EXHIBIT 10.5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
January 17, 1997 by and between Litigation Resources of America, Inc., a Texas
corporation (the "Buyer"), and Xxxxxxx X. Xxxxxx, an individual residing in the
State of Texas (the "Seller"), who is the sole shareholder of Looney & Company,
a Texas corporation (the "Company").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller and the Seller will sell to the Buyer all of the outstanding
capital stock of the Company for the consideration set forth in (S) 2(b) below.
The transactions as contemplated by this Agreement are part of a common
plan intended to constitute a reorganization of the Company under Internal
Revenue Code Section 351 pursuant to which (i) all of the Company Shares, as
hereinafter defined, will be issued to the Buyer; and (ii) all of the
outstanding common stock of Klein, Bury, as hereinafter defined, will be
transferred to the Buyer, for and in consideration of the issuance of Buyer
Shares to the Seller, Pecks, as hereinafter defined, and the owner of Xxxxx,
Bury.
In consideration of the premises and the mutual promises herein made, and
in consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows.
1. CERTAIN DEFINITIONS.
"Accounts Payable Report" means a report as of a given time period
containing a summary of the outstanding accounts payable of Company, which
report shall reflect such accounts payable on an aged basis and shall set forth
the amounts due and owing by Company to each of its suppliers, creditors or
court reporters.
"Accounts Receivable Report" means a report as of a given time period
containing a summary of the outstanding accounts receivable of Company, which
shall set forth the amounts due and owing to Company by each of its customers.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Actual Knowledge" means actual knowledge after reasonable investigation
under the circumstances involved.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Asset Purchase Agreement" shall mean that certain Asset Purchase Agreement
by and between the Company and U. S. Court Reporters, Inc., a Texas corporation,
as of even date herewith.
"Assumption of Obligations-Looney" shall mean that certain Assumption of
Obligations by and among Long, Rice and the Buyer.
"Assumption of Obligations-Reporters" shall mean that certain Assumption of
Obligations by and among Legal Enterprise, Long, Maddocks, Simon, the Company
and the Buyer.
"Balance Sheet" means a statement of financial position of the Company,
disclosing as at a given moment of time, the value of its assets, liabilities,
and equity of the owners in conformity with generally accepted accounting
principles subject to routine audit adjustments.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or is reasonably likely to form the
basis for any specified consequences.
"Buyer" shall mean Litigation Resources of America, Inc., a Texas
corporation.
"Buyer's Disclosure Schedule" has the meaning set forth in Section 4B
below.
"Buyer Financial Statements" has the meaning set forth in (S) 4B(d) below.
"Buyer Indemnified Parties" has the meaning set forth in (S) 8(b).
"Buyer Preferred Shares" has the meaning set forth in (S) 2(b) below.
"Buyer Preferred Shares Value" shall mean $1.00 per Buyer Preferred Share.
"Buyer Shares" shall mean 843,840 shares of common stock of Buyer, par
value $.01 per share.
"Buyer Shares Value" shall mean $6.41 per Buyer Share; provided, however,
that if the Buyer has successfully consummated a public offering of its shares
of common stock, then it shall mean the average closing public trading price of
each Buyer Share over the five (5) most recent business days.
"Cash Purchase Price" has the meaning set forth in (S) 2(b) below.
"Cash Reimbursement" has the meaning set forth in (S) 2(b) below.
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"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental taxes at the time due and payable, levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) any
of a corporation's employees, payroll, income or gross receipts, (ii) any of a
corporation's ownership or use of any of its assets, or (iii) any other aspect
of a corporation's business.
"Closing" has the meaning set forth in (S) 2(c) below.
"Closing Date" has the meaning set forth in (S) 2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" shall mean Looney & Company, a Texas corporation.
"Company Share" means any share of the common stock of the Company as set
forth in Section 4A(b) of the Disclosure Schedule.
"Confidential Information" means any information concerning the businesses
and affairs of the Company and its Subsidiaries that is not (a) generally known
or available to the public; (b) after the date of this Agreement, generally
known or readily available through no violation of this Agreement; or (c) is in
or hereafter becomes a part of the public domain through no violation of this
Agreement.
"Controlled Group" means the Company, its Subsidiaries, and any trade or
business (whether or not incorporated) which together with Company or any
Subsidiary of a Company would be deemed to be a "single employer" within the
meaning of ERISA Section 4001(b)(1) or subsections (b), (c), (m) or (o) of Code
Section 414.
"Customarily Permitted Liens" shall mean:
(a) Liens for ad valorem taxes, assessments or other governmental Charges
or levies, not yet due and payable;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other like Liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such Liens); and
(c) easements (including, without limitation, reciprocal easement
agreements and utility agreements), encroachments, variations and other
restrictions, Charges or encumbrances customary to the type of real property
affected and which do not impair the current use, occupancy, value or the
marketability of title of the real property subject thereto.
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"Damages" has the meaning set forth in (S)8(b).
"Effective Date" shall mean 12:01 a.m. on the Closing Date.
"Effective Date Accounts Payable Report" means the Accounts Payable Report
as of the Effective Date.
"Effective Date Accounts Receivable Report" means the Accounts Receivable
Report as of the Effective Date.
"Effective Date Balance Sheet" means the Balance Sheet as of the Effective
Date.
"Employee Benefit Plan" means any (a) Employee Pension Benefit Plan, (b)
Employee Welfare Benefit Plan, or (c) personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement, employment agreement and
each other employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (a) or (b) of this sentence.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2), including, but not limited to, employee pension benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1), including, but not limited to, employee welfare benefit plans, such as
foreign plans, which are not subject to the provisions of ERISA.
