STOCK AND WARRANT PURCHASE AGREEMENT
By and Among
XXXXX X. XXXXX
and
EQUALNET HOLDING CORP.
Dated as of April 24, 1998
TABLE OF CONTENTS
Page
1. DEFINITIONS. ....................................................... 1
2. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS; CLOSING.............. 5
2.A. PURCHASE AND SALE OF COMMON STOCK.............................. 5
2.B. CLOSING........................................................ 5
3. PURCHASER'S CONDITIONS OF CLOSING.................................... 5
3.A. OPINION OF THE COMPANY'S COUNSEL............................... 5
3.B. REPRESENTATIONS AND WARRANTIES................................. 5
3.C. CHARTER DOCUMENTS AND BY-LAWS.................................. 6
3.D. PURCHASE PERMITTED BY APPLICABLE LAWS.......................... 6
3.E. LETTER OF ACCOUNTANTS; ACCOMPANYING OFFICER'S CERTIFICATE...... 6
3.F. COMPLIANCE WITH SECURITIES LAWS................................ 6
3.G. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION................ 6
3.H. APPROVALS AND CONSENTS......................................... 7
3.I. REGISTRATION RIGHTS AGREEMENT.................................. 7
3.K. NO MATERIAL ADVERSE CHANGE..................................... 7
4. COMPANY'S CONDITIONS OF CLOSING...................................... 7
4.A. REPRESENTATIONS AND WARRANTIES................................. 7
4.B. PURCHASE OF SHARES............................................. 7
4.C. NO ADVERSE ACTION OR DECISION.................................. 7
4.D. QUOTATION...................................................... 7
5. AFFIRMATIVE COVENANTS................................................ 8
5.A. CONDUCT OF BUSINESS OF THE COMPANY............................. 8
5.B. VALID ISSUANCE................................................. 10
5.C. GOVERNMENT REGULATIONS......................................... 10
5.D. ERISA.......................................................... 11
5.E. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES................. 11
5.F. INSURANCE...................................................... 11
5.G. FURTHER ASSURANCES............................................. 11
5.H. RESERVED....................................................... 12
5.I. NOTICES OF CERTAIN EVENTS...................................... 12
5.J. RESERVED....................................................... 12
5.K. ENVIRONMENTAL LAWS............................................. 12
5.L. RESERVED....................................................... 12
5.M. RESERVED....................................................... 12
5.N. CERTAIN INFORMATION............................................ 12
5.O. QUOTATION OF COMMON STOCK...................................... 12
6. REPRESENTATIONS AND WARRANTIES....................................... 13
6.A. CORPORATE EXISTENCE............................................ 13
6.B. CORPORATE POWER AND AUTHORIZATION.............................. 13
6.C. RESERVED....................................................... 13
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6.D. BINDING OBLIGATIONS............................................ 13
6.E. NO VIOLATION................................................... 13
6.F. CONSENTS....................................................... 13
6.G. FINANCIAL INFORMATION.......................................... 14
6.H. LIABILITIES.................................................... 14
6.I. LITIGATION..................................................... 14
6.J. COMPLIANCE WITH ERISA.......................................... 14
6.K. TAXES; GOVERNMENTAL CHARGES.................................... 14
6.L. DEFAULTS....................................................... 15
6.M. COMPLIANCE WITH THE LAW........................................ 15
6.N. INVESTMENT COMPANY ACT......................................... 15
6.O. PUBLIC UTILITY HOLDING COMPANY ACT............................. 15
6.P. FEES AND COMMISSIONS........................................... 15
6.Q. DISCLOSURE..................................................... 15
6.R. STRUCTURE; CAPITALIZATION...................................... 15
6.S. ENVIRONMENTAL MATTERS.......................................... 16
6.T. INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.............. 17
6.U. INSURANCE COVERAGE............................................. 18
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................... 18
7.A. PURCHASE FOR INVESTMENT........................................ 18
7.B. AUTHORIZATION; NO CONFLICT..................................... 19
8. TERMINATION, AMENDMENT AND WAIVER.................................... 19
8.A. TERMINATION.................................................... 20
8.B. EFFECT OF TERMINATION.......................................... 20
9. MISCELLANEOUS........................................................ 20
9.A. FEES AND EXPENSES.............................................. 20
9.B. AMENDMENT...................................................... 20
9.C. EXTENSION; WAIVER.............................................. 21
9.D. ASSIGNMENT..................................................... 21
9.E. SURVIVAL OF REPRESENTATIONS AND WARRANTIES..................... 21
9.F. SUCCESSORS AND ASSIGNS; NO THIRD PARTY......................... 21
9.G. NOTICES........................................................ 21
9.H. DESCRIPTIVE HEADINGS........................................... 22
9.I. SATISFACTION REQUIREMENT....................................... 22
9.J. GOVERNING LAW; CONSENT TO JURISDICTION......................... 22
9.K. REMEDIES....................................................... 22
9.L. ENTIRE AGREEMENT............................................... 22
9.M. SEVERABILITY................................................... 22
9.N. COUNTERPARTS................................................... 22
9.O. BROKERAGE...................................................... 22
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STOCK AND WARRANT PURCHASE AGREEMENT
This STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is made as of
April 24, 1998, by and among XXXXX X. XXXXX (the "Purchaser"), and EQUALNET
HOLDING CORP., a Texas corporation (the "Company").
RECITALS
Purchaser desires to purchase from the Company, and the Company desires to
issue and sell to Purchaser, subject to the terms and conditions set forth
herein, 3,400,000 shares of Common Stock (as hereinafter defined) of the Company
and warrants for the purchase of 170,000 shares of Common Stock.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. For the purpose of this Agreement, and in addition to
terms defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by
accounting principles generally accepted in the United States of America.
"AFFILIATE" shall mean, with respect to any Person, a Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person, except a Subsidiary of such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"BUSINESS DAY" shall mean any day which is not a Saturday, Sunday or day
on which banks are authorized by law to close in the States of New York and
Texas.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all rental obligations which,
under GAAP in effect on the day such obligation is incurred, are required to be
capitalized on the books of the Company or any Subsidiary, in each case taken at
the amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
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"CURRENT INDEBTEDNESS" shall mean any obligation for borrowed money
(including notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money) payable on demand or
within a period of one year from the date of creation thereof; PROVIDED that any
obligation shall be treated as Funded Indebtedness, regardless of its term, if
such obligation is renewable pursuant to the terms thereof or of a revolving
credit or similar agreement effective for more than one year after the date of
the creation of such obligation, or may be payable out of the proceeds of a
similar obligation pursuant to the terms of such obligation or of any such
agreement. Any obligation secured by a Lien on, or payable out of the proceeds
of production from, property of the Company or any Subsidiary shall be deemed to
be Funded or Current Indebtedness, as the case may be, of the Company or such
Subsidiary even though such obligation shall not be assumed by the Company or
such Subsidiary.
