AGREEMENT AND PLAN OF REORGANIZATION
AND MERGER
among
COTELLIGENT GROUP, INC.,
COTELLIGENT/JASTECH CORPORATION
JASTECH, INCORPORATED
JASTECH OF FLORIDA, INC.
and
XXXX XXXXXXX
TABLE OF CONTENTS
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Page
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1. THE MERGER......................................................... 1
1.1 Delivery and Filing of Articles of Merger................. 1
1.2 Effective Time of the Merger.............................. 2
1.3 Merger of JasTech and JasTech/Fla into Newco; Articles of
Incorporation, Bylaws and Board of Directors of Surviving
Corporation............................................... 2
1.4 Certain Information With Respect to the Capital Stock of
Company and Newco......................................... 3
1.5 Effect of Merger.......................................... 3
2. CONVERSION AND EXCHANGE OF STOCK................................... 4
2.1 Manner of Conversion...................................... 4
3. DELIVERY OF SHARES................................................. 4
4. CLOSING............................................................ 5
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER...................... 5
5.1 Due Organization.......................................... 6
5.2 Authorization............................................. 6
5.3 Capital Stock of Company.................................. 7
5.4 Transactions in Capital Stock and Spin-offs............... 7
5.5 No Bonus Shares........................................... 8
5.6 Subsidiaries.............................................. 8
5.7 Predecessor Status; etc................................... 8
5.8 Cotelligent Stock Ownership............................... 8
5.9 Financial Statements...................................... 8
5.10 Liabilities and Obligations............................... 9
5.11 Approvals................................................. 9
5.12 Accounts and Notes Receivable............................. 9
5.13 Permits and Intangibles................................... 10
5.14 Real and Personal Property................................ 10
5.15 Material Contracts and Commitments........................ 11
5.16 Title to Real Property.................................... 12
5.17 Insurance................................................. 12
5.18 Employees; Compensation................................... 12
5.19 Tax Free Reorganization................................... 12
5.20 Benefit Plans; ERISA Compliance........................... 12
5.21 Conformity with Law....................................... 15
5.22 Taxes..................................................... 16
5.23 Completeness.............................................. 16
5.24 Government Contracts...................................... 17
5.25 Absence of Changes........................................ 17
5.26 Deposit Accounts; Powers of Attorney...................... 18
5.27 Proprietary Rights........................................ 18
5.28 Validity of Obligations................................... 19
5.29 Relations with Governments................................ 19
5.30 Conflicts of Interest..................................... 19
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5.31 Environmental Matters..................................... 19
5.32 Disclosure................................................ 20
6. REPRESENTATIONS OF COTELLIGENT AND NEWCO........................... 21
6.1 Due Organization.......................................... 21
6.2 Cotelligent Stock......................................... 21
6.3 Authorization............................................. 21
6.4 No Conflicts.............................................. 21
6.5 Tax Free Reorganization................................... 22
6.6 Existing Subsidiaries..................................... 22
6.7 Accuracy of Public Disclosures............................ 22
6.8 Approvals................................................. 22
6.9 Prospectus................................................ 22
6.10 Litigation................................................ 22
7. COVENANTS OF STOCKHOLDER, COMPANY AND COTELLIGENT.................. 22
7.1 Access and Cooperation.................................... 22
7.2 Conduct of Business Pending Closing....................... 23
7.3 Prohibited Activities..................................... 23
7.4 Pooling of Interests; Reorganization...................... 24
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER................. 25
8.1 Representations and Warranties; Performance of Obligations.25
8.2 Counsel Approval.......................................... 25
8.3 No Litigation............................................. 25
8.4 Employment Agreement...................................... 25
8.5 Consents and Approvals.................................... 25
9. CONDITIONS TO OBLIGATIONS OF COTELLIGENT AND NEWCO................. 25
9.1 Representations and Warranties; Performance of Obligations 26
9.2 No Litigation............................................. 26
9.3 Examination of Financial Statements....................... 26
9.4 No Material Adverse Change................................ 26
9.5 Review.................................................... 26
9.6 Stockholder Release....................................... 26
9.7 Counsel Approval.......................................... 27
9.8 Consents and Approvals.................................... 27
9.9 Additional Liabilities and Obligations.................... 27
9.10 Additional Contracts...................................... 27
9.11 Good Standing Certificates................................ 27
9.12 Employment Agreement...................................... 27
10. POST CLOSING COVENANTS............................................. 27
10.1 Announcement of Earnings.................................. 27
11. INDEMNIFICATION.................................................... 28
11.1 General Indemnification by Stockholder.................... 28
11.2 Specific Indemnification by Stockholder................... 29
11.5 Notice and Defense of Third Party Claims.................. 29
11.6 Payment; Interest......................................... 30
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12. TERMINATION OF AGREEMENT........................................... 31
13. INTENTIONALLY DELETED.............................................. 31
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................... 31
14.1 Stockholder............................................... 31
14.2 Cotelligent............................................... 31
14.3 Damages................................................... 32
15. POOLING ACCOUNTING................................................. 32
15.1 Restrictions on Resale; Legends.......................... 32
15.2 Indemnification........................................... 33
16. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON COTELLIGENT
STOCK.............................................................. 33
16.1 Prospectus Delivery....................................... 33
16.2 Resale of Cotelligent Stock............................... 33
16.3 Legend.................................................... 33
17. GENERAL............................................................ 34
17.1 Cooperation............................................... 34
17.2 Successors and Assigns.................................... 34
17.3 Entire Agreement.......................................... 34
17.4 Counterparts.............................................. 34
17.5 Brokers and Agents........................................ 34
17.6 Expenses.................................................. 35
17.7 Notices................................................... 35
17.8 Survival of Representations and Warranties................ 36
17.9 Exercise of Rights and Remedies........................... 36
17.10 Time........................................................ 36
17.11 Reformation and Severability................................ 36
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CERTAIN DEFINITIONS
DEFINED TERM SECTION
"Act"............................................... 6.2
"Agreement"......................................... Preamble
"Article of Merger"................................. 1.1
"ASRs".............................................. 14.1
"Balance Sheet Date"................................ 5.9
"Benefit Plans"..................................... 5.20
"Claims"............................................ 10.1
"Closing"........................................... 4
"Closing Date"...................................... 4
"Code".............................................. Recitals
"Company"........................................... Preamble, 5
"Company Stock"..................................... 1.4
"Constituent Corporations".......................... Recitals
"Cotelligent"....................................... Preamble
"Cotelligent Stock"................................. 2.1
"ERISA"............................................. 5.20
"Effective Time of the Merger"...................... 1.2
"Environmental Laws"................................ 5.31
"Expiration Date"................................... 17.8
"Financial Statements".............................. 5.9
"Indemnified Person"................................ 10.3
"Indemnifying Person"............................... 10.3
"IRS"............................................... 5.20
"Merger"............................................ Recitals
"Merger Provision".................................. 1.5
"Newco"............................................. Preamble
"Newco Stock"....................................... 1.4
"PBGC".............................................. 5.20
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CERTAIN DEFINITIONS
DEFINED TERM SECTION
"Pension Plans"..................................... 5.20
"pooling-of-interest"............................... 5.4, 14.1
"Stockholder"....................................... Preamble
"Surviving Corporation"............................. 1.2
"Tax"............................................... 5.22
"Tax Return"........................................ 5.22
"Welfare Plans"..................................... 5.20
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement") is
made as of the 30th day of September, 1996, among COTELLIGENT GROUP, INC., a
Delaware corporation ("Cotelligent"); JASTECH, INCORPORATED, an Ohio corporation
("JasTech"); JASTECH OF FLORIDA, INC., a Florida corporation ("JasTech/Fla")
(JasTech and JasTech/Fla are hereinafter referred to as the "Company");
COTELLIGENT/JASTECH CORPORATION, the corporation formed for the purpose of this
transaction ("Newco"), and XXXX XXXXXXX, the sole shareholder of Company
("Stockholder").
WHEREAS, Newco has been duly organized and is currently existing under the
laws of the State of Florida, having been incorporated solely for the purpose of
completing this transaction, and is a wholly-owned subsidiary of Cotelligent;
and
WHEREAS, Stockholder is the record owner of all of the outstanding capital
stock of Company; and
WHEREAS, the respective Boards of Directors of Cotelligent, Newco and
Company (all of which companies are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that JasTech and
JasTech/Fla merge with and into Newco pursuant to this Agreement and the
applicable provisions of the laws of Company's and Newco's respective states of
incorporation, such transaction sometimes being referred to herein as the
"Merger"; and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests; and
WHEREAS, the Boards of Directors of each of the Constituent Corporations
have approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code
of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Cotelligent, Company, Newco
and Stockholder agree that JasTech and JasTech/Fla shall merge with and into
Newco, upon the terms and conditions set forth in this Agreement and in
accordance with the applicable provisions of the laws of their respective states
of incorporation. The Constituent Corporations will cause Articles of Merger in
substantially the form attached hereto as
Exhibit-A (the "Articles of Merger") to be signed, verified by the
appropriate party and delivered to the Secretaries of State of Ohio and Florida
on or before the Closing Date (as defined in Section-4 of this Agreement).