"Employment Agreement" means that certain Employment Agreement by and
between the Company, the Buyer and Seller.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Net Worth" means the Net Worth as of the Effective Date as
determined in accordance with Section 2(e) below.
"Financial Statements" has the meaning set forth in (S) 4A(e) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
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"Guaranteed Net Worth" means the Net Worth as shown on the Balance Sheet
(excluding loans to shareholders of the Company in the amount of $70,119 as of
September 30, 1996) which is $735,846.00.
"Income Statement" means a statement of revenues, expenses, gains, and
losses for the period ending with net income (or loss) as of a given date
prepared in accordance with GAAP and subject to routine audit adjustments.
"IRS" means the United States Internal Revenue Service or such equivalent
successor agency of the United States with the responsibility of assessing
and/or collecting Taxes.
"Investors" shall mean certain trusts, benefit plans, and other
institutional entities, all of which are represented by Pecks, as more fully
described in that certain Securities Purchase Agreement dated as of January __,
1997 by and among Buyer, the Company, Klein, Bury, and Pecks (the "Securities
Purchase Agreement").
"Xxxxx, Bury" shall mean Xxxxx, Bury & Associates, Inc., a Florida
corporation.
"Xxxxx, Bury Acquisition" shall mean the acquisition by Buyer of all of the
issued and outstanding shares of capital stock of Xxxxx, Bury.
"Legal Enterprise" shall mean Legal Enterprise, Inc., a California
corporation.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Liens" means any mortgages, deeds of trust, liens, security interests,
pledges, claims, charges, liabilities, obligations, or other encumbrances.
"Long" shall mean Xxxxx Xxxx, currently an employee of the Company.
"Xxxxxxxx" shall mean Xxxx Xxxxxxxx, a shareholder in Legal Enterprise.
"Long Employment Agreement" shall mean that certain Employment Agreement by
and between Long and the Company.
"Net Worth" means the dollar amount of shareholders' equity of the Company
as of a given time period as shown on any given Balance Sheet.
"Notice of Action" has the meaning set forth in (S) 8(b).
"Notice of Election" has the meaning set forth in (S) 8(b).
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"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" shall mean, individually, the Buyer or the Seller.
"Parties" shall mean, collectively, the Buyer and the Seller.
"Pecks" shall mean Pecks Management Partners Ltd., a New York limited
partnership.
"Permitted Encumbrances" with respect to property of a Party shall mean (i)
Security Interests expressly permitted, or consented in writing to by the other
Party as to the grant of such Security Interest; (ii) Purchase Money Liens;
(iii) Customarily Permitted Liens; and (iv) Liens of judgment creditors,
provided such Liens do not exceed $5,000 individually or $25,000 in the
aggregate (other than Liens bonded or insured to the reasonable satisfaction of
the other Party).
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Pledge Agreement" has the meaning set forth in (S) 7(a)(ix).
"Professional Fees" means any accounting, legal, investment banking, and
any other proper fee paid by the Company in order to facilitate the acquisition
by the Company or any of its Affiliates of a court reporting business, but
specifically excluding any type of fees incurred by the Seller in order to
consummate this Agreement, the Asset Purchase Agreement and the transactions
contemplated thereby.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Money Liens" shall mean Liens incurred in connection with the
acquisition of any asset; provided that (i) each such Lien shall attach only to
the asset to be acquired, (ii) a description of the asset so acquired is
furnished to the other Party, and (iii) the indebtedness incurred in connection
with such acquisitions shall not individually exceed $5,000 or in the aggregate
exceed $25,000.
"Purchase Price" has the meaning described in (S) 2(b).
"Registration Rights Agreement" has the meaning set forth in (S) 7(a)(x)
below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Rice" shall mean Xxxxx Xxxx, currently an employee of the Company.
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"Rice Employment Agreement" shall mean that certain Employment Agreement by
and between Rice and the Company.
"Securityholders Agreement" shall mean that certain Securityholders
Agreement by and among the Buyer, Pecks, and all of the other shareholders of
the Buyer.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
Purchase Money Liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" shall mean Xxxxxxx X. Xxxxxx.
"Seller's Disclosure Schedule" has the meaning set forth in (S) 4A below.
"Settlement Agreement - Looney" shall mean that certain Settlement
Agreement by and among Long, Rice and Company.
"Settlement Agreement - Reporters" shall mean that certain Settlement
Agreement by and among Legal Enterprise, Long, Maddocks, Simon, Reporters and
the Company.
"Senior Lender" shall mean Texas Commerce Bank, N.A.
"Shareholders' Agreement" shall mean that certain Shareholders' Agreement
by and between the Buyer and all of the shareholders of the Buyer other than
Pecks.
"Simon" shall mean Xxxx Xxxxx, a shareholder in Legal Enterprise.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors thereof.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium
windfall profits, environmental (including taxes under Code Section 5(A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
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"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Term Sheets" has the meaning set forth in (S) 4B(f).
2. PURCHASE AND SALE OF COMPANY SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of his Company Shares for the consideration
specified below in this (S) 2.
(b) PURCHASE PRICE. The purchase price is $5,640,000 to be paid and
delivered by the Buyer to the Seller on the Closing Date as follows
(collectively the "Purchase Price"):
(i) Delivery to the Seller of 2,000,000 shares of Series B Convertible
Preferred Stock of Buyer, par value $1.00 per share, to be issued to Seller for
the same consideration on a per share basis as paid by the Investors of $1.00
per share as will constitute a value of $2,000,000 (the "Buyer Preferred
Shares");
(ii) Delivery of cash in the amount of $3,640,000 payable by wire
transfer or delivery of other immediately available funds to the Seller on the
Closing Date in accordance with wiring instructions delivered by the Seller to
the Buyer at least three business days prior to Closing (the "Cash Purchase
Price"); and
(iii) Delivery of cash in the amount of $200,000 as partial
reimbursement to the Seller for all Professional Fees through December 31, 1996
(the "Cash Reimbursement").