"ENVIRONMENTAL LAW" shall mean any judgment, decree, order, law, license,
rule, regulation or private agreement (such as covenants, conditions, and
restrictions), of any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board, or authority designed to protect the
environment, air, surface, water, groundwater or soil, control pollution, or
regulate the exploration, manufacturing, processing, distributing, use, storage,
transport or handling of Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
ss. 9601 ET SEQ.) ("CERCLA"), the Oil Pollution Act (33 U.S.C. ss. 2701 ET SEQ.)
("OPA"), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 ET SEQ.)
("RCRA"), and the Federal Water Pollution Control Act (33 U.S.C. ss. 1251 ET
SEQ.) ("CWA"), as such laws have been or hereafter may be amended or
supplemented, and any and all analogous present and future federal, state, and
local laws in jurisdictions where the Company and its Subsidiaries do business.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA as in effect
at the date of this Agreement and any subsequent provisions of ERISA amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the Company
would be deemed to be a "single employer" within the meaning of Section 4001 of
ERISA immediately following the acquisition.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FUNDED INDEBTEDNESS" shall mean and include without duplication any
obligation payable more than one year from the date of the creation thereof
(including the current portion of Funded Indebtedness), which under GAAP is
shown on the balance sheet as a liability (including, without limitation,
Capitalized Lease Obligations and excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not constitute an
obligation).
"GAAP" shall mean generally accepted accounting principles consistently
applied throughout the period or periods in question.
2
"GOVERNMENTAL AUTHORITY" shall mean any foreign or domestic federal,
state, county, municipal, or other governmental or regulatory authority, agency,
board, body, commission, instrumentality, court, or any political subdivision
thereof.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization, or other direction or requirement
(including but not limited to any of the foregoing which relate to Environmental
Laws, energy regulations and occupational, safety and health standards or
controls) of any Governmental Authority.
"HAZARDOUS MATERIALS" shall mean, collectively, (i) those substances
included within the definition of or identified as "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" in or pursuant to,
without limitation, CERCLA, OPA, RCRA, and the Occupational Health and Safety
Act, and in the regulations promulgated pursuant to said laws, all as amended;
(ii) any material, waste or substance which is or contains (A) petroleum,
including crude oil or any fraction thereof, natural gas, or synthetic gas
usable for fuel or any mixture thereof; (B) asbestos; (C) polychlorinated
biphenyls; (D) designated as a "hazardous substance" pursuant to Section 307 or
311 of the CWA; (E) flammable explosives; or (F) radioactive materials; and
(iii) any such other substances, materials and wastes which are or become
regulated as hazardous or toxic under applicable local, state or federal law, or
which are currently classified as hazardous or toxic under local, state or
federal laws or regulations.
"INDEBTEDNESS" shall mean Funded Indebtedness and/or Current Indebtedness.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement or like instrument under the laws of any jurisdiction).
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any material
and adverse effect on, or change to, (i) the assets, liabilities, financial
condition, business, or operations of the Company and its Subsidiaries on a
Consolidated basis, or (ii) the ability of the Company and its Subsidiaries on a
Consolidated basis to carry out their business as at the date of this Agreement.
"NASDAQ" shall mean the Nasdaq Stock Market, Inc., National Market System.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
delivering party, by its President, one of its Vice Presidents, its Treasurer or
other authorized officer so designated by the receiving party.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor entity thereto.
"PENSION PLAN" shall mean any multiemployer plan or single-employer plan,
as defined in Section 4001 of ERISA and subject to Title IV of ERISA, which is
maintained after the Acquisition for employees of the Company, any of its
Subsidiaries or any ERISA Affiliates.
3
"PERMITS" shall mean all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and other
authorizations (including, without limitation, those relating to environmental
matters) of, by or from Governmental Authorities necessary for the conduct of
the business of the Company and its Subsidiaries immediately prior to the
Closing and as proposed to be conducted by the Company and its Subsidiaries
after the Closing.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
substantially in the form of Exhibit A hereto, as the same may be amended,
supplemented or otherwise modified from time to time.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, a limited
liability company and a government or any department or agency thereof.
"RELEASE" shall mean release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment or into or out of any property, including the movement of
Hazardous Materials through or in the air, surface water, or groundwater.
"REMEDIAL ACTION" shall mean any action required by any federal, state or
judicial body or administration or agency acting under an Environmental Law to
(i) clean up, remove or treat Hazardous Materials in the environment; (ii)
prevent a Release or threat of Release or minimize the further Release of
Hazardous Materials so they do not migrate or endanger or threaten to endanger
public health or the environment; (iii) perform post-remedial monitoring and
care; or (iv) cure a violation of any Environmental Law.
"REPORTABLE EVENT" shall mean an event described in Section 4043(b) of
ERISA with respect to which the 30-day notice requirement has not been waived by
the PBGC.
"RESPONSIBLE OFFICER" shall mean the President, any Vice President (of
whatever designation), the Treasurer or the Secretary or any officers performing
functions similar to those performed by the persons who at the time shall be
such officers.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SINGLE-EMPLOYER PENSION PLAN" shall mean a Pension Plan which is a
"single-employer plan" as defined in Section 4001 of ERISA.
"SUBSIDIARY" shall mean any corporation or similar entity a majority of
the stock of every class of which, except directors' qualifying shares, shall,
at the time as of which any determination is being made, be owned by the
Company, either directly or indirectly.
"WARRANT AGREEMENT" means the Warrant Agreement to be executed by the
Company, substantially in the form of Exhibit B hereto, as the name may be
amended, supplemented, or otherwise modified from time to time.
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"WARRANT CERTIFICATE" means the certificate evidencing Warrants,
substantially in the form of Exhibit A to the Warrant Agreement, as the same may
be amended, supplemented, or otherwise modified from time to time.
"WARRANT HOLDER" means any holder of the Warrants.
"WARRANT SHARES" means the shares of common stock issued or issuable upon
the exercise of the Warrants.
"WARRANTS" means warrants to purchase shares of common stock of the
Company issued to Purchaser pursuant to this Agreement and the Warrant Agreement
and evidenced by the Warrant Certificate.
2. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS; CLOSING.
2.A. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS. The Company, subject
to the terms and conditions herein set forth, hereby agrees to sell to the
Purchaser and, subject to the terms and conditions herein set forth, the
Purchaser agrees to purchase from the Company, 3,400,000 shares (the "Shares")
of the Company's Common Stock, par value $.01 per share (the "Common Stock"),
which, if issued as of the date hereof, would constitute approximately 15.9% of
the outstanding Common Stock as of the date hereof, and the Warrants. The
aggregate purchase price for the Shares and the Warrants shall be $3,400,000.
