will purchase
from the Company on the Initial Closing Date (as defined in the Recapitalization
Agreement) an aggregate 10,693,634 shares of Series B Preferred Stock, $.001 par
value (the "Series B Preferred Stock"), of the Company, and (ii) the Company
will purchase from the Original Stockholders up to an aggregate 7,682,685 shares
of capital stock of the Company, all on the terms and subject to the conditions
set forth in the Recapitalization Agreement (capitalized terms used herein and
not otherwise defined have the meanings given to them in the Recapitalization
Agreement);
WHEREAS, the Recapitalization Agreement provides that the
Company may issue and deliver to the New Investors up to an additional 3,960,606
shares of Series B Preferred Stock on the terms and conditions set forth
therein;
WHEREAS, the Company and each of the Stockholders desire to
make certain arrangements among themselves with respect to the matters set forth
herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:
SECTION 1. Voting Agreement. (a) From and after the Initial
Closing Date, at each annual or special shareholders meeting called for the
election of directors, and whenever the shareholders of the Company act by
written consent with respect to the election of directors, each Stockholder
agrees to vote or otherwise give such Stockholder's consent in respect of all
shares of capital stock of the Company (whether now or hereafter acquired) owned
by such Stockholder, and the Company shall take all necessary and desirable
actions within its control, in order to cause:
(i) the authorized number of directors on the Board of
Directors of the Company (the "Board") to be established at seven; and
<PAGE> 2
(ii) the election to the Board of two directors (each, a "BCI
Designee") designated by BCI Growth V, L.P. ("BCI"), which directors
will initially include Bart Goodwin and Peter Wilde; and
(iii) the election to the Board of two directors (each a
"Willis Stein Designee") designated by Willis Stein & Partners II, L.P.
("Willis Stein"), which directors will initially include Avy Stein and
Bob Froetscher; and
(iv) the election of one director who shall be the chief
executive officer of the Company, which director shall initially be
Stephen G. McLean; and
(v) the election of two directors, each of whom shall be
either (x) independent with relevant industry experience or (y) an
executive of the Company, and in each case shall be acceptable to the
New Investors, one of which directors will initially be Robert Conrads;
all of which designees shall hold office, subject to their earlier
registration or removal in accordance with clause (vi) below, the
Bylaws of the Company and applicable corporate law, until their
respective successors shall have been elected and shall have qualified,
provided, however, that Mr. Conrads will hold office until such time as
Mr. Conrads resigns, is removed for cause by a majority of the
remaining Directors or is removed with the approval of the chief
executive officer of the Company;
(vi) the removal from the Board (with or without cause) of any
director upon the written request of the Stockholder that designated
such director, but only upon such written request; and
(vii) upon any vacancy in the Board as a result of any
individual designated as provided in clause (ii) or (iii) above ceasing
to be a member of the Board, whether by resignation or otherwise, the
election to the Board of an individual designated by the Stockholder
that designated such individual.
(b) Each Stockholder agrees to use its reasonable best efforts
to cause its designees to the Board to vote or otherwise give such Director's
consent to the creation and maintenance of:
(i) a Compensation Committee of the Board consisting of three
directors, at least one of whom shall be a BCI Designee and one of whom
shall be a Willis Stein Designee (which directors will originally be
Avy Stein (who shall be the Chairman of the Compensation Committee),
Peter Wilde and Robert Conrads), which Compensation Committee shall
approve all grants of stock options to employees of the Company, all
2
<PAGE> 3
increases in compensation of officers of the Company, all annual
bonuses granted to officers of the Company and all other employee
benefits (including, without limitation, vacation policy, benefit
plans, company automobiles and insurance) granted to officers of the
Company; and
(ii) an Audit Committee of the Board of Directors, consisting
of three directors, at least one of whom shall be a BCI Designee and
one of whom shall be a Willis Stein Designee (which directors will
originally be Bart Goodwin (who shall be Chairman of the Audit
COMMITTEE), Robert Froetscher and Stephen McLean), which Audit
Committee shall review and approve the financial statements of the
Company as audited by the Company's independent certified public
accountants.
(c) Each Stockholder covenants and agrees to vote or otherwise
give such Stockholder's consent in respect of all shares of capital stock of the
Company (whether now owned or hereafter acquired) owned by such Stockholder, to
approve the Stock Option Plan of the Company substantially in the form of
Exhibit A hereto (the "Stock Option Plan").
(d) The Company will pay all direct out-of-pocket expenses
reasonably incurred by any non-employee director in attending each meeting of
the Board of Directors, or any committee thereof.
SECTION 2. Restrictions on Transfer. Until the date a
registration statement covering Common Stock of the Company becomes effective
under the Securities Act of 1933, as amended (the "Securities Act"), each
Original Stockholder hereby agrees that such Original Stockholder shall not
without the express written consent of New Investors holding a majority of the
Common Stock (for the purposes of such calculation treating the Series A
Preferred Stock, $.001 par value (the "Series A Preferred Stock") of the
Company, and the Series B Preferred Stock as the number of shares of Common
Stock into which such Series A Preferred Stock and Series B Preferred Stock, as
the case may be, is convertible) then held by the New Investors at any time sell
or in any other way, directly or indirectly, transfer, assign, distribute or
otherwise dispose of (collectively "Transfer") any shares of capital stock then
owned by such Original Stockholder except by sale in accordance with Section 3,
4 or Section 5 hereof or, in the case of an Original Stockholder who is an
employee or director of the Company, to the Company pursuant to written
agreements between the Company and such employee or director and approved by the
Board of Directors of the Company.
Notwithstanding the foregoing, if such Original Stockholder is
a natural person, such Original Stockholder may Transfer shares of Series A
Preferred Stock and Common Stock by will, by the laws of descent and
distribution, and inter vivos, by gift to members of such Original Stockholder's
immediate family or to a trust, the beneficiaries of which are such
3
<PAGE> 4
Original Stockholder and/or members of his immediate family and his or their
descendants or, with or without consideration to any pension or retirement plan
established for his or their benefit or to any other Original Stockholder;
provided that in any such event each such transferee shall be bound by all of
the provisions of this Agreement to the same extent as if such transferee were
the Original Stockholder. Any such transferee may transfer shares received
pursuant to this paragraph to the Original Stockholder that was the transferor
of such shares.
SECTION 3. Tag-Along Rights. (a) If any New Investor or group
of New Investors (for purposes of this Section 3, a "Selling New Investor")
proposes to sell, exchange, transfer or in any other manner dispose of shares of
Common Stock, Series A Preferred Stock or Series B Preferred Stock held by such
Selling New Investor (including any transfer of shares by the New Investors that
is being effected by a merger or consolidation of the Company with another
entity), then such Selling New Investor shall give written notice (a "Notice of
Intention to Sell") to the Company setting forth in reasonable detail the terms
and conditions of such proposed transaction. In the event that the terms and/or
conditions set forth in the Notice of Intention are thereafter amended in any
respect, the Selling New Investor shall also give written notice (an "Amended
Notice") of the amended terms and conditions of the proposed transaction to the
Company. Upon its receipt of any Notice of Intention to Sell or any Amended
Notice, the Company shall promptly, but in all events within three (3) business
days of its receipt thereof, forward copies thereof to each of the Original
Stockholders and the New Investors other than the Selling New Investor (the
"Other New Investors"). The Selling New Investor shall provide additional
information with respect to the proposed sale, exchange or transfer as
reasonably requested by the Company, the Other New Investors or the Original
Stockholders.
(b) Each Original Stockholder and each Other New Investor
shall have the right, exercisable upon written notice to the Company within 15
days after such Original Stockholder's or Other New Investor's receipt of any
Notice of Intention to Sell, or, if later, within 7 days of such Original
Stockholder's or other New Investor's receipt of the most recent Amended Notice,
to participate in the proposed disposition of shares by the Selling New Investor
to the proposed purchaser on the terms and conditions set forth in such Notice
of Intention to Sell or the most recent Amended Notice, as the case may be (such
participation rights being hereinafter referred to as "tag-along" rights). Each
Original Stockholder and each Other New Investor may participate with respect to
all or any part of that number of shares of Common Stock which is equal to the
product obtained by multiplying (i) the aggregate number of shares of Common
Stock to be sold or transferred in the proposed disposition by (ii) a fraction,
the numerator of which is the number of shares of Common Stock at the time owned
by such Original Stockholder or such Other New Investor, as the case may be, and
the denominator of which is the sum of the total number of shares of Common
Stock then owned by the New Investors and the Original Stockholders (for the
purposes of such calculation treating the Series A Preferred Stock and Series B
Preferred Stock as the number of shares of Common Stock into
4
<PAGE> 5
which such Series A Preferred Stock and Series B Preferred Stock, as the case
may be, is convertible as of the date of the Notice of Intention to Sell). Any
Original Stockholders or Other New Investors that have not notified the Company
of their intent to exercise tag-along rights within 7 days of receipt of an
Amended Notice shall be deemed to have elected not to exercise such tag-along
rights with respect to the transaction contemplated by such Amended Notice
(regardless of their election pursuant to the Notice of Intention to Sell
relating to such transaction).
(c) Each Original Stockholder and each Other New Investor
participating in the proposed disposition shall deliver to the Company, as agent
for such Original Stockholder and such Other New Investor, for transfer to the
proposed acquiror one or more certificates, properly endorsed for transfer or
accompanied by stock transfer powers duly endorsed for transfer, with all stock
transfer taxes paid and stamps affixed, which represent the number of shares of
Common Stock, Series A Preferred Stock or Series B Preferred Stock that such
Original Stockholder or such Other New Investor elects to dispose of pursuant to
Section 3(b). The consummation of such proposed disposition shall be subject to
the sole discretion of the Selling New Investor, who shall have no liability or
obligation whatsoever to any Original Stockholder or other New Investor
participating therein other than to obtain for such Original Stockholder the
same terms and conditions as those to be obtained by the New Investor in the
proposed disposition. Anything herein to the contrary notwithstanding, it is
understood that a Selling New Investor shall not have any authority to, and
shall not, act as agent or attorney-in-fact (or in any similar capacity) for any
party exercising tag-along rights hereunder.
(d) A stock certificate or certificates representing the
number of shares of Common Stock, Series A Preferred Stock or Series B Preferred
Stock to be disposed of by any Original Stockholder or such Other New Investors
pursuant to Section 3(b) hereof shall be delivered by the Company, on behalf of
the selling stockholders, to the purchaser upon the consummation of the
disposition of the Common Stock, Series A Preferred Stock or Series B Preferred
Stock pursuant to the terms and conditions specified in the Notice of Intention
to Sell and the Company shall promptly thereafter remit to such Original
Stockholder or such Other New Investor (i) that portion of the proceeds of the
disposition to which such Original Stockholder or such Other New Investor is
entitled by reason of such participation and (ii) a stock certificate
representing any balance of shares of Common Stock, Series A Preferred Stock or
Series B Preferred Stock, as the case may be, that were not so disposed of (or
all shares of Common Stock, Series A Preferred Stock and Series B Preferred
Stock, in the event the proposed disposition is not consummated).
(e) Anything herein to the contrary notwithstanding, no
tag-along rights of any Original Stockholder or such Other New Investor shall
apply hereunder with respect to (i) a transfer by a New Investor to an affiliate
(as defined in Rule 405 under the Securities Act) of
5
<PAGE> 6
such New Investor, (ii) any distributions or transfers by a New Investor which
is a partnership to its partners (including any of its limited partners) or
(iii) in the case of a New Investor who is an individual, transfer by such New
Investor to the spouse or lineal descendants of such New Investor, including,
without limitation, transfer by bequest or devise, or to a trust or trusts for
the benefit of such New Investor or any of the foregoing; provided that in each
case such transferee agrees to become a party to this Agreement.
SECTION 4. Drag-Along Rights. (a) If the New Investors jointly
elect to transfer all or substantially all of their shares to a third party
(including any transfer of shares by the New Investors that is being effected by
a merger or consolidation of the Company with another entity), the New Investors
shall have the right (the "Drag-Along Right") (but not the obligation) to cause
the Original Stockholders to transfer all their respective shares of Common
Stock or Series A Preferred Stock to such third party (or to exchange such
shares pursuant to the terms of such merger or consolidation) at the same price
and on the same terms and conditions as the New Investors transfer their shares.
Each Original Stockholder will participate with respect to all or any part of
that number of shares of Common Stock which is equal to the product obtained by
multiplying (i) the number of shares of Common Stock at the time owned by such
Original Stockholder by (ii) a fraction, the numerator of which is the aggregate
number of shares of Common Stock to be sold or transferred by the New Investors
in the proposed disposition, and the denominator of which is the sum of the
total number of shares of Common Stock then owned by the New Investors (for the
purposes of such calculation treating the Series A Preferred Stock and Series B
Preferred Stock as the number of shares of Common Stock into which such Series A
Preferred Stock and Series B Preferred Stock, as the case may be, is
convertible). No such termination shall affect any rights of any party with
respect to a breach hereof by any other party prior to such termination.
(b) The New Investors may elect to exercise the Drag-Along
Right by delivering written notice to the Original Stockholders not later than
thirty (30) days prior to the consummation of the transfer described in Section
4(a) above. The notice delivered pursuant to this Section 4(b) will contain a
copy of the definitive documentation pursuant to which (i) the New Investors
have a bona fide intention to effect the transfer described in Section 4(a)
above, (ii) the name and address of the third party, and (iii) the expected
closing date of such transfer.
(c) Each Original Stockholder participating in the transfer
pursuant to the Drag-Along Right shall deliver to the third party at a closing
to be held at the offices of the Company (or such other place as the parties
agree), one or more certificates, properly endorsed for transfer, which
represent all the shares of Common Stock or Series A Preferred Stock owned by
such Original Stockholder, and each such Original Stockholder shall make such
representations and warranties as are made by the New Investors, and shall enter
into such agreements, in each case which are customary and reasonable in the
context of the proposed sale,
6
<PAGE> 7
including without limitation representations and warranties (and indemnities
with respect thereto) that the transferee of the shares (or interests therein)
is receiving good and marketable title to such shares (or interests therein),
free and clear of all pledges, liens, encumbrances, mortgages or any other
security interests of any kind whatsoever. In addition, the Stockholders shall
reasonably cooperate and consult with each other in order to effect the transfer
described in this Section 4, and the Company and the Original Stockholders shall
provide reasonable assistance to the New Investors in connection with the
preparation of disclosure schedules relating to representations and warranties
to be made to the third party involved in such transfer and in the determination
of the appropriate scope of, or limitations or exceptions to, such
representations and warranties.
SECTION 5. Right of First Refusal. If an Original Stockholder
(for purposes of this Section 5, a "Selling Stockholder") wishes to sell, pledge
or transfer all or any portion of the Common Stock or Series A Preferred Stock
held by him at any time, in a transaction not otherwise prohibited by Section 2
hereof (or otherwise by the terms of this Agreement), then, and in any such
event, the following provisions shall be applicable; provided, however, that the
provisions of this Section 5 shall not apply to any transfer permitted by the
second paragraph of Section 2 or pursuant to Section 3 hereof or, in the case of
an Original Stockholder who is an employee or director of the Company, to the
Company pursuant to written agreements between the Company and such employee or
director and approved by the Board of Directors of the Company.
(a) Such Selling Stockholder shall promptly deliver a notice
of intention to sell (an "Offering Notice") to each other Stockholder (each, an
"Initial Offeree") and the Company in writing of the proposed sale, specifying
the number of such shares of Common Stock or Series A Preferred Stock to be sold
by such Selling Stockholder (such specified shares, the "Offered Shares"), the
name of the proposed purchaser or purchasers and the proposed cash purchase
price per share (the "Purchase Price").
(b) Thereupon, each Initial Offeree or his or its nominee
shall have the right and option, for a period of 10 business days after receipt
of the Offering Notice (the "Option Period"), to purchase, at the Purchase Price
per share, all or part of that number of shares of the Offered Shares which is
equal to the product obtained by multiplying (i) the aggregate number of shares
of the Offered Shares by (ii) a fraction, the numerator of which is the number
of shares of Common Stock at the time owned by such Initial Offeree and the
denominator of which is the number of shares of Common Stock at the time owned
by all Initial Offerees (for the purposes of such calculation treating the
Series A Preferred Stock and Series B Preferred Stock as the number of shares of
Common Stock into which such Series A Preferred Stock and Series B Preferred
Stock, as the case may be, is convertible as of the date of the Offering
Notice). Any Initial Offeree shall exercise such right and option to purchase
such Offered Shares by mailing a written
7
<PAGE> 8
notice (a "Notice of Election") to the Selling Stockholder and the Company
within the Option Period. Any Notice of Election from an Initial Offeree who
wishes to exercise his or its right of purchase as to more than the number of
shares of Offered Shares set forth above shall state in his Notice of Election
the maximum number of Offered Shares he or it wishes to purchase. Any available
excess Offered Shares (that is, Offered Shares as to which the other Initial
Offerees shall not have exercised their rights of purchase) shall be allocated
to the Initial Offerees so indicating their desire to purchase such excess
Offered Shares, up to the quantity of Offered Shares requested on a pro rata
basis.
(c) If Notices of Election with respect to all (but not less
than all) of the Offered Shares shall have been received as aforesaid by the
Selling Stockholder, such Selling Stockholder shall sell the Offered Shares to
the Initial Offerees or their nominees at the price and on the terms stated in
the Offering Notice. The closing of such sale of Offered Shares shall take place
at the office of counsel for the Selling Stockholder no later than 30 days
following the expiration of the Option Period, or such other place and earlier
date as may be agreed by all parties to the transaction. At such closing the
Selling Stockholder shall deliver a certificate or certificates for the Common
Stock or Series A Preferred Stock to be sold, duly endorsed for transfer or
accompanied by stock powers duly endorsed for transfer and all stock transfer
taxes paid and stamps affixed, against receipt of the purchase price therefor by
certified or official bank check.
(d) If a Selling Stockholder is not required to sell Offered
Shares to Initial Offerees pursuant to paragraph (c) above, such Offered Shares
may be sold to the proposed purchaser identified in the related Offering Notice
for a period of 60 days following the expiration of the Option Period to any
person or persons at a price not lower than the price specified in the Offering
Notice and on other terms not more favorable to the purchaser than those
specified in the Offering Notice. Any such Offered Shares not sold by such 60th
day shall again be subject to the restrictions contained in this Agreement and
shall not thereafter be sold, pledged or transferred, except in compliance with
the applicable provisions of this Agreement.
SECTION 6. Preemptive Rights. (a) The Company hereby grants to
each Stockholder the right to purchase such Stockholder's Proportionate
Percentage (as hereinafter defined) of any future Eligible Offering (as
hereinafter defined). For the purposes of this Section 6, the following terms
shall have the meanings set forth below:
"Proportionate Percentage" means, with respect to any
Stockholder as of any date, the result (expressed as a percentage)
obtained by dividing (i) the number of shares of Common Stock, Series A
Preferred Stock or Series B Preferred Stock owned by such Stockholder
as of such date, by (ii) the total number of shares of Common Stock
outstanding as of such date (for the purposes of such calculation
treating the Series A
8
<PAGE> 9
Preferred Stock and Series B Preferred Stock as the number of shares of
Common Stock into which such Series A Preferred Stock and Series B
Preferred Stock, as the case may be, is convertible).
"Eligible Offering" means an offer by the Company to sell to
investors (including any of the Stockholders) for cash shares of Common
Stock or other capital stock having voting rights or other rights
similar to Common Stock, or any security convertible into or
exchangeable for, participating with, or carrying rights or options to
purchase, Common Stock or other capital stock, other than an offering
of securities by the Company:
(i) of shares of Common Stock or options to purchase
shares of Common Stock in connection with or pursuant to any
stock option or stock purchase plan approved by the Board of
Directors of the Company (including the Stock Option Plan) to
full-time employees, officers, directors, consultants and/or
advisors to the Company or its subsidiaries;
(ii) in connection with any acquisition of a related
businesses by the Company or any of its subsidiaries; or
(iii) in a public offering of shares of Common Stock
registered under the Securities Act (a "Qualified Public
Offering").
(b) The Company shall, before issuing any securities pursuant
to an Eligible Offering, give written notice thereof to each Stockholder. Such
notice shall specify the security or securities the Company proposes to issue
and the cash consideration that the Company intends to receive therefor. For a
period of fifteen (15) days following the date of such notice, each Stockholder
shall be entitled, by written notice to the Company, to elect to purchase all or
any part of such Stockholder's Proportionate Percentage of the securities being
sold in the Eligible Offering; provided, however, that if two or more securities
shall be proposed to be sold as a "unit" in an Eligible Offering, any such
election must relate to such unit of securities. In the event that elections
pursuant to this Section 6(b) shall not be made with respect to any securities
included in an Eligible Offering within such fifteen (15) day period, then the
Company may issue such securities to investors, but only for a consideration
payable in cash not less than, and otherwise on no more favorable terms to the
investors than, those set forth in the Company's notice and only within sixty
(60) days after the end of such fifteen (15) day period. In the event that any
such offer is accepted by a Stockholder or Stockholders, the Company shall sell
to such Stockholder or Stockholders, and such Stockholder or Stockholders shall
purchase from the Company, for the consideration and on the terms set forth in
the notice as aforesaid, the securities that such Stockholder or Stockholders
shall have elected to purchase.
9
<PAGE> 10
SECTION 7. Transactions with Affiliates. The New Investors shall not,
directly or indirectly, sell, lease, transfer or otherwise dispose of any of
their properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or otherwise enter into any transaction with, the
Company or any Subsidiary of the Company, except on terms that are no less
favorable to the Company or such Subsidiary than those (including, without
limitation, prices) ordinarily entered into in comparable transactions by the
Company or such subsidiary on an arms' length basis with an unrelated party.
SECTION 8. Legend on Stock Certificates. Each certificate representing
shares of Common Stock, Series A Preferred Stock or Series B Preferred Stock, as
the case may be, owned by any Stockholder shall conspicuously bear the following
legend until such time as the shares represented thereby are no longer subject
to the provisions hereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER
1, 1999, AMONG THE COMPANY AND THE OTHER PARTIES THERETO. COPIES MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE COMPANY."
The Company covenants that it shall keep a copy of this Agreement on
file at the address listed in Section 14 for the purpose of furnishing copies to
the holders of record of shares of Common Stock, Series A Preferred Stock or
Series B Preferred Stock.
SECTION 9. Duration of Agreement. This Agreement shall terminate upon
the earliest to occur of (i) the tenth anniversary of the date hereof, (ii) the
consummation of a Qualified Public Offering, (iii) the acquisition of
"beneficial ownership" by any "person" or "group" other than the New Investors
or their affiliates, of voting stock of the Company representing more than 50%
of the voting power of all outstanding shares of such voting stock, whether by
way of merger or consolidation or otherwise, other than by way of a Qualified
Public Offering or (iv) with respect to any Stockholder, the date on which such
Stockholder no longer owns any shares of Common Stock (in each case, treating
the Series A Preferred Stock and Series B Preferred Stock as the number of
shares of Common Stock into which such Series A Preferred Stock and Series B
Preferred Stock, as the case may be, is convertible). No such termination shall
affect any rights of any party with respect to a breach hereof by any other
party prior to such termination.
For purposes of this Section 8: (i) the terms "person" and "group"
shall have the meaning set forth in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the
10
<PAGE> 11
"Exchange Act"), whether or not applicable, (ii) the term "beneficial owner"
shall have the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange
Act, whether or not applicable, except that a person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time or upon the occurrence of certain events, (iii) any "person" or "group"
will be deemed to beneficially own any voting stock of the Company so long as
such person or group beneficially owns, directly or indirectly, in the aggregate
a majority of the voting stock of a registered holder of the voting stock of the
Company and (iv) the term "affiliate" shall have the meaning set forth in
Section 405 of the Securities Act, and in the case of a New Investor that is a
partnership shall include its partners (including limited partners), and in the
case of a New Investor that is an individual shall include the spouse and lineal
descendants of such New Investor, and any trust or trusts for the benefit of
such New Investor, spouse or lineal descendants.
SECTION 10. Representations and Warranties. Each Stockholder, severally
and not jointly, represents and warrants to the Company and the other
Stockholders as follows:
(a) The execution, delivery and performance of this Agreement by
such Stockholder will not violate any provision of applicable law, any order of
any court or other agency of government, or any provision of any indenture,
agreement or other instrument to which such Stockholder or any of its or his
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument.
(b) This Agreement has been duly executed and delivered by such
Stockholder, and when executed by the other parties hereto will constitute the
legal, valid and binding obligation of such Stockholder, enforceable in
accordance with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, fraudulent conveyance and similar laws and to
limitations on the availability of equitable remedies.
(c) The shares of Common Stock, Series A Preferred Stock and
Series B Preferred Stock listed in Schedule I and Schedule II opposite the name
of such Stockholder constitute all the shares of Common Stock, Series A
Preferred Stock or Series B Preferred Stock, as the case may be, of the Company
owned by such Stockholder as of the date hereof or that may be acquired by such
Stockholder pursuant to the Recapitalization Agreement.
SECTION 11. Headings. Headings of articles, sections and paragraphs of
this Agreement are inserted for convenience of reference only and shall not
affect the interpretation or be deemed to constitute a part hereof.
11
<PAGE> 12
SECTION 12. Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein shall, for any reason, be held to be invalid, illegal or unenforceable,
such illegality, invalidity or unenforceability shall not affect any other
provisions of this Agreement.
SECTION 13. Benefits of Agreement. Nothing expressed by or mentioned in
this Agreement is intended or shall be construed to give any person other than
the parties hereto and their respective successors and permitted assigns any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything in this Section 13 to the contrary, subject to
compliance with the terms of this Agreement, each Stockholder shall have the
right to assign its interests hereunder to any transferee of the Common Stock,
Series A Preferred Stock or Series B Preferred Stock held by such Stockholder in
compliance with this Agreement; provided, however, that such transferee shall
agree in writing with the parties hereto to be bound by, and to comply with, all
applicable provisions of this Agreement and to be deemed to be a Stockholder for
purposes of this Agreement (it being understood that for purposes of this
Agreement any successor to or assigns of any (i) New Investor shall be deemed to
be a New Investor, and (ii) Original Stockholder shall be deemed to be an
Original Stockholder, excluding the transfer by a New Investor to an Original
Stockholder, or a transfer by an Original Stockholder to a New Investor, as the
case may be).
SECTION 14. Notices. Any notice or other communications required or
permitted hereunder shall be deemed to be sufficient and received if contained
in a written instrument delivered in person or by courier or duly sent by first
class certified mail, postage prepaid, or by facsimile addressed to such party
at the address or facsimile number set forth below:
(1) if to the Company, to it at:
Protocol Holdings, Inc.
2197 Ringling Blvd.
Sarasota, Florida 34237
Attention: President
Telecopy: 941-906-1422
(2) if to any Stockholder, to the address of such Stockholder appearing
in Schedule I or Schedule II hereto;
12
<PAGE> 13
or, in any case, at such other address or facsimile number as shall have been
furnished in writing by such party to all of the other parties hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal or courier delivery, on the date of
such delivery, (b) in the case of mailing, on the fifth business day following
the date of such mailing and (c) in the case of facsimile, when received.
SECTION 15. Modification. Neither this Agreement nor any provision
hereof may be modified, changed, discharged or terminated except by an
instrument in writing signed by the Company, the New Investors and the holders
of the majority of the aggregate voting power of shares of Common Stock
(treating the Series A Preferred Stock as the number of shares of Common Stock
into which such Series A Preferred Stock is convertible) of the Original
Stockholders who have executed this Agreement.
SECTION 16. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 17. GOVERNING LAW. THIS AGREEMENT AND ALL MATTERS RELATING TO
THIS AGREEMENT, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ITS CONFLICT OF LAW RULES.
13
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as a sealed instrument, all as of the day and year first above
written.
PROTOCOL HOLDINGS, INC.
By /s/ Raymond P. Wilson
----------------------------------------
Name: Raymond P. Wilson
Title: Chief Financial Officer
WILLIS STEIN & PARTNERS II, L.P.
By /s/ Robert C. Froetscher
----------------------------------------
Name: Robert C. Froetscher
Title: Managing Director
WILLIS STEIN & PARTNERS DUTCH, L.P.
By /s/ Robert C. Froetscher
----------------------------------------
Name: Robert C. Froetscher
Title: Managing Director
BCI GROWTH IV, L.P.
By Glenpointe Associates, LLP,
General Partner
By Glenpointe Associates, LLC
General Partner
By /s/ Peter O. Wilde
----------------------------------------
Name: Peter O. Wilde
Title: Managing Member
<PAGE> 15
page intenionally left blank
<PAGE> 16
BCI GROWTH V, L.P.
By Glenpointe Associates V, LLC
General Partner
By /s/ Peter O. Wilde
----------------------------------------
Name: Peter O. Wilde
Title: Managing Member
BCI INVESTORS, L.L.C.
By /s/ Peter O. Wilde
----------------------------------------
Name: Peter O. Wilde
Title: Managing Member
<PAGE> 17
ING (U.S.) CAPITAL LLC
By /s/ Bradford Pollard
----------------------------------------
Name: Bradford Pollard
Title: Vice President
<PAGE> 18
BENEDETTO GARTLAND & COMPANY, INC.
By /s/ Charles Mobus *
----------------------------------------
Name:
Title:
/s/ Kevin N. Blayne *
----------------------------------------
Kevin N. Blayne
/s/ Claude Cohen *
----------------------------------------
Claude Cohen
/s/ Robert J. Conrads *
----------------------------------------
Robert J. Conrads
ELIEZER COHEN CANADA CORPORATION
By *
----------------------------------------
Name:
Title:
/s/ Robert C. Gust *
----------------------------------------
Robert C. Gust
/s/ David Knafo *
----------------------------------------
David Knafo
* Executed pursuant to the Election to Redemption Form
<PAGE> 19
David Knafo
*Executed pursuant to the Election to Redemption Form
<PAGE> 20
/s/ Andrew M. Knee *
----------------------------------------
Andrew M. Knee
/s/ Richard Kommitt *
----------------------------------------
Richard Kommit
LA FIDUCIE FAMILLIALE COHEN
By *
----------------------------------------
Name:
Title:
LA FIDUCIE FAMILLIALE KNAFO
By *
----------------------------------------
Name:
Title:
/s/ Jerry D. Lewis *
----------------------------------------
Jerry D. Lewis
/s/ Stephen G. McLean *
----------------------------------------
Stephen G. McLean
/s/ David Van Derveer *
----------------------------------------
David Van Derveer
* Executed pursuant to the Election to Redemption Form
<PAGE> 21
*Executed pursuant to the Election to Redemption Form
<PAGE> 22
/s/ Raymond P. Wilson *
----------------------------------------
Raymond P. Wilson
/s/ David Dearborn *
----------------------------------------
David Dearborn
/s/ Jeanine El-Khoury *
----------------------------------------
Jeanine El-Khoury
/s/ Stephen Kozik *
----------------------------------------
Stephen Kozik
/s/ Shane M. Lewis *
----------------------------------------
Shane M. Lewis
/s/ Michael Morehouse *
----------------------------------------
Michael Morehouse
/s/ Francis Quinn *
----------------------------------------
Francis Quinn
/s/ Soeb Rangwala *
----------------------------------------
Soeb Rangwala
* Executed pursuant to the Election to Redemption Form
<PAGE> 23
/s/ Robert R. Roscoe *
----------------------------------------
Robert R. Roscoe
/s/ Ross R. Rosenau *
----------------------------------------
Ross R. Rosenau
/s/ Brian Schuvart *
----------------------------------------
Brian Schuvart
/s/ Daniel L. Sullivan *
----------------------------------------
Daniel L. Sullivan
/s/ Fidele Toghoua *
----------------------------------------
Fidele Toghoua
/s/ Richard Trepanier *
----------------------------------------
Richard Trepanier
DONALD N. MOLITOR, AS TRUSTEE OF THE AMENDED AND
RESTATED DONALD N. MOLITOR FAMILY TRUST U/A/D
10/15/87
* Executed pursuant to the Election to Redemption Form
<PAGE> 24
By *
----------------------------------------
Name:
Title:
* Executed pursuant to the Election to Redemption Form
<PAGE> 25
JUDITH M. MOLITOR, AS TRUSTEE OF THE AMENDED AND
RESTATED JUDITH M. MOLITOR FAMILY TRUST U/A/D
10/15/87
By *
----------------------------------------
Name:
Title:
/s/ D. Scott Molitor *
----------------------------------------
D. Scott Molitor
/s/ Joseph Post *
----------------------------------------
Joseph Post
/s/ C. Baldwin Read *
----------------------------------------
C. Baldwin Read
/s/ Charles F. Read *
----------------------------------------
Charles F. Read
/s/ Joseph Sarno *
----------------------------------------
Joseph Sarno
/s/ Stephanie Smith *
----------------------------------------
Stephanie Smith
* Executed pursuant to the Election to Redemption Form
<PAGE> 26
/s/ John H. and Carol C. Turner *
----------------------------------------
John H. and Carol C. Turner
* Executed pursuant to the Election to Redemption Form
<PAGE> 1
Exhibit 10.1
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 1999,
AMONG
PROTOCOL COMMUNICATIONS, INC., AND
MEDIA EXPRESS INC.
AS BORROWERS,
THE LENDERS LISTED HEREIN,
AS LENDERS,
CANADIAN IMPERIAL BANK OF COMMERCE,
AS ADMINISTRATIVE AGENT
ING (U.S.) CAPITAL LLC,
AS SYNDICATION AGENT AND CO-BOOK RUNNER
AND
LASALLE BANK NATIONAL ASSOCIATION
AS DOCUMENTATION AGENT,
WITH
CIBC WORD MARKETS CORP.
AS ARRANGER AND BOOK RUNNER
<PAGE> 2
PROTOCOL COMMUNICATIONS, INC.
MEDIA EXPRESS INC.
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. DEFINITIONS...........................................................................3
1.1 Certain Defined Terms.................................................................3
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement......................................................................57
1.3 Other Definitional Provisions and Rules of Construction..............................58
Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS...........................................58
2.1 Commitments; Making of Loans; Notes..................................................58
2.2 Interest on the Loans................................................................69
2.3 Fees.................................................................................74
2.4 Repayments, Prepayments and Reductions in Acquisition Commitments and
Revolving Loan Commitments; General Provisions Regarding Payments;
Application of Proceeds of Collateral and Payments Under Guaranties..................75
2.5 Use of Proceeds......................................................................92
2.6 Special Provisions Governing Eurodollar Rate Loans...................................93
2.7 Increased Costs; Taxes; Capital Adequacy.............................................96
2.8 Obligation of Lenders and Issuing Lenders to Mitigate; Mandatory
Assignments by Lenders..............................................................102
2.9 Increase in US Acquisition Loan Commitments; Addition of Lenders;
Assignments.........................................................................103
Section 3. LETTERS OF CREDIT...................................................................105
3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations
Therein.............................................................................105
3.2 Letter of Credit Fees...............................................................109
3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit..................110
3.4 Obligations Absolute................................................................113
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3.5 Indemnification; Nature of Issuing Lenders' Duties..................................114
3.6 Increased Costs and Taxes Relating to Letters of Credit.............................116
Section 4. CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS AND LETTERS OF CREDIT..............117
4.1 Conditions to Effectiveness.........................................................117
4.2 Conditions to All Loans.............................................................125
4.3 Conditions to Letters of Credit.....................................................126
Section 5. BORROWERS' REPRESENTATIONS AND WARRANTIES...........................................127
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries........................................................................127
5.2 Authorization of Borrowing, etc.....................................................128
5.3 Financial Condition.................................................................129
5.4 No Material Adverse Change; No Restricted Junior Payments...........................130
5.5 Title to Properties; Liens; Real Property...........................................131
5.6 Litigation; Adverse Facts...........................................................131
5.7 Payment of Taxes....................................................................132
5.8 Performance of Agreements; Materially Adverse Agreements; Material
Contracts...........................................................................132
5.9 Governmental Regulation.............................................................133
5.10 Securities Activities...............................................................133
5.11 Employee Benefit Plans..............................................................133
5.12 Certain Fees........................................................................134
5.13 Environmental Protection............................................................134
5.14 Employee Matters....................................................................135
5.15 Solvency............................................................................136
5.16 Matters Relating to Collateral......................................................136
5.17 Related Agreements..................................................................137
5.18 Disclosure..........................................................................138
5.19 Survival of Rights Created Under Existing Credit Agreement..........................138
Section 6. BORROWERS' AFFIRMATIVE COVENANTS....................................................139
6.1 Financial Statements and Other Reports..............................................139
6.2 Corporate Existence, etc............................................................147
6.3 Payment of Taxes and Claims; Tax Consolidation......................................147
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6.4 Maintenance of Properties; Insurance; Application of Net
Insurance/Condemnation Proceeds.....................................................148
6.5 Inspection Rights; Audits; Lender Meeting...........................................150
6.6 Compliance with Laws, etc...........................................................151
6.7 Environmental Review and Investigation, Disclosure, Etc.; Company's
Actions Regarding Hazardous Materials Activities, Environmental
Claims and Violations of Environmental Laws.........................................151
6.8 Execution of Guaranties and Personal Property Collateral Documents by
Future Subsidiaries.................................................................154
6.9 Matters Relating to Additional Real Property Collateral.............................156
6.10 Operation of METC and METC Holdings.................................................158
6.11 Year 2000 Compliance................................................................160
6.12 Solvency............................................................................160
6.13 Blocked Accounts....................................................................160
6.14 Post Closing Matters................................................................161
Section 7. BORROWERS' NEGATIVE COVENANTS.......................................................161
7.1 Indebtedness........................................................................161
7.2 Liens and Related Matters...........................................................163
7.3 Investments; Joint Ventures.........................................................164
7.4 Contingent Obligations..............................................................165
7.5 Restricted Junior Payments..........................................................166
7.6 Financial Covenants.................................................................167
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions....................169
7.8 Consolidated Capital Expenditures...................................................170
7.9 Restriction on Equipment Indebtedness and Capital Leases............................171
7.10 Sales and Lease-Backs...............................................................171
7.11 Sale or Discount of Receivables.....................................................172
7.12 Transactions with Shareholders and Affiliates.......................................172
7.13 Disposal of Subsidiary Stock........................................................173
7.14 Conduct of Business.................................................................173
7.15 Amendments or Waivers of Certain Related Agreements.................................173
7.16 Fiscal Year.........................................................................174
Section 8. EVENTS OF DEFAULT...................................................................174
8.1 Failure to Make Payments When Due...................................................174
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8.2 Default in Other Agreements.........................................................174
8.3 Breach of Certain Covenants.........................................................175
8.4 Breach of Warranty..................................................................175
8.5 Other Defaults Under Loan Documents.................................................175
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc................................175
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc..................................176
8.8 Judgments and Attachments...........................................................176
8.9 Dissolution.........................................................................177
8.10 Employee Benefit Plans..............................................................177
8.11 Material Adverse Effect.............................................................177
8.12 Change in Control...................................................................177
8.13 Invalidity of Guaranties; Failure of Security; Repudiation of
Obligations.........................................................................177
8.14 Amendment of Certain Documents of Holdings..........................................178
8.15 Conduct of Business By Holdings.....................................................178
Section 9. ADMINISTRATIVE AGENT................................................................179
9.1 Appointment.........................................................................179
9.2 Powers and Duties; General Immunity.................................................181
9.3 Representations and Warranties; No Responsibility For Appraisal of
Creditworthiness....................................................................183
9.4 Right to Indemnity..................................................................183
9.5 Successor Administrative Agent......................................................184
9.6 Collateral Documents and Guaranties.................................................184
9.7 Restrictions on Actions by Lenders; Sharing of Payments.............................186
9.8 Duties of Other Agents..............................................................186
Section 10. MISCELLANEOUS.......................................................................186
10.1 Assignments and Participations in Loans and Letters of Credit.......................186
10.2 Expenses............................................................................191
10.3 Indemnity...........................................................................192
10.4 Set-Off; Security Interest in Deposit Accounts......................................193
10.5 Ratable Sharing.....................................................................194
10.6 Amendments and Waivers..............................................................195
10.7 Independence of Covenants...........................................................196
10.8 Notices.............................................................................197
10.9 Survival of Representations, Warranties and Agreements..............................197
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10.10 Failure or Indulgence Not Waiver; Remedies Cumulative...............................197
10.11 Marshalling; Payments Set Aside.....................................................198
10.12 Severability........................................................................198
10.13 Obligations Several; Independent Nature of Lenders' Rights..........................198
10.14 Headings............................................................................199
10.15 Applicable Law......................................................................199
10.16 Successors and Assigns..............................................................199
10.17 Consent to Jurisdiction and Service of Process......................................199
10.18 Waiver of Jury Trial................................................................200
10.19 Confidentiality.....................................................................201
10.20 Relationship........................................................................201
10.21 Currency Conversion.................................................................202
10.22 Language............................................................................202
10.23 Reservation of Security.............................................................202
10.24 Limited Waiver......................................................................202
10.25 Counterparts; Effectiveness.........................................................203
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I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV-A FORM OF TRANCHE A TERM NOTE
IV-B FORM OF TRANCHE B TERM NOTE
V FORM OF CANADIAN TERM NOTE
VI FORM OF REVOLVING NOTE
VII-A FORM OF U.S. ACQUISITION NOTE
VII-B FORM OF CANADIAN ACQUISITION NOTE
VIII FORM OF COMPLIANCE CERTIFICATE
IX-A FORM OF OPINION OF U.S. COMPANY COUNSEL
IX-B FORM OF OPINION OF CANADIAN COMPANY COUNSEL
X FORM OF OPINION OF O'MELVENY & MYERS LLP
XI FORM OF ASSIGNMENT AGREEMENT
XII FORM OF SOLVENCY CERTIFICATE
XIII FORM OF SECURITY AGREEMENT
XIV FORM OF DOMESTIC SUBSIDIARY GUARANTY
XV FORM OF HOLDINGS PLEDGE AGREEMENT
XVI FORM OF HOLDINGS GUARANTY
XVII FORM OF COMPANY GUARANTY
XVIII-A FORM OF CANADIAN SUBSIDIARY SECURITY AGREEMENT
XVIII-B FORM OF CANADIAN SUBSIDIARY PLEDGE AGREEMENT
XVIII-C FORM OF CANADIAN SUBSIDIARY TRADEMARK SECURITY AGREEMENT
XIX FORM OF CANADIAN SUBSIDIARY HYPOTHEC
XX [INTENTIONALLY OMITTED]
XXI FORM OF ACKNOWLEDGEMENT AND CONFIRMATION
XXII FORM OF BORROWING BASE CERTIFICATE
XXIII FORM OF SUBORDINATION PROVISIONS FOR PROMISSORY NOTES
XXIV FORM OF SUBORDINATION PROVISIONS FOR ACQUISITION AGREEMENTS
XXV FORM OF MASTER ASSIGNMENT AGREEMENT
XXVI-A FORM OF CANADIAN SUBSIDIARY PLEDGE OF NOTE
XXVI-B FORM OF CANADIAN SUBSIDIARY DEMAND NOTE
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1.1N NEW LOAN DOCUMENTS
1.1P PRO FORMA ADJUSTMENTS FOR EXISTING ACQUIRED BUSINESSES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1C CORPORATE AND CAPITAL STRUCTURE; OWNERSHIP
5.1 SUBSIDIARIES OF COMPANY
5.5 REAL PROPERTY
5.6 LITIGATION
5.8 MATERIAL CONTRACTS
5.11 CERTAIN EMPLOYEE BENEFIT PLANS
5.13 ENVIRONMENTAL MATTERS
6.14 POST CLOSING COVENANTS
7.1 EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 EXISTING CONTINGENT OBLIGATIONS
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<PAGE> 9
EXECUTION VERSION
PROTOCOL COMMUNICATIONS, INC.
MEDIA EXPRESS INC.
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDED AND RESTATED CREDIT AGREEMENT is dated as of
November 30, 1999, and entered into by and among PROTOCOL COMMUNICATIONS, INC.,
a Delaware corporation ("COMPANY"), MEDIA EXPRESS INC., a corporation organized,
constituted and existing under the Canada Business Corporations Act formerly
known as 3587452 Canada Inc. ("MEDIA EXPRESS"), THE FINANCIAL INSTITUTIONS
LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a
"LENDER" and collectively as "LENDERS"), and CANADIAN IMPERIAL BANK OF COMMERCE
("CIBC"), as administrative agent for Lenders (in such capacity, "ADMINISTRATIVE
AGENT"), ING (U.S.) CAPITAL, LLC ("ING BARINGS"), as syndication agent and
co-book runner (in such capacity, "SYNDICATION AGENT"), and LASALLE BANK
NATIONAL ASSOCIATION, as documentation agent (in such capacity, "DOCUMENTATION
AGENT") with CIBC WORLD MARKETS CORP., as arranger and lead book runner.
R E C I T A L S
WHEREAS, Company (this and other capitalized terms used in
these recitals without definition being used as defined in subsection 1.1),
Lenders (or their predecessors in interest), and Administrative Agent have
heretofore entered into that certain Credit Agreement dated as of June 5, 1998
(the "ORIGINAL CREDIT AGREEMENT");
WHEREAS, the Original Credit Agreement was amended and
restated pursuant to that certain Amended and Restated Credit Agreement dated as
of February 1, 1999, by and among Company, Lenders (or their predecessors in
interest), and Administrative Agent (the "FIRST RESTATED CREDIT AGREEMENT");
WHEREAS, the First Restated Credit Agreement was amended and
restated pursuant to that certain Second Amended and Restated Credit Agreement
dated as of May 21, 1999, by and among Company, Media Express, Lenders (or their
predecessors in interest), and Administrative Agent (as amended to the date
hereof, the "EXISTING CREDIT AGREEMENT");
1
<PAGE> 10
WHEREAS, the lenders that are parties to the Existing Credit
Agreement have assigned their respective interests therein and in the loan
documents (as such term is defined in the Existing Credit Agreement) to the
Lenders hereunder pursuant to a Master Assignment Agreement substantially in the
form of Exhibit XXV hereto, which shall become effective immediately before the
effectiveness hereof;
WHEREAS, Company, Media Express, Lenders and Administrative
Agent desire to amend and restate the Existing Credit Agreement in its entirety;
WHEREAS, on the Effective Date, concurrently with the first
borrowing of Loans hereunder, Borrowers will convert certain Existing Loans
outstanding on the Effective Date into Loans hereunder, repay all Existing Loans
that are not converted into Loans hereunder, and pay all accrued and unpaid
interest on all Existing Loans and all other amounts owed under the Existing
Credit Agreement;
WHEREAS, Company and each of its Domestic Subsidiaries have
agreed to pledge and grant on the Effective Date a security interest in
substantially all of their respective present and future real and personal
property to secure the payment and performance of the Obligations of Company and
such Domestic Subsidiaries;
WHEREAS, Company shall execute and deliver on the Effective
Date the Company Guaranty pursuant to which Company shall guaranty all
obligations of the Canadian Borrower hereunder and under the other Loan
Documents to which it is a party;
WHEREAS, Holdings shall execute and deliver on the Effective
Date the Holdings Guaranty and each of Company's Domestic Subsidiaries shall
execute and deliver on the Effective Date the Domestic Subsidiary Guaranty
pursuant to which Holdings and each of Company's Domestic Subsidiaries shall
guaranty all Obligations of the Borrowers;
WHEREAS, the Canadian Borrower shall execute and deliver on
the Effective Date a Canadian Subsidiary Hypothec pursuant to which the Canadian
Borrower shall pledge and grant a security interest in substantially all of its
present and future real and personal property to secure the payment and
performance of the Canadian Subsidiary Demand Note payable to Canadian Imperial
Bank of Commerce, which demand note shall be pledged by the Canadian Borrower to
secure its Obligations, and another Canadian Subsidiary Hypothec pursuant to
which the Canadian Borrower shall pledge and grant a security interest in
substantially all of its present and future real and
<PAGE> 11
personal property to secure the payment and performance its Obligations
hereunder and under the other Loan Documents;
WHEREAS, Holdings and each of Company's Subsidiaries shall
confirm and agree on the Effective Date that their respective existing grants of
security interests in substantially all of their respective assets to secure
their existing guaranties will (except to the extent such grants are superseded
by grants made on the Effective Date) continue as security for the payment and
performance of the obligations of such Loan Parties under the Guaranties
delivered by such Loan Parties in connection with this Agreement and the
Existing Credit Agreement; and
WHEREAS, each of Company's Canadian Subsidiaries and the
Canadian Resident Stockholder shall confirm and agree on the Effective Date that
their respective existing Guaranties shall continue to guaranty all Obligations
of the Borrowers; provided that the maximum amount of the Obligations guarantied
by METC and METC Holdings shall be limited to the amount of obligations owed
under the Existing Credit Agreement on the Effective Date, immediately before
the effectiveness hereof;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, Company, the Canadian
Borrower, Lenders, and Agents agree that the Existing Credit Agreement is hereby
amended and restated, without novation, as follows:
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the
following meanings:
"ACCOUNT" means any present or future right to payment for
goods sold or leased or for services rendered, whether due or to become due,
whether now existing or hereafter arising and whether or not it has been earned
by performance.
"ACKNOWLEDGEMENT AND CONFIRMATION" means an Acknowledgement
and Confirmation Agreement dated as of the date hereof, substantially in the
form of Exhibit XXI hereto, pursuant to which each Guarantor shall acknowledge
and confirm that its obligations under the Guaranties and the Collateral
Documents to which it is a party shall continue to guaranty or secure, as the
case may be, the Obligations of the
<PAGE> 12
Borrowers hereunder, as such Acknowledgement and Confirmation Agreement may
hereafter be amended, supplemented, restated, or otherwise modified from time to
time.
"ACQUIRED BUSINESS" means any Person that becomes a Subsidiary
of Company or is merged into or consolidated or amalgamated with Company or any
of its Subsidiaries on or after the First Closing Date, and any assets that
comprise all or substantially all of the assets of any Person or division or
line of business that are acquired by Company or any of its Subsidiaries on or
after the First Closing Date.
"ACQUISITION" means any acquisition of an Acquired Business by
Company or any of its Subsidiaries on or after the First Closing Date, including
by purchase, merger, consolidation or amalgamation.
"ACQUISITION AGREEMENTS" means each agreement pursuant to
which an Acquisition is made (including Acquisitions made before the Effective
Date).
"ACQUISITION INDEBTEDNESS" means all obligations (other than
obligations to issue Holdings Common Stock) owed to the sellers of any Acquired
Business for the deferred purchase price of such Acquired Business, whether such
obligations are evidenced by an Acquisition Agreement, employment agreement, or
otherwise, and without regard to the characterization of such obligations in
such agreements, but excluding Contingent Acquisition Obligations. Acquisition
Indebtedness does not include obligations in respect of Approved Employee
Bonuses.
"ACQUISITION LOAN COMMITMENT" means a US Acquisition Loan
Commitment or a Canadian Acquisition Loan Commitment, and "ACQUISITION LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"ACQUISITION LOANS" means the US Acquisition Loans and the
Canadian Acquisition Loans.
"ACQUISITION NOTES" means the US Acquisition Notes and the
Canadian Acquisition Notes.
"ADJUSTED EURODOLLAR RATE" means a rate per annum (rounded
upwards, if necessary, to the next higher 1/100th of 1%) determined by
Administrative Agent pursuant to the following formula:
Adjusted Eurodollar Rate = LIBOR
----------------------------
1.00-Eurodollar Reserve Percentage
<PAGE> 13
"ADJUSTED SENIOR DEBT LEVERAGE RATIO" means, as of any date of
determination, the ratio of (i) the sum of (a) the aggregate principal amount of
Consolidated Total Debt outstanding on such date minus (b) the aggregate
principal amount of Subordinated Indebtedness outstanding on such date plus (c)
the Projected Earn-out Obligations for the six Fiscal Month period immediately
following the end of the 12 Fiscal Month period referred to in clause (ii)(x)
below minus (d) the Projected Escrow Refunds for such six Fiscal Month period
divided by (ii) the sum of (x) the aggregate amount of Consolidated EBITDA,
determined on a Pro Forma Basis, for the 12 Fiscal Month period most recently
ended on or before such date of determination (or, for purposes of subsection
2.1A, subsection 3.1A, the Notices of Borrowing and the Notices of Issuance of
Letter of Credit, the 12 Fiscal Month period most recently ended before such
date of determination for which Administrative Agent has received the financial
statements delivered pursuant to subsection 6.1(i)), plus (y) Projected
Incremental EBITDA for the six Fiscal Month period immediately following the end
of such 12 Fiscal Month period.
"ADMINISTRATIVE AGENT" has the meaning assigned to that term
in the introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 9.5A.
"AFFECTED LENDER" has the meaning assigned to that term in
subsection 2.6C.
"AFFILIATE", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"AFFILIATED FUND" means, with respect to any Lender, a fund
that invests in commercial loans and is managed by the Lender, the same
investment advisor as such Lender, an Affiliate of such Lender or by an
Affiliate of the same investment advisor as such Lender.
"AGREEMENT" means this Third Amended and Restated Credit
Agreement dated as of November 30, 1999, as it may be amended, supplemented,
restated or otherwise modified from time to time.
<PAGE> 14
"AGENTS" means the Administrative Agent, the Syndication Agent
and the Documentation Agent.
"APPROVED EMPLOYEE BONUSES" means all obligations owed by any
Loan Party to any officer, director or employee of Company or any of its
Subsidiaries that Requisite Lenders have agreed in writing with Company shall
not constitute Acquisition Indebtedness or Contingent Acquisition Obligations.
"ASSET SALE" means the sale by Company or any of its
Subsidiaries to any Person other than Company or any of its wholly-owned
Subsidiaries of (i) any of the stock of any of Company's Subsidiaries, (ii)
substantially all of the assets of any division or line of business of Company
or any of its Subsidiaries, or (iii) any other assets (whether tangible or
intangible) of Company or any of its Subsidiaries.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in
substantially the form of Exhibit XI annexed hereto.
"BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, at any time, the higher of (x) the Prime
Rate or (y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective
Rate.
"BASE RATE LOANS" means Loans bearing interest at rates
determined by reference to the Base Rate as provided in subsection 2.2A.
"BCI" means BCI Growth V, L.P., BCI Growth IV, L.P. and any
one or more of their Affiliates.
"BLOCKED ACCOUNT AGREEMENT" has the meaning assigned thereto
in subsection 6.13.
"BORROWER" means Company or the Canadian Borrower and
"BORROWERS" means both Company and the Canadian Borrower.
"BORROWING BASE" means an amount equal to 85% of Eligible
Accounts.
"BORROWING BASE CERTIFICATE" means a certificate substantially
in the form of Exhibit XXII annexed hereto delivered to Administrative Agent and
Lenders by
<PAGE> 15
Company pursuant to subsection 6.1(xix), with appropriate insertions, and all
related reports and supporting documentation as reasonably requested by Lenders.
"BUSINESS DAY" means (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day on
which banks are not required or authorized to close in New York, New York and
upon which each of the Lenders is in fact open for business, and (ii) with
respect to all notices, determinations, fundings and payments in connection with
the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, any day that is a
Business Day described in clause (i) above and that is also a day for trading by
and between banks in Dollar deposits in the London interbank market.
"CANADIAN ACQUISITION LOAN COMMITMENT" means the commitment of
a Lender to make Canadian Acquisition Loans to the Canadian Borrower pursuant to
subsection 2.1A(v), and "CANADIAN ACQUISITION LOAN COMMITMENTS" means such
commitments of all Lenders in the aggregate.
"CANADIAN ACQUISITION LOAN COMMITMENT TERMINATION DATE" means
November 15, 2001.
"CANADIAN ACQUISITION LOAN EXPOSURE" means, with respect to
any Lender as of any date of determination (i) prior to the termination of the
Canadian Acquisition Loan Commitments, that Lender's Canadian Acquisition Loan
Commitment and (ii) after the termination of the Canadian Acquisition Loan
Commitments, the outstanding principal amount of the Canadian Acquisition Loans
of that Lender.
"CANADIAN ACQUISITION LOAN MATURITY DATE" means November 30,
2006.
"CANADIAN ACQUISITION LOANS" means the Loans made by Lenders
to the Canadian Borrower pursuant to subsection 2.1A(v).
"CANADIAN ACQUISITION NOTES" means (i) the promissory notes of
the Canadian Borrower issued pursuant to subsection 2.1E(ii)(b) on the Effective
Date and (ii) any promissory notes issued by the Canadian Borrower pursuant to
the last sentence of subsection 10.1B(i) in connection with assignments of the
Canadian Acquisition Loan Commitments or Canadian Acquisition Loans of any
Lenders, in each case substantially in the form of Exhibit VII-B annexed hereto,
as they may be amended, supplemented, restated or otherwise modified from time
to time.
<PAGE> 16
"CANADIAN ACQUISITION RESERVE" means, at any time, an amount
equal to the sum of the following:
(i) 125% of the excess of the amount of Contingent
Acquisition Obligations of the Canadian Borrower at such time over the
amount of cash held in escrow at such time to secure payment of such
obligations that Company in good faith projects will become payable at
any time thereafter; provided that if Requisite Lenders or
Administrative Agent disagree with such projections, then the amount in
this clause (i) shall be determined by Requisite Lenders, or in the
absence of such determination by Requisite Lenders, then by
Administrative Agent, and provided further that the amount in this
clause (i) shall not, in either case, exceed 100% of the excess of the
amount of Contingent Acquisition Obligations of the Canadian Borrower
at such time over the amount of cash held in escrow at such time to
secure payment of such obligations at such time, plus
(ii) 75% of the aggregate principal amount of all
Subordinated Acquisition Indebtedness owed by the Canadian Borrower at
such time, plus
(iii) 100% of the excess of the amount of all
Acquisition Indebtedness owed by the Canadian Borrower at such time
that does not constitute Subordinated Acquisition Indebtedness over the
amount of cash held in escrow at such time to secure payment of such
obligations.
"CANADIAN BORROWER" means Media Express.
"CANADIAN COLLATERAL DOCUMENTS" means the Canadian Subsidiary
Hypothecs, the Canadian Subsidiary Pledge Agreements, the Canadian Subsidiary
Security Agreements, the Canadian Subsidiary Trademark Security Agreements, the
Canadian Subsidiary Security Agreement (Escrows), the Canadian Resident
Hypothecs, the Canadian Subsidiary Pledge of Note, the Canadian Subsidiary
Demand Note, and all other instruments or documents now existing or hereafter
executed granting Liens on property of any Canadian Subsidiary to Administrative
Agent for benefit of Lenders.
"CANADIAN PLAN" means each employee benefit plan (other than a
pension plan) which Company or any one of its Subsidiaries maintains or to which
it is obligated to contribute and which is subject to any Canadian federal law
or provincial law relating to employee benefit plans (other than pension plans).
<PAGE> 17
"CANADIAN RESIDENT GUARANTIES" means (i) the Canadian Resident
Non-Recourse Guaranty dated as of May 21, 1999, executed and delivered by the
Canadian Resident Stockholder on the Third Closing Date pursuant to the Existing
Credit Agreement, and (ii) each Canadian Resident Guaranty executed and
delivered by any additional Canadian Resident Stockholder from time to time
after the Effective Date in accordance with subsection 6.8C, as each such
agreement may hereafter be amended, supplemented, restated or otherwise modified
from time to time.
"CANADIAN RESIDENT HYPOTHECS" means (i) a Canadian Resident
Deed of Hypothec, executed and delivered by the Canadian Resident Stockholder on
the Third Closing Date pursuant to the Existing Credit Agreement, and (ii) each
Canadian Resident Deed of Hypothec executed and delivered by any additional
Canadian Resident Stockholder from time to time after the Effective Date in
accordance with subsection 6.8C, as each such agreement may hereafter be
amended, supplemented, restated or otherwise modified from time to time.
"CANADIAN RESIDENT STOCKHOLDER" means (i) on the Effective
Date, Fisher, and (ii) any natural person who is a Canadian resident and
acquires after the Effective Date shares of capital stock of METC Holdings in
accordance with subsection 6.10.
"CANADIAN SUBSIDIARY" means each Subsidiary of Company that is
organized under the laws of Canada or any province or other political
subdivision thereof.
"CANADIAN SUBSIDIARY DEMAND NOTE" means that certain Demand
Note issued and delivered by the Canadian Borrower, as payor, to Canadian
Imperial Bank of Commerce, as payee, on the Effective Date in accordance with
subsection 4.1, in substantially the form of Exhibit XXVI-B annexed hereto, as
such Demand Note may hereafter be amended, supplemented, endorsed, or otherwise
modified from time to time.
"CANADIAN SUBSIDIARY GUARANTOR" means each Canadian Subsidiary
of Company that is a party to the Canadian Subsidiary Guaranty and "CANADIAN
SUBSIDIARY GUARANTORS" means all of them, collectively; provided, however that
Canadian Subsidiary Guarantors shall also mean any Person that becomes a
Canadian Subsidiary of Company after the Effective Date that executes and
delivers a counterpart of the Canadian Subsidiary Guaranty pursuant to
subsection 6.8.
"CANADIAN SUBSIDIARY GUARANTY" means the Canadian Subsidiary
Guaranty executed and delivered by each Canadian Subsidiary Guarantor on the
Third
<PAGE> 18
Closing Date pursuant to the Existing Credit Agreement, as such guaranty
may hereafter be amended, supplemented, restated or otherwise modified from time
to time.
"CANADIAN SUBSIDIARY HYPOTHECS" means (i) those certain
Hypothecs each executed and delivered by each Canadian Subsidiary, as grantor,
and Administrative Agent, as Secured Party, on the Third Closing Date pursuant
to the Existing Credit Agreement, (ii) the two Hypothecs executed and delivered
by the Canadian Borrower on the Effective Date in accordance with subsection
4.1, in substantially the form of Exhibit XIX annexed hereto and (iii) each
Hypothec executed and delivered by any additional Canadian Subsidiary Guarantor
from time to time after the Effective Date in accordance with subsection 6.8, in
substantially the form of Exhibit XIX annexed hereto, as each such agreement may
hereafter be amended, supplemented, restated or otherwise modified from time to
time.
"CANADIAN SUBSIDIARY PLEDGE AGREEMENTS" means (i) those
certain Canadian Subsidiary Pledge Agreements each executed and delivered on the
Third Closing Date pursuant to the Existing Credit Agreement by each Canadian
Subsidiary, as Pledgor, and Administrative Agent, as Secured Party, and (ii)
each Canadian Subsidiary Pledge Agreement executed and delivered by any
additional Canadian Subsidiary Guarantor from time to time after the Effective
Date in accordance with subsection 6.8, in substantially the form of Exhibit
XVIII-B annexed hereto, as each such agreement may hereafter be amended,
supplemented, restated, or otherwise modified from time to time.
"CANADIAN SUBSIDIARY PLEDGE OF NOTE" means that certain Pledge
of Note executed and delivered by the Canadian Borrower, as pledgor, and
Administrative Agent, as pledgee, on the Effective Date in accordance with
subsection 4.1, in substantially the form of Exhibit XXVI-A annexed hereto, as
such agreement may hereafter be amended, supplemented, restated or otherwise
modified from time to time.
"CANADIAN SUBSIDIARY SECURITY AGREEMENTS" means (i) those
certain Canadian Subsidiary Security Agreements each executed and delivered on
the Third Closing Date pursuant to the Existing Credit Agreement by each of the
Canadian Borrower and METC, as Grantor, and Administrative Agent, as Secured
Party, and (ii) each Canadian Subsidiary Security Agreement executed and
delivered by any additional Canadian Subsidiary Guarantor from time to time
after the Effective Date in accordance with subsection 6.8, in substantially the
form of Exhibit XVII-A annexed hereto, as each such agreement may hereafter be
amended, supplemented, restated, or otherwise modified from time to time.
<PAGE> 19
"CANADIAN SUBSIDIARY TRADEMARK SECURITY AGREEMENTS" means (i)
those certain Canadian Subsidiary Trademark Security Agreements each executed
and delivered on the Third Closing Date pursuant to the Existing Credit
Agreement by each of the Canadian Borrower and METC, as Grantor, and
Administrative Agent, as Secured Party, and (ii) each Canadian Subsidiary
Trademark Security Agreement executed and delivered by any additional Canadian
Subsidiary Guarantor from time to time after the Effective Date in accordance
with subsection 6.8, in substantially the form of Exhibit XVIII-C annexed
hereto, as each such agreement may hereafter be amended, supplemented, restated,
or otherwise modified from time to time.
"CANADIAN SUBSIDIARY SECURITY AGREEMENT (ESCROWS)" means a
Canadian Subsidiary Security Agreement (Escrows) dated as of May 21, 1999,
executed and delivered by the Canadian Borrower and Administrative Agent on the
Third Closing Date pursuant to the Existing Credit Agreement, as such agreement
may hereafter be amended, supplemented, restated or otherwise modified from time
to time.
"CANADIAN TERM LOAN COMMITMENT" means the commitment of a
Lender to convert Existing Canadian Acquisition Loans into Canadian Term Loans
to the Canadian Borrower pursuant to subsection 2.1A(iii), and "CANADIAN TERM
LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate.
"CANADIAN TERM LOAN EXPOSURE" means, with respect to any
Lender as of any date of determination (i) prior to the termination of the
Canadian Term Loan Commitments, that Lender's Canadian Term Loan Commitment and
(ii) after the termination of the Canadian Term Loan Commitments, the
outstanding principal amount of the Canadian Term Loans of that Lender.
"CANADIAN TERM LOAN MATURITY DATE" means December 15, 2004.
"CANADIAN TERM LOANS" means the Loans made or converted by
Lenders to the Canadian Borrower pursuant to subsection 2.1A(iii).
"CANADIAN TERM NOTES" means (i) the promissory notes of the
Canadian Borrower issued pursuant to subsection 2.1E(ii)(a) and (ii) any
promissory notes issued by the Canadian Borrower pursuant to the last sentence
of subsection 10.1B(i) in connection with assignments of the Canadian Term Loan
Commitments or Canadian Term Loans of any Lenders, in each case substantially in
the form of Exhibit V annexed hereto, as they may be amended, supplemented,
restated, or otherwise modified from time to time.
<PAGE> 20
"CAPITAL LEASE", as applied to any Person, means any lease of
any property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"CASH" means money, currency or a credit balance in a Deposit
Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within six months
after such date; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof, in each case maturing within six months after
such date and having, at the time of the acquisition thereof, the highest rating
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more
than six months from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's or equivalent ratings of Canadian Bond Rating Service and Dominion Bond
Rating Service; (iv) certificates of deposit or bankers' acceptances maturing
within six months after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $100,000,000; (v) shares of any money market mutual fund that (a) has
at least 95% of its assets invested continuously in the types of investments
referred to in clauses (i) and (ii) above, (b) has net assets of not less than
$500,000,000, and (c) has the highest rating obtainable from either S&P or
Moody's; and (vi) comparable short term investments in securities issued by the
Canadian government or any agency thereof or in certificates of deposit or
bankers' acceptances maturing within one year after such date and issued or
accepted by any commercial bank organized under the laws of Canada.
"CIBC" has the meaning assigned to that term in the
introduction to this Agreement.
"CLASS" means, as applied to Lenders, each of the following
classes of Lenders: (i) Lenders having Tranche A Term Loan Exposure, (ii)
Lenders having Tranche B Term Loan Exposure, (iii) Lenders having Canadian Term
Loan Exposure,
<PAGE> 21
(iv) Lenders having US Acquisition Loan Exposure, (v) Lenders having Canadian
Acquisition Loan Exposure, and (vi) Lenders having Revolving Loan Exposure.
"COLLATERAL" means, collectively, all of the real, personal
and mixed property (including capital stock) in which Liens are purported to be
granted pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL DOCUMENTS" means, the Holdings Pledge Agreement,
the Security Agreement, the Security Agreement (Escrows), the Canadian
Collateral Documents, the Investment Account Agreements, the Mortgages, the
Blocked Account Agreements and all other instruments or documents now or
hereafter granting Liens on property of Holdings, Company or any of its
Subsidiaries to Administrative Agent for the benefit of Lenders.