(c) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Xxxxx, Xxxxx &
Xxxxxx in Houston, Texas, unless otherwise mutually agreed, commencing on
January __, 1997 at 9:00 a.m. local time, or at such other time or place as the
Parties mutually agree (the "Closing Date").
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in (S) 7(a) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in (S) 7(b) below,
(iii) the Seller will deliver to the Buyer stock certificates representing all
of the Company Shares, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Seller the Buyer
Preferred Shares, the Cash Purchase Price, and the Cash Reimbursement.
(e) DETERMINATION OF FINAL NET WORTH. The Effective Date Balance Sheet of
the Company, the Effective Date Accounts Receivable Report and the Effective
Date Accounts Payable Report shall be prepared by the Seller with the
cooperation of the Company on a
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consistent basis as before, as promptly as possible after the Closing, and shall
be delivered to the Buyer within thirty (30) days after the Closing Date. The
Buyer shall review the Effective Date Balance Sheet, the Effective Date Accounts
Receivable Report and the Effective Date Accounts Payable Report and report to
the Seller in writing within fifteen (15) days of receipt thereof of any
discrepancy therein. If Seller and Buyer cannot resolve any such discrepancy
within thirty (30) days after Seller's receipt of such response, then an
independent public accounting firm acceptable to the Seller and the Buyer shall
be retained to review the Effective Date Balance Sheet, the Effective Date
Accounts Receivable Report and the Effective Date Accounts Payable Report and to
make a final determination thereof no later than thirty (30) days after their
receipt thereof. Such firm's conclusions as to the carrying values to appear on
the Effective Date Balance Sheet, the Effective Date Accounts Receivable Report
and the Effective Date Accounts Payable Report for purposes of determining the
Final Net Worth of the Company shall be conclusive. The Seller and the Buyer
shall share equally in the expenses of retaining such accounting firm.
(f) POST-CLOSING ADJUSTMENT OF PURCHASE PRICE. After the Closing Date,
the Purchase Price set forth in Section 2(b) shall be adjusted as follows: (i)
if the Final Net Worth of the Company as finally determined pursuant to Section
2(e) shall be more than the Guaranteed Net Worth, then the cash portion of the
Purchase Price shall be increased by an amount equal to 66.7% of the amount of
such excess, and the amount of the Buyer Preferred Shares based on the Buyer
Preferred Shares Value shall be increased by an amount equal to 33.3% of the
amount of such excess. In such event, the Buyer shall promptly pay Seller the
amount of such cash difference, and promptly issue additional Buyer Preferred
Shares in the amount of such difference based on the Buyer Preferred Shares
Value, and such additional Buyer Preferred Shares shall be pledged pursuant to
the Pledge Agreement. If the Final Net Worth of the Company as finally
determined pursuant to Section 2(e) shall be less than the Guaranteed Net Worth,
then the cash portion of the Purchase Price shall be reduced by an amount equal
to 66.7% of the amount of such shortfall, and the amount of the Buyer Preferred
Shares based on the Buyer Preferred Shares Value shall be reduced by an amount
equal to 33.3% of the amount of such shortfall. In such event, the Seller shall
promptly pay Buyer the amount of such cash difference, and the existing Buyer
Preferred Shares certificate shall be cancelled and a new one issued in the
reduced amount of Buyer Preferred Shares based on the Buyer Preferred Shares
Value, and such reduced Buyer Preferred Shares shall be pledged pursuant to the
Pledge Agreement. In addition to the foregoing, the amount of any additional
unpaid Professional Fees not paid at the Closing shall constitute an additional
adjustment to the Purchase Price, and shall be paid in cash by the Buyer to the
Seller at the time of finalization of the post-closing adjustment to the
Purchase Price.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer that the statements contained in this (S) 3(a) are
correct as of the date of this Agreement and will be correct as of the Closing
Date as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this (S) 3(a), except
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as set forth in or qualified by the schedules of exceptions attached hereto as
Schedule 3A of the Seller's Disclosure Schedule and except as any
representations and warranties are as to a specific date.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and all other documents and
agreements contemplated hereby or thereby to which Seller is a party
contemplated hereby, and to perform his obligations hereunder. This
Agreement and all other documents and agreements to which he is a party
contemplated hereby or thereby, constitute the valid and legally binding
obligations of the Seller, enforceable in accordance with its terms and
conditions, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency or moratorium laws or
other laws or principles of equity effecting the enforcement of creditors'
rights. The Seller represents and warrants that he need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement by the Seller, nor the consummation of the transactions by
the Seller as contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Seller is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which
he is bound or to which any of his assets is subject.
(iii) BROKERS' FEES. The Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) INVESTMENT. The Seller (A) understands that the Buyer
Preferred Shares have been registered under the Securities Act, or under
any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Preferred Shares solely for his own
account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
specified on Schedule 3A concerning the Buyer and has had the opportunity
to obtain additional information as desired in order to evaluate the merits
and the risks inherent in holding the Buyer Preferred Shares, (E) is able
to bear the economic risk and lack of liquidity inherent in holding the
Buyer Preferred Shares, and (F) is an Accredited Investor.