1.2 Effective Time of the Merger. The "Effective Time of the Merger" shall
be such time at which the Articles of Merger are filed with the Secretary of
State for the States of Ohio and Florida, or if a different effective time is
specified in the Articles of Merger, such later time as is specified in such
Articles of Merger. At the Effective Time of the Merger, JasTech and JasTech/Fla
shall be merged with and into Newco, the separate existence of JasTech and
JasTech/Fla shall cease, and Newco shall change its name to JasTech, Inc. Newco,
the party surviving the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.3 Merger of JasTech and JasTech/Fla into Newco; Articles of
Incorporation, Bylaws and Board of 1.3ectorsMerger of JasTech and JasTech/Fla
into Newco; Articles of Incorporation, Bylaws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) JasTech and JasTech/Fla shall merge with and into Newco,
with such effects as are set forth herein and in the corporate
of the States of Ohio and Florida;
(ii) the Articles of Incorporation of Newco, as in effect
immediately prior to the consummation of the Merger, shall
become the Articles of Incorporation of the Surviving
Corporation; and subsequent to the Effective Time of the Merger,
such Articles of Incorporation shall be the Articles of
Incorporation of the Surviving Corporation until changed as
provided by law;
(iii) the Bylaws of Newco, as in effect immediately prior
to the consummation of the Merger, shall become the Bylaws of
the Surviving Corporation; and subsequent to the Effective Time
of the Merger, such Bylaws shall be the Bylaws of the Surviving
Corporation until they shall thereafter be duly amended;
(iv) the name of the person who shall serve as the sole
member of the Board of Directors of the Surviving Corporation is
as follows:
Xxxxxx Xxxxxxx
The Director of the Surviving Corporation shall hold office
subject to the provisions of the laws of its state of
incorporation and of the Articles of Incorporation and Bylaws of
the Surviving Corporation; and
(v) the officers of Newco immediately prior to the
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Effective Time of the Merger shall continue as the officers of
the Surviving Corporation in the same capacity or capacities,
each of such officers to serve, subject to the provisions of the
Articles of Incorporation and Bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of Company and
Newco. The respective designations and numbers of outstanding shares and voting
rights of each class of outstanding capital stock of Company and Newco as of the
date of this Agreement are as follows:
(i) the authorized capital stock of JasTech consists of 100
shares of common stock, no par value "JasTech Stock"), of which
25 shares are issued and outstanding;
(ii) the authorized capital stock of JasTech/Fla consists
of 10,000 shares of common stock, $1.00-par value "JasTech/Fla
Stock"), of which 1,000 shares are issued and outstanding (the
JasTech Stock and JasTech/Fla Stock are hereinafter referred to
as the "Company Stock"); and
(iii) the authorized capital stock of Newco consists of
1,000 shares of common stock, no par value ("Newco Stock"), of
which 100 shares are issued and outstanding.
1.5 Effect of Merger. The Merger shall have the effects set forth in the
corporate laws of the States of Ohio and Florida (the "Merger Provision").
Except as specifically set forth to the contrary in the Merger Provision or in
this Agreement, the identity, existence, purposes, powers, objects, franchises,
privileges, rights and immunities of Newco shall continue unaffected and
unimpaired by the Merger and the corporate franchises, existence and rights of
Newco shall be merged into Company, and Newco, as the Surviving Corporation,
shall be fully vested therewith; at the Effective Time of the Merger, the
separate existence of JasTech and JasTech/Fla shall cease and, in accordance
with the terms of this Agreement, the Surviving Corporation shall possess all
the rights, privileges, immunities and franchises, of a public, as well as of a
private nature; and all property and all debts due on whatever account,
including subscriptions to shares and all and every other interest of or
belonging to or due to Newco and Company shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights, privileges, powers, licenses and franchises and
all and every other interest shall be thereafter as effectually the property of
the Surviving Corporation as they were of Company and Newco; and the title to
any real estate, or interest therein, whether by deed or otherwise, under the
laws of the state of incorporation vested in Company and Newco, shall not revert
or be
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in any way impaired by reason of the Merger. The Surviving Corporation
shall thenceforth be responsible and liable for all the liabilities and
obligations of Company and Newco and any claim existing, or action or proceeding
pending, by or against Company or Newco may be prosecuted as if the Merger had
not taken place, or the Surviving Corporation may be substituted in its place.
Neither the rights of creditors nor any liens upon the property of Company or
Newco shall be impaired by the Merger, and all debts, liabilities and duties of
Company and Newco shall attach to the Surviving Corporation, and may be enforced
against it to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
2. CONVERSION AND EXCHANGE OF STOCK
2.1 Manner of Conversion. The manner of converting (i)-the shares of
Company Stock issued and outstanding immediately prior to the Effective Time of
the Merger into shares of common stock of Cotelligent, $0.01-par value
("Cotelligent Stock") and (ii)-the shares of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger into shares of common
stock of the Surviving Corporation, shall be as follows:
Upon the Effective Time of the Merger and without any action
on the part of Company, Newco or Stockholder:
(i) all of the shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger
shall, by virtue of the Merger and without any action on the part of
the holder thereof, automatically be converted into that number of
shares of Cotelligent Stock calculated in accordance with Section 3
below, and each share of Company Stock shall be cancelled and cease
to exist; and
(ii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically be converted into one fully paid and non-assessable
share of stock of the Surviving Corporation; and such shares in the
aggregate shall constitute all of the issued and outstanding shares
of the Surviving Corporation from and after the Effective Time of th
Merger.
3. DELIVERY OF SHARES
3.1 At Closing:
(i) Stockholder, as the holder of all outstanding certificates
representing shares of Company Stock, shall, upon surrender of
such certificates, be entitled to receive
4
that total number of shares of Cotelligent Stock which shall have
an aggregate Agreed Value of $8,710,000 determined pursuant to
subsection (iii) below, less any agreed upon amount to be
distributed to Stockholder to cover income tax obligations.
(ii) Until the certificates representing Company Stock have been
surrendered by Stockholder and replaced by the Cotelligent Stock,
the certificates for Company Stock shall, for all corporate
purposes be deemed to evidence ownership of Cotelligent Stock.
(iii) For purposes of this Agreement, the "Agreed Value" per
share of Cotelligent Stock shall be the average of the closing
prices of a share of Cotelligent Stock on National Market System
of the NASDAQ Stock Market as reported in The Wall Street Journal
for the ten trading days immediately preceding the five trading
days immediately prior to the Closing Date, adjusted for any
stock splits, stock dividends and other capital changes between
the first date of the valuation period and the Closing Date;
provided, however that such Agreed Value per share shall be not
less than $12.50 and not more than $15.00.
3.2 Stockholder shall deliver at Closing the certificates representing
Company Stock, duly endorsed in blank by Stockholder or accompanied by a blank
stock power, with signature guaranteed by a national bank, and with all
necessary transfer tax and other revenue stamps, acquired at Stockholder's
expense, affixed and canceled. Stockholder agrees to cure any deficiencies with
respect to the endorsement of the certificates or other documents of conveyance
with respect to Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
The Merger and conversion and delivery of shares referred to in Section-
hereof (hereinafter referred to as the "Closing") shall take place at the
offices of Xxxxxxxx, Xxxxxxx & Xxxxx, 0000 Xxxxxxxxxxx Xxxxxx, X.X., Xxxxxxxxxx,
X.X. 00000, on September 30, 1996, or at such other time and date as
Cotelligent, Company and Stockholder may mutually agree, which date shall be
referred to herein as the "Closing Date." At or prior to the Closing, the
parties shall take all actions necessary to prepare to effect the Merger
including, if permitted by applicable state law, filing with the appropriate
state authorities the Articles of Merger which shall become effective on the
Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder represents and warrants to Cotelligent that all
5
of the following representations and warranties shall be true as of the
date of this Agreement and shall be true at the time of Closing. Such
representations and warranties shall survive the Closing for a period of one-ear
from the Closing Date or until the completion date of the first audited
financial statements of Cotelligent for its current fiscal year, whichever
occurs first; provided, however, that the specific representations contained in
Section 5.3 (concerning stock ownership) shall survive without limitation. For
purposes of these representations and warranties, the term "Company" shall
include Company and each of Company's subsidiaries indicated on Schedule-.6.
5.1 Due Organization. Company and each subsidiary of Company indicated on
Schedule-.6 are corporations duly organized, validly existing and in good
standing under the laws of the states shown on Schedules 5.1 and-.6, and are
duly authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to carry on their respective
businesses in the places and in the manner as now conducted or as proposed to be
conducted except (i)-as disclosed on Schedule-.1 or (ii)-where the failure to be
so authorized, qualified or licensed would not have a material adverse effect on
the business of Company. Copies of the Articles of Incorporation (certified by
the Secretary of State of the State of incorporation of the respective company)
and Bylaws (certified by the Secretary of Company), as amended, of Company and
each of Company's subsidiaries are all attached hereto as Schedule-5.1. The
stock records and minute books of Company and each subsidiary, as heretofore
made available to Cotelligent, are correct and complete.
5.2 Authorization. Stockholder and Company have full right, power and
authority to enter into this Agreement and have the full right, power and
authority to enter into the Merger, and, upon consummation of the Merger
pursuant to the provisions of this Agreement, Cotelligent will acquire valid
title in the Company Stock, free and clear of all liens, encumbrances and claims
of every kind. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, materially conflict with, or result in any violation
of, or material default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Company under, any provision of (i)-the Articles of
Incorporation or By-laws of Company, (ii)-any contract, agreement, loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Company or
(iii)-any judgment, injunction, order, decree, statute, law,
6
ordinance, rule or regulation applicable to Company or its properties or
assets.