2.B. CLOSING. The purchase and delivery of the Shares and the Warrants
shall take place at a closing (the "Closing") at the offices of Fulbright &
Xxxxxxxx L.L.P., Houston, Texas, at 10:00 a.m., local time, on April 24, 1998,
or at such other time and place or on such other business day thereafter as the
parties hereto may agree (herein called the "Closing Date"). On the Closing
Date, the Company will deliver the Shares and the Warrants in definitive form,
and in such authorized denominations as the Purchaser may request (such request
to be in writing and delivered to the Company at least forty-eight hours prior
to the Closing), against receipt of the purchase price therefor by wire transfer
of immediately available funds, to the Company, or by such other payment method
as is mutually agreed to by the Purchaser and the Company.
3. PURCHASER'S CONDITIONS OF CLOSING. The Purchasers' obligation to
purchase and pay for the Shares and the Warrants is subject to the satisfaction
or waiver, on or before the Closing Date, of the conditions contained in
Paragraphs 3A through 3K.
3.A. OPINION OF THE COMPANY'S COUNSEL. The Purchaser shall have received
from Fulbright & Xxxxxxxx L.L.P., special counsel for the Company, a legal
opinion addressed to the Purchaser and dated the Closing Date substantially in
the form attached hereto as Exhibit C.
3.B. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 6 hereof shall be true in all material respects on and as
of the Closing Date, except to the extent of changes caused by the transactions
herein contemplated; and the Company shall have delivered to the Purchaser an
Officer's Certificate, dated the Closing Date, to such effect.
5
3.C. CHARTER DOCUMENTS AND BY-LAWS. The Purchaser shall have received a
certificate, dated the Closing Date, of the Secretary of the Company attaching
(i) a true and complete copy of the Company's Articles of Incorporation with all
amendments thereto, as filed with the Secretary of State of the State of Texas,
(ii) a true and complete copy of the Company's By-Laws in effect as of such
date, (iii) certificates of good standing of the appropriate officials of the
jurisdiction of incorporation of the Company, and (iv) resolutions of the Board
of Directors of the Company authorizing the execution and delivery of this
Agreement and the issuance of the Shares and the Warrant Shares.
3.D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Shares and the Warrants shall not be prohibited by any applicable law or
governmental regulation (including, without limitation, Regulations G, T and X
of the Board of Governors of the Federal Reserve System) and such purchase and
payment shall not in and of themselves subject the Purchaser to any material
tax, penalty, liability or other materially onerous condition under or pursuant
to any applicable law or governmental regulation.
3.E. LETTER OF ACCOUNTANTS; ACCOMPANYING OFFICER'S CERTIFICATE. The
Purchaser shall have received a certificate from the chief financial officer or
chief executive officer of the Company, dated the Closing Date, to the effect
that the interim financial statements at or for the period ended December 31,
1997, have been prepared using the same accounting policies as those used in
preparing the financial statements for the year ended June 30, 1997 (except as
such policies were otherwise required to be changed or modified by the Company
during the interim period by an appropriate Governmental Authority or the
American Institute of Certified Public Accountants ("AICPA") or similar
accounting boards or bodies), and that since June 30, 1997, such policies have
been used in maintaining the Company's accounting books and records.
3.F. COMPLIANCE WITH SECURITIES LAWS. The offering and sale of the Shares
and the Warrants under this Agreement shall have complied with all applicable
requirements of federal and state securities laws.
3.G. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. Subsequent to the
date hereof, no legislation, order, rule, ruling or regulation shall have been
enacted or made by or on behalf of any governmental body, department or agency
of the United States, nor shall any legislation have been introduced and
favorably reported for passage to either House of Congress by any committee of
either such House to which such legislation has been referred for consideration,
nor shall any decision of any court of competent jurisdiction within the United
States have been rendered which would materially and adversely affect an
investment in the Shares or the Warrants. There shall be no action, suit,
investigation or proceeding pending, or to the Company's knowledge, threatened,
against or affecting the Company or any of its Subsidiaries or the Purchaser, or
any of their respective properties or rights, or any of their affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise adversely affect the transactions contemplated
by this Agreement or (ii) questions the validity or legality of any such
transaction or seeks to recover damages or to obtain other relief in connection
with any such transaction, and to the Company's knowledge there shall be no
valid basis for any such action, proceeding or investigation.
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3.H. APPROVALS AND CONSENTS. The Company shall have duly received all
authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of all federal, state and local governmental authorities, by
any third parties pursuant to the terms of any agreement to which the Company is
a party or by the National Association of Securities Dealers, Inc. or any other
body or agency with jurisdiction, by contract or otherwise, over the Company,
necessary for the issuance of the Shares and the Warrants by the Company and the
consummation of the transactions contemplated hereby, and all thereof shall be
in full force and effect at the time of the Closing. The Company shall have
delivered to the Purchaser an Officer's Certificate, dated the Closing Date, to
such effect.
3.I. REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered to the Purchaser the Registration Rights Agreement.
3.X. XXXXXX GROUP WAIVER. With respect to all securities convertible into
Common Stock, the conversion price of which would otherwise be adjusted as a
result of the transactions contemplated by this Agreement, the Company shall
have received a waiver (the "Xxxxxx Group Waiver") of such adjustment as it
applies to the transactions contemplated by this Agreement from the holder of
such securities and Crane shall have received a copy of such waiver.
3.K. NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
Material Adverse Change with respect to the Company since the date hereof.
4. COMPANY'S CONDITIONS OF CLOSING. The Company's obligations to sell the
Shares and the Warrants hereunder is subject to the satisfaction or waiver, on
or before the Closing Date, of the conditions contained in Paragraphs 4A through
4F.
4.A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 7 hereof shall be true in all material respects on and as
of the Closing Date; and the Purchaser shall have delivered to the Company an
Officer's Certificate, dated the Closing Date, to such effect.
4.B. PURCHASE OF SHARES. The Purchaser shall have purchased and paid for
the Shares and the Warrants.
4.C. NO ADVERSE ACTION OR DECISION. There shall be no action, suit,
investigation or proceeding pending, or to the Company's knowledge, threatened,
against or affecting the Company or any of its Subsidiaries, or any of their
respective properties or rights, or any of their affiliates, associates,
officers or directors, before any court, arbitrator or administrative or
governmental body which (i) seeks to restrain, enjoin, prevent the consummation
of or otherwise adversely affect the transactions contemplated by this Agreement
or (ii) questions the validity or legality of any such transaction or seeks to
recover damages or to obtain other relief in connection with any such
transaction.
4.D. QUOTATION. The Shares and Warrant Shares shall have been approved for
quotation, subject to official notice of issuance, on the NASDAQ National Market
as of the Closing Date.