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(v) COMPANY SHARES. The Seller holds of record and owns beneficially
the number of Company Shares set forth next to his name in (S) 4A(b) of
the Disclosure Schedule, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights, or
other contracts or commitments that could require the Seller to sell,
transfer, or otherwise dispose of any capital stock of the applicable
Company(s) (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
(vi) BUYER SHARES. The Seller holds of record and owns beneficially
the Buyer Shares, free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights, or other
contracts or commitments that could require the Seller to sell, transfer,
or otherwise dispose of any capital stock of the Buyer. Except for other
agreements to be executed in connection herewith, the Seller is not a party
to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Buyer.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this (S) 3(b) are
correct as of the date of this Agreement and will be correct as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this (S) 3(b)), except as set forth in the
schedule of exceptions attached hereto as Schedule 3B.
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Buyer is qualified to do business
in each jurisdiction in which the nature of its business, the ownership of
its assets or the lease of its properties require it to be so qualified.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement, the Employment Agreement and all other documents
and agreements contemplated hereby or thereby to which it is a party, and
to perform its obligations hereunder, including without limitation the
issuance of the Buyer Preferred Shares . The Board of Directors of the
Buyer has duly authorized the execution, delivery and performance of this
Agreement and the other agreements and transactions contemplated hereby,
including, without limitation, the issuance of the Buyer Preferred Shares ,
and no other corporate proceedings on the Buyer's part are necessary to
authorize this Agreement or the transactions contemplated hereby,
including, without limitation, the issuance of the Buyer Preferred Shares
and the Employment Agreement. Upon execution and delivery of this
Agreement by the Parties hereto this Agreement and all other documents and
agreements contemplated hereby or thereby to which it is a party shall,
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and upon issuance of the Buyer Preferred Shares in accordance with the
provisions hereof the Buyer Preferred Shares shall, constitute legal, valid
and binding obligations of the Buyer, enforceable against the Buyer in
accordance with their respective terms, except to the extent that
enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws or other laws or principles
of equity effecting the enforcement of creditors' rights. The Buyer
represents and warrants that it need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) NONCONTRAVENTION. The Board of Directors of the Buyer has
duly authorized the execution, delivery and performance of this Agreement
and the other agreements and transactions contemplated hereby, including,
without limitation, the issuance of the Buyer Preferred Shares , and no
other corporate proceedings on the Buyer's part are necessary to authorize
this Agreement or the transactions contemplated hereby or thereby,
including, without limitation, the issuance of the Buyer Preferred Shares.
Upon execution and delivery of this Agreement by the Parties hereto this
Agreement shall, and upon issuance of the Buyer Preferred Shares in
accordance with the Agreement shall, constitute legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their respective terms, except to the extent that enforcement thereof may
be limited by applicable bankruptcy, reorganization, insolvency or
moratorium laws or other laws or principles of equity affecting the
enforcement of creditor's rights. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will: (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject; (ii) conflict with any of, or require the consent of any person or
entity under, the terms, conditions or provisions of the charter documents
or bylaws or equivalent governing instruments of the Buyer; or (iii)
conflict with, result in a breach of, constitute a default under (whether
with notice or the lapse of time or both), or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, mortgage, lien, agreement,
contract, commitment or instrument to which the Buyer is a party or by
which it is bound.
(v) LITIGATION. There are no actions, suits, proceedings or
governmental investigations or inquiries pending against the Buyer or its
properties, assets, operations or business which might delay or prevent the
consummation of the transactions contemplated hereby.
(vi) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
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(vii) INVESTMENT. The Buyer (A) understands that the Company Shares
have not been registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering,
(B) is acquiring the Company Shares solely for its own account for
investment purposes, and not with a view to the distribution thereof, (C)
is a sophisticated investor with knowledge and experience in business and
financial matters, (D) has received certain information specified on
Schedule 3B concerning the Seller and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the
risks inherent in holding the Company Shares, (E) is able to bear the
economic risk and lack of liquidity inherent in holding the Company Shares,
and (F) is an Accredited Investor.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES.
A. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS
RESPECTIVE SUBSIDIARIES.
The Seller represents and warrants to the Buyer that the statements
contained in this (S) 4 are completely correct as of the date of this Agreement
and will be completely correct as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this (S) 4), except as set forth in Seller's disclosure schedule
attached hereto as Schedule 4A ("Seller's Disclosure Schedule") and except as
such representations and warranties are as to a specific date.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of Texas. The Company is not qualified to do business in any other
jurisdiction, nor does the nature of its business require such qualification.
The Company has full corporate power and authority and all material licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. (S) 4A(a) of the
Seller's Disclosure Schedule lists the directors and officers of the Company.
The Seller has delivered to the Buyer correct and complete copies of the
articles of incorporation and bylaws of each of the Company and its Subsidiaries
(as amended to date). The minute books (containing the records of meetings of
the stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete in all material respects. The Company is not
in default under or in violation of any provision of its articles of
incorporation or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of the Company are accurately set
forth in (S) 4A(b) of the Seller's Disclosure Schedule. All of the issued and
outstanding Company Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Seller as set forth in
(S) 4A(b) of the Seller's Disclosure Schedule. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights,
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exchange rights, or other contracts or commitments that would require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Except as provided in (S) 4A(c) of the Seller's
Disclosure Schedule, neither the execution and the delivery of this Agreement
nor any other document or agreements contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Company is subject, (ii) violate any provision of the
articles of incorporation or bylaws of the Company, or (iii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement without causing a violation of any
law, regulation, license or permit of any governmental entity or authority.