5.3 Capital Stock of Company. The authorized capital stock of JasTech
consists solely of 100 shares of voting common stock. The authorized capital
stock of JasTech/Fla consists solely of 10,000 shares of voting common stock.
All of the issued and outstanding shares of the capital stock of JasTech and
JasTech/Fla are owned by Stockholder and are free and clear of all liens,
encumbrances and claims of every kind. Schedule 5.6 attached hereto sets forth
the number and class of the authorized capital stock of each of Company's
subsidiaries and the number of shares of each subsidiary which are issued and
outstanding, all of which shares are owned by Company, free and clear of all
liens, encumbrances and claims of every kind. All of the issued and outstanding
shares of Company Stock have been duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by Stockholder, and
such shares were offered, issued, sold and delivered by Company in compliance
with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock and Spin-offs. Company has not acquired
any treasury stock since September 10, 1994. No rights of first refusal, option,
warrant, call, conversion right or commitment of any kind exists which obligates
Company to issue any of its authorized but unissued capital stock. In addition,
there are no (i) outstanding securities or obligations which are convertible
into or exchangeable for any shares of the capital stock or other securities of
Company, or (ii) contracts, arrangements or commitments, written or otherwise,
under which Company is or may become bound to sell or otherwise issue any shares
of its capital stock or any other securities. Without limiting the generality of
the foregoing, there is no basis upon which any person (other than Stockholder)
may claim to be in any way the record or beneficial owner of, or to be entitled
to acquire (of record or beneficially), any shares of the capital stock or other
securities of Company, and no person has made or threatened to make, or will in
the future have any legitimate claim to make, any such claim. In addition,
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. There has been no
change in the beneficial or record equity ownership of Company since September
10, 1994. Neither the voting stock structure of Company nor the ownership of
shares has been altered or changed in contemplation of the Merger since
September 10, 1994. Between September 10, 1994 and the Closing Date, there has
not been any sale or spin-off of significant assets of Company or any of
Company's subsidiaries
7
other than in the ordinary course of business and except as set forth on
Schedule 5.4.
5.5 No Bonus Shares. None of the shares of Company Stock was issued
pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Set forth on Schedule 5.6 attached hereto is a list of
the names of each of Company's subsidiaries and their respective states of
incorporation. Except as set forth in Schedule 5.6, Company does not presently
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity. Company is not, directly or
indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of Company, including the names of any
entities from whom Company previously acquired significant assets. Except as
disclosed in Schedule 5.7, Company has never been a subsidiary or division of
another corporation nor been a part of an acquisition which was later rescinded.
5.8 Cotelligent Stock Ownership. Neither Company, Stockholder nor any of
Company's subsidiaries has ever owned any Cotelligent Stock.
5.9 Financial Statements. Stockholder has delivered to Cotelligent copies
of the following sets of financial statements (the "Financial Statements") of
Company attached hereto as Schedule 5.9:
(i) JasTech's and JasTech/Fla's Balance Sheet as of
December 31, 1995 and for the two prior years and Statements of
Earnings, Cash Flows and Retained Earnings for the year then
ended and for the two prior years, and
(ii) JasTech's and JasTech/Fla's Balance Sheet as of August 31,
1996 (hereinafter referred to as the "Balance Sheet Date") and
Statements of Earnings, and Retained Earnings for the eight (8)
month period then ended.
Such Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") and applied on a consistent basis
throughout the periods indicated (except as noted). Except as noted on
Schedule-5.9, such balance sheets present fairly the financial condition of
Company (and Company's subsidiaries on a consolidated basis) as of the dates
indicated thereon, and such Statements of Earnings, and Cash Flows and Retained
Earnings present fairly the results of its operations
8
for the periods indicated thereon. If requested, the President or Chief
Financial Officer of Company has, or will (at no expense to Stockholder or
Company) on or before the Closing Date, after review and approval by
Stockholder, execute any documentation reasonably required by Cotelligent's
independent public accountants or any stock exchange with respect to issues
related to pooling accounting treatment.
5.10 Liabilities and Obligations. Set forth on Schedule 5.10 is an accurate
list as of the Balance Sheet Date of all material liabilities of Company which
are not individually reflected on the Financial Statements dated the Balance
Sheet Date, but which would have been so reflected in a full GAAP accounting, of
any kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, together with, in the case of those
liabilities which are not fixed, an estimate of the maximum amount which may be
payable. For each such material liability for which the amount is not fixed or
is contested, Stockholder shall provide a summary description of the liability
together with the following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought;
(iii) name of claimant and all other parties to the claim, suit
or proceeding;
(iv) the name of each court or agency before which such claim,
suit or proceeding is pending;
(v) the date such claim, suit or proceeding was instituted; and
(vi) a reasonable best estimate by Stockholder of the maximum
amount, if any, which is likely to become payable with respect to
each such liability. If no estimate is provided, the
Stockholder's best estimate shall for purposes of this Agreement
be deemed to be zero.
5.11 Approvals. Except as described in Schedule 5.11, no material
authorization, consent or approval of, or registration or filing with, any
governmental authority or any other person is or was required to be obtained or
made by Company or Stockholder in connection with the execution, delivery or
performance of this Agreement, except where the failure to obtain such approval
would prevent the consummation of the Merger or impose any material liability on
Company or Cotelligent. As of the date of this Agreement, except as described in
Schedule 5.11, all of the authorizations, consents and approvals listed on
Schedule 5.11
9
have been obtained, and all of the registrations and filings
listed on Schedule 5.11 have been made.
5.12 Accounts and Notes Receivable. Set forth on Schedule 5.12 is an
accurate list as of August 31, 1996, of the accounts and notes receivable of
Company, including receivables from and advances to employees in excess of
$5,000 and to Stockholder and amounts which are not reflected in the most recent
available balance sheet. Stockholder shall provide Cotelligent with an aging of
all accounts and notes receivable in excess of $2,000, showing amounts due in 30
day aging categories. Except to the extent reflected on Schedule 5.12, accounts
and notes listed on Schedule 5.12 are collectible in the amount shown on
Schedule 5.12.
5.13 Permits and Intangibles. Set forth on Schedule 5.13 is an accurate
list and summary description as of the Closing Date of all material permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, orders, approvals, franchises, certificates, and, to the best of
Stockholder's knowledge, all trademarks, trade names, patents, patent
applications and copyrights owned or held by Company, all of which material
permits, titles, licenses, orders, approvals, franchises, certificates and known
trademarks, trade names, patents, patent applications and copyrights are now
valid, in good standing and in full force and effect. Except as set forth on
Schedule 5.13, such permits, titles, licenses, orders, approvals, franchises,
certificates, trademarks, trade names, patents, patent applications, copyrights
and similar rights of approvals are adequate for the operation of Company's
business as presently constituted. Except as set forth on Schedule 5.13,
Stockholder has delivered to Cotelligent a description and copies, as of the
date of this Agreement, of all material records, reports, notifications,
certificates, permits, pending permit applications, engineering studies,
environmental impact studies filed or submitted or required to be filed or
submitted to governmental agencies, other governmental approvals or applications
for approval and of all material notifications from such governmental agencies.
5.14 Real and Personal Property. Set forth on Schedule 5.14 is an accurate
list and a complete description as of the date hereof of all the real and
personal property of Company which have an individual value in excess of $2,500,
including true and correct copies of leases for equipment and properties listed
on the Financial Statements on which are situated buildings, warehouses,
workshops, garages and other structures used in the operation of the business of
Company and including an indication as to which assets were formerly owned by
business or personal affiliates of Company. Except as shown on Schedule 5.14,
substantially all of the machinery and equipment of Company are
10
in good working order and condition, ordinary wear and tear excepted. All
leases set forth on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms. All fixed assets used by Company in the
operation of its business are either owned by Company or leased under an
agreement indicated on Schedule 5.14. Schedule 5.14 shall, without limitation,
contain copies of all title reports and title insurance policies received or
owned by Company. Stockholder have also indicated on Schedule 5.14 a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any real or personal
property or existing business, to which management of Company has devoted any
significant effort or expenditure in the two year period prior to the date of
the Agreement, which if pursued by Company would require additional expenditures
of significant efforts or capital. Since January 1, 1985, Company has not owned
any real property.
5.15 Material Contracts and Commitments. Set forth on Schedule 5.15 is an
accurate list of all Material Contracts, commitments and similar agreements to
which Company is a party or by which it or any of its properties are bound
(including, but not limited to, joint venture or partnership agreements, leases
of real property, powers of attorney, contracts with any labor organizations,
loan agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements and agreements for
employment of any individual), true and complete copies of which have been
delivered to Cotelligent. Except to the extent set forth on Schedule 5.15,
Company has complied with all commitments and obligations pertaining to such
contracts and agreements, respectively, and are not in default under any such
contract and agreement and no notice of default has been received, nor is
Company aware of any default on the part of any other party to such contract or
agreement, or any intent of any such party to attempt to terminate or amend any
such contract or agreement. Company is not a party to any contract, agreement or
other instrument or commitment which, singly or in the aggregate, materially and
adversely affects or is likely to materially and adversely affect, the business,
operations, properties, assets or condition, (financial or otherwise) of
Company. Except as set forth in Schedule 5.15, Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union. Except as set forth in
Schedule 5.15, no employees of Company are represented by any labor union or
covered by any collective bargaining agreement nor, to the best of Company's and
Stockholder's knowledge, is any campaign to establish such representation in
progress. There is no pending or, to the best of Company's and Stockholder's
knowledge, threatened labor dispute involving
11
Company and any group of its employees nor has Company experienced any
labor interruptions over the past three years and Company considers its
relationship with employees to be good. No such contract or agreement will be
terminated or modified by virtue of the Merger, nor will the Merger give rise to
the right of any party to terminate or modify any such contract or agreement.