"COMMERCIAL LETTER OF CREDIT" means any letter of credit or
similar instrument issued for the purpose of providing the primary payment
mechanism in connection with the purchase of any materials, goods or services by
Company or any of its Subsidiaries in the ordinary course of business of Company
or such Subsidiary.
"COMMITMENTS" means the commitments of Lenders to make or
convert Loans as set forth in subsection 2.1A.
"COMPANY" means Protocol Communications, Inc., a Delaware
corporation.
"COMPANY COMMON STOCK" means the common stock of Company, par
value $0.001 per share.
"COMPANY GUARANTY" means an Amended and Restated Company
Guaranty executed and delivered by Company on the Effective Date, substantially
in the form of Exhibit XVII annexed hereto, as such Company Guaranty may
hereafter be amended, supplemented, restated or otherwise modified from time to
time.
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of Exhibit VIII annexed hereto delivered to Administrative Agent and
Lenders by Company pursuant to subsection 6.1(iv).
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the
sum of (i) the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability and including that portion of Capital
Leases which is capitalized on
<PAGE> 22
the consolidated balance sheet of Company and its Subsidiaries) by Company and
its Subsidiaries during that period that, in conformity with GAAP, are included
in "additions to property, plant or equipment" or comparable items reflected in
the consolidated statement of cash flows of Company and its Subsidiaries plus
(ii) to the extent not covered by clause (i) of this definition, the aggregate
of all expenditures by Company and its Subsidiaries during that period to
purchase or develop computer software or systems (but only to the extent such
expenditures are capitalized on the consolidated balance sheet of Company and
its Subsidiaries in conformity with GAAP) excluding, however, any expenditures
made pursuant to Permitted Acquisitions.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period,
Consolidated Interest Expense for such period excluding, however, any interest
expense not payable in Cash (including amortization of discount and amortization
of debt issuance costs and interest payable in kind).
"CONSOLIDATED CURRENT ASSETS" means, as at any date of
determination, the total assets of Company and its Subsidiaries on a
consolidated basis which may properly be classified as current assets in
conformity with GAAP, excluding Cash and Cash Equivalents.
"CONSOLIDATED CURRENT LIABILITIES" means, as at any date of
determination, the total liabilities of Company and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities in
conformity with GAAP excluding, however, the Revolving Loans and interest
thereon.
"CONSOLIDATED EBITDA" means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) provisions for taxes based on income, (iv) total
depreciation expense, (v) total amortization expense, (vi) other non-cash items
reducing Consolidated Net Income, (vii) the portion of the Transaction Costs, if
any, that are expensed in the fiscal period in which they were incurred, and
(viii) the portion of transaction costs for Permitted Acquisitions, if any, that
are expensed in the fiscal period in which they are incurred, to the extent the
accounting of such costs as an addition of such costs to Consolidated EBITDA is
approved by Requisite Lenders minus (a) other non-cash items increasing
Consolidated Net Income, (b) all Restricted Junior Payments made to Holdings
pursuant to subsection 7.5(iii)(a), and (c) Consolidated Interest Income, with
all of the foregoing as determined on a consolidated basis for Company and its
Subsidiaries in conformity with GAAP.
<PAGE> 23
"CONSOLIDATED EXCESS CASH FLOW" means, for any Fiscal Year, an
amount (if positive) equal to (i) the sum, without duplication, of the amounts
for such Fiscal Year of (a) Consolidated EBITDA (whether positive or negative),
(b) the Consolidated Working Capital Adjustment and (c) Consolidated Interest
Income minus (ii) the sum, without duplication, of the amounts of (a) voluntary
and scheduled repayments of principal of Consolidated Total Debt for such Fiscal
Year, excluding (x) repayments of principal of Revolving Loans except to the
extent the Revolving Loan Commitments are permanently reduced in connection with
such repayments, and (y) payments of principal of Permitted Acquisition
Indebtedness made with the proceeds of Acquisition Loans, (b) scheduled payments
in respect of Permitted Contingent Acquisition Obligations made within the first
90 days of the immediately following Fiscal Year, excluding any such payments
made with the proceeds of Acquisition Loans, (c) Consolidated Capital
Expenditures (net of any proceeds of any related financings with respect to such
expenditures (including sale-leasebacks permitted by subsection 7.10)) made
during such Fiscal Year, and excluding Consolidated Capital Expenditures made
pursuant to subsection 7.8C, (d) Consolidated Cash Interest Expense for such
Fiscal Year, and (e) the provision for current taxes based on income of Company
and its Subsidiaries and payable in cash with respect to such Fiscal Year.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum
(without duplication) of the amounts for such period of (i) Consolidated Net
Interest Expense, (ii) taxes based on income paid in cash by Holdings and its
Subsidiaries on a consolidated basis, (iii) scheduled payments of principal on
all Indebtedness, including without limitation, principal on the Loans,
Subordinated Indebtedness, Acquisition Indebtedness and Capital Leases, and (iv)
payments in respect of Contingent Acquisition Obligations, excluding any such
payments made with the proceeds of Acquisition Loans, all of the foregoing as
determined on a consolidated basis for Company and its Subsidiaries in
conformity with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total
interest expense (including that portion attributable to Capital Leases in
accordance with GAAP and capitalized interest) of Company and its Subsidiaries
on a consolidated basis with respect to all outstanding Indebtedness of Company
and its Subsidiaries, including, without limitation, all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements, but
excluding, however, any amounts referred to in subsection 2.3 payable to
Administrative Agent and Lenders on or before the Effective Date.
<PAGE> 24
"CONSOLIDATED INTEREST INCOME" means, for any period, total
interest income of Company and its Subsidiaries on a consolidated basis.
"CONSOLIDATED NET INCOME" means, for any period, the net
income (or loss) of Company and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined in conformity with
GAAP; provided that there shall be excluded (i) the income (or loss) of any
Person (other than a Subsidiary of Company) in which any other Person (other
than Company or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to
Company or any of its Subsidiaries by such Person during such period, (ii) the
income (or loss) of any Person accrued prior to the date it becomes a Subsidiary
of Company or is merged into or consolidated with Company or any of its
Subsidiaries or that Person's assets are acquired by Company or any of its
Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary, (iv) any
after-tax gains or losses attributable to Asset Sales or returned surplus assets
of any Pension Plan, and (v) (to the extent not included in clauses (i) through
(iv) above) any net extraordinary gains or net non-cash extraordinary losses.
"CONSOLIDATED NET INTEREST EXPENSE" means, for any period, the
excess of Consolidated Interest Expense for such period over Consolidated
Interest Income for such period.
"CONSOLIDATED NET REVENUE" means, for any period, the net
revenue of Company and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period, net of any allowances, deductions, and
uncollectable amounts, determined in conformity with GAAP.
"CONSOLIDATED TOTAL DEBT" means, as at any date of
determination, the aggregate stated balance sheet amount of all Indebtedness of
Company and its Subsidiaries plus the aggregate amount of Contingent Obligations
of Company and its Subsidiaries in respect of letters of credit supporting
obligations for Indebtedness, determined on a consolidated basis in accordance
with GAAP.
"CONSOLIDATED WORKING CAPITAL" means, as at any date of
determination, the excess of Consolidated Current Assets over Consolidated
Current Liabilities.
<PAGE> 25
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any
period on a consolidated basis, the amount (which may be a negative number) by
which Consolidated Working Capital as of the beginning of such period exceeds
(or is less than) Consolidated Working Capital as of the end of such period.
"CONTINGENT ACQUISITION OBLIGATION" means any obligation
(other than an obligation to issue Holdings Common Stock) on the part of
Holdings or any of its Subsidiaries to make one or more payments to any Person
in consideration for the capital stock or assets of any Acquired Business
acquired in any Acquisition, in each case to the extent Holdings' or such
Subsidiary's obligation to make such payment or payments is contingent in
amount, including contingencies based upon, or calculated with reference to, the
financial performance or value of such capital stock or assets, and includes any
such obligation for which the related contingency is subsequently removed.
Contingent Acquisition Obligations shall not include obligations in respect of
Approved Employee Bonuses. The amount of any Contingent Acquisition Obligation
shall be equal to the maximum amount that may become due and payable in respect
thereof.
"CONTINGENT OBLIGATION", as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of that Person, without
duplication, (i) with respect to any Indebtedness, lease, dividend or other
obligation of another if the primary purpose or intent thereof by the Person
incurring the Contingent Obligation is to provide assurance to the obligee of
such obligation of another that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof, (ii) with respect to any letter of credit
issued for the account of that Person or as to which that Person is otherwise
liable for reimbursement of drawings, (iii) under Hedge Agreements, or (iv) that
constitutes a Contingent Acquisition Obligation. Contingent Obligations shall
include, without limitation, (a) the direct or indirect guaranty, endorsement
(otherwise than for collection or deposit in the ordinary course of business),
co-making, discounting with recourse or sale with recourse by such Person of the
obligation of another, (b) the obligation to make take-or-pay or similar
payments if required regardless of non-performance by any other party or parties
to an agreement, and (c) any liability of such Person for the obligation of
another through any agreement (contingent or otherwise) (X) to purchase,
repurchase or otherwise acquire such obligation or any security therefor,
including any obligations to repurchase equity securities, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or (Y) to
maintain the solvency or any balance sheet item, level of income or financial
condition of
<PAGE> 26
another if, in the case of any agreement described under subclauses
(X) or (Y) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement, futures contract, option contract, synthetic cap or
other similar agreement or arrangement to which Company or any of its
Subsidiaries is a party.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or
like account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"DEFICIENT CANADIAN PLAN" means any Canadian Plan as to which
the actuarial present value of all benefit liabilities under such Canadian Plan
exceed the value of the assets held in such Canadian Plan which are allocable to
such benefits.
"DOLLARS" and the sign "$" mean the lawful money of the United
States of America.
"DOMESTIC SUBSIDIARY" means each Subsidiary of Company that is
organized under the laws of the United States or any state thereof.
"DOMESTIC SUBSIDIARY GUARANTOR" means each Domestic Subsidiary
of Company that is a party to the Domestic Subsidiary Guaranty and "DOMESTIC
SUBSIDIARY GUARANTORS" means all of them, collectively; provided, however that
Domestic Subsidiary Guarantors shall also mean any Person that becomes a
Domestic Subsidiary after the Effective Date that executes and delivers a
counterpart of the Domestic Subsidiary Guaranty pursuant to subsection 6.8.
"DOMESTIC SUBSIDIARY GUARANTY" means an amended and restated
Domestic Subsidiary Guaranty substantially in the form of Exhibit XIV annexed
hereto,
<PAGE> 27
executed and delivered by each Domestic Subsidiary Guarantor on the Effective
Date, as such agreement may hereafter be amended, supplemented, restated, or
otherwise modified from time to time.
"EFFECTIVE DATE" means the date on or before December 10,
1999, on which the conditions set forth in subsection 4.1 are first satisfied or
waived in writing by Administrative Agent and Requisite Lenders.
"ELIGIBLE ACCOUNTS" means at any date of determination, all
Accounts of Company and any of its wholly owned Domestic Subsidiaries (each, an
"Account Creditor") that satisfy the following requirements:
(i) the Account has resulted from the sale of goods or the
performance of services in the ordinary course of an Account Creditor's
business;
(ii) there are no conditions which must be satisfied before
the Account Creditor is entitled to receive payment of the Account;
(iii) the Account represents a genuine obligation of the
account debtor for goods sold and accepted, or for services performed for and
accepted, by the account debtor;
(iv) the Account is payable only in Dollars;
(v) the Account is not evidenced by a promissory note or other
instrument or by chattel paper, unless such promissory note or other chattel
paper has been delivered to Administrative Agent, together with any necessary
endorsement in blank;
(vi) the Account is not owed by an account debtor which is a
director, officer, shareholder, employee or Affiliate of Company or any of its
Subsidiaries;
(vii) the account debtor in respect of such Account is not
Insolvent. An account debtor will be deemed to be Insolvent if any of the
following occur:
1) the Account Creditor has received notice that the
account debtor has suspended business, made a general
assignment for the benefit of creditors, or has failed to pay
its debts generally as they come due; or
<PAGE> 28
2) any bankruptcy, insolvency, liquidation or similar
proceeding is commenced or petition is filed by or against the
account debtor under the Bankruptcy Code or any other similar
law;
(viii) the Account has not remained unpaid for more than 90
days since the invoice date;
(ix) the Account is not owed by an account debtor with respect
to which more than 50% of the Accounts have remained unpaid for more than 90
days since the invoice date;
(x) the Account Creditor is the sole owner of the Account and
has not sold, transferred, assigned or pledged the Account to any Person other
than pursuant to a Collateral Document;
(xi) Administrative Agent has a valid, perfected First
Priority Lien on such Account;
(xii) the Account is not owed by the government of the United
States of America, or any department, agency, public corporation, or other
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as
amended, and any other steps necessary to perfect Administrative Agent's
security interest therein, have been complied with to Administrative Agent's
reasonable satisfaction with respect to such Account; and
(xiii) such account is not otherwise unacceptable to
Administrative Agent in its sole discretion.
"ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized
under the laws of the United States or any state thereof and having a combined
capital and surplus of at least $100,000,000; (ii) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof and having a combined capital and surplus of at least
$250,000,000; (iii) a commercial bank organized under the laws of any other
country or a political subdivision thereof and having a combined capital and
surplus of at least $100,000,000; provided that (x) such bank is acting through
a branch or agency located in the United States or (y) such bank is organized
under the laws of a country that is a member of the Organization for Economic
Cooperation and Development or a political subdivision of such country; and (iv)
any other entity which is an "accredited investor" (as defined in Regulation D
under the Securities Act) which extends credit or buys loans as one of its
businesses including, but not limited to,
<PAGE> 29
insurance companies, mutual funds and lease financing companies; and (B) any
Lender and any Affiliate of any Lender; provided that no Affiliate of Company
shall be an Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as
defined in Section 3(3) of ERISA which is or was maintained or contributed to by
Company, any of its Subsidiaries or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice
of violation, claim, action, suit, proceeding, demand, abatement order or other
order or directive (conditional or otherwise), by any governmental authority or
any other Person, arising (i) pursuant to or in connection with any actual or
alleged violation of any Environmental Law, (ii) in connection with any
Hazardous Materials or any actual or alleged Hazardous Materials Activity, or
(iii) in connection with any actual or alleged damage, injury, threat or harm to
health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future
statutes, ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of governmental
authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, in any manner applicable to Company or any of its
Subsidiaries or any Facility, including the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean
Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide
Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et
seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
Section 11001 et seq.), each as amended or supplemented, any analogous present
or future state or local statutes or laws, and any regulations promulgated
pursuant to any of the foregoing.
"EQUIPMENT INDEBTEDNESS" means Indebtedness owed by an
Acquired Business at the time of the Acquisition thereof, which Indebtedness was
not incurred in contemplation of such Acquisition and is secured by assets of
such Acquired Business
<PAGE> 30
that are classified as "property, plant and equipment" in accordance with GAAP
on the financial statements of such Acquired Business.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, as applied to any Person, (i) any
corporation which is a member of a controlled group of corporations within the
meaning of Section 414(b) of the Internal Revenue Code of which that Person is a
member; (ii) any trade or business (whether or not incorporated) which is a
member of a group of trades or businesses under common control within the
meaning of Section 414(c) of the Internal Revenue Code of which that Person is a
member; and (iii) any member of an affiliated service group within the meaning
of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any
corporation described in clause (i) above or any trade or business described in
clause (ii) above is a member. Any former ERISA Affiliate of Company or any of
its Subsidiaries shall continue to be considered an ERISA Affiliate of Company
or such Subsidiary within the meaning of this definition with respect to the
period such entity was an ERISA Affiliate of Company or such Subsidiary and with
respect to liabilities arising after such period for which Company or such
Subsidiary could be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding standard of Section 412 of the Internal Revenue Code with
respect to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code with
respect to any Pension Plan or the failure to make any required contribution to
a Multiemployer Plan; (iii) the provision by the administrator of any Pension
Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate
such plan in a distress termination described in Section 4041(c) of ERISA; (iv)
the withdrawal by Company, any of its Subsidiaries or any of their respective
ERISA Affiliates from any Pension Plan with two or more contributing sponsors or
the termination of any such Pension Plan resulting in liability pursuant to
Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (vi) the
<PAGE> 31
imposition of liability on Company, any of its Subsidiaries or any of their
respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by
reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of
Company, any of its Subsidiaries or any of their respective ERISA Affiliates in
a complete or partial withdrawal (within the meaning of Sections 4203 and 4205
of ERISA) from any Multiemployer Plan if there is any potential liability
therefor, or the receipt by Company, any of its Subsidiaries or any of their
respective ERISA Affiliates of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that
it intends to terminate or has terminated under Section 4041A or 4042 of ERISA;
(viii) the occurrence of an act or omission which could give rise to the
imposition on Company, any of its Subsidiaries or any of their respective ERISA
Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the
Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or
Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the
assertion of a material claim (other than routine claims for benefits) against
any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof,
or against Company, any of its Subsidiaries or any of their respective ERISA
Affiliates in connection with any Employee Benefit Plan; (x) receipt from the
Internal Revenue Service of notice of the failure of any Pension Plan (or any
other Employee Benefit Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue
Code, or the failure of any trust forming part of any Pension Plan to qualify
for exemption from taxation under Section 501(a) of the Internal Revenue Code;
or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"EURODOLLAR RESERVE PERCENTAGE" means, for any day, the
percentage (expressed as a decimal and rounded upwards, if necessary, to the
next higher 1/100th of 1%) which is in effect for such day as prescribed by the
Federal Reserve Board (or any successor) for determining the maximum reserve
requirement (including without limitation any basic, supplemental or emergency
reserves) in respect of Eurocurrency liabilities or any similar category of
liabilities for a member bank of the Federal Reserve System in New York City.
"EVENT OF DEFAULT" means each of the events set forth in
Section 8.
<PAGE> 32
"EXCHANGE ACT" means the Securities Exchange Act of 1934, or
the Canadian equivalent where applicable, as amended from time to time, and any
successor statute.
"EXISTING CANADIAN ACQUISITION LOANS" means the loans made or
maintained by Lenders to the Canadian Borrower pursuant to subsection 2.1A(iii)
of the Existing Credit Agreement that are outstanding as of and at the time of
the Effective Date.
"EXISTING CREDIT AGREEMENT" has the meaning specified in the
Recitals to this Agreement.
"EXISTING LENDERS" means each Lender (as such term is defined
in the Existing Credit Agreement) on the Effective Date, immediately prior to
the effectiveness hereof and prior to the effectiveness of the Master Assignment
Agreement.
"EXISTING LETTER OF CREDIT" means each Letter of Credit (as
defined in the Existing Credit Agreement) outstanding on the Effective Date that
has not expired or been cancelled as of the Effective Date.
"EXISTING LOANS" means the Existing Canadian Acquisition
Loans, the Existing Revolving Loans, the Existing Term Loans, and the Existing
US Acquisition Loans.
"EXISTING REVOLVING LOANS" means the loans made or maintained
by Lenders to Company pursuant to subsection 2.1A(iv) of the Existing Credit
Agreement that are outstanding as of and at the time of the Effective Date.
"EXISTING TERM LOANS" means the loans maintained by Lenders as
loans to Company pursuant to subsection 2.1A(i) of the Existing Credit Agreement
that are outstanding as of and at the time of the Effective Date.
"EXISTING US ACQUISITION LOANS" means the loans made or
maintained by Lenders to Company pursuant to subsection 2.1A(ii) of the Existing
Credit Agreement that are outstanding as of and at the time of the Effective
Date.
"FACILITIES" means any and all real property (including,
without limitation, all buildings, fixtures or other improvements located
thereon) now, hereafter or heretofore owned, leased, operated or used by Company
or any of its Subsidiaries.
<PAGE> 33
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by Administrative Agent from three Federal funds
brokers of recognized standing selected by Administrative Agent.
"FINANCIAL PLAN" has the meaning assigned to that term in
subsection 6.1(xiii).
"FIRST CLOSING DATE" means June 5, 1998, the date of the
closing of the Original Credit Agreement.
"FIRST PRIORITY" means, with respect to any Lien purported to
be created in any Collateral pursuant to any Collateral Document, that (i) such
Lien has priority over any other Lien on such Collateral other than any
Permitted Encumbrances having priority by operation of law over the Liens
purported to be created pursuant to the Collateral Documents and any Lien
permitted pursuant to subsections 7.2(iii), 7.2(iv) or 7.2(v) securing purchase
money Indebtedness or that existed on assets when they were acquired by Company
or its Subsidiaries and (ii) such Lien is the only Lien (other than Permitted
Encumbrances and Liens permitted pursuant to subsection 7.2) to which such
Collateral is subject.
"FISCAL MONTH" means a fiscal month of any Fiscal Year.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Company and its
Subsidiaries ending on December 31 of each calendar year.
"FISHER" means James Fisher, a natural person and a resident
of Quebec, Canada.
"FLOOD HAZARD PROPERTY" means a Mortgaged Property located in
an area designated by the Federal Emergency Management Agency as having special
flood or mud slide hazards.
<PAGE> 34
"FUNDING AND PAYMENT OFFICE" means (i) the office of
Administrative Agent located at 425 Lexington Avenue, New York, New York 10017
or (ii) such other office of Administrative Agent as may from time to time
hereafter be designated as such in a written notice delivered by Administrative
Agent to Company and each Lender.
"FUNDING DATE" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application
thereof set forth in subsection 1.2, generally accepted accounting principles as
in effect from time to time in the United States set forth in opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession, in each
case as the same are applicable to the circumstances as of the date of
determination.
"GOVERNMENTAL AUTHORIZATION" means any permit, license,
authorization, plan, directive, consent order or consent decree of or from any
US federal, Canadian federal, state, provincial, or local governmental
authority, agency or court.
"GUARANTIES" means the Holdings Guaranty, the Company
Guaranty, the Canadian Subsidiary Guaranty, the Domestic Subsidiary Guaranty,
and the Canadian Resident Guaranties.
"GUARANTOR" means any of Holdings, Company, the Canadian
Subsidiary Guarantors, the Domestic Subsidiary Guarantors, and the Canadian
Resident Stockholder, and "GUARANTORS" means all of them, collectively.
"HAZARDOUS MATERIALS" means (i) any chemical, material or
substance at any time defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
waste", acutely hazardous waste", "radioactive waste", "biohazardous waste",
"pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste",
"infectious waste", "toxic substances", or any other term or expression intended
to define, list or classify substances by reason of properties harmful to
health, safety or the indoor or outdoor environment (including harmful
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws); (ii) any oil,
petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling
fluids, produced waters and other wastes associated with the
<PAGE> 35
exploration, development or production of crude oil, natural gas or geothermal
resources; (iv) any flammable substances or explosives; (v) any radioactive
materials; (vi) any asbestos-containing materials; (vii) urea formaldehyde foam
insulation; (viii) electrical equipment which contains any oil or dielectric
fluid containing polychlorinated biphenyls; (ix) pesticides; and (x) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority or which may or could pose a hazard to
the health and safety of the owners, occupants or any Persons in the vicinity of
any Facility or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current,
proposed or threatened activity, event or occurrence involving any Hazardous
Materials, including the use, manufacture, possession, storage, holding,
presence, existence, location, Release, threatened Release, discharge,
placement, generation, transportation, processing, construction, treatment,
abatement, removal, remediation, disposal, disposition or handling of any
Hazardous Materials, and any corrective action or response action with respect
to any of the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a
Currency Agreement designed to hedge against fluctuations in interest rates or
currency values, respectively.
"HOLDINGS" means Protocol Holdings, Inc., a Delaware
corporation.
"HOLDINGS CERTIFICATE OF DESIGNATIONS" means the provisions of
Holdings' Restated Certificate of Incorporation relating to the Holdings
Preferred Stock, in the form delivered to Administrative Agent and Lenders prior
to their execution of this Agreement, and as such provisions may be amended from
time to time thereafter to the extent permitted under subsection 7.15A.
"HOLDINGS COMMON STOCK" means the common stock of Holdings,
par value $0.001 per share.
"HOLDINGS GUARANTY" means an Amended and Restated Holdings
Guaranty, executed and delivered by Holdings on the Effective Date,
substantially in the form of Exhibit XVI annexed hereto, as such guaranty may
hereafter be amended, supplemented, restated, or otherwise modified from time to
time.
"HOLDINGS PLEDGE AGREEMENT" means a Holdings Pledge Agreement
executed and delivered by Holdings on the Effective Date, substantially in the
form of
<PAGE> 36
Exhibit XV annexed hereto, as such pledge agreement may hereafter be amended,
supplemented, restated, or otherwise modified from time to time.
"HOLDINGS PREFERRED STOCK" means the Holdings Series A
Preferred Stock and the Holdings Series B Preferred Stock.
"HOLDINGS SERIES A PREFERRED STOCK" means the Series A
Preferred Stock of Holdings, par value $0.001 per share, with a liquidation
preference of $1.57 plus accrued dividends per share and with the other terms
set forth in the Holdings Certificate of Designations.
"HOLDINGS SERIES B PREFERRED STOCK" means the Series B
Preferred Stock of Holdings, par value $0.001 per share, with a liquidation
preference of $7.90 plus accrued dividends per share and with the other terms
set forth in the Holdings Certificate of Designations.
"INDEBTEDNESS", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations with respect
to Capital Leases that is properly classified as a liability on a balance sheet
in conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof, or (b) evidenced by a note or similar
written instrument, (v) all Acquisition Indebtedness and (vi) all indebtedness
secured by any Lien on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is nonrecourse to the credit of that Person. Obligations under
Interest Rate Agreements and Currency Agreements constitute (X) in the case of
Hedge Agreements, Contingent Obligations, and (Y) in all other cases,
Investments, and in neither case constitute Indebtedness.
"INDEMNITEE" has the meaning assigned to that term in
subsection 10.3.
"INSOLVENCY LAWS" means the Bankruptcy Code, the Bankruptcy
and Insolvency Act (Canada), the Company Creditors' Arrangement Act (Canada),
the Winding-Up Act (Canada) or any comparable law of Canada or any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect in
the United States of America or any state thereof or Canada or any province
thereof.
<PAGE> 37
"INTELLECTUAL PROPERTY" means all patents, trademarks,
tradenames, copyrights, technology, know-how and processes used in or necessary
for the conduct of the business of Company and its Subsidiaries as currently
conducted that are material to the condition (financial or otherwise), business
or operations of Company and its Subsidiaries, taken as a whole.
"INTEREST PAYMENT DATE" means (i) with respect to any Base
Rate Loan, each March 31, June 30, September 30 and December 31 of each year,
commencing on the first such date to occur after the Effective Date, and (ii)
with respect to any Eurodollar Rate Loan, the last day of each Interest Period
applicable to such Loan; provided that in the case of each Interest Period of
longer than three months "Interest Payment Date" shall also include each date
that is three months, or an integral multiple thereof, after the commencement of
such Interest Period and provided, further, after and during the continuance of
an Event of Default, "Interest Payment Date" for any Loan shall also include the
last day of each calendar month.
"INTEREST PERIOD" has the meaning assigned to that term in
subsection 2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement to which Company or any of its Subsidiaries is
a party.
"INTEREST RATE DETERMINATION DATE" means, with respect to any
Interest Period, the second Business Day prior to the first day of such Interest
Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended to the date hereof and from time to time hereafter, and any
successor statute.
"INVENTORY" means, with respect to any Person as of any date
of determination, all goods, merchandise and other personal property which are
then held by such Person for sale or lease, including raw materials and work in
process.
"INVESTMENT" means (i) any direct or indirect purchase or
other acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person (including any Subsidiary of
Company), (ii) any direct or indirect redemption, retirement, purchase or other
acquisition for value, by any Subsidiary of Company from any Person other than
Company or any of its Subsidiaries, of any equity Securities of such Subsidiary,
(iii) any direct or indirect loan, advance
<PAGE> 38
(other than advances to employees for moving, entertainment and travel expenses,
drawing accounts and similar expenditures in the ordinary course of business) or
capital contribution by Company or any of its Subsidiaries to any other Person
(other than a wholly-owned Subsidiary of Company), including all indebtedness
and accounts receivable from that other Person that are not current assets or
did not arise from sales to that other Person in the ordinary course of
business, or (iv) Interest Rate Agreements or Currency Agreements not
constituting Hedge Agreements. The amount of any Investment shall be the
original cost of such Investment plus the cost of all additions thereto, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment.
"INVESTMENT ACCOUNT" has the meaning assigned thereto in
subsection 2.4B(iv)(e).
"INVESTMENT ACCOUNT AGREEMENTS" means, collectively, the
documents, instruments and agreements pursuant to which the Investment Account
is created and maintained and pursuant to which Administrative Agent is granted
a perfected a First Priority Lien in the Investment Account for the benefit of
Lenders, including, without limitation, the Investment Account Security
Agreement.
"INVESTMENT ACCOUNT SECURITY AGREEMENT" means an account
Pledge Agreement among the Canadian Borrower, Administrative Agent, and the
holder of the Investment Account, pursuant to which Administrative Agent shall
be granted a First Priority Lien on the Investment Account, which agreement
shall be in form and substance satisfactory to Administrative Agent.
"ISSUING LENDER" means, with respect to any Letter of Credit,
the Revolving Lender which agrees or is otherwise obligated to issue such Letter
of Credit, determined as provided in subsection 3.1B(ii).
"JOINT VENTURE" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided that in no event shall any corporate Subsidiary of any Person be
considered to be a Joint Venture to which such Person is a party.
"LEASEHOLD PROPERTY" means any leasehold interest of any Loan
Party as lessee under any lease of real property, other than any such leasehold
interest designated from time to time by Administrative Agent in its sole
discretion as not being required to be included in the Collateral.
<PAGE> 39
"LENDER" and "LENDERS" means the persons identified as
"Lenders" and listed on the signature pages of this Agreement, together with
their successors and permitted assigns pursuant to subsection 10.1; provided
that the term "Lenders", when used in the context of a particular Commitment,
shall mean Lenders having that Commitment.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Commercial
Letters of Credit and Standby Letters of Credit issued or to be issued by
Issuing Lenders for the account of Company pursuant to subsection 3.1.
"LETTER OF CREDIT USAGE" means, as at any date of
determination, the sum of (i) the maximum aggregate amount which is or at any
time thereafter may become available for drawing under all Letters of Credit
then outstanding plus (ii) the aggregate amount of all drawings under Letters of
Credit honored by Issuing Lenders and not theretofore reimbursed by Company
(including any such reimbursement out of the proceeds of Revolving Loans
pursuant to subsection 3.3B).
"LIBOR" means the rate for deposits in Dollars for a period
equal to the Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 A.M. (London time), two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such rate is
not available, then "LIBOR" shall mean the rate per annum at which, as
determined by Administrative Agent, Dollars are being offered to leading banks
at approximately 11:00 A.M. (London time), two (2) Business Days prior to the
commencement of the applicable Interest Period for settlement in immediately
available funds by leading banks in the London interbank market for a period
equal to the Interest Period selected.
"LIEN" means any lien, mortgage, hypothec, pledge, assignment,
security interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof, and
any agreement to give any security interest) and any option, trust, escrow,
deposit, or other preferential arrangement having the practical effect of any of
the foregoing.
"LOAN" or "LOANS" means one or more of the Tranche A Term
Loans, Tranche B Term Loans, Canadian Term Loans, Canadian Acquisition Loans, US
Acquisition Loans, or Revolving Loans or any combination thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters
of Credit (and any applications for, or reimbursement agreements or other
documents or
<PAGE> 40
certificates executed by Company in favor of an Issuing Lender relating to, the
Letters of Credit), the Guaranties, the Collateral Documents, and the
Acknowledgement and Confirmation.
"LOAN PARTY" means each of Holdings, Company, Canadian
Borrower, any of Company's Subsidiaries from time to time executing a Loan
Document, and the Canadian Resident Stockholder, and "LOAN PARTIES" means all
such Persons, collectively.
"MANAGEMENT EMPLOYMENT AGREEMENTS" means each Amended and
Restated Executive Employment Agreement dated as of September 29, 1999 between
Company and each of Raymond Wilson, Stephen G. McLean, and Kevin Blayne
providing for, among other things, the issuance of Holdings Common Stock to such
persons, in each case in the form delivered to Administrative Agent and Lenders
prior to their execution of this Agreement.
"MANAGEMENT INVESTORS" means Raymond Wilson, Stephen G.
McLean, and Kevin Blayne, Robert J. Conrads, and Robert C. Gust.
"MARGIN STOCK" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time.
"MASTER ASSIGNMENT AGREEMENT" means a Master Assignment
Agreement in substantially the form of Exhibit XXV annexed hereto.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect
upon the business, operations, properties, assets, condition (financial or
otherwise) or prospects of either Company, individually, or Company and its
Subsidiaries, taken as a whole, or (ii) the impairment of the ability of any
Loan Party to perform, or of Administrative Agent or Lenders to enforce, the
Obligations.
"MATERIAL CONTRACT" means any contract or other arrangement to
which Company or any of its Subsidiaries is a party (other than the Loan
Documents) for which breach, nonperformance, cancellation or failure to renew
could have a Material Adverse Effect.
"METC" means M.E.T.C. Financial Services Inc., a corporation
organized, constituted and existing under the Canada Business Corporations Act.
<PAGE> 41
"METC HOLDINGS" means 3588238 Canada Inc., a corporation
organized, constituted and existing under the Canada Business Corporations Act.
"METC HOLDINGS UNANIMOUS SHAREHOLDERS AGREEMENTS" means (i)
that certain Unanimous Shareholder Agreement dated as of May 21, 1999, by and
among Media Express, Fisher and METC Holdings, as in effect on the date hereof,
and (ii) any agreement entered into pursuant to subsection 6.8D, as each such
agreement may be amended from time to time thereafter to the extent permitted
under subsection 7.15A.
"METC UNANIMOUS SHAREHOLDERS AGREEMENTS" means (i) that
certain Unanimous Shareholder Agreement dated as of May 21, 1999, by and among
Media Express, METC Holdings and METC as in effect on the date hereof, and (ii)
any agreement entered into pursuant to subsection 6.8D, as each such agreement
may be amended from time to time thereafter to the extent permitted under
subsection 7.15A.
"MORTGAGE" means (i) a security instrument (whether designated
as a deed of trust or a mortgage or by any similar title) executed and delivered
by any Loan Party, in such form as may be approved by Administrative Agent in
its sole discretion, in each case with such changes thereto as may be
recommended by Administrative Agent's local counsel based on local laws or
customary local mortgage or deed of trust practices, or (ii) at Administrative
Agent's option, in the case of an Additional Mortgaged Property (as defined in
subsection 6.9), an amendment to an existing Mortgage, in form satisfactory to
Administrative Agent, adding such Additional Mortgaged Property to the Real
Property Assets encumbered by such existing Mortgage, in either case as such
security instrument or amendment may be amended, supplemented or otherwise
modified from time to time. "MORTGAGES" means all such instruments, including
any Additional Mortgages (as defined in subsection 6.9), collectively.
"MORTGAGED PROPERTY" means an Additional Mortgaged Property
(as defined in subsection 6.9).
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is
a "multiemployer plan" as defined in Section 3(37) of ERISA.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset
Sale, Cash payments (including any Cash received by way of deferred payment
pursuant to, or by monetization of, a note receivable or otherwise, but only as
and when so received) received from such Asset Sale, net of any bona fide direct
costs incurred in connection with such Asset Sale, including without limitation
(i) income taxes reasonably estimated
<PAGE> 42
to be actually payable within two years of the date of such Asset Sale as a
result of any gain recognized in connection with such Asset Sale and (ii)
payment of the outstanding principal amount of, premium or penalty, if any, and
interest on any Indebtedness (other than the Loans) that is secured by a Lien on
the stock or assets in question and that is required to be repaid under the
terms thereof as a result of such Asset Sale.
"NET INSURANCE/CONDEMNATION PROCEEDS" means any Cash payments
or proceeds received by Company or any of its Subsidiaries (i) under any
business interruption or casualty insurance policy in respect of a covered loss
thereunder or (ii) as a result of the taking of any assets of Company or any of
its Subsidiaries by any Person pursuant to the power of eminent domain,
condemnation or otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking, in each case net of any
actual and reasonable documented costs incurred by Company or any of its
Subsidiaries in connection with the adjustment or settlement of any claims of
Company or such Subsidiary in respect thereof.
"NET SECURITIES PROCEEDS" means Cash proceeds from the
issuance of any debt or equity Securities of Holdings after the Effective Date,
net of underwriting discounts and commissions and other reasonable costs and
expenses associated therewith, including without limitation reasonable legal
fees and expenses; provided that Net Securities Proceeds shall exclude (i)
amounts received upon the exercise of options to acquire shares of Holdings'
capital stock granted to employees of Company or its Subsidiaries and (ii) cash
contributed by Willis Stein and BCI to Holdings after the Effective Date
pursuant to Sections 1.04, 1.05 and 1.06 of the Recapitalization Agreement, in a
maximum amount that, together with the aggregate amount contributed on the
Effective Date to Holdings as described in subsection 4.1D, does not exceed
$111,000,000, provided that such cash contributions are contributed by Holdings
to Company in cash as contributions to capital and are used by Company and its
Subsidiaries either (a) within 60 days of the receipt by Holdings of such
amounts, to pay purchase consideration (including, without limitation, amounts
escrowed) for Permitted Acquisitions payable on the consummation thereof,
transaction costs incurred in connection therewith, or amounts owed in respect
of Permitted Contingent Acquisition Obligations to the extent payment of such
amounts is permitted hereunder, or (b) within 30 days of the receipt by Holdings
of such amounts, if no Event of Default shall have occurred and be continuing at
the time of such payment, and Requisite Lenders have approved the use of such
cash proceeds for such purpose, to pay Consolidated Capital Expenditures
permitted by subsection 7.8C. Any amounts excluded from Net Securities Proceeds
pursuant to clause (ii) hereof that are not used by Company and its Subsidiaries
<PAGE> 43
within the time periods referred to in clause (ii) shall constitute Net
Securities Proceeds on the last day of the applicable time period.
"NEW LOAN DOCUMENTS" means this Agreement, the Notes, the
Acknowledgement and Confirmation, and all other new agreements to be executed by
the Loan Parties on the Effective Date, as set forth on Schedule 1.1N hereto.
"NOTES" means one or more of the Tranche A Term Notes, the
Tranche B Term Notes, the Canadian Term Notes, the US Acquisition Notes, the
Canadian Acquisition Notes, or the Revolving Notes or any combination thereof.
"NOTICE OF BORROWING" means a notice substantially in the form
of Exhibit I annexed hereto delivered by a Borrower to Administrative Agent
pursuant to subsection 2.1B with respect to a proposed borrowing.
"NOTICE OF CONVERSION/CONTINUATION" means a notice
substantially in the form of Exhibit II annexed hereto delivered by a Borrower
to Administrative Agent pursuant to subsection 2.2D with respect to a proposed
conversion or continuation of the applicable basis for determining the interest
rate with respect to the Loans specified therein.
"NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice
substantially in the form of Exhibit III annexed hereto delivered by Company to
Administrative Agent pursuant to subsection 3.1B(i) with respect to the proposed
issuance of a Letter of Credit.
"OBLIGATIONS" means all obligations of every nature of each
Loan Party from time to time owed to Administrative Agent, Lenders or any of
them under the Loan Documents, whether for principal, interest, reimbursement of
amounts drawn under Letters of Credit, fees, expenses, indemnification or
otherwise.
"OFFICERS' CERTIFICATE" means, as applied to any corporation,
a certificate executed on behalf of such corporation by its chairman of the
board (if an officer) or its president or one of its vice presidents and by its
chief financial officer or its treasurer; provided that every Officers'
Certificate with respect to the compliance with a condition precedent to the
making of any Loans hereunder shall include (i) a statement that the officer or
officers making or giving such Officers' Certificate have read such condition
and any definitions or other provisions contained in this Agreement relating
thereto, (ii) a statement that, in the opinion of the signers, they have made or
have caused to be made such examination or investigation as is necessary to
enable them to express an informed
<PAGE> 44
opinion as to whether or not such condition has been complied with, and (iii) a
statement as to whether, in the opinion of the signers, such condition has been
complied with.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
"PERMITTED ACQUISITION" means any Acquisition with respect to
which either (a) Requisite Lenders have approved such Acquisition in writing or
(b) all of the following conditions have been satisfied:
(i) the Acquisition is non-hostile;
(ii) the Acquired Business is in a Related Business and the
assets of the Acquired Business are located in the United States;
(iii) such Acquired Business becomes a wholly-owned Subsidiary
of Company, or the business, property or other assets comprising such
Acquired Business are acquired by a Subsidiary of Company; provided,
however, that shares of capital stock of METC may be held by METC
Holdings and shares of capital stock of METC Holdings may be held by
Fisher or by any Canadian Resident Stockholder who complies with
subsection 6.8C and 6.8D;
(iv) the amount of all consideration to be paid by Holdings,
Company and Company's Subsidiaries in such Acquisition (including any
Permitted Acquisitions of Affiliates of such Acquired Business, but
excluding any of the seven potential Acquisitions that were identified
to Agents by Company prior to the date hereof that may be approved by
Requisite Lenders in their sole discretion) does not exceed
$10,000,000;
(v) the amount of all consideration to be paid by Holdings,
Company and Company's Subsidiaries in such Acquisition and in all other
Acquisitions that
<PAGE> 45
were made within the 12 month period preceding the date of the proposed
Acquisition (other than any of the seven potential Acquisitions that
were identified to Agents by Company prior to the date hereof that may
be approved by Requisite Lenders in their sole discretion) does not
exceed $40,000,000;
(vi) such Acquired Business shall have had positive
Consolidated EBITDA (determined on a Pro Forma Basis as provided below)
for the most recently ended 12 month period preceding the date of the
proposed Acquisition for which financial statements are available, and
Company shall have delivered to Administrative Agent the list of all
exclusions from Consolidated EBITDA made pursuant to clause (iii) of
the definition of Pro Forma Basis, broken down by month, in
substantially the same form as Schedule 1.1P hereto;
(vii) Requisite Lenders shall have reasonably approved the
terms of any Contingent Acquisition Obligations to be incurred in
connection with such Acquisition;
(viii) all Acquisition Indebtedness and all Contingent
Acquisition Obligations incurred in connection with the Proposed
Acquisition shall be payable prior to the US Acquisition Loan
Commitment Termination Date in the case of Acquisitions by Company or
its Domestic Subsidiaries and prior to the Canadian Acquisition Loan
Commitment Termination Date in the case of Acquisitions by the Canadian
Borrower or its Subsidiaries;
(ix) Company shall have given Administrative Agent not less
than 15 Business Days prior written notice of the proposed Acquisition;
and
(x) not less than ten Business Days prior to the consummation
of such proposed Acquisition, Company shall have delivered to
Administrative Agent and Lenders the following:
(1) A Compliance Certificate prepared on a Pro Forma
Basis certifying that no Event of Default under this Agreement
shall then exist or shall occur as a result of such
Acquisition, and that all representations and warranties
contained herein and in the other Loan Documents are true,
correct and complete in all material respects on and as of the
date of such Acquisition to the same extent as though made on
and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in
which case such representations and warranties shall
<PAGE> 46
have been true, correct and complete in all material respects
on and as of such earlier date, and demonstrating that after
giving effect to such Acquisition and to all Indebtedness and
Permitted Contingent Acquisition Obligations to be incurred or
assumed or repaid in connection with or as consideration for
such Acquisition, Borrowers shall be in compliance on a Pro
Forma Basis with the covenants in Section 7 as of the last day
of the most recently ended Fiscal Month for which the relevant
financial statements are available. All exclusions of income
statement items of Acquired Businesses made pursuant to clause
(iii) of the definition of "Pro Forma Basis" shall be
separately identified in such Pro Forma Compliance
Certificate.
(2) A copy, prepared in conformity with GAAP, of
financial statements of such Acquired Business for the 12
consecutive Fiscal Month period corresponding to the
calculation period for the financial covenants in the
immediately preceding clause, which financial statements shall
either be (i) accompanied by an accounting and business
analysis by KPMG Peat Marwick, LLC or by another "Big 5"
accounting firm reasonably acceptable to Requisite Lenders,
with the scope of such analysis to be consistent with past
practices, or (ii) accompanied by an accounting and business
analysis by another accounting firm reasonably acceptable to
Requisite Lenders and otherwise in form and substance
satisfactory to Requisite Lenders.
(3) (i) Pro forma consolidated and consolidating
balance sheets of Company and its Subsidiaries as at the date
of the proposed Acquisition, prepared in accordance with GAAP
and reflecting the consummation of the proposed Acquisition
and the related financings and all obligations incurred in
connection therewith, which financial statements shall be
prepared on a Pro Forma Basis and shall be in form and
substance satisfactory to Requisite Lenders and (ii) two sets
of projected consolidated and consolidating financial
statements of Company and its Subsidiaries for the period
commencing on the date of the proposed Acquisition and ending
on the last day on which any Permitted Acquisition
Indebtedness or Permitted Contingent Acquisition Obligations
may become due and payable, consisting of consolidated and
consolidating balance sheets and the related consolidated and
consolidating statements of income, shareholders' equity and
cash flows,
<PAGE> 47
together with pro forma Compliance Certificates for the period
ending on the last day of each Fiscal Year ending during such
period. One set of such projections shall be based on
assumptions that Company believes to be fair and reasonable,
and the second set of such projections shall assume that
Company's financial performance is such that it is required to
pay the maximum amount of the Permitted Contingent Acquisition
Obligations and Permitted Acquisition Indebtedness owed by it.
All such projections shall be in form and substance
satisfactory to Administrative Agent and Requisite Lenders.
(4) A copy of a due diligence report prepared by the
accounting firm referred to in clause (x)(2) of this
definition regarding such firm's investigation of the Acquired
Business.
(5) A copy of all environmental reports obtained in
connection with such Acquisition.
(6) Final executed copies of the applicable
Acquisition Agreement and any promissory notes and employment
agreements executed in connection therewith, which shall be in
form and substance satisfactory to Administrative Agent and
Requisite Lenders.
(7) A copy of any notice filed by such Acquired
Business under any Environmental Law indicating past or
present treatment of Hazardous Materials at any facility used
by such Acquired Business, which notices, and evidence of any
remediation taken by such Acquired Business, shall be in form
and substance satisfactory to Administrative Agent.
(8) An Officers' Certificate setting forth the
calculation of the US Acquisition Reserve and the Canadian
Acquisition Reserve (including a break out of each individual
component) giving effect to any Acquisition Loans to be
borrowed in connection with such Acquisition and any
obligations to be incurred in connection with such
Acquisition.
(9) An estimate of the transactions costs (including
projected costs) to be incurred in connection with such
Acquisition, and a statement showing which of such costs will
be capitalized on the books of Company and its Subsidiaries
and which will be expensed.
<PAGE> 48
For purposes of clauses (iv) and (v) of this
definition, the amount of consideration paid in any Permitted
Acquisition shall be equal to the sum, without duplication, of
(a) the amount of Cash paid or to be paid as consideration in
such Permitted Acquisition, (b) the principal amount of all
Indebtedness incurred or assumed in such Permitted
Acquisition, (c) the amount of all Contingent Acquisition
Obligations incurred or assumed in such Permitted Acquisition,
(d) the estimated amount of all transaction costs incurred in
connection with such Permitted Acquisition, and (e) and the
estimated fair market value of all other non-cash
consideration paid or to be paid in such Permitted Acquisition
(including capital stock issued in connection therewith). For
purposes of determining the Consolidated EBITDA of the
Acquired Business on a Pro Forma Basis as provided in clause
(vi) of this definition, each reference in Consolidated EBITDA
and each of the defined terms used therein to "Company and its
Subsidiaries" or terms of like import shall be deemed to be a
reference to the applicable Acquired Business and its
subsidiaries.
"PERMITTED ACQUISITION INDEBTEDNESS" means any unsecured
Subordinated Acquisition Indebtedness that is owed either by Company (and not by
any of Company's Subsidiaries) or, in the case of obligations incurred in
connection with any Acquisition by the Canadian Borrower, by the Canadian
Borrower (and not by any of the Canadian Borrower's Subsidiaries).
"PERMITTED CONTINGENT ACQUISITION OBLIGATION" means any
Contingent Acquisition Obligation that is (i) expressly limited to a maximum
Dollar amount (or, in the case of obligations owed by the Canadian Borrower, a
maximum amount in either Dollars or Canadian dollars), and (ii) owed by Company
(and not by any of Company's Subsidiaries) or, in the case of obligations
incurred in connection with any Acquisition by the Canadian Borrower, by the
Canadian Borrower (and not by any of the Canadian Borrower's Subsidiaries).
"PERMITTED ENCUMBRANCES" means the following types of Liens
(excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or by ERISA, any such Lien relating to or imposed in
connection with any Environmental Claim, and any such Lien expressly prohibited
by any applicable terms of any of the Collateral Documents):
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by subsection
6.3;
<PAGE> 49
(ii) statutory Liens of landlords, statutory Liens of banks
and rights of set-off, statutory Liens of carriers, warehousemen,
mechanics, repairmen, workmen and materialmen, and other Liens imposed
by law, in each case incurred in the ordinary course of business (a)
for amounts not yet overdue or (b) for amounts that are overdue and
that (in the case of any such amounts overdue for a period in excess of
5 days) are being contested in good faith by appropriate proceedings,
so long as (1) such reserves or other appropriate provisions, if any,
as shall be required by GAAP shall have been made for any such
contested amounts, and (2) in the case of a Lien with respect to any
portion of the Collateral, such contest proceedings conclusively
operate to stay the sale of any portion of the Collateral on account of
such Lien;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money), so long as no
foreclosure, sale or similar proceedings have been commenced with
respect to any portion of the Collateral on account thereof;
(iv) any attachment or judgment Lien not constituting an Event
of Default under subsection 8.8;
(v) leases or subleases granted to third parties in accordance
with any applicable terms of the Collateral Documents and not
interfering in any material respect with the ordinary conduct of the
business of Company or any of its Subsidiaries or resulting in a
material diminution in the value of any Collateral as security for the
Obligations;
(vi) easements, rights-of-way, restrictions, encroachments,
and other minor defects or irregularities in title, in each case which
do not and will not interfere in any material respect with the ordinary
conduct of the business of Company or any of its Subsidiaries or result
in a material diminution in the value of any Collateral as security for
the Obligations;
(vii) any (a) interest or title of a lessor or sublessor under
any lease permitted by subsection 7.9, (b) restriction or encumbrance
that the interest or title of such lessor or sublessor may be subject
to, or (c) subordination of the interest
<PAGE> 50
of the lessee or sublessee under such lease to any restriction or
encumbrance referred to in the preceding clause (b), so long as the
holder of such restriction or encumbrance agrees to recognize the
rights of such lessee or sublessee under such lease;
(viii) Liens arising from filing UCC or PPSA financing
statements relating solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(x) any zoning or similar law or right reserved to or vested
in any governmental office or agency to control or regulate the use of
any real property;
(xi) Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating,
reciprocal easement or similar agreements entered into in the ordinary
course of business of Company and its Subsidiaries; and
(xii) licenses of patents, trademarks and other intellectual
property rights granted by Company or any of its Subsidiaries in the
ordinary course of business and not interfering in any material respect
with the ordinary conduct of the business of Company or such
Subsidiary.
"PERSON" means and includes natural persons, corporations,
limited partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments (whether US
federal, Canadian federal, state, provincial, or local, domestic or foreign, and
including political subdivisions thereof) and agencies or other administrative
or regulatory bodies thereof.
"PLEDGED COLLATERAL" means, collectively, the "Pledged
Collateral" as defined in the Holdings Pledge Agreement, the Security Agreement,
the Canadian Subsidiary Pledge Agreements, the Canadian Subsidiary Hypothecs and
the Canadian Resident Hypothec.
<PAGE> 51
"PPSA" means the Personal Property Security Act or any other
statute pertaining to the creation, perfection or priority of security interests
in any collateral, in each case as in effect in any Canadian province.
"PRIME RATE" means the rate that CIBC (or any successor
Administrative Agent) publicly announces from time to time as its prime lending
rate, as in effect from time to time. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged to any
customer. CIBC or any other Lender may make commercial loans or other loans at
rates of interest at, above or below the Prime Rate.
"PRO FORMA BASIS" means, for purposes of giving effect to any
transaction during any period on a pro forma basis, that such transaction (and
any other transactions that occurred during such period) shall be deemed to have
occurred as of the first day of the most recent 12 Fiscal Month period that
ended immediately prior to the date of such transaction with respect to which
Administrative Agent has received the relevant financial information. As used in
this definition, "transaction" shall mean any Permitted Acquisition and any
incurrence or assumption of any Indebtedness (including Indebtedness hereunder
and Permitted Acquisition Indebtedness and the concurrent retirement of any
other Indebtedness) as part of a Permitted Acquisition. Calculations made on a
Pro Forma Basis shall give effect to such transactions that occurred during the
relevant period on the following basis:
(i) any Indebtedness incurred or assumed by the Borrowers in
connection with such Permitted Acquisition and any Indebtedness repaid
in connection with such Permitted Acquisition shall be deemed to have
been incurred or repaid, respectively, as of the first day of the
relevant period;
(ii) if such Indebtedness has a floating or formula rate, then
the rate of interest for such Indebtedness for the applicable period
shall be computed as if the rate in effect for such Indebtedness on the
relevant measurement date had been the applicable rate for the entire
applicable period; and
(iii) income statement items (whether positive or negative)
attributable to the property or business acquired in such Permitted
Acquisition shall be included as if such transaction had occurred as of
the first day of the relevant period; provided, however, that there
shall be excluded from such income statement items the amount of any
excess owner's compensation and any clearly identified non-recurring or
one-time charges actually incurred by such property or
<PAGE> 52
business during such period that are reasonably expected to be
eliminated following the consummation of such Permitted Acquisition to
the extent that such exclusions are approved by Administrative Agent
and Requisite Lenders; and provided further that income statement items
attributable to property or business acquired in Permitted Acquisitions
that were consummated before the Effective Date shall be adjusted
solely as set forth in Schedule 1.1P hereto. Any Compliance
Certificate, pro forma Compliance Certificate, or financial statement
delivered by Company to Administrative Agent or Lenders hereunder that
includes calculations made on a Pro Forma Basis shall identify each
income statement item that is excluded from such certificates or
statements by operation of this clause (iii).
"PRO RATA SHARE" means (i) with respect to all payments,
computations and other matters relating to the Tranche A Term Loan Commitment or
the Tranche A Term Loan of any Lender, the percentage obtained by dividing (x)
the Tranche A Term Loan Exposure of that Lender by (y) the aggregate Tranche A
Term Loan Exposure of all Lenders, (ii) with respect to all payments,
computations and other matters relating to the Tranche B Term Loan Commitment or
the Tranche B Term Loan of any Lender, the percentage obtained by dividing (x)
the Tranche B Term Loan Exposure of that Lender by (y) the aggregate Tranche B
Term Loan Exposure of all Lenders, (iii) with respect to all payments,
computations and other matters relating to the Canadian Term Loan Commitment or
the Canadian Term Loan of any Lender, the percentage obtained by dividing (x)
the Canadian Term Loan Exposure of that Lender by (y) the aggregate Canadian
Term Loan Exposure of all Lenders, (iv) with respect to all payments,
computations and other matters relating to the US Acquisition Loan Commitment or
the US Acquisition Loans of any Lender, the percentage obtained by dividing (x)
the US Acquisition Loan Exposure of that Lender by (y) the aggregate US
Acquisition Loan Exposure of all Lenders, (v) with respect to all payments,
computations and other matters relating to the Canadian Acquisition Loan
Commitment or the Canadian Acquisition Loans of any Lender, the percentage
obtained by dividing (x) the Canadian Acquisition Loan Exposure of that Lender
by (y) the aggregate Canadian Acquisition Loan Exposure of all Lenders, (vi)
with respect to all payments, computations and other matters relating to the
Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of
Credit issued or participations therein purchased by any Lender, the percentage
obtained by dividing (x) the Revolving Loan Exposure of that Lender by (y) the
aggregate Revolving Loan Exposure of all Lenders, and (vii) for all other
purposes with respect to each Lender, the percentage obtained by dividing (x)
the sum of the Tranche A Term Loan Exposure of that Lender plus the Tranche B
Term Loan Exposure of that
<PAGE> 53
Lender plus the Canadian Term Loan Exposure of that Lender plus the US
Acquisition Loan Exposure of that Lender plus the Canadian Acquisition Loan
Exposure plus the Revolving Loan Exposure of that Lender by (y) the sum of the
aggregate Tranche A Term Loan Exposure of all Lenders plus the aggregate Tranche
B Term Loan Exposure of all Lenders plus the aggregate Canadian Term Loan
Exposure of all Lenders plus the US Acquisition Loan Exposure of all Lenders
plus the Canadian Acquisition Loan Exposure of all Lenders plus the aggregate
Revolving Loan Exposure of all Lenders, in any such case as the applicable
percentage may be adjusted by assignments permitted pursuant to subsection 10.1.
The initial Pro Rata Share of each Lender for purposes of each of clauses (i),
(ii), (iii), (iv), (v), (vi) and (vii) of the preceding sentence is set forth
opposite the name of that Lender in Schedule 2.1 annexed hereto.
"PROJECTED EARN-OUT OBLIGATIONS" means for any period, the
amount of Contingent Acquisition Obligations that are projected to become due
and payable during such period, based on projections of the results of Company's
and its Subsidiaries financial operations during such period and any relevant
prior period, prepared in good faith and using assumptions that Company believes
to be fair and reasonable at the time of preparation.
"PROJECTED ESCROW REFUNDS" means, for any period, the amount
of funds held in escrow to secure Contingent Acquisition Obligations based on
financial performance that are projected to be released from escrow and returned
to Company or its Subsidiaries during such period, based on the same projections
used to determine the Projected Earn-out Obligations for such period.
"PROJECTED INCREMENTAL EBITDA" means for any period, the sum
of the following amounts, calculated separately for each Acquired Business for
which there will be Projected Earn-out Obligations during such period:
THE EXCESS OF
(i) the amount of Consolidated EBITDA attributable to
such Acquired Business that is projected to be earned during such
period (excluding the portion of such period commencing on the first
day during such period that any Projected Earn-out Obligations
attributable to such acquired business become payable)
OVER
<PAGE> 54
(ii) the amount of Consolidated EBITDA, determined
on a Pro Forma Basis, attributable to such Acquired Business for the
same measurement period used in the preceding clause (i) for the
immediately preceding Fiscal Year.
The projections used in calculating Projected Incremental
EBITDA for any period shall be the same as the projections used in calculating
the Projected Earn-out Obligations for such period.
"QUALIFIED INVESTMENTS" means, as applied to Company or any of
its Subsidiaries, investments in:
(i) Direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
or by the government of Canada (or by any agency thereof to the extent
such obligations are backed by the full faith and credit of the United
States or Canada), in each case maturing within one year from the date
of acquisition;
(ii) Marketable general obligations issued by any state of the
United States or by any province of Canada or any political subdivision
of any such state or province or any corporation or public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having a credit
rating of "B-2" from S&P or is equivalent from Moody's, Canadian Bond
Rating Service or any successor thereto, or Dominion Bond Rating
Service or any successor thereto;
(iii) Investments in United States or Canadian certificates of
deposit, banker's acceptances and time deposits maturing within twelve
(12) months from the date of acquisition thereof issued or guaranteed
by or placed with, and money market deposit accounts issued or offered
by any United States or Canadian offices of any commercial bank or
trust company organized or licensed under any laws of the United States
or Canada or any state or province thereof having a credit rating of
"B-2" from S&P or its equivalent from Moody's, Canadian Bond Rating
Service or any successor thereto, or Dominion Bond Rating Service or
any successor thereto; or
(iv) any repurchase agreement secured by any one or more of
the foregoing.
<PAGE> 55
"REAL PROPERTY ASSET" means, at any time of determination, any
fee interest then owned by any Loan Party in any real property.
"RECAPITALIZATION AGREEMENT" means that certain
Recapitalization Agreement dated as of September 29, 1999, Holdings and the
participants listed on Schedules I and II thereto, as amended to the date hereof
and as it hereafter be amended, supplemented, restated, or otherwise modified
from time to time in accordance with subsection 7.15.
"RECORDED LEASEHOLD INTEREST" means a Leasehold Property with
respect to which a Record Document (as hereinafter defined) has been recorded in
all places necessary or desirable, in Administrative Agent's reasonable
judgment, to give constructive notice of such Leasehold Property to third-party
purchasers and encumbrancers of the affected real property. For purposes of this
definition, the term "RECORD DOCUMENT" means, with respect to any Leasehold
Property, (a) the lease evidencing such Leasehold Property or a memorandum
thereof, executed and acknowledged by the owner of the affected real property,
as lessor, or (b) if such Leasehold Property was acquired or subleased from the
holder of a Recorded Leasehold Interest, the applicable assignment or sublease
document, executed and acknowledged by such holder, in each case in form
sufficient to give such constructive notice upon recordation and otherwise in
form reasonably satisfactory to Administrative Agent.
"REGULATION D" means Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.
"REINVESTMENT PERIOD" means, with respect to any Net Asset
Sale Proceeds received in respect of any Asset Sale, the period commencing on
the date such Net Asset Sale Proceeds are received by Company or any of its
Subsidiaries and ending on the earlier of (x) the second Business Day following
any determination by a Responsible Officer of Company or any of its Subsidiaries
that such Net Asset Sale Proceeds will not be reinvested in a Related Business
within 60 days of receipt thereof by Company or its Subsidiaries and (y) the
date that is 60 days after receipt of such Net Asset Sale Proceeds by Company or
any of its Subsidiaries.
"RELATED AGREEMENTS" means, collectively, the Acquisition
Agreements, the Holdings Certificate of Designations, and the Recapitalization
Agreement.
<PAGE> 56
"RELATED BUSINESS" means the business consisting of pre-sales,
sales, and post-sales support; Internet commerce support; marketing analysis;
marketing data management, compilation, mining and analysis; teleservices;
fulfillment; specialty services; and any other service that the Company and its
Subsidiaries currently provides on the Effective Date, and any and all
reasonably related businesses necessary for, in support or anticipation of, and
ancillary to such services.
"RELEASE" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), including the movement of any Hazardous Materials through the air,
soil, surface water or groundwater.
"REQUISITE CLASS LENDERS" means, at any time of determination
(i) for the Class of Lenders having Tranche A Term Loan Exposure, Lenders having
or holding more than 66 2/3% of the aggregate Tranche A Term Loan Exposure of
all Lenders, (ii) for the Class of Lenders having Tranche B Term Loan Exposure,
Lenders having or holding more than 66 2/3% of the aggregate Tranche B Term Loan
Exposure of all Lenders, (iii) for the Class of Lenders having Canadian Term
Loan Exposure, Lenders having or holding more than 66 2/3% of the aggregate
Canadian Term Loan Exposure of all Lenders, (iv) for the Class of Lenders having
US Acquisition Loan Exposure, Lenders having or holding more than 66 2/3% of the
aggregate US Acquisition Loan Exposure of all Lenders, (v) for the Class of
Lenders having Canadian Acquisition Loan Exposure, Lenders having or holding
more than 66 2/3% of the aggregate Canadian Acquisition Loan Exposure of all
Lenders, and (vi) for the Class of Lenders having Revolving Loan Exposure,
Lenders having or holding more than 66 2/3% of the aggregate Revolving Loan
Exposure of all Lenders.
"REQUISITE LENDERS" means Lenders having or holding more than
66-?% of the sum of the aggregate Tranche A Term Loan Exposure of all Lenders
plus the aggregate Tranche B Term Loan Exposure of all Lenders plus the
aggregate Canadian Term Loan Exposure of all Lenders plus the aggregate US
Acquisition Loan Exposure of all Lenders plus the aggregate Canadian Acquisition
Loan Exposure of all Lenders plus the aggregate Revolving Loan Exposure of all
Lenders.
"RESPONSIBLE OFFICER" means each of the following officers of
Company or any of its Subsidiaries, at the time that any individual holds any
such position: the chairman of the board of Company, the chief executive
officer, the president, the chief
<PAGE> 57
financial officer, the treasurer, any vice president, the general counsel and
the corporate secretary.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company or Holdings now or hereafter outstanding, except a dividend payable
solely in shares of that class of stock to the holders of that class, (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of Company or Holdings now or hereafter outstanding, (iii) any payment made to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock of Company or Holdings now
or hereafter outstanding (iv) any payment or prepayment of principal of,
premium, if any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or similar payment
with respect to, any Subordinated Indebtedness, and (v) any payment or
prepayment of principal of, premium, if any, or interest on, or redemption,
purchase, retirement, defeasance (including in-substance or legal defeasance),
sinking fund or similar payment with respect to, any Subordinated Acquisition
Indebtedness or Subordinated Contingent Acquisition Obligation.
"REVOLVING LENDER" means a Lender that has a Revolving Loan
Commitment and/or that has an outstanding Revolving Loan.
"REVOLVING LOAN COMMITMENT" means the commitment of a Lender
to make Revolving Loans to Company pursuant to subsection 2.1A(vi), and
"REVOLVING LOAN COMMITMENTS" means such commitments of all Lenders in the
aggregate.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means November
30, 2004.
"REVOLVING LOAN EXPOSURE" means, with respect to any Revolving
Lender as of any date of determination (i) prior to the termination of the
Revolving Loan Commitments, that Lender's Revolving Loan Commitment and (ii)
after the termination of the Revolving Loan Commitments, the sum of (a) the
aggregate outstanding principal amount of the Revolving Loans of that Lender
plus (b) in the event that Lender is an Issuing Lender, the aggregate Letter of
Credit Usage in respect of all Letters of Credit issued by that Lender (in each
case net of any participations purchased by other Lenders in such Letters of
Credit or any unreimbursed drawings thereunder) plus (c) the aggregate
<PAGE> 58
amount of all participations purchased by that Lender in any outstanding Letters
of Credit or any unreimbursed drawings under any Letters of Credit.
"REVOLVING LOANS" means the Loans made by Lenders to Company
pursuant to subsection 2.1A(vi).
"REVOLVING NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1E(e)(i)(d) on the Effective Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Revolving Loan Commitments and
Revolving Loans of any Lenders, in each case substantially in the form of
Exhibit VI annexed hereto, as they may be amended, supplemented or otherwise
modified from time to time.
"SECOND CLOSING DATE" means February 17, 1998, the date of the
closing of the First Restated Credit Agreement.
"SECURITIES" means any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time, and any successor statute or the Canadian equivalent where
applicable.
"SECURITY AGREEMENT (ESCROWS)" means that certain Security
Agreement (Escrows) dated as of February 26, 1999, executed by Company, Lenders
and Administrative Agent pursuant to the First Restated Credit Agreement, as
such agreement has been amended to the date hereof and as such agreement may
hereafter be amended, supplemented, restated or otherwise modified from time to
time.
"SECURITY AGREEMENT" means a Security Agreement executed and
delivered by Company and each of the Domestic Subsidiaries on the Effective
Date, substantially in the form of Exhibit XIII annexed hereto, as such
agreement may hereafter be amended, supplemented, restated or otherwise modified
from time to time.