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5. AFFIRMATIVE COVENANTS. All covenants contained herein shall be given
independent effect.
5.A. CONDUCT OF BUSINESS OF THE COMPANY.
(a) ORDINARY COURSE. Except as set forth in SCHEDULE 5(A)(A), during the
period from the date of this Agreement to the Closing Date, the Company shall
and shall cause its Subsidiaries to carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use commercially
reasonable efforts to preserve intact their current officers and employees and
preserve their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them, in each case
consistent with past practice, to the end that their goodwill and ongoing
businesses shall be unimpaired to the fullest extent possible at the Closing
Date. Without limiting the generality of the foregoing, except as otherwise
expressly contemplated by this Agreement and the Schedules hereto, without the
prior written consent of the Purchaser, the Company shall not, and shall not
permit any of its Subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
Subsidiary of the Company to the Company or a wholly owned Subsidiary of
the Company, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities
other than in connection with the exercise of outstanding stock options
and warrants and satisfaction of withholding obligations under outstanding
stock options and restricted stock;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than, in the
case of the Company, the issuance of shares of Common Stock upon the
exercise of stock options and warrants outstanding on the date of this
Agreement in accordance with their current terms;
(iii) amend its Articles of Incorporation, By-laws or other
comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets that, in each case, would be material,
individually or in the aggregate, to the Company and its Subsidiaries
taken as a whole, except purchases in the ordinary course of business
consistent with past practice;
8
(v) sell, lease, mortgage, pledge, xxxxx x Xxxx on or otherwise
encumber or dispose of any of its properties or assets, except (A) sales
or leases in the ordinary course of business consistent with past practice
and (B) other immaterial transactions not in excess of $250,000 in the
aggregate;
(vi) (A) incur indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its Subsidiaries, guarantee any debt securities of another Person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except for working capital
borrowings under currently existing revolving credit facilities incurred
in the ordinary course of business, or (B) make any loans, advances or
capital contributions to, or investments in, any other Person that would
be material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole, other than to the Company or any direct or
indirect wholly owned Subsidiary of the Company;
(vii) make or incur any new capital expenditure (other than
purchases in the ordinary course of business), which, singly or in the
aggregate with all other expenditures, would exceed $100,000;
(viii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Commission Documents or
incurred in the ordinary course of business consistent with past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its Subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(xii) enter into any new collective bargaining agreement;
(xiii) change any material accounting principle used by it, except
as required by regulations promulgated by the Commission or as mandated by
AICPA or similar accounting boards or bodies;
(xiv) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) other than settlements or
compromises: (A) of litigation where the amount paid in settlement or
compromise does not
9
exceed $100,000, or (B) in consultation and cooperation with the
Purchaser, and, with respect to any such settlement, with the prior
written consent of the Purchaser, which shall not be unreasonably withheld
or delayed;
(xv) except for those contracts and agreements entered into in the
ordinary course of business with the consent of the Purchaser, which
consent shall not be unreasonably withheld or delayed, enter into any
joint venture or partnership contract or agreement; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) CHANGES IN EMPLOYMENT ARRANGEMENTS. During the period from the date of
this Agreement to the Closing Date, neither the Company nor any of its
Subsidiaries shall adopt or amend (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement for the benefit or welfare of any employee, director or
former director or employee, increase the compensation or fringe benefits of any
officer of the Company or any of its Subsidiaries, or, except as provided in an
existing benefit plan or in the ordinary course of business consistent with past
practice, increase the compensation or fringe benefits of any employee or former
employee or pay any benefit not required by any existing plan, arrangement or
agreement.
(c) SEVERANCE. During the period from the date of this Agreement to the
Closing Date, neither the Company nor any of its Subsidiaries shall grant any
new or modified severance or termination arrangement or increase or accelerate
any benefits payable under its severance or termination pay policies in effect
on the date hereof.
(d) OTHER ACTIONS. During the period from the date of this Agreement to
the Closing Date, the Company shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result (i) in any of the representations and warranties of the
Company set forth in this Agreement becoming untrue or (ii) in any of the
covenants contained in this Agreement becoming unperformable. Pending the
Closing, the Company will promptly advise the Purchaser of any action or event
of which they become aware which has the effect of making incorrect any of such
representations or warranties or which has the effect of rendering unperformable
any of such covenants.
5.B. VALID ISSUANCE. The Company covenants that the Shares and Warrant
Shares, will, upon issuance and upon full payment therefor in accordance with
the terms hereof, be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof.
5.C. GOVERNMENT REGULATIONS. The Company covenants that it will comply,
and will cause each of its Subsidiaries to comply, with all applicable
governmental restrictions and regulations, the failure to comply with which
would have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole, and obtain and maintain in
good standing all licenses, permits and approvals from any and all governments,
governmental commissions, boards or agencies of jurisdictions in which it or any
of its Subsidiaries carries on
10
business required in respect of the operations of the Company or any of its
Subsidiaries, the failure to comply with which would have a material adverse
effect on the business or financial condition of the Company and its
Subsidiaries taken as a whole.
5.D. ERISA. Promptly (and in any event within 30 days) after the Company
or any of its Subsidiaries knows or has reason to know that a Reportable Event
with respect to any Pension Plan has occurred, that any Pension Plan is or may
be terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA or that the Company or any of its Subsidiaries will or may incur any
liability to or on account of a Pension Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA, the Company will deliver to the Purchaser a certificate
of the chief financial officer of the Company setting forth information as to
such occurrence and what action, if any, the Company is required or proposes to
take with respect thereto, together with any notices concerning such occurrences
which are (a) required to be filed by the Company or the plan administrator of
any such Pension Plan controlled by the Company or its Subsidiaries, with the
PBGC or (b) received by the Company or its Subsidiaries from any plan
administrator of a multiemployer or other Pension Plan not under their control.
The Company shall furnish to the Purchaser a copy of each annual report (Form
5500 Series) of any Pension Plan received or prepared by the Company or any of
its Subsidiaries. Each annual report and any notice required to be delivered
hereunder shall be delivered no later than 10 days after the later of the date
such report or notice is filed with the Internal Revenue Service or the PBGC or
the date such report or notice is received by the Company or any of its
Subsidiaries, as the case may be.
5.E. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Company covenants
that it (i) will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect the corporate existence and material
rights of the Company and all of its Subsidiaries, (ii) will cause its
properties and the properties of its Subsidiaries used or useful in the conduct
of their respective businesses to be maintained and kept in good condition,
repair and working order and will use commercially reasonable efforts to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereto, and (iii) will, and will cause each of its Subsidiaries
to, qualify and remain qualified to conduct business in each jurisdiction where
the nature of the business or the ownership of property by the Company or such
Subsidiary may require such qualification and where the failure to so qualify
would have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole.