For purposes of this Section, "Material Contracts" shall mean contracts which
individually obligate Company to pay or receive over $6,000 per year, and which
are not terminable without further obligations after a written notice 30 days
prior to such termination.
5.16 Title to Real Property. Company does not currently own any real
property. All, if any, real property previously owned by Company is listed as
part of Schedule 5.14.
5.17 Insurance. Set forth on Schedule 5.17 is an accurate list of all
insurance policies carried by Company and an accurate list of all insurance loss
runs or worker's compensation claims received for the past three policy years.
Also attached as Schedule 5.17 are complete copies of all policies currently in
effect. The insurance carried by Company with respect to its properties, assets
and business of Company is with reputable insurers. Such insurance policies are
currently in full force and effect and shall remain in full force and effect
through the Closing Date. Company's insurance has never been canceled and
Company has never been denied coverage.
5.18 Employees; Compensation. Set forth on Schedule 5.18 is an accurate
list of all officers, directors and key employees of Company and each of its
subsidiaries and the rate of compensation (and the portions thereof attributable
to salary, bonus and other compensation, respectively) of the directors,
officers and key employees.
5.19 Tax Free Reorganization. To the best of Stockholder's knowledge,
neither Stockholder nor Company has taken or failed to take any action which
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code, nor will either of them knowingly take or
fail to take any such action in the future.
5.20 Benefit Plans; ERISA Compliance. (a) There has not been any adoption
or material amendment by Company of any collective bargaining agreement or any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock retirement,
vacation, severance, disability, death benefit, hospitalization, medical,
dependant care, cafeteria, employee assistance, scholarship or other plan,
program, arrangement or
12
understand (whether or not legally binding) maintained in whole or in part,
contributed to, or required to be contributed to by Company for the benefit of
any present or former officer, employee or director of Company (collectively,
and including all amendments thereto, for purposes of this Section 5.20,
"Benefit Plans"), other than those listed on Schedule 5.20.
(b) Schedule 5.20 contains a list of all "employee pension benefit plans"
(as defined in Section 3(2) of Employment Retirement Income Security Act of
1974, as amended ("ERISA")) (sometimes referred to in this Section 5.20 as
"Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1)
of ERISA) (sometimes referred to in this Section 5.20 as "Welfare Plans") and
all other Benefit Plans currently maintained in whole or in part, contributed
to, or required to be contributed to by Company for the benefit of any present
or former officer, employee or director of Company. Company has delivered to
Cotelligent true, complete and correct copies of (A) each Benefit Plan (or, in
the case of any unwritten Benefit Plans, descriptions thereof), (B) the three
annual reports on Form 5500 most recently filed with the Internal Revenue
Service ("IRS") with respect to each Benefit Plan (if any such report was
required), (C) the most recent IRS determination letter for each Benefit Plan
intended to be qualified under Section 401(a) of the Code and all rulings or
determinations concerning such Benefit Plan requested of the IRS subsequent to
the date of that letter, if any have been issued or requested, (D) the most
recent actuarial report for each Benefit Plan for which an actuarial report is
required by ERISA, (E) the most recent summary plan description for each Benefit
Plan for which such summary plan description is required by ERISA and each
summary of material modifications prepared, as required by ERISA, after the last
summary plan description, and (F) each trust agreement and/or group annuity
contract relating to any Benefit Plan.
(c) Each Pension Plan maintained and each pension plan formerly maintained
that is or was intended to be qualified under Section 401(a) of the Code has
been the subject of a determination letter from the IRS to the effect that such
plan is qualified under Section 401(a) of the Code or can still be submitted in
a timely manner to the IRS for such a letter, and no such determination letter
has been revoked nor has revocation of any such letter been threatened, nor has
any such plan been amended since the date of its most recent determination
letter or application therefor in any respect that would adversely affect its
qualification or materially increase its costs, and nothing has occurred or
failed to occur which would cause the loss of such qualifications, and all
amendments required to be adopted before the Effective Time for any such Pension
Plan to continue to be so qualified have been or will be duly and timely
adopted; provided however, that to the extent that this representation applies
to terminated pension plans, this representation refers
13
to the qualified status of any such plan through the time of its termination.
(d) Each of the Benefit Plans sponsored by, and each of the benefit plans
formerly sponsored by, Company: (A)has been in substantial compliance with all
reporting and disclosure requirements of (i)Part 1 or Subtitle B of Title I of
ERISA, if applicable, or (ii) other applicable law, (B)has had the appropriate
required Form 5500 (or equivalent annual report) filed timely with the
appropriate governmental entity for each year of its existence, (C) has at all
times complied with the bonding requirements of Section 412 of ERISA, if
applicable, (D) has no issue pending (other than the payment of benefits in the
normal course) nor any issue resolved adversely to Company which may subject
Company to the payment of material penalty, interest, tax or other obligation,
nor is there any basis for any imposition of any such liability, and (E) has
been maintained in all respects in compliance with the applicable requirements
of ERISA, the Code and other applicable law (including all rules and regulations
issued thereunder) not otherwise covered hereunder so as not to give rise to any
material liabilities to Company.
(e) The execution of this Agreement or the consummation of the transactions
contemplated by this Agreement will not give rise to any, or trigger any, change
of control, severance or other similar provisions in any Benefit Plan. The
consummation of any transaction contemplated by this Agreement will not result
in any (i)payment (whether of severance pay or otherwise) becoming due from
Company to any officer, employee, former employee or director thereof or to the
trustee under any "rabbi trust" or similar arrangement ; (ii) benefit under any
Benefit Plan of Company being established or becoming accelerated, vested or
payable; or (iii)payment or series of payments by Company, directly or
indirectly, to any person that would constitute a "parachute payment" within the
meaning of Section 280G of the Code.
(f) Company provides no material post-retirement medical, health,
disability or death protection coverage or contributes to or maintains any
employee welfare benefit plan which provides for medical, health, disability or
death benefit coverage following termination of employment by any officer,
director or employee except as is required by Section 4980B(f) of the Code or
other applicable statute, nor has it made any representations, agreements,
covenants or commitments to provide that coverage.
(g) None of Company, any officer of Company or any of the Benefit Plans or
prior benefit plans (including the Pension Plans and prior pension plans) which
are subject to ERISA, or any trusts created thereunder, or any trustee or
administrator thereof, has engaged in a non-exempt "prohibited transaction" (as
such term is defined in Section 406, 407 or 408 of ERISA or
14
Section 4975 of the Code) or any other breach of fiduciary responsibility
that could subject Company or any officer of Company to the tax or penalty on
prohibited transactions imposed by such Section 4975 of the Code or to any
liability under Section 502(i) or (1) of ERISA which would have a material
adverse effect on Company.
(h) With respect to any Benefit Plan that is a Welfare Plan, (A) each such
Benefit Plan that is a group health plan, as such term is defined in
Section 5000(b)(1) of the Code, complies in all material respects with any
applicable requirements of Part 6 of Title I of ERISA and Section 4980B(f) of
the Code and (B) each such Benefit Plan (including any such plan covering
retirees or other former employees) may be amended or terminated with respect to
health benefits without material liability to Company on or at any time after
the Closing Date.
(i) All contributions required by law or by a collective bargaining or
other agreement to be made under the Benefit Plans with respect to all periods
through the Effective Date of the Merger, including a pro rata share of
contributions due for the current plan year, will have been made by such date or
provided for by adequate reserves by Company. No changes in contribution rates
or benefit levels have been implemented or negotiated (but not yet implemented),
with respect to any Benefit Plan since the date on which the information
provided in the attached schedule has been provided, and no such changes are
scheduled to occur.
(j) Company has not and will not have any material liability or obligation
for taxes, penalties, contributions, losses, claims, damages, judgments,
settlement costs, expenses, costs, or any other liability or liabilities of any
nature whatsoever arising out of or in any manner relating to any Benefit Plan
or prior benefit plan (including but not limited to employee benefit plans such
as foreign plans which are not subject to ERISA), that has been, or is,
contributed to by any entity, whether or not incorporated, which is deemed to be
under common control (as defined in Section 414 of the Code), with Company.