(d) SUBSIDIARIES. The Company does not have any ownership interest in any
Subsidiaries. The Company does not control directly or indirectly or have any
direct or indirect equity participation in any corporation, partnership, trust,
or other business association which is not a Subsidiary.
(e) FINANCIAL STATEMENTS. The Seller has previously furnished the Buyer
the following financial statements (collectively the "Financial Statements"):
(i) a Balance Sheet and an Income Statement for the fiscal year ended December
31, 1995 audited by the Company's accountants; and (ii) unaudited Balance
Sheets and Income Statements for the three month periods ended March 31, 1996,
June 30, 1996, and September 30, 1996, and for the two month period ended
November 30, 1996 compiled by the Company's accountants, and (iii) an Accounts
Receivable Report dated as of November 30, 1996. The Financial Statements
(including the notes thereto) have been prepared on an accrual basis and are
consistently reported throughout the periods covered thereby, present fairly the
financial condition of Company as of such dates and the results of operations of
Company for such periods (subject to routine audit adjustments), are correct and
complete in all material respects, and are consistent in all material respects
with the books and records of Company (which books and records are correct and
complete in all material respects).
(f) EVENTS SUBSEQUENT TO DECEMBER 31, 1995. Except as disclosed on (S)
4A(f) of the Seller's Disclosure Schedule, since December 31, 1995, there has
not been any material
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adverse change in the business, financial condition, operations, results of
operations, or future prospects of the Company. Without limiting the generality
of the foregoing, except as described on Schedule 4A(f) since that date:
--------------
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, lease, and
licenses) either involving more than $10,000 singly or $50,000 in the
aggregate or outside the Ordinary Course of Business;
(iii) the Company has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than $20,000
singly or $50,000 in the aggregate to which any the Company is a party or
by which it is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible except for Permitted Liens;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $20,000 singly or
$50,000 in the aggregate or outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series or related capital investments, loans, and acquisitions) either
involving more than $5,000 singly or $25,000 in the aggregate;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$5,000 singly or $25,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities for a period of more than sixty (60)
days after the date of invoice;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $5,000 singly or $25,000 in the aggregate or outside
the Ordinary Course of Business;
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(x) there has been no change made or authorized in the articles of
incorporation or bylaws of the Company;
(xi) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiii) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property valued,
individually or in the aggregate, in excess of (i) $10,000 for all property
which, at the time of such damage or destruction, was subject to or covered
by property, casualty or any other form of insurance, and (ii) $5,000 for
all property which, at the time of such damage or destruction, was not
subject to or covered by property, casualty or any other form of insurance;
(xiv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees;
(xv) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any such existing contract or agreement;
(xvi) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xvii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xviii) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xix) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xx) there has not been any other adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company of any of its Subsidiaries which
exceeds $5,000 individually $25,000 in the aggregate; and
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(xxi) the Company has not committed to any of the foregoing except
as contemplated by this Agreement or as requested by Buyer.
(g) UNDISCLOSED LIABILITIES. Except as disclosed on (S) 4A(g) of the
Seller's Disclosure Schedule, the Company does not have any Liability (and, to
the best of the Seller's Actual Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), except for
(i) Liabilities reflected in the then most current Financial Statements
(including any notes thereto) and (ii) Liabilities which have arisen after the
December 31, 1995 in the Ordinary Course of Business (none of which results
from, arises, out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law). It is agreed and understood by the Seller that this (S) 4A(g) does not
negate or qualify in any respect any other representation or warranty of the
Seller made in this Agreement.
(h) LEGAL COMPLIANCE. To the Actual Knowledge of Seller, the Company, and
its predecessors and Affiliates, have complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and, to the best of the Seller's Actual
Knowledge, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(i) TAX MATTERS. Except as disclosed on (S) 4A(i) of the Seller's
Disclosure Schedule:
(i) The Company has filed all Tax Returns that it was required to
file as of the respective due dates thereof. All such Tax Returns were
correct and complete in all material respects. All Taxes shown to be due on
the Tax Returns have been paid. The Company is not currently the
beneficiary of any extension of time within which to file any Tax Return.
No claim has ever been made by a Tax authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Security Interests on the assets of the
Company that arose in connection with any failure (or alleged failure) to
pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor, stockholder, or other third party for applicable tax
periods.
(iii) There is no dispute or claim concerning any Tax Liability of
the Company either (A) claimed or raised by any Tax authority in writing or
(B) as to which the Seller and the directors and officers (and employees
responsible for Tax matters) of the Company have Actual Knowledge based
upon personal contact with any agent of such authority. (S) 4A(i) of the
Seller's Disclosure Schedule lists all federal,
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state, local, and foreign income Tax Returns filed with respect to the
Company for taxable periods ended on or after December 31, 1995, indicates
those Tax Returns that have been audited, and indicates those Tax Returns
that currently are the subject of an audit. The Seller has delivered to the
Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company.
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not made an election under section 341(f) of the
Code.
(j) TITLE TO ASSETS. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, or shown in
the Financial Statements or acquired after the date thereof, free and clear of
all Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since December 31, 1995, and except for Permitted
Encumbrances.
(k) REAL PROPERTY. The Company does not own any real property. (S) 4A(k)
of the Seller's Disclosure Schedule lists and describes briefly all real
property leased or subleased to the Company. The Seller has delivered to the
Buyer correct and complete copies of the leases and subleases listed in (S)
4A(k) of the Seller's Disclosure Schedule (as amended to date). With respect to
each lease and sublease listed in (S) 4A(k) of the Seller's Disclosure Schedule:
(A) The lease or sublease is a legal, valid, binding, enforceable
obligation of the Company, and is in full force and effect as to the
Company, and as to Seller's Actual Knowledge, is in full force and
effect as to any third parties thereto;
(B) The consummation of the transactions contemplated by the
Agreement will not affect the legal, valid, binding, and enforceable
nature of the lease or sublease.