5.F. INSURANCE. The Company covenants that it will maintain, and will
cause each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies, funds or underwriters, insurance for the Company and its
Subsidiaries of the kinds, covering the risks and in the relative proportionate
amounts usually carried by companies conducting business activities similar to
those of the Company and its Subsidiaries.
5.G. FURTHER ASSURANCES. The Company covenants that it shall cooperate
with the Purchaser and execute such further instruments and documents as the
Purchaser shall reasonably request to carry out to the satisfaction of the
Purchaser the transactions contemplated by this Agreement.
11
5.H. RESERVED.
5.I. NOTICES OF CERTAIN EVENTS. The Company shall promptly give notice to
the Purchaser (i) of any default or event of default that has not been cured
within any applicable grace period under any (y) Indebtedness of the Company or
any of its Subsidiaries, and (z) contractual obligation of the Company or any of
its Subsidiaries or (ii) of any pending or threatened litigation, investigation
or proceeding to which the Company or any of its Subsidiaries is or is
threatened to be a party and of which the Company has been given notice;
PROVIDED that any such default as specified in (z) above, litigation,
investigation or proceeding would have a material adverse effect on the business
or financial condition of the Company and its Subsidiaries taken as a whole. Any
notice delivered pursuant to this Paragraph 5I shall be accompanied by an
Officer's Certificate specifying the details of the occurrence referred to
therein and stating what action the Company proposes to take with respect
thereto.
5.J. RESERVED.
5.K. ENVIRONMENTAL LAWS. The Company and its Subsidiaries shall comply
with all applicable Environmental Laws the failure to comply with which would
have a material adverse effect on the business or financial condition of the
Company and its Subsidiaries taken as a whole. If the Company or any Subsidiary
shall receive written notice that there exists a violation of Environmental Law
with respect to its operations or any real property owned, formerly owned, used,
or leased thereby, which violation could have a material adverse effect on the
business or financial condition of the Company and its Subsidiaries taken as a
whole, the Company shall immediately notify in writing the Purchaser.
Furthermore, if the Company or any Subsidiary shall receive written notice that
there exists a violation of Environmental Law with respect to its operations or
any real property owned, formerly owned, used or leased thereby, which violation
could have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole, the Company shall within the
time period permitted by the applicable governmental authority (unless otherwise
contested by the Company in good faith) remove or remedy such violation in
accordance with all applicable Environmental Laws unless the Board of Directors
of the Company determines that it would be in the best interest of the Company
to delay the remedy of such violation, so long as no material adverse effect is
suffered by the Company during such delay.
5.L. RESERVED.
5.M. RESERVED.
5.N. CERTAIN INFORMATION. To the extent reasonably requested by Buyer, and
at the expense of Buyer, subject to appropriate confidentiality agreements by
Buyer, the Company shall provide such financial information to the Buyer as may
enable the Buyer to determine whether or not the Company is a Qualified Small
Business within the meaning of Section 1202(d) of the Internal Revenue Code.
5.O. QUOTATION OF COMMON STOCK. The Company warrants and agrees for the
benefit of the Purchaser that it will use commercially reasonable efforts to
cause the Shares and Warrant Shares to be approved for quotation, subject to
official notice of issuance, on the NASDAQ National Market as of the Closing
Date.
12
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Purchaser as of the date hereof and as of the Closing Date
that:
6.A. CORPORATE EXISTENCE. The Company is a corporation duly organized,
legally existing, and in good standing under the laws of the State of Texas.
6.B. CORPORATE POWER AND AUTHORIZATION. The Company has the requisite
corporate power and authority to issue the Shares, the Warrants and the Warrant
Shares, to execute, deliver, and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. All action on the
Company's part requisite for the due issuance of the Shares, Warrants and the
Warrant Shares and for the due execution, delivery, and performance of this
Agreement has been duly and effectively taken.
6.C. RESERVED.
6.D. BINDING OBLIGATIONS. This Agreement is enforceable in accordance with
its terms (except that enforcement may be subject to (i) any applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditors' rights (ii) general principles in equity regardless of whether such
enforcement is sought in a proceeding in equity or at law, and except to the
extent enforceability of the indemnification provisions may be limited under
applicable securities laws).
6.E. NO VIOLATION. Except as disclosed in SCHEDULE 6E, neither the
execution and delivery of this Agreement, the consummation of the transactions
provided for herein or contemplated hereby nor the fulfillment by the Company of
the terms hereof will (a) violate any provision of the Articles of Incorporation
or the by-laws of the Company, (b) result in a default or breach, give rise to
any right of termination, cancellation, acceleration or imposition of any
Indebtedness or Lien, conflict with or require any consent or approval (other
than any consent or approval that has previously been obtained) under any of the
terms, conditions or provisions of any of the Permits or any note, bond,
mortgage, indenture, loan, distribution agreement, license, agreement, lease, or
instrument or obligation to which the Company is a party or by which the Company
may be bound (except where the failure to obtain such consent or approval will
not have a Material Adverse Effect), or (c) violate any law, judgment, order,
writ, injunction, decree, statute, rule, or regulation of any Governmental
Authority applicable to the Company (except where such violation will not have a
Material Adverse Effect). Subject to the receipt by the Company of the Xxxxxx
Group Waiver, the sale of Shares, the Warrants and the Warrant Shares will not
result in any change in any exercise price, conversion rate or similar change in
price of any convertible or exchangeable security, option, warrant, right or
other derivative security issued by the Company.
6.F. CONSENTS. Except as disclosed in SCHEDULE 6F, all consents,
approvals, qualifications, orders, or authorizations of, or filings with, any
Governmental Authority, and all consents under any material contracts,
agreements, or instruments by which the Company is bound or to which it is
subject, and required in connection with the Company's valid execution,
delivery, or performance of this Agreement and the offer, sale, and delivery of
the Shares and the consummation of any other transaction contemplated on the
part of the Company have been obtained or made.
13
6.G. FINANCIAL INFORMATION.
(a) The Consolidated balance sheet of the Company and its
Subsidiaries as at June 30, 1997, and the related Consolidated statements
of operations, shareholders' equity and cash flows for the 12-month period
then ended, including in each case the related schedules and notes,
reported on by Ernst & Young LLP, are complete and correct and fairly
present in all material respects the Consolidated financial position of
the Company and its Subsidiaries as at the date thereof and the
Consolidated results of operations and changes in cash flows for such
period, in accordance with GAAP.