5.21 Conformity with Law. Except to the extent set forth on Schedule 5.21,
Company has fully complied with, and Company is not in material default under,
any material law, rule, ordinance, ruling, directive, or regulation or under any
order, award, judgment or decree of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having
15
jurisdiction over Company; and except to the extent set
forth in Schedule 5.10, there are no claims, actions, suits or proceedings,
pending or threatened, against or affecting Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
Company or its business and no notice of any claim, action, suit or proceeding,
whether pending or threatened, has been received. Company has conducted and is
conducting its business in material compliance with the requirements, standards,
criteria and conditions set forth in applicable federal, state and local
statues, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including, without limitation, all such laws, rules, ordinances,
decrees and orders relating to intellectual property protection, antitrust
matters, consumer protection, currency exchange, environmental protection, equal
employment opportunity, health and occupational safety, pension and employee
benefit matters, securities and investor protection matters, labor and
employment matters, and trading-with-the-enemy matters, except where the failure
to do so would not result in any material liability of Company. Company has not
received any notification of any asserted present or past unremedied failure by
Company to comply with any of such laws, rules, ordinances, decrees or orders.
5.22 Taxes. Company has timely filed all requisite federal and other Tax
Returns for all fiscal periods ended on or before the Balance Sheet Date; and
there are no agreements to extend the statutory period for assessment of any
taxes for which such extension has expired, examinations in progress or claims
against Company for federal and other Taxes (including penalties and interest)
for any period or periods prior to and including the Balance Sheet Date and no
notice of any claim, whether pending or threatened, for Taxes has been received.
Company is not a party to any Tax allocation or sharing agreement (i.e., any
agreement or arrangement for the payment of Tax liabilities or payment for Tax
benefits with respect to a consolidated, combined or unitary Tax Return which
includes Company) with any corporation which is not directly or indirectly 100%
owned by Company; there are no requests for rulings in respect of any Tax
pending by Company with any tax authority; and no penalty or deficiency in
respect of any Taxes which has been assessed against Company remains unpaid.
Company has paid all taxes shown on its tax returns and is accruing amounts
sufficient to pay all current year taxes. Copies of (i) any tax examinations,
(ii) extensions of statutory limitations and (iii) the federal and local income
tax returns and franchise tax returns of Company for their last three fiscal
years, or such shorter period of time as it has existed, have been previously
provided to Cotelligent. For purposes of this Section 5.22, "Tax" shall mean any
United States or other federal, state, provincial, local or foreign income,
gross receipts, property, sales, goods and services use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum,
ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any governmental authority. "Tax Return" shall
mean any return, report or similar statement
16
required to be filed with respect
to any Tax (including any attached schedules), including, without limitation,
any information return, claim for refund, amended return and declaration of
estimated Tax.
5.23 Completeness. The certified copies of the Articles of Incorporation
and Bylaws, both as amended to date, of Company and each of Company's
subsidiaries, and the copies of all leases, instruments, agreements, licenses,
permits, certificates or other documents which are required to be included on
schedules attached hereto or have been delivered to Cotelligent in connection
with the transactions contemplated hereby are complete and correct; neither
Company nor any other party hereto is in default thereunder. Except as set forth
on Schedule 5.23, none of such leases, instruments, agreements, contracts,
licenses, permits, certificates or other documents requires notice to, or the
consent or approval of, any governmental agency or other third party to any of
the transactions contemplated hereby to remain in full force and effect or give
rise to any right to termination, cancellation or acceleration or loss of any
right or benefit hereunder.
5.24 Government Contracts. Except as set forth on Schedule 5.24, to the
best of Stockholder's knowledge, Company is not now and has never been a party
to any governmental contracts subject to price redetermination or renegotiation.
5.25 Absence of Changes. Except as set forth on Schedule 5.25, since the
Balance Sheet Date, there has not been:
(i) any material adverse change in the financial condition,
assets, liability (contingent or otherwise), income or business
of Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or
business of Company;
(iii) any change in the authorized capital of Company or its
securities outstanding or any change in the ownership interests
or any grant of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital
stock of Company;
(v) any increase in the compensation, bonus, sales commissions,
fringe benefits or fee arrangement in excess of $5,000 per year
payable or to become payable by Company to
17
any of its officers, directors, Stockholder, employees,
consultants or agents;
(vi) any work interruptions, labor grievances or claims filed,
materially adversely affecting the business or future prospects
of Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, Stockholder and her affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to Company, including without
limitation any indebtedness or obligation of Stockholder or any
affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets,
property or rights of Company in excess of $5,000 or requiring
consent of any party to the transfer and assignment of any such
assets, property or rights;
(x) any purchase or acquisition, or agreement, plan or
arrangement to purchase or acquire, any property, rights or
assets in excess of $5,000;
(xi) any waiver of any material rights or claims of Company;
(xii) any breach, amendment or termination of any Material
Contract, agreement, license, permit or other right to which
Company is a party; or
(xiii) any transaction by Company outside the ordinary course of
its business in excess of $5,000.
5.26 Deposit Accounts; Powers of Attorney. Set forth on Schedule 5.26 is an
accurate list as of the date of this Agreement, of:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special
18
power of attorney from Company or any of its subsidiaries and a description of
the terms of such power, each of which shall be cancelled on the Closing Date.
5.27 Proprietary Rights. Except as set forth on Schedule 5.27, Company does
not own or have any right or interest in any patent, trademark, trade name,
copyright, trade secret, or other intellectual property right, or any license or
assignment with respect thereto. To the best of Stockholder's knowledge, Company
has not infringed upon and is not infringing upon, and has not engaged in and is
not engaged in any unauthorized use or misappropriation of, any patent,
trademark, trade name, copyright, trade secret, process, design, invention,
know-how or technology owned by or belonging to any other person; and there is
no pending or threatened claim, and no basis for the assertion of any claim,
against Company with respect to any such infringement, unauthorized use or
misappropriation.
5.28 Validity of Obligations. The execution and delivery of this Agreement
by Company and the performance of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors and the Stockholder of
Company, and this Agreement has been duly and validly authorized by all
necessary corporate action and is a valid and binding obligation of Company.
5.29 Relations with Governments. Neither Company, Stockholder nor, to
Company's or Stockholder's knowledge, any director, officer, agent, employee or
other person acting on behalf of Company, has used any Company funds for
improper or unlawful contributions, payments, gifts or entertainment, or made
any improper or unlawful expenditures relating to political activity to domestic
or foreign government officials or others, which would materially and adversely
affect Company. Company has adequate financial controls to prevent such improper
or unlawful contributions, payments, gifts, entertainment or expenditures.
Neither Company, Stockholder nor, to Company's or Stockholder's knowledge, any
current director, officer, agent, employee or other person acting on behalf of
Company, has accepted or received any improper or unlawful contributions,
payments, gifts or expenditures, which would materially and adversely affect
Company. Company has at all times complied, and is in compliance, in all
material respects with the Foreign Corrupt Practices Act and in all material
respects with all foreign laws and regulations relating to prevention of corrupt
practices.
5.30 Conflicts of Interest. Except as disclosed in Schedule 5.30, neither
Stockholder nor, to the best of Stockholder's knowledge, (i) any other past or
present officer or director of Company, (ii) any relative of any past or present
officer or director of Company, nor (iii) any corporation,
19
partnership, trust or
other entity of which any such past or present officer or director of Company
has a direct or indirect interest or is a director, officer, stockholder,
partner or trustee, is or has ever been a party, directly or indirectly, to any
transaction with Company, including without limitation any agreement or other
arrangement providing for the furnishing of services by or to Company or the
rental of any property from or to Company, or otherwise requiring or
contemplating any payments by or to Company. Except as disclosed in
Schedule 5.30, neither any present officer or director, nor any relative of any
such officer or director, owns directly or indirectly any interest in any
corporation, firm, partnership, trust or other entity or business which is a
competitor, potential competitor, customer, client or supplier of Company or any
related business.
5.31 Environmental Matters. Except as set forth on the Schedule 5.31,
(i) Company has complied with and is in material compliance with all federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees applicable
to it or any of its properties, assets, operations and business relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances (as such terms are defined in any applicable
Environmental Law), except to the extent that noncompliance with any
Environmental Law, either singly or in the aggregate, does not have a material
adverse effect on its business; (ii) Company has obtained and adhered to all
necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Wastes and Hazardous Substances and
has reported, to the extent required by all Environmental Laws, all past and
present sites owned and operated by Company where Hazardous Wastes or Hazardous
Substances have been treated, stored, disposed of or otherwise handled;
(iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by Company
except as permitted by Environmental Laws; (iv) Company knows of no on-site or
off-site location to which Company has transported or disposed of Hazardous
Wastes and Hazardous Substances or arranged for the transportation of Hazardous
Wastes and Hazardous Substances, which site is the subject of any federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against Company, Cotelligent or the Surviving
Corporation for any clean-up cost, remedial work, damage to natural resources or
personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) Company has no contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
20
5.32 Disclosure. This Agreement, the exhibits and the schedules hereto and
all other documents and information furnished to Cotelligent and its
representatives pursuant hereto do not and will not include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein not misleading. If Company or Stockholder becomes aware of
any fact or circumstance which would change a representation or warranty of
Company or Stockholder in this Agreement or any representation made on behalf of
Company, Company and Stockholder shall immediately give notice of such fact or
circumstance to Cotelligent. However, such notification shall not relieve
Company or Stockholder of their respective obligations under this Agreement, and
at the sole option of Cotelligent, the truth and accuracy of any and all
warranties and representations of Company, or on behalf of Company and of
Stockholder at the date of this Agreement and at the Closing, shall be a
precondition to the consummation of this transaction.