<PAGE> 59
"SENIOR DEBT LEVERAGE RATIO" means, as of any date of
determination, the ratio of (i) the aggregate principal amount of Consolidated
Total Debt outstanding on such date minus the aggregate principal amount of
Subordinated Indebtedness outstanding on such date divided by (ii) the aggregate
amount of Consolidated EBITDA for the 12 Fiscal Month period most recently ended
on or before such date of determination, determined on a Pro Forma Basis;
provided, that calculations of the Senior Debt Leverage Ratio for purposes of
subsection 2.1A, subsection 3.1A, the Notices of Borrowing and the Notices of
Issuance of Letter of Credit, Consolidated EBITDA determined on a Pro Forma
Basis shall be based on the 12 Fiscal Month period most recently ended before
such date of determination for which Administrative Agent has received the
financial statements delivered to Administrative Agent and Lenders pursuant to
subsection 6.1(i).
"SOLIDARY" as used herein and in the Assignment Agreements
shall be read and interpreted in accordance with the Civil Code of Quebec.
"SOLVENT" means, with respect to any Person, that as of the
date of determination both (A) (i) the then fair saleable value of the property
of such Person is (y) greater than the total amount of liabilities (including
contingent liabilities) of such Person and (z) not less than the amount that
will be required to pay the probable liabilities on such Person's then existing
debts as they become absolute and matured considering all financing alternatives
and potential asset sales reasonably available to such Person; (ii) such
Person's capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"STANDBY LETTER OF CREDIT" means any standby letter of credit
or similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries arising by virtue of the laws of
any jurisdiction requiring third party insurers, (iv) obligations with respect
<PAGE> 60
to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries, in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; provided that Standby
Letters of Credit may not be issued for the purpose of supporting (a) trade
payables or (b) any Indebtedness constituting "antecedent debt" (as that term is
used in Section 547 of the Bankruptcy Code).
"STOCK REPURCHASE AGREEMENTS" means each Stock Repurchase
Agreement dated as of September 29, 1999 between Holdings and each of Robert J.
Conrads and Robert C. Gust providing for, among other things, the circumstances
under which Holdings Common Stock may be repurchased by Holdings from such
persons, in each case in the form delivered to Administrative Agent and Lenders
prior to their execution of this Agreement
"SUBORDINATED ACQUISITION INDEBTEDNESS" means any unsecured
Acquisition Indebtedness that is subject to the subordination provisions set
forth in Exhibit XXIII.
"SUBORDINATED CONTINGENT ACQUISITION OBLIGATION" means any
unsecured Contingent Acquisition Obligation that is subject to the subordination
provisions set forth in Exhibit XXIV.
"SUBORDINATED INDEBTEDNESS" means any unsecured Indebtedness
of Company or the Canadian Borrower subordinated in right of payment to the
Obligations pursuant to documentation containing maturities, amortization
schedules, covenants, defaults, remedies, subordination provisions and other
material terms in form and substance satisfactory to Administrative Agent and
Requisite Lenders.
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, limited liability company, association, joint venture
or other business entity of which more than 50% of the total voting power of
shares of stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the election of the Person or Persons
(whether directors, managers, trustees or other Persons performing similar
functions) having the power to direct or cause the direction of the management
and policies thereof is at the time owned or controlled, directly or indirectly,
by that Person or one or more of the other Subsidiaries of that Person or a
combination thereof. Notwithstanding anything to the contrary contained in the
preceding sentence,
<PAGE> 61
METC and METC Holdings shall be deemed to be Canadian Subsidiaries of Company
and the Canadian Borrower.
"SUPPLEMENTAL COLLATERAL ADMINISTRATIVE AGENT" has the meaning
assigned to that term in subsection 9.1B.
"TAX" or "TAXES" means any present or future tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature and whatever
called, by whomsoever, on whomsoever and wherever imposed, levied, collected,
withheld or assessed; provided that "TAX ON THE OVERALL NET INCOME" of a Person
shall be construed as a reference to a tax imposed by the jurisdiction in which
that Person is organized or in which that Person's principal office (and/or, in
the case of a Lender, its lending office) is located or in which that Person
(and/or, in the case of a Lender, its lending office) is deemed to be doing
business on all or part of the net income, profits or gains (whether worldwide,
or only insofar as such income, profits or gains are considered to arise in or
to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in
the case of a Lender, its lending office).
"TERM LOANS" means, collectively, the Tranche A Term Loans,
the Tranche B Term Loans and the Canadian Term Loans.
"THIRD CLOSING DATE" means May 21, 1999, the date of the
closing of the Existing Credit Agreement.
"TITLE COMPANY" means, collectively, one or more title
insurance companies reasonably satisfactory to Administrative Agent.
"TOTAL DEBT LEVERAGE RATIO" means, as of any date of
determination, the ratio of (i) the aggregate principal amount of Consolidated
Total Debt outstanding on such date divided by (ii) the aggregate amount of
Consolidated EBITDA for the 12 Fiscal Month period most recently ended on or
before such date of determination, determined on a Pro Forma Basis; provided,
that calculations of the Total Debt Leverage Ratio for purposes of subsection
2.1A, subsection 3.1A, the Notices of Borrowing and the Notices of Issuance of
Letter of Credit, Consolidated EBITDA determined on a Pro Forma Basis shall be
based on the 12 Fiscal Month period most recently ended before such date of
determination for which Administrative Agent has received the financial
statements delivered to Administrative Agent and Lenders pursuant to subsection
6.1(i).
<PAGE> 62
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at
any date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans (other than Revolving Loans made for the purpose of
reimbursing the applicable Issuing Lender for any amount drawn under any Letter
of Credit but not yet so applied) plus (ii) the Letter of Credit Usage.
"TRANCHE A LOAN MATURITY DATE" means November 30, 2004.
"TRANCHE A TERM LOAN COMMITMENT" means the commitment of a
Lender to convert Existing Loans into a Tranche A Term Loan or to make a Tranche
A Term Loan to Company pursuant to subsection 2.1A(i), and "TRANCHE A TERM LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"TRANCHE A TERM LOAN EXPOSURE" means, with respect to any
Lender as of any date of determination (i) prior to the funding or conversion of
the Tranche A Term Loans, that Lender's Tranche A Term Loan Commitment and (ii)
after the funding or conversion of the Tranche A Term Loans, the outstanding
principal amount of the Tranche A Term Loan of that Lender.
"TRANCHE A TERM LOANS" means the Loans made or converted by
Lenders to Company pursuant to subsection 2.1A(i).
"TRANCHE A TERM NOTES" means (i) the promissory notes of
Company issued pursuant to subsection 2.1E(i)(a) on the Effective Date and (ii)
any promissory notes issued by Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Tranche A Term Loan
Commitments or Tranche A Term Loans of any Lenders, in each case substantially
in the form of Exhibit IV-A annexed hereto, as they may be amended, supplemented
or otherwise modified from time to time.
"TRANCHE B LOAN MATURITY DATE" means November 30, 2006.
"TRANCHE B TERM LOAN COMMITMENT" means the commitment of a
Lender to convert Existing Loans into a Tranche B Term Loan or to make a Tranche
B Term Loan to Company pursuant to subsection 2.1A(ii), and "TRANCHE B TERM LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"TRANCHE B TERM LOAN EXPOSURE" means, with respect to any
Lender as of any date of determination (i) prior to the funding or conversion of
the Tranche B Term
<PAGE> 63
Loans, that Lender's Tranche B Term Loan Commitment and (ii) after the funding
or conversion of the Tranche B Term Loans, the outstanding principal amount of
the Tranche B Term Loan of that Lender.
"TRANCHE B TERM LOANS" means the Loans made or converted by
Lenders to Company pursuant to subsection 2.1A(ii).
"TRANCHE B TERM NOTES" means (i) the promissory notes of
Company issued pursuant to subsection 2.1E(i)(b) on the Effective Date and (ii)
any promissory notes issued by Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Tranche B Term Loan
Commitments or Tranche B Term Loans of any Lenders, in each case substantially
in the form of Exhibit IV-B annexed hereto, as they may be amended, supplemented
or otherwise modified from time to time.
"TRANSACTIONS COSTS" means the fees, costs and expenses
payable by Borrowers and their Subsidiaries in connection with the transactions
contemplated by the Loan Documents and the Related Agreements to occur on the
Effective Date.
"TYPE" means, with respect to the Loans, the classification of
such Loans as Tranche A Term Loans, Tranche B Term Loans, Canadian Term Loans,
Revolving Loans, US Acquisition Loans, or Canadian Acquisition Loans.
"UCC" means the Uniform Commercial Code (or any similar or
equivalent legislation) as in effect in any applicable jurisdiction.
"UNAPPLIED NET ASSET SALE PROCEEDS" means, as of any date of
determination, the aggregate amount of all Net Asset Sale Proceeds received by
Company or any of its Subsidiaries during the period from the Effective Date to
such date of determination excluding all such Net Asset Sale Proceeds that (i)
have been applied to mandatory prepayments of the Loans and/or reductions of the
Commitments pursuant to subsection 2.4B(iii) or (ii) when received by Company or
any of its Subsidiaries, were intended by Company or any of its Subsidiaries to
be reinvested in a Related Business within 60 days of such receipt, and either
such Net Asset Sale Proceeds were reinvested within such period or the
Reinvestment Period for such Net Asset Sale Proceeds has not expired.
"US ACQUISITION LOAN COMMITMENT" means the commitment of a
Lender to make US Acquisition Loans to Company pursuant to subsection 2.1A(iv),
and
<PAGE> 64
"US ACQUISITION LOAN COMMITMENTS" means such commitments of all Lenders in the
aggregate.
"US ACQUISITION LOAN COMMITMENT TERMINATION DATE" means
November 15, 2001.
"US ACQUISITION LOAN EXPOSURE" means, with respect to any
Lender as of any date of determination (i) prior to the termination of the US
Acquisition Loan Commitments, that Lender's US Acquisition Loan Commitment and
(ii) after the termination of the US Acquisition Loan Commitments, the
outstanding principal amount of the US Acquisition Loan of that Lender.
"US ACQUISITION LOAN MATURITY DATE" means November 30, 2006.
"US ACQUISITION LOANS" means the Loans made by Lenders to
Company pursuant to subsection 2.1A(iv).
"US ACQUISITION NOTES" means (i) the promissory notes of
Company issued pursuant to subsection 2.1E(i)(c) and (ii) any promissory notes
issued by Company pursuant to the last sentence of subsection 10.1B(i) in
connection with assignments of the US Acquisition Loan Commitments or US
Acquisition Loans of any Lenders, in each case substantially in the form of
Exhibit VII-A annexed hereto, as they may be amended, supplemented, restated, or
otherwise modified from time to time.
"US ACQUISITION RESERVE" means, at any time, an amount equal
to the sum of the following:
(i) 125% of the amount of Contingent Acquisition
Obligations of Company and its Subsidiaries (other than Canadian
Borrower and its Subsidiaries) at such time over the amount of cash
held in escrow at such time to secure payment of such obligations that
Company in good faith projects will become payable at any time
thereafter; provided that if Requisite Lenders or Administrative Agent
disagree with such projections, then the amount in this clause (i)
shall be determined by Requisite Lenders, or in the absence of such
determination by Requisite Lenders, then by Administrative Agent, and
provided further that the amount in this clause (i) shall not, in
either case, exceed 100% of the excess of the amount of Contingent
Acquisition Obligations of Company and its Subsidiaries (other than
Canadian Borrower and its Subsidiaries) over the
<PAGE> 65
amount of cash held in escrow at such time to secure payment of such
obligations, plus
(ii) 75% of the aggregate principal amount of all
Subordinated Acquisition Indebtedness owed Company and its Subsidiaries
(other than Canadian Borrower and its Subsidiaries) at such time, plus
(iii) 100% of the excess of the amount of all
Acquisition Indebtedness owed by Company and its Subsidiaries (other
than Canadian Borrower and Subsidiaries) at such time that does not
constitute Subordinated Acquisition Indebtedness over the amount of
cash held in escrow at such time to secure payment of such obligations.
"WILLIS STEIN" means Willis Stein & Partners II, L.P. and any
one or more of its Affiliates.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS
UNDER AGREEMENT.
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to clauses (i), (ii),
(iii) and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP as
in effect at the time of such preparation (and delivered together with the
reconciliation statements provided for in subsection 6.1(v)). Calculations in
connection with the definitions, covenants and other provisions of this
Agreement shall utilize accounting principles and policies in conformity with
GAAP as in effect on the date of the financial statements referred to in
subsection 5.3. If at any time any change in GAAP would affect the computation
of any financial ratio or requirement set forth in this Agreement, and either
Company or Requisite Lenders shall so request, Administrative Agent, Requisite
Lenders and Company shall negotiate in good faith to amend such ratio or
requirement to reflect such change in GAAP (subject to the approval of Requisite
Lenders), provided that, until so amended, (i) such ratio or requirement shall
continue to be computed in accordance with GAAP prior to such change therein and
(ii) Company shall provide to Administrative Agent and Lenders financial
statements and other documents required under this Agreement or as reasonably
requested hereunder setting forth a reconciliation between calculations of such
ratio or requirement made before and after giving effect to such change in GAAP.
<PAGE> 66
1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.
A. Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided.
C. The use herein of the word "include" or "including", when following
any general statement, term or matter, shall not be construed to limit such
statement, term or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not nonlimiting
language (such as "without limitation" or "but not limited to" or words of
similar import) is used with reference thereto, but rather shall be deemed to
refer to all other items or matters that fall within the broadest possible scope
of such general statement, term or matter.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; MAKING OF LOANS; NOTES.
A. COMMITMENTS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrowers herein set
forth, each Lender hereby severally agrees to make the Loans and/or convert the
Existing Loans as described in subsections 2.1A(i), 2.1A(ii), 2.1A(iii),
2.1A(iv), 2.1A(v) and 2.1A(vi).
(i) Conversion of Certain Existing US Acquisition Loans into
Tranche A Term Loans. Each Lender that has a Tranche A Term Loan
Commitment severally agrees to convert its Pro Rata Share of Existing
US Acquisition Loans in the aggregate principal amount of
$25,000,000.00 into Tranche A Term Loans hereunder on the Effective
Date. The amount of each Lender's Tranche A Term Loans shall not exceed
its Tranche A Term Loan Commitment. The amount of each Lender's Tranche
A Term Loan Commitment is set forth opposite its name on Schedule 2.1
annexed hereto and the aggregate amount of the Tranche A Term Loan
Commitments is $25,000,000.00. Each Lender's Tranche A Term Loan
Commitment shall expire immediately and without further action on
December 10, 1999 if the portion of the Existing US Acquisition Loans
described above is not converted into Tranche A Term Loans on or before
that date. Company may make only one conversion of Existing Loans into
Tranche A Term Loans.
<PAGE> 67
Amounts converted into Tranche A Term Loans under this subsection
2.1A(i) and subsequently repaid or prepaid may not be reborrowed.
(ii) Conversion of Certain Existing Loans into Tranche B Term
Loans; Additional Tranche B Term Loans. Each Lender that has a Tranche
B Term Loan Commitment severally agrees to convert its Pro Rata Share
of Existing US Acquisition Loans in the aggregate principal amount of
$13,047,502.49, its Pro Rata Share of Existing Term Loans in the
aggregate principal amount of $7,250,000, and its Pro Rata Share of
Existing Revolving Loans in the aggregate principal amount of
$3,956,077.67 into Tranche B Term Loans hereunder on the Effective
Date. Each Lender severally agrees to lend to Company on the Effective
Date an amount that, together with the aggregate principal amount of
its Existing Loans converted into Tranche B Term Loans, does not exceed
its Pro Rata Share of the aggregate amount of the Tranche B Term Loan
Commitments, to be used for the purposes identified in subsection 2.5A.
The amount of each Lender's Tranche B Term Loan Commitment is set forth
opposite its name on Schedule 2.1 annexed hereto and the aggregate
amount of the Tranche B Term Loan Commitments is $26,800,000. Each
Lender's Tranche B Term Loan Commitment shall expire immediately and
without further action on December 10, 1999 if the portion of the
Existing Loans described above are not converted into Tranche B Term
Loans on or before that date. Company may make only one borrowing of
Tranche B Term Loans and conversion of Existing Loans into Tranche B
Term Loans. Amounts borrowed or converted into Tranche B Term Loans
under this subsection 2.1A(ii) and subsequently repaid or prepaid may
not be reborrowed.
(iii) Conversion of Existing Canadian Acquisition Loans into
Canadian Term Loans. Each Lender that has a Canadian Term Loan
Commitment severally agrees to convert its Existing Canadian
Acquisition Loans (after giving effect to the partial prepayment
thereof on the Effective Date pursuant to subsection 4.1) into Canadian
Term Loans hereunder on the Effective Date. The amount of each Lender's
Canadian Term Loans shall not exceed its Canadian Term Loan Commitment.
The amount of each Lender's Canadian Term Loan Commitment is set forth
opposite its name on Schedule 2.1 annexed hereto and the aggregate
amount of the Canadian Term Loan Commitments is $11,200,000. Each
Lender's Canadian Term Loan Commitment shall expire immediately and
without further action on December 10, 1999 if the Existing Canadian
Acquisition Loans above are not converted into Canadian Term Loans on
or before that date. The Canadian
<PAGE> 68
Borrower may make only one conversion of Existing Canadian Acquisition
Loans into Canadian Term Loans. Amounts converted into Canadian Term
Loans under this subsection 2.1A(iii) and subsequently repaid or
prepaid may not be reborrowed.
(iv) US Acquisition Loans. Each Lender that has a US
Acquisition Loan Commitment severally agrees, subject to the
limitations set forth below with respect to the maximum amount of US
Acquisition Loans permitted to be borrowed, to lend to Company from
time to time during the period from the Effective Date to but excluding
the US Acquisition Loan Commitment Termination Date an aggregate amount
that shall not exceed its Pro Rata Share of the aggregate amount of the
US Acquisition Loan Commitments, to be used for the purposes identified
in subsection 2.5C. The original amount of each Lender's US Acquisition
Loan Commitment is set forth opposite its name on Schedule 2.1 annexed
hereto and the aggregate amount of the US Acquisition Loan Commitments
is $41,000,000; provided that the US Acquisition Loan Commitments of
Lenders shall be adjusted to give effect to any assignments of the US
Acquisition Loan Commitments pursuant to subsection 10.1B; and provided
further, that the amount of the US Acquisition Loan Commitments shall
be reduced from time to time by the amount of any reductions thereto
made pursuant to subsections 2.4B(ii) and 2.4B(iii) and may be
increased pursuant to subsection 2.9. Each Lender's US Acquisition Loan
Commitment shall expire on the US Acquisition Loan Commitment
Termination Date. Amounts borrowed under this subsection 2.1A(iv) and
subsequently repaid or prepaid may not be reborrowed.
Anything contained in this Agreement to the contrary
notwithstanding, the US Acquisition Loans and the US Acquisition Loan
Commitments shall be subject to the following limitations:
(a) In no event shall the sum of the aggregate
outstanding principal amount of US Acquisition Loans plus the
aggregate outstanding principal amount of Canadian Acquisition
Loans plus the US Acquisition Reserve plus the Canadian
Acquisition Reserve at any time before the US Acquisition Loan
Commitment Termination Date exceed the US Acquisition Loan
Commitments then in effect.
(b) Borrowers shall not request, and Lenders shall
not be obligated to make, any US Acquisition Loans if either
the Senior Debt
<PAGE> 69
Leverage Ratio or the Adjusted Senior Debt Leverage Ratio,
after giving effect to the making of such Loans, would exceed
either 3.85 to 1.00 (if the date of such requested borrowing
is on or before the six month anniversary of the Effective
Date) or 3.75 to 1.00 (if the date of such requested borrowing
is after the six month anniversary of the Effective Date).
(c) Borrowers shall not request, and Lenders shall
not be obligated to make, any US Acquisition Loans if, after
giving effect to the making of such Loans, the Total Debt
Leverage Ratio would exceed 4.50 to 1.00.
(v) Canadian Acquisition Loans. Each Lender that has a
Canadian Acquisition Loan Commitment severally agrees, subject to the
limitations set forth below with respect to the maximum amount of
Canadian Acquisition Loans permitted to be borrowed, to lend to the
Canadian Borrower from time to time during the period from the
Effective Date to but excluding the Canadian Acquisition Loan
Commitment Termination Date an aggregate amount that shall not exceed
its Pro Rata Share of the aggregate amount of the Canadian Acquisition
Loan Commitments, to be used for the purposes identified in subsection
2.5D. The original amount of each Lender's Canadian Acquisition Loan
Commitment is set forth opposite its name on Schedule 2.1 annexed
hereto and the aggregate amount of the Canadian Acquisition Loan
Commitments is $5,000,000; provided that the Canadian Acquisition Loan
Commitments of Lenders shall be adjusted to give effect to any
assignments of the Canadian Acquisition Loan Commitments pursuant to
subsection 10.1B; and provided further, that the amount of the Canadian
Acquisition Loan Commitments shall be reduced from time to time by the
amount of any reductions thereto made pursuant to subsections 2.4B(ii)
and 2.4B(iii). Each Lender's Canadian Acquisition Loan Commitment shall
expire on the Canadian Acquisition Loan Commitment Termination Date.
Amounts borrowed under this subsection 2.1A(v) and subsequently repaid
or prepaid may not be reborrowed.
Anything contained in this Agreement to the contrary
notwithstanding, the Canadian Acquisition Loans and the Canadian
Acquisition Loan Commitments shall be subject to the following
limitations:
(a) In no event shall the sum of the aggregate
outstanding principal amount of US Acquisition Loans plus the
aggregate outstanding
<PAGE> 70
principal amount of Canadian Acquisition Loans plus the US
Acquisition Reserve plus the Canadian Acquisition Reserve at
any time before the Canadian Acquisition Loan Commitment
Termination Date exceed the US Acquisition Loan Commitments
then in effect.
(b) In no event shall the sum of the aggregate
outstanding principal amount of Canadian Acquisition Loans
plus the Canadian Acquisition Reserve at any time before the
Canadian Acquisition Loan Commitment Termination Date exceed
the Canadian Acquisition Loan Commitments then in effect.
(c) Borrowers shall not request, and Lenders shall
not be obligated to make, any Canadian Acquisition Loans if
either the Senior Debt Leverage Ratio or the Adjusted Senior
Debt Leverage Ratio, after giving effect to the making of such
Loans, would exceed either 3.85 to 1.00 (if the date of such
requested borrowing is on or before the six month anniversary
of the Effective Date) or 3.75 to 1.00 (if the date of such
requested borrowing is after the six month anniversary of the
Effective Date).
(d) Borrowers shall not request, and Lenders shall
not be obligated to make, any Canadian Acquisition Loans if,
after giving effect to the making of such Loans, the Total
Debt Leverage Ratio would exceed 4.50 to 1.00.
(vi) Revolving Loans. Each Revolving Lender severally agrees,
subject to the limitations set forth below with respect to the maximum
amount of Revolving Loans permitted to be outstanding from time to
time, to lend to Company from time to time during the period from the
Effective Date to but excluding the Revolving Loan Commitment
Termination Date an aggregate amount not exceeding its Pro Rata Share
of the aggregate amount of the Revolving Loan Commitments to be used
for the purposes identified in subsection 2.5E. The original amount of
each Revolving Lender's Revolving Loan Commitment is set forth opposite
its name on Schedule 2.1 annexed hereto and the aggregate original
amount of the Revolving Loan Commitments is $20,000,000; provided that
the Revolving Loan Commitments of Revolving Lenders shall be adjusted
to give effect to any assignments of the Revolving Loan Commitments
pursuant to subsection 10.1B; and provided, further that the amount of
the Revolving Loan Commitments shall be reduced from time to time by
the
<PAGE> 71
amount of any reductions thereto made pursuant to subsections 2.4B(ii)
and 2.4B(iii). Each Revolving Lender's Revolving Loan Commitment shall
expire on the Revolving Loan Commitment Termination Date and all
Revolving Loans and all other amounts owed hereunder with respect to
the Revolving Loans and the Revolving Loan Commitments shall be paid in
full no later than that date; provided that each Revolving Lender's
Revolving Loan Commitment shall expire immediately and without further
action on December 10, 1999 if the Term Loans are not made on or before
that date. Amounts borrowed under this subsection 2.1A(vi) may be
repaid and reborrowed to but excluding the Revolving Loan Commitment
Termination Date.
Anything contained in this Agreement to the contrary
notwithstanding, the Revolving Loans and the Revolving Loan Commitments
shall be subject to the following limitations:
(a) In no event shall the Total Utilization of
Revolving Loan Commitments at any time exceed the lesser of
(1) the Revolving Loan Commitments then in effect and (2) the
Borrowing Base at such time.
(b) Borrowers shall not request, and Lenders shall
not be obligated to make, any Revolving Loans if, after giving
effect to the making of such Loans, the Senior Debt Leverage
Ratio would exceed the maximum permitted by subsection 7.6C,
the Adjusted Senior Debt Leverage Ratio would exceed the
maximum permitted by subsection 7.6D, or the Total Debt
Leverage Ratio would exceed the maximum permitted by
subsection 7.6E.
B. BORROWING MECHANICS. Tranche A Term Loans, Tranche B Term Loans and
Canadian Term Loans shall be made as or converted into Base Rate Loans on the
Effective Date in an aggregate minimum amount of $1,000,000 and integral
multiples of $100,000 in excess of that amount. US Acquisition Loans and
Canadian Acquisition Loans made on any Funding Date shall be in an aggregate
minimum amount of $1,000,000 and integral multiples of $100,000 in excess of
that amount or, if less, the remaining amount available to be borrowed
thereunder. Revolving Loans made on any Funding Date (other than Revolving Loans
made pursuant to subsection 3.3B for the purpose of reimbursing any Issuing
Lender for the amount of a drawing under a Letter of Credit issued by it) shall
be in an aggregate minimum amount of $100,000 and integral multiples of $100,000
in excess of that amount.
<PAGE> 72
Whenever a Borrower desires that Lenders make Acquisition
Loans or Revolving Loans, it shall deliver to Administrative Agent a Notice of
Borrowing no later than 10:00 A.M. (New York City time) at least three Business
Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate
Loan) or at least one Business Day in advance of the proposed Funding Date (in
the case of a Base Rate Loan), which Notice of Borrowing shall be executed by
Company, in the case of Loans to Company, or by Company and the Canadian
Borrower, in the case of Loans to Canadian Borrower.
The Notice of Borrowing shall specify (i) the proposed Funding
Date (which shall be a Business Day), (ii) the amount and type of Loans
requested, (iii) in the case of Loans made on the Effective Date, that such
Loans shall be Base Rate Loans, (iv) in the case of Revolving Loans and
Acquisition Loans not made on the Effective Date, whether such Loans shall be
Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans
requested to be made as Eurodollar Rate Loans, the initial Interest Period
requested therefor. Term Loans, Acquisition Loans and Revolving Loans may be
continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the
manner provided in subsection 2.2D. In lieu of delivering the above-described
Notice of Borrowing, the applicable Borrower may give Administrative Agent
telephonic notice by the required time of any proposed borrowing under this
subsection 2.1B; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Borrowing to Administrative Agent on or
before the applicable Funding Date. Any such telephonic notice of a proposed
borrowing by the Canadian Borrower must be made together with a telephonic
notice by Company to Administrative Agent confirming such request.
Neither Administrative Agent nor any Lender shall incur any
liability to any Borrower in acting upon any telephonic notice referred to above
that Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of a Borrower
or for otherwise acting in good faith under this subsection 2.1B, and upon
funding of Loans by Lenders in accordance with this Agreement pursuant to any
such telephonic notice Company or Canadian Borrower shall have effected Loans
hereunder.
Any Borrower that has issued a Notice of Borrowing shall
notify Administrative Agent prior to the funding of any Loans in the event that
any of the matters to which such Borrower is required to certify in the
applicable Notice of Borrowing is no longer true and correct as of the
applicable Funding Date, and the acceptance by such Borrower of the proceeds of
any Loans shall constitute a re-certification by such Borrower, as of the
applicable Funding Date, as to the matters to which such Borrower is required to
certify in the applicable Notice of Borrowing.
<PAGE> 73
Except as otherwise provided in subsections 2.6B, 2.6C and
2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in
lieu thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and the applicable Borrower shall be bound to make a
borrowing in accordance therewith.
C. DISBURSEMENT OF FUNDS. All Term Loans, Acquisition Loans and
Revolving Loans under this Agreement shall be made by Lenders simultaneously and
proportionately to their respective Pro Rata Shares, it being understood that no
Lender shall be responsible for any default by any other Lender in that other
Lender's obligation to make a Loan requested hereunder nor shall the Commitment
of any Lender to make the particular type of Loan requested be increased or
decreased as a result of a default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder. Promptly after receipt by
Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or
telephonic notice in lieu thereof), Administrative Agent shall notify each
Lender of the proposed borrowing. Each Lender shall make the amount of its Loan
available to Administrative Agent not later than 12:00 Noon (New York City time)
on the applicable Funding Date, in same day funds in Dollars, at the Funding and
Payment Office. Except as provided in subsection 3.3B with respect to Revolving
Loans used reimburse any Issuing Lender for the amount of a drawing under a
Letter of Credit issued by it, upon satisfaction or waiver of the conditions
precedent specified in subsections 4.1 (in the case of Loans made on the
Effective Date) and 4.2 (in the case of all Loans), Administrative Agent shall
make the proceeds of such Loans available to the applicable Borrower on the
applicable Funding Date by causing an amount of same day funds in Dollars equal
to the proceeds of all such Loans received by Administrative Agent from Lenders
to be credited to the account of the applicable Borrower at the Funding and
Payment Office.
Unless Administrative Agent shall have been notified by any
Lender prior to the Funding Date for any Loans that such Lender does not intend
to make available to Administrative Agent the amount of such Lender's Loan
requested on such Funding Date, Administrative Agent may assume that such Lender
has made such amount available to Administrative Agent on such Funding Date and
Administrative Agent may, in its sole discretion, but shall not be obligated to,
make available to the applicable Borrower a corresponding amount on such Funding
Date. If such corresponding amount is not in fact made available to
Administrative Agent by such Lender, Administrative Agent shall be entitled to
recover such corresponding amount on demand from such Lender together with
interest thereon, for each day from such Funding Date until the date such amount
is paid to Administrative Agent, at the customary rate set by Administrative
<PAGE> 74
Agent for the correction of errors among banks plus any applicable fees charged
by Administrative Agent. If such Lender does not pay such corresponding amount
forthwith upon Administrative Agent's demand therefor, Administrative Agent
shall promptly notify the applicable Borrower and such Borrower shall
immediately pay such corresponding amount to Administrative Agent together with
interest thereon, for each day from such Funding Date until the date such amount
is paid to Administrative Agent, at the rate payable under this Agreement for
Base Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that Borrowers may have against any Lender as a result of any default
by such Lender hereunder.
D. THE REGISTER.
(i) Administrative Agent shall maintain, at its address
referred to in subsection 10.8, a register for the recordation of the
names and addresses of Lenders and the Commitments and Loans of each
Lender from time to time (the "Register"). The Register shall be
available for inspection by any Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(ii) Administrative Agent shall record in the Register the US
Acquisition Loan Commitment, the Canadian Acquisition Loan Commitment,
and the Revolving Loan Commitment and the Tranche A Term Loans, Tranche
B Term Loans, Canadian Term Loan, US Acquisition Loans, Canadian
Acquisition Loans, and Revolving Loans from time to time of each
Lender, and each repayment or prepayment in respect of the principal
amount of the Tranche A Term Loans, Tranche B Term Loans, Canadian Term
Loans, US Acquisition Loans, Canadian Acquisition Loans, or Revolving
Loans of each Lender. Any such recordation shall be conclusive and
binding the Borrowers and each Lender, absent manifest error; provided
that failure to make any such recordation, or any error in such
recordation, shall not affect any Lender's Commitments or any
Borrower's Obligations in respect of any applicable Loans.
(iii) Each Lender shall record on its internal records
(including, without limitation, the Notes held by such Lender) the
amount of the Tranche A Term Loan, Tranche B Term Loan, Canadian Term
Loan, each US Acquisition Loan, each Canadian Acquisition Loans, and
each Revolving Loan made by it and each payment in respect thereof. Any
such recordation shall be conclusive and binding on the Borrowers,
absent manifest error; provided that failure to make any such
<PAGE> 75
recordation, or any error in such recordation, shall not affect any
Lender's Commitments or any Borrower's Obligations in respect of any
applicable Loans; and provided, further that in the event of any
inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern absent manifest error.
(iv) Borrowers, Administrative Agent and Lenders shall deem
and treat the Persons listed as Lenders in the Register as the holders
and owners of the corresponding Commitments and Loans listed therein
for all purposes hereof, and no assignment or transfer of any such
Commitment or Loan shall be effective, in each case unless and until an
Assignment Agreement effecting the assignment or transfer thereof shall
have been accepted by Administrative Agent and recorded in the Register
as provided in subsection 10.1B(ii). Prior to such recordation, all
amounts owed with respect to the applicable Commitment or Loan shall be
owed to the Lender listed in the Register as the owner thereof, and any
request, authority or consent of any Person who, at the time of making
such request or giving such authority or consent, is listed in the
Register as a Lender shall be conclusive and binding on any subsequent
holder, assignee or transferee of the corresponding Commitments or
Loans.
(v) Each Borrower each hereby designates the financial
institution acting as Administrative Agent to serve as its agent solely
for purposes of maintaining the Register as provided in this subsection
2.1D, and each Borrower each hereby agrees that, to the extent such
institution serves in such capacity, such institution and its officers,
directors, employees, agents and affiliates shall constitute
Indemnitees for all purposes under subsection 10.3.
E. NOTES.
(i) Company shall execute and deliver on the Effective Date to
each Lender (or to Administrative Agent for that Lender) (a) a Tranche
A Term Note substantially in the form of Exhibit IV-A annexed hereto to
evidence that Lender's Tranche A Term Loan, in the principal amount of
that Lender's Tranche A Term Loan and with other appropriate
insertions, (b) a Tranche B Term Note substantially in the form of
Exhibit IV-B annexed hereto to evidence that Lender's Tranche B Term
Loan, in the principal amount of that Lender's Tranche B Term Loan and
with other appropriate insertions, (c) a US Acquisition Loan Note
substantially in the form of Exhibit VII-A annexed hereto to evidence
that Lender's US Acquisition Loans, in the principal amount of that
Lender's US
<PAGE> 76
Acquisition Loan Commitment and with other appropriate insertions and
(d) a Revolving Note substantially in the form of Exhibit VI annexed
hereto to evidence that Lender's Revolving Loans, in the principal
amount of that Lender's Revolving Loan Commitment and with other
appropriate insertions.
(ii) The Canadian Borrower shall execute and deliver on the
Effective Date to each Lender (or to Administrative Agent for that
Lender) (a) a Canadian Term Note substantially in the form of Exhibit V
annexed hereto to evidence that Lender's Canadian Term Loan, in the
principal amount of that Lender's Canadian Term Loan and with other
appropriate insertions, and (b) a Canadian Acquisition Note
substantially in the form of Exhibit VII-B annexed hereto to evidence
that Lender's Canadian Acquisition Loans, in the principal amount of
that Lender's Canadian Acquisition Loan Commitment and with other
appropriate insertions.
F. SOLIDARY INTERESTS/CIVIL CODE OF QUEBEC. Each Borrower confirms and
agrees that subject to subsection 9.7, the rights of Administrative Agent and
each Lender, are solidary and as regards the Obligations and the Guarantied
Obligations (as defined in each Guaranty) owing from time to time to each
Lender, each of Administrative Agent and such Lender is entitled, when permitted
pursuant to Section 8, to: (i) demand repayment of the amounts of all Loans
outstanding from time to time in respect of such Obligations and Guarantied
Obligations; (ii) exact the whole performance of such Obligations and Guarantied
Obligations from the applicable Borrowers and Guarantors; (iii) benefit from the
Collateral Documents and the Collateral in respect of such Obligations and
Guarantied Obligations; (iv) give a full acquittance of such Obligations and
Guarantied Obligations; and (v) exercise all rights and recourses under the Loan
Documents with respect to those Obligations and Guarantied Obligations. The
Obligations of the Canadian Borrower or Company, as the case may be, with
respect to any Canadian Acquisition Loans, Canadian Term Loans, Tranche A Term
Loans, Tranche B Term Loans, US Acquisition Loans, or Revolving Loans, as the
case may be, arising from any advance of any Loans, or arising under any Letter
of Credit, will form part of the Obligations and Guarantied Obligations, will be
secured by the Collateral Documents and the Collateral and Administrative Agent
and each Lender will have a solidary interest therein.
<PAGE> 77
2.2 INTEREST ON THE LOANS.
A. RATE OF INTEREST.
Subject to the provisions of subsections 2.6 and 2.7, each
Loan shall bear interest on the unpaid principal amount thereof from the
Effective Date through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate or the Adjusted Eurodollar Rate. The
applicable basis for determining the rate of interest with respect to any Loan
shall be selected by the applicable Borrower initially at the time a Notice of
Borrowing is given with respect to such Loan pursuant to subsection 2.1B, and
the basis for determining the interest rate with respect to any Loan may be
changed from time to time by the applicable Borrower pursuant to subsection
2.2D. If on any day a Loan is outstanding with respect to which notice has not
been delivered to Administrative Agent in accordance with the terms of this
Agreement specifying the applicable basis for determining the rate of interest,
then for that day that Loan shall bear interest determined by reference to the
Base Rate.
(i) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche A Term Loans and the Revolving Loans shall bear interest
through maturity as follows:
(a) if a Base Rate Loan, then at the sum of the Base
Rate plus 2.25% per annum; or
(b) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus 3.50% per annum.
(ii) Subject to the provisions of subsections 2.2E and 2.7,
the Tranche B Term Loans, the Canadian Term Loans, and the Acquisition
Loans shall bear interest through maturity as follows:
(a) if a Base Rate Loan, then at the sum of the Base
Rate plus 2.75% per annum; or
(b) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus 4.00% per annum.
B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan, the
applicable Borrower may, pursuant to the applicable Notice of Borrowing or
Notice of Conversion/Continuation, as the case may be, select an interest period
(each an "INTEREST
<PAGE> 78
PERIOD") to be applicable to such Loan, which Interest Period shall be, at the
applicable Borrower's option, either a one, two, three or six month period;
provided that:
(i) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the Funding Date in respect of such Loan, in the case
of a Loan initially made as a Eurodollar Rate Loan, or on the date
specified in the applicable Notice of Conversion/ Continuation, in the
case of a Loan converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate Loan continued as such pursuant to a
Notice of Conversion/Continuation, each successive Interest Period
shall commence on the day on which the next preceding Interest Period
expires;
(iii) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided that, if any Interest Period
would otherwise expire on a day that is not a Business Day but is a day
of the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (vi of this subsection 2.2B, end on
the last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the
Tranche A Term Loans shall extend beyond the scheduled maturity date of
the Tranche A Term Loans, no Interest Period with respect to any
portion of the Tranche B Term Loans shall extend beyond the scheduled
maturity date of the Tranche B Term Loans, no Interest Period with
respect to any portion of the Canadian Term Loans shall extend beyond
the scheduled maturity date of the Canadian Term Loans, no Interest
Period with respect to any portion of the US Acquisition Loans shall
extend beyond the scheduled maturity date of the US Acquisition Loans,
no Interest Period with respect to any portion of the Canadian
Acquisition Loans shall extend beyond the scheduled maturity date of
the Canadian Acquisition Loans, and no Interest Period with respect to
any portion of the Revolving Loans shall extend beyond the Revolving
Loan Commitment Termination Date;
<PAGE> 79
(vi) no Interest Period with respect to any portion of the
Tranche A Term Loans, Tranche B Term Loans, Canadian Term Loans, US
Acquisition Loans or Canadian Acquisition Loans shall extend beyond a
date on which the applicable Borrower is required to make a scheduled
payment of principal of such Type of Loans, unless the sum of (a) the
aggregate principal amount of such Type of Loans that are Base Rate
Loans plus (b) the aggregate principal amount of such Type of Loans
that are Eurodollar Rate Loans with Interest Periods expiring on or
before such date equals or exceeds the principal amount required to be
paid on such Type of Loans on such date;
(vii) no Interest Period with respect to any portion of the
Revolving Loans shall extend beyond the date on which a permanent
reduction of the Revolving Loan Commitments is scheduled to occur
unless the sum of (a) the aggregate principal amount of Revolving Loans
that are Base Rate Loans plus (b) the aggregate principal amount of
Revolving Loans that are Eurodollar Rate Loans with Interest Periods
expiring on or before such date plus (c) the excess of the Revolving
Loan Commitments then in effect over the aggregate principal amount of
Revolving Loans then outstanding equals or exceeds the permanent
reduction of the Revolving Loan Commitments that is scheduled to occur
on such date;
(viii) there shall be no more than nine Interest Periods
outstanding at any time; and
(ix) in the event the applicable Borrower fails to specify an
Interest Period for any Eurodollar Rate Loan in the applicable Notice
of Borrowing or Notice of Conversion/Continuation, such Borrower shall
be deemed to have selected an Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity); provided that in the event any Revolving Loans that are Base Rate
Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such
Revolving Loans through the date of such prepayment shall be payable on the next
succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier,
at final maturity).
<PAGE> 80
D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.6, the applicable Borrower shall have the option (i) to convert at any time
all or any part of its outstanding Term Loans or Acquisition Loans equal to
$1,000,000 and integral multiples of $100,000 in excess of that amount and
outstanding Revolving Loans equal to $100,000 and integral multiples of $100,000
in excess of that amount from Loans bearing interest at a rate determined by
reference to one basis to Loans bearing interest at a rate determined by
reference to an alternative basis or (ii) upon the expiration of any Interest
Period applicable to a Eurodollar Rate Loan, to continue all or any portion of
such Loan equal to $1,000,000 and integral multiples of $100,000 in excess of
that amount (in the case of Term Loans and Acquisition Loans) or equal to
$100,000 and integral multiples of $100,000 in excess of that amount (in the
case of Revolving Loans) as a Eurodollar Rate Loan; provided, however, that a
Eurodollar Rate Loan may only be converted into a Base Rate Loan on the
expiration date of an Interest Period applicable thereto.
The applicable Borrower shall deliver a Notice of
Conversion/Continuation to Administrative Agent no later than 10:00 A.M. (New
York City time) at least three Business Days in advance of the proposed
conversion date (in the case of a conversion to a Base Rate Loan) and at least
three Business Days in advance of the proposed conversion/continuation date (in
the case of a conversion to, or a continuation of, a Eurodollar Rate Loan).
A Notice of Conversion/Continuation shall specify (i) the
proposed conversion/continuation date (which shall be a Business Day), (ii) the
amount and type of the Loan to be converted/continued, (iii) the nature of the
proposed conversion/continuation, (iv) in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v)
in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan,
that no Event of Default has occurred and is continuing. In lieu of delivering
the above-described Notice of Conversion/Continuation, a Borrower may give
Administrative Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2D; provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Administrative Agent on or before the proposed
conversion/continuation date. Upon receipt of written or telephonic notice of
any proposed conversion/continuation under this subsection 2.2D, Administrative
Agent shall promptly transmit such notice by telefacsimile or telephone to each
Lender.
Neither Administrative Agent nor any Lender shall incur any
liability to the Borrowers in acting upon any telephonic notice referred to
above that Administrative
<PAGE> 81
Agent believes in good faith to have been given by a duly authorized officer or
other person authorized to act on behalf of any Borrower or for otherwise acting
in good faith under this subsection 2.2D, and upon conversion or continuation of
the applicable basis for determining the interest rate with respect to any Loans
in accordance with this Agreement pursuant to any such telephonic notice the
Borrowers shall have effected a conversion or continuation, as the case may be,
hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and
2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of,
a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate Determination Date, and the
applicable Borrower shall be bound to effect a conversion or continuation in
accordance therewith.
E. DEFAULT RATE. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due, and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable Insolvency Laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement with respect to the applicable Loans (or, in the
case of any such fees and other amounts, at a rate which is 2% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration
of the Interest Period in effect at the time any such increase in interest rate
is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans
and shall thereafter bear interest payable upon demand at a rate which is 2% per
annum in excess of the interest rate otherwise payable under this Agreement for
Base Rate Loans. Payment or acceptance of the increased rates of interest
provided for in this subsection 2.2E is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Administrative Agent or any Lender.
The maximum rate of interest, including default interest, charged hereunder
shall not exceed the highest rate permitted by law.
F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed (i)
in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as
the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of
a 360-day year, in each case for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of the
making of such Loan or the first day of an
<PAGE> 82
Interest Period applicable to such Loan or, with respect to a Base Rate Loan
being converted from a Eurodollar Rate Loan, the date of conversion of such
Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be
included, and the date of payment of such Loan or the expiration date of an
Interest Period applicable to such Loan or, with respect to a Base Rate Loan
being converted to a Eurodollar Rate Loan, the date of conversion of such Base
Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded;
provided that if a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on that Loan.
G. CANADIAN INTEREST PROVISIONS. For purposes of the Interest Act
(Canada) and disclosure thereunder, whenever interest to be paid under this
Agreement or any other Loan Document is to be calculated on the basis of a year
of 360 days, the yearly rate of interest to which the rate determined pursuant
to such calculation is equivalent is the rate so determined multiplied by the
actual number of days in the calendar year in which the same is to
be ascertained divided by 360.
2.3 FEES.
A. COMMITMENT FEES.
(i) Company agrees to pay to Administrative Agent, for
distribution to each Revolving Lender in proportion to that Revolving
Lender's Pro Rata Share, commitment fees for the period from and
including the Effective Date to and excluding the Revolving Loan
Commitment Termination Date equal to the average of the daily excess of
the Revolving Loan Commitments over the sum of (i) the aggregate
principal amount of outstanding Revolving Loans plus (ii) the Letter of
Credit Usage multiplied by 1/2 of 1% per annum, such commitment fees to
be calculated on the basis of a 360-day year and the actual number of
days elapsed and to be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, commencing on the first
such date to occur after the Effective Date, and on the Revolving Loan
Commitment Termination Date.
(ii) Company agrees to pay to Administrative Agent, for
distribution to each Lender having US Acquisition Loan Exposure in
proportion to that Lender's Pro Rata Share, commitment fees for the
period from and including the Effective Date to and excluding the US
Acquisition Loan Commitment Termination Date equal to the average of
the daily excess of the US Acquisition Loan Commitments over the
aggregate principal amount of outstanding US Acquisition Loans and
<PAGE> 83
Canadian Acquisition Loans multiplied by either 3/4 of 1% per annum for
each day on which the aggregate amount of outstanding Acquisition Loans
is equal to or less than 50% of the aggregate amount of the US
Acquisition Loan Commitments at such time or 1/2 of 1% per annum at all
other times, such commitment fees to be calculated on the basis of a
360-day year and the actual number of days elapsed and to be payable
quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on the first such date to occur after the
Effective Date, and on the US Acquisition Loan Commitment Termination
Date.
B. OTHER FEES. Company and the Canadian Borrower each agree to pay to
Administrative Agent such other fees in the amounts and at the times separately
agreed upon in writing among Company, the Canadian Borrower and Administrative
Agent, and all fees set forth in that certain letter agreement dated October 29,
1999, among Company and Administrative Agent (the "FEE LETTER"), and all fees
set forth in that certain letter agreement dated November 30, 1999, between
Company and Administrative Agent.
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN ACQUISITION COMMITMENTS AND
REVOLVING LOAN COMMITMENTS; GENERAL PROVISIONS REGARDING PAYMENTS;
APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER GUARANTIES.
A. SCHEDULED PAYMENTS OF TERM LOANS AND ACQUISITION LOANS.
(i) Scheduled Payments of Tranche A Term Loans. Company shall
make principal payments on the Tranche A Term Loans in installments on
the dates and in the amounts set forth below:
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<PAGE> 84
<TABLE>
<CAPTION>
Date Scheduled Repayment
---- of Tranche A Term Loans
-----------------------
<S> <C>
February 29, 2000 $750,000
May 31, 2000 $750,000
August 31, 2000 $750,000
November 30, 2000 $750,000
February 28, 2001 $1,000,000
May 31, 2001 $1,000,000
August 31, 2001 $1,000,000
November 30, 2001 $1,000,000
February 28, 2002 $1,250,000
May 31, 2002 $1,250,000
August 31, 2002 $1,250,000
November 30, 2002 $1,250,000
February 28, 2003 $1,500,000
May 31, 2003 $1,500,000
August 31, 2003 $1,500,000
November 30, 2003 $1,500,000
February 29, 2004 $1,750,000
May 31, 2004 $1,750,000
August 31, 2004 $1,750,000
November 30, 2004 $1,750,000
</TABLE>
; provided that the scheduled installments of principal of the Tranche
A Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Tranche A Term Loans in
accordance with subsection 2.4B(iv); and provided, further that the
Tranche A Term Loans and all other amounts owed hereunder with respect
to the Tranche A Term Loans shall be paid in full no later than the
Tranche A Loan Maturity Date and the final installment payable by
Company in respect of the Tranche A Term Loans on such date shall be in
an amount, if such amount is different from that specified above,
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<PAGE> 85
sufficient to repay all amounts owing by Company under this Agreement
with respect to the Tranche A Term Loans.
(ii) Scheduled Payments of Tranche B Term Loans. Company shall
make principal payments on the Tranche B Term Loans in installments on
the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Date Scheduled Repayment
---- of Tranche B Term Loans
-----------------------
<S> <C>
February 29, 2000 $67,000
May 31, 2000 $67,000
August 31, 2000 $67,000
November 30, 2000 $67,000
February 28, 2001 $67,000
May 31, 2001 $67,000
August 31, 2001 $67,000
November 30, 2001 $67,000
February 28, 2002 $67,000
May 31, 2002 $67,000
August 31, 2002 $67,000
November 30, 2002 $67,000
February 28, 2003 $67,000
May 31, 2003 $67,000
August 31, 2003 $67,000
November 30, 2003 $67,000
February 29, 2004 $67,000
May 31, 2004 $67,000
August 31, 2004 $67,000
November 30, 2004 $67,000
February 28, 2005 $3,182,500
May 31, 2005 $3,182,500
August 31, 2005 $3,182,500
</TABLE>
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<PAGE> 86
<TABLE>
<CAPTION>
Date Scheduled Repayment
---- of Tranche B Term Loans
-----------------------
<S> <C>
November 30, 2005 $3,182,500
February 28, 2006 $3,182,500
May 31, 2006 $3,182,500
August 31, 2006 $3,182,500
November 30, 2006 $3,182,500
</TABLE>
; provided that the scheduled installments of principal of the Tranche
B Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Tranche B Term Loans in
accordance with subsection 2.4B(iv); and provided, further that the
Tranche B Term Loans and all other amounts owed hereunder with respect
to the Tranche B Term Loans shall be paid in full no later than the
Tranche B Loan Maturity Date and the final installment payable by
Company in respect of the Tranche B Term Loans on such date shall be in
an amount, if such amount is different from that specified above,
sufficient to repay all amounts owing by Company under this Agreement
with respect to the Tranche B Term Loans.
(iii) Scheduled Payments of Canadian Term Loans. The Canadian
Borrower shall make principal payments on the Canadian Term Loans in
installments on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Date Scheduled Repayment
---- of Canadian Term Loans
----------------------
<S> <C>
February 29, 2000 $140,000
May 31, 2000 $140,000
August 31, 2000 $140,000
November 30, 2000 $140,000
February 28, 2001 $140,000
May 31, 2001 $140,000
August 31, 2001 $140,000
November 30, 2001 $140,000
</TABLE>
78
<PAGE> 87
<TABLE>
<CAPTION>
Date Scheduled Repayment
---- of Canadian Term Loans
----------------------
<S> <C>
February 28, 2002 $140,000
May 31, 2002 $140,000
August 31, 2002 $140,000
November 30, 2002 $140,000
February 28, 2003 $140,000
May 31, 2003 $140,000
August 31, 2003 $140,000
November 30, 2003 $140,000
February 29, 2004 $140,000
May 31, 2004 $140,000
August 31, 2004 $140,000
November 30, 2004 $140,000
December 15, 2004 $8,400,000
</TABLE>
; provided that the scheduled installments of principal of the Canadian
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Canadian Term Loans in
accordance with subsection 2.4B(iv); and provided, further that the
Canadian Term Loans and all other amounts owed hereunder with respect
to the Canadian Term Loans shall be paid in full no later than the
Canadian Term Loan Maturity Date and the final installment payable by
the Canadian Borrower in respect of the Canadian Term Loans on such
date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by the Canadian
Borrower under this Agreement with respect to the Canadian Term Loans.
(iv) Scheduled Payments of US Acquisition Loans. Company shall
make principal payments on the US Acquisition Loans in installments on
the dates set forth below. The aggregate amount of the scheduled
installment of principal on the US Acquisition Loans due on each such
date shall be an amount equal to the aggregate principal amount of US
Acquisition Loans outstanding on the US Acquisition Loan Commitment
Termination Date multiplied by the percentage set forth below opposite
such date:
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<PAGE> 88
<TABLE>
<CAPTION>
Date Scheduled Repayment
---- of US Acquisition Loans
-----------------------
<S> <C>
February 28, 2002 2.50%
May 31, 2002 2.50%
August 31, 2002 2.50%
November 30, 2002 2.50%
February 28, 2003 3.75%
May 31, 2003 3.75%
August 31, 2003 3.75%
November 30, 2003 3.75%
February 29, 2004 5.00%
May 31, 2004 5.00%
August 31, 2004 5.00%
November 30, 2004 5.00%
February 28, 2005 6.25%
May 31, 2005 6.25%
August 31, 2005 6.25%
November 30, 2005 6.25%
February 28, 2006 7.50%
May 31, 2006 7.50%
August 31, 2006 7.50%
November 30, 2006 7.50%
</TABLE>
; provided that the scheduled installments of principal of the US
Acquisition Loans set forth above shall be reduced in connection with
any voluntary or mandatory prepayments of the US Acquisition Loans in
accordance with subsection 2.4B(iv); and provided, further that the US
Acquisition Loans and all other amounts owed hereunder with respect to
the US Acquisition Loans shall be paid in full no later than the US
Acquisition Loan Maturity Date, and the final installment payable by
Company in respect of the US Acquisition Loans on such date shall be in
an amount, if such amount is different from that specified above,
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<PAGE> 89
sufficient to repay all amounts owing by Company under this Agreement
with respect to the US Acquisition Loans.
(v) Scheduled Payments of Canadian Acquisition Loans. The
Canadian Borrower shall make principal payments on the Canadian
Acquisition Loans in installments on the dates set forth below. The
aggregate amount of the scheduled installment of principal on the
Canadian Acquisition Loans due on each such date shall be an amount
equal to the aggregate principal amount of Canadian Acquisition Loans
outstanding on the Canadian Acquisition Loan Commitment Termination
Date multiplied by the percentage set forth below opposite such date:
<TABLE>
<CAPTION>
Date Scheduled Repayment
---- of Canadian Acquisition Loans
-----------------------------
<S> <C>
February 28, 2002 1.25%
May 31, 2002 1.25%
August 31, 2002 1.25%
November 30, 2002 1.25%
February 28, 2003 1.25%
May 31, 2003 1.25%
August 31, 2003 1.25%
November 30, 2003 1.25%
February 29, 2004 1.25%
May 31, 2004 1.25%
August 31, 2004 1.25%
November 30, 2004 1.25%
February 28, 2005 1.25%
May 31, 2005 1.25%
August 31, 2005 1.25%
November 30, 2005 1.25%
February 28, 2006 1.25%
May 31, 2006 1.25%
August 31, 2006 1.25%
November 30, 2006 76.25%
</TABLE>
81
<PAGE> 90
; provided that the scheduled installments of principal of the Canadian
Acquisition Loans set forth above shall be reduced in connection with
any voluntary or mandatory prepayments of the Canadian Acquisition
Loans in accordance with subsection 2.4B(iv); and provided, further
that the Canadian Acquisition Loans and all other amounts owed
hereunder with respect to the Canadian Acquisition Loans shall be paid
in full no later than the Canadian Acquisition Loan Maturity Date, and
the final installment payable by the Canadian Borrower in respect of
the Canadian Acquisition Loans on such date shall be in an amount, if
such amount is different from that specified above, sufficient to repay
all amounts owing by the Canadian Borrower under this Agreement with
respect to the Canadian Acquisition Loans.
B. PREPAYMENTS AND REDUCTIONS IN ACQUISITION LOAN COMMITMENTS AND
REVOLVING LOAN COMMITMENTS.
(i) Voluntary Prepayments. The applicable Borrower may, upon
not less than one Business Day's prior written or telephonic notice, in
the case of Base Rate Loans, and three Business Days' prior written or
telephonic notice, in the case of Eurodollar Rate Loans, in each case
given to Administrative Agent by 12:00 Noon (New York City time) on the
date required and, if given by telephone, promptly confirmed in writing
to Administrative Agent (which original written or telephonic notice
Administrative Agent will promptly transmit by telefacsimile or
telephone to each Lender), at any time and from time to time prepay any
Loans on any Business Day in whole or in part in an aggregate minimum
amount of $500,000 and integral multiples of $100,000 in excess of that
amount. Notice of prepayment having been given as aforesaid, the
principal amount of the Loans specified in such notice shall become due
and payable on the prepayment date specified therein. Any such
voluntary prepayment shall be applied as specified in subsection
2.4B(iv).
(ii) Voluntary Reductions of Acquisition Loan Commitments and
Revolving Loan Commitments. The applicable Borrower may, upon not less
than three Business Days' prior written or telephonic notice confirmed
in writing to
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<PAGE> 91
Administrative Agent (which original written or telephonic notice
Administrative Agent will promptly transmit by telefacsimile or
telephone to each Lender), at any time and from time to time terminate
in whole or permanently reduce in part, without premium or penalty, the
Revolving Loan Commitments in an amount up to the amount by which the
Revolving Loan Commitments exceed the Total Utilization of Revolving
Loan Commitments at the time of such proposed termination or reduction
and/or the US Acquisition Loan Commitments in an amount up to the
amount by which the US Acquisition Loan Commitments exceed the sum of
the aggregate outstanding principal amount of US Acquisition Loans plus
the aggregate outstanding principal amount of Canadian Acquisition
Loans plus the US Acquisition Reserve plus the Canadian Acquisition
Reserve at the time of such proposed termination or reduction; provided
that any such partial reduction of the Revolving Loan Commitments or US
Acquisition Loan Commitments shall be in an aggregate minimum amount of
$1,000,000 and integral multiples of $100,000 in excess of that amount;
and provided further that the US Acquisition Loan Commitments may not
be reduced below the amount of the Canadian Acquisition Loan
Commitments. The applicable Borrower's notice to Administrative Agent
shall designate the date (which shall be a Business Day) of such
termination or reduction and the amount of any partial reduction, and
such termination or reduction of the Revolving Loan Commitments and/or
US Acquisition Loan Commitments shall be effective on the date
specified in such Borrower's notice and shall reduce the Revolving Loan
Commitment or the US Acquisition Loan Commitment, as the case may be,
of each Revolving Lender or each Lender having US Acquisition Loan
Exposure, respectively, proportionately to its Pro Rata Share of such
Commitment.
(iii) Mandatory Prepayments; Mandatory Reductions of
Commitments; Mandatory Collateralization of Loans. The Loans shall be
prepaid and/or the Commitments shall be permanently reduced and/or the
Loans shall be collateralized in the amounts and under the
circumstances set forth below, all such prepayments and/or reductions
to be applied as set forth below or as more specifically provided in
subsection 2.4B(iv):
(a) Prepayments and Reductions From Net Asset Sale
Proceeds. No later than the first Business Day following each
date that the amount of all Unapplied Net Asset Sales Proceeds
(excluding Net Asset Sale Proceeds resulting from sale and
lease-back transactions described in subsection 7.10A if the
lease entered into in connection therewith is a
83
<PAGE> 92
Capital Lease) exceeds $50,000, Company shall prepay the Loans
and/or the Commitments shall be permanently reduced and/or the
Canadian Borrower shall collateralize the Loans in an
aggregate amount equal to the amount of such Unapplied Net
Asset Sale Proceeds.
(b) Prepayments and Reductions from Net Insurance/
Condemnation Proceeds. No later than the first Business Day
following the date of receipt by Administrative Agent or by
Company or any of its Subsidiaries of any Net Insurance/
Condemnation Proceeds that are required to be applied to
prepay the Loans and/or reduce the Commitments and/or
collateralize the Loans pursuant to the provisions of
subsection 6.4C, Company shall prepay the Loans and/or the
Commitments shall be permanently reduced and/or the Canadian
Borrower shall collateralize the Loans in an aggregate amount
equal to the amount of such Net Insurance/Condemnation
Proceeds.
(c) Prepayments and Reductions from Purchase Price
Adjustments. No later than the first Business Day following
the date of receipt by Holdings or any of its Subsidiaries of
any funds representing reductions to the purchase price paid
by Company or any of its Subsidiaries under any Acquisition
Agreement, or the receipt of funds from any escrow account
established pursuant to any Acquisition Agreement, Company
shall prepay the Loans and/or the Commitments shall be
permanently reduced and/or the Canadian Borrower shall
collateralize the Loans in an aggregate amount equal to the
amount of such funds.
(d) Prepayments and Reductions Due to Issuance of
Debt or Equity Securities. On the date of receipt by Holdings
or any of its Subsidiaries of any Net Securities Proceeds,
Company shall prepay the Loans and/or the Commitments shall be
permanently reduced and/or the Canadian Borrower shall
collateralize the Loans in an aggregate amount equal to the
amount of such Net Securities Proceeds.
(e) Prepayments and Reductions from Consolidated
Excess Cash Flow. In the event that there shall be
Consolidated Excess Cash Flow for any Fiscal Year (commencing
with the Fiscal Year ending December 31, 1999), Company shall,
no later than 90 days after the end of such Fiscal Year,
prepay the Loans and/or the Commitments shall be
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<PAGE> 93
permanently reduced and/or the Canadian Borrower shall
collateralize the Loans in an aggregate amount equal to 50% of
such Consolidated Excess Cash Flow.
(f) Prepayments Due to Reductions or Restrictions of
Revolving Loan Commitments. Company shall from time to time
prepay the Revolving Loans to the extent necessary so that the
Total Utilization of Revolving Loan Commitments shall not at
any time exceed the lesser of (x) the Revolving Loan
Commitments then in effect and (y) the Borrowing Base at such
time.
(g) Calculations of Net Proceeds Amounts; Additional
Prepayments and Reductions Based on Subsequent Calculations.
Concurrently with any prepayment of the Loans and/or reduction
of the Commitments and/or collateralization of the Loans
pursuant to subsections 2.4B(iii)(a)-(e), Company shall
deliver to Administrative Agent an Officers' Certificate
demonstrating the calculation of the amount (the "NET PROCEEDS
AMOUNT") of the applicable Net Asset Sale Proceeds or Net
Insurance/Condemnation Proceeds, or the purchase price
adjustments, or Net Securities Proceeds, or the applicable
Consolidated Excess Cash Flow, as the case may be, that gave
rise to such prepayment and/or reduction and/or
collateralization. In the event that Company shall
subsequently determine that the actual Net Proceeds Amount was
greater than the amount set forth in such Officers'
Certificate, Company shall promptly make an additional
prepayment of the Loans (and/or, if applicable, the
Commitments shall be permanently reduced and/or the Canadian
Borrower shall collateralize the Loans) in an amount equal to
the amount of such excess, and Company shall concurrently
therewith deliver to Administrative Agent an Officers'
Certificate demonstrating the derivation of the additional Net
Proceeds Amount resulting in such excess.
(iv) Application of Prepayments and Unscheduled Reductions of
Commitments.
(a) Application of Voluntary Prepayments by Type of
Loans and Order of Maturity. Any voluntary prepayments
pursuant to subsection 2.4B(i) shall be applied as specified
by the applicable Borrower in the applicable notice of
prepayment; provided that if Company fails to specify the
Loans to which any such prepayment made by it shall be
applied, such
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<PAGE> 94
prepayment shall be applied first to repay outstanding
Revolving Loans to the full extent thereof, second to repay
outstanding Tranche A Term Loans to the full extent thereof,
third to repay outstanding Tranche B Term Loans to the full
extent thereof, and fourth to repay outstanding US Acquisition
Loans to the full extent thereof, and if the Canadian Borrower
fails to specify the Loans to which any such prepayment made
by it shall be applied, such prepayment shall be applied first
to repay outstanding Canadian Term Loans to the full extent
thereof, and second to repay outstanding Canadian Acquisition
Loans to the full extent thereof. Any voluntary prepayments of
the Tranche A Term Loans, Tranche B Term Loans, Canadian Term
Loans, US Acquisition Loans or Canadian Acquisition Loans
pursuant to subsection 2.4B(i) shall reduce the scheduled
installments of principal of such Type of Loans set forth in
subsections 2.4A(i), 2.4A(ii), 2.4A(iii), 2.4A(iv) or 2.4A(v),
respectively, in inverse order of maturity.
(b) Application of Mandatory Prepayments and
Collateralization by Type of Loans. Any amount (the "APPLIED
AMOUNT") required to be applied as a mandatory prepayment of
the Loans and/or a reduction of the Commitments and/or
collateralization of the Loans pursuant to subsections
2.4B(iii)(a)-(e) at any time on or before the US Acquisition
Loan Commitment Termination Date shall be applied first to
prepay the Tranche A Term Loans and the Tranche B Term Loans
to the full extent thereof, pro rata in proportion to the
principal amount thereof outstanding at the time of such
prepayment, second, to prepay the US Acquisition Loan to the
full extent thereof and to permanently reduce the US
Acquisition Loan Commitments by the amount of such prepayment,
third, to the extent of any remaining portion of the Applied
Amount, to further permanently reduce the US Acquisition Loan
Commitments to the full extent thereof, fourth, to the extent
of any remaining portion of the Applied Amount, to prepay the
Revolving Loans to the full extent thereof and to permanently
reduce the Revolving Loan Commitments by the amount of such
prepayment, fifth, to the extent of any remaining portion of
the Applied Amount, to further permanently reduce the
Revolving Loan Commitments to the full extent thereof, and
sixth, to provide collateral for the Obligations by depositing
additional amounts into the Investment Account as provided in
subsection 2.4B(iv)(e). Any Applied Amount required to be
applied as a mandatory prepayment of the Loans and/or a
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<PAGE> 95
reduction of the Commitments and/or the collateralization of
the Loans pursuant to subsections 2.4B(iii)(a)-(e) at any time
after the US Acquisition Loan Commitment Termination Date
shall be applied first to prepay the Tranche A Term Loans,
Tranche B Term Loans and US Acquisition Loans to the full
extent thereof, pro rata in proportion to the principal amount
thereof outstanding at the time of such prepayment, second, to
the extent of any remaining portion of the Applied Amount, to
prepay the Revolving Loans to the full extent thereof and to
permanently reduce the Revolving Loan Commitments by the
amount of such prepayment, third, to the extent of any
remaining portion of the Applied Amount, to further
permanently reduce the Revolving Loan Commitments to the full
extent thereof, and fourth, to provide collateral for the
Obligations by depositing additional amounts into the
Investment Account as provided in subsection 2.4B(iv)(e).
(c) Application of Mandatory Prepayments of Term
Loans and Acquisition Loans to the Scheduled Installments of
Principal Thereof.
(1) [intentionally omitted]
(2) Any mandatory prepayments applied to the
Tranche A Term Loans, Tranche B Term Loans, or the US
Acquisition Loans pursuant to subsection 2.4B(iii)
shall be applied to reduce the scheduled installments
of principal of the Tranche A Term Loans, Tranche B
Term Loans, or the US Acquisition Loans, as the case
may be, set forth in subsection 2.4A(i), 2.4A(ii), or
2.4A(iv) respectively, in inverse order of maturity.
(d) Application of Prepayments to Base Rate Loans and
Eurodollar Rate Loans. Considering Tranche A Term Loans,
Tranche B Term Loans, US Acquisition Loans, Canadian
Acquisition Loans, Canadian Term Loans and Revolving Loans
being prepaid separately, any prepayment thereof shall be
applied first to Base Rate Loans to the full extent thereof
before application to Eurodollar Rate Loans, in each case in a
manner which minimizes the amount of any payments required to
be made by the applicable Borrower pursuant to subsection
2.6D.