(b) The unaudited Consolidated balance sheet of the Company and
its Subsidiaries as at December 31, 1997, and the related unaudited
Consolidated statements of operations, shareholders' equity and cash flows
for the three-month period then ended, as included in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended December 31,
1997, true copies of which have been previously delivered to Purchaser,
are complete and correct and fairly present in all material respects the
Consolidated financial position of the Company and its Subsidiaries as at
the date thereof and the Consolidated results of operations and changes in
cash flows for such period in conformity with GAAP, subject only to normal
year-end audit adjustments.
(c) Since June 30, 1997, there has been no Material Adverse
Effect.
6.H. LIABILITIES. Except for liabilities incurred in the ordinary course
of business, none of the Company or any of its Subsidiaries has any material
(individually or in the aggregate) liabilities, direct or contingent (including
but not limited to liability with respect to any Plan) except as disclosed or
referred to in SCHEDULE 6H or in the financial statements referred to in
Paragraph 6G. Neither the Company nor any of its Subsidiaries has any
Indebtedness other than Indebtedness disclosed in SCHEDULE 6H.
6.I. LITIGATION. Except as disclosed in SCHEDULE 6I or as described in any
report filed by the Company with the Commission and delivered to Purchaser,
there is no action, suit, or proceeding, or any governmental investigation or
any arbitration, in each case pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries or any material
property of any thereof before any court or arbitrator or any governmental or
administrative body, agency or official (i) which challenges the validity of
this Agreement; or (ii) which, if adversely determined, would have a Material
Adverse Effect.
6.J. COMPLIANCE WITH ERISA. Each Plan is in substantial compliance with
ERISA, no Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 or Section 418(B) of the Code, no proceedings have been
instituted to terminate any Plan, and except as disclosed in SCHEDULE 6J, none
of the Company or any of its Subsidiaries nor any ERISA Affiliate has incurred
any material liability to or on account of a Plan under ERISA, and except as
disclosed in SCHEDULE 6J, no condition exists which presents a material risk to
the Company or any of its Subsidiaries of incurring such a liability.
6.K. TAXES; GOVERNMENTAL CHARGES. Each of the Company and its Subsidiaries
has filed all tax returns and reports required to be filed and has paid all
14
taxes, assessments, fees, and other governmental charges levied upon any of them
or upon any of their respective properties or income which are due and payable,
including interest and penalties, or has provided adequate reserves for the
payment thereof, except where the failure to so file, pay, or reserve would not
have a Material Adverse Effect.
6.L. DEFAULTS. Except as disclosed in SCHEDULE 6L, none of the Company or
any of its Subsidiaries is in default, nor has any event or circumstance
occurred which, but for the passage of time or the giving of notice, or both,
would constitute a default (in any respect which may have a Material Adverse
Effect) under any loan or credit agreement, indenture, mortgage, deed of trust,
security agreement, or other instrument or agreement evidencing or pertaining to
any Indebtedness of the Company or any Subsidiary, or under any material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound. No default hereunder has occurred
and is continuing.
6.M. COMPLIANCE WITH THE LAW. None of the Company or any of its
Subsidiaries (a) is in violation of any Governmental Requirement or (b) has
failed to obtain any license, permit, franchise, or other governmental
authorization necessary to the ownership of any of their respective properties
or the conduct of their respective business, which violation or failure would
have (in the event that such a violation or failure were asserted by any Person
through appropriate action) a Material Adverse Effect.
6.N. INVESTMENT COMPANY ACT. None of the Company or any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.O. PUBLIC UTILITY HOLDING COMPANY ACT. None of the Company or any of its
Subsidiaries is a "holding company," or a "Subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "Subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.P. FEES AND COMMISSIONS. None of the Company or any of its Subsidiaries
nor, to the knowledge of any of the Company, their Affiliates has retained a
finder, broker, agent, financial advisor, or other intermediary (collectively,
an "INTERMEDIARY") in connection with the transactions contemplated by this
Agreement, and the Company agrees to pay and to indemnify and hold harmless
Purchaser from and against liability for any compensation to any Intermediary
and the fees and expenses of defending against such liability or alleged
liability.
6.Q. DISCLOSURE. The Company's filings made pursuant to the Exchange Act
and listed on SCHEDULE 6Q hereto as of their respective dates, did not contain
any untrue statement of a material fact and did not omit to state any material
fact necessary in order to make the statements contained therein or herein not
misleading in the light of the circumstances under which they were made.
6.R. STRUCTURE; CAPITALIZATION.
15
(a) SCHEDULE 6R contains (except has noted therein) a complete and
correct list of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in SCHEDULE 6R as being owned by
the Company and its Subsidiaries have been validly issued, are fully paid
and nonassessable, and are owned by the Company or such other Subsidiaries
free and clear of any Lien (except as otherwise disclosed in SCHEDULE 6R.
(c) No Subsidiary of the Company is a party to, or otherwise
subject to any legal restriction of any agreement (other than this
Agreement and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits
or make any other similar distributions of profits to the Company or any
of its Subsidiaries that owns outstanding shares of capital stock or
similar equity interests of such Subsidiary.
(d) As of the Closing Date, immediately after giving effect to the
transactions contemplated in this Agreement (i) the Company's authorized
capital stock will consist of 55,000,000 shares, of which 50,000,000 are
designated Common Stock and 5,000,000 shares are designated preferred
stock (2,000 of which will be designated as Series A Convertible Preferred
Stock, $.01 par value per share and 3,000 of which will be designated as
Series B Convertible Preferred Stock, $.01 par value per share); (ii) the
number of Shares of Common Stock outstanding will be as set forth on
SCHEDULE 6R all of which will be validly issued, fully paid, and
non-assessable; (iii) the only outstanding warrants, options or other
securities convertible into Common Stock will be those set forth (and
exercisable on the dates and at the amounts per share set forth) in
SCHEDULE 6R; (iv) no shares of Common Stock will be owned or held by or
for the account of the Company or any of its Subsidiaries (except as
disclosed in the financial statements described in Xxxxxxxxx 0X); (v)
except as disclosed on SCHEDULE 6R, neither the Company nor any of its
Subsidiaries will have outstanding any stock or other securities
convertible into or exchangeable for any shares of capital stock, any
rights to subscribe for or to purchase or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of,
or any calls, commitments or claims of any other character relating to the
issuance of, any capital stock, or any stock or securities convertible
into or exchangeable for any capital stock which have not been waived
(other than as contemplated by this Agreement); and (vi) except as
disclosed in SCHEDULE 6R, neither the Company nor any of its Subsidiaries
will be subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of capital stock.
6.S. ENVIRONMENTAL MATTERS.
(a) Neither any property of any of the Company or any of its
Subsidiaries nor the operations conducted thereon violate any order of any
court or Governmental Authority or Environmental Laws which violations
could reasonably be expected to result in liability in excess of $250,000
or which could
16
reasonably be expected to result in remedial obligations in excess of
$250,000, assuming disclosure to the applicable Governmental Authority of
all relevant facts, conditions and circumstances, if any, pertaining to
the relevant property.