6. REPRESENTATIONS OF COTELLIGENT AND NEWCO
Cotelligent and Newco represent and warrant that all of the following
representations and warranties are true as of the date of the Agreement and
shall be true at the time of Closing and shall survive the Closing for a period
of one year following the Closing, except that the specific representations
contained in Section 6.2 shall survive until the expiration of the applicable
statute of limitations.
6.1 Due Organization. Cotelligent and Newco are duly organized, validly
existing and in good standing under the laws of the States of Delaware and
Florida, respectively, and are duly authorized, qualified and licensed under all
applicable laws, regulations, and ordinances of public authorities to carry on
their respective businesses in the places and in the manner as now conducted
except for where the failure to be so authorized, qualified or licensed would
not have a material adverse affect on their respective businesses. Copies of the
Certificate of Incorporation (certified by the Secretary of State of the States
of Delaware and Florida, respectively) and the Bylaws, as amended, of
Cotelligent and Newco (certified by the Secretary of the respective
corporations) are attached hereto as Schedule 6.1.
6.2 Cotelligent Stock. The Cotelligent Stock to be delivered to Stockholder
on the Closing Date will constitute valid and legally issued shares of
Cotelligent, fully paid and nonassessable, and with the exception of
restrictions upon resale imposed by the applicable securities laws and
regulations, will be legally equivalent in all respects to the Cotelligent Stock
issued and outstanding as of the date hereof. In addition, on the Closing Date
the Cotelligent Stock shall be registered under
21
the Securities Act of 1933, as amended (the "Act") and is being issued pursuant
to an effective registration statement.
6.3 Authorization. The representatives of Cotelligent and Newco executing
this Agreement have the corporate authority to enter into and bind Cotelligent
and Newco by the terms of this Agreement.
6.4 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated and the fulfillment of the terms hereof will not materially
conflict with, or result in any violation of, or material default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Cotelligent under, any provision of (i) the Articles of Incorporation or By-laws
of Cotelligent or Newco, (ii) any contract, agreement, loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Cotelligent or Newco, or (iii)
any judgment, injunction, order, decree, statute, law, ordinance, rule or
regulation applicable to Cotelligent or Newco or their respective properties or
assets.
6.5 Tax Free Reorganization. To the best of Cotelligent's knowledge,
neither Cotelligent nor Newco has taken or failed to take any action which would
jeopardize qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code, nor will either of them knowingly take or fail to
take any such action in the future.
6.6 Existing Subsidiaries. Attached hereto as Schedule 6.6 is a list of the
names of each of Cotelligent's subsidiaries (other than Newco) and their
respective states of incorporation.
6.7 Accuracy of Public Disclosures. All public filings by Cotelligent
required by the Act (or the Securities Exchange Act of 1934, as amended),
including the financial information contained therein, were true and correct in
all material respects when made and did not fail to state any material fact so
as to make the statements made therein misleading. Cotelligent has made all
required public filings.
6.8 Approvals. No material authorization, consent or approval of, or
registration or filing with, any governmental authority or any other person is
or was required to be obtained or made by Cotelligent or Newco in connection
with the execution, delivery or performance of this Agreement.
22
6.9 Prospectus. The Prospectus (hereinafter defined) is true and correct in
all material respects and does not fail to state any material fact so as to make
the statements made therein misleading.
6.10 Litigation. There is no filed claim, litigation, action, suit or
proceeding, pending or, to the best of Cotelligent's knowledge, threatened
against Cotelligent or any of its subsidiaries, at law or in equity, before any
federal, state or local court or regulatory agency, or other governmental or
private authority and no notice of any of the above has been received.
7. COVENANTS OF STOCKHOLDER, COMPANY AND COTELLIGENT
7.1 Access and Cooperation. Between the date of this Agreement and the
Closing Date, Company will afford to the officers and authorized representatives
of Cotelligent access to all of Company's (including Company's subsidiaries)
sites, properties, books and records and will furnish Cotelligent with such
additional financial and operating data and other information as to the business
and properties of Company as Cotelligent may from time to time reasonably
request. Company will cooperate with Cotelligent, its representatives,
engineers, auditors and counsel, and Cotelligent shall cooperate with Company,
its representatives, engineers, auditors and counsel, in the preparation of any
documents or other material which may be required in connection with any
documents or materials required by any governmental agency. Cotelligent will
cause all information obtained in connection with the negotiation and
performance of this Agreement to be treated as confidential.
7.2 Conduct of Business Pending Closing. Between the date hereof and the
Closing Date, Stockholder will cause Company to:
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of
management, operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform all of its obligations under agreements relating to
or affecting its respective assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
23
(v) use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain
its relationships with suppliers, customers and others having
business relations with Company;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and similar governmental approvals;
(vii) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments, without the
knowledge and consent of Cotelligent; and
(viii) maintain present salaries and commission levels for all
officers, directors, employees and agents.
7.3 Prohibited Activities. Between the date hereof and the Closing Date,
Company will not, without prior written consent of Cotelligent:
(i) make any change in its Articles of Incorporation or Bylaws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any
shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures in excess
of $10,000;
(v) increase any fringe benefit or the compensation payable or
to become payable to any officer, director, Stockholder, employee
or agent, or make any bonus or management fee payment to any
such person except ordinary and customary bonuses to employees;
(vi) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired;
(vii) sell, assign, lease or otherwise transfer or dispose of
any property or equipment except in the normal course of
business;
(viii) negotiate for the acquisition of any business or the
start-up of any new business;
24
(ix) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(x) waive any material rights or claims of Company;
(xi) breach or permit a breach, amend or terminate any agreement
or any permit, license or other right of Company; or
(xii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder.
7.4 Pooling of Interests; Reorganization. During the period from the date
of this Agreement through the Effective Time of the Merger, unless the other
parties shall otherwise agree in writing, none of the Stockholder, Company,
Cotelligent or any subsidiary of Company or Cotelligent shall (a) knowingly take
or fail to take any action which action or failure to act would jeopardize the
treatment of Company's combination with Newco as a pooling-of-interests for
accounting purposes or (b) knowingly take or fail to take any action, which
action or failure to act would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER
The obligations of Stockholder hereunder are, at Stockholder's option,
subject to the following conditions. Upon consummation of this Agreement, all
conditions not satisfied are deemed to be waived:
8.1 Representations and Warranties; Performance of Obligations. The
representations and warranties of Cotelligent and Newco contained in Section 6
shall be accurate as of the Closing Date as though such representations and
warranties had been made as of that time; all of the terms, covenants and
conditions of this Agreement to be complied with and performed by Cotelligent
and Newco on or before the Closing Date shall have been duly complied with and
performed; and a certificate to the foregoing effect dated as of the Closing
Date and signed by a duly authorized agent of Cotelligent shall have been
delivered to Stockholder.
8.2 Counsel Approval. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to Stockholder.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been
25
instituted or threatened to restrain
or prohibit the acquisition by Cotelligent of Company Stock and no governmental
agency or body shall have taken any other action or made any request of Company
as a result of which the management of Company deems it inadvisable to proceed
with the transactions hereunder.
8.4 Employment Agreement. Stockholder and the Surviving Corporation shall
have entered into an employment agreement in form and substance satisfactory to
Stockholder and Cotelligent.
8.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency or any third party relating to the consummation
of the transaction contemplated herein shall have been obtained or made, as
applicable, and no action or proceeding shall have been instituted or threatened
to restrain or prohibit the Merger and no manufacturer, governmental agency or
body shall have taken any other action or made any request of Company as a
result of which Company deems it inadvisable to proceed with the transactions
hereunder.
9. CONDITIONS TO OBLIGATIONS OF COTELLIGENT AND NEWCO
The obligations of Cotelligent and Newco hereunder are, at their option,
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions. Upon Closing, all conditions not satisfied are deemed to be waived.
9.1 Representations and Warranties; Performance of Obligations. Stockholder
shall have delivered to Cotelligent a certificate dated the Closing Date and
signed by them to the effect that all the representations and warranties of
Stockholder and Company contained in this Agreement shall be true on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, except for matters expressly
disclosed in the certificate or a schedule thereto; each and all of the
agreements of Stockholder and Company to be performed on or before the Closing
Date pursuant to the terms hereof shall have been performed.
9.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the acquisition by Cotelligent of Company Stock; and no governmental
agency or body shall have taken any other action or made any request of
Cotelligent as a result of which the management of Cotelligent deems it
inadvisable to proceed with the transactions hereunder.
9.3 Examination of Financial Statements. Prior to the Closing Date,
Cotelligent shall have had sufficient time to review the unaudited balance
sheets of Company as of the end of
26
the month immediately preceding the Closing
Date, and the unaudited statements of income, cash flow and stockholder's
investment of Company for the period then ended, disclosing no material adverse
change in the financial condition of Company or the results of its operations
from the financial statements originally furnished by Company as set forth in
Schedule 5.9.
9.4 No Material Adverse Change. No material adverse change in the results
of operations, financial condition or business of Company shall have occurred,
and Company shall not have suffered any material loss or damage to any of its
properties or assets, whether or not covered by insurance, since the Balance
Sheet Date, which change, loss or damage materially affects or impairs the
ability of Company to conduct its business; and Cotelligent shall have received
a certificate signed by Stockholder dated the Closing Date to such effect.