(e) Collateralization of the Obligations. With
respect to the Investment Account referred to in subsection
2.4B(iv)(b) above, at least
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<PAGE> 96
five Business Days prior to the date upon which the Canadian
Borrower is required to deposit any funds into the Investment
Account, the Canadian Borrower shall be required to open and
maintain with a financial institution satisfactory to
Administrative Agent (subject to clause (i) below) an
investment account (the "INVESTMENT ACCOUNT"). Pursuant to
subsection 2.4B(iv)(b), the Canadian Borrower will be
required, from time to time, to deposit in such Investment
Account Applied Amounts that may not, at the applicable time
of reference, be applied to repayment of the Loans or
reductions in the Commitments. The Investment Account shall be
pledged to Administrative Agent, for the benefit of Lenders,
as Collateral for the Obligations and Administrative Agent and
Lenders shall at all times have a perfected, First Priority
Lien in the Investment Account (including, without limitation
the Cash, cash equivalents or other securities which are
maintained therein). The Canadian Borrower shall, and shall
require the financial institution at which the Investment
Account is maintained to, enter into such documents and
instruments which are necessary in order to assure
Administrative Agent and Lenders such perfected First Priority
Lien in the Investment Account. It is understood and agreed
that (i) the Investment Account shall be held by a financial
institution that is not related or otherwise affiliated and is
considered to deal at arms-length with Administrative Agent
and Lenders for purposes of the Income Tax Act of Canada, (ii)
so long as no Event of Default has occurred and is continuing,
the Canadian Borrower may, or may direct the financial
institution at which such account is maintained, to make
Qualified Investments with the cash or securities in the
Investment Account, (iii) the Investment Account shall be in
the name of the Canadian Borrower and shall be maintained by
the Canadian Borrower, and all earnings in respect of the
Qualified Investments maintained in the Investment Account
shall be for the account of the Canadian Borrower, and (iv) so
long as no Event of Default has occurred and is continuing,
the Canadian Borrower may withdraw earnings in respect of the
Investment Account from such Investment Account. Upon payment
in full of the Loans and termination of the Canadian
Acquisition Loan Commitments, the Investment Account will no
longer be required to be maintained by the Canadian Borrower
and pledged to Administrative Agent as Collateral. Upon the
earlier of (x) the date that is five years and one day after
the date on which the last Canadian Acquisition Loans and
Canadian Term Loans were made and (y) the date the maturity of
the Canadian Acquisition
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<PAGE> 97
Loans and Canadian Term Loans is accelerated pursuant to
Section 8, all Collateral held in the Investment Account may
be applied by the Administrative Agent in accordance with
subsection 2.4D(i). Any such repayments of Canadian
Acquisition Loans or Canadian Term Loans shall be applied to
reduce the scheduled installments thereof set forth in
subsections 2.4A(iii) or 2.4A(v), respectively, in inverse
order of maturity.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by Borrowers of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense,
setoff or counterclaim, free of any restriction or condition, and
delivered to Administrative Agent not later than 12:00 Noon (New York
City time) on the date due at the Funding and Payment Office for the
account of the Lenders; funds received by Administrative Agent after
that time on such due date shall be deemed to have been paid by the
applicable Borrower on the next succeeding Business Day. Each Borrower
hereby authorizes Administrative Agent to charge its accounts with
Administrative Agent in order to cause timely payment to be made to
Administrative Agent of all principal, interest, fees and expenses due
hereunder (subject to sufficient funds being available in its accounts
for that purpose).
(ii) Application of Payments to Principal and Interest. Except
as provided in subsection 2.2C, all payments in respect of the
principal amount of any Loan shall include payment of accrued interest
on the principal amount being repaid or prepaid, and all such payments
shall be applied to the payment of interest before application to
principal.
(iii) Apportionment of Payments. Aggregate principal and
interest payments in respect of Term Loans, Acquisition Loans and
Revolving Loans shall be apportioned among all outstanding Loans to
which such payments relate, in each case proportionately to Lenders'
respective Pro Rata Shares. Administrative Agent shall promptly
distribute to each Lender, at its primary address set forth below its
name on the appropriate signature page hereof or at such other address
as such Lender may request, its Pro Rata Share of all such payments
received by Administrative Agent and the commitment fees of such Lender
when received by Administrative Agent pursuant to subsection 2.3.
Notwithstanding the foregoing provisions of this subsection 2.4C(iii),
if, pursuant to the provisions of subsection 2.6C, any Notice of
Conversion/Continuation is withdrawn as to any Affected
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<PAGE> 98
Lender or if any Affected Lender makes Base Rate Loans in lieu of its
Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall
give effect thereto in apportioning payments received thereafter.
(iv) Payments on Business Days. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a
Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or of the commitment
fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before
disposing of any Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation
thereon of all Loans evidenced by that Note and all principal payments
previously made thereon and of the date to which interest thereon has
been paid; provided that the failure to make (or any error in the
making of) a notation of any Loan made under such Note shall not limit
or otherwise affect the obligations of the applicable Borrower
hereunder or under such Note with respect to any Loan or any payments
of principal or interest on such Note.
(vi) Currency of payments. All amounts payable under this
Agreement shall be paid in Dollars.
D. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER
GUARANTIES.
(i) Application of Proceeds of Collateral. Except as provided
in subsection 2.4B(iii)(a) with respect to prepayments from Net Asset
Sale Proceeds, all proceeds received by Administrative Agent in respect
of any sale of, collection from, or other realization upon all or any
part of the Collateral under any Collateral Document shall be held by
Administrative Agent as Collateral for and, promptly after any Secured
Obligations (as defined in such Collateral Document) become due and
payable or, in the case of contingent reimbursement obligations in
respect of Letters of Credit, draws under such Letters of Credit have
been honored, applied by Administrative Agent against, the applicable
Secured Obligations (as defined in such Collateral Document) in the
following order of priority:
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(a) To the payment of all costs and expenses of such
sale, collection or other realization, including reasonable
compensation to Administrative Agent and its agents and
counsel, and all other expenses, liabilities and advances made
or incurred by Administrative Agent in connection therewith,
and all amounts for which Administrative Agent is entitled to
indemnification under such Collateral Document and all
advances made by Administrative Agent thereunder for the
account of the applicable Loan Party, and to the payment of
all costs and expenses paid or incurred by Administrative
Agent in connection with the exercise of any right or remedy
under such Collateral Document, all in accordance with the
terms of this Agreement and such Collateral Document;
(b) thereafter, to the extent of any excess such
proceeds, to the payment of all other such Secured Obligations
for the ratable benefit of the holders thereof; and
(c) thereafter, to the extent of any excess such
proceeds, to the payment to or upon the order of such Loan
Party or to whosoever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct.
(ii) Application of Payments Under Guaranties. All payments
received by Administrative Agent under any Guaranty shall be applied
promptly from time to time by Administrative Agent in the following
order of priority:
(a) To the payment of the costs and expenses of any
collection or other realization under such Guaranty, including
reasonable compensation to Administrative Agent and its agents
and counsel, and all expenses, liabilities and advances made
or incurred by Administrative Agent in connection therewith,
all in accordance with the terms of this Agreement and such
Guaranty;
(b) thereafter, to the extent of any excess such
payments, to the payment of all other Guarantied Obligations
(as defined in such Guaranty) for the ratable benefit of the
holders thereof; and
(c) thereafter, to the extent of any excess such
payments, to the payment to the applicable Guarantor or to
whosoever may be lawfully
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entitled to receive the same or as a court of competent
jurisdiction may direct.
E. LIMITATION ON MANDATORY PREPAYMENTS OF CANADIAN ACQUISITION LOANS
AND CANADIAN TERM LOANS. Notwithstanding anything to the contrary contained in
this Agreement or any other Loan Document, in no event (other than the
acceleration of any of the Obligations upon the occurrence of an Event of
Default) shall the Canadian Borrower be obligated to amortize or pay directly or
indirectly any amounts that, when added to previous amounts paid in respect of
principal on the Canadian Acquisition Loans or Canadian Term Loans, exceed 24.9%
of the principal amount of such Canadian Acquisition Loans or Canadian Term
Loans, respectively, before the date that is one day after the fifth anniversary
of (i) the date such Canadian Acquisition Loans are made or (ii) the Effective
Date for the Canadian Term Loans.
F. NON-PRO RATA PREPAYMENT ON THE EFFECTIVE DATE. Anything contained
herein or in the other Loan Documents to the contrary notwithstanding, the
parties hereto agree that the prepayment of a portion of the Existing Loans and
accrued interest thereon and other amounts owed in respect of the Existing
Credit Agreement on the Effective Date pursuant to subsection 4.1J shall not be
distributed in proportion to the Lenders' respective Pro Rata Shares thereof (as
would otherwise be required pursuant to subsection 2.4C(iii)) but shall instead
shall be distributed to the Existing Lenders, in proportion to each such
Existing Lender's pro rata share (as such term is defined in the Existing Credit
Agreement) as in effect immediately before the effectiveness of this Agreement
and before the effectiveness of the Master Assignment Agreement.
2.5 USE OF PROCEEDS.
A. TRANCHE A TERM LOANS AND TRANCHE B TERM LOANS. The proceeds of the
Tranche A Term Loans and the portion of the Tranche B Term Loans that were
converted from Existing Loans into Tranche A Term Loans and Tranche B Term Loans
hereunder were applied as set forth in the Existing Credit Agreement. The
proceeds of the Tranche B Term Loans made hereunder on the Effective Date shall
be used to pay accrued and unpaid interest and fees on the Effective Date and
for general corporate purposes.
B. CANADIAN TERM LOANS. The proceeds of the Canadian Term Loans that
were converted from Existing Loans into Canadian Term Loans hereunder were
applied as set forth in the Existing Credit Agreement.
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C. US ACQUISITION LOANS. The proceeds of the US Acquisition Loans shall
be used to pay (i) purchase consideration (including, without limitation,
amounts escrowed) for Permitted Acquisitions payable on the consummation
thereof, (ii) transaction costs incurred in connection therewith, and (iii)
amounts owed in respect of Permitted Contingent Acquisition Obligations and
Permitted Acquisition Indebtedness to the extent that availability of the US
Acquisition Loan Commitments was reserved for payment of such Permitted
Contingent Acquisition Obligations and Permitted Acquisition Indebtedness in
accordance with subsection 2.1A(iv); provided, that payments pursuant to clauses
(i) and (ii) may be only made during the eighteen (18) month period following
the Effective Date.
D. CANADIAN ACQUISITION LOANS. The proceeds of the Canadian Acquisition
Loans shall be used to pay (i) purchase consideration for Permitted Acquisitions
by the Canadian Borrower payable on the consummation thereof, (ii) transaction
costs incurred in connection therewith, and (iii) amounts owed in respect of
Permitted Contingent Acquisition Obligations and any Permitted Acquisition
Indebtedness to the extent that availability of the Canadian Acquisition Loan
Commitments was reserved for payment of such Permitted Contingent Acquisition
Obligations and Permitted Acquisition Indebtedness in accordance with subsection
2.1A(v); provided, that payments pursuant to clauses (i) and (ii) may be only
made during the eighteen (18) month period following the Effective Date.
E. REVOLVING LOANS. The proceeds of any Revolving Loans shall be
applied by Company for general corporate purposes, which may include the making
of intercompany loans to any of Company's wholly-owned Subsidiaries, in
accordance with subsection 7.1(iv), for their own general corporate purposes.
F. MARGIN REGULATIONS. No portion of the proceeds of any borrowing
under this Agreement shall be used by any Borrowers or any of its Subsidiaries
in any manner that might cause the borrowing or the application of such proceeds
to violate Regulation U, Regulation T or Regulation X of the Board of Governors
of the Federal Reserve System or any other regulation of such Board or to
violate the Exchange Act, in each case as in effect on the date or dates of such
borrowing and such use of proceeds.
2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
Notwithstanding any other provision of this Agreement to the
contrary, the following provisions shall govern with respect to Eurodollar Rate
Loans as to the matters covered:
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A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable
after 10:00 A.M. (New York City time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate Loans for which an interest rate is then
being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to Company and
each Lender.
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
Administrative Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the interbank Eurodollar market adequate and fair means
do not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telefacsimile or by telephone confirmed
in writing) to Borrowers and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted to, Eurodollar Rate Loans until such time as
Administrative Agent notifies Borrowers and Lenders that the circumstances
giving rise to such notice no longer exist and (ii) any Notice of Borrowing or
Notice of Conversion/Continuation given by any Borrower with respect to the
Loans in respect of which such determination was made shall be deemed to be
rescinded by the applicable Borrower.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Company and Administrative Agent) that the
making, maintaining or continuation of its Eurodollar Rate Loans (i) has become
unlawful as a result of compliance by such Lender in good faith with any law,
treaty, governmental rule, regulation, guideline or order (or would conflict
with any such treaty, governmental rule, regulation, guideline or order not
having the force of law even though the failure to comply therewith would not be
unlawful) or (ii) has become impracticable, or would cause such Lender material
hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the interbank Eurodollar market
or the position of such Lender in that market, then, and in any such event, such
Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to Borrowers and
Administrative Agent of such determination (which notice Administrative Agent
shall promptly transmit to each other
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Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as,
or to convert Loans to, Eurodollar Rate Loans shall be suspended until such
notice shall be withdrawn by the Affected Lender, (b) to the extent such
determination by the Affected Lender relates to a Eurodollar Rate Loan then
being requested by any Borrower pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, the Affected Lender shall make such Loan as (or convert
such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's
obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED
LOANS") shall be terminated at the earlier to occur of the expiration of the
Interest Period then in effect with respect to the Affected Loans or when
required by law, and (d) the Affected Loans shall automatically convert into
Base Rate Loans on the date of such termination. Notwithstanding the foregoing,
to the extent a determination by an Affected Lender as described above relates
to a Eurodollar Rate Loan then being requested by any Borrower pursuant to a
Notice of Borrowing or a Notice of Conversion/Continuation, such Borrower shall
have the option, subject to the provisions of subsection 2.6D, to rescind such
Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by
giving notice (by telefacsimile or by telephone confirmed in writing) to
Administrative Agent of such rescission on the date on which the Affected Lender
gives notice of its determination as described above (which notice of rescission
Administrative Agent shall promptly transmit to each other Lender). Except as
provided in the immediately preceding sentence, nothing in this subsection 2.6C
shall affect the obligation of any Lender other than an Affected Lender to make
or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in
accordance with the terms of this Agreement.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
Borrowers shall compensate each Lender, upon written request by that Lender
(which request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including, without limitation, any
interest paid by that Lender to lenders of funds borrowed by it to make or carry
its Eurodollar Rate Loans and any loss, expense or liability sustained by that
Lender in connection with the liquidation or re-employment of such funds) which
that Lender may sustain: (i) if for any reason (other than a default by that
Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date
specified therefor in a Notice of Borrowing or a telephonic request for
borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does
not occur on a date specified therefor in a Notice of Conversion/Continuation or
a telephonic request for conversion or continuation, (ii) if any prepayment
(including without limitation any prepayment pursuant to subsection 2.4B(i)) or
other principal payment or any conversion of any of its Eurodollar Rate Loans
occurs on a date prior to the last day
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of an Interest Period applicable to that Loan, (iii) if any prepayment of any of
its Eurodollar Rate Loans is not made on any date specified in a notice of
prepayment given by any Borrower, or (iv) as a consequence of any other default
by any Borrower in the repayment of its Eurodollar Rate Loans when required by
the terms of this Agreement.
E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation
of all amounts payable to a Lender under this subsection 2.6 and under
subsection 2.7A shall be made as though that Lender had actually funded each of
its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of that
Lender to a domestic office of that Lender in the United States of America;
provided, however, that each Lender may fund each of its Eurodollar Rate Loans
in any manner it sees fit and the foregoing assumptions shall be utilized only
for the purposes of calculating amounts payable under this subsection 2.6 and
under subsection 2.7A.
G. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and
during the continuation of an Event of Default, (i) Borrowers may not elect to
have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan
after the expiration of any Interest Period then in effect for that Loan and
(ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or
Notice of Conversion/Continuation given by any Borrower with respect to a
requested borrowing or conversion/continuation that has not yet occurred shall
be deemed to be rescinded by such Borrower.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the
provisions of subsection 2.7B (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any
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new law, treaty or governmental rule, regulation or order), or any determination
of a court or governmental authority, in each case that becomes effective after
the date hereof, or compliance by such Lender with any guideline, request or
directive issued or made after the date hereof by any central bank or other
governmental or quasi-governmental authority (whether or not having the force of
law):
(i) subjects such Lender (or its applicable lending office) to
any additional Tax (other than any Tax on the overall net income of
such Lender) with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its applicable lending
office) of principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any reserve
(including without limitation any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC
insurance or similar requirement against assets held by, or deposits or
other liabilities in or for the account of, or advances or loans by, or
other credit extended by, or any other acquisition of funds by, any
office of such Lender (other than any such reserve or other
requirements with respect to Eurodollar Rate Loans that are reflected
in the definition of Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to
a Tax matter) on or affecting such Lender (or its applicable lending
office) or its obligations hereunder or the interbank Eurodollar
market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, the applicable Borrower shall promptly
pay to such Lender, upon receipt of the statement referred to in the next
sentence, such additional amount or amounts (in the form of an increased rate
of, or a different method of calculating, interest or otherwise as such Lender
in its reasonable discretion shall determine) as may be necessary to compensate
such Lender for any such increased cost or reduction in amounts received or
receivable hereunder; provided that the Borrowers shall not be required to
compensate a Lender pursuant to this subsection for any increased cost or
reduction incurred more than six months prior to the date that such Lender
notifies any Borrower of such change giving rise to such increased cost or
reduction and of such Lender's intention to claim compensation therefor;
provided further that, if such change giving rise to such increased cost or
reduction is retroactive, then the six months period referred to above shall be
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extended to include the period of retroactive effect thereof. Such Lender shall
deliver to the applicable Borrower (with a copy to Administrative Agent) a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to such Lender under this subsection 2.7A, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.
B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by each
Borrower under this Agreement and the other Loan Documents shall
(except to the extent required by law) be paid free and clear of, and
without any deduction or withholding on account of, any Tax (other than
a Tax on the overall net income of any Lender) imposed, levied,
collected, withheld or assessed by or within the United States of
America or Canada or any political subdivision in or of the United
States of America or Canada or any other jurisdiction from or to which
a payment is made by or on behalf of any Borrower or by any federation
or organization of which the United States of America or Canada or any
such jurisdiction is a member at the time of payment.
(ii) Grossing-up of Payments. If any Borrower or any other
Person is required by law to make any deduction or withholding on
account of any such Tax from any sum paid or payable by such Borrower
to Administrative Agent or any Lender under any of the Loan Documents:
(a) such Borrower shall notify Administrative Agent
of any such requirement or any change in any such requirement
as soon as such Borrower becomes aware of it;
(b) such Borrower shall pay any such Tax before the
date on which penalties attach thereto, such payment to be
made (if the liability to pay is imposed on such Borrower) for
its own account or (if that liability is imposed on
Administrative Agent or such Lender, as the case may be) on
behalf of and in the name of Administrative Agent or such
Lender;
(c) the sum payable by such Borrower in respect of
which the relevant deduction, withholding or payment is
required shall be increased to the extent necessary to ensure
that, after the making of that deduction, withholding or
payment, Administrative Agent or such Lender, as the case may
be, receives on the due date a net sum equal to what it would
have
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received had no such deduction, withholding or payment been
required or made; and
(d) within 30 days after paying any sum from which it
is required by law to make any deduction or withholding, and
within 30 days after the due date of payment of any Tax which
it is required by clause (b) above to pay, such Borrower shall
deliver to Administrative Agent evidence satisfactory to the
other affected parties of such deduction, withholding or
payment and of the remittance thereof to the relevant taxing
or other authority;
provided that no such additional amount shall be required to be paid to
any Lender under clause (c) above except to the extent that (x) such
amount is in respect of any deduction, withholding or payment under the
laws of Canada or any subdivision thereof, or (y) any change after the
date hereof (in the case of each Lender listed on the signature pages
hereof) or after the date of the Assignment Agreement pursuant to which
such Lender became a Lender (in the case of each other Lender) in any
such requirement for a deduction, withholding or payment as is
mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date of
this Agreement or at the date of such Assignment Agreement, as the case
may be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is organized under the laws of
any jurisdiction other than the United States or any state or
other political subdivision thereof, (for purposes of this
subsection 2.7B(iii), a "NON-U.S. LENDER") shall deliver to
Administrative Agent for transmission to Company, on or prior
to the Effective Date (in the case of each Lender listed on
the signature pages hereof) or on or prior to the date of the
Assignment Agreement pursuant to which it becomes a Lender (in
the case of each other Lender), and at such other times as may
be necessary in the determination of Company or Administrative
Agent (each in the reasonable exercise of its discretion), (1)
two original copies of Internal Revenue Service Form 1001 or
4224 (or any successor forms), properly completed and duly
executed by such Lender, together with any other certificate
or statement of exemption required under the Internal Revenue
Code or the regulations issued thereunder to establish that
such Lender is
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not subject to deduction or withholding of United States
federal income tax with respect to any payments to such Lender
of principal, interest, fees or other amounts payable under
any of the Loan Documents or (2) if such Lender is not a
"bank" or other Person described in Section 881(c)(3) of the
Internal Revenue Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224 pursuant to clause (1)
above, a certification that such Lender is not a "bank" or
other Person described in Section 881(c)(3) of the Internal
Revenue Code together with two original copies of Internal
Revenue Service Form W-8 (or any successor form), properly
completed and duly executed by such Lender, together with any
other certificate or statement of exemption required under the
Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect
to any payments to such Lender of interest payable under any
of the Loan Documents.
(b) Each Lender required to deliver any forms,
certificates or other evidence with respect to United States
federal income tax withholding matters pursuant to subsection
2.7B(iii)(a) hereby agrees, from time to time after the
initial delivery by such Lender of such forms, certificates or
other evidence, whenever a lapse in time or change in
circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that
such Lender shall promptly (1) deliver to Administrative Agent
for transmission to Company two new original copies of
Internal Revenue Service Form 1001 or 4224, or a certification
that such Lender is not a "bank" or other Person described in
Section 881(c)(3) of the Internal Revenue Code and two
original copies of Internal Revenue Service Form W-8, as the
case may be, properly completed and duly executed by such
Lender, together with any other certificate or statement of
exemption required in order to confirm or establish that such
Lender is not subject to deduction or withholding of United
States federal income tax with respect to payments to such
Lender under the Loan Documents or (2) notify Administrative
Agent and Company of its inability to deliver any such forms,
certificates or other evidence.
(c) Borrowers shall not be required to pay any
additional amount to any Non-U.S. Lender under clause (c) of
subsection 2.7B(ii) if
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such Lender shall have failed to satisfy the requirements of
clause (a) or (b)(1) of this subsection 2.7B(iii); provided
that if such Lender shall have satisfied the requirements of
subsection 2.7B(iii)(a) on the Effective Date (in the case of
each Lender listed on the signature pages hereof) or on the
date of the Assignment Agreement pursuant to which it became a
Lender (in the case of each other Lender), nothing in this
subsection 2.7B(iii)(c) shall relieve any Borrower of its
obligation to pay any additional amounts pursuant to clause
(c) of subsection 2.7B(ii) in the event that, as a result of
any change in any applicable law, treaty or governmental rule,
regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no
longer properly entitled to deliver forms, certificates or
other evidence at a subsequent date establishing the fact that
such Lender is not subject to withholding as described in
subsection 2.7B(iii)(a).
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability after the date
hereof of any law, rule or regulation (or any provision thereof) regarding
capital adequacy, or any change therein or in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of, or with reference
to, such Lender's Loans or Commitments or Letters of Credit or participations
therein or other obligations hereunder with respect to the Loans or the Letters
of Credit to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy),
then from time to time, within five Business Days after receipt by the
applicable Borrower from such Lender of the statement referred to in the next
sentence, such Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender or such controlling corporation on an
after-tax basis for such reduction; provided that the Borrowers shall not be
required to compensate a Lender pursuant to this subsection for any reduction
incurred more than six months prior to the date that such Lender notifies any
Borrower of such change giving rise to such reduction and of such Lender's
intention to claim compensation therefor; provided further that, if such change
giving rise to such
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reduction is retroactive, then the six month period referred to above shall be
extended to include the period of retroactive effect thereof. Such Lender shall
deliver to such Borrower (with a copy to Administrative Agent) a written
statement, setting forth in reasonable detail the basis of the calculation of
such additional amounts, which statement shall be conclusive and binding upon
all parties hereto absent manifest error.
2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE; MANDATORY
ASSIGNMENTS BY LENDERS.
A. Each Lender and Issuing Lender agrees that, as promptly as
practicable after the officer of such Lender or Issuing Lender responsible for
administering the Loans or Letters of Credit of such Lender or Issuing Lender,
as the case may be, becomes aware of the occurrence of an event or the existence
of a condition that would cause such Lender to become an Affected Lender or that
would entitle such Lender or Issuing Lender to receive payments under
sub-section 2.7 or subsection 3.6, it will, to the extent not inconsistent with
the internal policies of such Lender or Issuing Lender and any applicable legal
or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or
maintain the Commitments of such Lender or the affected Loans or Letters of
Credit of such Lender or Issuing Lender through another lending or letter of
credit office of such Lender or Issuing Lender, or (ii) take such other measures
as such Lender or Issuing Lender may deem reasonable, if as a result thereof the
circumstances which would cause such Lender to be an Affected Lender would cease
to exist or the additional amounts which would otherwise be required to be paid
to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6
would be materially reduced and if, as determined by such Lender or Issuing
Lender in its sole discretion, the making, issuing, funding or maintaining of
such Commitments or Loans or Letters of Credit through such other lending or
letter of credit office or in accordance with such other measures, as the case
may be, would not otherwise materially adversely affect such Commitments or
Loans or Letters of Credit or the interests of such Lender or Issuing Lender;
provided that such Lender or Issuing Lender will not be obligated to utilize
such other lending or letter of credit office pursuant to this subsection 2.8
unless the Borrowers agree to pay all incremental expenses incurred by such
Lender or Issuing Lender as a result of utilizing such other lending or letter
of credit office as described in clause (i) above. A certificate as to the
amount of any such expenses payable by Borrowers pursuant to this subsection 2.8
(setting forth in reasonable detail the basis for requesting such amount)
submitted by such Lender or Issuing Lender to Borrowers (with a copy to
Administrative Agent) shall be conclusive absent manifest error.
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B. In the event that (i) any Borrower is required to pay any amounts
pursuant to subsection 2.7A or 2.7C or (ii) any Lender becomes and remains an
"Affected Lender" as defined in subsection 2.6C then, unless an Event of Default
shall have occurred and be continuing at the time of the proposed assignment,
such Borrower may require such Lender to assign all of its interests, rights
(except for rights to be indemnified for actions taken while a party hereunder)
and obligations under this Agreement to a financial institution identified by
such Borrower and willing to become a "Lender" hereunder (a "Replacement
Lender"); provided, however, that (a) such assignment shall be made in
accordance with subsection 10.1, including the execution and delivery of such
documents required of each Assignee and the payment of the Assignment Fee to
Administrative Agent required under subsection 10.1B, which fee such be paid by
such Borrower; (b) any such Replacement Lender must be reasonably acceptable to
Administrative Agent; (c) Borrowers shall remain liable to any Lender required
to assign its rights hereunder for any amounts owed to such Lender pursuant to
subsection 2.7A or 2.7C; (d) such assignment to such Replacement Lender does not
conflict with any law, rule or regulation or order of any court or Governmental
Authority; and (e) Borrowers may not require the replacement of any Lender that
is the Administrative Agent unless all of the requirements for such successor
Administrative Agent pursuant to subsection 9.5 have been satisfied.
2.9 INCREASE IN US ACQUISITION LOAN COMMITMENTS; ADDITION OF LENDERS;
ASSIGNMENTS.
A. REQUEST FOR INCREASE IN US ACQUISITION COMMITMENTS. Company may
request that the US Acquisition Loan Commitments be increased to an aggregate
amount not to exceed $92,000,000 by giving written notice to Administrative
Agent (who shall promptly notify Lenders). Such notice shall be given prior to
January 15, 2000 and only one such notice may be given. Such request shall
specify the amount of the requested increase, the date of the requested increase
(which shall be not more than 15 Business Days and not less than 10 Business
Days after the date of such request), shall identify each Additional Lender (as
defined in subsection 2.9B) that will become a Lender hereunder in connection
with such increase, shall include evidence of each Additional Lender's agreement
to become a Lender hereunder in connection with such increase, and shall include
an Officers' Certificate stating that (i) the representations and warranties
contained herein and in the other Loan Documents are true, correct and complete
in all material respects on and as of the date of such Officers' Certificate to
the same extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and
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warranties were true, correct and complete in all material respects on and as of
such earlier date; and (ii) no Event of Default shall have occurred and be
continuing. Such requested increase shall become effective only if one or more
Additional Lenders become Lenders hereunder in accordance with subsections 2.9B
and 2.9C and Company pays all fees payable to Administrative Agent in connection
with such requested increase as set forth in that certain letter agreement dated
November 30, 1999, among Company and Administrative Agent. The provisions of
this subsection 2.9A shall supersede any provisions in subsection 10.6 to the
contrary.
B. ADDITION OF LENDERS. Any requested increase in US Acquisition Loan
Commitments made pursuant to subsection 2.9A shall not become effective unless
one or more financial institutions identified by Borrowers and willing to become
"Lenders" hereunder (each, an "Additional Lender") assume Loans and Commitments
hereunder in an aggregate amount equal to the amount of such requested increase
in US Acquisition Loan Commitments. The amount of Loans and Commitments to be
assumed by the Additional Lenders from the existing Lenders shall be allocated
pro rata in proportion to such existing Lenders' respective Pro Rata Shares.
Each Lender agrees to enter into Assignment Agreements complying with the terms
of this subsection 2.9.
C. ASSIGNMENT AGREEMENTS. Each assignment from a Lender to an
Additional Lender made pursuant to subsection 2.9B shall be subject to the
following requirements: (a) such assignment shall be made in accordance with
subsection 10.1, including the execution and delivery of such documents required
of each Assignee and the payment of the Assignment Fee to Administrative Agent
required under subsection 10.1B, which fee shall be paid by Borrowers; provided
that the assignments may be made pursuant to a master assignment agreement in
form and substance satisfactory to Lenders and Administrative Agent instead of
pursuant to Assignment Agreements, (b) any such Additional Lender must be
reasonably acceptable to Administrative Agent; (c) Borrowers shall remain liable
to any Lender required to assign its rights hereunder for any amounts owed to
such Lender pursuant to subsection 2.7A or 2.7C; (d) such assignment to such
Additional Lender does not conflict with any law, rule or regulation or order of
any court or Governmental Authority; and (e) such assignment would not result in
the occurrence of any Event of Default. Borrowers shall deliver to
Administrative Agent on or prior to the effective date of such assignments, in
form and substance satisfactory to Administrative Agent, (i) corporate
resolutions and incumbency certificates of Company dated as of the effective
date of such assignments, approving the requested increase in US Acquisition
Loan Commitments, and (ii) an Acknowledgement and Confirmation by each Loan
Party acknowledging and agreeing that the Collateral Documents and Guaranties to
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which it is a party continue to guaranty or secure, as the case may be, all
Obligations of Borrowers, including all Obligations in respect of the US
Acquisition Loans. Each Assignment Agreement executed pursuant to this
subsection 2.9 shall provide that it shall not become effective until
immediately after the increase in the US Acquisition Loan Commitments made
pursuant to this subsection 2.9 becomes effective, and the amount of the US
Acquisition Loan Commitments so assigned shall reflect such increase. Upon
satisfaction of all conditions set forth in this subsection 2.9, and all
conditions precedent to the effectiveness of the applicable Assignment
Agreements (other than the effectiveness of the proposed increase in US
Acquisition Loan Commitments) the proposed increase in US Acquisition Loan
Commitments shall become effective and, immediately thereafter, each applicable
Assignment Agreement shall become effective. Such increase shall increase the US
Acquisition Loan Commitment of each Lender pro rata in proportion to such
Lender's Pro Rata Share at the time of such increase. The provisions of this
subsection 2.9C shall supersede any provisions in subsection 10.1 to the
contrary.
SECTION 3. LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
THEREIN.
A. LETTERS OF CREDIT. In addition to Company requesting that Revolving
Lenders make Revolving Loans pursuant to subsection 2.1A(vi), Company may
request, in accordance with the provisions of this subsection 3.1, from time to
time during the period from the Effective Date to but excluding the Revolving
Loan Commitment Termination Date, that one or more Revolving Lenders issue
Letters of Credit for the account of Company for the purposes specified in the
definitions of Commercial Letters of Credit and Standby Letters of Credit.
Subject to the terms and conditions of this Agreement and in reliance upon the
representations and warranties of Company herein set forth, any one or more
Lenders may, but (except as provided in subsection 3.1B(ii)) shall not be
obligated to, issue such Letters of Credit in accordance with the provisions of
this subsection 3.1; provided that Company shall not request that any Revolving
Lender issue (and no Revolving Lender shall issue):
(i) any Letter of Credit if, after giving effect to such
issuance, the Total Utilization of Revolving Loan Commitments would
exceed the lesser of (x) the Revolving Loan Commitments then in effect
and (y) the Borrowing Base at the time of such issuance;
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(ii) any Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage would exceed $2,500,000;
(iii) any Commercial Letter of Credit if, after giving effect
to such issuance, the Letter of Credit Usage in respect of Commercial
Letters of Credit would exceed $2,500,000;
(iv) any Standby Letter of Credit if, after giving effect to
such issuance, the Letter of Credit Usage in respect of Standby Letters
of Credit would exceed $2,500,000;
(v) any Standby Letter of Credit having an expiration date
later than the earlier of (a) the Revolving Loan Commitment Termination
Date and (b) the date which is one year from the date of issuance of
such Standby Letter of Credit; provided that the immediately preceding
clause (b) shall not prevent any Issuing Lender from agreeing that a
Standby Letter of Credit will automatically be extended for one or more
successive periods not to exceed one year each unless such Issuing
Lender elects not to extend for any such additional period; and
provided, further that such Issuing Lender shall elect not to extend
such Standby Letter of Credit if it has knowledge that an Event of
Default has occurred and is continuing (and has not been waived in
accordance with subsection 10.6) at the time such Issuing Lender must
elect whether or not to allow such extension;
(vi) any Commercial Letter of Credit having an expiration date
(a) later than the earlier of (X) the date which is 30 days prior to
the Revolving Loan Commitment Termination Date and (Y) the date which
is 180 days from the date of issuance of such Commercial Letter of
Credit or (b) that is otherwise unacceptable to the applicable Issuing
Lender in its reasonable discretion;
(vii) any Letter of Credit denominated in a currency other
than Dollars; and
(viii) any Letter of Credit if, after giving effect to the
issuance of such Letter of Credit, the Senior Debt Leverage Ratio would
exceed the maximum permitted by subsection 7.6C, the Adjusted Senior
Debt Leverage Ratio would exceed the maximum permitted by subsection
7.6D, or the Total Debt Leverage Ratio would exceed the maximum
permitted by subsection 7.6E.
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B. MECHANICS OF ISSUANCE.
(i) Notice of Issuance. Whenever Company desires the issuance
of a Letter of Credit, it shall deliver to Administrative Agent a
Notice of Issuance of Letter of Credit substantially in the form of
Exhibit III annexed hereto no later than 12:00 Noon (New York City
time) at least three Business Days (in the case of Standby Letters of
Credit) or five Business Days (in the case of Commercial Letters of
Credit), or in each case such shorter period as may be agreed to by the
Issuing Lender in any particular instance, in advance of the proposed
date of issuance. The Notice of Issuance of Letter of Credit shall
specify (a) the proposed date of issuance (which shall be a Business
Day), (b) whether the Letter of Credit is to be a Standby Letter of
Credit or a Commercial Letter of Credit, (c) the face amount of the
Letter of Credit, (d) [intentionally omitted], (e) the expiration date
of the Letter of Credit, (f) the name and address of the beneficiary,
and (g) either the verbatim text of the proposed Letter of Credit or
the proposed terms and conditions thereof, including a precise
description of any documents to be presented by the beneficiary which,
if presented by the beneficiary prior to the expiration date of the
Letter of Credit, would require the Issuing Lender to make payment
under the Letter of Credit; provided that the Issuing Lender, in its
reasonable discretion, may require changes in the text of the proposed
Letter of Credit or any such documents; and provided, further that no
Letter of Credit shall require payment against a conforming draft to be
made thereunder on the same business day (under the laws of the
jurisdiction in which the office of the Issuing Lender to which such
draft is required to be presented is located) that such draft is
presented if such presentation is made after 10:00 A.M. (in the time
zone of such office of the Issuing Lender) on such business day.
Company shall notify the applicable Issuing Lender
(and Administrative Agent, if Administrative Agent is not such Issuing
Lender) prior to the issuance of any Letter of Credit in the event that
any of the matters to which Company is required to certify in the
applicable Notice of Issuance of Letter of Credit is no longer true and
correct as of the proposed date of issuance of such Letter of Credit,
and upon the issuance of any Letter of Credit Company shall be deemed
to have re-certified, as of the date of such issuance, as to the
matters to which Company is required to certify in the applicable
Notice of Issuance of Letter of Credit.
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(ii) Determination of Issuing Lender. Upon receipt by
Administrative Agent of a Notice of Issuance of Letter of Credit
pursuant to subsection 3.1B(i) requesting the issuance of a Letter of
Credit, in the event Administrative Agent elects to issue such Letter
of Credit, Administrative Agent shall promptly so notify Company, and
Administrative Agent shall be the Issuing Lender with respect thereto.
In the event that Administrative Agent, in its sole discretion, elects
not to issue such Letter of Credit, Administrative Agent shall promptly
so notify Company, whereupon Company may request any other Revolving
Lender to issue such Letter of Credit by delivering to such Revolving
Lender a copy of the applicable Notice of Issuance of Letter of Credit.
Any Revolving Lender so requested to issue such Letter of Credit shall
promptly notify Company and Administrative Agent whether or not, in its
sole discretion, it has elected to issue such Letter of Credit, and any
such Revolving Lender which so elects to issue such Letter of Credit
shall be the Issuing Lender with respect thereto. In the event that all
other Revolving Lenders shall have declined to issue such Letter of
Credit, notwithstanding the prior election of Administrative Agent not
to issue such Letter of Credit, Administrative Agent shall be obligated
to issue such Letter of Credit and shall be the Issuing Lender with
respect thereto, notwithstanding the fact that the Letter of Credit
Usage with respect to such Letter of Credit and with respect to all
other Letters of Credit issued by Administrative Agent, when aggregated
with Administrative Agent's outstanding Revolving Loans, may exceed
Administrative Agent's Revolving Loan Commitment then in effect;
provided, however, that CIBC shall not in any event be obligated to
issue any Commercial Letter of Credit in its capacity as Administrative
Agent.
(iii) Issuance of Letter of Credit. Upon satisfaction or
waiver (in accordance with subsection 10.6) of the conditions set forth
in subsection 4.3, the Issuing Lender shall issue the requested Letter
of Credit in accordance with the Issuing Lender's standard operating
procedures.
(iv) Notification to Lenders. Upon the issuance or amendment
of any Letter of Credit the applicable Issuing Lender shall promptly
notify Administrative Agent and each other Lender of such issuance or
amendment. Promptly after receipt of such notice (or, if Administrative
Agent is the Issuing Lender, together with such notice), Administrative
Agent shall notify each Lender of the amount of such Lender's
respective participation in such Letter of Credit, determined in
accordance with subsection 3.1C.
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C. REVOLVING LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT.
Immediately upon the issuance of each Letter of Credit, each Revolving Lender
shall be deemed to, and hereby agrees to, have irrevocably purchased from the
Issuing Lender a participation in such Letter of Credit and any drawings honored
thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the
maximum amount which is or at any time may become available to be drawn
thereunder.
D. EXISTING LETTERS OF CREDIT. Each Existing Letter of Credit
outstanding on the Effective Date shall be deemed to be a Letter of Credit
hereunder and all unpaid reimbursement obligations owed in respect of amounts
drawn on Existing Letters of Credit shall be reimbursement obligations
hereunder.
3.2 LETTER OF CREDIT FEES.
Company agrees to pay the following amounts with respect to
Letters of Credit issued hereunder:
(i) with respect to each Standby Letter of Credit, (a) a
fronting fee, payable directly to the applicable Issuing Lender for its
own account, equal to 0.25% per annum of the daily amount available to
be drawn under such Standby Letter of Credit and (b) a letter of credit
fee, payable to Administrative Agent for the account of Lenders, equal
to 3.50% per annum of the daily amount available to be drawn under such
Standby Letter of Credit, each such fronting fee or letter of credit
fee to be payable in arrears on and to (but excluding) each March 31,
June 30, September 30 and December 31 of each year and computed on the
basis of a 360 day year for the actual number of days elapsed;
(ii) with respect to each Commercial Letter of Credit, (a) a
fronting fee, payable directly to the applicable Issuing Lender for its
own account, equal to 0.25% per annum of the daily amount available to
be drawn under such Commercial Letter of Credit and (b) a letter of
credit fee, payable to Administrative Agent for the account of Lenders,
equal to 3.50% per annum of the daily amount available to be drawn
under such Commercial Letter of Credit, each such fronting fee or
letter of credit fee to be payable in arrears on and to (but excluding)
each March 31, June 30, September 30 and December 31 of each year and
computed on the basis of a 360-day year for the actual number of days
elapsed; and
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(iii) with respect to the issuance, amendment or transfer of
each Letter of Credit and each payment of a drawing made thereunder
(without duplication of the fees payable under clauses (i) and (ii)
above), documentary and processing charges payable directly to the
applicable Issuing Lender for its own account in accordance with such
Issuing Lender's standard schedule for such charges in effect at the
time of such issuance, amendment, transfer or payment, as the case may
be.
For purposes of calculating any fees payable under clauses (i) and (ii) of this
subsection 3.2, the daily amount available to be drawn under any Letter of
Credit shall be determined as of the close of business on any date of
determination. Promptly upon receipt by Administrative Agent of any amount
described in clause (i)(b) or (ii)(b) of this subsection 3.2, Administrative
Agent shall distribute to each Lender its Pro Rata Share of such amount.
3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to examine the
documents delivered under such Letter of Credit with reasonable care so as to
ascertain whether they appear on their face to be in accordance with the terms
and conditions of such Letter of Credit.
B. REIMBURSEMENT BY COMPANY OF AMOUNTS PAID UNDER LETTERS OF CREDIT. In
the event an Issuing Lender has determined to honor a drawing under a Letter of
Credit issued by it, such Issuing Lender shall immediately notify Company and
Administrative Agent, and Company shall reimburse such Issuing Lender on or
before the Business Day immediately following the date on which such drawing is
honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same day funds
equal to the amount of such honored drawing; provided that, anything contained
in this Agreement to the contrary notwithstanding, (i) unless Company shall have
notified Administrative Agent and such Issuing Lender prior to 10:00 A.M. (New
York City time) on the date such drawing is honored that Company intends to
reimburse such Issuing Lender for the amount of such honored drawing with funds
other than the proceeds of Revolving Loans, Company shall be deemed to have
given a timely Notice of Borrowing to Administrative Agent requesting Lenders to
make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an
amount in Dollars equal to the amount of such honored drawing and (ii) subject
to satisfaction or waiver of the conditions specified in subsection 4.2B,
Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base
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Rate Loans in the amount of such honored drawing, the proceeds of which shall be
applied directly by Administrative Agent to reimburse such Issuing Lender for
the amount of such honored drawing; and provided, further that if for any reason
proceeds of Revolving Loans are not received by such Issuing Lender on the
Reimbursement Date in an amount equal to the amount of such honored drawing,
Company shall reimburse such Issuing Lender, on demand, in an amount in same day
funds equal to the excess of the amount of such honored drawing over the
aggregate amount of such Revolving Loans, if any, which are so received. Nothing
in this subsection 3.3B shall be deemed to relieve any Lender from its
obligation to make Revolving Loans on the terms and conditions set forth in this
Agreement, and Company shall retain any and all rights it may have against any
Lender resulting from the failure of such Lender to make such Revolving Loans
under this subsection 3.3B.
C. PAYMENT BY LENDERS OF UNREIMBURSED AMOUNTS PAID UNDER LETTERS
OF CREDIT.
(i) Payment by Lenders. In the event that Company shall fail
for any reason to reimburse (including reimbursement with the proceeds
of Revolving Loans) any Issuing Lender as provided in subsection 3.3B
in an amount equal to the amount of any drawing honored by such Issuing
Lender under a Letter of Credit issued by it, such Issuing Lender shall
promptly notify each other Lender of the unreimbursed amount of such
honored drawing and of such other Lender's respective participation
therein based on such Lender's Pro Rata Share. Each Lender shall make
available to such Issuing Lender an amount equal to its respective
participation, in Dollars and in same day funds, at the office of such
Issuing Lender specified in such notice, not later than 12:00 Noon (New
York City time) on the first business day (under the laws of the
jurisdiction in which such office of such Issuing Lender is located)
after the date notified by such Issuing Lender. In the event that any
Lender fails to make available to such Issuing Lender on such business
day the amount of such Lender's participation in such Letter of Credit
as provided in this subsection 3.3C, such Issuing Lender shall be
entitled to recover such amount on demand from such Lender together
with interest thereon at the rate customarily used by such Issuing
Lender for the correction of errors among banks for three Business Days
and thereafter at the Base Rate. Nothing in this subsection 3.3C shall
be deemed to prejudice the right of any Lender to recover from any
Issuing Lender any amounts made available by such Lender to such
Issuing Lender pursuant to this subsection 3.3C in the event that it is
determined by the final judgment of a court of competent jurisdiction
that
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the payment with respect to a Letter of Credit by such Issuing Lender
in respect of which payment was made by such Lender constituted gross
negligence or willful misconduct on the part of such Issuing Lender.
(ii) Distribution to Lenders of Reimbursements Received From
Company. In the event any Issuing Lender shall have been reimbursed by
other Lenders pursuant to subsection 3.3C(i) for all or any portion of
any drawing honored by such Issuing Lender under a Letter of Credit
issued by it, such Issuing Lender shall distribute to each other Lender
which has paid all amounts payable by it under subsection 3.3C(i) with
respect to such honored drawing such other Lender's Pro Rata Share of
all payments subsequently received by such Issuing Lender from Company
in reimbursement of such honored drawing when such payments are
received. Any such distribution shall be made to a Lender at its
primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Lender may request.
D. INTEREST ON AMOUNTS PAID UNDER LETTERS OF CREDIT.
(i) Payment of Interest by Company. Company agrees to pay to
each Issuing Lender, with respect to drawings honored under any Letters
of Credit issued by it, interest on the amount paid by such Issuing
Lender in respect of each such honored drawing from the date such
drawing is honored to but excluding the date such amount is reimbursed
by Company (including any such reimbursement out of the proceeds of
Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for
the period from the date such drawing is honored to but excluding the
Reimbursement Date, the rate then in effect under this Agreement with
respect to Revolving Loans that are Base Rate Loans and (b) thereafter
until paid (including with proceeds of any Revolving Loans), a rate
which is 2% per annum in excess of the rate of interest otherwise
payable under this Agreement with respect to Revolving Loans that are
Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i)
shall be computed on the basis of a 360-day year for the actual number
of days elapsed in the period during which it accrues and shall be
payable on demand or, if no demand is made, on the date on which the
related drawing under a Letter of Credit is reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender.
Promptly upon receipt by any Issuing Lender of any payment of interest
pursuant to subsection 3.3D(i) with respect to a drawing honored under
a Letter of Credit issued by it, (a) such Issuing Lender shall
distribute to each other Lender, out of
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the interest received by such Issuing Lender in respect of the period
from the date such drawing is honored to but excluding the date on
which such Issuing Lender is reimbursed for the amount of such drawing
(including any such reimbursement out of the proceeds of Revolving
Loans pursuant to subsection 3.3B), the amount that such other Lender
would have been entitled to receive in respect of the letter of credit
fee that would have been payable in respect of such Letter of Credit
for such period pursuant to subsection 3.2 if no drawing had been
honored under such Letter of Credit, and (b) in the event such Issuing
Lender shall have been reimbursed by other Lenders pursuant to
subsection 3.3C(i) for all or any portion of such honored drawing, such
Issuing Lender shall distribute to each other Lender which has paid all
amounts payable by it under subsection 3.3C(i) with respect to such
honored drawing such other Lender's Pro Rata Share of any interest
received by such Issuing Lender in respect of that portion of such
honored drawing so reimbursed by other Lenders for the period from the
date on which such Issuing Lender was so reimbursed by other Lenders to
but excluding the date on which such portion of such honored drawing is
reimbursed by Company. Any such distribution shall be made to a Lender
at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Lender may
request.
3.4 OBLIGATIONS ABSOLUTE.
The obligation of Company to reimburse each Issuing Lender for
drawings honored under the Letters of Credit issued by it and to repay any
Revolving Loans made by Lenders pursuant to subsection 3.3B and the obligations
of Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances including, without limitation, any of the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other
right which Company or any Lender may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), any Issuing Lender or
other Lender or any other Person or, in the case of a Lender, against
Company, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any
underlying transaction between Company or one of its Subsidiaries and
the beneficiary for which any Letter of Credit was procured);
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(iii) any draft or other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) payment by the applicable Issuing Lender under any Letter
of Credit against presentation of a draft or other document which does
not substantially comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of
Company or any of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document
by any party thereto;
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing; or
(viii) the fact that an Event of Default shall have occurred
and be continuing;
provided, in each case, that payment by the applicable Issuing Lender under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question
(as determined by a final judgment of a court of competent jurisdiction).
3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and reasonable allocated costs of
internal counsel) which such Issuing Lender may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of any Letter of Credit by
such Issuing Lender, other than as a result of (a) the gross negligence or
willful misconduct of such Issuing Lender as determined by a final judgment of a
court of competent jurisdiction or (b) subject to the following clause (ii), the
wrongful dishonor by such Issuing Lender of a proper demand for payment made
under any Letter of Credit issued by it or (ii) the failure of such Issuing
Lender to honor a
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drawing under any such Letter of Credit as a result of any act or omission of
any present or future de jure or de facto government or governmental authority,
whether or not such act or omission was rightful or wrongful (all such acts or
omissions herein called "GOVERNMENTAL ACTS").
B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any
Issuing Lender, Company assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by such Issuing Lender by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, but subject to the last paragraph of this subsection 3.5B, such
Issuing Lender shall not be responsible for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for and issuance of any such Letter
of Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any such Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective for
any reason; (iii) failure of the beneficiary of any such Letter of Credit to
comply fully with any conditions required in order to draw upon such Letter of
Credit; (iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) errors in interpretation of technical terms; (vi)
any loss or delay in the transmission or otherwise of any document required in
order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of such Issuing Lender,
including without limitation any Governmental Acts, and none of the above shall
affect or impair, or prevent the vesting of, any of such Issuing Lender's rights
or powers hereunder.
In furtherance and extension and not in limitation of the
specific provisions set forth in the first paragraph of this subsection 3.5B,
any action taken or omitted by any Issuing Lender under or in connection with
the Letters of Credit issued by it or any documents and certificates delivered
thereunder, if taken or omitted in good faith, shall not put such Issuing Lender
under any resulting liability to Company.
Notwithstanding anything to the contrary contained in this
subsection 3.5, Company shall retain any and all rights it may have against any
Issuing Lender for any
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liability arising solely out of the gross negligence or willful misconduct of
such Issuing Lender, as determined by a final judgment of a court of competent
jurisdiction.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
Subject to the provisions of subsection 2.7B (which shall be
controlling with respect to the matters covered thereby), in the event that any
Issuing Lender or Lender shall determine (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto)
that any law, treaty or governmental rule, regulation or order, or any change
therein or in the interpretation, administration or application thereof
(including the introduction of any new law, treaty or governmental rule,
regulation or order), or any determination of a court or governmental authority,
in each case that becomes effective after the date hereof, or compliance by any
Issuing Lender or Lender with any guideline, request or directive issued or made
after the date hereof by any central bank or other governmental or
quasi-governmental authority (whether or not having the force of law):
(i) subjects such Issuing Lender or Lender (or its applicable
lending or letter of credit office) to any additional Tax (other than
any Tax on the overall net income of such Issuing Lender or Lender)
with respect to the issuing or maintaining of any Letters of Credit or
the purchasing or maintaining of any participations therein or any
other obligations under this Section 3, whether directly or by such
being imposed on or suffered by any particular Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve
(including without limitation any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC
insurance or similar requirement in respect of any Letters of Credit
issued by any Issuing Lender or participations therein purchased by any
Lender; or
(iii) imposes any other condition (other than with respect to
a Tax matter) on or affecting such Issuing Lender or Lender (or its
applicable lending or letter of credit office) regarding this Section 3
or any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Lender of agreeing to issue, issuing or maintaining any Letter of
Credit or agreeing to purchase, purchasing or maintaining any participation
therein or to reduce any amount received or receivable by such Issuing Lender or
Lender (or its applicable lending or
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letter of credit office) with respect thereto; then, in any case, Company shall
promptly pay to such Issuing Lender or Lender, upon receipt of the statement
referred to in the next sentence, such additional amount or amounts as may be
necessary to compensate such Issuing Lender or Lender for any such increased
cost or reduction in amounts received or receivable hereunder; provided that the
Borrowers shall not be required to compensate a Lender pursuant to this
subsection for any increased cost or reduction incurred more than six months
prior to the date that such Lender notifies any Borrower of such change giving
rise to such increased cost or reduction and of such Lender's intention to claim
compensation therefor; provided further that, if such change giving rise to such
increased cost or reduction is retroactive, then the six month period referred
to above shall be extended to include the period of retroactive effect thereof.
Such Issuing Lender or Lender shall deliver to Company a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Issuing Lender or Lender under this subsection 3.6, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.
SECTION 4. CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS AND LETTERS
OF CREDIT
4.1 CONDITIONS TO EFFECTIVENESS.
This Agreement shall become effective only upon the
satisfaction or written waiver by Requisite Lenders of the following conditions
precedent:
A. LOAN PARTY DOCUMENTS. On or before the Effective Date, Borrowers
shall, and shall cause each other Loan Party to, deliver to Lenders (or to
Administrative Agent for Lenders with sufficient originally executed copies,
where appropriate, for each Lender and its counsel) the following, each, unless
otherwise noted, dated the Effective Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of such Person, together with a good standing certificate
from the Secretary of State of its jurisdiction of incorporation and
each other state in which such Person is qualified as a foreign
corporation to do business and, to the extent generally available, a
certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing
authority of each of such jurisdictions, each dated a recent date prior
to the Effective Date;
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(ii) Copies of the Bylaws of such Person, certified as of the
Effective Date by such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of such Person
approving and authorizing the execution, delivery and performance of
the Loan Documents and Related Agreements to which it is a party,
certified as of the Effective Date by the corporate secretary or an
assistant secretary of such Person as being in full force and effect
without modification or amendment;
(iv) Signature and incumbency certificates of the officers of
such Person executing the Loan Documents to which it is a party;
(v) Executed originals of the New Loan Documents to which such
Person is a party; and
(vi) Such other documents as Administrative Agent may
reasonably request.
B. NO MATERIAL ADVERSE EFFECT. Since December 31, 1998, no material
adverse effect upon the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Company or any of its Subsidiaries (in
the sole opinion of Administrative Agent) shall have occurred, and no impairment
of the ability of any Loan Party to perform, or of Administrative Agent or
Lenders to enforce, the Obligations (in the sole opinion of Administrative
Agent) shall have occurred.
C. CORPORATE AND CAPITAL STRUCTURE AND OWNERSHIP.
(i) Corporate Structure. The corporate organizational
structure of Holdings and its Subsidiaries shall be as set forth on
Schedule 4.1C annexed hereto.
(ii) Capital Structure and Ownership. The capital structure
and ownership of Holdings and Company shall be as set forth on Schedule
4.1C annexed hereto.
D. PROCEEDS OF EQUITY CAPITALIZATION OF HOLDINGS AND COMPANY.
(i) Equity Capitalization of Holdings. On or before the
Effective Date, (1) the transactions contemplated by the
Recapitalization Agreement shall have been consummated, (2) Willis
Stein and BCI shall have purchased Holdings
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Preferred Stock for cash consideration of not less than $81,000,000,
and (3) Holdings shall have redeemed other shares of Holdings Common
Stock and Holdings Preferred Stock for cash consideration not in excess
of $61,000,000.
(ii) Equity Capitalization of Company. On or before the
Effective Date, Holdings shall have contributed to Company, as cash
common equity, not less than the sum of $7,250,000 plus the amount of
Transactions Costs.
E. MANAGEMENT EMPLOYMENT AGREEMENTS AND RELATED AGREEMENTS.
(i) Approval of Certain Related and Other Agreements. The
Recapitalization Agreement, each Management Employment Agreement, the
Holdings Certificate of Designations and each Stock Repurchase
Agreement, shall each be satisfactory in form and substance to
Administrative Agent. The Holdings Certificate of Designations shall
provide that no cash dividends are payable on the Holdings Preferred
Stock and that no shares of Holdings Preferred Stock may redeemed by
Holdings for cash until December 31, 2006.
(ii) Management Employment Agreements and Related Agreements
in Full Force and Effect. Administrative Agent shall have received a
fully executed or conformed copy of each Management Employment
Agreement, each Stock Repurchase Agreement, and each Related Agreement
and any documents executed in connection therewith, and each Management
Employment Agreement, each Stock Repurchase Agreement and each Related
Agreement shall be in full force and effect and no provision thereof
shall have been modified or waived in any respect determined by
Administrative Agent to be material, in each case without the consent
of Administrative Agent.
F. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF
WAITING PERIODS, ETC. Borrowers shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with the transactions contemplated by the
Loan Documents and the Related Agreements, and each of the foregoing shall be in
full force and effect, in each case other than those the failure to obtain or
maintain which, either individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. All applicable waiting periods shall
have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on the transactions contemplated hereby. No action, request for stay, petition
for review or rehearing, reconsideration, or appeal with respect to any of the
foregoing
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shall be pending, and the time for any applicable agency to take action to set
aside its consent on its own motion shall have expired.
G. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. Administrative
Agent shall have received evidence satisfactory to it that each Borrower shall
have taken or caused to be taken all such actions, executed and delivered or
caused to be executed and delivered all such agreements, documents and
instruments, and made or caused to be made all such filings and recordings that
may be necessary or, in the opinion of Administrative Agent, desirable in order
to create in favor of Administrative Agent, for the benefit of Lenders, a valid
and (upon such filing and recording) perfected First Priority security interest
in the entire personal and mixed property Collateral subject to the Lien of the
Collateral Documents. Such actions shall include, without limitation, the
following:
(i) Lien Searches and UCC or PPSA Termination Statements.
Delivery to Administrative Agent of (a) the results of a recent search,
by a Person satisfactory to Administrative Agent, of all effective UCC
or PPSA financing statements and fixture filings (or the equivalent
filings under the laws of Quebec) and all judgment and tax lien filings
which may have been made with respect to any personal or mixed property
of any Loan Party, together with copies of all such filings disclosed
by such search, and (b) UCC or PPSA termination statements duly
executed by all applicable Persons for filing in all applicable
jurisdictions as may be necessary to terminate any effective UCC or
PPSA financing statements or fixture filings disclosed in such search
(other than any such financing statements or fixture filings in respect
of Liens permitted to remain outstanding pursuant to the terms of this
Agreement).
(ii) UCC and PPSA Financing Statements and Fixture Filings.
Delivery to Administrative Agent of UCC and PPSA financing statements
(or the equivalent filings under the laws of Quebec) and, where
appropriate, fixture filings, duly executed by Company and its
Subsidiaries with respect to all personal and mixed property Collateral
of such Loan Party, for filing in all jurisdictions (including Ontario,
Quebec, Massachusetts and Florida) as may be necessary or, in the
opinion of Administrative Agent, desirable to perfect the security
interests created in such Collateral pursuant to the Collateral
Documents.
(iii) Canadian Subsidiary Hypothec. Delivery to Administrative
Agent of two Canadian Subsidiary Hypothecs duly executed and delivered
by the Canadian Borrower, one of which shall provide that it secures
all obligations
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under the Canadian Subsidiary Demand Note, and one of which shall
provide that it secures all Obligations of the Canadian Borrower
hereunder and under the other Loan Documents to which it is a party.
H. BLOCKED ACCOUNTS. Administrative Agent shall have received a
schedule of all deposit accounts maintained by Company or any of its
Subsidiaries on the Effective Date.
I. SENIOR DEBT LEVERAGE RATIO. Company shall have delivered to
Administrative Agent an Officers' Certificate demonstrating in reasonable detail
that, on the Effective Date, after giving effect to the transactions
contemplated hereby and the initial borrowings hereunder, the Senior Debt
Leverage Ratio shall not exceed 3.85 to 1.00.
J. PAYMENT OF AMOUNTS OWED UNDER EXISTING CREDIT AGREEMENT. On the
Effective Date, concurrently with the borrowing and/or conversion of Tranche A
Term Loans, Tranche B Term Loans, and Canadian Term Loans hereunder, Borrowers
shall pay to Administrative Agent for distribution to the Existing Lenders under
the Existing Credit Agreement (i) the portion of the principal amount of all
Existing Canadian Acquisition Loans owed to each Existing Lender that is not
converted into Canadian Term Loans hereunder, (ii) the portion of the principal
amount of any other Existing Loans owed to each Existing Lender that is not
converted into Loans hereunder, (iii) all unpaid interest on the Existing Loans
and commitment fees that have accrued through the Effective Date, (iv) all
unpaid fees and commissions with respect to all Existing Letters of Credit that
have accrued through the Effective Date and (iv) all other fees and amounts owed
under the Existing Credit Agreement, including all amounts payable under
subsection 2.6D thereof, but excluding the principal amount of Existing Loans
that are converted into Loans hereunder. Such amounts shall be paid by the
Administrative Agent to the Existing Lenders in accordance with the provisions
of the Existing Credit Agreement as in effect immediately prior to the
effectiveness hereof. Each Existing Lender that is entitled to payment under
this subsection may setoff such payment against the amount it is required to
remit to Administrative Agent on the Effective Date pursuant to subsection 2.1C.
Following the payment of all amounts owed to the Existing Lenders on the
Effective Date, other than obligations thereunder that are converted into
Obligations hereunder, the promissory notes issued to the Existing Lenders
evidencing the Existing Loans shall be of no further force and effect.
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K. CALCULATION OF ACQUISITION RESERVES. Company shall have delivered to
Administrative Agent an Officers' Certificate setting forth the calculation of
the US Acquisition Reserve and the Canadian Acquisition Reserve as of the
Effective Date.
L. FINANCIAL STATEMENTS; PROJECTIONS. On or before the Effective Date,
Lenders shall have received from Company (i) unaudited financial statements of
Holdings and its Subsidiaries as at October 31, 1999, consisting of a balance
sheet and the related consolidated and consolidating statements of income,
stockholders' equity and cash flows for the ten-month period ending on such
date, all in reasonable detail and certified by the chief financial officer of
Holdings that they fairly present in all material respects the financial
condition of Holdings and its Subsidiaries as at the dates indicated and the
results of their operations and their cash flows for the periods indicated,
subject to changes resulting from audit and normal year-end adjustments; (ii) an
unaudited consolidated balance sheet of Holdings and its Subsidiaries as at
October 31, 1999, prepared on a pro forma basis after giving effect to the
transactions contemplated by this Agreement and the Recapitalization Agreement
and consolidated and consolidated statements of income of Holding and its
Subsidiaries on an actual basis and a Pro Forma Basis for the 12 Fiscal Month
period ending October 31, 1999; and (iii) a business plan and projected
consolidated and consolidating financial statements of Company and its
Subsidiaries for the seven-year period after the Effective Date consisting of
consolidated and consolidating balance sheets and the related consolidated and
consolidating statements of income, shareholders' equity and cash flows, all of
which business plans, financial statements and projected financial statements
shall be substantially consistent with any financial statements or projected
financial results for the same periods delivered to Agents prior to their
execution hereof and otherwise in form and substance satisfactory to Agents.
M. SOLVENCY ASSURANCES. On the Effective Date, Administrative Agent and
Lenders shall have received a Solvency Certificate dated the Effective Date,
substantially in the form of Exhibit XII annexed hereto and with appropriate
attachments, in each case demonstrating that, after giving effect to the
consummation of Recapitalization Agreement, the related financings and the other
transactions contemplated by the Loan Documents and the Related Agreements, each
Borrower will be Solvent.
N. REVOLVING CREDIT AVAILABILITY. On the Effective Date, the sum of (i)
Company's and its Subsidiaries' cash in their Deposit Accounts plus (ii) the
amount of Revolving Loans that Company would be able to borrow on the Effective
Date, after giving effect to the limitations herein on such availability
(including, without limitation,
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compliance with subsection 7.6), shall, after payment of all Transaction Costs,
be not less than $10,000,000, and Administrative Agent shall have received
evidence satisfactory to it to that effect. There shall be no Revolving Loans
outstanding as of the Effective Date.
O. EVIDENCE OF INSURANCE. Administrative Agent shall have received a
certificate from Company's insurance broker or other evidence satisfactory to it
that all insurance required to be maintained pursuant to subsection 6.4 is in
full force and effect and that Administrative Agent on behalf of Lenders has
been named as additional insured and/or loss payee thereunder to the extent
required under subsection 6.4.
P. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders and their respective
counsel shall have received (i) originally executed copies of one or more
favorable written opinions of Kirkpatrick & Lockhart LLP, US counsel for Loan
Parties, in form and substance reasonably satisfactory to Administrative Agent
and its counsel, dated the Effective Date and setting forth substantially the
matters in the opinions designated in Exhibit IX-A annexed hereto, and as to
such other matters as Administrative Agent acting on behalf of Lenders may
reasonably request and (ii) originally executed copies of one or more favorable
written opinions of Legault Joly and Gowlings, Strathy & Henderson, Canadian
counsel for Loan Parties, in form and substance reasonably satisfactory to
Administrative Agent and its counsel, dated the Effective Date and setting forth
substantially the matters in the opinions designated in Exhibit IX-B annexed
hereto, and as to such other matters as Administrative Agent acting on behalf of
Lenders may reasonably request.
Q. OPINION OF ADMINISTRATIVE AGENT'S COUNSEL. Lenders shall have
received originally executed copies of one or more favorable written opinions of
O'Melveny & Myers LLP, counsel to Administrative Agent, dated the Effective
Date, substantially in the form of Exhibit X annexed hereto and as to such other
matters as Administrative Agent acting on behalf of Lenders may reasonably
request.
R. LENDERS' FEES. Company shall have paid to Administrative Agent for
distribution (as appropriate) to Administrative Agent and Lenders, the fees
payable on the Effective Date referred to in subsection 2.3B.
S. FEES AND EXPENSES OF COUNSEL TO ADMINISTRATIVE AGENT. The fees and
expenses of O'Melveny & Myers LLP, US counsel to Administrative Agent and of
Canadian counsel to Administrative Agent, in connection with the preparation,
negotiation, and closing of the New Loan Documents shall have been paid.
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T. TRANSACTIONS COSTS. All Transaction Costs shall have been paid and
shall not exceed $12,500,000, and Agents shall have received evidence to their
satisfaction to such effect.
U. MASTER ASSIGNMENT AGREEMENT. On or before the Effective Date, each
Existing Lender, each Lender, Borrowers, Canadian Subsidiary Guarantors and
Administrative Agent shall have executed and delivered Administrative Agent a
copy of a Master Assignment Agreement substantially in the form of Exhibit XXV
hereto, with appropriate insertions, and all conditions to the effectiveness of
such Master Assignment Agreement (other than the satisfaction of the condition
in this subsection 4.1U) shall have been satisfied.
V. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Company
shall have delivered to Administrative Agent an Officers' Certificate, in form
and substance satisfactory to Administrative Agent, to the effect that the
representations and warranties in Section 5 hereof are true, correct and
complete in all material respects on and as of the Effective Date to the same
extent as though made on and as of that date (or, to the extent such
representations and warranties specifically relate to an earlier date, that such
representations and warranties were true, correct and complete in all material
respects on and as of such earlier date) and that Company shall have performed
in all material respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before the
Effective Date except as otherwise disclosed to and agreed to in writing by
Administrative Agent and Requisite Lenders.
W. COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by Administrative
Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in
form and substance to Administrative Agent and such counsel, and Administrative
Agent and such counsel shall have received all such counterpart originals or
certified copies of such documents as Administrative Agent may reasonably
request.
X. EFFECTIVE DATE. The Effective Date shall be on or before December
10, 1999.
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4.2 CONDITIONS TO ALL LOANS.
The obligations of Lenders to make Loans on each Funding Date
are subject to the following further conditions precedent:
A. Administrative Agent shall have received before that Funding Date,
in accordance with the provisions of subsection 2.1B, an originally executed
Notice of Borrowing, in each case signed by the chief executive officer, the
chief financial officer or the treasurer of the applicable Borrower or by any
executive officer of the applicable Borrower designated by any of the
above-described officers on behalf of the applicable Borrower in a writing
delivered to Administrative Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in
the other Loan Documents shall be true, correct and complete in all
material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date,
in which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier
date;
(ii) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such
Notice of Borrowing that would constitute an Event of Default;
(iii) Each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this
Agreement provides shall be performed or satisfied by it on or before
that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender
from making the Loans to be made by it on that Funding Date;
(v) The making of the Loans requested on such Funding Date
shall not violate any law including, without limitation, Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System; and
(vi) There shall not be pending or, to the knowledge of any
Borrower, threatened, any action, suit, proceeding, governmental
investigation or arbitration
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against or affecting Company or any of its Subsidiaries or any property
of Company or any of its Subsidiaries that has not been disclosed by
Company in writing pursuant to subsection 5.6 or 6.1(x) prior to the
making of the last preceding Loans (or, in the case of the initial
Loans, prior to the execution of this Agreement), and there shall have
occurred no development not so disclosed in any such action, suit,
proceeding, governmental investigation or arbitration so disclosed,
that, in either event, in the opinion of Administrative Agent or of
Requisite Lenders, could reasonably be expected to have a Material
Adverse Effect; and no injunction or other restraining order shall have
been issued and no hearing to cause an injunction or other restraining
order to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result
of, the transactions contemplated by this Agreement or the making of
Loans hereunder.
4.3 CONDITIONS TO LETTERS OF CREDIT.
The issuance of any Letter of Credit hereunder (whether or not
the applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the Effective Date shall have occurred.
B. On or before the date of issuance of such Letter of Credit,
Administrative Agent shall have received, in accordance with the provisions of
subsection 3.1B(i), an originally executed Notice of Issuance of Letter of
Credit, in each case signed by the chief executive officer, the chief financial
officer or the treasurer of Company or by any executive officer of Company
designated by any of the above-described officers on behalf of Company in a
writing delivered to Administrative Agent, together with all other information
specified in subsection 3.1B(i) and such other documents or information as the
applicable Issuing Lender may reasonably require in connection with the issuance
of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
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SECTION 5. BORROWERS' REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to
make the Loans, to induce Issuing Lenders to issue Letters of Credit and to
induce other Lenders to purchase participations therein, each Borrower
represents and warrants to each Lender, on the date of this Agreement, on each
Funding Date and on the date of issuance of each Letter of Credit, that the
following statements are true, correct and complete:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
A. ORGANIZATION AND POWERS. Each Loan Party is a corporation or
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization as specified in Schedule
5.1 annexed hereto, except for Loan Parties that cease to be in good standing to
the extent permitted by Section 6.2. Each Loan Party has all requisite corporate
power and authority to own and operate its properties, to carry on its business
as now conducted and as proposed to be conducted, to enter into the Loan
Documents and Related Agreements to which it is a party and to carry out the
transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and will not have a Material Adverse Effect.
C. CONDUCT OF BUSINESS. Holdings and its Subsidiaries are engaged only
in the businesses permitted to be engaged in pursuant to subsection 7.14.
D. SUBSIDIARIES. All of the Subsidiaries of Company are identified in
Schedule 5.1 annexed hereto, as said Schedule 5.1 may be supplemented from time
to time pursuant to the provisions of subsection 6.1(xvii). The capital stock of
each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto
(as so supplemented) is duly authorized, validly issued, fully paid and
nonassessable and none of such capital stock constitutes Margin Stock. Each of
the Subsidiaries of Company identified in Schedule 5.1 annexed hereto (as so
supplemented) is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation set
forth therein, has all requisite corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be
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conducted, and is qualified to do business and in good standing in every
jurisdiction where its assets are located and wherever necessary to carry out
its business and operations, in each case except where failure to be so
qualified or in good standing or a lack of such corporate power and authority
has not had and will not have a Material Adverse Effect. Schedule 5.1 annexed
hereto (as so supplemented) correctly sets forth the ownership interest of
Company and each of its Subsidiaries in each of the Subsidiaries of Company
identified therein.
5.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance
of the Loan Documents and the Related Agreements have been duly authorized by
all necessary corporate action on the part of each Loan Party that is a party
thereto.
B. NO CONFLICT. The execution, delivery and performance by Loan Parties
of the Loan Documents and the Related Agreements to which they are parties and
the consummation of the transactions contemplated by the Loan Documents and such
Related Agreements do not and will not (i) violate any provision of any law or
any governmental rule or regulation applicable to Holdings or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Holdings
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Holdings or any of its Subsidiaries, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any material Contractual Obligation of Holdings or
any of its Subsidiaries, (iii) result in or require the creation or imposition
of any Lien upon any of the properties or assets of Holdings or any of its
Subsidiaries (other than any Liens created under any of the Loan Documents in
favor of Administrative Agent on behalf of Lenders), or (iv) require any
approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Holdings or any of its Subsidiaries, except for such
approvals or consents which will be obtained on or before the Effective Date and
disclosed in writing to Lenders.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Loan Parties of the Loan Documents and the Related Agreements to which they are
parties and the consummation of the transactions contemplated by the Loan
Documents and such Related Agreements do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any US federal, Canadian federal, state, provincial or other
governmental authority or regulatory body, except for (i) filings or recordings
contemplated by subsection 5.16A and (ii) as may be required, in
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connection with the disposition of any Pledged Collateral, by laws generally
affecting the offering and sale of securities.
D. BINDING OBLIGATION. Each of the Loan Documents and Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
E. VALID ISSUANCE OF HOLDINGS COMMON STOCK AND HOLDINGS PREFERRED
STOCK. The Holdings Common Stock and Holdings Preferred Stock has been duly and
validly issued, fully paid and nonassessable. No stockholder of Holdings has or
will have any preemptive rights to subscribe for any additional equity
Securities of Holdings, except as contemplated by the Recapitalization
Agreement. The issuance and sale of such Holdings Common Stock and Holdings
Preferred Stock, upon such issuance and sale, will either (a) have been
registered or qualified under applicable federal and state securities laws or
(b) be exempt therefrom.
5.3 FINANCIAL CONDITION.
A. FINANCIAL STATEMENTS. Company has heretofore delivered to Lenders,
at Lenders' request, the following financial statements and information: (i) the
audited financial statements of Holdings and its Subsidiaries as of December 31,
1998, consisting of a balance sheet and the related consolidated and
consolidating statements of income, stockholders' equity and cash flows for the
fiscal year-to-date period ending on such date, stockholders' equity and cash
flows of Holdings and its Subsidiaries for the Fiscal Year then ended; (ii) the
unaudited consolidated and consolidating balance sheets of Holdings and its
Subsidiaries as at September 30, 1999 and the related unaudited consolidated and
consolidating statements of income, stockholders' equity and cash flows of
Holdings and its Subsidiaries for the nine months then ended; and (iii) the
unaudited consolidated balance sheet of Holdings and its Subsidiaries as at
October 31, 1999, prepared on a pro forma basis after giving effect to the
transactions contemplated by this Agreement and the Recapitalization Agreement
and consolidated and consolidated statements of income of Holding and its
Subsidiaries on an actual basis and a Pro Forma Basis for the 12 Fiscal Month
period ending October 31, 1999. All such statements were prepared in conformity
with GAAP (except for year-end adjustments and the absence of footnotes in case
of unaudited financial statements). All such statements fairly present, in all
material respects, the financial position (on a consolidated basis) of the
entities described in such
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financial statements as at the respective dates thereof and the results of
operations and cash flows (on a consolidated basis) of the entities described
therein for each of the periods then ended. Neither Company nor any of its
Subsidiaries has (and will not have following the Effective Date) any Contingent
Obligation, contingent liability or liability for taxes, long-term lease or
unusual forward or long-term commitment that is not reflected in the foregoing
financial statements or the notes thereto and which in any such case is material
in relation to the business, operations, properties, assets, condition
(financial or otherwise) or prospects of Company and any of its Subsidiaries,
taken as a whole.
B. EXISTING INDEBTEDNESS AND CAPITAL LEASES. Part I of Schedule 7.1
hereto correctly describes all Indebtedness owed by Company and its Subsidiaries
on the Effective Date, including the principal amount thereof, interest rate
payable thereon, scheduled payment dates, and the names of the obligors and
payees. Part II of Schedule 7.1 hereto correctly describes all Capital Leases to
which Company or any of its Subsidiaries is a party as lessee on the Effective
Date, including the term thereof, principal amount thereof, annual rental
obligations, and the names of the lessors and lessees.
C. EXISTING CONTINGENT OBLIGATIONS. Schedule 7.4 hereto correctly
describes all Contingent Obligations owed by Company and its Subsidiaries on the
Effective Date, including the amount thereof, scheduled payment dates thereof or
of the obligation supported thereby, and the names of the obligors and payees.
D. PRO FORMA ADJUSTMENTS FOR EXISTING ACQUIRED BUSINESSES. The
adjustments set forth on Schedule 1.1P hereto to the Consolidated EBITDA for the
12 Fiscal Month preceding the Effective Date attributable to the property or
business acquired in each Permitted Acquisition consummated before the Effective
Date consist solely of exclusions of excess owner's compensation and clearly
identified non-recurring or one-time charges actually incurred by such property
or business during the portion of such period preceding the consummation of such
Permitted Acquisition that are reasonably expected to be eliminated following
the consummation of such Permitted Acquisition.
5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
Since December 31, 1998, no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material Adverse
Effect. Neither Company nor any of its Subsidiaries has directly or indirectly
declared, ordered, paid or
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made, or set apart any sum or property for, any Restricted Junior Payment or
agreed to do so except as permitted by subsection 7.5.
5.5 TITLE TO PROPERTIES; LIENS; REAL PROPERTY.
A. TITLE TO PROPERTIES; LIENS. Company and its Subsidiaries have (i)
good, sufficient and legal title to (in the case of fee interests in real
property), (ii) valid leasehold interests in (in the case of leasehold interests
in real or personal property), or (iii) good title to (in the case of all other
personal property), all of their respective properties and assets reflected in
the financial statements referred to in subsection 5.3 or in the most recent
financial statements delivered pursuant to subsection 6.1, in each case except
for assets disposed of since the date of such financial statements in the
ordinary course of business or as otherwise permitted under subsection 7.7.
Except as permitted by this Agreement, all such properties and assets are free
and clear of Liens.
B. REAL PROPERTY. As of the Effective Date, Schedule 5.5 annexed hereto
contains a true, accurate and complete list of (i) all Fee Properties and (ii)
all leases, subleases or assignments of leases (together with all amendments,
modifications, supplements, renewals or extensions of any thereof) affecting
each Real Property Asset of any Loan Party, regardless of whether such Loan
Party is the landlord (whether directly or as an assignee or successor in
interest) under such lease, sublease or assignment. Except as specified in
Schedule 5.5 annexed hereto, each agreement listed in clause (ii) of the
immediately preceding sentence is in full force and effect and neither Company
nor the Canadian Borrower has any knowledge of any default that has occurred and
is continuing thereunder, and each such agreement constitutes the legally valid
and binding obligation of each applicable Loan Party, enforceable against such
Loan Party in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles.
5.6 LITIGATION; ADVERSE FACTS.
Except as set forth in Schedule 5.6 annexed hereto, there are
no actions, suits, proceedings, arbitrations or governmental investigations
(whether or not purportedly on behalf of Company or any of its Subsidiaries) at
law or in equity, or before or by any United States federal, Canadian federal,
state, provincial, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign (including any
Environmental Claims) that are pending or, to the knowledge of Company,
threatened against or affecting Company or any of its
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Subsidiaries or any property of Company or any of its Subsidiaries and that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Neither Company nor any of its Subsidiaries (i) is in
violation of any applicable laws (including Environmental Laws) that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect, or (ii) is subject to or in default with respect to any
final judgments, writs, injunctions, decrees, rules or regulations of any court
or any United States federal, Canadian federal, state, provincial, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect.
5.7 PAYMENT OF TAXES.
Except to the extent permitted by subsection 6.3, all tax
returns and reports of Company and its Subsidiaries required to be filed by any
of them have been timely filed, and all taxes shown on such tax returns to be
due and payable and all assessments, fees and other governmental charges upon
Company and its Subsidiaries and upon their respective properties, assets,
income, businesses and franchises which are due and payable have been paid when
due and payable. Company knows of no proposed tax assessment against Company or
any of its Subsidiaries seeking an amount in excess of $10,000 which is not
being actively contested by Company or such Subsidiary in good faith and by
appropriate proceedings; provided that such reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been
made or provided therefor.
5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS; MATERIAL
CONTRACTS.
A. Neither Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.
B. Neither Company nor any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
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C. Schedule 5.8 contains a true, correct and complete list of all the
Material Contracts in effect on the Effective Date. Except as described on
Schedule 5.8, all such Material Contracts are in full force and effect and no
material defaults currently exist thereunder.
5.9 GOVERNMENTAL REGULATION.
Neither Company nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or
under any other United States federal, Canadian federal, state or provincial
statute or regulation which may limit its ability to incur Indebtedness or which
may otherwise render all or any portion of the Obligations unenforceable.
5.10 SECURITIES ACTIVITIES.
A. Neither Company nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each Loan, not more than
25% of the value of the assets (either of Company only or of Company and its
Subsidiaries on a consolidated basis) subject to the provisions of subsection
7.2 or 7.7 or subject to any restriction contained in any agreement or
instrument, between Company and Canadian Borrower and any Lender or any
Affiliate of any Lender, relating to Indebtedness and within the scope of
subsection 8.2, will be Margin Stock.
5.11 EMPLOYEE BENEFIT PLANS.
A. Company, each of its Subsidiaries and each of their respective ERISA
Affiliates are in compliance with all applicable provisions and requirements of
ERISA and the regulations and published interpretations thereunder with respect
to each Employee Benefit Plan, and have performed all their obligations under
each Employee Benefit Plan. Each Employee Benefit Plan which is intended to
qualify under Section 401(a) of the Internal Revenue Code is so qualified.
B. No ERISA Event has occurred or is reasonably expected to occur.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code or except as set forth in Schedule 5.11 annexed hereto, no Employee
Benefit Plan
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provides health or welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employee of Company, any of its
Subsidiaries or any of their respective ERISA Affiliates.
D. Each Canadian Plan is in compliance in all material respects with
all applicable law; neither Company nor its Subsidiaries has incurred any
material liability to any Canadian Plan, whether on account of any failure to
meet the contribution or minimum funding requirements applicable thereto, or
relating to the administration or termination of any Canadian Plan and no event
has occurred and no condition exists which presents a material risk that the
Company or its Subsidiaries will incur liabilities on account of the foregoing
circumstances which are material in the aggregate.
E. No Canadian Plan is a Deficient Canadian Plan.
F. There are no Pension Plans.
G. There are no Multiemployer Plans.
5.12 CERTAIN FEES.
Except as disclosed in writing to Administrative Agent before
the date hereof and agreed to by Administrative Agent, no broker's or finder's
fee or commission will be payable with respect to this Agreement or any of the
transactions contemplated hereby, and Borrowers hereby jointly and severally
indemnifies Lenders against, and agrees that it will hold Lenders harmless from,
any claim, demand or liability for any such broker's or finder's fees alleged to
have been incurred in connection herewith or therewith and any expenses
(including reasonable fees, expenses and disbursements of counsel) arising in
connection with any such claim, demand or liability.
5.13 ENVIRONMENTAL PROTECTION.
Except as set forth in Schedule 5.13 annexed hereto:
(i) neither Company nor any of its Subsidiaries nor any of
their respective Facilities or operations are subject to any
outstanding written order, consent decree or settlement agreement with
any Person relating to (a) any Environmental Law, (b) any Environmental
Claim, or (c) any Hazardous Materials Activity that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect;
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(ii) neither Company nor any of its Subsidiaries has received any
letter or request for information under Section 104 of the Comprehensive
Environmental Response, Compensation, and Liability Act
(42 USC. Section 9604) or any comparable state law;
(iii) there are and, to Company's knowledge, have been no
conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim against
Company or any of its Subsidiaries that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect;
(iv) neither Company nor any of its Subsidiaries nor, to Company's
knowledge, any predecessor of Company or any of its Subsidiaries, has
filed at any time (or, in the case of Subsidiaries acquired after the date
hereof, any time after the date of acquisition) any notice under any
Environmental Law indicating past or present treatment of Hazardous
Materials at any Facility, and none of Company's or any of its
Subsidiaries' operations involves the generation, transportation,
treatment, storage or disposal of hazardous waste, as defined under 40
C.F.R. Parts 260-270 or any state or provincal equivalent;
(v) compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws will not,
individually or in the aggregate, have a reasonable possibility of giving
rise to a Material Adverse Effect.
Notwithstanding anything in this subsection 5.13 to the contrary, no
event or condition has occurred or is occurring with respect to Company or any
of its Subsidiaries relating to any Environmental Law, any Release of Hazardous
Materials, or any Hazardous Materials Activity, including any matter disclosed
on Schedule 5.13 annexed hereto, which individually or in the aggregate has had
or could reasonably be expected to have a Material Adverse Effect.
5.14 EMPLOYEE MATTERS.
A. There is no strike or work stoppage in existence or, to its knowledge,
threatened involving Company or any of its Subsidiaries that could reasonably be
expected to have a Material Adverse Effect.
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B. Company and its Subsidiaries are in compliance in all material respects
with all requirements of the Federal Occupational Safety and Health Act (29 USC
Sections 651 et seq.), as amended.
5.15 SOLVENCY.
Each Loan Party is Solvent on the date hereof.
5.16 MATTERS RELATING TO COLLATERAL.
A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and delivery
of the Collateral Documents by Loan Parties, together with (i) the actions taken
on or prior to the date hereof pursuant to the Original Credit Agreement, the
First Restated Credit Agreement, the Existing Credit Agreement, and subsections
4.1G, 6.8 and 6.9 of this Agreement and (ii) the delivery to Administrative
Agent of any Pledged Collateral not delivered to Administrative Agent at the
time of execution and delivery of the applicable Collateral Document (all of
which Pledged Collateral has been so delivered) are effective to create in favor
of Administrative Agent for the benefit of Lenders, as security for the
respective Secured Obligations (as defined in the applicable Collateral Document
in respect of any Collateral), a valid and perfected First Priority Lien on all
of the Collateral, and all filings and other actions necessary or desirable to
perfect and maintain the perfection and First Priority status of such Liens have
been duly made or taken and remain in full force and effect, other than the
filing of any UCC or PPSA financing statements (or equivalent filings required
under the laws of Quebec) delivered to Administrative Agent for filing (but not
yet filed) and the periodic filing of UCC or PPSA continuation statements (or
equivalent filings required under the laws of Quebec) in respect of UCC or PPSA
financing statements filed by or on behalf of Administrative Agent.
B. GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for either (i) the pledge or grant by any Loan Party of the
Liens purported to be created in favor of Administrative Agent pursuant to any
of the Collateral Documents or (ii) the exercise by Administrative Agent of any
rights or remedies in respect of any Collateral (whether specifically granted or
created pursuant to any of the Collateral Documents or created or provided for
by applicable law), except for (a) filings or recordings contemplated by
subsection 5.16A, (b) as may be required, in connection with the disposition of
any Pledged Collateral, by laws generally affecting the offering and sale of
securities and restrictions on the ownership of shares of METC), and (c) the
filing
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of a prior notice required by applicable law before exercising any hypothecary
rights granted under the Canadian Subsidiary Hypothecs.
C. ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in
favor of Administrative Agent as contemplated by subsection 5.16A or in respect
of any Lien permitted by subsection 7.2, (i) no effective UCC or PPSA financing
statement, or equivalent filings under the laws of the Province of Quebec,
fixture filing or other instrument similar in effect covering all or any part of
the Collateral is on file in any filing or recording office in the United
States, any state, Canada, or any province thereof and (ii) no effective filing
covering all or any part of the Collateral is on file in the United States
Patent and Trademark Office or the Canada Trademark Office.
D. MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant to
the Collateral Documents does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
E. INFORMATION REGARDING COLLATERAL. All information supplied to
Administrative Agent by or on behalf of any Loan Party with respect to any of
the Collateral (in each case taken as a whole with respect to any particular
Collateral) is accurate and complete in all material respects.
5.17 RELATED AGREEMENTS.
A. DELIVERY OF RELATED AGREEMENTS. The Borrowers have delivered to Lenders
complete and correct copies of each Related Agreement and of all exhibits and
schedules thereto.
B. SELLERS' WARRANTIES. Except to the extent otherwise set forth herein or
in the schedules hereto, each of the representations and warranties given in the
Acquisition Agreements by the respective sellers thereunder to Company or its
Subsidiaries is true and correct in all material respects as of the date of such
Acquisition Agreement (or as of any earlier date to which such representation
and warranty specifically relates) in each case subject to the qualifications
set forth in the schedules to the Acquisition Agreements.
C. WARRANTIES OF COMPANY. Subject to the qualifications set forth therein,
each of the representations and warranties given in the Acquisition Agreements
by the Loan Parties to the respective sellers thereunder is true and correct in
all material respects as of the date made in such Acquisition Agreement.
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D. SURVIVAL. Notwithstanding anything in any Acquisition Agreement to the
contrary, the representations and warranties of Borrowers set forth in
subsections 5.17B and 5.17C shall, solely for purposes of this Agreement,
survive the Effective Date for the benefit of Lenders.
5.18 DISCLOSURE.
No representation or warranty of Company or any of its Subsidiaries
contained in any Loan Document or Related Agreement or in any other document,
certificate or written statement furnished to Lenders by or on behalf of Company
or any of its Subsidiaries for use in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact (known to Company, in the case of any document
not furnished by it) necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances in which the same were
made. Any projections and pro forma financial information contained in such
materials are based upon good faith estimates and assumptions believed by
Borrowers to be reasonable at the time made, it being recognized by Lenders that
such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results. There are no facts known (or which should
upon the reasonable exercise of diligence be known) to Borrowers (other than
matters of a general economic nature) that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect and that
have not been disclosed herein or in such other documents, certificates and
statements furnished to Lenders for use in connection with the transactions
contemplated hereby.
5.19 SURVIVAL OF RIGHTS CREATED UNDER EXISTING CREDIT AGREEMENT.
Notwithstanding the modification or deletion of certain
representations and warranties of Company contained in the Original Credit
Agreement, the First Restated Credit Agreement, and the Existing Credit
Agreement (including, without limitation, the deletion of representations and
warranties as to the future consequences of certain events which occurred prior
to the date of this Agreement), Company acknowledges and agrees that any choses
in action or other rights created in favor of any Lender and their respective
successors and assigns arising out of the representations and warranties of
Company contained in or delivered (including representations and warranties
delivered in connection with the making of loans thereunder) in connection with
the Original Credit Agreement, the First Restated Credit Agreement or the
Existing Credit Agreement shall survive the execution and delivery of this
Agreement. Company
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and Lenders acknowledge that certain representations and warranties made by
Company under the Original Credit Agreement, the First Restated Credit Agreement
and the Existing Credit Agreement (including representations and warranties as
to the future consequences of certain events which occurred prior to the date of
this Agreement) were made subject to changes in the facts and conditions on
which such representations and warranties were based, which such changes were
permitted or required under the Original Credit Agreement, the First Restated
Credit Agreement, the Existing Credit Agreement or this Agreement and any such
representations and warranties incorporated herein are so incorporated subject
to such changes permitted or required under the Original Credit Agreement, the
First Restated Credit Agreement, the Existing Credit Agreement or this
Agreement.
SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, such Borrower shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
Borrowers will maintain, and cause each of their Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of financial statements in
conformity with GAAP. Borrowers will deliver to Administrative Agent and
Lenders:
(i) Monthly Financials: as soon as available and in any event within
30 days after the end of each Fiscal Month, (a) the consolidated balance
sheet and statement of cash flows of Holdings and its Subsidiaries, the
consolidated balance sheet and statement of cash flows of Company and its
Subsidiaries, and the consolidated balance sheet and statement of cash
flows of the Canadian Borrower and its Subsidiaries as at the end of such
Fiscal Month, and the related consolidated and consolidating statement of
income of Holdings and its Subsidiaries (including consolidated statements
of Company and its Subsidiaries) for such Fiscal Month, for the period
from the beginning of the then current Fiscal Year to the end of such
Fiscal Month, and for the 12 Fiscal Month period ending at the end of such
Fiscal Month, setting forth in each case in comparative form the
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corresponding figures on a Pro Forma Basis, the corresponding figures for
the corresponding periods of the previous Fiscal Year and the
corresponding figures from the Financial Plan for the current Fiscal Year,
to the extent prepared on a monthly basis, all in reasonable detail and
certified by the chief financial officer of Holdings that they fairly
present, in all material respects, the financial condition of Holdings and
its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments, and (b) a
narrative report describing the operations of Holdings and its
Subsidiaries in the form prepared for presentation to senior management
for such Fiscal Month and for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Month;
(ii) Quarterly Financials: as soon as available and in any event
within 45 days after the end of each Fiscal Quarter (other than the last
Fiscal Quarter of each Fiscal Year), (a) the consolidated balance sheet
and statements of stockholders' equity and cash flows of Holdings and its
Subsidiaries, the consolidated balance sheet and statements of
stockholders' equity and cash flows of Company and its Subsidiaries, and
the consolidated balance sheet and statements of stockholders' equity and
cash flows of the Canadian Borrower and its Subsidiaries as at the end of
such Fiscal Quarter, and the related consolidated and consolidating
statement of income of Holdings and its Subsidiaries (including
consolidated statements of Company and its Subsidiaries) for such Fiscal
Quarter, for the period from the beginning of the then current Fiscal Year
to the end of such Fiscal Quarter, and for the four Fiscal Quarter period
at the end of such Fiscal Quarter, ending setting forth in each case in
comparative form the corresponding figures on a Pro Forma Basis, the
corresponding figures for the corresponding periods of the previous Fiscal
Year and the corresponding figures from the Financial Plan for the current
Fiscal Year, all in reasonable detail and certified by the chief financial
officer of Holdings that they fairly present, in all material respects,
the financial condition of Holdings and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal
year-end adjustments, and (b) a narrative report describing the operations
of Holdings and its Subsidiaries in the form prepared for presentation to
senior management for such Fiscal Quarter and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter;
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(iii) Year-End Financials: as soon as available and in any event
within 90 days after the end of each Fiscal Year, (a) the consolidated
balance sheet and statements of stockholders' equity and cash flows of
Holdings and its Subsidiaries, the consolidated balance sheet and
statements of stockholders' equity and cash flows of Company and its
Subsidiaries, and the consolidated balance sheet and statements
stockholders' equity and cash flows of the Canadian Borrower and its
Subsidiaries as at the end of such Fiscal Year, and the related
consolidated and consolidating statement of income of Holdings and its
Subsidiaries (including consolidated statements of Company and its
Subsidiaries) for such Fiscal Year, setting forth in each case in
comparative form the corresponding figures on a Pro Forma Basis, the
corresponding figures for the previous Fiscal Year and the corresponding
figures from the Financial Plan for the Fiscal Year covered by such
financial statements, all in reasonable detail and certified by the chief
financial officer of Holdings that they fairly present, in all material
respects, the financial condition of Holdings and its Subsidiaries as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated, (b) a narrative report describing the
operations of Holdings and its Subsidiaries in the form prepared for
presentation to senior management for such Fiscal Year, and (c) in the
case of such consolidated financial statements, a report thereon of KPMG
Peat Marwick, LLC or other independent certified public accountants of
recognized national standing selected by Holdings and Company and
satisfactory to Requisite Lenders, which report shall be unqualified,
shall express no doubts about the ability of Holdings and its Subsidiaries
to continue as a going concern, and shall state that such consolidated
financial statements fairly present, in all material respects, the
consolidated financial position of Holdings and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards;
(iv) Officers' and Compliance Certificates: together with each
delivery of financial statements of Company and its Subsidiaries pursuant
to subdivisions (i), (ii) and (iii) above, (a) an Officers' Certificate of
Company stating that the signers have reviewed the terms of this Agreement
and have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of Company and its
Subsidiaries during the accounting
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period covered by such financial statements and that such review has not
disclosed the existence during or at the end of such accounting period,
and that the signers do not have knowledge of the existence as at the date
of such Officers' Certificate, of any condition or event that constitutes
an Event of Default or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
Company has taken, is taking and proposes to take with respect thereto;
and (b) a Compliance Certificate demonstrating in reasonable detail
compliance during and at the end of the applicable accounting periods with
the restrictions contained in Section 7;
(v) Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
consolidated financial statements of Company and its Subsidiaries
delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this
subsection 6.1 will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles and policies been
made, then (a) together with the first delivery of financial statements
pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1
following such change, consolidated financial statements of Company and
its Subsidiaries for (y) the current Fiscal Year to the effective date of
such change and (z) the two full Fiscal Years immediately preceding the
Fiscal Year in which such change is made, in each case prepared on a pro
forma basis as if such change had been in effect during such periods, and
(b) together with each delivery of financial statements pursuant to
subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following
such change, a written statement of the chief accounting officer or chief
financial officer of Company setting forth the differences (including
without limitation any differences that would affect any calculations
relating to the financial covenants set forth in subsection 7.6) which
would have resulted if such financial statements had been prepared without
giving effect to such change;
(vi) Accountants' Certification: together with each delivery of
consolidated financial statements of Company and its Subsidiaries pursuant
to subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating that
their audit examination has included a review of the terms of this
Agreement and the other Loan Documents as they relate to accounting
matters, (b) stating whether, in connection with their audit examination,
any condition or event that constitutes an Event of Default has
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come to their attention and, if such a condition or event has come to
their attention, specifying the nature and period of existence thereof;
provided that such accountants shall not be liable by reason of any
failure to obtain knowledge of any such Event of Default that would not be
disclosed in the course of their audit examination, and (c) stating that
based on their audit examination nothing has come to their attention that
causes them to believe either or both that the information contained in
the certificates delivered therewith pursuant to subdivision (iv) above is
not correct or that the matters set forth in the Compliance Certificates
delivered therewith pursuant to clause (b) of subdivision (iv) above for
the applicable Fiscal Year are not stated in accordance with the terms of
this Agreement;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to Company by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of Company and its Subsidiaries made by such accountants,
including, without limitation, any comment letter submitted by such
accountants to management in connection with their annual audit; provided,
however, that Company shall not be required to deliver to Administrative
Agent any such reports unless such reports involve matters that have not
been fully resolved by management of Company;
(viii) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Company to its
security holders or by any Subsidiary of Company to its security holders
other than Company or another Subsidiary of Company, (b) all regular and
periodic reports and all registration statements (other than on Form S-8
or a similar form) and prospectuses, if any, filed by Company or any of
its Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any governmental or private regulatory authority,
and (c) all press releases and other statements made available generally
by Company or any of its Subsidiaries to the public concerning material
developments in the business of Company or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any president, vice
president, chief financial officer, assistant treasurer, or other senior
officer of any Borrower obtaining knowledge (a) of any condition or event
that constitutes an Event of Default, or becoming aware that any Lender
has given any notice (other
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than to Administrative Agent) or taken any other action with respect to a
claimed Event of Default, (b) that any Person has given any notice to
Company or any of its Subsidiaries or taken any other action with respect
to a claimed default or event or condition of the type referred to in
subsection 8.2, (c) of any condition or event that would be required to be
disclosed in a current report filed by Company with the Securities and
Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in
effect on the date hereof) if Company were required to file such reports
under the Exchange Act, or (d) of the occurrence of any event or change
that has caused or evidences, either in any case or in the aggregate, a
Material Adverse Effect, an Officers' Certificate specifying the nature
and period of existence of such condition, event or change, or specifying
the notice given or action taken by any such Person and the nature of such
claimed Event of Default, default, event or condition, and what action
Company has taken, is taking and proposes to take with respect thereto;
(x) Litigation or Other Proceedings: promptly upon any officer of
any Borrower obtaining knowledge of (X) the institution of, or
non-frivolous threat of, any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or any
property of Company or any of its Subsidiaries (collectively,
"PROCEEDINGS") not previously disclosed in writing by Borrowers to Lenders
or (Y) any material development in any Proceeding that, in any case:
(1) if adversely determined, has a reasonable
possibility of giving rise to a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as
a result of, the transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to any Borrower to enable Lenders and their counsel
to evaluate such matters;
(xi) ERISA Events: promptly upon becoming aware of the occurrence of
or forthcoming occurrence of any ERISA Event, a written notice specifying
the nature thereof, what action Company, any of its Subsidiaries or any of
their respective ERISA Affiliates has taken, is taking or proposes to take
with respect
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thereto and, when known, any action taken or threatened by the Internal
Revenue Service, the Department of Labor or the PBGC with respect thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a) each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by Company, any of its Subsidiaries or any of their respective ERISA
Affiliates with the Internal Revenue Service with respect to each Pension
Plan; (b) all notices received by Company, any of its Subsidiaries or any
of their respective ERISA Affiliates from a Multiemployer Plan sponsor
concerning an ERISA Event; and (c) copies of such other documents or
governmental reports or filings relating to any Employee Benefit Plan as
Administrative Agent shall reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
later than 30 days after the beginning of each Fiscal Year, a consolidated
and consolidating plan and financial forecast for such Fiscal Year and the
next five succeeding Fiscal Years (the "FINANCIAL PLAN" for such Fiscal
Years), including without limitation (a) forecasted consolidated and
consolidating balance sheets and forecasted consolidated and consolidating
statements of income and cash flows of Company and its Subsidiaries for
each such Fiscal Year, together with pro forma Compliance Certificates for
each such Fiscal Year and an explanation of the assumptions on which such
forecasts are based, (b) forecasted consolidated and consolidating
statements of income and cash flows of Company and its Subsidiaries for
each month of each such Fiscal Year, together with an explanation of the
assumptions on which such forecasts are based, and (c) such other
information and projections as any Lender may reasonably request;
(xiv) Insurance: as soon as practicable and in any event by the last
day of each Fiscal Year, a report in form and substance satisfactory to
Administrative Agent outlining all material insurance coverage maintained
as of the date of such report by Company and its Subsidiaries and all
material insurance coverage planned to be maintained by Company and its
Subsidiaries in the immediately succeeding Fiscal Year;
(xv) Board of Directors: with reasonable promptness, written notice
of any change in the Board of Directors of Company;
(xvi) New Subsidiaries: promptly upon any Person becoming a
Subsidiary of Company, a written notice setting forth with respect to such
Person
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(a) the date on which such Person became a Subsidiary of Company and (b)
all of the data required to be set forth in Schedule 5.1 annexed hereto
with respect to all Subsidiaries of Company (it being understood that such
written notice shall be deemed to supplement Schedule 5.1 annexed hereto
for all purposes of this Agreement);
(xvii) Material Contracts: promptly, and in any event within ten
Business Days after any Material Contract of Company or any of its
Subsidiaries is terminated or amended in a manner that is materially
adverse to Company or such Subsidiary, as the case may be, or any new
Material Contract is entered into, a written statement describing such
event with copies of such material amendments or new contracts, and an
explanation of any actions being taken with respect thereto;
(xviii) UCC Search Report: As promptly as practicable after the date
of delivery to Administrative Agent of any UCC or PPSA financing statement
(or equivalent filings under the laws of Quebec) executed by any Loan
Party pursuant to subsection 6.8A, copies of completed UCC or PPSA
searches (or equivalent searches in the Quebec Register of Personal and
Movable Real Rights) evidencing the proper filing, recording and indexing
of all such UCC, PPSA or Quebec financing statements and listing all other
effective financing statements that name such Loan Party as debtor,
together with copies of all such other financing statements not previously
delivered to Administrative Agent by or on behalf of Company or such Loan
Party;
(xix) Borrowing Base Certificate: within 10 days after the end of
each month, a completed Borrowing Base Certificate for that month;
(xx) Payment of Canadian Taxes: together with each delivery of
financial statements of Company and its Subsidiaries pursuant to
subdivisions (ii) and (iii) above, an Officers' Certificate of Company
stating that Borrowers have paid all withholding taxes and other
deductions required under Canadian law in respect of payments made by the
Canadian Borrower including, without limitation, dividends and payments of
principal or interest made by the Canadian Borrower to Company, together
with calculations of such taxes and deductions in reasonable detail;
(xxi) Calculation of Acquisition Reserves: not more than thirty days
after each Fiscal Month, and five Business Days prior to delivering to the
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Administrative Agent a Notice of Borrowing for Acquisition Loans, an
Officers' Certificate setting forth the calculation of the US Acquisition
Reserve and the Canadian Acquisition Reserve (including a break out of
each individual component) as of the date of such certificate;
(xxii) Payment of Subordinated Indebtedness: not more than thirty
days after each Fiscal Month, an Officers' Certificate attaching a
schedule of all payments scheduled to be due on Subordinated Indebtedness
payable in the following 12 Fiscal Months;
(xxiii) Pro Forma Adjustments: together with each delivery of
financial statements of Company and its Subsidiaries pursuant to
subdivision (i) above, an Officers' Certificate setting forth the
adjustments made to Consolidated EBITDA to calculate Consolidated EBITDA
on a Pro Forma Basis for 12 Fiscal Month period ending on the day of such
financial statements, broken down by month and Subsidiary and otherwise in
substantially the same form as Schedule 1.1P; and
(xxiv) Other Information: with reasonable promptness, such other
information and data with respect to Company or any of its Subsidiaries as
from time to time may be reasonably requested by any Lender.
6.2 CORPORATE EXISTENCE, ETC.
Except as permitted under subsection 7.7, each Borrower will, and
will cause each of its Subsidiaries to, at all times preserve and keep in full
force and effect its corporate existence and all rights and franchises material
to its business; provided, however that neither Company nor any of its
Subsidiaries shall be required to preserve any such right or franchise if the
Board of Directors of Company or such Subsidiary shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
Company or such Subsidiary, as the case may be, and that the loss thereof is not
disadvantageous in any material respect to Company and its Subsidiaries, taken
as a whole, or Lenders.
6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
A. Each Borrower will, and will cause Holdings and each of its
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
income, businesses or franchises before any penalty accrues thereon, and all
claims (including, without limitation, claims for
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labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a Lien upon any of its properties or
assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; provided that no such charge or claim need be paid if it is
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, so long as (1) such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor and (2) in the case of a charge or claim which has or may become a
Lien against any of the Collateral, such contest proceedings conclusively
operate to stay the sale of any portion of the Collateral to satisfy such charge
or claim.
B. Each Borrower will not, nor will it permit any of its Subsidiaries to,
file or consent to the filing of any consolidated income tax return with any
Person (other than Holdings or any of its Subsidiaries).
6.4 MAINTENANCE OF PROPERTIES; INSURANCE; APPLICATION OF NET INSURANCE/
CONDEMNATION PROCEEDS.
A. MAINTENANCE OF PROPERTIES. Each Borrower will, and will cause each of
its Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all material properties
used or useful in the business of Company and its Subsidiaries (including,
without limitation, all Intellectual Property) and from time to time will make
or cause to be made all appropriate repairs, renewals and replacements thereof.
B. INSURANCE. Each Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers acceptable to Administrative Agent and
having an A.M. Best rating of not less than A, XI, commercial general liability
and "all risk" property insurance on a replacement cost basis, including
business interruption insurance, with respect to liabilities, losses or damages
to assets and properties of Company and its Subsidiaries as may be customarily
be carried or maintained under similar circumstances by corporations of
established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for
corporations similarly situated in the industry. Without limiting the generality
of the foregoing, Company will maintain or cause to be maintained (i) flood
insurance with respect to each Flood Hazard Property that is located in a
community that participates in the National Flood Insurance Program, in each
case in compliance with any applicable regulations of the Board of Governors of
the Federal Reserve System, and (ii) replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance
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companies, in such amounts, with such deductibles, and covering such risks as
are at all times satisfactory to Administrative Agent in its commercially
reasonable judgment. Each such policy of insurance shall (a) name Administrative
Agent for the benefit of Lenders as an additional insured thereunder as its
interests may appear and (b) in the case of each property insurance policy,
including business interruption, contain a loss payable clause or endorsement,
satisfactory in form and substance to Administrative Agent, that names
Administrative Agent for the benefit of Lenders as the loss payee thereunder for
any covered loss in excess of $100,000 and provides for at least 30 days' prior
written notice to Administrative Agent of any modification, non-renewal or
cancellation of such policy.
C. APPLICATION OF NET INSURANCE/CONDEMNATION PROCEEDS.
(i) Business Interruption Insurance. Upon receipt by Company or any
of its Subsidiaries of any business interruption insurance proceeds
constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event
of Default shall have occurred and be continuing, Company or such
Subsidiary may retain and apply such Net Insurance/Condemnation Proceeds
for working capital purposes, and (b) if an Event of Default shall have
occurred and be continuing, Company shall apply an amount equal to such
Net Insurance/Condemnation Proceeds to prepay the Loans (and/or the
Commitments shall be reduced and/or the Loans shall be collateralized) as
provided in subsection 2.4B(iii)(b);
(ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by
Company or any of its Subsidiaries of any Net Insurance/Condemnation
Proceeds other than from business interruption insurance, (a) so long as
no Event of Default shall have occurred and be continuing, Company shall,
or shall cause one or more of its Subsidiaries to, promptly and diligently
apply such Net Insurance/Condemnation Proceeds to pay or reimburse the
costs of repairing, restoring or replacing the assets in respect of which
such Net Insurance/Condemnation Proceeds were received or, to the extent
not so applied, to prepay the Loans (and/or the Commitments shall be
reduced) as provided in subsection 2.4B(iii)(b), and (b) if an Event of
Default shall have occurred and be continuing, the Borrowers shall apply
an amount equal to such Net Insurance/Condemnation Proceeds to prepay the
Loans (and/or the Commitments shall be reduced and/or the Loans shall be
collateralized) as provided in subsection 2.4B(iii)(b).
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(iii) Net Insurance/Condemnation Proceeds Received by Administrative
Agent. Upon receipt by Administrative Agent of any Net
Insurance/Condemnation Proceeds as loss payee, if and to the extent a
Borrower would have been required to apply such Net Insurance/Condemnation
Proceeds (if it had received them directly) to prepay the Loans and/or
reduce the Commitments and/or to collateralize the Loans, Administrative
Agent shall, and each Borrower hereby authorizes Administrative Agent to,
apply such Net Insurance/Condemnation Proceeds to prepay the Loans (and/or
the Commitments shall be reduced and/or the Loans shall be collateralized)
as provided in subsection 2.4B(iii)(b).
6.5 INSPECTION RIGHTS; AUDITS; LENDER MEETING.
A. INSPECTION RIGHTS. Each Borrower shall, and shall cause each of its
Subsidiaries to, permit any authorized representatives designated by any Lender
to visit and inspect any of the properties of Company or of any of its
Subsidiaries, to inspect, copy and take extracts from its and their financial
and accounting records, and to discuss its and their affairs, finances and
accounts with its and their officers and independent public accountants
(provided that Company may, if it so chooses, be present at or participate in
any such discussion), all upon reasonable notice and at such reasonable times
during normal business hours and as often as may reasonably be requested. Except
during times when an Event of Default shall have occurred and is continuing,
each Lender may request only two such inspections during each twelve-month
period after the Effective Date; provided that Lenders shall use reasonable
efforts to coordinate and conduct joint inspections.
B. AUDITS. Each Borrower shall, and shall cause each of its Subsidiaries
to, permit any authorized representatives designated by Administrative Agent to
conduct audits of all accounts receivable and all books and records pertaining
to determination of Consolidated EBITDA on a Pro Forma Basis of Loan Parties
upon reasonable notice and at such reasonable times during normal business hours
as may reasonably be requested. Except during times when an Event of Default
shall have occurred and is continuing, Administrative Agent may request only one
such audit during each twelve-month period after the Effective Date.
C. LENDER MEETING. Each Borrower will, upon the request of Administrative
Agent or Requisite Lenders, participate in a meeting of Administrative Agent and
Lenders once during each Fiscal Year to be held at Company's corporate offices
(or at
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such other location as may be agreed to by such Borrower and Administrative
Agent) at such time as may be agreed to by such Borrower and Administrative
Agent.
6.6 COMPLIANCE WITH LAWS, ETC.
Each Borrower shall comply, and shall cause each of its Subsidiaries
and all other Persons on or occupying any Facilities to comply, with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority (including all Environmental Laws), noncompliance with
which could reasonably be expected to cause, individually or in the aggregate, a
Material Adverse Effect.
6.7 ENVIRONMENTAL REVIEW AND INVESTIGATION, DISCLOSURE, ETC.; COMPANY'S
ACTIONS REGARDING HAZARDOUS MATERIALS ACTIVITIES, ENVIRONMENTAL CLAIMS AND
VIOLATIONS OF ENVIRONMENTAL LAWS.
A. ENVIRONMENTAL REVIEW AND INVESTIGATION. Each Borrower agrees that
Administrative Agent may, from time to time and in its reasonable discretion,
(i) retain, at Borrowers' expense, an independent professional consultant to
review any environmental audits, investigations, analyses and reports relating
to Hazardous Materials prepared by or for the Borrowers and (ii) in the event
(a) Administrative Agent reasonably believes that a Borrower has breached any
representation, warranty or covenant contained in subsection 5.6, 5.13, 6.6 or
6.7 or that there has been a material violation of Environmental Laws at any
Facility or by Company or any of its Subsidiaries at any other location or (b)
an Event of Default has occurred and is continuing, conduct its own
investigation of any Facility; provided that, in the case of any Facility no
longer owned, leased, operated or used by Company or any of its Subsidiaries,
the Borrowers shall only be obligated to use their best efforts to obtain
permission for Administrative Agent's professional consultant to conduct an
investigation of such Facility. For purposes of conducting such a review and/or
investigation, the Borrowers hereby grant to Administrative Agent and its
agents, employees, consultants and contractors the right to enter into or onto
any Facilities currently owned, leased, operated or used by Company or any of
its Subsidiaries and to perform such tests on such property (including taking
samples of soil, groundwater and suspected asbestos-containing materials) as are
reasonably necessary in connection therewith. Any such investigation of any
Facility shall be conducted, unless otherwise agreed to by Company and
Administrative Agent, during normal business hours and, to the extent reasonably
practicable, shall be conducted so as not to interfere with the ongoing
operations at such Facility or to cause any damage or loss to any property at
such Facility. The Borrowers and Administrative Agent hereby acknowledge and
agree that any report of any investigation conducted at the request of
Administrative Agent pursuant
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to this subsection 6.7A will be obtained and shall be used by Administrative
Agent and Lenders for the purposes of Lenders' internal credit decisions, to
monitor and police the Loans and to protect Lenders' security interests, if any,
created by the Loan Documents. Administrative Agent agrees to deliver a copy of
any such report to the Borrowers with the understanding that the Borrowers
acknowledge and agree that (x) they will indemnify and hold harmless
Administrative Agent and each Lender from any costs, losses or liabilities
relating to the Borrowers' use of or reliance on such report, (y) neither
Administrative Agent nor any Lender makes any representation or warranty with
respect to such report, and (z) by delivering such report to the Borrowers,
neither Administrative Agent nor any Lender is requiring or recommending the
implementation of any suggestions or recommendations contained in such report.
B. ENVIRONMENTAL DISCLOSURE. The Borrowers will deliver to Administrative
Agent and Lenders:
(i) Environmental Audits and Reports. As soon as practicable
following receipt thereof, copies of all environmental audits,
investigations, analyses and reports of any kind or character, whether
prepared by personnel of Company or any of its Subsidiaries or by
independent consultants, governmental authorities or any other Persons,
with respect to significant environmental matters at any Facility which,
individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect or with respect to any Environmental Claims
which, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect;
(ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly
upon the occurrence thereof, written notice describing in reasonable
detail of (a) any Release required to be reported to any United States
federal, Canadian federal, state, provincial or local governmental or
regulatory agency under any applicable Environmental Laws, (b) any
remedial action taken by Company or any other Person in response to (1)
any Hazardous Materials Activities the existence of which has a reasonable
possibility of resulting in one or more Environmental Claims having,
individually or in the aggregate, a Material Adverse Effect, or (2) any
Environmental Claims that, individually or in the aggregate, have a
reasonable possibility of resulting in a Material Adverse Effect, and (c)
any Borrower's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of any Facility that could cause
such Facility or any
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part thereof to be subject to any material restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws.
(iii) Written Communications Regarding Environmental Claims,
Releases, Etc. As soon as practicable following the sending or receipt
thereof by Company or any of its Subsidiaries, a copy of any and all
written communications with respect to (a) any Environmental Claims that,
individually or in the aggregate, have a reasonable possibility of giving
rise to a Material Adverse Effect, (b) any Release required to be reported
to any United States federal, Canadian federal, state, provincial, or
local governmental or regulatory agency, and (c) any request for
information from any governmental agency that suggests such agency is
investigating whether Company or any of its Subsidiaries may be
potentially responsible for any Hazardous Materials Activity.
(iv) Notice of Certain Proposed Actions Having Environmental Impact.
Prompt written notice describing in reasonable detail (a) any proposed
acquisition of stock, assets, or property by Company or any of its
Subsidiaries that could reasonably be expected to (1) expose Company or
any of its Subsidiaries to, or result in, Environmental Claims that could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or (2) affect the ability of Company or any of its
Subsidiaries to maintain in full force and effect all material
Governmental Authorizations required under any Environmental Laws for
their respective operations and (b) any proposed action to be taken by
Company or any of its Subsidiaries to commence manufacturing or other
industrial operations or to modify current operations in a manner that
could reasonably be expected to subject Company or any of its Subsidiaries
to any material additional obligations or requirements under any
Environmental Laws.
(v) Other Information. With reasonable promptness, such other
documents and information as from time to time may be reasonably requested
by Administrative Agent in relation to any matters disclosed pursuant to
this subsection 6.7.
C. BORROWERS' ACTIONS REGARDING HAZARDOUS MATERIALS ACTIVITIES,
ENVIRONMENTAL CLAIMS AND VIOLATIONS OF ENVIRONMENTAL LAWS.
(i) Remedial Actions Relating to Hazardous Materials Activities.
Borrowers shall promptly undertake, and shall cause each of its
Subsidiaries promptly to undertake, any and all investigations, studies,
sampling, testing,
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abatement, cleanup, removal, remediation or other response actions
necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity on, under or about any Facility that is in violation of any
Environmental Laws or that presents a material risk of giving rise to an
Environmental Claim. In the event Company or any of its Subsidiaries
undertakes any such action with respect to any Hazardous Materials,
Company or such Subsidiary shall conduct and complete such action in
compliance with all applicable Environmental Laws and in accordance with
the policies, orders and directives of all United States federal, Canadian
federal, state, provincial, and local governmental authorities except
when, and only to the extent that, Company's or such Subsidiary's
liability with respect to such Hazardous Materials Activity is being
contested in good faith by Company or such Subsidiary.
(ii) Actions with Respect to Environmental Claims and Violations of
Environmental Laws. Borrowers shall promptly take, and shall cause each of
its Subsidiaries promptly to take, any and all actions necessary to (i)
cure any violation of applicable Environmental Laws by Company or its
Subsidiaries, if such violation could be expected to cause a Material
Adverse Effect and (ii) make an appropriate response to any Environmental
Claim against Company or any of its Subsidiaries and discharge any
obligations it may have to any Person thereunder.
6.8 EXECUTION OF GUARANTIES AND PERSONAL PROPERTY COLLATERAL DOCUMENTS BY
FUTURE SUBSIDIARIES.
A. EXECUTION OF GUARANTIES AND PERSONAL PROPERTY COLLATERAL DOCUMENTS. In
the event that any Person becomes a Subsidiary of Company after the date hereof,
Company will promptly notify Administrative Agent of that fact and cause such
Subsidiary to execute and deliver to Administrative Agent a counterpart of the
Domestic Subsidiary Guaranty, the Security Agreement, and any Grants of IP
Collateral and schedules required by the Security Agreement (if such Subsidiary
is a Domestic Subsidiary) or a counterpart of the Canadian Subsidiary Guaranty
and a copy of each Canadian Collateral Document (if such Subsidiary is a
Canadian Subsidiary) and to take all such further actions and execute all such
further documents and instruments (including without limitation actions,
documents and instruments comparable to those described in subsection 4.1J of
the Original Credit Agreement) as may be necessary or, in the opinion of
Administrative Agent, desirable to create in favor of Administrative Agent, for
the benefit of Lenders, a valid and perfected First Priority Lien on all of the
personal and
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mixed property assets of such Subsidiary described in the applicable forms of
Collateral Documents.
B. SUBSIDIARY CHARTER DOCUMENTS, LEGAL OPINIONS, ETC. Company shall
deliver to Administrative Agent, together with such Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of the
jurisdiction of its incorporation and each other state in which such Person is
qualified as a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority of
each of such jurisdictions, each to be dated a recent date prior to their
delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws,
certified by its corporate secretary or an assistant secretary as of a recent
date prior to their delivery to Administrative Agent, (iii) a certificate
executed by the secretary or an assistant secretary of such Subsidiary as to (a)
the fact that the attached resolutions of the Board of Directors of such
Subsidiary approving and authorizing the execution, delivery and performance of
such Loan Documents are in full force and effect and have not been modified or
amended and (b) the incumbency and signatures of the officers of such Subsidiary
executing such Loan Documents, and (iv) a favorable opinion of counsel to such
Subsidiary, in form and substance satisfactory to Administrative Agent and its
counsel, as to (a) the due organization and good standing of such Subsidiary,
(b) the due authorization, execution and delivery by such Subsidiary of such
Loan Documents, (c) the enforceability of such Loan Documents against such
Subsidiary, (d) such other matters (including without limitation matters
relating to the creation and perfection of Liens in any Collateral pursuant to
such Loan Documents) as Administrative Agent may reasonably request, all of the
foregoing to be satisfactory in form and substance to Administrative Agent and
its counsel.
C. PLEDGE AND GUARANTY BY CANADIAN RESIDENT STOCKHOLDER. In the event that
at any time after the Effective Date any Person acquires any shares of capital
stock of METC Holdings that have not been pledged to Administrative Agent,
Company will cause such Person, upon the acquisition of such shares of capital
stock, to execute a Canadian Resident Guaranty in form and substance
satisfactory to Administrative Agent and a Canadian Resident Hypothec in form
and substance satisfactory to Administrative Agent pursuant to which such Person
shall pledge all such shares of capital stock to secure his or her obligations
under such guaranty, and to take all such further actions and execute all such
further documents and instruments (including without limitation actions,
documents and instruments comparable to those described in subsection 4.1F of
the
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Existing Credit Agreement) as may be necessary or, in the opinion of
Administrative Agent, desirable to create in favor of Administrative Agent, for
the benefit of Lenders, a valid and perfected First Priority Lien on the shares
of capital stock of METC Holdings held by such Person.
D. METC HOLDINGS UNANIMOUS SHAREHOLDERS AGREEMENT. In the event that at
any time after the Effective Date any Person acquires any shares of capital
stock of METC Holdings, Company will cause such Person, upon the acquisition of
such shares of capital stock, to adhere to the METC Holdings Unanimous
Shareholders Agreement.
6.9 MATTERS RELATING TO ADDITIONAL REAL PROPERTY COLLATERAL.
A. [INTENTIONALLY OMITTED].
B. ADDITIONAL MORTGAGES, ETC. From and after the Effective Date, in the
event that (i) any Borrower or any Domestic Subsidiary Guarantor or Canadian
Subsidiary Guarantor acquires any fee interest in real property or (ii) at the
time any Person becomes a Domestic Subsidiary Guarantor or a Canadian Subsidiary
Guarantor, such Person owns or holds any fee interest in real property,
excluding any such Real Property Asset the encumbrancing of which requires the
consent of any applicable lessor or (in the case of clause (ii) above)
then-existing senior lienholder, where a Borrower and its Subsidiaries are
unable to obtain such lessor's or senior lienholder's consent (any such
non-excluded Real Property Asset described in the foregoing clause (i) or (ii)
being an "ADDITIONAL MORTGAGED PROPERTY"), such Borrower or such Guarantor shall
deliver to Administrative Agent, as soon as practicable after such Person
acquires such Additional Mortgaged Property or becomes a Guarantor, as the case
may be, the following:
(i) Additional Mortgage. A fully executed and notarized Mortgage (an
"ADDITIONAL MORTGAGE"), in proper form for recording in all appropriate
places in all applicable jurisdictions, encumbering the interest of such
Loan Party in such Additional Mortgaged Property;
(ii) Opinions of Counsel. (a) A favorable opinion of counsel to such
Loan Party, in form and substance satisfactory to Administrative Agent and
its counsel, as to the due authorization, execution and delivery by such
Loan Party of such Additional Mortgage and such other matters as
Administrative Agent may reasonably request, and (b) if required by
Administrative Agent, an opinion of counsel (which counsel shall be
reasonably satisfactory to Administrative Agent) in the state in which
such Additional Mortgaged Property is located with respect
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to the enforceability of such Additional Mortgage and such other matters
(including without limitation any matters governed by the laws of such
state regarding personal property security interests in respect of any
Collateral) as Administrative Agent may reasonably request, in each case
in form and substance reasonably satisfactory to Administrative Agent;
(iii) Title Insurance. (a) If required by Administrative Agent, an
ALTA mortgagee title insurance policy or an unconditional commitment
therefor (an "ADDITIONAL MORTGAGE POLICY") issued by the Title Company
with respect to such Additional Mortgaged Property, in an amount
satisfactory to Administrative Agent, insuring fee simple title to, or a
valid leasehold interest in, such Additional Mortgaged Property vested in
such Loan Party and assuring Administrative Agent that such Additional
Mortgage creates a valid and enforceable First Priority mortgage Lien on
such Additional Mortgaged Property, subject only to a standard survey
exception, which Additional Mortgage Policy (1) shall include an
endorsement for mechanics' liens, for future advances under this Agreement
and for any other matters reasonably requested by Administrative Agent and
(2) shall provide for affirmative insurance and such reinsurance as
Administrative Agent may reasonably request, all of the foregoing in form
and substance reasonably satisfactory to Administrative Agent; and (b)
evidence satisfactory to Administrative Agent that such Loan Party has (i)
delivered to the Title Company all certificates and affidavits required by
the Title Company in connection with the issuance of the Additional
Mortgage Policy and (ii) paid to the Title Company or to the appropriate
governmental authorities all expenses and premiums of the Title Company in
connection with the issuance of the Additional Mortgage Policy and all
recording and stamp taxes (including mortgage recording and intangible
taxes) payable in connection with recording the Additional Mortgage in the
appropriate real estate records;
(iv) Title Report. If no Additional Mortgage Policy is required with
respect to such Additional Mortgaged Property, a title report issued by
the Title Company with respect thereto, dated not more than 30 days prior
to the date such Additional Mortgage is to be recorded and satisfactory in
form and substance to Administrative Agent;
(v) Copies of Documents Relating to Title Exceptions. Copies of all
recorded documents listed as exceptions to title or otherwise referred to
in the
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Additional Mortgage Policy or title report delivered pursuant to clause
(iii) or (iv) above;
(vi) Matters Relating to Flood Hazard Properties. (a) Evidence,
which may be in the form of a letter from an insurance broker or a
municipal engineer, as to (1) whether such Additional Mortgaged Property
is a Flood Hazard Property and (2) if so, whether the community in which
such Flood Hazard Property is located is participating in the National
Flood Insurance Program, (b) if such Additional Mortgaged Property is a
Flood Hazard Property, such Loan Party's written acknowledgement of
receipt of written notification from Administrative Agent (1) that such
Additional Mortgaged Property is a Flood Hazard Property and (2) as to
whether the community in which such Flood Hazard Property is located is
participating in the National Flood Insurance Program, and (c) in the
event such Additional Mortgaged Property is a Flood Hazard Property that
is located in a community that participates in the National Flood
Insurance Program, evidence that Company has obtained flood insurance in
respect of such Flood Hazard Property to the extent required under the
applicable regulations of the Board of Governors of the Federal Reserve
System; and
(vii) Environmental Audit. If required by Administrative Agent,
reports and other information, in form, scope and substance satisfactory
to Administrative Agent and prepared by environmental consultants
satisfactory to Administrative Agent, concerning any environmental hazards
or liabilities to which Company or any of its Subsidiaries may be subject
with respect to such Additional Mortgaged Property.
C. REAL ESTATE APPRAISALS. Each Borrower shall, and shall cause each of
its Subsidiaries to, permit an independent real estate appraiser satisfactory to
Administrative Agent, upon reasonable notice, to visit and inspect any
Additional Mortgaged Property for the purpose of preparing an appraisal of such
Additional Mortgaged Property satisfying the requirements of any applicable laws
and regulations (in each case to the extent required under such laws and
regulations as determined by Administrative Agent in its discretion).
6.10 OPERATION OF METC AND METC HOLDINGS.
A. OWNERSHIP AND OPERATION OF METC HOLDINGS.
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(i) Each Borrower shall cause METC Holdings to engage in no business
other than the business of owning shares of capital stock of METC, to
incur no liabilities other than liabilities under the Loan Documents, and
to own no assets other than shares of capital stock of METC.
(ii) Each Borrower shall cause METC Holdings to issue no shares of
capital stock after the Effective Date; provided that METC Holdings may
issue shares of capital stock to a natural person who is a resident of
Canada for the purpose of and to the extent reasonably necessary to comply
with applicable laws, rules, regulations and orders of the Province of
Ontario concerning the sales of insurance products, if, simultaneously
with such issuance, such person complies with the provisions of
subsections 6.8C and 6.8D. Such person shall, upon receipt of such shares
of capital stock, become a Canadian Resident Stockholder hereunder.
(iii) Borrowers shall not permit METC Holdings to declare, make or
pay (a) any dividend or other distribution, direct or indirect, on account
of any shares of any class of stock of METC Holdings now or hereafter
outstanding, except dividends payable to the Canadian Borrower, (b) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of
stock of METC Holdings now or hereafter outstanding, or (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of stock of METC
Holdings now or hereafter outstanding.
B. OWNERSHIP AND OPERATION OF METC.
(i) Without limiting the generality of subsection 6.6, each Borrower
shall cause METC to at all times be owned and operated in compliance with
the requirements of all applicable laws, rules, regulations and orders of
the Province of Ontario concerning the sales of insurance products, and to
maintain in full force and effect all licenses issued by the Province of
Ontario or any subdivision thereof that are necessary or useful for the
continued operation of METC as conducted on the Effective Date.
(ii) Borrowers shall not permit METC to issue any shares of capital
stock to any Person other than the Canadian Borrower and METC Holdings.
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6.11 YEAR 2000 COMPLIANCE.
Borrowers shall perform all acts reasonably necessary to ensure that
Company and its Subsidiaries and all suppliers and vendors that are material to
the business of Company and its Subsidiaries, are as of the Effective Date, and
thereafter remain, Year 2000 Compliant. Such acts shall include, without
limitation, performing a comprehensive review and assessment of all of Company's
and its Subsidiaries' systems and adopting a detailed plan, with itemized
budget, for the remediation, monitoring and testing of such systems. As used in
this paragraph, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized by and
that are material to the business operations or financial condition of such
entity, will properly perform date sensitive functions before, during and after
the year 2000. Company and Canadian Borrower shall, immediately upon request,
provide to Administrative Agent such certifications or other evidence of their
compliance with the terms of this paragraph as Administrative Agent may from
time to time require.
6.12 SOLVENCY.
Each Borrower shall at all times be Solvent and shall cause such
Borrower and its Subsidiaries, taken as a whole, to at all times be Solvent.
6.13 BLOCKED ACCOUNTS.
A. On the Effective Date, Company shall deliver to Administrative Agent a
list of each deposit account maintained by each Borrower or any of their
Subsidiaries (other than zero balance payroll accounts) (each such account being
a "Blocked Account"). Each Borrower shall cause each bank at which any Blocked
Account is maintained (each, a "Blocked Account Bank") to enter into an
agreement (a "Blocked Account Agreement") with Company or its Subsidiaries, as
applicable, and Administrative Agent pursuant to which such Blocked Account Bank
shall acknowledge and agree that all amounts and remittances deposited into the
Blocked Accounts are pledged to Administrative Agent and Lenders and are to be
held by such Blocked Account Bank for the benefit of the Administrative Agent
and Lenders, subject to customary exceptions for fees and chargebacks for
uncollected funds that are acceptable to Administrative Agent.
B. Each Borrower shall cause all payments with respect to all accounts and
all other amounts paid and remittances made to Company or any of its
Subsidiaries by its customers to be deposited into the Blocked Accounts.
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C. Company and its Subsidiaries may from time to time, with 10 days' prior
written notice to Administrative Agent, open additional Blocked Accounts if and
only if Company delivers to Administrative Agent within two days of the date
such Blocked Account is opened a Blocked Account Agreement with respect to such
Blocked Account, executed by the applicable Blocked Account Bank and Company or
the applicable Subsidiary. Company and its Subsidiaries may, with prior notice
to Administrative Agent, close any Blocked Account at any time provided that all
funds in such Blocked Accounts are transferred simultaneously with the closing
of such Blocked Account to another Blocked Account of Company or to Company's
operating account with Administrative Agent.
6.14 POST CLOSING MATTERS.
Each Borrower shall comply with all covenants and obligations set
forth on Schedule 6.14 hereto, which are incorporated herein by this reference.
SECTION 7. BORROWERS' NEGATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, such Borrower shall perform, and shall cause each of its Subsidiaries
to perform, all covenants in this Section 7.
7.1 INDEBTEDNESS.
Each Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(i) Each Borrower may become and remain liable with respect to
the Obligations;
(ii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations permitted by subsection 7.4 and, upon
any matured obligations actually arising pursuant thereto, the
Indebtedness corresponding to the Contingent Obligations so extinguished;
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(iii) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness in respect of Capital Leases; provided that such
Capital Leases are permitted under the terms of subsection 7.9;
(iv) Company may become and remain liable with respect to
Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-owned
Subsidiary of Company may become and remain liable with respect to
Indebtedness to Company or any other wholly-owned Subsidiary of Company;
provided that (a) all such intercompany Indebtedness shall be evidenced by
promissory notes, (b) all such intercompany Indebtedness owed by Company
to any of its Subsidiaries shall be subordinated in right of payment to
the payment in full of the Obligations pursuant to the terms of the
applicable promissory notes or an intercompany subordination agreement,
and (c) any payment by any Subsidiary of Company under any guaranty of the
Obligations shall result in a pro tanto reduction of the amount of any
intercompany Indebtedness owed by such Subsidiary to Company or to any of
its Subsidiaries for whose benefit such payment is made;
(v) Company and its Subsidiaries, as applicable, may remain liable
with respect to Indebtedness described in Schedule 7.1 annexed hereto, and
any refinancings of such Indebtedness; provided that any such refinancing
Indebtedness shall contain terms and conditions that are no less favorable
to Company and its Subsidiaries than those governing the Indebtedness
refinanced, the principal amount of any such refinancing Indebtedness
shall not exceed the principal amount of the Indebtedness so refinanced at
the time of the refinancing thereof, and any such refinancing Indebtedness
of Subordinated Indebtedness shall be subordinated to the payment of the
Obligations to at least the same extent as such refinanced Subordinated
Indebtedness;
(vi) Company and its Subsidiaries may become and remain liable with
respect to Equipment Indebtedness to the extent permitted by subsection
7.9; and
(vii) Company (but not its Subsidiaries) may become and remain
liable with respect to Permitted Acquisition Indebtedness; provided that
immediately after giving effect to the incurrence of such Permitted
Acquisition Indebtedness, Borrowers shall be in compliance with all of
their covenants on a Pro Forma Basis.