(C) The Company is not in material breach or default of any
lease or sublease, and to the Seller's Actual Knowledge, no third
party to any such lease or sublease is in material breach or material
default, and to the Seller's Actual Knowledge, no event has occurred
which, with notice or lapse of time, would constitute a material
breach or material default or permit termination, modification, or
acceleration thereunder;
(D) with respect to each sublease, to the Sellers' Actual
Knowledge, the representations and warranties set forth in subsections
(A) through (C) above are true and correct with respect to the
underlying lease; and
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(E) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold, except Customarily Permitted Liens.
(l) TANGIBLE ASSETS. The Company owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its businesses
as presently conducted. Each such tangible asset is suitable for the purpose
for which it is presently is used.
(m) INVENTORY. The Company does not carry or maintain any inventory
material to the financial operations of the Company.
(n) CONTRACTS. (S) 4A(n) of the Seller's Disclosure Schedule lists the
following contracts and other agreements currently in effect to which the
Company is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
(ii) any agreement (or group of related agreements) for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year or involve consideration in excess of
$25,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $25,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with the Seller and his Affiliates (other than
the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any written agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
-19-
(ix) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(x) any agreement under which the consequences of a default or
termination would reasonably be expected to have a material adverse effect
on the business, financial condition, operations, results of operations, or
future prospects of the Company or any of its Subsidiaries; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in (S) 4A(n) of the Seller's Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions of
each oral agreement referred to in (S) 4A(n) of the Seller's Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the Company is
not in breach or default of any such contract, nor to the Seller's Actual
Knowledge is any other party in breach or default, and to the Seller's Actual
Knowledge, no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement, and (C) the Company has not repudiated any
provision of any such agreement nor to the Seller's Actual Knowledge has any
other party repudiated any provision of any such agreement.
(o) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
the Company are collectible subject to the Company's historical allowance for
bad debts in amounts consistent with past practices of the Company, are properly
recorded on each Accounts Receivable Report delivered to the Buyer, reflected
properly on the Company's books and records and are valid receivables.
(p) POWERS OF ATTORNEY. Except as disclosed on (S) 4A(p) of the Seller's
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company.
(q) INSURANCE. (S) 4A(q) of the Seller's Disclosure Schedule lists each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) to which
the Company is currently a party, copies of which have been furnished to the
Buyer.
(r) LITIGATION. (S) 4A(r) of the Seller's Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the Actual
Knowledge of the Seller, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court of quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
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(s) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as disclosed
on (S) 4A(s) of the Seller's Disclosure Schedule, neither the Seller nor his
Affiliates have been involved in any business arrangement or relationship with
the Company within the past 12 months, and neither the Seller nor any of his
Affiliates owns any asset, tangible or intangible, which is used in the business
of any of the Company.
(t) GUARANTIES. The Company is not a guarantor or otherwise liable for
any Liability or obligation (including indebtedness) of any other Person.
(u) EMPLOYEES. To the Seller's Actual Knowledge, no executive, key
employee, or group of employees has any plans to terminate employment with the
Company. To the Seller's Actual Knowledge, the Company has not committed any
unfair labor practice. The Seller does not have any Actual Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company. (S) 4A(u) of the Seller's
Disclosure Schedule sets forth by number and employment classification the
approximate numbers of employees employed by Company as of the date of this
Agreement, and none of said employees are subject to union or collective
bargaining agreements with the Company.
(v) EMPLOYEE BENEFITS.
(i) (S) 4A(v) of the Seller's Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which it contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part
6 of Subtitle B of Title I of ERISA and of Code Section 4980B have
been complied with in all material respects to each such Employee
Benefit Plan which is a "group health plan," as defined under ERISA or
the Code.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums
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or other payments for all periods ending on or before the Closing Date
have been paid with respect to each such Employee Benefit Plan.
(D) The Company has substantially performed all obligations,
whether arising by operation of law or by contract, required to be
performed by it in connection with such Employee Benefit Plans, and to
Seller's Actual Knowledge, there has been no default or violation by
any other party to such Employee Benefit Plans.
(E) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which relate to each
such Employee Benefit Plan.
(ii) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not (A) require the Company to
make a larger contribution to, or pay greater benefits under, any Employee
Benefit Plan than it otherwise would or (B) create or give rise to any
additional vested rights or service credits under any Employee Benefit
Plan.
(w) BROKERS' FEES. The Company does not have any Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(x) OPERATION OF BUSINESS. To the Seller's Actual Knowledge (i) all court
reporters that are or have been hired (directly or indirectly through court
reporting services, including independent contractors) by the Company are duly
certified to perform the jobs that they are hired to perform, (ii) all documents
that the Company is or has been required to maintain, store or handle in
connection with conducting its business are or have been maintained, stored or
handled in the manner agreed to between the Company and its representative
clients or in conformity with prevailing standards regarding such matters that
prevail in the Company's industry, and (iii) the Company performs all aspects
and operations of its business at or above the prevailing standards for the
Company's industry.
(y) DISCLOSURE. The representations and warranties contained in this
(S) 4A do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this (S) 4A not misleading.
B. REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER.
The Buyer represents and warrants to the Seller that the statements
contained in this (S) 4B are completely correct as of the date of this
Agreement and will be completely correct as of the Closing Date (as though made
then and as though the Closing Date were substituted for the date of this
Agreement throughout this (S) 4B), except as set forth in the Buyer's
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Disclosure Schedule attached hereto as Schedule 4B (the "Buyer's Disclosure
Schedule") and except as such representations and warranties are as to a
specific date.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Buyer is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. Each of the Buyer and its Subsidiaries
has full corporate power and authority and all material licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it. (S) 4B(a) of the Buyer's
Disclosure Schedule lists the directors and officers of the Buyer. The Buyer
has delivered to the Seller correct and complete copies of the charter and
bylaws of the Buyer (as amended to date). The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of the Buyer are correct and complete in all material
respects. The Buyer is not in default under or in violation of any provision of
its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock, the issued and
outstanding shares and the treasury shares of the Buyer are accurately set forth
in (S) 4B(b) of the Buyer's Disclosure Schedule together with the changes
thereto contemplated by the acquisition of the Company and other acquisitions
scheduled to be consummated by the Buyer contemporaneously herewith. All of the
issued and outstanding shares of the Buyer have been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record by the
respective parties as set forth in (S) 4B(b) of the Buyer's Disclosure Schedule.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Buyer to issue, sell, or otherwise cause to
become outstanding any of its capital stock except those set forth in Schedule
(S) 4B(b) of the Buyer's Disclosure Schedule. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Buyer except as set forth in Schedule (S) 4B(b) of
the Buyer's Disclosure Schedule. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
the Buyer.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement nor any other documents or agreements contemplated hereby or thereby,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Buyer is subject or any provision of the articles
of incorporation or bylaws of the Buyer or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer or any of its Subsidiaries is a party or by which
it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets). Neither the Buyer
-23-
nor its Subsidiaries needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement without causing a violation of any law, regulation, license or
permit of any governmental entity or authority.
(d) CONTRACTS. Except as disclosed on Schedule (S) 4B(d) of the Buyer's
Disclosure Schedule, Buyer does not have any contracts.
(e) BROKERS' FEES. Except for that certain fee payable to The Gulfstar
Group, Inc., the Buyer has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
(f) DISCLOSURE. The representations and warranties contained in this
(S) 4B do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this (S) 4B not misleading. Buyer has previously delivered Seller
copies of term sheet from Senior Lender and Pecks (the "Commitment Letters").
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the periods preceding the Closing.
(a) CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, the Seller will use reasonable efforts to cause the Company to:
(i) conduct its business only in the Ordinary Course of Business and
refrain from changing or introducing any new method of management or operations
except in the Ordinary Course of Business and consistent with prior practices;
(ii) except as disclosed on Schedule 5(a), refrain from taking any
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action which is described in Section 4A(f) et seq., including without limiting
-- ---
the generality of the foregoing: (A) making any purchase, sale or disposition
of any asset or property other than in the Ordinary Course of Business, (B)
purchasing any capital asset costing more than $5,000 singly or $25,000 in the
aggregate; (C) mortgaging, pledging, subjecting to a lien or otherwise
encumbering any of such assets other than in the Ordinary Course of Business and
other than Permitted Encumbrances; (D) incurring any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring any other contingent or fixed obligations or liabilities except those
that are in the Ordinary Course of Business; (E) making any change or incurring
any obligation to make a change in its charter, bylaws or authorized or issued
capital stock; and (F) declaring, setting aside or paying any dividend, making
any other distribution in respect to its capital stock or making any direct or
indirect redemption, purchase or other acquisition of its stock;
-24-
(iii) prevent any change with respect to its management and
supervisory personnel and banking arrangements, except as Seller reasonably
deems in the best interests of the Company which change shall promptly be
disclosed to Buyer;
(iv) keep intact its business organization, to keep available its
present officers and employees employed and to preserve the goodwill of all
suppliers, customers, distributors, independent contractors and others having
business relations with it;
(v) have in effect and maintain at all times all insurance of the
kind, in the amount and with the insurers presently in force or equivalent
insurance with any substitute insurers or insurance policies approved by the
Buyer in writing prior to such change of insurer or issuance of new insurance
policy;
(vi) on or before the Closing Date, furnish the Buyer with Financial
Statements dated as of September 30, 1996 that comply with all of the
requirements contained in Section 4(A)(e); and
(vii) permit the Buyer and its authorized representatives to have
full access during normal business hours upon reasonable prior notice to all of
its properties, assets, records, Tax Returns, contracts and documents and
furnish to the Buyer or its authorized representatives such financial and other
information with respect to its business or properties as the Buyer may
reasonably request.
(b) NO SOLICITATION OF OTHER OFFERS BY THE SELLER. Neither the
Seller nor any of his agents or representatives will, directly or indirectly,
(i) solicit, initiate discussions or engage in negotiations or any transaction
with any Person other than the Buyer relating to the possible acquisition of the
Company; or (ii) provide, or cause any other Person to provide, any information
concerning the Company to any Person, other than the Buyer (and officers,
directors, employees, other agents and representatives and advisors), relating
to the possible acquisition of the Company.
(c) AUTHORIZATION FROM OTHERS. Prior to the Closing Date, each of
the Parties will use reasonable best efforts to obtain all authorizations,
consents, and permits of others required to permit the consummation of the
transactions contemplated hereby.
(d) BREACH OF REPRESENTATION AND WARRANTIES. Neither of the Parties
shall take any action that would result in (i) a failure to comply in any
material respect with such Party's agreements hereunder or (ii) any of the
representations and warranties of such Party being inaccurate in any material
respect; and in the event of any such breach or default by a Party, such Party
shall give detailed written notice thereof to the other Party and shall use his
or its reasonable best efforts to promptly cure the same.