9.5 Review. Cotelligent, through its authorized representatives, must have
completed a satisfactory review of the practices and procedures of Company
including, but not limited to, compliance with contracts and federal, state and
local laws and regulations governing the operations of Company, disclosing no
actual or probable violations, compliance problems, required capital
expenditures or other substantive concerns.
9.6 Stockholder Release. Stockholder shall have delivered to Cotelligent an
instrument dated the Closing Date releasing Company from any and all claims of
Stockholder against Company.
9.7 Counsel Approval. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to Cotelligent.
9.8 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency or any third party relating to the consummation
of the transaction contemplated herein shall have been obtained or made, as
applicable, and no action or proceeding shall have been instituted or threatened
to restrain or prohibit Cotelligent's acquisition of Company Stock and no
manufacturer, governmental agency or body shall have taken any other action or
made any request of Cotelligent as a result of which Cotelligent deems it
inadvisable to proceed with the transactions hereunder.
9.9 Additional Liabilities and Obligations. Stockholder shall have
delivered to Cotelligent on Schedule 9.9 a list, dated the Closing Date, setting
forth all material liabilities and obligations of Company arising since the
Balance Sheet Date.
9.10 Additional Contracts. Stockholder shall have delivered
27
to Cotelligent
on Schedule 9.10 a list, dated the Closing Date, showing all material contracts
and agreements, together with copies thereof, entered into by Company since the
date of Schedule 5.15.
9.11 Good Standing Certificates. Stockholder shall have delivered to
Cotelligent a certificate, dated as of a date no longer than 30 days prior to
the Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and, unless waived by Cotelligent, in each
state in which Company is authorized to do business, showing Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns have been filed and taxes paid for Company for all periods
prior to the Closing.
9.12 Employment Agreement. Stockholder and the Surviving Corporation shall
have entered into an employment agreement in form and substance satisfactory to
Stockholder and Cotelligent.
10. POST CLOSING COVENANTS
10.1 Announcement of Earnings. Cotelligent agrees to announce consolidated
financial results of the combined operations of Cotelligent and the surviving
corporation for the four months ended October 31, 1996, as promptly as possible
after those results are available, but in no event later than December 15, 1996.
10.2 Tax Treatment. The parties contemplate that the Merger will qualify as
a tax deferred transaction in accordance with Section 368(a)(2)(D) of the Code.
Each party agrees to report the transaction hereunder in accordance with such
intent and in a manner consistent with such intent. However, except as set forth
in Sections 5.19 and 6.5, no party makes to any other party any representation
or warranty as to the tax effect of the transaction contemplated by this
Agreement and the transaction will not be affected if taxed in a manner other
than that contemplated.
10.3 Board Advisory Committee. Cotelligent agrees to appoint Stockholder as
a member of the existing advisory committee for an initial period of two years,
within a reasonable period of time following the Closing Date. In addition,
Cotelligent agrees to appoint Stockholder for additional terms in accordance
with the manner that other appointees are treated. Such committee shall, among
other things, hold regular meetings, be provided reasonable access to
information, and its members shall be invited to attend (but not to vote at)
board meetings and will be reimbursed for their out-of-pocket costs of
attendance at such meetings.
28
10.4 Release of Stockholder Guaranties. The Surviving Corporation agrees
that after the Closing it will take all commercially reasonable actions to have
Stockholder (and her spouse, if applicable) released from any obligations of
Company for which she is personally liable within 30 days following the Closing.
If the Surviving Corporation is unable to secure a release within the stated
time period, then Cotelligent shall pay in full the applicable obligation.
Cotelligent shall, prior to any such release or full payment, indemnify
Stockholder in accordance with Section 11.3 but without reference to any
limitation set forth in Section 11.4. In addition, Cotelligent will make no
additional draws on any obligations personally guaranteed by Stockholder prior
to Stockholder's release, without the prior consent of Stockholder.
11. INDEMNIFICATION
11.1 General Indemnification by Stockholder. Stockholder covenants and
agrees that she will indemnify, defend (as to third party claims only), protect
and hold harmless Cotelligent, the Surviving Corporation, and Company and each
of their respective employees, counsel, agents, contractors, successors,
assigns, heirs and legal and personal representatives at all times from and
after the date of this Agreement until the Expiration Date (hereinafter defined)
against all liabilities, claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, losses, costs and expenses ("Claims") (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by Cotelligent, Newco or Company as a result of or
incident to any material breach of the representations and warranties of
Stockholder or Company set forth herein or on the schedules or certificates
attached hereto and any nonfulfillment or nonperformance of any agreement,
covenant or condition on the part of Stockholder or Company under this
Agreement.
11.2 Specific Indemnification by Stockholder. Notwithstanding the above,
Stockholder covenants and agrees that she will indemnify, defend (as to third
party claims only), protect and hold harmless Cotelligent, the Surviving
Corporation, and Company at all times from and after the date of this Agreement,
without time or dollar limitation, against all Claims (including specifically,
but without limitation, reasonable attorney's fees and expenses of
investigation) incident to the following: NONE
11.3 Indemnification by Cotelligent and the Surviving Corporation. The
Surviving Corporation and Cotelligent each agree that they will, jointly and
severally, indemnify, defend (as to third party claims only), protect and hold
harmless Stockholder and her heirs and personal representatives at all
29
times
from and after the date of this Agreement until the Expiration Date from and
against all liabilities, claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, losses (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation) incurred
by Stockholder as a result of or incident to (i) any material breach of the
representations and warranties by Cotelligent or Newco set forth herein; or (ii)
nonfulfillment or nonperformance of any agreement, covenant or condition on the
part of Cotelligent or Newco under this Agreement.
11.4 Limitation on Liability. The indemnification obligations set forth in
this Article 11 shall apply only after the aggregate amount of such obligations
exceed $50,000 (the "Basket"); provided, however, that such indemnification
obligations shall not exceed, in the aggregate, the sum of $4,500,000. The
Surviving Corporation shall notify Stockholder in writing of each addition to
the Basket within a reasonable time after the Surviving Corporation becomes
aware of any such addition. The foregoing notwithstanding, the foregoing
limitation shall not apply to a breach of the representations set within Section
6.2.
11.5 Notice and Defense of Third Party Claims. If any proceeding shall be
brought or asserted against an indemnified party or any successor thereto (the
"Indemnified Person") in respect of which indemnity may be sought under this
Section 11 from an indemnifying person or any successor thereto (the
"Indemnifying Person"), the Indemnified Person shall give prompt written notice
of such proceeding to the Indemnifying Person who shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnified Person and the payment of all expenses; provided, that any delay or
failure so to notify the Indemnifying Person shall relieve the Indemnifying
Person of its obligations hereunder only to the extent, if at all, that it is
prejudiced by reason of such delay or failure. In no event shall any Indemnified
Person be required to make any expenditure or bring any cause of action to
enforce the Indemnifying Person's obligations and liability under and pursuant
to the indemnifications set forth in this Section 11. In addition, actual or
threatened action by a governmental authority or other entity is not a condition
or prerequisite to the Indemnifying Person's obligations under this Section 11.
The Indemnified Person shall have the right to employ separate counsel in any of
the foregoing proceedings and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the Indemnified
Person unless the Indemnified Person shall in good faith determine that there
exist actual or potential conflicts of interest which make representation by the
same counsel inappropriate. The Indemnified Person's right to participate in the
defense or response to any proceeding should not be deemed to limit or
30
otherwise
modify its obligations under this Section 11. In the event that the Indemnifying
Person, within 15 days after notice of any such proceeding, fails to assume the
defense thereof, the Indemnified Person shall have the right to undertake the
defense, compromise or settlement of such proceeding for the account of the
Indemnifying Person, subject to the right of the Indemnifying Person to assume
the defense of such proceeding with counsel reasonably satisfactory to the
Indemnified Person at any time prior to the settlement, compromise or final
determination thereof. Anything in this Section 11 to the contrary
notwithstanding, the Indemnifying Person shall not, without the Indemnified
Person's prior written consent, settle or compromise any proceeding or consent
to the entry of any judgment with respect to any proceeding for anything other
than money damages paid by the Indemnifying Person. The Indemnifying Person may,
without the Indemnified Person's prior written consent, settle or compromise any
such proceeding or consent to entry of any judgment with respect to any such
proceeding that requires solely the payment of money damages by the Indemnifying
Person and that includes as an unconditional term thereof the release by the
claimant or the plaintiff of the indemnified Person from all liability in
respect of such proceeding.
11.6 Payment; Interest. The Indemnifying Person shall make any payment
required to be made under this Section 11 in either Cotelligent Stock or
immediately available funds at the sole and absolute option of the Indemnifying
Party and on demand. Any amounts or payments required to be paid by an
Indemnifying Person under this Section 11 which are not paid within five
business days of receipt by the Indemnifying Person of the Indemnified Person's
demand therefor (after the procedures of Section 11.5 have been followed or a
settlement has been reached) shall thereafter be deemed delinquent, and the
Indemnifying Person shall pay to the Indemnified Person immediately upon demand,
interest at the rate of 12% per annum, not to exceed the maximum nonusurious
rate allowed by applicable law, from the date such payment becomes delinquent to
the date of payment of such delinquent sums.