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7.2 LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. Each Borrower shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State, the PPSA as in effect in
any Province of Canada, or under any similar recording or notice statute,
except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents;
(iii) Liens described in Schedule 7.2 annexed hereto;
(iv) Liens securing Equipment Indebtedness permitted by subsections
7.1(vi) and 7.9, provided that such Liens encumber only the assets that
secured such Equipment Indebtedness at the time of the Acquisition of the
related Acquired Business;
(v) cash placed in escrow to secure payment of Permitted Contingent
Acquisition Obligations (other than Subordinated Contingent Acquisition
Obligations) incurred after the Second Closing Date; provided that (x) the
amount of such cash does not exceed the amount of such Permitted
Contingent Acquisition Obligations and (y) Administrative Agent has a
First Priority Lien on such cash, subject only to the interests of the
party to whom such Permitted Contingent Acquisition Obligations and
Permitted Acquisition Obligations are owed and to Liens securing
obligations owed to the depositary institution at which such escrow is
maintained for customary fees and expenses; and
(vi) Other Liens securing Indebtedness in an aggregate amount not to
exceed $500,000 at any time outstanding.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Company or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of
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subsection 7.2A, it shall make or cause to be made effective provision whereby
the Obligations will be secured by such Lien equally and ratably with any and
all other Indebtedness secured thereby as long as any such Indebtedness shall be
so secured; provided that, notwithstanding the foregoing, this covenant shall
not be construed as a consent by Requisite Lenders to the creation or assumption
of any such Lien not permitted by the provisions of subsection 7.2A.
C. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold pursuant
to an executed agreement with respect to an Asset Sale, neither any Borrower nor
any of its Subsidiaries shall enter into any agreement prohibiting the creation
or assumption of any Lien upon any of its properties or assets, whether now
owned or hereafter acquired; provided that the foregoing shall not apply to
restrictions against the assignment or encumbrance of the lessee's or licensee's
interest in leases of tangible goods or licenses of intellectual property that
were entered into in the ordinary course of Company's or its Subsidiaries'
business or that were entered into by any Subsidiary acquired after Effective
Date if such restrictions existed at the time such Subsidiary was acquired and
were not created in anticipation of such acquisition.
D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES. Except as provided herein, each Borrower will not, and will not
permit any of its Subsidiaries to, create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock owned by Company or any
other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to Company or any other Subsidiary of Company, (iii) make loans or
advances to Company or any other Subsidiary of Company, or (iv) transfer any of
its property or assets to Company or any other Subsidiary of Company.
7.3 INVESTMENTS; JOINT VENTURES.
Each Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment in any
Person, including any Joint Venture, except:
(i) Company and its Subsidiaries may make and own Investments in
Cash Equivalents;
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(ii) Company and its Subsidiaries may continue to own the
Investments owned by them as of the Effective Date in any Subsidiaries of
Company;
(iii) Company and its Subsidiaries may make intercompany loans to
the extent permitted under subsection 7.1(iv);
(iv) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted by subsection 7.8;
(v) Company and its Subsidiaries may continue to own the Investments
owned by them and described in Schedule 7.3 annexed hereto;
(vi) Company and its Subsidiaries may make and own Qualified
Investments maintained in the Investment Account to the extent required by
subsection 2.4B(iv);
(vii) Company and its Subsidiaries may make and own Investments
permitted by subsection 7.7(vi); and
(viii) Company and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed at any time $100,000.
7.4 CONTINGENT OBLIGATIONS.
Each Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or become or remain liable with
respect to any Contingent Obligation, except:
(i) Company may become and remain liable with respect to Contingent
Obligations in respect of the Company Guaranty;
(ii) Subsidiaries of Company may become and remain liable with
respect to Contingent Obligations in respect of the Domestic Subsidiary
Guaranty and the Canadian Subsidiary Guaranty;
(iii) Company may become and remain liable with respect to
Contingent Obligations in respect of Letters of Credit;
(iv) [intentionally omitted]
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(v) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of customary indemnification
and purchase price adjustment obligations incurred in connection with
Asset Sales or other sales of assets;
(vi) Company (but not its Subsidiaries) may become and remain liable
with respect to Permitted Contingent Acquisition Obligations;
(vii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of any Indebtedness of
Company (other than Permitted Acquisition Indebtedness) or any of its
Subsidiaries permitted by subsection 7.1;
(viii) Company and its Subsidiaries, as applicable, may remain
liable with respect to Contingent Obligations described in Schedule 7.4
annexed hereto;
(ix) [intentionally omitted]; and
(x) Company and its Subsidiaries may become and remain liable with
respect to other Contingent Obligations; provided that the maximum
aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all such Contingent Obligations shall at no
time exceed $250,000.
7.5 RESTRICTED JUNIOR PAYMENTS.
Each Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Junior Payment; provided that (i) so long as no Event
of Default shall have occurred and be continuing or shall be caused thereby,
each Borrower may pay amounts owed under or in respect of Subordinated
Acquisition Indebtedness and Subordinated Contingent Acquisition Obligations
when such obligations become due and payable in accordance with the terms of,
and only to the extent required by, and subject to the subordination provisions
contained in, the agreements pursuant to which such Subordinated Acquisition
Indebtedness and Subordinated Contingent Acquisition Obligations were incurred,
as such agreements may be amended from time to time to the extent permitted
under subsection 7.15B, (ii) so long as no Event of Default shall have occurred
and be continuing or shall be caused thereby, Company may make Restricted Junior
Payments to Holdings (a) in an aggregate amount not to exceed $50,000 in any
Fiscal Year, to the extent necessary to permit Holdings to pay general
administrative costs and expenses,
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(b) in an aggregate amount not to exceed $500,000 in any Fiscal Year or
$2,500,000 during the term of this Agreement, to the extent necessary to permit
Holdings to repurchase shares of Holdings Common Stock (or options or warrants
to acquire Holdings Common Stock) from Management Investors and other officers
and employees of Company and its Subsidiaries and their assignees, in each case
upon the termination of employment of such Management Investor, officer or
employee by Company and its Subsidiaries, and (c) to the extent necessary to
permit Holdings to discharge the consolidated tax liabilities of Holdings and
its Subsidiaries, in each case so long as Holdings applies the amount of any
such Restricted Junior Payment for such purpose.
7.6 FINANCIAL COVENANTS.
A. MINIMUM INTEREST COVERAGE RATIO.
(i) Company shall not permit the ratio of (x) Consolidated EBITDA to
(y) Consolidated Net Interest Expense for each period commencing on
December 1, 1999 and ending on March 31, 2000, June 30, 2000, and
September 30, 2000, to be less than 3.00 to 1.00.
(ii) Company shall not permit the ratio of (x) Consolidated EBITDA
to (y) Consolidated Net Interest Expense, as of the last day of any four
Fiscal Quarter period ending after September 30, 2000, to be less than
3.00 to 1.00.
B. MINIMUM FIXED CHARGE COVERAGE RATIO.
(i) Company shall not permit the ratio of (x) Consolidated EBITDA
minus Consolidated Capital Expenditures (net of any proceeds of any
related financings with respect to such expenditures (including
sale-leasebacks permitted in subsection 7.10) and excluding Consolidated
Capital Expenditures made pursuant to subsection 7.8C) to (y) Consolidated
Fixed Charges for each period commencing on December 1, 1999 and ending on
March 31, 2000, June 30, 2000, and September 30, 2000, to be less than
1.25 to 1.00.
(ii) Company shall not permit the ratio of (x) Consolidated EBITDA
minus Consolidated Capital Expenditures (net of any proceeds of any
related financings with respect to such expenditures (including
sale-leasebacks permitted in subsection 7.10) and excluding Consolidated
Capital Expenditures made pursuant to subsection 7.8C) to (y) Consolidated
Fixed Charges as of the last day
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of any four Fiscal Quarter period ending after September 30, 2000, to be
less than 1.25 to 1.00.
C. MAXIMUM SENIOR DEBT LEVERAGE RATIO. Company shall not permit the Senior
Debt Leverage Ratio during any period set forth below to exceed the correlative
ratio indicated:
<TABLE>
<CAPTION>
PERIOD SENIOR DEBT LEVERAGE RATIO
------ --------------------------
<S> <C>
Effective Date through Feb. 27, 2002 4.00:1.00
Feb. 28, 2002 through Aug. 30, 2002 3.75:1.00
Aug. 31, 2002 through Dec. 30, 2002 3.65:1.00
Dec. 31, 2002 through June 29, 2003 3.50:1.00
June 30, 2003 through Dec. 30, 2003 3.25:1.00
Dec. 31, 2003 and thereafter 3.00:1.00
</TABLE>
D. MAXIMUM ADJUSTED SENIOR DEBT LEVERAGE RATIO. Company shall not permit
the Adjusted Senior Debt Leverage Ratio during any period set forth below to
exceed the correlative ratio indicated; provided that Company shall not be
obligated to comply with this covenant during any period for which Holdings and
its Subsidiaries have no Contingent Acquisition Obligations:
<TABLE>
<CAPTION>
PERIOD ADJUSTED SENIOR DEBT LEVERAGE RATIO
------ -----------------------------------
<S> <C>
Effective Date through May 30, 2000 3.85:1.00
May 31, 2000 and thereafter 3.75:1.00
</TABLE>
E. MAXIMUM TOTAL DEBT LEVERAGE RATIO. Company shall not permit the Total
Debt Leverage Ratio during any period set forth below to exceed the correlative
ratio indicated:
<TABLE>
<CAPTION>
PERIOD TOTAL DEBT LEVERAGE RATIO
------ -------------------------
<S> <C>
Effective Date through Feb. 27, 2002 4.50:1.00
Feb. 28, 2002 through Aug. 30, 2002 4.25:1.00
Aug. 31, 2002 through Dec. 30, 2002 4.15:1.00
Dec. 31, 2002 through June 29, 2003 4.00:1.00
June 30, 2003 through Dec. 30, 2003 3.75:1.00
Dec. 31, 2003 and thereafter 3.50:1.00
</TABLE>
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7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
Each Borrower shall not, and shall not permit any of its
Subsidiaries to, alter the corporate, capital or legal structure of Company or
any of its Subsidiaries, or enter into any transaction of merger, consolidation
or amalgamation, or liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or
sublessor), transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, property or assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of any Person, or any division or line of
business of any Person, except:
(i) any Subsidiary of Company may be merged with or into Company or
any wholly-owned Domestic Subsidiary Guarantor or Canadian Subsidiary
Guarantor, or be liquidated, wound up or dissolved, or all or any part of
its business, property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a series of
transactions, to Company or any wholly-owned Domestic Subsidiary Guarantor
or Canadian Subsidiary Guarantor; provided that, in the case of such a
merger, Company or such wholly-owned Domestic Subsidiary Guarantor or
Canadian Subsidiary Guarantor shall be the continuing or surviving
corporation;
(ii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted under subsection 7.8;
(iii) Company and its Subsidiaries may dispose of obsolete, worn out
or surplus property in the ordinary course of business;
(iv) Company and its Subsidiaries may sell or otherwise dispose of
assets in transactions that do not constitute Asset Sales; provided that
the consideration received for such assets shall be in an amount at least
equal to the fair market value thereof;
(v) subject to subsection 7.13, Company and its Subsidiaries may
make Asset Sales of assets having an aggregate fair market value not in
excess of $100,000 provided that (x) the consideration received for such
assets shall be in an amount at least equal to the fair market value
thereof; and (y) any Asset Sale Proceeds of such Asset Sales shall be
applied as required by subsection 2.4B(iii)(a);
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(vi) Company or any of its Subsidiaries may make Permitted
Acquisitions; provided that Company shall, and shall cause its
Subsidiaries to, comply with the requirements of subsections 6.8 and 6.9
with respect to such acquisitions; and
(vii) Company or any of its Subsidiaries may sell or transfer
property as an Asset Sale in connection with sale and lease-back
transactions permitted under subsection 7.10.
7.8 CONSOLIDATED CAPITAL EXPENDITURES.
A. Except as set forth in subsections 7.8B and 7.8C,
(i) each Borrower shall not, and shall not permit its Subsidiaries
to, make or incur Consolidated Capital Expenditures in excess of
$1,000,000 for the period from the Effective Date to and including
December 31, 1999; and
(ii) each Borrower shall not, and shall not permit its Subsidiaries
to, make or incur Consolidated Capital Expenditures for any four Fiscal
Quarter period ending after December 31, 1999, in excess of 5.5% of
Consolidated Net Revenue for such four Fiscal Quarter period as measured
on the last day thereof.
B. In addition to the Consolidated Capital Expenditures permitted by
subsections 7.8A and 7.8C, Company and its Subsidiaries may make Consolidated
Capital Expenditures during the period from January 1, 2000 to and including
December 31, 2000 in an amount not to exceed $2,000,000 to upgrade Company's and
its Subsidiaries' financial and MIS reporting systems.
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C. In addition to the Consolidated Capital Expenditures permitted by
subsections 7.8A and 7.8B, Company and its Subsidiaries may make Consolidated
Capital Expenditures with the proceeds of cash contributions made by Willis
Stein and BCI to Holdings after the Effective Date pursuant to Sections 1.04,
1.05 and 1.06 of the Recapitalization Agreement, if each of the following
conditions is met: (i) such cash contributions to Holdings are contributed in
cash to the capital of Company and are used to make such Consolidated Capital
Expenditures within thirty (30) days after receipt thereof by Holdings, (ii) no
Event of Default shall have occurred and be continuing at the time such
Consolidated Capital Expenditures are made, and (iii) Requisite Lenders shall
have given prior written approval of the use of such cash contributions for such
purpose.
7.9 RESTRICTION ON EQUIPMENT INDEBTEDNESS AND CAPITAL LEASES.
Each Borrower shall not permit the ratio of (x) the aggregate principal
amount of all Indebtedness owed under Capital Leases (other than intercompany
leases between Company and its wholly-owned Subsidiaries) for which the
Borrowers and their Subsidiaries have become liable in any way, whether directly
or by assignment or as a guarantor or other surety, for the obligations of the
lessee thereunder plus the aggregate principal amount of all Equipment
Indebtedness for which the Borrowers and their Subsidiaries have become liable
in any way, whether directly or by assignment or as a guarantor or other surety,
to (y) Consolidated EBITDA, determined on a Pro Forma Basis, as of the last day
of any 12 Fiscal Month period, to be greater than 0.25 to 1.00.
7.10 SALES AND LEASE-BACKS.
A. Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, become or remain liable as lessee or as a guarantor
or other surety with respect to any lease, whether an Operating Lease or a
Capital Lease, of any property (whether real, personal or mixed), whether now
owned or hereafter acquired, (i) which Company or any of its Subsidiaries has
sold or transferred or is to sell or transfer to any other Person (other than
Company or any of its Subsidiaries) or (ii) which Company or any of its
Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Company or any of its
Subsidiaries to any Person (other than Company or any of its Subsidiaries) in
connection with such lease, except as set forth in subsection 7.10B.
B. Company and its Subsidiaries may become and remain liable as lessee,
guarantor or other surety with respect to any such lease described in subsection
7.10A if and to the extent that (a) if such lease is a Capital Lease, Company or
any of its
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Subsidiaries would be permitted to enter into, and remain liable under, such
Capital Lease under subsection 7.9 and the Net Asset Sale Proceeds from property
sold in such sale and lease-back are used to prepay the Revolving Loans, (b) if
such lease is an Operating Lease, the Net Asset Sale Proceeds from the property
sold in such sale and lease-back are used to make a mandatory prepayment of the
Loans and/or reduction in the Commitments in accordance with subsection
2.4B(iii)(a), (c) the property sold in such sale and lease-back is sold or
transferred within ninety (90) days of its acquisition by Company or any of its
Subsidiaries, (d) the original acquisition price for such property is less than
$1,000,000, (e) the aggregate amount of all sales and lease-backs permitted by
this subsection 7.10B does not exceed $2,000,000 in any Fiscal Year or
$10,000,000 for the duration of this Agreement.
7.11 SALE OR DISCOUNT OF RECEIVABLES.
Each Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, sell with recourse, or discount or
otherwise sell for less than the face value thereof, any of its notes or
accounts receivable.
7.12 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
A. Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder of 5% or more of any
class of equity Securities of Company or with any Affiliate of Company or of any
such holder, on terms that are less favorable to Company or that Subsidiary, as
the case may be, than those that might be obtained at the time from Persons who
are not such a holder or Affiliate; provided that the foregoing restriction
shall not apply to (i) any transaction between Company and any of its
wholly-owned Subsidiaries or between any of its wholly-owned Subsidiaries or
(ii) reasonable and customary fees paid to members of the Boards of Directors of
Company and its Subsidiaries.
B. Each Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, pay or incur any liability for any management fees,
consulting fees, and advisory fees, or the like to any holder of 5% or more of
any class of equity Securities of Company or with any Affiliate of Company or of
any such holder.
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7.13 DISPOSAL OF SUBSIDIARY STOCK.
Each Borrower shall not:
(i) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or other equity
Securities of any of its Subsidiaries, except to qualify directors if
required by applicable law; or
(ii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other equity Securities of any of its Subsidiaries (including
such Subsidiary), except to Company, another Subsidiary of Company, or to
qualify directors if required by applicable law.
7.14 CONDUCT OF BUSINESS.
From and after the Effective Date, shall not, and shall not permit
any of its Subsidiaries to, engage in any business other than (i) the businesses
engaged in by Company and its Subsidiaries on the Effective Date and similar or
Related Businesses and (ii) such other lines of business as may be consented to
by Requisite Lenders.
7.15 AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS.
A. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS AND OTHER
AGREEMENTS. Neither any Borrower nor any of its Subsidiaries will agree to any
material amendment to, or waive any of its material rights under, any Related
Agreement, the METC Holdings Unanimous Shareholders Agreements or the METC
Unanimous Shareholders Agreement after the Effective Date without in each case
obtaining the prior written consent of Requisite Lenders to such amendment or
waiver. Borrowers shall notify Administrative Agent upon any amendment to, or
waiver of any material rights thereunder, of the Management Employment
Agreements or Stock Repurchase Agreements.
B. AMENDMENTS OF DOCUMENTS RELATING TO SUBORDINATED INDEBTEDNESS,
SUBORDINATED ACQUISITION INDEBTEDNESS, AND SUBORDINATED CONTINGENT ACQUISITION
OBLIGATIONS. Each Borrower shall not, and shall not permit any of its
Subsidiaries to, amend or otherwise change the terms of any Subordinated
Indebtedness, Subordinated Acquisition Indebtedness, or Subordinated Contingent
Acquisition Obligations, or make any payment consistent with an amendment
thereof or change thereto, if the effect of such
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amendment or change is to increase the interest rate on such Subordinated
Indebtedness, Subordinated Acquisition Indebtedness, or Subordinated Contingent
Acquisition Obligations, change (to earlier dates) any dates upon which payments
of principal or interest are due thereon, change any event of default or
condition to an event of default with respect thereto (other than to eliminate
any such event of default or increase any grace period related thereto), change
the redemption, prepayment or defeasance provisions thereof, change the
subordination provisions thereof (or of any guaranty thereof), or change any
collateral therefor (other than to release such collateral), or if the effect of
such amendment or change, together with all other amendments or changes made, is
to increase materially the obligations of the obligor thereunder or to confer
any additional rights on the holders of such Subordinated Indebtedness,
Subordinated Acquisition Indebtedness, or Subordinated Contingent Acquisition
Obligations (or a trustee or other representative on their behalf) which would
be adverse to Company or Lenders.
7.16 FISCAL YEAR.
Each Borrower shall not change its Fiscal Year-end from December 31.
SECTION 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur:
8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
Failure by any Borrower to pay any installment of principal of any
Loan when due, whether at stated maturity, by acceleration, by notice of
voluntary prepayment, by mandatory prepayment or otherwise; failure by Company
to pay when due any amount payable to an Issuing Lender in reimbursement of any
drawing under a Letter of Credit; or failure by any Borrower to pay any interest
on any Loan or any fee or any other amount due under this Agreement within five
days after the date due; or
8.2 DEFAULT IN OTHER AGREEMENTS.
(i) Failure of Company or any of its Subsidiaries to pay when due
any principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in subsection
8.1) or Contingent Obligations with an aggregate principal amount of $250,000 or
more, in each case
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beyond the end of any grace period provided therefor; or (ii) breach or default
by Company or any of its Subsidiaries with respect to any other material term of
(a) one or more items of Indebtedness or Contingent Obligations in the
individual or aggregate principal amounts referred to in clause (i) above or (b)
any loan agreement, mortgage, indenture or other agreement relating to such
item(s) of Indebtedness or Contingent Obligation(s), if the effect of such
breach or default is to cause, or to permit the holder or holders of that
Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder
or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or
be declared due and payable prior to its stated maturity or the stated maturity
of any underlying obligation, as the case may be (upon the giving or receiving
of notice, lapse of time, both, or otherwise); or
8.3 BREACH OF CERTAIN COVENANTS.
Failure of any Borrower to perform or comply with any term or
condition contained in subsections 2.5 or 6.2 or Section 7 of this Agreement; or
8.4 BREACH OF WARRANTY.
Any representation, warranty, certification or other statement made
by any Borrower or any of its Subsidiaries in any Loan Document or in any
statement or certificate at any time given by Company or any of its Subsidiaries
in writing pursuant hereto or thereto or in connection herewith or therewith
shall be false in any material respect on the date as of which made; or
8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
Any Loan Party shall default in the performance of or compliance
with any term contained in this Agreement or any of the other Loan Documents,
other than any such term referred to in any other subsection of this Section 8,
and such default shall not have been remedied or waived within 30 days after the
occurrence thereof; or
8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) A court having jurisdiction in the premises shall enter a decree
or order for relief in respect of any Borrower or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or any other Insolvency Laws, which
decree or order is not stayed; or any other similar relief shall be granted
under any applicable Insolvency Laws; or (ii) an involuntary case shall be
commenced against any Borrower or any of its
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Subsidiaries under the Bankruptcy Code or under any other Insolvency Laws; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over any Borrower or any of its Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of any Borrower or any of its Subsidiaries for all or
a substantial part of its property; or a warrant of attachment, execution or
similar process shall have been issued against any substantial part of the
property of any Borrower or any of its Subsidiaries, and any such event
described in this clause (ii) shall continue for 60 days unless dismissed,
bonded or discharged; or
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) any Borrower or any of its Subsidiaries shall have an order for
relief entered with respect to it or commence a voluntary case under the
Bankruptcy Code or under any other Insolvency Laws, or shall consent to the
entry of an order for relief in an involuntary case, or to the conversion of an
involuntary case to a voluntary case, under any such law, or shall consent to
the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; or any Borrower or any
of its Subsidiaries shall make any assignment for the benefit of creditors; or
(ii) any Borrower or any of its Subsidiaries shall be unable, or shall fail
generally, or shall admit in writing its inability, to pay its debts as such
debts become due; or the Board of Directors of any Borrower or any of its
Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise
authorize any action to approve any of the actions referred to in clause (i)
above or this clause (ii); or
8.8 JUDGMENTS AND ATTACHMENTS.
Any money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $100,000 or (ii) in
the aggregate at any time an amount in excess of $500,000 (in either case not
adequately covered by insurance as to which a solvent and unaffiliated insurance
company has acknowledged coverage) shall be entered or filed against any
Borrower or any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or
in any event later than five days prior to the date of any proposed sale
thereunder); or
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8.9 DISSOLUTION.
Any order, judgment or decree shall be entered against any Borrower
or any of its Subsidiaries decreeing the dissolution or split up of such
Borrower or that Subsidiary and such order shall remain undischarged or unstayed
for a period in excess of 30 days; or
8.10 EMPLOYEE BENEFIT PLANS.
There shall occur one or more ERISA Events which individually or in
the aggregate results in or might reasonably be expected to result in liability
of any Borrower, any of their Subsidiaries or any of their respective ERISA
Affiliates in excess of $100,000 during the term of this Agreement; or there
shall exist an amount of unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans with respect to
which assets exceed benefit liabilities), which exceeds $100,000; or
8.11 MATERIAL ADVERSE EFFECT.
Any event or change shall occur that has caused or evidences, either
in any case or in the aggregate, a Material Adverse Effect; or
8.12 CHANGE IN CONTROL.
Willis Stein and BCI shall cease to beneficially own shares of
capital stock of Holdings in an amount sufficient to allow Willis Stein and BCI
to elect a majority of the members of the Board of Directors of Holdings; or
8.13 INVALIDITY OF GUARANTIES; FAILURE OF SECURITY; REPUDIATION OF
OBLIGATIONS.
At any time after the execution and delivery thereof, (i) any
Guaranty for any reason, other than the satisfaction in full of all Obligations,
shall cease to be in full force and effect (other than in accordance with its
terms) or shall be declared to be null and void, (ii) any Collateral Document
shall cease to be in full force and effect (other than by reason of a release of
Collateral thereunder in accordance with the terms hereof or thereof, the
satisfaction in full of the Obligations or any other termination of such
Collateral Document in accordance with the terms hereof or thereof) or shall be
declared null and void, or Administrative Agent shall not have or shall cease to
have a valid and perfected First Priority Lien in any Collateral purported to be
covered thereby, in each case for any reason other than the failure of
Administrative Agent or any Lender to take
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any action within its control, or (iii) any Loan Party shall contest the
validity or enforceability of any Loan Document in writing or deny in writing
that it has any further liability, including without limitation with respect to
future advances by Lenders, under any Loan Document to which it is a party; or
8.14 AMENDMENT OF CERTAIN DOCUMENTS OF HOLDINGS.
Holdings shall agree to any material amendment to, or waive any of
its material rights under, or otherwise change any material terms of, any of the
Acquisition Agreements or the Holdings Certificate of Designations as in effect
on the Effective Date, in a manner adverse to Holdings or any of its
Subsidiaries or to Lenders without the prior written consent of Administrative
Agent and Requisite Lenders; or
8.15 CONDUCT OF BUSINESS BY HOLDINGS.
Holdings shall (i) engage in any business other than entering into
and performing its obligations under and in accordance with the Loan Documents
and Related Agreements to which it is a party or (ii) own any assets other than
(a) the capital stock of Company and (b) Cash and Cash Equivalents in an amount
not to exceed $100,000 at any one time for the purpose of paying general
operating expenses of Holdings:
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit), and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Company and Canadian Borrower, and the obligation of each Lender to
make any Loan, the obligation of Administrative Agent to issue any Letter of
Credit and the right of any Lender to issue any Letter of Credit hereunder shall
thereupon terminate, and (ii) upon the occurrence and during the continuation of
any other Event of Default, Administrative Agent shall, upon the written request
or with the written consent of Requisite Lenders, by written notice to the
Borrowers, declare all or any portion of the amounts described in clauses (a)
through (c) above to be, and the same shall forthwith become, immediately due
and payable, and the obligation of each Lender to make any Loan, the obligation
of Administrative Agent to issue any Letter of Credit and the right of any
Lender to issue any Letter of Credit hereunder shall thereupon terminate;
provided
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that the foregoing shall not affect in any way the obligations of Lenders under
subsection 3.3C(i).
Any amounts described in clause (b) above, when received by
Administrative Agent, shall be held by Administrative Agent pursuant to the
terms of the Collateral Account (as defined in the Security Agreement) and shall
be applied as therein provided.
Notwithstanding anything contained in the second preceding
paragraph, if at any time within 60 days after an acceleration of the Loans
pursuant to clause (ii) of such paragraph Borrowers shall pay all arrears of
interest and all payments on account of principal which shall have become due
otherwise than as a result of such acceleration (with interest on principal and,
to the extent permitted by law, on overdue interest, at the rates specified in
this Agreement) and all Events of Default (other than non-payment of the
principal of and accrued interest on the Loans, in each case which is due and
payable solely by virtue of acceleration) shall be remedied or waived pursuant
to subsection 10.6, then Requisite Lenders, by written notice to Borrowers, may
at their option rescind and annul such acceleration and its consequences; but
such action shall not affect any subsequent Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to bind
Lenders to a decision which may be made at the election of Requisite Lenders and
are not intended, directly or indirectly, to benefit Borrowers, and such
provisions shall not at any time be construed so as to grant Borrowers the right
to require Lenders to rescind or annul any acceleration hereunder or to preclude
Administrative Agent or Lenders from exercising any of the rights or remedies
available to them under any of the Loan Documents, even if the conditions set
forth in this paragraph are met.
SECTION 9. ADMINISTRATIVE AGENT
9.1 APPOINTMENT.
A. APPOINTMENT OF ADMINISTRATIVE AGENT. CIBC is hereby appointed
Administrative Agent hereunder and under the other Loan Documents and each
Lender hereby authorizes Administrative Agent to act as its agent in accordance
with the terms of this Agreement and the other Loan Documents. Administrative
Agent agrees to act upon the express conditions contained in this Agreement and
the other Loan Documents, as applicable. The provisions of this Section 9 are
solely for the benefit of Administrative Agent and Lenders and Borrowers shall
have no rights as a third party beneficiary of any of the provisions thereof. In
performing its functions and duties under this Agreement,
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Administrative Agent shall act solely as an agent of Lenders and does not assume
and shall not be deemed to have assumed any obligation towards or relationship
of agency or trust with or for Company or any of its Subsidiaries (other than as
expressly provided in subsection 2.1D).
B. APPOINTMENT OF SUPPLEMENTAL COLLATERAL ADMINISTRATIVE AGENTS. It is the
purpose of this Agreement and the other Loan Documents that there shall be no
violation of any law of any jurisdiction denying or restricting the right of
banking corporations or associations to transact business as agent or trustee in
such jurisdiction. It is recognized that in case of litigation under this
Agreement or any of the other Loan Documents, and in particular in case of the
enforcement of any of the Loan Documents, or in case Administrative Agent deems
that by reason of any present or future law of any jurisdiction it may not
exercise any of the rights, powers or remedies granted herein or in any of the
other Loan Documents or take any other action which may be desirable or
necessary in connection therewith, it may be necessary that Administrative Agent
appoint an additional individual or institution as a separate trustee,
co-trustee, collateral agent or collateral co-agent (any such additional
individual or institution being referred to herein individually as a
"SUPPLEMENTAL COLLATERAL ADMINISTRATIVE AGENT" and collectively as "SUPPLEMENTAL
COLLATERAL ADMINISTRATIVE AGENTS").
In the event that Administrative Agent appoints a Supplemental
Collateral Administrative Agent with respect to any Collateral, (i) each and
every right, power, privilege or duty expressed or intended by this Agreement or
any of the other Loan Documents to be exercised by or vested in or conveyed to
Administrative Agent with respect to such Collateral shall be exercisable by and
vest in such Supplemental Collateral Administrative Agent to the extent, and
only to the extent, necessary to enable such Supplemental Collateral
Administrative Agent to exercise such rights, powers and privileges with respect
to such Collateral and to perform such duties with respect to such Collateral,
and every covenant and obligation contained in the Loan Documents and necessary
to the exercise or performance thereof by such Supplemental Collateral
Administrative Agent shall run to and be enforceable by either Administrative
Agent or such Supplemental Collateral Administrative Agent, and (ii) the
provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to
Administrative Agent shall inure to the benefit of such Supplemental Collateral
Administrative Agent and all references therein to Administrative Agent shall be
deemed to be references to Administrative Agent and/or such Supplemental
Collateral Administrative Agent, as the context may require.
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Should any instrument in writing from Company or any other Loan
Party be required by any Supplemental Collateral Administrative Agent so
appointed by Administrative Agent for more fully and certainly vesting in and
confirming to him or it such rights, powers, privileges and duties, Company
shall, or shall cause such Loan Party to, execute, acknowledge and deliver any
and all such instruments promptly upon request by Administrative Agent. In case
any Supplemental Collateral Administrative Agent, or a successor thereto, shall
die, become incapable of acting, resign or be removed, all the rights, powers,
privileges and duties of such Supplemental Collateral Administrative Agent, to
the extent permitted by law, shall vest in and be exercised by Administrative
Agent until the appointment of a new Supplemental Collateral Administrative
Agent.
9.2 POWERS AND DUTIES; GENERAL IMMUNITY.
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes
Administrative Agent to take such action on such Lender's behalf and to exercise
such powers, rights and remedies hereunder and under the other Loan Documents as
are specifically delegated or granted to Administrative Agent by the terms
hereof and thereof, together with such powers, rights and remedies as are
reasonably incidental thereto. Administrative Agent shall have only those duties
and responsibilities that are expressly specified in this Agreement and the
other Loan Documents. Administrative Agent may exercise such powers, rights and
remedies and perform such duties by or through its agents or employees.
Administrative Agent shall not have, by reason of this Agreement or any of the
other Loan Documents, a fiduciary relationship in respect of any Lender; and
nothing in this Agreement or any of the other Loan Documents, expressed or
implied, is intended to or shall be so construed as to impose upon
Administrative Agent any obligations in respect of this Agreement or any of the
other Loan Documents except as expressly set forth herein or therein.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. Administrative Agent shall not
be responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or any
other Loan Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by Administrative Agent to Lenders or by
or on behalf of Company or its Subsidiaries to Administrative Agent or any
Lender in connection with the Loan Documents and the transactions contemplated
thereby or for the financial condition or business affairs of Company or its
Subsidiaries or any other Person liable for the payment of any
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Obligations, nor shall Administrative Agent be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained in any of the Loan Documents or as to the use
of the proceeds of the Loans or the use of the Letters of Credit or as to the
existence or possible existence of any Event of Default. Anything contained in
this Agreement to the contrary notwithstanding, Administrative Agent shall not
have any liability arising from confirmations of the amount of outstanding Loans
or the Letter of Credit Usage or the component amounts thereof.
C. EXCULPATORY PROVISIONS. Neither Administrative Agent nor any of its
officers, directors, employees or agents shall be liable to Lenders for any
action taken or omitted by Administrative Agent under or in connection with any
of the Loan Documents except to the extent caused by Administrative Agent's
gross negligence or willful misconduct. Administrative Agent shall be entitled
to refrain from any act or the taking of any action (including the failure to
take an action) in connection with this Agreement or any of the other Loan
Documents or from the exercise of any power, discretion or authority vested in
it hereunder or thereunder unless and until Administrative Agent shall have
received instructions in respect thereof from Requisite Lenders (or such other
Lenders as may be required to give such instructions under subsection 10.6) and,
upon receipt of such instructions from Requisite Lenders (or such other Lenders,
as the case may be), Administrative Agent shall be entitled to act or (where so
instructed) refrain from acting, or to exercise such power, discretion or
authority, in accordance with such instructions. Without prejudice to the
generality of the foregoing, (i) Administrative Agent shall be entitled to rely,
and shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or
sent by the proper person or persons, and shall be entitled to rely and shall be
protected in relying on opinions and judgments of attorneys (who may be
attorneys for Company and its Subsidiaries), accountants, experts and other
professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against Administrative Agent as a result of Administrative
Agent acting or (where so instructed) refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the instructions
of Requisite Lenders (or such other Lenders as may be required to give such
instructions under subsection 10.6).
D. ADMINISTRATIVE AGENT ENTITLED TO ACT AS LENDER. The agency hereby
created shall in no way impair or affect any of the rights and powers of, or
impose any duties or obligations upon, Administrative Agent in its individual
capacity as a Lender hereunder. With respect to its participation in the Loans
and the Letters of Credit,
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Administrative Agent shall have the same rights and powers hereunder as any
other Lender and may exercise the same as though it were not performing the
duties and functions delegated to it hereunder, and the term "Lender" or
"Lenders" or any similar term shall, unless the context clearly otherwise
indicates, include Administrative Agent in its individual capacity.
Administrative Agent and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of banking, trust, financial advisory or other
business with Borrowers or any of their Affiliates as if it were not performing
the duties specified herein, and may accept fees and other consideration from
Borrowers for services in connection with this Agreement and otherwise without
having to account for the same to Lenders.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
CREDITWORTHINESS.
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Company and
its Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Company and its Subsidiaries.
Administrative Agent shall not have any duty or responsibility, either initially
or on a continuing basis, to make any such investigation or any such appraisal
on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter, and Administrative Agent
shall not have any responsibility with respect to the accuracy of or the
completeness of any information provided to Lenders.
9.4 RIGHT TO INDEMNITY.
Each Lender, in proportion to its Pro Rata Share, severally agrees
to indemnify Administrative Agent, to the extent that Administrative Agent shall
not have been reimbursed by Borrowers, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against Administrative Agent in exercising its powers, rights and
remedies or performing its duties hereunder or under the other Loan Documents or
otherwise in its capacity as Administrative Agent in any way relating to or
arising out of this Agreement or the other Loan Documents; provided that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
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resulting from Administrative Agent's gross negligence or willful misconduct. If
any indemnity furnished to Administrative Agent for any purpose shall, in the
opinion of Administrative Agent, be insufficient or become impaired,
Administrative Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished.
9.5 SUCCESSOR ADMINISTRATIVE AGENT.
Administrative Agent may resign at any time by giving 30 days' prior
written notice thereof to Lenders and Borrowers, and Administrative Agent may be
removed at any time with or without cause by an instrument or concurrent
instruments in writing delivered to Borrowers and Administrative Agent and
signed by Requisite Lenders. Upon any such notice of resignation or any such
removal, Requisite Lenders shall have the right, upon five Business Days' notice
to Borrowers, to appoint a successor Administrative Agent, with the written
consent of Borrowers at all times other than during the existence of an Event of
Default, which consent of Borrowers, if required, shall not be unreasonably
withheld. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, that successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Administrative Agent and the
retiring or removed Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring or removed Administrative
Agent's resignation or removal hereunder as Administrative Agent, the provisions
of this Section 9 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Administrative Agent under this Agreement.
9.6 COLLATERAL DOCUMENTS AND GUARANTIES.
A. GENERAL. Each Lender hereby further authorizes Administrative Agent, on
behalf of and for the benefit of Lenders, to enter into each Collateral Document
as secured party and to be the agent for and representative of Lenders under
each Guaranty, and each Lender agrees to be bound by the terms of each
Collateral Document and each Guaranty; provided that Administrative Agent shall
not (i) enter into or consent to any material amendment, modification,
termination or waiver of any provision contained in any Collateral Document or
Guaranty or (ii) release any Collateral (except as otherwise expressly permitted
or required pursuant to the terms of this Agreement or the applicable Collateral
Document), in each case without the prior consent of Requisite Lenders (or, if
required pursuant to subsection 10.6, all Lenders); provided further, however,
that, without further written consent or authorization from Lenders,
Administrative Agent may
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execute any documents or instruments necessary to (a) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted by this Agreement or to which Requisite Lenders
have otherwise consented or (b) release any Guarantor from any Guaranty if all
of the capital stock of such Guarantor is sold to any Person (other than an
Affiliate of Company) pursuant to a sale or other disposition permitted
hereunder or to which Requisite Lenders have otherwise consented. Anything
contained in any of the Loan Documents to the contrary notwithstanding,
Borrowers, Administrative Agent and each Lender hereby agree that (X) no Lender
shall have any right individually to realize upon any of the Collateral under
any Collateral Document or to enforce any Guaranty, it being understood and
agreed that all powers, rights and remedies under the Collateral Documents and
the Guaranties may be exercised solely by Administrative Agent for the benefit
of Lenders in accordance with the terms thereof, and (Y) in the event of a
foreclosure by Administrative Agent on any of the Collateral pursuant to a
public or private sale, Administrative Agent or any Lender may be the purchaser
of any or all of such Collateral at any such sale and Administrative Agent, as
agent for and representative of Lenders (but not any Lender or Lenders in its or
their respective individual capacities unless Requisite Lenders shall otherwise
agree in writing) shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Collateral sold at any such public sale, to use and apply any of the Obligations
as a credit on account of the purchase price for any collateral payable by
Administrative Agent at such sale. Each Lender hereby constitutes and appoints
Administrative Agent as its true, lawful and specific attorney, to act on its
behalf, for purposes of granting and executing any and all Collateral Documents,
and any extensions, renewals, modifications, and discharges of the Collateral
Documents and the Collateral.
B. POWER OF ATTORNEY. For greater certainty and without limiting the
powers of Administrative Agent hereunder and for purposes of constituting
security on any of the property, present or future, real, personal, movable or
immovable of a Canadian Subsidiary, the Canadian Borrower or any Canadian
Subsidiary Guarantor located in Quebec pursuant to the Canadian Collateral
Documents for the payment of any bonds, notes, other title of indebtedness or
any obligation, each of Administrative Agent (for the benefit of itself and each
of the present and future Lenders) and Lenders acknowledges that Administrative
Agent shall, for the purposes of holding any such security, be the holder of an
irrevocable power of attorney ("fonde de pouvoir") of the benefit of Lenders and
for the benefit of all present and future Lenders. Administrative Agent (for
itself and each of the present and future Lenders) and Lenders agree that,
notwithstanding the provisions of Section 32 of the Special Corporate Powers Act
(Quebec), Administrative
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Agent may, as the person holding the power of attorney of Lenders, acquire any
title of indebtedness secured by any of the Canadian Collateral Documents.
9.7 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.
Each Lender agrees that it shall not, without the express consent of
Administrative Agent, set-off any amounts owing by such Lender to a Borrower or
any Guarantor or any accounts of a Borrower or any Guarantor now or hereafter
maintained with such Lender, except to the extent of the Loans made by such
Lender and the accrued and unpaid interest thereon and fees with respect
thereto, and subject to subsection 10.4. Each Lender further agrees that it
shall not, unless specifically requested to do so by Administrative Agent, take
or cause to be taken any action, including, without limitation, any demand for
payment or commencement of any legal or equitable proceedings, against a
Borrower or any Guarantor or otherwise to foreclose any Lien on, or otherwise
enforce any security interest in, any of the Collateral, the purpose of which
is, or could be, to give such Lender any preference or priority against the
other Lenders with respect to the Collateral.
9.8 DUTIES OF OTHER AGENTS.
Neither Documentation Agent nor Syndication Agent shall have any right,
power, obligation, liability, responsibility or duty under this Agreement other
than those applicable to all Lenders as such. Without limiting the foregoing,
none of such Lenders shall have or be deemed to have a fiduciary relationship
with any Lender. Each Lender hereby makes the same acknowledgements with respect
to such Lenders as it makes with respect to Administrative Agent in subsection
9.3.
SECTION 10. MISCELLANEOUS
10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
A. GENERAL. Subject to subsection 10.1B, each Lender shall have the right
at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii)
sell participations to any Person in, all or any part of its Commitments or any
Loan or Loans made by it or its Letters of Credit or participations therein or
any other interest herein or in any other Obligations owed to it; provided that
no such sale, assignment, transfer or participation shall, without the consent
of a Borrower, require such Borrower to file a registration statement with the
Securities and Exchange Commission or apply to qualify such sale, assignment,
transfer or participation under the securities laws of any state; provided,
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further that no such sale, assignment or transfer described in clause (i) above
shall be effective unless and until an Assignment Agreement effecting such sale,
assignment or transfer shall have been accepted by Administrative Agent and
recorded in the Register as provided in subsection 10.1B(ii); provided, further
that no such sale, assignment, transfer or participation of any Letter of Credit
or any participation therein may be made separately from a sale, assignment,
transfer or participation of a corresponding interest in the Revolving Loan
Commitment and the Revolving Loans of the Lender effecting such sale,
assignment, transfer or participation. Except as otherwise provided in this
subsection 10.1, no Lender shall, as between any Borrower and such Lender, be
relieved of any of its obligations hereunder as a result of any sale, assignment
or transfer of, or any granting of participations in, all or any part of its
Commitments or the Loans, the Letters of Credit or participations therein, or
the other Obligations owed to such Lender.
B. ASSIGNMENTS.
(i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter
of Credit or participation therein, or other Obligation may (a) be
assigned in any amount to another Lender, or to an Affiliate of the
assigning Lender or another Lender, with the giving of notice to Company
and the consent of Administrative Agent (which consent shall not be
unreasonably withheld) or (b) be assigned in an aggregate amount of not
less than $2,500,000 (or such lesser amount as shall constitute the
aggregate amount of the Commitments, Loans, Letters of Credit and
participations therein, and other Obligations of the assigning Lender) to
any other Eligible Assignee with the consent of Company (except that
consent of Company shall not be required after the occurrence and during
the continuance of an Event of Default) and Administrative Agent (which
consent of Company and Administrative Agent shall not be unreasonably
withheld or delayed); provided, that, except as permitted by the next
sentence hereof, any such assignment in accordance with either clause (a)
or (b) above made on or before February 1, 2000 shall effect a pro rata
assignment (based on the respective principal amounts thereof then
outstanding or in effect) of each of the Commitments of such Lender and
each of the Loans of such Lender. The foregoing proviso shall not apply to
any assignment by a Lender to an Affiliated Fund of such Lender, if and
only if such assignor and assignee agree to vote their interests in the
Loans and Commitments together as if such interests were held by a single
entity, and expressly agree for the benefit of the parties hereto to be
bound by the provisions of subsection 2.9. To the extent of any such
assignment in accordance with either clause (a) or (b) above, the
assigning Lender shall be
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relieved of its obligations with respect to its Commitments, Loans,
Letters of Credit or participations therein, or other Obligations or the
portion thereof so assigned. The parties to each such assignment shall
execute and deliver to Administrative Agent, for its acceptance and
recording in the Register, an Assignment Agreement, together with a
processing and recordation fee of $3,500 and such forms, certificates or
other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may be
required to deliver to Administrative Agent pursuant to subsection
2.7B(iii)(a). Upon such execution, delivery, acceptance and recordation,
from and after the effective date specified in such Assignment Agreement,
(y) the assignee thereunder shall be a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to
such Assignment Agreement, shall have the rights and obligations of a
Lender hereunder and (z) the assigning Lender thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment Agreement, relinquish its rights (other than
any rights which survive the termination of this Agreement under
subsection 10.9B) and be released from its obligations under this
Agreement (and, in the case of an Assignment Agreement covering all or the
remaining portion of an assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto; provided
that, anything contained in any of the Loan Documents to the contrary
notwithstanding, if such Lender is the Issuing Lender with respect to any
outstanding Letters of Credit such Lender shall continue to have all
rights and obligations of an Issuing Lender with respect to such Letters
of Credit until the cancellation or expiration of such Letters of Credit
and the reimbursement of any amounts drawn thereunder). The Commitments
hereunder shall be modified to reflect the Commitment of such assignee and
any remaining Commitment of such assigning Lender and, if any such
assignment occurs after the issuance of the Notes hereunder, the assigning
Lender shall, upon the effectiveness of such assignment or as promptly
thereafter as practicable, surrender its applicable Notes to
Administrative Agent for cancellation, and thereupon new Notes shall be
issued to the assignee and/or to the assigning Lender, substantially in
the form of Exhibit IV-A, Exhibit IV-B, Exhibit V, Exhibit VI, Exhibit
VII-A or Exhibit VII-B annexed hereto, as the case may be, with
appropriate insertions, to reflect the new Loans and/or Commitments of the
assignee and/or the assigning Lender.
(ii) Acceptance by Administrative Agent; Recordation in Register.
Upon its receipt of an Assignment Agreement executed by an assigning
Lender
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and an assignee representing that it is an Eligible Assignee, together
with the processing and recordation fee referred to in subsection 10.1B(i)
and any forms, certificates or other evidence with respect to United
States federal income tax withholding matters that such assignee may be
required to deliver to Administrative Agent pursuant to subsection
2.7B(iii)(a), Administrative Agent shall, if Administrative Agent has
consented to the assignment evidenced thereby (to the extent such consent
is required pursuant to subsection 10.1B(i)), (a) accept such Assignment
Agreement by executing a counterpart thereof as provided therein (which
acceptance shall evidence any required consent of Administrative Agent to
such assignment), (b) record the information contained therein in the
Register, and (c) give prompt notice thereof to Borrowers. Administrative
Agent shall maintain a copy of each Assignment Agreement delivered to and
accepted by it as provided in this subsection 10.1B(ii).
(iii) Subject to subsection 9.7, the rights of Administrative Agent
and each Lender, including any assignee Lender, shall be solidary such
that each of them shall be entitled to:
(a) demand repayment of Loans outstanding from time to time in
accordance with the Loan Agreement;
(b) exact the whole performance of the Obligations from the
Borrowers and the Guarantied Obligations from the Guarantors;
(c) benefit from the Collateral Documents and Collateral;
(d) give a full acquittance of the Obligations and the
Guarantied Obligations; and
(e) exercise all rights and recourses under the Loan
Documents;
the whole to the extent of the interest so assigned or
transferred; provided, however, that the obligation to make Loans
and to issue or arrange for the issuance of Letters of Credit as
between such assuming Lender and each other Lender shall be several,
and not joint and several or solidary and, accordingly, the
Borrowers' recourse against such assuming Lender and the other
Lenders, will be limited to the amount of
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the respective Commitments of such assuming Lender and each other
Lender.
(iv) The Borrowers and each Canadian Guarantor shall execute and
intervene in each Assignment Agreement; provided, that failure to execute
and intervene in any Assignment Agreement shall not limit the
effectiveness of such Assignment Agreement. The Borrowers, any other
Guarantor and the assignee shall execute such further documents and
confirmations including, without limitation in the case of the Borrowers
and any other Guarantor, security documents and/or amendments to security
documents and in the case of the assignee, amendments to and interventions
in the Loan Documents (including the execution of any accession memorandum
or other supplemental agreement or deed), as may be requested by
Administrative Agent in connection with the assignment or transfer.
C. PARTICIPATIONS. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity date of any
Loan allocated to such participation or (ii) a reduction of the principal amount
of or the rate of interest payable on any Loan allocated to such participation,
and all amounts payable by Borrowers hereunder (including without limitation
amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall
be determined as if such Lender had not sold such participation. Borrowers and
each Lender hereby acknowledge and agree that, solely for purposes of
subsections 10.4 and 10.5, (a) any participation will give rise to a direct
obligation of Company to the participant and (b) the participant shall be
considered to be a "Lender".
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
10.1, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between any Borrower and such
Lender, be relieved of any of its obligations hereunder as a result of any such
assignment and pledge and (ii) in no event shall such Federal Reserve Bank be
considered to be a "Lender" or be entitled to require the assigning Lender to
take or omit to take any action hereunder.
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E. INFORMATION. Each Lender may furnish any information concerning Company
and its Subsidiaries in the possession of that Lender from time to time to
assignees and participants (including prospective assignees and participants),
subject to assignees and participants (and prospective assignees and
participants) agreeing to be bound by subsection 10.19.
F. REPRESENTATIONS OF LENDERS. Each Lender listed on the signature pages
hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of loans such as the Loans; and (iii) that it will
make its Loans for its own account in the ordinary course of its business and
without a view to distribution of such Loans within the meaning of the
Securities Act or the Exchange Act or other federal securities laws (it being
understood that, subject to the provisions of this subsection 10.1, the
disposition of such Loans or any interests therein shall at all times remain
within its exclusive control). Each Lender that becomes a party hereto pursuant
to an Assignment Agreement shall be deemed to agree that the representations and
warranties of such Lender contained in Section 2(c) of such Assignment Agreement
are incorporated herein by this reference.
10.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be
consummated, each Borrower, jointly and severally, agrees to pay promptly (i)
all the actual and reasonable costs and expenses of preparation of the Loan
Documents and any consents, amendments, waivers or other modifications thereto;
(ii) all the costs of furnishing all opinions by counsel for Borrower (including
without limitation any opinions requested by Lenders as to any legal matters
arising hereunder) and of Borrower's performance of and compliance with all
agreements and conditions on its part to be performed or complied with under
this Agreement and the other Loan Documents including, without limitation, with
respect to confirming compliance with environmental, insurance and solvency
requirements; (iii) the reasonable fees, expenses and disbursements of counsel
to Administrative Agent (including allocated costs of internal counsel) in
connection with the negotiation, preparation, execution and administration of
the Loan Documents and any consents, amendments, waivers or other modifications
thereto and any other documents or matters requested by a Borrower, whether or
not any such consents, amendments waivers or modifications become effective;
(iv) all the actual costs and reasonable expenses of creating and perfecting
Liens in favor of Administrative Agent on behalf of Lenders pursuant to any
Collateral Document, including without limitation filing and recording fees,
expenses and taxes, stamp or documentary taxes,
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search fees, title insurance premiums, and reasonable fees, expenses and
disbursements of counsel to Administrative Agent and of counsel providing any
opinions that Administrative Agent or Requisite Lenders may request in respect
of the Collateral Documents or the Liens created pursuant thereto; (v) all the
actual costs and reasonable expenses (including without limitation the
reasonable fees, expenses and disbursements of any auditors, accountants or
appraisers and any environmental or other consultants, advisors and agents
employed or retained by Administrative Agent or its counsel) of obtaining and
reviewing any appraisals provided for under subsection 6.9C, any environmental
audits or reports provided for under subsection 6.9B(vii) and any audits or
reports provided for under subsection 6.5B; (vi) the custody or preservation of
any of the Collateral; (vii) all other actual and reasonable costs and expenses
incurred by Administrative Agent in connection with the syndication of the
Commitments and the negotiation, preparation, execution and administration of
the Loan Documents and any consents, amendments, waivers or other modifications
thereto and the transactions contemplated thereby, whether or not any such
consents, amendments waivers or modifications become effective; and (viii) after
the occurrence of an Event of Default, all costs and expenses, including
reasonable attorneys' fees (including allocated costs of internal counsel) and
costs of settlement, incurred by Administrative Agent and Lenders in enforcing
any Obligations of or in collecting any payments due from any Loan Party
hereunder or under the other Loan Documents by reason of such Event of Default
(including, without limitation, in connection with the sale of, collection from,
or other realization upon any of the Collateral or the enforcement of the
Guaranties) or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings.
10.3 INDEMNITY.
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated, each
Borrower, jointly and severally, agrees to defend (subject to Indemnitees'
selection of counsel), indemnify, pay and hold harmless Administrative Agent and
Lenders, and the officers, directors, employees, agents and affiliates of
Administrative Agent and Lenders (collectively called the "INDEMNITEES"), from
and against any and all Indemnified Liabilities (as hereinafter defined);
provided that Borrowers shall not have any obligation to any Indemnitee
hereunder with respect to any Indemnified Liabilities to the extent such
Indemnified Liabilities arise solely from the gross negligence or willful
misconduct of that Indemnitee as determined by a final judgment of a court of
competent jurisdiction.
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As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any
and all liabilities, obligations, losses, damages (including natural resource
damages), penalties, actions, judgments, suits, claims (including Environmental
Claims), costs (including the costs of any investigation, study, sampling,
testing, abatement, cleanup, removal, remediation or other response action
necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any United States federal, Canadian
federal, state, provincial or foreign laws, statutes, rules or regulations
(including securities and commercial laws, statutes, rules or regulations and
Environmental Laws), on common law or equitable cause or on contract or
otherwise, that may be imposed on, incurred by, or asserted against any such
Indemnitee, in any manner relating to or arising out of (i) this Agreement or
the other Loan Documents or the Related Agreements or the Acquisition Agreements
or the transactions contemplated hereby or thereby (including Lenders' agreement
to make the Loans hereunder or the use or intended use of the proceeds thereof
or the issuance of Letters of Credit hereunder or the use or intended use of any
thereof, or any enforcement of any of the Loan Documents (including any sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Guaranties), (ii) the statements contained in the commitment
letter delivered by any Lender to a Borrower with respect thereto, or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Company or any of its Subsidiaries.
To the extent that the undertakings to defend, indemnify, pay and
hold harmless set forth in this subsection 10.3 may be unenforceable in whole or
in part because they are violative of any law or public policy, each Borrower
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by Indemnitees or any of them.
10.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS.
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the
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continuation of any Event of Default each Lender is hereby authorized by each
Borrower at any time or from time to time, without notice to such Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, including,
but not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
Indebtedness at any time held or owing by that Lender to or for the credit or
the account of a Borrower against and on account of the obligations and
liabilities of such Borrower to that Lender under this Agreement, the Letters of
Credit and participations therein and the other Loan Documents, including, but
not limited to, all claims of any nature or description arising out of or
connected with this Agreement, the Letters of Credit and participations therein
or any other Loan Document, irrespective of whether or not (i) that Lender shall
have made any demand hereunder or (ii) the principal of or the interest on the
Loans or any amounts in respect of the Letters of Credit or any other amounts
due hereunder shall have become due and payable pursuant to Section 8 and
although said obligations and liabilities, or any of them, may be contingent or
unmatured. Each Borrower hereby further grants to Administrative Agent and each
Lender a security interest in all deposits and accounts maintained with
Administrative Agent or such Lender as security for the Obligations.
10.5 RATABLE SHARING.
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under any applicable Insolvency Laws, receive payment or reduction of
a proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to that
Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE
AMOUNTS DUE" to such Lender) which is greater than the proportion received by
any other Lender in respect of the Aggregate Amounts Due to such other Lender,
then the Lender receiving such proportionately greater payment shall (i) notify
Administrative Agent and each other Lender of the receipt of such payment and
(ii) apply a portion of such payment to purchase participations (which it shall
be deemed to have purchased from each seller of a participation simultaneously
upon the receipt by such seller of its portion of such payment) in the Aggregate
Amounts Due to the other Lenders so that all such recoveries of Aggregate
Amounts Due shall be shared by all Lenders in
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proportion to the Aggregate Amounts Due to them; provided that if all or part of
such proportionately greater payment received by such purchasing Lender is
thereafter recovered from such Lender upon the bankruptcy or reorganization of
Company or otherwise, those purchases shall be rescinded and the purchase prices
paid for such participations shall be returned to such purchasing Lender ratably
to the extent of such recovery, but without interest. Each Borrower expressly
consents to the foregoing arrangement and agrees that any holder of a
participation so purchased may exercise any and all rights of banker's lien,
set-off or counterclaim with respect to any and all monies owing by a Borrower
to that holder with respect thereto as fully as if that holder were owed the
amount of the participation held by that holder.
10.6 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any provision
of this Agreement or of the Notes, and no consent to any departure by any
Borrower therefrom, shall in any event be effective without the written
concurrence of Requisite Lenders; provided that any such amendment,
modification, termination, waiver or consent which: increases the amount of any
of the Commitments or reduces the principal amount of any of the Loans; changes
in any manner the definitions of "Class", "Pro Rata Share", "Requisite Class
Lenders" or "Requisite Lenders"; changes in any manner any provision of this
Agreement which, by its terms, expressly requires the approval or concurrence of
all Lenders; postpones the scheduled final maturity date (but not the date of
any scheduled installment of principal) of any of the Loans; postpones the date
on which any interest or any fees are payable; decreases the interest rate borne
by any of the Loans (other than any waiver of any increase in the interest rate
applicable to any of the Loans pursuant to subsection 2.2E) or the amount of any
fees payable to the Lenders or Administrative Agent hereunder; increases the
maximum duration of Interest Periods permitted hereunder; reduces the amount or
postpones the due date of any amount payable in respect of, or extends the
required expiration date of, any Letter of Credit; changes in any manner the
obligations of Lenders relating to the purchase of participations in Letters of
Credit; releases any Lien granted in favor of Administrative Agent with respect
to 25% or more in aggregate fair market value of the Collateral; releases any
Guarantor from its obligations under the Guaranty to which it is a party, in
each case other than in accordance with the terms of the Loan Documents; or
changes in any manner the provisions contained in subsection 8.1 or this
subsection 10.6 shall be effective only if evidenced by a writing signed by or
on behalf of all Lenders; provided further, that Administrative Agent may
execute documents releasing Liens on Collateral to the extent permitted by
subsection 9.6. In addition, (i) any amendment, modification,
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termination or waiver of any of the provisions contained in Section 4 shall be
effective only if evidenced by a writing signed by or on behalf of
Administrative Agent and Requisite Lenders, (ii) no amendment, modification,
termination or waiver of any provision of any Note shall be effective without
the written concurrence of the Lender which is the holder of that Note, (iii)
[intentionally omitted], (iv) no amendment, modification, termination or waiver
of any provision of Section 9 or of any other provision of this Agreement which,
by its terms, expressly requires the approval or concurrence of Administrative
Agent shall be effective without the written concurrence of Administrative
Agent, and (v) no amendment, modification, termination or waiver of any
provision of subsection 2.4 which has the effect of changing any interim
scheduled payments, voluntary or mandatory prepayments, or Commitment reductions
applicable to a Class in a manner that disproportionately disadvantages such
Class relative to any other Class shall be effective without the written
concurrence of Requisite Class Lenders of such affected Class (it being
understood and agreed that any amendment, modification, termination or waiver of
any such provision which only postpones or reduces any interim scheduled
payment, voluntary or mandatory prepayment, or Commitment reduction from those
set forth in subsection 2.4 with respect to one Class but not any other Class
shall be deemed to disproportionately disadvantage such one Class but not to
disproportionately disadvantage any such other Class for purposes of this clause
(v)). Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on any Borrower in any case shall entitle such Borrower to
any other or further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this subsection 10.6 shall be binding upon each Lender at the time
outstanding, each future Lender and, if signed by Borrowers, on Borrowers.
10.7 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if
a particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default if such action is taken or condition exists.
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10.8 NOTICES.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States or
Canada mail or courier service and shall be deemed to have been given when
delivered in person or by courier service, upon receipt of telefacsimile or
telex, or three Business Days after depositing it in the United States or Canada
mail with postage prepaid and properly addressed; provided that notices to
Administrative Agent shall not be effective until received. For the purposes
hereof, the address of each party hereto shall be as set forth under such
party's name on the signature pages hereof or (i) as to Borrowers and
Administrative Agent, such other address as shall be designated by such Person
in a written notice delivered to the other parties hereto and (ii) as to each
other party, such other address as shall be designated by such party in a
written notice delivered to Administrative Agent.
10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A,
3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections
9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement.
10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of Administrative Agent or any
Lender in the exercise of any power, right or privilege hereunder or under any
other Loan Document shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
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10.11 MARSHALLING; PAYMENTS SET ASIDE.
Neither Administrative Agent nor any Lender shall be under any
obligation to marshal any assets in favor of Borrower or any other party or
against or in payment of any or all of the Obligations. To the extent that a
Borrower makes a payment or payments to Administrative Agent or Lenders (or to
Administrative Agent for the benefit of Lenders), or Administrative Agent or
Lenders enforce any security interests or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, any other state or United States
federal or Canadian federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.
10.12 SEVERABILITY.
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
The obligations of Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity.
Subject to the provisions of Section 9.7 the amounts payable at any time
hereunder to each Lender shall be a separate and independent debt, and each
Lender shall be entitled to protect and enforce its rights arising out of this
Agreement and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose.
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10.14 HEADINGS.
Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.15 APPLICABLE LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.16 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither
Borrowers' rights or obligations hereunder nor any interest therein may be
assigned or delegated by Borrowers without the prior written consent of all
Lenders.
10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY BORROWER ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, EACH BORROWER, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
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<PAGE> 208
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 10.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER BORROWER IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
10.18 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be all-encompassing of any and all disputes that may be filed in
any court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims and all
other common law and statutory claims. Each party hereto acknowledges that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on this waiver in entering into this Agreement, and that each
will continue to rely on this waiver in their related future dealings. Each
party hereto further warrants and represents that it has reviewed this waiver
with its legal counsel and that it knowingly and voluntarily waives its
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jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION
10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.
10.19 CONFIDENTIALITY.
Each Lender shall hold all non-public information obtained pursuant
to the requirements of this Agreement which has been identified as confidential
by Borrowers in accordance with such Lender's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, it being understood and agreed by Borrowers that in any event
a Lender may make disclosures to Affiliates of such Lender or disclosures
reasonably required by any bona fide assignee, transferee or participant in
connection with the contemplated assignment or transfer by such Lender of any
Loans or any participations therein or disclosures required or requested by any
governmental agency or representative thereof or pursuant to legal process;
provided that, unless specifically prohibited by applicable law or court order,
each Lender shall notify Borrowers of any request by any governmental agency or
representative thereof (other than any such request in connection with any
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information; and provided, further that in no event shall any Lender be
obligated or required to return any materials furnished by Company or any of its
Subsidiaries.
10.20 RELATIONSHIP. Neither the execution of this Agreement, nor the sharing of
the Loans or the Collateral, nor any agreement to share in profits or losses
arising as a result of this transaction is intended to be nor shall it be
construed to be the formation of a partnership or joint venture among the
Lenders nor shall it be construed to be a debtor/creditor relationship between
the Administrative Agent and any of the other Lenders and nothing herein
contained shall obligate the Administrative Agent to perform the obligations of
any other Lender, as syndicate member, hereunder.
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10.21 CURRENCY CONVERSION. If, for the purpose of obtaining or enforcing
judgement in any court making or filing a proof of claim or for any other
purpose hereunder, it is necessary to convert the Obligations into Dollars, the
rate of exchange applied shall be that at which a Lender could purchase, in the
money market or the foreign exchange market, as the case may be, Dollars with
Canadian dollars on the day on which judgement is given, the claim is filed or
the amount is due, as the case may be. Each Borrower agrees that its obligation,
in respect of any amounts due from it to a Lender in Dollars shall,
notwithstanding any judgement expressed or payment made in Canadian dollars, be
discharged only to the extent that, on the business day next following receipt
of any sums so paid or adjudged to be due in Dollars, such Lender may purchase,
in the money market or the foreign exchange market, as the case may be, Dollars
with the amount of Canadian dollars so paid or so adjudged to be due; and if the
amount of Dollars so purchased is less than the amount originally due in
Dollars, the Borrowers agree as a separate and distinct obligation hereunder and
notwithstanding any such payment or judgement, to indemnify such Lender against
such loss.
10.22 LANGUAGE. The parties hereto have requested that this Agreement and all
related documents be drafted in English only. Les parties aux presentes ont
exige que ce contrat et tous les documents s'y rapportant soient rediges en
anglais seulement.
10.23 RESERVATION OF SECURITY.
The parties hereby acknowledge and agree that the collateral charged
pursuant to the Canadian Collateral Documents executed prior to the date hereof
remains subject to the hypothecs, mortgages, pledges, charges, assignments and
security interests created or constituted thereby which shall survive and
continue to secure the Obligations in favor of Lenders and/or Administrative
Agent for the benefit of the Lenders, including pursuant to the Existing Credit
Agreement, without novation, and Administrative Agent and each Lender expressly
reserves all its interest therein.
10.24 LIMITED WAIVER.
Upon the effectiveness of this Agreement and the satisfaction or
waiver of all conditions precedent set forth in subsection 4.1 and 4.2 to the
initial Loans hereunder, the Lenders hereby waive any event of default under the
Existing Credit Agreement arising from the failure, if any, of the Borrowers to
comply with subsection 7.6C for the Fiscal Quarter ended on September 30, 1999.