(b) Without limitation of clause (a) above, no property of any of
the Company or any of its Subsidiaries nor the operations currently
conducted thereon or by any prior owner or operator of such property or
operation, are in violation of or subject to any existing, pending or, to
the knowledge of the Company, threatened action, suit, investigation,
inquiry or proceeding by or before any court or Governmental Authority or
to any remedial obligations under Environmental Laws which could
reasonably be expected to result in liability in excess of $250,000, or
which could reasonably be expected to result in remedial obligations in
excess of $250,000 assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.
(c) All notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed in connection with the operation or
use of any and all property of the Company and its Subsidiaries, including
but not limited to past or present treatment, storage, disposal or release
of Hazardous Materials into the environment, have been duly obtained or
filed, except where the failure to so obtain or file would not have a
Material Adverse Effect.
6.T. INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
(a) The Company and its Subsidiaries (i) own or have the right to
use, free and clear of all liens, claims, and restrictions, all patents,
trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and all
trade secrets, including know-how, inventions, designs, processes, works
of authorship, computer programs, and technical data and information
(collectively, "INTELLECTUAL PROPERTY") used and sufficient for use in the
conduct of its business as now conducted and/or as presently proposed to
be conducted (including, without limitation, the development, manufacture,
operation, and sale of all products and services sold or proposed to be
sold by the Company and its Subsidiaries during the next 24 months
following the date of this Agreement) without infringing upon or violating
any right, lien, or claim of others, including, without limitation, former
employees and former employers of its past and present employees, and (ii)
except described in SCHEDULE 6T, is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees, or otherwise to
any owner or licensee of, or other claimant to, any patent, trademark,
service xxxx, trade name, copyright, or other intangible asset, with
respect to the use thereof or in connection with the conduct of its
business or otherwise.
(b) Any and all Intellectual Property of any kind, relating to the
business of the Company and its Subsidiaries currently being developed, or
developed in the future, by any employee of the Company and its
Subsidiaries while in the employ of the Company and its Subsidiaries shall
be the property solely of the Company and its Subsidiaries. The Company
and its Subsidiaries have taken security measures to protect the secrecy,
confidentiality, and value of all Intellectual Property, which measures
are reasonable and customary in the
17
industry in which the Company and its Subsidiaries operate. The Company
and its Subsidiaries' employees and other persons who, either alone or in
concert with others, developed, invented, discovered, derived, programmed,
or designed the Intellectual Property (the "TECHNICAL EMPLOYEES"), or who
have knowledge of or access to information about the Intellectual
Property, have entered into a written agreement with the Company or its
Subsidiaries, in form and substance satisfactory to the Company's
management (the "PROPRIETARY INFORMATION AGREEMENT") regarding ownership
and treatment of the Intellectual Property.
(c) Except as described in SCHEDULE 6T, none of the Company or its
Subsidiaries has received any communications alleging that the Company or
such Subsidiary has violated, or by conducting its business as proposed
would violate, any of the patents, trademarks, service marks, trade names,
copyrights, or trade secrets or other proprietary rights of any other
Person or entity. None of the Company's and its Subsidiaries' employees is
obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the
interests of the Company or its Subsidiaries or that would conflict with
the Company's or its Subsidiaries' business as presently conducted and as
proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's or its Subsidiaries'
business by the employees of the Company and its Subsidiaries, nor the
conduct of the Company's or its Subsidiaries' business as proposed to be
conducted, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant, or instrument under which any of such employees is now
obligated. It is not, and will not become, necessary to utilize any
inventions of any of the Company's or its Subsidiaries' employees (or
people the Company and its Subsidiaries currently intends to hire) made
prior to their employment by the Company and its Subsidiaries other than
those that have been assigned to the Company and its Subsidiaries pursuant
to the Proprietary Information Agreement signed by such employee.
6.U. INSURANCE COVERAGE. The properties of the Company and its
Subsidiaries are insured in amounts deemed adequate by the Company's management
against risks usually insured against by Persons operating businesses similar to
those of the Company and its Subsidiaries in the localities where such
properties are located.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce the Company to
enter into this Agreement, Purchaser represents and warrants to the Company
that:
7.A. PURCHASE FOR INVESTMENT.
(a) Purchaser is acquiring the Shares and the Warrants (and the
Warrant Shares) for his own account and not with a view to the public
resale or distribution of all or any part thereof in any transaction which
would constitute a "distribution" within the meaning of the Securities
Act. Purchaser acknowledges that he does not currently intend to assign
its rights under this Agreement to any third party prior to the Closing.
18
(b) Purchaser acknowledges that the Shares and the Warrants (and
the Warrant Shares) have not been registered under the Securities Act.
(c) Purchaser is an "accredited investor" within the meaning of
Rule 501 under Regulation D promulgated under the Securities Act, is
experienced in evaluating investments in companies such as the Company,
has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of his investment and has
the ability to bear the entire economic risk of his investment. Purchaser
has made his own evaluation of his investment in the Common Stock, based
upon such information as is available to him and without reliance upon the
Company or any other person or entity, and Purchaser agrees that neither
the Company nor any other person or entity has any obligation to furnish
any additional information to Purchaser except as expressly set forth
herein.
(d) Purchaser acknowledges that the Shares and the Warrants (and
the Warrant Shares) may not be sold, transferred, pledged, hypothecated,
or otherwise disposed of without registration under the Securities Act or
an exemption therefrom, and that in the absence of an effective
registration statement covering the Shares the Warrants or the Warrant
Shares, as applicable, or an available exemption from registration under
the Securities Act, the Shares and the Warrants (and the Warrant Shares)
must be held indefinitely.
(e) Purchaser agrees that the Shares and the Warrants (and the
Warrant Shares) shall bear legends in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. ANY SALE
PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE
ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS
AVAILABLE IN CONNECTION WITH SUCH SALE."
7.B. AUTHORIZATION; NO CONFLICT. Purchaser has all requisite capacity and
authority to enter into this Agreement and to carry out and perform his
obligations under the terms of this Agreement. This Agreement is a legal, valid,
and binding obligation of Purchaser. The execution, delivery, and performance of
this Agreement by Purchaser and the consummation by Purchaser of the
transactions contemplated hereby will not conflict with or result in a default
under the terms of any material contract, agreement, obligation or commitment
applicable to Purchaser.