12. TERMINATION OF AGREEMENT
Cotelligent or Stockholder may, by notice in the manner hereinafter
provided on or before the Closing Date, terminate this Agreement if a material
default shall be made by the other party in the observance or in the due and
timely performance of any of the covenants, agreements or conditions contained
herein, and the curing of such default shall not have been made on or before the
Closing Date and shall not reasonably be expected to occur. In any event, if the
Articles of Merger have not been filed with the appropriate state authorities on
or before December 31, 1996, this Agreement shall terminate. In the event of
termination pursuant to this Section 12, this Agreement shall
31
become null and void and each party hereto shall have no further liability or
obligation to the other.
13. INTENTIONALLY DELETED.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 Stockholder. Stockholder recognizes and acknowledges that she had in
the past, currently has, and in the future may possibly have, access to certain
confidential information of Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of Company and Company's business. Stockholder agrees that she will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except to
authorized representatives of Cotelligent, unless such information becomes known
to the public generally through no fault of Stockholder. In the event of a
breach or threatened breach by Stockholder of the provisions of this
Section 14.1, Cotelligent and Company shall be entitled to an injunction
restraining Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting Cotelligent and
Company from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 Cotelligent. Cotelligent recognizes and acknowledges that it has in
the past, currently has, and prior to the Closing Date, will have access to
certain confidential information of Company, such as lists of customers,
operational policies, pricing and cost policies that are valuable, special and
unique assets of Company and Company's business. Cotelligent agrees that it will
not disclose such confidential information to any person, firm, corporation,
association, or other entity for any purpose or reason whatsoever, prior to the
Closing Date without Stockholder's prior written consent; provided, however,
that nothing contained in this Sectionm 14.2 shall restrict or prohibit the
disclosure of information to Cotelligent's representatives and counsel for
purposes of analyzing the transaction set forth herein or as may be required by
law. In the event of a breach or threatened breach by Cotelligent of the
provisions of this Section 14.2, Stockholder shall be entitled to an injunction
restraining Cotelligent from disclosing, in whole or in part, such confidential
information. Nothing contained herein shall be construed as prohibiting
Stockholder from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage
32
that would be caused for which they would have no other
adequate remedy, Cotelligent, Newco, Company and Stockholder agree that, in the
event of a breach by any of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders.
15. POOLING ACCOUNTING
15.1 Restrictions on Resale; Legends. Cotelligent has informed the
Stockholder that it is a material factor to Cotelligent in entering into this
Agreement that the transactions contemplated by this Agreement be treated as a
"pooling-of-interest" for accounting purposes. Therefore, notwithstanding any
other provision of this Agreement, prior to the publication and dissemination by
Cotelligent of consolidated financial results which include results of combined
operations of Company and Cotelligent for at least thirty days on a consolidated
basis following the Closing Date, Stockholder shall not sell or otherwise
transfer or dispose of, or in any other way reduce her risk relative to, any
shares of the Cotelligent Stock received by Stockholder (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions). The SEC has issued Accounting Series Release
Nos. 130 and 135, as amended, (collectively the "ASRs") setting forth certain
restrictions applicable to the availability of "pooling-of-interest" accounting
treatment in transactions of the type contemplated by this Agreement.
Stockholder, therefore, covenants and agrees with Cotelligent to hold their
shares of Cotelligent Stock and to comply with the ASRs until the requirements
of the ASRs have been met. The certificates evidencing the Cotelligent Stock to
be received by the Stockholder will bear a legend substantially in the form set
forth below and containing such other information as Cotelligent may deem
necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE
PUBLICATION AND DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER
WHICH INCLUDE THE RESULTS OF AT LEAST THIRTY (30) DAYS OF COMBINED
OPERATIONS OF THE ISSUER AND Company ACQUIRED BY THE ISSUER FOR WHICH
THESE SHARES ARE ISSUED. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENTS) WHEN THE
REQUIREMENTS OF ACCOUNTING SERIES RELEASE NOS. 130 AND 135, AS
AMENDED, OF THE SECURITIES AND EXCHANGE COMMISSION HAVE BEEN MET.
15.2 Indemnification. Stockholder covenants and agrees that she will
indemnify and hold harmless Cotelligent from and after
33
the Closing Date against any and all losses, damages, liabilities, claims,
deficiencies, costs, expenses or expenditures resulting from a breach by
Stockholder of the restrictions set forth in Section 15.1, in accordance with
Section 11.1.
16. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS
ON COTELLIGENT STOCK
16.1 Prospectus Delivery. Stockholder represents and acknowledges that
Stockholder has been provided with a full and complete Prospectus dated
September 10, 1996, and has been provided as much time and opportunity as
Stockholder deemed appropriate to review and study such Prospectus and to
consult with Cotelligent regarding the merits and risks of the transactions
contemplated by this Agreement.
16.2 Resale of Cotelligent Stock. Subject to Section 15.1, immediately
after issuance of the Cotelligent Stock, Stockholder shall be free to resell
such shares in a private transaction or a public transaction on the National
Market System of the NASDAQ Stock Market; provided that for two years after the
Closing Date, Stockholder shall comply with the resale requirements of
Rule 145(d) under the Act, more specifically, the volume limitations, broker
transactions, and manner of sale provisions of Rule 144(e), (f) and (g),
respectively.
16.3 Legend. Stockholder acknowledges and agrees that all Cotelligent Stock
shall bear the following legend:
"THE SHARES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF REPRESENTS IN WRITING, AND PROVIDES
EVIDENCE SATISFACTORY TO COTELLIGENT GROUP, INC., THAT SUCH HOLDER HAS
COMPLIED WITH RESALE LIMITATIONS UNDER APPLICABLE SECURITIES LAW."
; provided, however, that pursuant to Rule 145(d) of the Act, on the second
anniversary following the Closing Date, the foregoing legend shall be removed
from such certificates, and Cotelligent shall issue a certificate without such
legend to Stockholder upon such Stockholder's request therefor.
17. GENERAL
17.1 Cooperation. Stockholder and Cotelligent shall each deliver or cause
to be delivered to the other on the Closing Date, and at such other times and
places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this
34
Agreement. Each party will cooperate and use their respective best efforts to
have the present officers, directors and employees of Company cooperate with the
requesting party on and after the Closing Date in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Cotelligent, and the heirs and legal representatives of Stockholder.
17.3 Entire Agreement. This Agreement (including the schedules and annexes
attached hereto) and the documents delivered pursuant hereto constitute the
entire agreement and understanding between Stockholder, Company, Cotelligent and
Newco and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution, constitutes a
valid and binding agreement on the parties thereto enforceable in accordance
with its terms and may be modified or amended only by a written instrument
executed by Stockholder, Company, Cotelligent, and Newco acting through their
respective officers, duly authorized by their respective Boards of Directors.
17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Each party represents and warrants that it
employed no broker or agent in connection with this transaction other than The
Updata Group, Inc. which has been retained by company. Except as set forth in
Section 17.6, each party agrees to indemnify the other against all loss, cost,
damages or expense arising out of claims for fees or commission of brokers
employed or alleged to have been employed by such indemnifying party.
17.6 Expenses. Whether or not the transactions herein contemplated shall be
consummated, Cotelligent will pay the fees, expenses and disbursements of
Cotelligent and Newco and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments thereto. Whether or not the transactions herein contemplated shall be
consummated, Stockholder will personally pay the fees, expenses and
disbursements of Company, Stockholder and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement
35
and any amendments hereto and all other costs and expenses incurred in the
performance and compliance with all conditions to be performed by Stockholder
and Company under this Agreement; provided, however, that Cotelligent shall pay
the fees of The Updata Group, Inc. in the amount of $290,000 and shall further
pay the actual fees and expenses of Xxxxxxxx, Xxxxxxx & Xxxxx incurred by
Company in connection with this transaction up to a maximum of $50,000.
17.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Cotelligent or Newco, addressed to them at:
Cotelligent Group, Inc.
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
ATTN: Xxxxxx X. Xxxxxxx, Esq.
with a copy to:
Xxxxx & Xxxxxxxxx
3200 National City Center
0000 X. 0xx Xxxxxx
Xxxxxxxxx, Xxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
(b) If to Stockholder, addressed to her at:
0000 Xxx Xxx Xxxxx
Xxxxxxxx Xxxxx, Xxxxxxx 00000
with a copy to:
Xxxxxxxx, Xxxxxxx & Xxxxx
0000 Xxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx X.X. 00000
Attn:
17.8 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties for the specified time periods set
forth in Articles 5 and 6 (the "Expiration Date").
36
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence of this Agreement.
17.11 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such a manner as to be valid, legal and enforceable but so as to
most nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COTELLIGENT"
COTELLIGENT GROUP, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------
Its: Vice President
"COMPANY"
JASTECH, INCORPORATED
By: /s/ Xxxx Xxxxxxx
-------------------------
Its: President
37
JASTECH OF FLORIDA, INC.
By: /s/ Xxxx Xxxxxxx
-------------------------
Its: President
"NEWCO"
COTELLIGENT/JASTECH
CORPORATION
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------
Its: Vice President
"STOCKHOLDER"
/s/ Xxxx Xxxxxxx
----------------------------
Xxxx Xxxxxxx
(SSN:_______________)
38
EXHIBIT A
Articles of Merger
------------------
Filed with respective Secretaries of State.
39