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10.25 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon (i) the execution of a
counterpart hereof by each of the parties hereto and receipt by each Borrower
and Administrative Agent of written or telephonic notification of such execution
and authorization of delivery thereof and (ii) the satisfaction or waiver by
Requisite Lenders of the conditions set forth in subsection 4.1. At the time of
the effectiveness of this Agreement, this Agreement shall amend and restate the
Existing Credit Agreement, all obligations of Company under the Existing Credit
Agreement that have not been paid as of the Effective Date shall become
Obligations of Borrowers hereunder, and the commitments under the Existing
Credit Agreement shall terminate.
[Remainder of page intentionally left blank]
203
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Page S-1 to Third Amended and Restated Credit Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY: PROTOCOL COMMUNICATIONS, INC.
By: /s/ Raymond D. Wilson
_____________________________________
Title: Chief Financial Officer
__________________________________
Notice Address:
Protocol Communications, Inc.
One Design Center Place
Boston, Massachusetts 02210
CANADIAN MEDIA EXPRESS INC.
BORROWER:
By: /s/ Raymond D. Wilson
_____________________________________
Title: Chief Financial Officer
__________________________________
Notice Address:
c/o Protocol Communications, Inc.
One Design Center Place
Boston, Massachusetts 02210
AGENTS: CANADIAN IMPERIAL BANK OF COMMERCE, as
Administrative Agent and as a Lender
By: /s/ Michael Daven
_____________________________________
Title: As Agent
__________________________________
Notice Address:
S-1
<PAGE> 213
Page S-2 to Third Amended and Restated Credit Agreement
Canadian Imperial Bank of Commerce
425 Lexington Avenue
New York, NY 10017
ING (U.S.) CAPITAL LLC, as Syndication Agent
and as a Lender
By: /s/ Bradford Pollard
_____________________________________
Title: Vice President
__________________________________
Notice Address:
ING (U.S.) Capital Corporation
333 South Grand Avenue, 42nd Floor
Los Angeles, CA 90071
LASALLE BANK NATIONAL ASSOCIATION, as
Documentation Agent and as a Lender
By: /s/ Patricia M. Borkowski
_____________________________________
Title: Vice President
__________________________________
Notice Address:
LaSalle Bank, National Association
135 South LaSalle Street, Suite 307
Chicago, IL 60603
S-2
<PAGE> 214
Page S-3 to Third Amended and Restated Credit Agreement
LENDERS: FINOVA CAPITAL CORPORATION
By: /s/ Andrew Pluta
------------------------------------
Title: Vice President
---------------------------------
Notice Address:
311 S. Wacker Drive
Suite 4400
Chicago, IL 60606
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Peter Daney
------------------------------------
Title: Director
---------------------------------
Notice Address:
----------------------
----------------------
----------------------
FIRST DOMINION CAPITAL, L.L.C.
By: /s/ John L. Sabre
------------------------------------
Title: Senior Managing Director
---------------------------------
Notice Address:
1330 Avenue of the Americas, 38th Floor
New York, NY 10019
S-3
<PAGE> 215
Page S-4 to Third Amended and Restated Credit Agreement
S-4
<PAGE> 1
EXHIBIT 10.4
TELESERVICES HOLDINGS CORPORATION
1998 STOCK PLAN
ADOPTED ON JUNE __, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE................................................................... 1
SECTION 2. ADMINISTRATION 1
(a) Committees of the Board of Directors....................................................... 1
(b) Authority of the Board of Directors........................................................ 1
(a) General Rule............................................................................... 2
(b) Ten-Percent Stockholders................................................................... 2
SECTION 4. STOCK SUBJECT TO PLAN....................................................................... 2
(a) Basic Limitation........................................................................... 2
(b) Additional Shares.......................................................................... 2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES..................................................... 3
(a) Stock Purchase Agreement................................................................... 3
(b) Duration of Offers and Nontransferability of Rights........................................ 3
(c) Purchase Price............................................................................. 3
(d) Withholding Taxes.......................................................................... 4
(e) Restrictions on Transfer of Shares and Minimum Vesting..................................... 4
(f) Accelerated Vesting........................................................................ 4
SECTION 6. TERMS AND CONDITIONS OF OPTIONS............................................................. 5
(a) Stock Option Agreement..................................................................... 5
(b) Number of Shares........................................................................... 5
(c) Exercise Price............................................................................. 5
(d) Withholding Taxes.......................................................................... 5
(e) Exercisability............................................................................. 6
(f) Accelerated Exercisability................................................................. 6
(g) Basic Term................................................................................. 6
(h) Nontransferability......................................................................... 6
(i) Termination of Service (Except by Death)................................................... 7
(j) Leaves of Absence.......................................................................... 8
(k) Death of Optionee.......................................................................... 8
(l) No Rights as a Stockholder................................................................. 8
(m) Modification, Extension and Assumption of Options.......................................... 8
(n) Restrictions on Transfer of Shares and Minimum Vesting..................................... 9
(o) Accelerated Vesting........................................................................ 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 7. PAYMENT FOR SHARES.......................................................................... 10
(a) General Rule............................................................................... 10
(b) Surrender of Stock......................................................................... 10
(c) Services Rendered.......................................................................... 10
(d) Promissory Note............................................................................ 10
(e) Exercise/Sale.............................................................................. 11
(f) Exercise/Pledge............................................................................ 11
SECTION 8. ADJUSTMENT OF SHARES........................................................................ 11
(a) General.................................................................................... 11
(b) Mergers and Consolidations................................................................. 12
(c) Reservation of Rights...................................................................... 12
SECTION 9. SECURITIES LAW REQUIREMENTS................................................................. 13
(a) General.................................................................................... 13
(b) Financial Reports.......................................................................... 13
SECTION 10. NO RETENTION RIGHTS........................................................................ 13
SECTION 11. DURATION AND AMENDMENTS.................................................................... 13
(a) Term of the Plan........................................................................... 13
(b) Right to Amend or Terminate the Plan....................................................... 14
(c) Effect of Amendment or Termination......................................................... 14
SECTION 12. DEFINITIONS ............................................................................... 14
SECTION 13. EXECUTION ................................................................................. 17
</TABLE>
ii
<PAGE> 4
TELESERVICES HOLDINGS CORPORATION 1998 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an
opportunity to acquire a proprietary interest in the success of the Company, or
to increase such interest, by purchasing Shares of the Company's Stock. The Plan
provides both for the direct award or sale of Shares and for the grant of
Options to purchase Shares. Options granted under the Plan may include
Nonstatutory Options as well as ISOs intended to qualify under Section 422 of
the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be
administered by one or more Committees. Each Committee shall consist of one or
more members of the Board of Directors who have been appointed by the Board of
Directors. Each Committee shall have such authority and be responsible for such
functions as the Board of Directors has assigned to it. If no Committee has been
appointed, the entire Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.
(b) Authority of the Board of Directors. Subject to the
provisions of the Plan, the Board of Directors shall have full authority and
discretion to take any actions it deems necessary or advisable for the
administration of the Plan. All decisions, interpretations and other actions of
the Board of Directors shall be final and binding on all Purchasers, all
Optionees and all persons deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) General Rule. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Options or the direct award or
sale of Shares. Only Employees shall be eligible for the grant of ISOs.
1
<PAGE> 5
(b) Ten-Percent Stockholders. An individual who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Company, its Parent or any of its Subsidiaries shall not be eligible for
designation as an Optionee or Purchaser unless (i) the Exercise Price is at
least 1 10% of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price (if any) is at least 100% of the Fair Market Value of a Share and
(iii) in the case of an ISO, such ISO by its terms is not exercisable after the
expiration of five years from the date of grant. For purposes of this Subsection
(b), in determining stock ownership, the attribution rules of Section 424(d) of
the Code shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan may be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares that may be issued under the Plan (upon exercise of Options or other
rights to acquire Shares) shall not exceed 1,689,500 Shares, subject to
adjustment pursuant to Section 8. The number of Shares that are subject to
Options or other rights outstanding at any time under the Plan shall not exceed
the number of Shares that then remain available for issuance under the Plan. The
Company, during the term of the Plan, shall at all times reserve and keep
available sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding
Option or other right for any reason expires or is canceled or otherwise
terminated, the Shares allocable to the unexercised portion of such Option or
other right shall again be available for the purposes of the Plan. In the event
that Shares issued under the Plan are reacquired by the Company pursuant to any
forfeiture provision, right of repurchase or right of first refusal, such Shares
shall again be available for the purposes of the Plan, except that the aggregate
number of Shares which may be issued upon the exercise of ISOs shall in no event
exceed 1,689,500 Shares (subject to adjustment pursuant to Section 8).
2
<PAGE> 6
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Purchase Agreement. Each award or sale of Shares
under the Plan (other than upon exercise of an Option) shall be evidenced by a
Stock Purchase Agreement between the Purchaser and the Company. Such award or
sale shall be subject to all applicable terms and conditions of the Plan and may
be subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any
right to acquire Shares under the Plan (other than an Option) shall
automatically expire if not exercised by the Purchaser within 30 days after the
grant of such right was communicated to the Purchaser by the Company. Such right
shall not be transferable and shall be exercisable only by the Purchaser to whom
such right was granted.
(c) Purchase Price. The Purchase Price of Shares to be offered
under the Plan shall not be less than 85% of the Fair Market Value of such
Shares, and a higher percentage may be required by Section 3(b). Subject to the
preceding sentence, the Purchase Price shall be determined by the Board of
Directors at its sole discretion. The Purchase Price shall be payable in a form
described in Section 7.
(d) Withholding Taxes. As a condition to the purchase of
Shares, the Purchaser shall make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with such purchase.
(e) Restrictions on Transfer of Shares and Minimum Vesting.
Any Shares awarded or sold under the Plan shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and other
transfer restrictions as the Board of Directors may determine. Such restrictions
shall be set forth in the
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applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally. In the case of a
Purchaser who is not an officer of the Company, an Outside Director or a
Consultant, any right to repurchase the Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
at least as rapidly as 20% per year over the five-year period commencing on the
date of the award or sale of the Shares. Any such right may be exercised only
within 90 days after the termination of the Purchaser's Service for cash or for
cancellation of indebtedness incurred in purchasing the Shares.
(f) Accelerated Vesting. Unless the applicable Stock Purchase
Agreement provides otherwise, any right to repurchase a Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's Service
shall lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control before the Purchaser's Service terminates and
(ii) the repurchase right is not assigned to the entity that employs the
Purchaser immediately after the Change in Control or to its parent or
subsidiary.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate
for inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall
specify the number of Shares that are subject to the Option and shall provide
for the adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
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(c) Exercise Price. Each Stock Option Agreement shall specify
the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of
the Fair Market Value of a Share on the date of grant, and a higher percentage
may be required by Section 3(b). The Exercise Price of a Nonstatutory Option
shall not be less than 85% of the Fair Market Value of a Share on the date of
grant, and a higher percentage may be required by Section 3(b). Subject to the
preceding two sentences, the Exercise Price under any Option shall be determined
by the Board of Directors at its sole discretion. The Exercise Price shall be
payable in a form described in Section 7.
(d) Withholding Taxes. As a condition to the exercise of an
Option, the Optionee shall make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with such exercise. The Optionee
shall also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(e) Exercisability. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. In
the case of an Optionee who is not an officer of the Company, an Outside
Director or a Consultant, an Option shall become exercisable at least as rapidly
as 20% per year over the five-year period commencing on the date of grant.
Subject to the preceding sentence, the exercisability provisions of any Stock
Option Agreement shall be determined by the Board of Directors at its sole
discretion.
(f) Accelerated Exercisability. Unless the applicable Stock
Option Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control before
the Optionee's Service terminates, (ii) such Options do not remain outstanding,
(iii) such Options are not assumed by the surviving corporation or its parent
and (iv) the surviving corporation or its parent does not substitute options
with substantially the same terms for such Options.
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(g) Basic Term. The Stock Option Agreement shall specify the
term of the Option The term shall not exceed 10 years from the date of grant,
and a shorter term may be required by Section 3(b). Subject to the preceding
sentence, the Board of Directors at its sole discretion shall determine when an
Option is to expire.
(h) Nontransferability. No Option shall be transferable by the
Optionee other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) Termination of Service (Except by Death). If an Optionee's
Service terminates for any reason other than the Optionee's death, then the
Optionee's Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to
Subsection (g) above;
(ii) The date three months after the termination of
the Optionee s Service for any reason other than Disability, or such
later date as the Board of Directors may determine; or
(iii) The date six months after the termination of
the Optionee's Service by reason of Disability, or such later date as
the Board of Directors may determine.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the
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Optionee dies after the termination of the Optionee's Service but before the
expiration of the Optionee's Options, all or part of such Options may be
exercised (prior to expiration) by the executors or administrators of the
Optionee's estate or by any person who has acquired such Options directly from
the Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that such Options had become exercisable before the Optionee's Service
terminated (or became exercisable as a result of the termination) and the
underlying Shares had vested before the Optionee's Service terminated (or vested
as a result of the termination).
(j) Leaves of Absence. For purposes of Subsection (i) above,
Service shall be deemed to continue while the Optionee is on a bona fide leave
of absence, if such leave was approved by the Company in writing and if
continued crediting of Service for this purpose is expressly required by the
terms of such leave or by applicable law (as determined by the Company).
(k) Death of Optionee. If an Optionee dies while the Optionee
is in Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to
Subsection (g) above; or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(l) No Rights as a Stockholder. An Optionee, or a transferee
of an Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the
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Optionee's Option until such person becomes entitled to receive such Shares by
filing a notice of exercise and paying the Exercise Price pursuant to the terms
of such Option.
(m) Modification, Extension and Assumption of Options. Within
the limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(n) Restrictions on Transfer of Shares and Minimum Vesting.
Any Shares issued upon exercise of an Option shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and other
transfer restrictions as the Board of Directors may determine. Such restrictions
shall be set forth in the applicable Stock Option Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. In
the case of an Optionee who is not an officer of the Company, an Outside
Director or a Consultant:
(i) Any right to repurchase the Optionee's Shares
at the original Exercise Price upon termination of the Optionee's
Service shall lapse at least as rapidly as 20% per year over the
five-year period commencing on the date of the option grant;
(ii) Any such right may be exercised only for cash or
for cancellation of indebtedness incurred in purchasing the Shares; and
(iii) Any such right may be exercised only within 90
days after the later of (A) the termination of the Optionee's Service
or (B) the date of the option exercise.
(o) Accelerated Vesting. Unless the applicable Stock Option
Agreement provides otherwise, any right to
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<PAGE> 12
repurchase an Optionee's Shares at the original Exercise Price upon termination
of the Optionee's Service shall lapse and all of such Shares shall become vested
if (i) the Company is subject to a Change in Control before the Optionee's
Service terminates and (ii) the repurchase right is not assigned to the entity
that employs the Optionee immediately after the Change in Control or to its
parent or subsidiary.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price or Exercise Price
of Shares issued under the Plan shall be payable in cash or cash equivalents at
the time when such Shares are purchased, except as otherwise provided in this
Section 7.
(b) Surrender of Stock. To the extent that a Stock Option
Agreement so provides, all or any part of the Exercise Price may be paid by
surrendering, or attesting to the ownership of, Shares that are already owned by
the Optionee. Such Shares shall be surrendered to the Company in good form for
transfer and shall be valued at their Fair Market Value on the date when the
Option is exercised. The Optionee shall not surrender, or attest to the
ownership of, Shares in payment of the Exercise Price if such action would cause
the Company to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes.
(c) Services Rendered. At the discretion of the Board of
Directors, Shares may be awarded under the Plan in consideration of services
rendered to the Company, a Parent or a Subsidiary prior to the award. At the
discretion of the Board of Directors, Shares may also be awarded under the Plan
in consideration of services to be rendered to the Company, a Parent or a
Subsidiary after the award, except that the par value of such Shares, if newly
issued, shall be paid in cash, cash equivalents or services rendered to the
Company, a Parent or a Subsidiary prior to the award.
(d) Promissory Note. To the extent that a Stock Option
Agreement or Stock Purchase Agreement so provides, all or a portion of the
Exercise Price or Purchase Price (as the case may be) of Shares issued under the
Plan may be paid
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<PAGE> 13
with a full-recourse promissory note. However, the par value of such Shares, if
newly issued, shall be paid in cash, cash equivalents or services rendered to
the Company, a Parent or a Subsidiary prior to the award. The Shares shall be
pledged as security for payment of the principal amount of the promissory note
and interest thereon. The interest rate payable under the terms of the
promissory note shall not be less than the minimum rate (if any) required to
avoid the imputation of additional interest under the Code. Subject to the
foregoing, the Board of Directors (at its sole discretion) shall specify the
term, interest rate, amortization requirements (if any) and other provisions of
such note.
(e) Exercise/Sale. To the extent that a Stock Option Agreement
so provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell Shares and to
deliver all or part of the sales proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes.
(f) Exercise/Pledge. To the extent that a Stock Option
Agreement so provides, and if Stock is publicly traded, payment may be made all
or in part by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Shares to a securities broker or lender approved
by the Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding
Stock, a declaration of a dividend payable in Shares, a declaration of an
extraordinary dividend payable in a form other than Shares in an amount that has
a material effect on the Fair Market Value of the Stock, a combination or
consolidation of the outstanding Stock into a lesser number of Shares, a
recapitalization, a spin-off, a reclassification or a similar occurrence, the
Board of Directors shall make appropriate adjustments in one or more of (i) the
number of Shares available for future grants
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<PAGE> 14
under Section 4, (ii) the number of Shares covered by each outstanding Option or
(iii) the Exercise Price under each outstanding Option.
(b) Mergers and Consolidations. In the event that the Company
is a party to a merger or consolidation, outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by
the Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding
Options by the surviving corporation or its parent;
(iii) The substitution by the surviving corporation
or its parent of options with substantially the same terms for such
outstanding Options; or
(iv) The cancellation of such outstanding Options
without payment of any consideration.
(c) Reservation of Rights. Except as provided in this Section
8, an Optionee or Purchaser shall have no rights by reason of (i) any
subdivision or consolidation of shares of stock of any class, (ii) the payment
of any dividend or (iii) any other increase or decrease in the number of shares
of stock of any class. Any issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or Exercise Price of Shares subject to an Option. The grant of an Option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
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SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) General. Shares shall not be issued under the Plan unless
the issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
(b) Financial Reports. The Company each year shall furnish to
Optionees, Purchasers and stockholders who have received Stock under the Plan
its balance sheet and income statement, unless such Optionees, Purchasers or
stockholders are key Employees whose duties with the Company assure them access
to equivalent information. Such balance sheet and income statement need not be
audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under
the Plan shall confer upon the Purchaser or Optionee any right to continue in
Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Company (or any Parent or Subsidiary
employing or retaining the Purchaser or Optionee) or of the Purchaser or
Optionee, which rights are hereby expressly reserved by each, to terminate his
or her Service at any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall
become effective on the date of its adoption by the Board of Directors, subject
to the approval of the Company's stockholders. In the event that the
stockholders fail to approve the Plan within 12 months after its adoption by the
Board of Directors, any grants of Options or sales or awards of Shares that have
already occurred shall be rescinded, and no additional grants, sales or awards
shall be made thereafter under the Plan. The Plan shall terminate automatically
10 years after its adoption by the Board of Directors and may be terminated on
any earlier date pursuant to Subsection (b) below.
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(b) Right to Amend or Terminate the Plan. The Board of
Directors may amend, suspend or terminate the Plan at any time and for any
reason; provided, however, that any amendment of the Plan which increases the
number of Shares available for issuance under the Plan (except as provided in
Section 8), or which materially changes the class of persons who are eligible
for the grant of ISOs, shall be subject to the approval of the Company's
stockholders. Stockholder approval shall not be required for any other amendment
of the Plan.
(c) Effect of Amendment or Termination. No Shares shall be
issued or sold under the Plan after the termination thereof, except upon
exercise of an Option granted prior to such termination. The termination of the
Plan, or any amendment thereof, shall not affect any Share previously issued or
any Option previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of
the Company, as constituted from time to time.
(b) "Change in Control" shall mean:
(i) The consummation of a merger or consolidation of
the Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (A) the continuing or surviving entity and (B)
any parent corporation of such continuing or surviving entity; or
(ii) The sale, transfer or other disposition of all
or substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons
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<PAGE> 17
who held the Company's securities immediately before such transaction.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean a committee of the Board of
Directors, as described in Section 2(a).
(e) "Company" shall mean Teleservices Holdings Corporation, a
Delaware corporation.
(f) "Consultant" shall mean a person who performs bona fide
services for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.
(g) "Disability" shall mean that the Optionee is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment.
(h) "Employee" shall mean any individual who is a common-law
employee of the Company, a Parent or a Subsidiary.
(i) "Exercise Price" shall mean the amount for which one Share
may be purchased upon exercise of an Option, as specified by the Board of
Directors in the applicable Stock Option Agreement.
(j) "Fair Market Value" shall mean the fair market value of a
Share, as determined by the Board of Directors in good faith. Such determination
shall be conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option
described in Section 422(b) of the Code.
(l) "Nonstatutory Option" shall mean a stock option not
described in Sections 422(b) or 423(b) of the Code.
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(m) "Option" shall mean an ISO or Nonstatutory Option granted
under the Plan and entitling the holder to purchase Shares.
(n) "Optionee" shall mean an individual who holds an Option.
(o) "Outside Director" shall mean a member of the Board of
Directors who is not an Employee.
(p) "Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if each
of the corporations other than the Company owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(q) "Plan" shall mean this Teleservices Holdings Corporation
1998 Stock Plan.
(r) "Purchase Price" shall mean the consideration for which
one Share may be acquired under the Plan (other than upon exercise of an
Option), as specified by the Board of Directors.
(s) "Purchaser" shall mean an individual to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).
(t) "Service" shall mean service as an Employee, Outside
Director or Consultant.
(u) "Share" shall mean one share of Stock, as adjusted in
accordance with Section 8 (if applicable).
(v) "Stock" shall mean the Common Stock of the Company, with a
par value of $0.001 per Share.
(w) "Stock Option Agreement" shall mean the agreement between
the Company and an Optionee which contains
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the terms, conditions and restrictions pertaining to the Optionee's Option.
(x) "Stock Purchase Agreement" shall mean the agreement
between the Company and a Purchaser who acquires Shares under the Plan which
contains the terms, conditions and restrictions pertaining to the acquisition of
such Shares.
(y) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors,
the Company has caused its authorized officer to execute the same.
TELESERVICES HOLDINGS CORPORATION
By:
--------------------------------
Title:
-----------------------------
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EXHIBIT 10.5
PROTOCOL HOLDINGS, INC.
1999 STOCK OPTION PLAN
ARTICLE I
PURPOSE AND ADOPTION OF THE PLAN
1.01 PURPOSE. The purpose of the Protocol Holdings, Inc. 1999 Stock
Option Plan (hereinafter referred to as the "Plan") is to assist the Company in
attracting and retaining highly competent employees and to act as an incentive
in motivating selected officers and other key employees of the Company, and
directors and consultants of the Company, to achieve long-term corporate
objectives.
1.02 ADOPTION AND TERM. The Plan was approved by the Board of Directors
of Protocol Holdings, Inc. effective as of January 1, 1999 (the "Effective
Date") and shall remain in effect until terminated by action of the Board;
provided, however, that no Option may be granted hereunder after the tenth
anniversary of the Effective Date.
ARTICLE II
DEFINITIONS
For the purpose of this Plan, the following capitalized terms shall
have the following meanings:
2.01 BENEFICIARY means an individual, trust or estate who or which, by
a written designation of the Participant filed with the Company or by operation
of law, succeeds to the rights and obligations of the Participant under the Plan
and the Option Agreement upon the Participant's death.
2.02 BOARD means the Board of Directors of the Company.
2.03 CODE means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes said section.
2.04 COMMITTEE means the Committee defined in Section 3.01.
2.05 COMPANY means Protocol Holdings, Inc., a Delaware corporation, and
its successors.
2.06 COMMON STOCK means Common Stock of the Company, par value $.001
per share.
2.07 DATE OF GRANT means the date designated by the Committee as the
date as of which it grants an Option, which shall not be earlier than the date
on which the Committee approves the granting of such Option.
2.08 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
2.09 FAIR MARKET VALUE means, as of any applicable date, the fair
market value of the Common Stock as determined by the Board based upon such
evidence as it may think necessary or desirable.
2.10 INCENTIVE STOCK OPTION means a stock option within the meaning of
Section 422 of the Code.
2.11 MERGER means any merger, reorganization, consolidation, share
exchange, transfer of assets or other transaction having similar effect
involving the Company.
2.12 NONSTATUTORY STOCK OPTION means a stock option which is not an
Incentive Stock Option.
2.13 OPTION AGREEMENT means a written agreement between the Company and
a Participant specifically setting forth the terms and conditions of an Option
granted under the Plan substantially in the form of Exhibit A attached hereto.
2.14 OPTION PRICE, with respect to Options, shall have the meaning set
forth in Section 6.01(b).
2.15 OPTION TERM means, with respect to an Option, the period of time
set forth in the Option Agreement during which the Option may be exercised.
2.16 OPTIONS means all Nonstatutory Stock Options and Incentive Stock
Options granted at any time under the Plan.
2.17 PARTICIPANT means a person designated to receive an Option under
the Plan in accordance with Section 5.01.
2.18 PLAN means the Protocol Holdings, Inc. 1999 Stock Option Plan as
described herein, as the same may be amended from time to time.
2.19 TEN PERCENT SHAREHOLDER means any individual who, at the time the
Option is granted, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company.
ARTICLE III
ADMINISTRATION
3.01 COMMITTEE. The Plan shall be administered by the Board or, in the
discretion of the Board, by a Committee of the Board (the "Committee") comprised
of one or more persons. The Board or Committee shall have exclusive and final
authority in each determination, interpretation or other action affecting the
Plan and its Participants. The Board or Committee shall have the sole
discretionary authority to interpret the Plan, to establish and modify
administrative rules for the Plan, to impose such conditions and restrictions on
Options as it determines appropriate, and to take such steps in connection with
the Plan and Options granted hereunder as it may deem necessary or advisable.
The Board or Committee may delegate such of its powers and authority under the
Plan as it deems appropriate to designated officers or employees of the Company.
In the event of such delegation of authority or exercise of authority by the
Board or Committee,
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<PAGE> 3
references in the Plan to the Committee shall be deemed to refer to the delegate
of the Board or the Committee as the case may be. For purposes of this Plan,
references to the Committee shall be deemed references to the Board to the
extent that the Board has not appointed a Committee to administer the Plan.
ARTICLE IV
SHARES
4.01 NUMBER OF SHARES ISSUABLE. The maximum number of shares initially
authorized to be issued under the Plan shall be 300,000 shares of Common Stock.
The number of shares available for issuance under the Plan shall be further
subject to adjustment in accordance with Section 7.06. The shares to be offered
under the Plan shall be authorized and unissued Common Stock, or issued Common
Stock which shall have been reacquired by the Company.
4.02 SHARES SUBJECT TO TERMINATED OPTIONS. Common Stock covered by any
unexercised portions of terminated Options (including canceled Options) granted
under Article VI and Common Stock subject to any Options which are otherwise
surrendered by the Participant may again be subject to new Options under the
Plan.
ARTICLE V
PARTICIPATION
5.01 ELIGIBLE PARTICIPANTS. Participants in the Plan shall be such
officers, key employees, directors and consultants of the Company as the
Committee, in its sole discretion, may designate from time to time. The
Committee's designation of a Participant in any year shall not require the
Committee to designate such person to receive Options or grants in any other
year. The Committee shall consider such factors as it deems pertinent in
selecting Participants and in determining the type and amount of their
respective Options.
ARTICLE VI
STOCK OPTIONS
6.01 OPTION AWARDS.
(a) GENERAL. The Committee may grant, to such Participants as the
Committee may select, Options entitling the Participant to purchase shares of
Common Stock from the Company in such number, at such price, and on such terms
and subject to such conditions, not inconsistent with the terms of this Plan, as
may be established by the Committee. The terms of any Option granted under this
Plan shall be set forth in an Option Agreement.
(b) PURCHASE PRICE OF OPTIONS. The Option Price of each share of Common
Stock which may be purchased upon exercise of any Option granted under the Plan
shall be determined by the Committee; provided, however, that (i) with respect
to Incentive Stock Options, the Option Price per share shall in all cases be
equal to or greater than the Fair Market Value of a share of Common Stock on the
Date of Grant as required under Section 422 of the Code, and (ii) with
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respect to any Incentive Stock Option granted to any Ten Percent Shareholder,
the Option Price per share shall in all cases be equal to or greater than 110
percent of the Fair Market Value of a share of Common Stock on the Date of Grant
as required under Section 422 of the Code.
(c) DESIGNATION OF OPTIONS. Except as otherwise expressly provided in
the Plan, the Committee may designate, at the time of the grant of each Option,
the Option as an Incentive Stock Option or a Nonstatutory Stock Option.
(d) INCENTIVE STOCK OPTION SHARE LIMITATION. No Participant may be
granted Incentive Stock Options under the Plan (or any other plans of the
Company) which would result in shares with an aggregate Fair Market Value
(measured on the Date of Grant) of more than $100,000 first becoming exercisable
in any one calendar year.
(e) RIGHTS AS A SHAREHOLDER. A Participant or a transferee of an Option
pursuant to Section 7.04 shall have no rights as a shareholder with respect to
Common Stock covered by an Option until the Participant or transferee shall have
become the holder of record of any such shares, and no adjustment shall be made
for dividends in cash or other property or distributions or other rights with
respect to any such Common Stock for which the record date is prior to the date
on which the Participant or a transferee of the Option shall have become the
holder of record of any such shares covered by the Option; provided, however,
that Participants are entitled to share adjustments to reflect capital changes
under Section 7.06.
6.02 TERMS OF STOCK OPTIONS.
(a) CONDITIONS ON EXERCISE. An Option Agreement with respect to Options
may contain such waiting periods, exercise dates and restrictions on exercise
(including, but not limited to, periodic installments) as may be determined by
the Committee as of the Date of Grant.
(b) DURATION OF OPTIONS. Options shall terminate after the first to
occur of the following events:
(i) Expiration of the Option as provided in the Option
Agreement;
(ii) Termination of the Option as provided in Section 6.03,
following the Participant's termination of employment; or
(iii) Ten years from the Date of Grant (five years from the
Date of Grant in the case of any Incentive Stock Option granted to a
Ten Percent Shareholder).
(c) ACCELERATION OF EXERCISE TIME. The Committee, in its sole
discretion, shall have the right (but shall not in any case be obligated),
exercisable at any time after the Date of Grant, to permit the exercise of any
Option prior to the time such Option would otherwise become exercisable under
the terms of the Option Agreement.
(d) EXTENSION OF EXERCISE TIME. The Committee, in its sole discretion,
shall have the right (but shall not in any case be obligated), exercisable on or
at any time after the Date of Grant, to permit any Option granted under this
Plan to be exercised after its expiration date, subject, however, to the
limitation described in Section 6.02(b)(iii).
6.03 EXERCISE OF OPTIONS UPON TERMINATION OF EMPLOYMENT. If the
Optionee's employment with the Company terminates during the Option Term for any
reason, the Options,
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to the extent vested as of the date of such termination, together with any other
Options designated in writing by the Committee, shall terminate immediately
following and may be exercised, in whole or in part, through and including the
earlier of (i) forty-five (45) days after such date of termination of
employment, and (ii) the last day of the Option Term. Any Options that were not
vested prior to the date of such termination of employment and do not become
vested pursuant to the immediately preceding sentence shall terminate as of the
date of such termination and shall not be exercisable at any time thereafter.
For purposes of this Section 6.03, termination of employment with respect to a
Participant who is a director or consultant and who is not otherwise an employee
of the Company shall mean voluntary or involuntary termination of Board service
or the consulting relationship, as the case may be, for any reason.
6.04 EXERCISE PROCEDURES. Each Option granted under the Plan shall be
exercised by written notice to the Company which must be received by the officer
or employee of the Company designated in the Option Agreement on or before the
close of business on the expiration date of the Option. The Option Price of
shares purchased upon exercise of an Option granted under the Plan shall be paid
in full in cash by the Participant pursuant to the Option Agreement; provided,
however, that the Committee may (but shall not be required to) permit payment to
be made by delivery to the Company of either (a) Common Stock (which may include
shares otherwise issuable in connection with the exercise of the Option, subject
to such rules as the Committee deems appropriate), (b) any combination of cash
and Common Stock, or (c) such other consideration as the Committee deems
appropriate. In the event that any Common Stock shall be transferred to the
Company to satisfy all or any part of the Option Price, the part of the Option
Price deemed to have been satisfied by such transfer of Common Stock shall be
equal to the product derived by multiplying the Fair Market Value of a share of
Common Stock as of the date of exercise times the number of shares of Common
Stock transferred to the Company. The Participant may not transfer to the
Company in satisfaction of the Option Price any fractional share of Common
Stock. Any part of the Option Price paid in cash upon the exercise of any Option
shall be added to the general funds of the Company and may be used for any
proper corporate purpose. Unless the Committee shall otherwise determine, any
Common Stock transferred to the Company as payment of all or part of the Option
Price upon the exercise of any Option shall be held as treasury shares.
ARTICLE VII
MISCELLANEOUS
7.01 PLAN PROVISIONS CONTROL OPTION TERMS. The terms of the Plan shall
govern all Options granted under the Plan, and in no event shall the Committee
have the power to grant any Option under the Plan which is contrary to any of
the provisions of the Plan. In the event any provision of any Options granted
under the Plan shall conflict with any term in the Plan as constituted on the
Date of Grant of such Option, the term in the Plan as constituted on the Date of
Grant of such Option shall control. Except as provided in Section 7.03 and
Section 7.06, the terms of any Option granted under the Plan may not be changed
after the Date of Grant of such Option so as to materially decrease the value of
the Option without the express written approval of the holder.
7.02 OPTION AGREEMENT. No person shall have any rights under any Option
granted under the Plan unless and until the Company and the Participant to whom
such Option shall have been granted shall have executed and delivered an Option
Agreement or received any other
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Option acknowledgment authorized by the Committee expressly granting the Option
to such person and containing provisions setting forth the terms of the Option.
7.03 MODIFICATION OF OPTION AFTER GRANT. No Option granted under the
Plan to a Participant may be modified (unless such modification does not
materially decrease the value of the Option) after the Date of Grant except by
express written agreement between the Company and the Participant, provided that
any such change (a) shall not be inconsistent with the terms of the Plan, and
(b) shall be approved by the Committee.
7.04 LIMITATION ON TRANSFER. A Participant's rights and interest under
the Plan may not be assigned or transferred other than by will or the laws of
descent and distribution, and during the lifetime of a Participant, only the
Participant personally (or the Participant's personal representative) may
exercise rights under the Plan. The Participant's Beneficiary may exercise the
Participant's rights to the extent they are exercisable under the Plan following
the death of the Participant.
7.05 TAXES. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any amount payable and/or
shares issuable with respect to such Participant's Option, or with respect to
any income recognized upon a disqualifying disposition of shares received
pursuant to the exercise of an Incentive Stock Option, and the Company may defer
payment or issuance of shares upon exercise of an Option unless indemnified to
its satisfaction against any liability for any such tax. The amount of such
withholding or tax payment shall be determined by the Committee and shall be
payable by the Participant at such time as the Committee determines. The
Participant shall meet his or her withholding requirement by direct payment to
the Company in cash of the amount of any taxes required to be withheld with
respect to such Option; provided, however, that the Committee may (but shall not
be required to) permit the Participant to meet his or her withholding
requirement by (i) having withheld from such Option at the appropriate time that
number of shares of Common Stock, rounded up to the next whole share, whose Fair
Market Value is equal to the amount of withholding taxes due, or (ii) a
combination of shares and cash.
7.06 ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Options, the Option Price for such shares, the number and
kind of shares available for Options subsequently granted under the
Plan and the maximum number of shares in respect of which Options can
be made to any Participant in any calendar year shall be appropriately
adjusted to reflect any stock dividend, stock split, combination or
exchange of shares, merger, consolidation or other change in
capitalization with a similar substantive effect upon the Plan or the
Options granted under the Plan. The Committee shall have the power and
sole discretion to determine the amount of the adjustment to be made in
each case.
(b) MERGER. In the event of a Merger in which the Company is
not the surviving corporation or pursuant to which a majority of the
shares which are of the same class as the shares that are subject to
outstanding Options are exchanged for, or converted into, or otherwise
become shares of another corporation or other consideration, the
Committee shall have the sole discretion to determine that (i) the
surviving, continuing, successor or purchasing corporation, as the case
may be (the "Acquiring Corporation"), will either
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assume the Company's rights and obligations under outstanding Option
Agreements or substitute options in respect of the Acquiring
Corporation's stock for outstanding Options or (ii) the outstanding
Options shall be canceled in exchange for such consideration as the
Committee shall approve (based on the value of the consideration
received in the Merger by holders of the same class of shares that are
subject to outstanding Options).
(c) OPTIONS TO PURCHASE SHARES OF STOCK OF ACQUIRED COMPANIES.
After any Merger in which the Company shall be a surviving corporation,
the Committee may grant substituted options under the provisions of the
Plan, pursuant to Section 424 of the Code, replacing old options
granted under a plan of another party to the Merger whose shares or
stock subject to the old options may no longer be issued following the
Merger. The foregoing adjustments and manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustments may provide for the elimination of any
fractional shares which might otherwise become subject to any Options.
7.07 NO RIGHT TO EMPLOYMENT. No employee or other person shall have any
claim of right to be granted an Option under this Plan. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee any right to be
retained in the employ of the Company.
7.08 OPTIONS NOT INCLUDABLE FOR BENEFIT PURPOSES. Common Stock received
by a Participant pursuant to the provisions of the Plan shall not be included in
the determination of benefits under any pension, group insurance or other
benefit plan applicable to the Participant which is maintained by the Company,
except as may be provided under the terms of such plans or determined by the
Board.
7.09 GOVERNING LAW. All determinations made and actions taken pursuant
to the Plan shall be governed by the laws of the State of Delaware and construed
in accordance therewith.
7.10 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Board, the Committee, or any other person in
the interpretation of any of the terms of the Plan, any Option granted under the
Plan or any rule or procedure established by the Committee.
7.11 CAPTIONS. The captions (i.e., all Section headings) used in the
Plan are for convenience only, do not constitute a part of the Plan, and shall
not be deemed to limit, characterize or affect in any way any provisions of the
Plan, and all provisions of the Plan shall be construed as if no captions have
been used in the Plan.
7.12 SEVERABILITY. Whenever possible, each provision in the Plan and
every Option at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Option at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Option at any time granted under the Plan shall remain
in full force and effect.
7.13 AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power and
authority to amend the Plan at any time. No termination or amendment of
the Plan may, without the consent
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of the Participant to whom any Option shall theretofore have been
granted under the Plan, adversely affect the right of such individual
under such Option.
(b) TERMINATION. The Board shall have the right and the power
to terminate the Plan at any time. No Option shall be granted under the
Plan after the termination of the Plan, but the termination of the Plan
shall not have any other effect and any Option outstanding at the time
of the termination of the Plan may be exercised after termination of
the Plan at any time prior to the expiration date of such Option to the
same extent such Option would have been exercisable had the Plan not
terminated.
7.14 INITIAL PUBLIC OFFERING. As a condition of participation under
this Plan, each participant shall be obligated to cooperate with the Company and
the underwriters in connection with any public offering of the company's
securities and any transactions relating thereto and shall execute and deliver
such agreements and documents, including, without limitation, a lock-up
agreement, as may be requested by the Company or the underwriters. The
Participants' obligations under this Section 7.14 shall apply to any shares of
Common Stock issued under the Plan as well as to any and all other securities of
the Company or its successor for which such Common Stock may be exchanged or
into which such Common Stock may be converted.
7.15 APPLICABILITY OF STOCKHOLDERS' AGREEMENT. Stock purchased pursuant
to grants of Options hereunder shall be subject to the terms of the
stockholders' agreement in effect on the date of adoption of the Plan, and as it
may be amended from time to time, or any successor agreement among the Company
and its shareholders. No certificates evidencing such stock shall be delivered
until the owner thereof has evidenced his acceptance of such stockholders'
agreement and any and all provisions thereof in writing. Certificates shall be
endorsed with appropriate notice of applicability of the stockholders'
agreement.
7.16 REGISTRATION OF SECURITIES. In the event that the Company becomes
eligible to file a registration statement on Form S-8 of the Securities and
Exchange Commission, then, as soon as practicable thereafter, the Company shall
file a registration statement on such Form with respect to shares of Common
Stock issued under the Plan.
* * *
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EXHIBIT 10.6
PROTOCOL HOLDINGS, INC.
2000 STOCK OPTION PLAN
(As Amended and Restated
April 13, 2000)
ARTICLE I
PURPOSE AND ADOPTION OF THE PLAN
1.01 PURPOSE. The purpose of the Protocol Holdings, Inc. 2000 Stock
Option Plan (hereinafter referred to as the "Plan") is to assist the Company in
attracting and retaining highly competent employees and to act as an incentive
in motivating selected officers and other key employees of the Company, and
directors and consultants of the Company, to achieve long-term corporate
objectives.
1.02 ADOPTION AND TERM. The Plan was approved by the Board of Directors
and the Shareholders of Protocol Holdings, Inc. on December 1, 1999 (the
"Effective Date") and shall remain in effect until terminated by action of the
Board; provided, however, that no Option may be granted hereunder after the
tenth anniversary of the Effective Date.
ARTICLE II
DEFINITIONS
For the purpose of this Plan, the following capitalized terms shall
have the following meanings:
2.01 BENEFICIARY means an individual, trust or estate who or which, by
a written designation of the Participant filed with the Company or by operation
of law, succeeds to the rights and obligations of the Participant under the Plan
and the Option Agreement upon the Participant's death.
2.02 BOARD means the Board of Directors of the Company.
2.03 CHANGE IN CONTROL means the acquisition of "beneficial ownership"
by any "person" or "group" other than the holders of the Company's Series B
Convertible Preferred Stock or their "affiliates," of voting stock of the
Company representing more than 50% of the voting power of all outstanding shares
of such voting stock, whether by way of merger or consolidation or otherwise,
other than by way of a transaction in which the purchase price of the stock is
at least $18.9365 per share.
For purposes of Section 2.03, (i) the terms "person" and "group"
shall have the meaning set forth in Section 13(d)(3) of the Exchange Act,
whether or not applicable, (ii) the term "beneficial owner" shall have the
meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, whether or
not applicable, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time or upon
the occurrence of certain events, (iii) any "person" or "group" will be deemed
to beneficially own any voting stock of the Company so long as such person or
group beneficially owns, directly or indirectly, in the aggregate a majority of
the voting stock of a registered holder of the voting stock of the Company and
(iv) the term "affiliate" shall have the meaning set forth in Section 405 of the
Securities Act
<PAGE> 2
of 1933, and in the case of a holder of the Company's Series B Convertible
Preferred Stock that is a partnership shall include its partners (including
limited partners), and in the case of a holder of the Company's Series B
Convertible Preferred Stock that is an individual shall include the spouse and
lineal descendants of such a holder, and any trust or trusts for the benefit of
such holder, spouse, or lineal descendants.
2.04 CODE means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes said section.
2.05 COMMITTEE means the Committee defined in Section 3.01.
2.06 COMPANY means Protocol Holdings, Inc., a Delaware corporation, its
subsidiaries (within the meaning of Section 424(f) of the Code) and any
successors thereto.
2.07 COMMON STOCK means Common Stock of the Company, par value $.001
per share.
2.08 DATE OF GRANT means the date designated by the Committee as the
date as of which it grants an Option, which shall not be earlier than the date
on which the Committee approves the granting of such Option.
2.09 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.10 FAIR MARKET VALUE means, as of any applicable date, the fair
market value of the Common Stock as determined by the Board based upon such
evidence as it may think necessary or desirable.
2.11 INCENTIVE STOCK OPTION means a stock option within the meaning of
Section 422 of the Code.
2.12 MERGER means any merger, reorganization, consolidation, share
exchange, transfer of assets or other transaction having similar effect
involving the Company.
2.13 NONSTATUTORY STOCK OPTION means a stock option which is not an
Incentive Stock Option.
2.14 OPTION AGREEMENT means a written agreement between the Company and
a Participant specifically setting forth the terms and conditions of an Option
granted under the Plan substantially in the form of Exhibit A attached hereto.
2.15 OPTION PRICE, with respect to Options, shall have the meaning set
forth in Section 6.01(b).
2.16 OPTION TERM means, with respect to an Option, the period set forth
in the Option Agreement during which the Option may be exercised.
2.17 OPTIONS means all Nonstatutory Stock Options and Incentive Stock
Options granted at any time under the Plan.
2.18 PARTICIPANT means a person designated to receive an Option under
the Plan in accordance with Section 5.01.
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2.19 PLAN means the Protocol Holdings, Inc. 2000 Stock Option Plan as
described herein, as the same may be amended from time to time.
2.20 QUALIFIED PUBLIC OFFERING means a public offering of the Company's
securities at a purchase price equal to or greater than $18.9365 per share
(appropriately adjusted, in the Committee's discretion, for any stock splits,
combinations or stock dividends).
2.21 TEN PERCENT SHAREHOLDER means any individual who, at the time the
Option is granted, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company.
ARTICLE III
ADMINISTRATION
3.01 COMMITTEE. The Plan shall be administered by the Board or, in the
discretion of the Board, by a Committee of the Board (the "Committee") comprised
of one or more persons. The Board or Committee shall have exclusive and final
authority in each determination, interpretation or other action affecting the
Plan and its Participants. The Board or Committee shall have the sole
discretionary authority to interpret the Plan, to establish and modify
administrative rules for the Plan, to impose such conditions and restrictions on
Options as it determines appropriate, and to take such steps in connection with
the Plan and Options granted hereunder as it may deem necessary or advisable.
The Board or Committee may delegate such of its powers and authority under the
Plan as it deems appropriate to designated officers or employees of the Company.
In the event of such delegation of authority or exercise of authority by the
Board or Committee, references in the Plan to the Committee shall be deemed to
refer to the delegate of the Board or the Committee as the case may be. For
purposes of this Plan, references to the Committee shall be deemed references to
the Board to the extent that the Board has not appointed a Committee to
administer the Plan.
ARTICLE IV
SHARES
4.01 NUMBER OF SHARES ISSUABLE. The maximum number of shares initially
authorized to be issued under the Plan shall be 1,000,000 shares of Common
Stock. The number of shares available for issuance under the Plan shall be
further subject to adjustment in accordance with Section 7.06. The shares to be
offered under the Plan shall be authorized and unissued Common Stock, or issued
Common Stock which shall have been reacquired by the Company.
4.02 SHARES SUBJECT TO TERMINATED OPTIONS. Common Stock covered by any
unexercised portions of terminated Options (including canceled Options) granted
under Article VI and Common Stock subject to any Options which are otherwise
surrendered by the Participant may again be subject to new Options under the
Plan.
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ARTICLE V
PARTICIPATION
5.01 ELIGIBLE PARTICIPANTS. Participants in the Plan shall be such
officers, key employees, directors and consultants of the Company as the
Committee, in its sole discretion, may designate from time to time. The
Committee's designation of a Participant in any year shall not require the
Committee to designate such person to receive Options or grants in any other
year. The Committee shall consider such factors as it deems pertinent in
selecting Participants and in determining the type and amount of their
respective Options.
ARTICLE VI
STOCK OPTIONS
6.01 OPTION AWARDS.
(a) GENERAL. The Committee may grant, to such Participants as the
Committee may select, Options entitling the Participant to purchase shares of
Common Stock from the Company in such number, at such price, and on such terms
and subject to such conditions, not inconsistent with the terms of this Plan, as
may be established by the Committee. The terms of any Option granted under this
Plan shall be set forth in an Option Agreement.
(b) PURCHASE PRICE OF OPTIONS. The Option Price of each share of Common
Stock which may be purchased upon exercise of any Option granted under the Plan
shall be determined by the Committee; provided, however, that (i) with respect
to Incentive Stock Options, the Option Price per share shall in all cases be
equal to or greater than the Fair Market Value of a share of Common Stock on the
Date of Grant as required under Section 422 of the Code, and (ii) with respect
to any Incentive Stock Option granted to any Ten Percent Shareholder, the Option
Price per share shall in all cases be equal to or greater than 110 percent of
the Fair Market Value of a share of Common Stock on the Date of Grant as
required under Section 422 of the Code.
(c) DESIGNATION OF OPTIONS. Except as otherwise expressly provided in
the Plan, the Committee may designate, at the time of the grant of each Option,
the Option as an Incentive Stock Option or a Nonstatutory Stock Option.
(d) INCENTIVE STOCK OPTION SHARE LIMITATION. No Participant may be
granted Incentive Stock Options under the Plan (or any other plans of the
Company) which would result in shares with an aggregate Fair Market Value
(measured on the Date of Grant) of more than $100,000 first becoming exercisable
in any one calendar year.
(e) RIGHTS AS A SHAREHOLDER. A Participant or a transferee of an Option
pursuant to Section 7.04 shall have no rights as a shareholder with respect to
Common Stock covered by an Option until the Participant or transferee shall have
become the holder of record of any such shares, and no adjustment shall be made
for dividends in cash or other property or distributions or other rights with
respect to any such Common Stock for which the record date is prior to the date
on which the Participant or a transferee of the Option shall have become the
holder of record of any such shares covered by the Option; provided, however,
that Participants are entitled to share adjustments to reflect capital changes
under Section 7.06.
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<PAGE> 5
6.02 TERMS OF STOCK OPTIONS.
(a) CONDITIONS ON EXERCISE. An Option Agreement with respect to Options
may contain such waiting periods, exercise dates and restrictions on exercise
(including, but not limited to, periodic installments) as may be determined by
the Committee as of the Date of Grant.
(b) DURATION OF OPTIONS. Options shall terminate after the first to
occur of the following events:
(i) Expiration of the Option as provided in the Option
Agreement;
(ii) Termination of the Option as provided in Section 6.03,
following the Participant's termination of employment; or
(iii) Ten years from the Date of Grant (five years from the
Date of Grant in the case of any Incentive Stock Option granted to a
Ten Percent Shareholder).
(c) VESTING OF OPTIONS. Granted Options shall vest in equal increments
over four years beginning on the first anniversary of the Date of Grant.
(d) AUTOMATIC ACCELERATION. All unvested Options will vest
automatically upon a Change of Control or a Qualified Public Offering.
(e) PERMISSIVE ACCELERATION. The Committee, in its sole discretion,
shall have the right, exercisable at any time (including after the Date of
Grant) to permit the acceleration of the vesting of Options, including, but not
to limited, cases involving the termination of employment of any Optionee.
(f) ACCELERATION OF EXERCISE TIME. The Committee, in its sole
discretion, shall have the right (but shall not in any case be obligated),
exercisable at any time after the Date of Grant, to permit the exercise of any
Option prior to the time such Option would otherwise become exercisable under
the terms of the Option Agreement.
(g) EXTENSION OF EXERCISE TIME. The Committee, in its sole discretion,
shall have the right (but shall not in any case be obligated), exercisable on or
at any time after the Date of Grant, to permit any Option granted under this
Plan to be exercised after its expiration date, subject, however, to the
limitation described in Section 6.02(b)(iii).
6.03 EXERCISE OF OPTIONS UPON TERMINATION OF EMPLOYMENT. If the
Optionee's employment with the Company terminates during the Option Term for any
reason, the Options, to the extent vested as of the date of such termination,
together with any other Options designated in writing by the Committee, shall
terminate, and shall be exercisable prior to, the earlier of forty-five (45)
days of the date of termination or the last day of the Option Term. Any Options
that were not vested prior to the date of such termination and do not become
vested pursuant to the immediately preceding sentence shall terminate as of the
date of such termination and shall not be exercisable at any time thereafter.
For purposes of this Section 6.03, termination of employment with respect to a
Participant who is a director or consultant and who is not otherwise
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an employee of the Company shall mean voluntary or involuntary termination of
Board service or the consulting relationship, as the case may be, for any
reason.
6.04 EXERCISE PROCEDURES. Each Option granted under the Plan shall be
exercised by written notice to the Company which must be received by the officer
or employee of the Company designated in the Option Agreement on or before the
close of business on the expiration date of the Option. The Option Price of
shares purchased upon exercise of an Option granted under the Plan shall be paid
in full in cash by the Participant pursuant to the Option Agreement; provided,
however, that the Committee may (but shall not be required to) permit payment to
be made by delivery to the Company of either (a) Common Stock (which may include
shares otherwise issuable in connection with the exercise of the Option, subject
to such rules as the Committee deems appropriate), (b) any combination of cash
and Common Stock, or (c) such other consideration as the Committee deems
appropriate. In the event that any Common Stock shall be transferred to the
Company to satisfy all or any part of the Option Price, the part of the Option
Price deemed to have been satisfied by such transfer of Common Stock shall be
equal to the product derived by multiplying the Fair Market Value of a share of
Common Stock as of the date of exercise times the number of shares of Common
Stock transferred to the Company. The Participant may not transfer to the
Company in satisfaction of the Option Price any fractional share of Common
Stock. Any part of the Option Price paid in cash upon the exercise of any Option
shall be added to the general funds of the Company and may be used for any
proper corporate purpose. Unless the Committee shall otherwise determine, any
Common Stock transferred to the Company as payment of all or part of the Option
Price upon the exercise of any Option shall be held as treasury shares.
ARTICLE VII
MISCELLANEOUS
7.01 PLAN PROVISIONS CONTROL OPTION TERMS. The terms of the Plan shall
govern all Options granted under the Plan, and in no event shall the Committee
have the power to grant any Option under the Plan which is contrary to any of
the provisions of the Plan. In the event any provision of any Options granted
under the Plan shall conflict with any term in the Plan as constituted on the
Date of Grant of such Option, the term in the Plan as constituted on the Date of
Grant of such Option shall control. Except as provided in Section 7.03 and
Section 7.06, the terms of any Option granted under the Plan may not be changed
after the Date of Grant of such Option so as to materially decrease the value of
the Option without the express written approval of the holder.
7.02 OPTION AGREEMENT. No person shall have any rights under any Option
granted under the Plan unless and until the Company and the Participant to whom
such Option shall have been granted shall have executed and delivered an Option
Agreement or received any other Option acknowledgment authorized by the
Committee expressly granting the Option to such person and containing provisions
setting forth the terms of the Option.
7.03 MODIFICATION OF OPTION AFTER GRANT. No Option granted under the
Plan to a Participant may be modified (unless such modification does not
materially decrease the value of the Option) after the Date of Grant except by
express written agreement between the Company and the Participant, provided that
any such change (a) shall not be inconsistent with the terms of the Plan, and
(b) shall be approved by the Committee.
-6-
<PAGE> 7
7.04 LIMITATION ON TRANSFER. A Participant's rights and interest under
the Plan may not be assigned or transferred other than by will or the laws of
descent and distribution, and during the lifetime of a Participant, only the
Participant personally (or the Participant's personal representative) may
exercise rights under the Plan. The Participant's Beneficiary may exercise the
Participant's rights to the extent they are exercisable under the Plan following
the death of the Participant.
7.05 TAXES. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any amount payable and/or
shares issuable with respect to such Participant's Option, or with respect to
any income recognized upon a disqualifying disposition of shares received
pursuant to the exercise of an Incentive Stock Option, and the Company may defer
payment or issuance of shares upon exercise of an Option unless indemnified to
its satisfaction against any liability for any such tax. The amount of such
withholding or tax payment shall be determined by the Committee and shall be
payable by the Participant at such time as the Committee determines. The
Participant shall meet his or her withholding requirement by direct payment to
the Company in cash of the amount of any taxes required to be withheld with
respect to such Option; provided, however, that the Committee may (but shall not
be required to) permit the Participant to meet his or her withholding
requirement by (i) having withheld from such Option at the appropriate time that
number of shares of Common Stock, rounded up to the next whole share, whose Fair
Market Value is equal to the amount of withholding taxes due, or (ii) a
combination of shares and cash.
7.06 ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Options, the Option Price for such shares, the number and
kind of shares available for Options subsequently granted under the
Plan and the maximum number of shares in respect of which Options can
be made to any Participant in any calendar year shall be appropriately
adjusted to reflect any stock dividend, stock split, combination or
exchange of shares, merger, consolidation or other change in
capitalization with a similar substantive effect upon the Plan or the
Options granted under the Plan. The Committee shall have the power and
sole discretion to determine the amount of the adjustment to be made in
each case.
(b) MERGER. In the event of a Merger in which the Company is
not the surviving corporation or pursuant to which a majority of the
shares which are of the same class as the shares that are subject to
outstanding Options are exchanged for, or converted into, or otherwise
become shares of another corporation or other consideration, the
Committee shall have the sole discretion to determine that (i) the
surviving, continuing, successor or purchasing corporation, as the case
may be (the "Acquiring Corporation"), will either assume the Company's
rights and obligations under outstanding Option Agreements or
substitute options in respect of the Acquiring Corporation's stock for
outstanding Options or (ii) the outstanding Options shall be canceled
in exchange for such consideration as the Committee shall approve
(based on the value of the consideration received in the Merger by
holders of the same class of shares that are subject to outstanding
Options).
(c) OPTIONS TO PURCHASE SHARES OF STOCK OF ACQUIRED COMPANIES.
After any Merger in which the Company shall be a surviving corporation,
the Committee may grant substituted options under the provisions of the
Plan, pursuant to Section 424 of the Code,
-7-
<PAGE> 8
replacing old options granted under a plan of another party to the
Merger whose shares or stock subject to the old options may no longer
be issued following the Merger. The foregoing adjustments and manner of
application of the foregoing provisions shall be determined by the
Committee in its sole discretion. Any such adjustments may provide for
the elimination of any fractional shares which might otherwise become
subject to any Options.
7.07 NO RIGHT TO EMPLOYMENT. No employee or other person shall have any
claim of right to be granted an Option under this Plan. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee any right to be
retained in the employ of the Company.
7.08 OPTIONS NOT INCLUDABLE FOR BENEFIT PURPOSES. Common Stock received
by a Participant pursuant to the provisions of the Plan shall not be included in
the determination of benefits under any pension, group insurance or other
benefit plan applicable to the Participant which is maintained by the Company,
except as may be provided under the terms of such plans or determined by the
Board.
7.09 GOVERNING LAW. All determinations made and actions taken pursuant
to the Plan shall be governed by the laws of the State of Delaware and construed
in accordance therewith.
7.10 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Board, the Committee, or any other person in
the interpretation of any of the terms of the Plan, any Option granted under the
Plan or any rule or procedure established by the Committee.
7.11 CAPTIONS. The captions (i.e., all Section headings) used in the
Plan are for convenience only, do not constitute a part of the Plan, and shall
not be deemed to limit, characterize or affect in any way any provisions of the
Plan, and all provisions of the Plan shall be construed as if no captions have
been used in the Plan.
7.12 SEVERABILITY. Whenever possible, each provision in the Plan and
every Option at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Option at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Option at any time granted under the Plan shall remain
in full force and effect.
7.13 AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power and
authority to amend the Plan at any time. No termination or amendment of
the Plan may, without the consent of the Participant to whom any Option
shall theretofore have been granted under the Plan, adversely affect
the right of such individual under such Option.
(b) TERMINATION. The Board shall have the right and the power
to terminate the Plan at any time. No Option shall be granted under the
Plan after the termination of the Plan, but the termination of the Plan
shall not have any other effect and any Option outstanding at the time
of the termination of the Plan may be exercised after termination of
the Plan at any time prior to the expiration date of such Option to the
same extent such Option would have been exercisable had the Plan not
terminated.
-8-
<PAGE> 9
7.14 INITIAL PUBLIC OFFERING. As a condition of participation under
this Plan, each participant shall be obligated to cooperate with the Company and
the underwriters in connection with any public offering of the company's
securities and any transactions relating thereto and shall execute and deliver
such agreements and documents, including without limitation, a lock-up
agreement, as may be requested by the Company or the underwriters. The
Participants' obligations under this Section 7.14 shall apply to any shares of
Common Stock issued under the Plan as well as to any and all other securities of
the Company or its successor for which such Common Stock may be exchanged or
into which such Common Stock may be converted.
7.15 FILING OF REGISTRATION STATEMENT. In the event the Company becomes
eligible to file a registration statement on Form S-8 of the Securities and
Exchange Commission, then, as soon as practicable thereafter, the Company shall
file a registration statement on such Form with respect to shares of Common
Stock issued under the Plan.
7.16 APPLICABILITY OF STOCKHOLDERS' AGREEMENT. Stock purchased pursuant
to grants of Options hereunder shall be subject to the terms of the
stockholders' agreement in effect on the date of adoption of the Plan, and as it
may be amended from time to time, or any successor agreement among the Company
and its shareholders. No certificates evidencing such stock shall be delivered
until the owner thereof has evidenced his acceptance of such stockholders'
agreement and any and all provisions thereof in writing. Certificates shall be
endorsed with appropriate notice of applicability of the stockholders'
agreement.
* * *
-9-
<PAGE> 1
EXHIBIT 10.7
EXECUTIVE CASH COMPENSATION PROGRAM - BASE PLAN 2000
The following plan is based on achieving certain financial performance by the
so-called base companies comprising Protocol Communications Inc. as of Jan. 1,
2000. Participation in this plan is in lieu of any other bonus cash compensation
provided for under previous plans or other agreements.
A. PARTICIPANTS AND SHARES OF BONUS POOL
<TABLE>
<CAPTION>
PARTICIPANTS SHARE OF POOL
------------ -------------
<S> <C>
D. Vandeveer 1.0
J. Lewis 1.0
D. Dearborn 1.0
C. Cohen 1.0
R. Roscoe 0.7
S. Mclean 0.5
B. Bossert 0.5
K. Blayne 0.5
R. Wilson 0.5
D. Collins 0.2
D. Zonies 0.1
---
TOTAL SHARES 7.0
</TABLE>
B. FUNDING OF THE BONUS POOL
The bonus pool shall be funded by the first one million dollars of EBITDA, or
part thereof, which exceeds the Company's base EBITDA plan of $20.8M, post
review by the Company's auditors. Pro Forma adjustments to the plan, if any, to
reflect changes which occur in the structure of the Company in the year 2000
will be mutually agreed to by the Board of Protocol and a majority of the Shares
of the pool.
The pool shall be further funded by fifty percent of the EBITDA achieved by the
Company in excess of $21.8M. Such additional EBITDA funding will cease with
respect to any participant at such time as the total actual dollars received
from the pool (or from any other Company established bonus pool) are equal to
that participant's base compensation. It is the intent of this limitation than
no Executive of the Company receives a bonus from the company of more than one
times base salary.
<PAGE> 2
C. APPLICATION OF SHARES UPON OCCURRENCE OF THE BONUS CAP
For purposes of calculation of actual bonus payments, if and as each
participant reaches his salary and bonus cap as defined herein, that
participant shall be removed from the pool. Thereafter, all bonus dollars
remaining in the pool shall be distributed to the remaining members of the pool
as a ratio of their original shares of the pool divided by the remaining shares
in the pool. This process shall continue until there are either no further
dollars in the pool or all members have achieved their caps. EXAMPLE: Assume
that the EVP's reach their caps, and there remains $100. In the pool to
distribute, Bob Roscoe's share is computed as .7 (his orig. share) divided by
2.9 (the shares remaining in the pool) times $100 (the money remaining in the
pool).
D. DISCRETION OF PRESIDENT/CEO
Except as may be otherwise required by the provisions of a participant's
employment or other agreement, continued participation in the bonus pool is at
the discretion of the President and CEO of the Company. It is expected, at a
minimum, that failure on the part of the participant to achieve individually
assigned goals, or, as appropriate, division goals, for the year 2000, or, lack
of EXTRAORDINARY EFFORT on the part of the participant relative to his peers in
achieving the Company's stretch plan, would result in exclusion from the plan
in the sole discretion of the Company CEO.
E. OTHER CONDITIONS
Bonuses, if any, will be paid following the conclusion of the Company's
year-end audit by KPMG. Eligibility for the bonus requires that the participant
continuously be an employee of the Company through the date on which payment is
actually made.
This plan may be terminated, in whole or in part, by unanimous action of the
Board of Directors of the Company, if deemed necessary by the Board incident to
an IPO which actually occurs in the year 2000.
<PAGE> 1
EXHIBIT 10.8
Executive Cash Compensation Program -- Acquisition Plan 2000
The following plan is based on achieving certain financial performance by
companies acquired by Protocol Communications Inc. during 2000. Participation
in this plan is in lieu of any other bonus cash compensation provided for under
previous plans or other agreements except the Base Executive Compensation Plan
for 2000.
A. PARTICIPANTS AND SHARES OF BONUS POOL
<TABLE>
<CAPTION>
PARTICIPANTS SHARE OF POOL
------------ -------------
<S> <C>
D. Vandeveer 0.1
J. Lewis 0.1
D. Dearborn 0.1
C. Cohen 0.1
D. Collins 0.2
J. Cohen 0.2
D. Zonies 0.4
S. McIcan 0.5
B. Bossert 0.5
K. Blayne 0.5
A. Knee 0.7
R. Wilson 1.0
---
TOTAL SHARES 4.4
</TABLE>
B. FUNDING OF THE BONUS POOL
The bonus pool shall be funded by the first one million dollars of EBITDA, or
part thereof, which exceeds the total acquired units EBITDA plan as agreed to
for each acquired company, based on 20% growth from adjusted 1999 EBITDA, post
review by the Company's auditors. Pro Forma adjustments to the plan, if any, to
reflect changes which occur in the structure of the Company in the year 2000
will be mutually agreed to by the Board of Protocol and a majority of the
Shares of the pool.
The pool shall be further funded by fifty percent of the EBITDA achieved by the
acquired units in excess of $1m over the agreed upon plan. Such additional
EBITDA funding will cease with respect to any participant at such time as the
total actual dollars received from the pool (or from any other Company
established bonus pool) are equal to that participant's base compensation. It
is the intent of this limitation than no Executive of the Company receives a
bonus from the company of more than one times base salary.
<PAGE> 2
C. APPLICATION OF SHARES UPON OCCURRENCE OF THE BONUS CAP
For purposes of calculation of actual bonus payments, if and as each participant
reaches his salary and bonus cap as defined herein, that participant shall be
removed from the pool. Thereafter, all bonus dollars remaining in the pool shall
be distributed to the remaining members of the pool as a ratio of their original
shares of the pool divided by the remaining shares in the pool. This process
shall continue until there are either no further dollars in the pool or all
members have achieved their caps. EXAMPLE: Assume that the 4 EVP's reach their
caps, and there remains $100 in the pool to distribute. Andrew Knee's share is
computed as .7 (his orig. share) divided by 3.9 (the shares remaining in the
pool) times $100 (the money remaining in the pool).
D. LIMITATIONS ON INDIVIDUALS
Not more than 25% of the total bonus paid under this and any other Company plan
to the four EVP's can come from this acquisition plan. Not more than 50% of the
total bonus paid under this and any other Company plan to S. McLean, K. Blayne,
and B. Bossert can come from this acquisition plan. EXAMPLE: Assume J. Lewis is
entitled to a $75 bonus from the Base Company plan. His bonus under this plan
will be limited to an additional $25. ($100 total bonus, 25% from this plan).
If this limitation should be applicable, the remaining bonus allocation will be
calculated as specified in Paragraph C.
E. LIMITATIONS ON TOTAL POOL
In the event that the Base Company units should fall short of the EBITDA plan
of $20.8m, such shortfall will be deducted from any excess EBITDA achieved by
the acquisition units before calculation of the acquisition bonus pool.