8. TERMINATION, AMENDMENT AND WAIVER.
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8.A. TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual written consent of Purchaser and the Company;
(b) by either Purchaser or the Company;
(i) if the transaction contemplated by this Agreement shall
not have been consummated on or before May 31, 1998, unless the
failure to consummate the transaction contemplated by this
Agreement is the result of a material breach of this Agreement by
the party seeking to terminate this Agreement; or
(ii) if any permanent injunction or other order of a court or
other competent authority preventing the consummation of the
transactions contemplated by this Agreement shall have become
final and nonappealable.
(c) by Purchaser, if the Company breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement; and
(d) by the Company, if Purchaser breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement.
8.B. EFFECT OF TERMINATION. In the event of termination of this Agreement
by either the Company or Purchaser as provided in Section 8A, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Purchaser or the Company, other than the provisions of
Section 9A.
9. MISCELLANEOUS.
9.A. FEES AND EXPENSES.
(a) Reserved.
(b) The Company agrees, in the event that the transactions hereby
contemplated shall be consummated, to pay all reasonable out-of-pocket
expenses of the Purchaser arising in connection with the transactions and
other agreements and instruments contemplated by this Agreement, including
reasonable fees and expenses of counsel incurred in connection with the
preparation and negotiation of this Agreement, any other agreement or
instrument to be executed and delivered in connection with this Agreement.
The Company agrees to pay the Purchaser and/or their counsel, as
appropriate, all such fees and expenses incurred up to and including the
Closing, at the Closing.
9.B. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
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9.C. EXTENSION; WAIVER. At any time prior to the Closing Date, the parties
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or the other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (c) subject to the proviso of Section 9B,
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
9.D. ASSIGNMENT. This Agreement shall not be assigned by operation of law
or otherwise before the Closing Date, and any attempt at assignment shall be
void; PROVIDED, HOWEVER, that the Purchaser shall be permitted to assign its
rights under this Agreement to a third party ("Purchaser Assignee") before the
Closing Date so long as (i) Purchaser retains its obligations under this
Agreement, (ii) such third party becomes a party to this Agreement and joins
Purchaser in the representations and warranties in Paragraph 7 of this
Agreement, and (iii) Purchaser first offers to assign its rights under this
Agreement to a third party designated by the Company ("Company Designee") on
substantially similar terms as offered by Purchaser Assignee and the Company
Designee shall fail to respond or purchase such rights during the offer period
(the term of which period the Parties hereto shall mutually agree).
9.E. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made in writing by or on behalf of any party to
this Agreement in connection herewith shall survive the execution and delivery
of this Agreement, regardless of any investigation made by the Purchaser or on
their behalf, and shall terminate on the fourth anniversary of the Closing Date.
9.F. SUCCESSORS AND ASSIGNS; NO THIRD PARTY. All covenants and agreements
in this Agreement contained by or on behalf of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto and, to the extent provided in this Agreement, to the benefit of any
future holders of any Common Stock. Subject to the foregoing, nothing in this
Agreement shall confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
9.G. NOTICES. All communications provided for hereunder shall be sent by
registered or certified mail and, if to the Purchaser, to the following: Xxxxx
X. Xxxxx, 00000 Xxxxxxx Xxxxx, Xxxxxxx, Xxxxx 00000, with a copy to Xxxx X.
Xxxxxx, at Xxxxx & Xxxxx, L.L.P., 0000 Xxx Xxxxx Xxxxx, 000 Xxxxxxxxx, Xxxxxxx,
Xxxxx 00000; if to the Company addressed to it at EqualNet Holding Corp., 0000
Xxxx Xxxxxx Xxxx Xxxxx, Xxxxxxx, Xxxxx 00000-0000, Attn: General Counsel, with a
copy to Fulbright & Xxxxxxxx L.L.P., 0000 XxXxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx
00000, Attn: Xxxxxx X. Xxxx, Xx., or to such other address with respect to any
party as such party shall notify the other in writing; provided, however, that
any such communication to the Company may also, at the option of the Purchaser,
be either delivered to the Company at the Company's address set forth above or
to any officer of the Company. Within 5 Business Days after the date of such
mailing (save for any postal interruption) such communication shall be deemed to
have been received.
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9.H. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
9.I. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser, the determination of such
satisfaction shall be made by the Purchaser in its sole and exclusive reasonable
judgment exercised in good faith.
9.J. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State of Texas without giving effect to the
choice of law or conflicts principles thereof. Any legal action or proceeding
with respect to this Agreement may be brought in the courts of the State of
Texas or of the United States of America for the Southern District of Texas,
and, by execution and delivery of this Agreement, the Company hereby accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Company irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address set forth in Section 9G, such
service to become effect 30 days after such mailing. Nothing herein shall affect
the right of the Purchaser to serve process in any other manner permitted by law
or to commence legal proceedings or otherwise proceed against the Company in any
other jurisdiction.
9.K. REMEDIES. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by the Company or the
Purchaser, the Company or the Purchaser, as applicable, may proceed to protect
and enforce its or their rights either by suit in equity and/or by action at
law.
9.L. ENTIRE AGREEMENT. This Agreement, including the Schedules hereto, and
the other writings referred to herein or delivered pursuant hereto contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
9.M. SEVERABILITY. Any provisions of this Agreement that 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.N. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but which together
shall constitute a single agreement.
9.O. BROKERAGE. Each party hereto will indemnify and hold harmless the
others against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
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9.P INDEMNIFICATION. The Company hereby agrees to indemnify and defend the
Purchaser and his agents and representatives ("Indemnified Persons") from and
hold each of them harmless against any and all losses, liabilities, claims or
damages, arising from any investigation, litigation or other proceeding related
primarily to this Agreement and brought or threatened by any third-party that is
wholly unaffiliated with such Indemnified Person including, without limitation,
amounts paid in settlement, court costs and the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the negligence, gross
negligence or willful misconduct of the Indemnified Persons). All obligations
provided for in this PARAGRAPH 9P shall survive any termination of this
Agreement. Promptly after receipt by an Indemnified Person of notice of any
claim or the commencement of any action, such Indemnified Person shall, if any
claim in respect there is to be made against the Company under this PARAGRAPH
9P, notify the Company in writing of the claim or the commencement of that
action. The Company shall not be liable for any settlement of any such claim or
action involving the payment of monetary damages effected without its prior
written consent, which consent the Company may grant or withhold in its sole and
absolute discretion. If any such claim or action shall be brought against an
Indemnified Person and it shall notify the Company thereof and the Company
acknowledges its liability in writing pursuant to this paragraph, the Company
shall be entitled to assume and control the defense thereof, subject to the
right of the Indemnified Person to participate in the defense at its own cost.
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IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed and delivered as of the date first above written.
EQUALNET HOLDING CORP.
By: /S/ XXXXXX X. XXXXXX
Xxxxxx X. Xxxxxx, President and
Chief Executive Officer
/S/ XXXXX X. XXXXX
XXXXX X. XXXXX
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