EXAMPLE: Assume that the Base Companies achieve $20.5m EBITDA ($.3m under plan)
and the acquisition units achieve EBITDA of $.7m over plan. $.3m will be
deducted from the acquisition bonus pool to cover the shortfall in the Base
Company plan. There would be no bonus pool applicable to the Base Company plan,
and the acquisition bonus pool would be $.4m (acquisition over-achievement
minus Base Company shortfall)
F. DISCRETION OF PRESIDENT/CEO
Except as may be otherwise required by the provisions of a participant's
employment or other agreement, continued participation in this bonus pool is at
the discretion of the President and CEO of the Company. It is expected, at a
minimum, that failure on the part of the participant to achieve individually
assigned goals, or, as appropriate, division goals, for the year 2000, or, lack
of EXTRAORDINARY EFFORT on the part of the participant
2
<PAGE> 3
relative to his peers in achieving the Company's stretch plan, would result in
exclusion from the plan in the sole discretion of the Company CEO.
G. OTHER CONDITIONS
Bonuses, if any, will be paid following the conclusion of the Company's
year-end audit by KPMG. Eligibility for the bonus requires that the participant
continuously be an employee of the Company through the date on which payment is
actually made.
This plan may be terminated, in whole or in part, by unanimous action of the
Board of Directors of the Company, if deemed necessary by the Board incident to
an IPO that actually occurs in the year 2000.
3
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT dated as
of September 29, 1999 by and between PROTOCOL HOLDINGS, INC., a Delaware
corporation (the "Company"), and Stephen G. McLean (the "Executive").
W I T N E S S E T H:
WHEREAS the Company and the Executive have entered into that
certain Executive Employment Agreement dated as of June 8, 1998, as amended; and
WHEREAS the Company desires to induce the Executive to
continue his employment with the Company for the period provided in this
Agreement, and the Executive is willing to accept such continuation of
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises
hereof and the mutual covenants contained herein, the parties hereto hereby
covenant and agree as follows:
1. Employment. (a) The Company hereby employs the Executive,
and the Executive hereby accepts such employment with the Company, for the
period set forth in Section 2 hereof, all upon the terms and conditions
hereinafter set forth.
(b) The Executive affirms and represents that he is under no
obligation to any former employer or other party that is in any way inconsistent
with, or that imposes any restriction upon, the Executive's acceptance of
employment hereunder with the Company, the employment of the Executive by the
Company, or the Executive's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as provided
in this Agreement, the term of the Executive's employment under this Agreement
shall be for a period beginning on the date of the Initial Closing under (and as
defined in) the Recapitalization Agreement dated as of the date hereof among the
Company, BCI Growth V, L.P., Willis Stein & Partners II, L.P. and the other
signatories thereto (the "Recapitalization Closing") and ending on the second
anniversary of such date (the "Initial Term"). Thereafter, this Agreement shall
be automatically renewed for successive one year periods commencing on the
anniversary date of this Agreement in each subsequent year (the Initial Term,
together with any subsequent employment period being referred to herein as the
"Employment Term"); provided, however, that either party may elect to terminate
this Agreement as of the end of the then current Employment Term, by written
notice to such effect delivered to the other party at least 90 days prior to the
end of such Term.
3. Duties. The Executive shall be employed as President and
Chief Executive Officer of the Company, shall faithfully perform such duties
consistent with such position and as
<PAGE> 2
are specified in the Bylaws of the Company and shall also perform and discharge
such other executive employment duties and responsibilities consistent with such
position as the Board of Directors of the Company shall from time to time
reasonably determine. The Executive shall perform his duties principally at the
executive offices of the Company in Boston, Massachusetts or Sarasota, Florida,
with such travel to such other locations from time to time as the Board of
Directors of the Company may reasonably prescribe. Except as may otherwise be
approved in advance by the Board of Directors of the Company, and except during
vacation periods and reasonable periods of absence due to sickness, personal
injury or other disability, the Executive shall devote his full time throughout
the Employment Term to the services required of him hereunder. The Executive
shall render his business services exclusively to the Company and its
subsidiaries during the Employment Term and shall use his good faith efforts,
judgment and energy to improve and advance the business and interests of the
Company and its subsidiaries in a manner consistent with the duties of his
position. It is the intent of the Company to relocate its principal offices to
Boston, Massachusetts and the Company shall pay for all reasonable relocation
expenses incurred by the Executive and his family (in an amount grossed up for
any taxes thereon).
4. Salary; Bonus. (a) Salary. As compensation for the services
to be performed by the Executive hereunder during the Employment Term, the
Company shall pay the Executive a base salary at the annual rate of $270,000
(said amount, together with any increases thereto as may be determined from time
to time by the Compensation Committee of the Board of Directors of the Company
in its sole discretion, being hereinafter referred to as "Salary"). Any Salary
payable hereunder shall be paid in regular intervals in accordance with the
Company's regular payroll practices from time to time in effect.
(b) Bonus. On the date of the Recapitalization Closing, the
Executive shall be paid $140,000 in respect of the Company's existing Executive
Cash Incentive Program. Upon such payment, such program shall terminate and the
Executive shall have no further rights thereunder. Commencing with the first
fiscal quarter of 2000, the Executive shall be eligible to participate in the
new Executive Cash Incentive Program (the "New Executive Cash Incentive
Program"), the terms of which are outlined in Exhibit A hereto, which shall be
approved by the Board of Directors of the Company at its first meeting
subsequent to the Recapitalization Closing. The terms of a executive cash
incentive program for the fourth fiscal quarter of 1999 shall be proposed by the
Executive and reviewed by the Board of Directors at its first meeting subsequent
to the Recapitalization Closing. In addition, the Executive shall be eligible to
receive bonus compensation ("Bonus") from the Company in respect of each fiscal
year occurring during the Employment Term in amounts, if any, as may be
determined by the Compensation Committee of the Board of Directors of the
Company in its sole discretion on the basis of performance-based criteria to be
established from time to time by such Committee and that are reasonably
acceptable to the Executive.
(c) Withholding, etc. The payment of any Salary and Bonus
under this Section 4, and the payment of any severance pay pursuant to Section 7
hereof, shall be subject to applicable withholding and payroll taxes and such
other deductions as may be required under the Company's employee benefit plans.
2
<PAGE> 3
(d) Shares and Options. Simultaneously with the
Recapitalization Closing all shares of the Company's common stock issued to the
Executive pursuant to the Company's 1998 Stock Option Plan, the Stock Grant
Agreement executed by the execution pursuant thereto and otherwise shall vest in
Executive free and clear of any and all rights of the Company with respect
thereto, except as otherwise specifically set forth in the Stockholders
Agreement dated as of the Recapitalization Closing among the Company and its
stockholders named therein.
(e) The Company will adopt its 2000 Stock Option Plan, a copy
of which has been delivered to the Executive pursuant to which the Company will
reserve for issuance of options with the terms set forth in Exhibit B hereto
covering up to 785,000 of such shares to the persons set forth on Schedule I
hereto.
5. Other Benefits. During the Employment Term, the Executive
shall:
(i) be eligible to participate in employee fringe benefits and
pension and/or profit sharing plans that may be provided by the Company
for its senior executive employees in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(ii) be eligible to participate in any medical and health
plans or other employee welfare benefit plans that may be provided by
the Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to twenty (20) paid vacation days in each
calendar year (subject to expiration in accordance with Company policy
in effect from time to time) and also be entitled to all paid holidays
given by the Company to its senior executive officers;
(iv) be entitled to sick leave, sick pay and disability
benefits in accordance with any Company policy that may be applicable
to senior executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable
out-of-pocket business expenses incurred by the Executive in the
performance of his duties hereunder (including, without limitation,
business travel and entertainment expenses) in accordance with Company
policy that may be applicable to senior executive employees from time
to time.
6. Confidential Information. The Executive hereby covenants,
agrees and acknowledges as follows:
(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company and any other present or future subsidiaries or affiliates
of the Company (collectively with the Company, the "Company Group"),
3
<PAGE> 4
including but not limited to the following: (i) customer lists, the
identity, lists or descriptions of new or prospective customers,
financial statements, cost reports or other financial information,
contract proposals or bidding information, business plans, training and
operations methods and manuals, personnel records, software programs,
reports and correspondence, and management systems, policies or
procedures, including related forms and manuals; (ii) information
pertaining to future developments, such as future marketing or
acquisition plans or ideas; and (iii) all other tangible and intangible
property that is used in the business and operations of the Company
Group but not made public by the Company Group. The information and
trade secrets relating to the business of the Company Group described
above in this paragraph (a) are hereinafter referred to collectively as
the "Confidential Information"; provided that the term Confidential
Information shall not include any information (w) that is or becomes
generally publicly available (other than as a result of violation of
this Agreement by the Executive), (x) that the Executive receives or
received on a nonconfidential basis from a source (other than the
Company Group or its representatives) that is not actually known by him
to be bound by an obligation of secrecy or confidentiality to any
member of the Company Group, (y) that is the personal property of the
Executive, including, but not limited to, phone lists of the Executive
or (z) that has been or is independently acquired or developed by the
Executive without violating any of the terms of this Agreement (other
than any such information developed or acquired by the Executive in
connection with his employment by the Company).
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Company Group in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but (to the extent reasonably practicable) only after providing (i)
prompt notice to the Company of any third party's request for such
information, which notice shall include the Executive's intent with
respect to such request, and (ii) sufficient opportunity for the
Company to challenge or limit the scope of the disclosure on behalf of
the Company Group, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach of the provisions of this Section 6 would be inadequate
and, therefore, agrees that the Company shall be entitled to injunctive
relief in addition to any other available rights and remedies in case
of any such breach; provided, however, that nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
rights and remedies available for any such breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer disks
and other electronic media).
4
<PAGE> 5
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this Agreement
until two years from the date of his termination.
7. Termination. (a) The Executive's employment hereunder shall
be terminated upon the occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties on
account of disability or incapacity for a period of 180 or more days,
whether or not consecutive, within any period of twelve consecutive
months;
(iii) a Termination For Cause (as defined herein);
(iv) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated other
than pursuant to clause (ii) or (iii) above;
(v) a termination of the Executive's employment hereunder by
Executive for Good Reason (as defined herein); or
(vi) a termination of the Executive's employment hereunder by
the Executive at any time other than for Good Reason.
(b) In the event that the Executive's employment is terminated
pursuant to paragraph (a)(iv) or (a)(v) above or in the event that the Company
shall, at any time, elect not to renew this Agreement, then for the remainder of
the then current Employment Term plus an additional 12-month period following
the Employment Term the Company shall (i) pay (as severance or liquidated
damages or both) the Salary that would have otherwise been payable to the
Executive during such period and (ii) maintain for the benefit of the Executive
those medical and health benefits contemplated by clause (ii) of Section 5 of
this Agreement. One-half of the payments described in clause (i) of this
paragraph (b) shall be made in a lump sum on the date that the Executive's
employment is terminated, and one-half of such payments shall be made in equal
installments during the Non-Compete Period (as defined below) in accordance with
the Company's regular payroll policies. In addition, in event of such
termination, the Company shall pay to the Executive any Bonus and any amounts
earned under the New Executive Cash Incentive Program that would have been
payable to the Executive through the date of termination of the Executive's
employment in accordance with the Company's regular payroll practices.
(c) Notwithstanding anything to the contrary expressed or
implied herein, except as required by applicable law and except as set forth in
Section 7(b) above, the Company (and its affiliates) shall not be obligated to
make any payments to the Executive or on his behalf of whatever kind or nature
by reason of the Executive's cessation of employment (including,
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without limitation, by reason of a Termination For Cause), other than (i) such
amounts, if any, of his Salary as shall have accrued and remained unpaid as of
the date of said cessation and (ii) such other amounts, if any, which may be
then otherwise payable to the Executive pursuant to the terms of the Company's
benefits plans or pursuant to clause (v) of Section 5 above.
(d) No interest shall accrue on or be paid with respect to any
portion of any payments hereunder if paid when due.
For purposes of this Agreement, the term "Termination for
Cause" shall mean the termination of Executive's employment hereunder by the
Company determined in good faith by a majority of the Board of Directors at any
time as a result of any of the following with respect to the Executive: (a) a
breach of trust, including without limitation, acts of moral turpitude, theft,
embezzlement and self-dealing, (b) the disclosure of confidential information
which results (or can be reasonably be expected to result) in material harm to
the Company, or (c) willful misconduct which results (or can reasonably be
expected to result) in material harm to the Company.
For purposes of this Agreement, the term "Termination for Good
Reason" shall mean a termination of Executive's employment with the Company as a
result of (i) requiring the Executive to engage in any illegal act, (ii)
relocation of Executive's principal place of performance other than to Boston,
Massachusetts, without his prior written consent, (iii) a material adverse
change in any of Executive's compensation (including without limitation, Salary,
bonus or stock options or awards), or (iv) a material failure by the Company to
comply with the terms of this Agreement.
8. Right and Option of Company to Repurchase Shares and
Options Upon the Termination of Employment. (a) In the event that the
Executive's employment is terminated for any reason (including, without
limitation, election by the Company or the Executive not to renew this
Agreement), the Company shall have the right, exercisable as set forth in
Section 8(d), at any time on or after the date of such termination and prior to
30 days after such termination, to purchase from the Executive all or any part
of the shares of capital stock or options to purchase capital stock of the
Company held by the Executive as of the date his employment so ceases at a
purchase price equal to, (i) for the shares, the Fair Market Value (as defined
below) of such shares as of the date the Executive's employment so ceases and
(ii) for the options to purchase capital stock, an amount equal to the Fair
Market Value of the shares subject thereto as of the date the Executive's
employment so ceases less the aggregate exercise price thereof.
(b) In the event that the Executive's employment is terminated
for any reason (including, without limitation, election by the Company not to
renew this Agreement) other than pursuant to Section 7(a)(iii) or (vi), the
Executive shall have the right, exercisable as set forth in Section 8(d), at any
time on or after the date of such termination and prior to 30 days after such
termination in accordance with Section 8(d) below, to require the Company to
purchase from the Executive all or any part of the shares of capital stock or
options to purchase capital stock of the Company held by the Executive as of the
date his employment so ceases at a purchase price equal to, (i) for the shares,
the Fair Market Value (as defined below) of such shares as of the date the
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Executive's employment so ceases and (ii) for the options to purchase capital
stock, an amount equal to the Fair Market Value of the shares subject thereto as
of the date the Executive's employment so ceases less the aggregate exercise
price thereof.
(c) For the purposes of this Agreement, the "Fair Market
Value" of a share of capital stock of the Company as of any date shall mean the
value of a share of capital stock as determined in good faith by mutual
agreement of the Board of Directors of the Company and the Executive based on
(X) the most recently completed arm's-length sale for cash by the Company to a
third party of shares of the same class of capital stock, the closing of which
shall have occurred within the three months preceding such date or, (Y) in the
case of the Company's Common Stock, if no such transaction shall have occurred
within such three-month period, the exercise price of options granted pursuant
to the Company's option plan within the three months preceding such date. If the
Executive does not agree to the amount of such valuation with respect to any of
his shares of capital stock, the value will be determined by an independent
investment bank selected by the Company (at the Company's expense) and
reasonably satisfactory to the Executive. The Executive may request a second
appraisal by an independent investment bank selected by the Executive and
reasonably acceptable to the Company. In the event that (i) the valuation of the
second appraisal is equal to or less than the valuation of the first appraisal,
the expenses of such appraisal shall be borne by the Executive, (ii) the
valuation of the second appraisal is greater than the valuation of the first
appraisal but equal to or less than 120% of the valuation of the first
appraisal, the expenses of such appraisal shall be borne equally by the Company
and the Executive, and (iii) the valuation of the second appraisal is greater
than 120% of the valuation of the first appraisal, the expenses of such
appraisal shall be borne by the Company. In the event that the two banks cannot
agree on the fair market value, such value shall be determined by taking the
average of the two valuations of the investment banks. The value of a share of
capital stock of the Company shall assume that all shares of outstanding capital
stock of the Company are fully-converted into shares of Common Stock without
applying any premium with respect to preferred stock or discount with respect to
Common Stock. Any investment bank hired pursuant to this paragraph (c) shall be
given full access to the Company in making its valuation, and both the Company
and the Executive shall be involved in all communications with such banks.
(d) The Company or the Executive may exercise the right and
option provided in Section 8(a) or (b) above by giving a written notice of such
election within the time period provided in such Section 8(a) and (b), as the
case may be. The closing for the purchase by the Company of any shares or
options pursuant to the provisions of said Section 8(a) or (b) shall take place
at the offices of the Company on the date specified in such written notice,
which date shall be a business day not later than 10 days after the date on
which the Fair Market Value is finally determined. At such closing, the
Executive will deliver or cause to be delivered stock certificate(s) or option
agreements and option exercise forms representing the shares or options to be
sold, duly endorsed for transfer and free and clear of any and all liens,
claims, option, charges, security interests and other encumbrances of whatsoever
nature (collectively, "Encumbrances"), against payment of the applicable
purchase price therefor. Such purchase price shall be payable to the Executive
by wire transfer of immediately available funds to an account designated by the
Executive. At such closing the Executive shall also represent to the Company
that such shares or
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options, as the case may be, are free and clear of any and all Encumbrances. To
the extent the Company or the Executive fails to duly exercise such right and
option under Section 8(a) or (b) to purchase any shares or options, all shares
or options owned by the Executive shall thereupon cease to be subject to the
provisions of this Section 8.
9. Non-Assignability. (a) Neither this Agreement nor any right
or interest hereunder shall be assignable by the Executive or his beneficiaries
or legal representatives without the Company's prior written consent; provided,
however, that nothing in this Section 9(a) shall preclude the Executive from
designating a beneficiary to receive any benefit payable hereunder upon his
death or incapacity or the transfer of any such benefits by the laws of
intestate descent.
(b) Except as permitted by Section 9(a) above or as required
by law, no right to receive payments under this Agreement shall be subject to
anticipation, commutation, alienation, sale, assignment, encumbrance, charge,
pledge, or hypothecation or to exclusion, attachment, levy or similar process or
to assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
10. Restrictive Covenants.
(a) Non-Competition. During the Non-Compete Period (as defined
herein), the Executive will not, directly or indirectly (as a director, officer,
executive employee, manager, consultant, independent contractor, advisor or
otherwise), engage in competition with the Company, or own any interest in,
perform any services for, participate in or be connected with any business or
organization which engages in activities in competition with the Company;
provided, however, that the provisions of this Section 10(a) shall not be deemed
to prohibit the Executive's ownership, whether directly or indirectly, of (x)
not more than 2% of the total shares of all classes of stock outstanding of any
publicly held company or (y) not more than 1% of the aggregate outstanding
equity interests of any other business entity.
(b) Non-Solicitation. During the applicable Non-Compete
Period, the Executive will not directly or indirectly induce or attempt to
induce any employee of the Company to leave the employ of the Company or such
subsidiary or affiliate, or in any way interfere with the relationship between
the Company and any employee thereof; provided, however, that if an individual
is not an employee of the Company at any time during the Employment Term, the
terms of this paragraph (b) shall not apply with respect to such individual.
For purposes hereof, the "Non-Compete Period" shall mean the
Employment Term plus (x) 12 months from the date of termination in the event of
a Termination For Cause, (y) any period in respect of which payments pursuant to
Section 7(b) hereof are required to be, and are, paid in full or (z) the greater
of 24 months or the balance of the current Employment Term (without giving
effect to the termination of the Employee's employment hereunder or to any
extensions thereof), in the event of a resignation pursuant to Section 7(a)(vi).
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(c) Injunctive Relief. The Executive acknowledges and agrees
that a remedy at law for any breach or threatened breach of the provisions of
Section 6 or 10 hereof would be inadequate and, therefore, agrees that the
Company and any of its subsidiaries or affiliates shall be entitled to
injunctive relief in addition to any other available rights and remedies in
cases of any such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting the Company or any of its
affiliates from pursuing any other rights and remedies available for any such
breach or threatened breach.
11. Binding Effect. Without limiting or diminishing the effect
of Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
12. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Executive, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
13. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Massachusetts.
14. Severability. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 10 hereof is void or constitutes an unreasonable restriction
against the Executive, the provisions of such Section 6 or 10 shall not be
rendered void but shall apply with respect to such extent as such court may
judicially determine constitutes a reasonable restriction under the
circumstances. If any part of this Agreement other than Section 6 or 10 is held
by a court of competent jurisdiction to be invalid, illegible or incapable of
being enforced in whole or in part by reason of any rule of law or public
policy, such part shall be deemed to be severed from the remainder of this
Agreement for the purpose only of the particular legal proceedings in question
and all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
15. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
16. Entire Agreement; Modifications. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supercedes all prior agreements, oral
and written, between the parties hereto with respect to the
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subject matter hereof. This Agreement may be modified or amended only by an
instrument in writing signed by both parties hereto.
17. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Recapitalization Closing. In the event that the
Recapitalization Closing shall not occur, this Agreement shall be void ab
initio.
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IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
PROTOCOL HOLDINGS, INC.
By: /s/ Raymond Wilson
Name:
Title:
/s/ Stephen G. McLean
Stephen G. McLean
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EXHIBIT 10.10
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT dated as
of September 29, 1999 by and between PROTOCOL HOLDINGS, INC., a Delaware
corporation (the "Company"), and Raymond Wilson (the "Executive").
W I T N E S S E T H :
WHEREAS the Company and the Executive have entered into that
certain Executive Employment Agreement dated as of June 8, 1998, as amended; and
WHEREAS the Company desires to induce the Executive to
continue his employment with the Company for the period provided in this
Agreement, and the Executive is willing to accept such continuation of
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises
hereof and the mutual covenants contained herein, the parties hereto hereby
covenant and agree as follows:
1. Employment. (a) The Company hereby employs the Executive,
and the Executive hereby accepts such employment with the Company, for the
period set forth in Section 2 hereof, all upon the terms and conditions
hereinafter set forth.
(b) The Executive affirms and represents that he is under no
obligation to any former employer or other party that is in any way inconsistent
with, or that imposes any restriction upon, the Executive's acceptance of
employment hereunder with the Company, the employment of the Executive by the
Company, or the Executive's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as provided
in this Agreement, the term of the Executive's employment under this Agreement
shall be for a period beginning on the date of the Initial Closing under (and as
defined in) the Recapitalization Agreement dated as of the date hereof among the
Company, BCI Growth V, L.P., Willis Stein & Partners II, L.P. and the other
signatories thereto (the "Recapitalization Closing") and ending on the first
anniversary of such date (the "Initial Term"). Thereafter, this Agreement shall
be automatically renewed for successive one year periods commencing on the
anniversary date of this Agreement in each subsequent year (the Initial Term,
together with any subsequent employment period being referred to herein as the
"Employment Term"); provided, however, that either party may elect to terminate
this Agreement as of the end of the then current Employment Term, by written
<PAGE> 2
notice to such effect delivered to the other party at least 90 days prior to the
end of such Term.
3. Duties. The Executive shall be employed as Vice President,
Finance and Chief Financial Officer, or such other senior executive officer
position with a title to be determined by the President, shall faithfully
perform such duties consistent with such position and as are specified in the
Bylaws of the Company and shall also perform and discharge such other executive
employment duties and responsibilities consistent with such position as the
Board of Directors of the Company shall from time to time reasonably determine.
The Executive shall perform his duties principally at the executive offices of
the Company in Boston, Massachusetts, with such travel to such other locations
from time to time as the Board of Directors of the Company may reasonably
prescribe. Except as may otherwise be approved in advance by the Board of
Directors of the Company, and except during vacation periods and reasonable
periods of absence due to sickness, personal injury or other disability, the
Executive shall devote his full time throughout the Employment Term to the
services required of him hereunder. The Executive shall render his business
services exclusively to the Company and its subsidiaries during the Employment
Term and shall use his good faith efforts, judgment and energy to improve and
advance the business and interests of the Company and its subsidiaries in a
manner consistent with the duties of his position.
4. Salary; Bonus. (a) Salary. As compensation for the services
to be performed by the Executive hereunder during the Employment Term, the
Company shall pay the Executive a base salary at the annual rate of $190,000
(said amount, together with any increases thereto as may be determined from time
to time by the Compensation Committee of the Board of Directors of the Company
in its sole discretion, being hereinafter referred to as "Salary"). Any Salary
payable hereunder shall be paid in regular intervals in accordance with the
Company's regular payroll practices from time to time in effect.
(b) Bonus. On the date of the Recapitalization Closing, the
Executive shall be paid $70,000 in respect of the Company's existing Executive
Cash Incentive Program. Upon such payment, such program shall terminate and the
Executive shall have no further rights thereunder. Commencing with the first
fiscal quarter of 2000, the Executive shall be eligible to participate in the
new Executive Cash Incentive Program (the "New Executive Cash Incentive
Program"), the terms of which are outlined in Exhibit A hereto, which shall be
approved by the Board of Directors of the Company at its first meeting
subsequent to the Recapitalization Closing. The terms of an executive cash
incentive program for the fourth fiscal quarter of 1999 shall be proposed by the
Executive and reviewed by the Board of Directors at its first meeting subsequent
to the Recapitalization Closing. In addition, the Executive shall be eligible to
receive bonus compensation ("Bonus") from the Company in respect of each fiscal
year occurring during the Employment Term in amounts, if any, as may be
determined by the
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Compensation Committee of the Board of Directors of the Company in its sole
discretion on the basis of performance-based criteria to be established from
time to time by such Committee and that are reasonably acceptable to the
Executive.
(c) Withholding, etc. The payment of any Salary and Bonus
under this Section 4, and the payment of any severance pay pursuant to Section 7
hereof, shall be subject to applicable withholding and payroll taxes and such
other deductions as may be required under the Company's employee benefit plans.
(d) Shares and Options. Simultaneously with the
Recapitalization Closing all shares of the Company's common stock issued to the
Executive pursuant to the Company's 1998 Stock Option Plan, the Stock Grant
Agreement executed by the execution pursuant thereto and otherwise shall vest in
the Executive free and clear of any and all rights of the Company with respect
thereto, except as otherwise specifically set forth in the Stockholders
Agreement dated as of the Recapitalization Closing among the Company and its
stockholders named therein.
(e) The Company will adopt its 2000 Stock Option Plan, a copy
of which has been delivered to the Executive pursuant to which the Company will
reserve for issuance of options with the terms set forth in Exhibit B hereto
covering up to 785,000 of such shares to the persons set forth on Schedule I
hereto.
5. Other Benefits. During the Employment Term, the Executive
shall:
(i) be eligible to participate in employee fringe
benefits and pension and/or profit sharing plans that may be provided
by the Company for its senior executive employees in accordance with
the provisions of any such plans, as the same may be in effect from
time to time;
(ii) be eligible to participate in any medical and
health plans or other employee welfare benefit plans that may be
provided by the Company for its senior executive employees in
accordance with the provisions of any such plans, as the same may be in
effect from time to time;
(iii) be entitled to twenty (20) paid vacation days in
each calendar year (subject to expiration in accordance with Company
policy in effect from time to time) and also be entitled to all paid
holidays given by the Company to its senior executive officers;
(iv) be entitled to sick leave, sick pay and
disability benefits in accordance with any Company policy that may be
applicable to senior executive employees from time to time; and
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(v) be entitled to reimbursement for all reasonable
out-of-pocket business expenses incurred by the Executive in the
performance of his duties hereunder (including, without limitation,
business travel and entertainment expenses) in accordance with Company
policy that may be applicable to senior executive employees from time
to time.
6. Confidential Information. The Executive hereby covenants,
agrees and acknowledges as follows:
(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company and any other present or future subsidiaries or affiliates
of the Company (collectively with the Company, the "Company Group"),
including but not limited to the following: (i) customer lists, the
identity, lists or descriptions of new or prospective customers,
financial statements, cost reports or other financial information,
contract proposals or bidding information, business plans, training and
operations methods and manuals, personnel records, software programs,
reports and correspondence, and management systems, policies or
procedures, including related forms and manuals, (ii) information
pertaining to future developments, such as future marketing or
acquisition plans or ideas, and (iii) all other tangible and intangible
property that is used in the business and operations of the Company
Group but not made public by the Company Group. The information and
trade secrets relating to the business of the Company Group described
above in this paragraph (a) are hereinafter referred to collectively as
the "Confidential Information"; provided that the term Confidential
Information shall not include any information (w) that is or becomes
generally publicly available (other than as a result of violation of
this Agreement by the Executive), (x) that the Executive receives or
received on a nonconfidential basis from a source (other than the
Company Group or its representatives) that is not actually known by him
to be bound by an obligation of secrecy or confidentiality to any
member of the Company Group, (y) that is the personal property of the
Executive, including, but not limited to, phone lists of the Executive
or (z) that has been or is independently acquired or developed by the
Executive without violating any of the terms of this Agreement (other
than any such information developed or acquired by the Executive in
connection with his employment by the Company).
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Company Group in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but (to the extent reasonably practicable) only
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after providing (i) prompt notice to the Company of any third party's
request for such information, which notice shall include the
Executive's intent with respect to such request, and (ii) sufficient
opportunity for the Company to challenge or limit the scope of the
disclosure on behalf of the Company Group, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach of the provisions of this Section 6 would be inadequate
and, therefore, agrees that the Company shall be entitled to injunctive
relief in addition to any other available rights and remedies in case
of any such breach; provided, however, that nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
rights and remedies available for any such breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer disks
and other electronic media).
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this Agreement
until two years from the date of his termination.
7. Termination. (a) The Executive's employment hereunder shall
be terminated upon the occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties
on account of disability or incapacity for a period of 180 or more
days, whether or not consecutive, within any period of twelve
consecutive months;
(iii) a Termination For Cause (as defined herein);
(iv) the Company giving written notice, at any time,
to the Executive that the Executive's employment is being terminated
other than pursuant to clause (ii) or (iii) above;
(v) a termination of the Executive's employment
hereunder by the Executive for Good Reason (as defined herein); or
(vi) a termination of the Executive's employment
hereunder by the Executive at any time other than for Good Reason.
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(b) In the event that the Executive's employment is terminated
pursuant to paragraph (a)(iv) or (a)(v) above or in the event that the Company
shall, at any time, elect not to renew this Agreement, then for the remainder of
the then current Employment Term plus an additional 12-month period following
the Employment Term the Company shall (i) pay (as severance or liquidated
damages or both) the Salary that would have otherwise been payable to the
Executive during such period and (ii) maintain for the benefit of the Executive
those medical and health benefits contemplated by clause (ii) of Section 5 of
this Agreement. One-half of the payments described in clause (i) of this
paragraph (b) shall be made in a lump sum on the date that the Executive's
employment is terminated, and one-half of such payments shall be made in equal
installments during the Non-Compete Period (as defined below) in accordance with
the Company's regular payroll policies. In addition, in the event of such
termination, the Company shall pay to the Executive any Bonus and any amounts
earned under the New Executive Cash Incentive Program that would have been
payable to the Executive through the date of termination of the Executive's
employment in accordance with the Company's regular payroll practices.
(c) Notwithstanding anything to the contrary expressed or
implied herein, except as required by applicable law and except as set forth in
Section 7(b) above, the Company (and its affiliates) shall not be obligated to
make any payments to the Executive or on his behalf of whatever kind or nature
by reason of the Executive's cessation of employment (including, without
limitation, by reason of a Termination For Cause), other than (i) such amounts,
if any, of his Salary as shall have accrued and remained unpaid as of the date
of said cessation and (ii) such other amounts, if any, which may be then
otherwise payable to the Executive pursuant to the terms of the Company's
benefits plans or pursuant to clause (v) of Section 5 above.
(d) No interest shall accrue on or be paid with respect to any
portion of any payments hereunder if paid when due.
For purposes of this Agreement, the term "Termination for
Cause" shall mean the termination of the Executive's employment hereunder by the
Company determined in good faith by a majority of the Board of Directors at any
time as a result of any of the following with respect to the Executive: (a) a
breach of trust, including without limitation, acts of moral turpitude, theft,
embezzlement and self-dealing, (b) the disclosure of confidential information
which results (or can reasonably be expected to result) in material harm to the
Company, or (c) willful misconduct which results (or can reasonably be expected
to result) in material harm to the Company.
For purposes of this Agreement, the term termination for "Good
Reason" shall mean a termination of the Executive's employment with the Company
as a result of (i) requiring the Executive to engage in any illegal act, (ii)
relocation of the Executive's principal place of performance other than to
Boston, Massachusetts, without his prior
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written consent, (iii) a material adverse change in any of the Executive's
titles, positions, duties or compensation (including without limitation, Salary,
Bonus or stock options or awards), or (iv) a material failure by the Company to
comply with the terms of this Agreement. Notwithstanding the foregoing, a change
in the Executive's title, positions and/or duties from Vice President, Finance
and Chief Financial Officer to another position pursuant to Section 3 hereof
shall not permit the Executive to terminate his employment with the Company for
Good Reason.
8. Right and Option of the Company to Repurchase Shares and
Options Upon the Termination of Employment. (a) In the event that the
Executive's employment is terminated for any reason (including, without
limitation, election by the Company or the Executive not to renew this
Agreement), the Company shall have the right, exercisable as set forth in
Section 8(d), at any time on or after the date of such termination and prior to
30 days after such termination, to purchase from the Executive all or any part
of the shares of capital stock or options to purchase capital stock of the
Company held by the Executive as of the date his employment so ceases at a
purchase price equal to: (i) for the shares, the Fair Market Value (as defined
below) of such shares as of the date the Executive's employment so ceases and
(ii) for the options to purchase capital stock, an amount equal to the Fair
Market Value of the shares subject thereto as of the date the Executive's
employment so ceases less the aggregate exercise price thereof.
(b) In the event that the Executive's employment is terminated
for any reason (including, without limitation, election by the Company not to
renew this Agreement) other than pursuant to Section 7(a)(iii) or (vi), the
Executive shall have the right, exercisable as set forth in Section 8(d), at any
time on or after the date of such termination and prior to 30 days after such
termination in accordance with Section 8(d) below, to require the Company to
purchase from the Executive all or any part of the shares of capital stock or
options to purchase capital stock of the Company held by the Executive as of the
date his employment so ceases at a purchase price equal to: (i) for the shares,
the Fair Market Value (as defined below) of such shares as of the date the
Executive's employment so ceases and (ii) for the options to purchase capital
stock, an amount equal to the Fair Market Value of the shares subject thereto as
of the date the Executive's employment so ceases less the aggregate exercise
price thereof.
(c) For the purposes of this Agreement, the "Fair Market
Value" of a share of capital stock of the Company as of any date shall mean the
value of a share of capital stock as determined in good faith by mutual
agreement of the Board of Directors of the Company and the Executive based on
(X) the most recently completed arm's-length sale for cash by the Company to a
third party of shares of the same class of capital stock, the closing of which
shall have occurred within the three months preceding such date, or (Y) in the
case of the Company's Common Stock, if no such transaction shall have occurred
within such three-month period, the exercise price of options granted pursuant
to the Company's option plan within the three months preceding such date. If the
Executive
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does not agree to the amount of such valuation with respect to any of his shares
of capital stock, the value will be determined by an independent investment bank
selected by the Company (at the Company's expense) and reasonably satisfactory
to the Executive. The Executive may request a second appraisal by an independent
investment bank selected by the Executive and reasonably acceptable to the
Company. In the event that (i) the valuation of the second appraisal is equal to
or less than the valuation of the first appraisal, the expenses of such
appraisal shall be borne by the Executive, (ii) the valuation of the second
appraisal is greater than the valuation of the first appraisal but equal to or
less than 120% of the valuation of the first appraisal, the expenses of such
appraisal shall be borne equally by the Company and the Executive, and (iii) the
valuation of the second appraisal is greater than 120% of the valuation of the
first appraisal, the expenses of such appraisal shall be borne by the Company.
In the event that the two banks cannot agree on the fair market value, such
value shall be determined by taking the average of the two valuations of the
investment banks. The value of a share of capital stock of the Company shall
assume that all shares of outstanding capital stock of the Company are
fully-converted into shares of Common Stock without applying any premium with
respect to preferred stock or discount with respect to Common Stock. Any
investment bank hired pursuant to this paragraph (c) shall be given full access
to the Company in making its valuation, and both the Company and the Executive
shall be involved in all communications with such banks.
(d) The Company or the Executive may exercise the right and
option provided in Section 8(a) or (b) above by giving written notice of such
election within the time period provided in such Section 8(a) and (b), as the
case may be. The closing for the purchase by the Company of any shares or
options pursuant to the provisions of said Section 8(a) or (b) shall take place
at the offices of the Company on the date specified in such written notice,
which date shall be a business day not later than 10 days after the date on
which the Fair Market Value is finally determined. At such closing, the
Executive will deliver or cause to be delivered stock certificate(s) or option
agreements and option exercise forms representing the shares or options to be
sold, duly endorsed for transfer and free and clear of any and all liens,
claims, options, charges, security interests and other encumbrances of whatever
nature (collectively, "Encumbrances"), against payment of the applicable
purchase price therefor. Such purchase price shall be payable to the Executive
by wire transfer of immediately available funds to an account designated by the
Executive. At such closing the Executive shall also represent to the Company
that such shares or options, as the case may be, are free and clear of any and
all Encumbrances. To the extent the Company or the Executive fails to duly
exercise such right and option under Section 8(a) or (b) to purchase any shares
or options, all shares or options owned by the Executive shall thereupon cease
to be subject to the provisions of this Section 8.
9. Non-Assignability. (a) Neither this Agreement nor any right
or interest hereunder shall be assignable by the Executive or his beneficiaries
or legal representatives
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without the Company's prior written consent; provided, however, that nothing in
this Section 9(a) shall preclude the Executive from designating a beneficiary to
receive any benefit payable hereunder upon his death or incapacity or the
transfer of any such benefits by the laws of intestate descent.
(b) Except as permitted by Section 9(a) above or as required
by law, no right to receive payments under this Agreement shall be subject to
anticipation, commutation, alienation, sale, assignment, encumbrance, charge,
pledge, or hypothecation or to exclusion, attachment, levy or similar process or
to assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
10. Restrictive Covenants.
(a) Non-Competition. During the Non-Compete Period (as defined
herein), the Executive will not, directly or indirectly (as a director, officer,
executive employee, manager, consultant, independent contractor, advisor or
otherwise), engage in competition with the Company, or own any interest in,
perform any services for, participate in or be connected with any business or
organization which engages in activities in competition with the Company;
provided, however, that the provisions of this Section 10(a) shall not be deemed
to prohibit the Executive's ownership, whether directly or indirectly, of (x)
not more than 2% of the total shares of all classes of stock outstanding of any
publicly held company or (y) not more than 1% of the aggregate outstanding
equity interests of any other business entity.
(b) Non-Solicitation. During the applicable Non-Compete
Period, the Executive will not directly or indirectly induce or attempt to
induce any employee of the Company to leave the employ of the Company or such
subsidiary or affiliate, or in any way interfere with the relationship between
the Company and any employee thereof; provided, however, that if an individual
is not an employee of the Company at any time during the Employment Term, the
terms of this paragraph (b) shall not apply with respect to such individual.
For purposes hereof, the "Non-Compete Period" shall mean the
Employment Term plus (x) 12 months from the date of termination in the event of
a Termination For Cause, (y) any period in respect of which payments pursuant to
Section 7(b) hereof are required to be, and are, paid in full or (z) the greater
of 24 months or the balance of the current Employment Term (without giving
effect to the termination of the Employee's employment hereunder or to any
extensions thereof), in the event of a resignation pursuant to Section 7(a)(vi).
(c) Injunctive Relief. The Executive acknowledges and agrees
that a remedy at law for any breach or threatened breach of the provisions of
Section 6 or 10 hereof would be inadequate and, therefore, agrees that the
Company and any of its
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subsidiaries or affiliates shall be entitled to injunctive relief in addition to
any other available rights and remedies in cases of any such breach or
threatened breach; provided, however, that nothing contained herein shall be
construed as prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened breach.
11. Binding Effect. Without limiting or diminishing the effect
of Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
12. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Executive, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
13. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Massachusetts.
14. Severability. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 10 hereof is void or constitutes an unreasonable restriction
against the Executive, the provisions of such Section 6 or 10 shall not be
rendered void but shall apply with respect to such extent as such court may
judicially determine constitutes a reasonable restriction under the
circumstances. If any part of this Agreement other than Section 6 or 10 is held
by a court of competent jurisdiction to be invalid, illegible or incapable of
being enforced in whole or in part by reason of any rule of law or public
policy, such part shall be deemed to be severed from the remainder of this
Agreement for the purpose only of the particular legal proceedings in question
and all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
15. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
16. Entire Agreement; Modifications. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supercedes all prior agreements, oral
and written, between the parties
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hereto with respect to the subject matter hereof. This Agreement may be modified
or amended only by an instrument in writing signed by both parties hereto.
17. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Recapitalization Closing. In the event that the
Recapitalization Closing shall not occur, this Agreement shall be void ab
initio.
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IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
PROTOCOL HOLDINGS, INC.
By /s/ Stephen G. McLean
---------------------------------
Name: Stephen G. McLean
Title: President/CEO
/s/ Raymond Wilson
---------------------------------
Raymond Wilson
<PAGE> 1
EXHIBIT 10.11
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT dated as
of September 29, 1999 by and between PROTOCOL HOLDINGS, INC., a Delaware
corporation (the "Company"), and Kevin Blayne (the "Executive").
W I T N E S S E T H:
WHEREAS the Company and the Executive have entered into that
certain Executive Employment Agreement dated as of June 8, 1998, as amended; and
WHEREAS the Company desires to induce the Executive to
continue his employment with the Company for the period provided in this
Agreement, and the Executive is willing to accept such continuation of
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises
hereof and the mutual covenants contained herein, the parties hereto hereby
covenant and agree as follows:
1. Employment. (a) The Company hereby employs the Executive,
and the Executive hereby accepts such employment with the Company, for the
period set forth in Section 2 hereof, all upon the terms and conditions
hereinafter set forth.
(b) The Executive affirms and represents that he is under no
obligation to any former employer or other party that is in any way inconsistent
with, or that imposes any restriction upon, the Executive's acceptance of
employment hereunder with the Company, the employment of the Executive by the
Company, or the Executive's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as provided
in this Agreement, the term of the Executive's employment under this Agreement
shall be for a period beginning on the date of the Initial Closing under (and as
defined in) the Recapitalization Agreement dated as of the date hereof among the
Company, BCI Growth V, L.P., Willis Stein & Partners II, L.P. and the other
signatories thereto (the "Recapitalization Closing") and ending on the first
anniversary of such date (the "Initial Term"). Thereafter, this Agreement shall
be automatically renewed for successive one year periods commencing on the
anniversary date of this Agreement in each subsequent year (the Initial Term,
together with any subsequent employment period being referred to herein as the
"Employment Term"); provided, however, that either party may elect to terminate
this Agreement as of the end of the then current Employment Term, by written
notice to such effect delivered to the other party at least 90 days prior to the
end of such Term.
<PAGE> 2
3. Duties. The Executive shall be employed as Vice President,
Sales and Marketing of the Company, shall faithfully perform such duties
consistent with such position and as are specified in the Bylaws of the Company
and shall also perform and discharge such other executive employment duties and
responsibilities consistent with such position as the Board of Directors of the
Company shall from time to time reasonably determine. The Executive shall
perform his duties principally at the executive offices of the Company in
Boston, Massachusetts, with such travel to such other locations from time to
time as the Board of Directors of the Company may reasonably prescribe. Except
as may otherwise be approved in advance by the Board of Directors of the
Company, and except during vacation periods and reasonable periods of absence
due to sickness, personal injury or other disability, the Executive shall devote
his full time throughout the Employment Term to the services required of him
hereunder. The Executive shall render his business services exclusively to the
Company and its subsidiaries during the Employment Term and shall use his good
faith efforts, judgment and energy to improve and advance the business and
interests of the Company and its subsidiaries in a manner consistent with the
duties of his position. It is the intent of the Company to relocate its
principal offices to Boston, Massachusetts and the Company shall pay for all
reasonable relocation expenses incurred by the Executive and his family (in an
amount grossed up for any taxes thereon).
4. Salary; Bonus. (a) Salary. As compensation for the services
to be performed by the Executive hereunder during the Employment Term, the
Company shall pay the Executive a base salary at the annual rate of $190,000
(said amount, together with any increases thereto as may be determined from time
to time by the Compensation Committee of the Board of Directors of the Company
in its sole discretion, being hereinafter referred to as "Salary"). Any Salary
payable hereunder shall be paid in regular intervals in accordance with the
Company's regular payroll practices from time to time in effect.
(b) Bonus. On the date of the Recapitalization Closing, the
Executive shall be paid $70,000 in respect of the Company's existing Executive
Cash Incentive Program. Upon such payment, such program shall terminate and the
Executive shall have no further rights thereunder. Commencing with the first
fiscal quarter of 2000, the Executive shall be eligible to participate in the
new Executive Cash Incentive Program (the "New Executive Cash Incentive
Program"), the terms of which are outlined in Exhibit A hereto, which shall be
approved by the Board of Directors of the Company at its first meeting
subsequent to the Recapitalization Closing. The terms of a executive cash
incentive program for the fourth fiscal quarter of 1999 shall be proposed by the
Executive and reviewed by the Board of Directors at its first meeting subsequent
to the Recapitalization Closing. In addition, the Executive shall be eligible to
receive bonus compensation ("Bonus") from the Company in respect of each fiscal
year occurring during the Employment Term in amounts, if any, as may be
determined by the Compensation Committee of the Board of Directors of the
Company in its sole discretion on the basis of performance-based criteria to be
established from time to time by such Committee and that are reasonably
acceptable to the Executive.
(c) Withholding, etc. The payment of any Salary and Bonus
under this Section 4, and the payment of any severance pay pursuant to Section 7
hereof, shall be subject to applicable
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withholding and payroll taxes and such other deductions as may be required under
the Company's employee benefit plans.
(d) Shares and Options. Simultaneously with the
Recapitalization Closing all shares of the Company's common stock issued to the
Executive pursuant to the Company's 1998 Stock Option Plan, the Stock Grant
Agreement executed by the execution pursuant thereto and otherwise shall vest in
Executive free and clear of any and all rights of the Company with respect
thereto, except as otherwise specifically set forth in the Stockholders
Agreement dated as of the Recapitalization Closing among the Company and its
stockholders named therein.
(e) The Company will adopt its 2000 Stock Option Plan, a copy
of which has been delivered to the Executive pursuant to which the Company will
reserve for issuance of options with the terms set forth in Exhibit B hereto
covering up to 785,000 of such shares to the persons set forth on Schedule I
hereto.
5. Other Benefits. During the Employment Term, the Executive
shall:
(i) be eligible to participate in employee fringe benefits and
pension and/or profit sharing plans that may be provided by the Company
for its senior executive employees in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(ii) be eligible to participate in any medical and health
plans or other employee welfare benefit plans that may be provided by
the Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to twenty (20) paid vacation days in each
calendar year (subject to expiration in accordance with Company policy
in effect from time to time) and also be entitled to all paid holidays
given by the Company to its senior executive officers;
(iv) be entitled to sick leave, sick pay and disability
benefits in accordance with any Company policy that may be applicable
to senior executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable
out-of-pocket business expenses incurred by the Executive in the
performance of his duties hereunder (including, without limitation,
business travel and entertainment expenses) in accordance with Company
policy that may be applicable to senior executive employees from time
to time.
6. Confidential Information. The Executive hereby covenants,
agrees and acknowledges as follows:
(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade
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<PAGE> 4
secrets related to the business of the Company and any other present or
future subsidiaries or affiliates of the Company (collectively with the
Company, the "Company Group"), including but not limited to the
following: (i) customer lists, the identity, lists or descriptions of
new or prospective customers, financial statements, cost reports or
other financial information, contract proposals or bidding information,
business plans, training and operations methods and manuals, personnel
records, software programs, reports and correspondence, and management
systems, policies or procedures, including related forms and manuals;
(ii) information pertaining to future developments, such as future
marketing or acquisition plans or ideas; and (iii) all other tangible
and intangible property that is used in the business and operations of
the Company Group but not made public by the Company Group. The
information and trade secrets relating to the business of the Company
Group described above in this paragraph (a) are hereinafter referred to
collectively as the "Confidential Information"; provided that the term
"Confidential Information" shall not include any information (w) that
is or becomes generally publicly available (other than as a result of
violation of this Agreement by the Executive), (x) that the Executive
receives or received on a nonconfidential basis from a source (other
than the Company Group or its representatives) that is not actually
known by him to be bound by an obligation of secrecy or confidentiality
to any member of the Company Group, (y) that is the personal property
of the Executive, including, but not limited to, phone lists of the
Executive or (z) that has been or is independently acquired or
developed by the Executive without violating any of the terms of this
Agreement (other than any such information developed or acquired by the
Executive in connection with his employment by the Company).
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Company Group in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but (to the extent reasonably practicable) only after providing (i)
prompt notice to the Company of any third party's request for such
information, which notice shall include the Executive's intent with
respect to such request, and (ii) sufficient opportunity for the
Company to challenge or limit the scope of the disclosure on behalf of
the Company Group, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach of the provisions of this Section 6 would be inadequate
and, therefore, agrees that the Company shall be entitled to injunctive
relief in addition to any other available rights and remedies in case
of any such breach; provided, however, that nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
rights and remedies available for any such breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all
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Confidential Information in whatever form maintained (including,
without limitation, computer disks and other electronic media).
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this Agreement
until two years from the date of his termination.
7. Termination. (a) The Executive's employment hereunder shall
be terminated upon the occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties on
account of disability or incapacity for a period of 180 or more days,
whether or not consecutive, within any period of twelve consecutive
months;
(iii) a Termination For Cause (as defined herein);
(iv) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated other
than pursuant to clause (ii) or (iii) above;
(v) a termination of the Executive's employment hereunder by
Executive for Good Reason (as defined herein); or
(vi) a termination of the Executive's employment hereunder by
the Executive at any time other than for Good Reason.
(b) In the event that the Executive's employment is terminated
pursuant to paragraph (a)(iv) or (a)(v) above or in the event that the Company
shall, at any time, elect not to renew this Agreement, then for the remainder of
the then current Employment Term plus an additional 12-month period following
the Employment Term the Company shall (i) pay (as severance or liquidated
damages or both) the Salary that would have otherwise been payable to the
Executive during such period and (ii) maintain for the benefit of the Executive
those medical and health benefits contemplated by clause (ii) of Section 5 of
this Agreement. One-half of the payments described in clause (i) of this
paragraph (b) shall be made in a lump sum on the date that the Executive's
employment is terminated, and one-half of such payments shall be made in equal
installments during the Non-Compete Period (as defined below) in accordance with
the Company's regular payroll policies. In addition, in event of such
termination, the Company shall pay to the Executive any Bonus and any amounts
earned under the New Executive Cash Incentive Program that would have been
payable to the Executive through the date of termination of the Executive's
employment in accordance with the Company's regular payroll practices.
(c) Notwithstanding anything to the contrary expressed or
implied herein, except as required by applicable law and except as set forth in
Section 7(b) above, the Company (and its
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affiliates) shall not be obligated to make any payments to the Executive or on
his behalf of whatever kind or nature by reason of the Executive's cessation of
employment (including, without limitation, by reason of a Termination For
Cause), other than (i) such amounts, if any, of his Salary as shall have accrued
and remained unpaid as of the date of said cessation and (ii) such other
amounts, if any, which may be then otherwise payable to the Executive pursuant
to the terms of the Company's benefits plans or pursuant to clause (v) of
Section 5 above.
(d) No interest shall accrue on or be paid with respect to any
portion of any payments hereunder if paid when due.
For purposes of this Agreement, the term "Termination for
Cause" shall mean the termination of Executive's employment hereunder by the
Company determined in good faith by a majority of the Board of Directors at any
time as a result of any of the following with respect to the Executive: (a) a
breach of trust, including without limitation, acts of moral turpitude, theft,
embezzlement and self-dealing, (b) the disclosure of confidential information
which results (or can be reasonably be expected to result) in material harm to
the Company, or (c) wilful misconduct which results (or can reasonably be
expected to result) in material harm to the Company.
For purposes of this Agreement, the term "Termination for Good
Reason" shall mean a termination of Executive's employment with the Company as a
result of (i) requiring the Executive to engage in any illegal act, (ii)
relocation of Executive's principal place of performance other than to Boston,
Massachusetts, without his prior written consent, (iii) a material adverse
change in Executive's compensation (including without limitation, Salary, bonus
or stock options or awards), or (iv) a material failure by the Company to comply
with the terms of this Agreement.
8. Right and Option of Company to Repurchase Shares and
Options Upon the Termination of Employment. (a) In the event that the
Executive's employment is terminated for any reason (including, without
limitation, election by the Company or the Executive not to renew this
Agreement), the Company shall have the right, exercisable as set forth in
Section 8(d), at any time on or after the date of such termination and prior to
30 days after such termination, to purchase from the Executive all or any part
of the shares of capital stock or options to purchase capital stock of the
Company held by the Executive as of the date his employment so ceases at a
purchase price equal to, (i) for the shares, the Fair Market Value (as defined
below) of such shares as of the date the Executive's employment so ceases and
(ii) for the options to purchase capital stock, an amount equal to the Fair
Market Value of the shares subject thereto as of the date the Executive's
employment so ceases less the aggregate exercise price thereof.
(b) In the event that the Executive's employment is terminated
for any reason (including, without limitation, election by the Company not to
renew this Agreement) other than pursuant to Section 7(a)(iii) or (vi), the
Executive shall have the right, exercisable as set forth in Section 8(d), at any
time on or after the date of such termination and prior to 30 days after such
termination in accordance with Section 8(d) below, to require the Company to
purchase from the Executive all or any part of the shares of capital stock or
options to purchase capital stock of the
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Company held by the Executive as of the date his employment so ceases at a
purchase price equal to, (i) for the shares, the Fair Market Value (as defined
below) of such shares as of the date the Executive's employment so ceases and
(ii) for the options to purchase capital stock, an amount equal to the Fair
Market Value of the shares subject thereto as of the date the Executive's
employment so ceases less the aggregate exercise price thereof.
(c) For the purposes of this Agreement, the "Fair Market
Value" of a share of capital stock of the Company as of any date shall mean the
value of a share of capital stock as determined in good faith by mutual
agreement of the Board of Directors of the Company and the Executive based on
(X) the most recently completed arm's-length sale for cash by the Company to a
third party of shares of the same class of capital stock, the closing of which
shall have occurred within the three months preceding such date or, (Y) in the
case of the Company's Common Stock, if no such transaction shall have occurred
within such three-month period, the exercise price of options granted pursuant
to the Company's option plan within the three months preceding such date. If the
Executive does not agree to the amount of such valuation with respect to any of
his shares of capital stock, the value will be determined by an independent
investment bank selected by the Company (at the Company's expense) and
reasonably satisfactory to the Executive. The Executive may request a second
appraisal by an independent investment bank selected by the Executive and
reasonably acceptable to the Company. In the event that (i) the valuation of the
second appraisal is equal to or less than the valuation of the first appraisal,
the expenses of such appraisal shall be borne by the Executive, (ii) the
valuation of the second appraisal is greater than the valuation of the first
appraisal but equal to or less than 120% of the valuation of the first
appraisal, the expenses of such appraisal shall be borne equally by the Company
and the Executive, and (iii) the valuation of the second appraisal is greater
than 120% of the valuation of the first appraisal, the expenses of such
appraisal shall be borne by the Company. In the event that the two banks cannot
agree on the fair market value, such value shall be determined by taking the
average of the two valuations of the investment banks. The value of a share of
capital stock of the Company shall assume that all shares of outstanding capital
stock of the Company are fully-converted into shares of Common Stock without
applying any premium with respect to preferred stock or discount with respect to
Common Stock. Any investment bank hired pursuant to this paragraph (c) shall be
given full access to the Company in making its valuation, and both the Company
and the Executive shall be involved in all communications with such banks.
(d) The Company or the Executive may exercise the right and
option provided in Section 8(a) or (b) above by giving a written notice of such
election within the time period provided in such Section 8(a) and (b), as the
case may be. The closing for the purchase by the Company of any shares or
options pursuant to the provisions of said Section 8(a) or (b) shall take place
at the offices of the Company on the date specified in such written notice,
which date shall be a business day not later than 10 days after the date on
which the Fair Market Value is finally determined. At such closing, the
Executive will deliver or cause to be delivered stock certificate(s) or option
agreements and option exercise forms representing the shares or options to be
sold, duly endorsed for transfer and free and clear of any and all liens,
claims, option, charges, security interests and other encumbrances of whatsoever
nature (collectively, "Encumbrances"), against payment of the applicable
purchase price therefor. Such purchase price shall be payable
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to the Executive by wire transfer of immediately available funds to an account
designated by the Executive. At such closing the Executive shall also represent
to the Company that such shares or options, as the case may be, are free and
clear of any and all Encumbrances. To the extent the Company or the Executive
fails to duly exercise such right and option under Section 8(a) or (b) to
purchase any shares or options, all shares or options owned by the Executive
shall thereupon cease to be subject to the provisions of this Section 8.
9. Non-Assignability. (a) Neither this Agreement nor any right
or interest hereunder shall be assignable by the Executive or his beneficiaries
or legal representatives without the Company's prior written consent; provided,
however, that nothing in this Section 9(a) shall preclude the Executive from
designating a beneficiary to receive any benefit payable hereunder upon his
death or incapacity or the transfer of any such benefits by the laws of
intestate descent.
(b) Except as permitted by Section 9(a) above or as required
by law, no right to receive payments under this Agreement shall be subject to
anticipation, commutation, alienation, sale, assignment, encumbrance, charge,
pledge, or hypothecation or to exclusion, attachment, levy or similar process or
to assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
10. Restrictive Covenants.
(a) Non-Competition. During the Non-Compete Period (as defined
herein), the Executive will not, directly or indirectly (as a director, officer,
executive employee, manager, consultant, independent contractor, advisor or
otherwise), engage in competition with the Company, or own any interest in,
perform any services for, participate in or be connected with any business or
organization which engages in activities in competition with the Company;
provided, however, that the provisions of this Section 10(a) shall not be deemed
to prohibit the Executive's ownership, whether directly or indirectly, of (x)
not more than 2% of the total shares of all classes of stock outstanding of any
publicly held company or (y) not more than 1% of the aggregate outstanding
equity interests of any other business entity.
(b) Non-Solicitation. During the applicable Non-Compete
Period, the Executive will not directly or indirectly induce or attempt to
induce any employee of the Company to leave the employ of the Company or such
subsidiary or affiliate, or in any way interfere with the relationship between
the Company and any employee thereof; provided, however, that if an individual
is not an employee of the Company at any time during the Employment Term, the
terms of this paragraph (b) shall not apply with respect to such individual.
For purposes hereof, the "Non-Compete Period" shall mean the
Employment Term plus (x) 12 months from the date of termination in the event of
a Termination For Cause, (y) any period in respect of which payments pursuant to
Section 7(b) hereof are required to be, and are, paid in full or (z) the greater
of 24 months or the balance of the current Employment Term (without giving
effect to the termination of the Employee's employment hereunder or to any
extensions thereof), in the event of a resignation pursuant to Section 7(a)(vi).
8
<PAGE> 9
(c) Injunctive Relief. The Executive acknowledges and agrees
that a remedy at law for any breach or threatened breach of the provisions of
Section 6 or 10 hereof would be inadequate and, therefore, agrees that the
Company and any of its subsidiaries or affiliates shall be entitled to
injunctive relief in addition to any other available rights and remedies in
cases of any such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting the Company or any of its
affiliates from pursuing any other rights and remedies available for any such
breach or threatened breach.
11. Binding Effect. Without limiting or diminishing the effect
of Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
12. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Executive, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
13. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Massachusetts.
14. Severability. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 10 hereof is void or constitutes an unreasonable restriction
against the Executive, the provisions of such Section 6 or 10 shall not be
rendered void but shall apply with respect to such extent as such court may
judicially determine constitutes a reasonable restriction under the
circumstances. If any part of this Agreement other than Section 6 or 10 is held
by a court of competent jurisdiction to be invalid, illegible or incapable of
being enforced in whole or in part by reason of any rule of law or public
policy, such part shall be deemed to be severed from the remainder of this
Agreement for the purpose only of the particular legal proceedings in question
and all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
15. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
16. Entire Agreement; Modifications. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the
9
<PAGE> 10
subject matter hereof. This Agreement may be modified or amended only by an
instrument in writing signed by both parties hereto.
17. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Recapitalization Closing. In the event that the
Recapitalization Closing shall not occur, this Agreement shall be void ab
initio.
10
<PAGE> 11
IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
PROTOCOL HOLDINGS, INC.
By /s/ Stephen G. McLean
---------------------------------
Name: Stephen G. McLean
Title: CEO/Pres
/s/ Kevin Blayne
---------------------------------
Kevin Blayne
11
<PAGE> 1
EXHIBIT 10.12
March 1, 2000
Deborah Zonies
407 Washington Street, #4
Brookline, MA 02446
Dear Ms. Zonies:
It is a pleasure to extend an employment offer to you as an employee-at-will of
Protocol Communications, Inc. (PCI) as Executive Vice President of Business
Affairs and General Counsel reporting directly to Steve McLean, CEO, to commence
on March 1, 2000.
The compensation and fringe benefits are as follows:
COMPENSATION
Your principal areas of compensation are listed below and are paid in accordance
with PCI policies and customary payroll practices.
- - A bi-weekly salary of $6538.47.
- - A $25,000 bonus payable at completion of an IPO.
- - Inclusion in the Executive Bonus Plan, as amended from time to time:
Targeted to $100,000 at $1,000,000 over plan. Bonus is capped at One
Times Salary (including amounts paid while a consultant). Your
participation is 2% of the pool re: existing companies and 9% of the
acquisition pool.
In consideration of your special background and experience and its application
to the continuing development of the company, and as an incentive for you to
continue your relationship with the company, you will be granted an option to
purchase 25,000 shares under the Company's 2000 stock option plan. Such option
will vest at the time of the IPO, or otherwise according to the terms of the
Plan. This grant is in addition to the previous grants to you of options to
purchase a total of 10,000 shares.
<PAGE> 2
Ms. Zonies Page 2
March 1, 2000
BENEFIT PROGRAM
During your employment with PCI, you will be entitled to participate in or
receive benefits under all employee benefit plans made available to PCI's senior
executive level employees generally, subject to and on a basis consistent with
the terms, conditions and overall administration of such plans.
Other benefits include annual paid vacation leave of four weeks per year.
SEVERANCE:
Severance pay equal to six months' base salary at the rate of base salary then
in effect at the termination date if without cause. This does not apply to
voluntary resignation or termination for cause. Such severance pay shall be made
in one lump sum or in monthly installments on the first day of each month at the
option of the company.
If you accept this offer of employment, please sign this letter below to confirm
that you understand and agree to the terms set forth above. This offer is
subject to satisfactory reference checks.
We look forward to your contributions and have confidence in your ability to
help Protocol Communications, Inc. achieve its goal to become the preeminent
company in the client communications market.
Very Truly Yours,
Protocol Communications, Inc.
/s/ Stephen G. McLean
Stephen G. McLean /s/ Deborah Zonies 3/1/00
President and CEO -------------------- ------
Sign and Agreed Date
Deborah Zonies
<PAGE> 1
SUBSIDIARIES OF PROTOCOL COMMUNICATIONS, INC.
EXHIBIT 21.1
- - Protocol Services, Inc., a Delaware corporation.
- - Protocol Communications Services, Inc., a Delaware corporation.
- - IOCOM, Inc., a Delaware corporation.
- - U.S. Telefactors Corporation, a Delaware corporation.
- - Operators Standing By, Inc., a Delaware corporation.
- - Anserphone, Inc., a Delaware corporation.
- - Strategic Alternatives, Inc., a Delaware corporation.
- - Quick Response, Inc., a Delaware corporation.
- - Scribers, Inc., a Delaware corporation.
- - MBS Communications, Inc., a Delaware corporation.
- - Cross-Industry Communications, Inc., a Delaware corporation.
- - Blue Line Promotions, Inc., a Delaware corporation.
- - Media Express, Inc., a Canadian corporation.
- - 3588238 Canada Inc., a Canadian corporation.
- - M.E.T.C. Financial Services Inc., a Canadian corporation.
- - Saligent, Inc., a Delaware corporation.
- - Direct Site, Inc., a Delaware corporation.
- - Canicom, Inc., a Delaware corporation.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS CONSENT AND REPORT ON SCHEDULE
The Board of Directors
Protocol Communications, Inc.:
The audits referred to in our report dated April 10, 2000, included the
related financial statement schedule as of December 31, 1999, and for the period
from June 5, 1998 to December 31, 1998 and for the year ended December 31, 1999,
included in the registration statement. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinions such financial statement schedule when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
--------------------------------------
Boston, Massachusetts
April 14, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Answerphone of Florida, Inc.:
We consent to the use of our report on the financial statements of
Answerphone of Florida Inc. (d/b/a IOCOM) as of June 30, 1998 and for the year
then ended, included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG LLP
--------------------------------------
St. Petersburg, Florida
April 14, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Anserphone of New Orleans Inc. and Anserve, Inc.:
We consent to the use of our report on the combined financial statements of
Anserphone of New Orleans, Inc. and Anserve, Inc. as of October 31, 1998 and for
the year then ended, included herein and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG LLP
--------------------------------------
St. Petersburg, Florida
April 14, 2000
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Operators Standing By, Inc.:
We consent to the use of our report on the financial statements of
Operators Standing By, Inc. as of March 31, 1998 and for the year then ended,
included herein and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG LLP
--------------------------------------
St. Petersburg, Florida
April 14, 2000
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Protocol Communications Services, Inc.:
We consent to the use of our report on the financial statements of Protocol
Communications Services, Inc. as of March 31, 1998 and for the year then ended,
included herein and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG LLP
--------------------------------------
Boston, Massachusetts
April 14, 2000
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Quick Response LLC:
We consent to the use of our report on the financial statements of Quick
Response LLC as of September 30, 1998 and for the year then ended, included
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
--------------------------------------
Boston, Massachusetts
April 14, 2000
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
The Scribers, Inc.:
We consent to the use of our report on the financial statements of The
Scribers, Inc. as of December 31, 1998 and for the year then ended, included
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
--------------------------------------
St. Petersburg, Florida
April 14, 2000
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Strategic Alternatives, Inc.:
We consent to the use of our report on the financial statements of
Strategic Alternatives, Inc. as of September 30, 1998 and for the year then
ended, included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG LLP
--------------------------------------
St. Petersburg
April 14, 2000
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Sweet, Schatz & Lewis, Inc.:
We consent to the use of our report on the financial statements of Sweet,
Schatz & Lewis, Inc. (d/b/a Total Availability Service, Inc.) as of March 31,
1998 and for the year then ended, included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
--------------------------------------
St. Petersburg, Florida
April 14, 2000
<PAGE> 1
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
U.S. Telefactors Corporation and Anivox Corporation:
We consent to the use of our report on the financial statements of U.S.
Telefactors Corporation and Anivox Corporation as of December 31, 1997 and for
the year then ended, included herein and to the reference to our firm under the
heading "Experts" in the prospectus.
/s/ KPMG LLP
--------------------------------------
Chicago, Illinois
April 14, 2000
<PAGE> 1
[BOISJOLI SABBAH SABBAG ZIRI MALKA LETTERHEAD]
EXHIBIT 23.12
CONSENT INDEPENDANT ACCOUNTANTS
The Board of Directors
Protocol Holdings Inc.
We consent to the use of our auditors' report dated May 19, 1999
accompanying the audited financial statements of 3223574 Canada Inc. as at
January 31, 1999, and of our auditors' report dated May 21, 1999 accompanying
the auditors' financial statements of 3223574 Canada Inc. as at April 30, 1999,
included herein and incorporated by reference in this registration statement on
Form S-1 of Protocol Holdings Inc. and to the reference to our firm under the
headings "Selected Consolidated Historical Financial Data" and "Experts" in the
prospectus and the heading "Selected Supplemental Consolidated Financial Data"
in the Form S-1 filed April 14, 2000 which is incorporated by reference in this
registration statement.
/s/ Boisjoli, Sabbah, Sabbag, Ziri,
Malka
Montreal, Canada
April 14, 2000
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73,658
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