-25-
(e) CONSUMMATION OF AGREEMENT. Each of the Parties shall use his or
its reasonable best efforts to perform and fulfill all conditions and
obligations on his or its parts to be performed and fulfilled under this
Agreement.
(f) COOPERATION. Each Party shall cooperate with all reasonable
requests of the other Party and his or its counsel in order to effect the
consummation of the transactions pursuant to and as contemplated in this
Agreement.
(g) CONFIDENTIALITY. Each of the Parties agrees that (i) he or it,
and his or its officers, directors, agents and representatives, will treat and
hold in strict confidence, and will not use, any data and information obtained
in connection with this transaction or Agreement with respect to the business of
the other Party, except for the purpose of the internal evaluation of the
transactions contemplated by this Agreement; (ii) if the transactions
contemplated by this Agreement are not consummated, he or it will return to the
other Party all copies of such data and information, including but not limited
to worksheets, test reports, manuals, lists, memoranda, and other documents
prepared by or made available to him or it in connection with this transaction;
and (iii) he or it will treat the existence of this Agreement and the
transactions contemplated hereby as strictly confidential and will not disclose
them to any Person without the prior written consent of the other Party, which
consent may be withheld for any or no reason. For purposes of this (S) 5(g),
the Company shall be deemed a Party.
(h) NO SOLICITATION OF OTHER OFFERS BY BUYER. Neither the Buyer nor
any of its officers, directors, clients, agents or representatives will,
directly or indirectly, (i) solicit, initiate discussions or engage in
negotiations or any transaction with any Person other than the Seller relating
to the possible acquisition of a company or other entity in any location within
the State of Texas that engages in the same type of business as that of the
Company except as disclosed on Schedule 5(h) or (ii) provide, or cause any other
Person to provide, any information concerning the Company to any Person, other
than the Seller, the Company (or its officers, directors, employees, other
agents and representatives) and their respective advisors. The Buyer will
notify the Seller immediately if any Person makes any proposal, offer, inquiry
or contact with respect to any of the foregoing.
(i) EMPLOYEE BENEFIT PLANS. Except where the Parties otherwise
mutually agree, each Employee Benefit Plan shall remain in effect after the
Closing until the Buyer is able to enter into health plans that provide
substantially similar benefits.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing:
(a) GENERAL. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request all at the sole cost and expense of the
-26-
requesting Party (unless the requesting Party is entitled to indemnification
therefor under (S) 8 below).
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand to which the other
Party is not subject (either by virtue of the indemnification provisions
contained in Section 8 of this Agreement or otherwise) in connection with (i)
any transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, the other Party will cooperate with him or it and his or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
reasonably necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under (S) 8 below). The
Buyer acknowledges and agrees that if the Seller is individually brought into
any litigation in connection with the Company, he shall be indemnified to the
maximum extent that directors and officers of corporations are permitted to be
indemnified under Texas law both for all costs of litigation as well as any
judgments or settlement amounts paid. Notwithstanding the foregoing, the Seller
shall not be entitled to indemnification to the extent of any of the following:
(i) suit against the Seller is with respect to a matter for which the
Seller is required to indemnify the Buyer pursuant to this Agreement; or
(ii) to the extent that the Seller is found by a court of competent
jurisdiction and by a nonappealable judgment of such court to have engaged in
gross negligence or willful misconduct.
(c) CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with this Agreement and all of the other
agreements executed in connection herewith and except in connection with
handling all of the litigation described on Section 4A(r) of the Seller's
Disclosure Schedule. In the event that the Seller is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Seller will notify the Buyer promptly
of the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this (S) 6(c). If,
in the absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, the Seller may
disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER, that
the Seller shall use his reasonable best efforts to obtain, at the reasonable
request of the Buyer, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate; provided, however that all of the
Seller's costs including but not limited
-27-
to legal fees shall be paid by the Buyer. The foregoing provisions shall not
apply to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(d) LITIGATION. The Seller shall be solely responsible for handling, and
for liability resulting from, the Law Cypress-Distributing Co. and the Exchange
Corp., L.C. Litigation (as identified and defined in (S) 4A(r) of the Seller's
Disclosure Schedule) and shall indemnify the Buyer from any Damages the Buyer or
the Company may incur therefrom . The foregoing indemnification obligation
shall be outside of the indemnification provisions in Section 8 of this
Agreement. Buyer shall assume all liability for all other litigation involving
the Company which is disclosed in the Seller's Disclosure Schedule. Buyer's
liability for any and all litigation involving the Company remains subject to
the terms and provisions of Section 8 of this Agreement.
(e) THE SELLER AS DIRECTOR. Upon the occurrence of the Closing, Seller
shall be appointed to the Board of Directors of the Buyer, and Seller agrees to
serve on the Board of Directors of the Buyer for so long as he remains employed
by the Company and/or the Buyer.
(f) THE SELLER AS GUARANTOR. The Company and Buyer will use their best
efforts to obtain the full and final release of Seller from any guaranty by
Seller of and debt or obligations of the Company as more fully specified on
(S) 6(f) of the Seller's Disclosure Schedule. In the event any such release is
not procured and Seller suffers Damages then Buyer shall indemnify Seller from
any Damages. The foregoing indemnification obligation shall be outside of the
indemnification obligations of the Buyer contained in Section 8 of this
Agreement.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer to
proceed with the Closing and consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions (any or all which may be waived in writing, by the Buyer):
(i) the representations and warranties set forth in (S) 3(a) and
(S) 4A above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Seller shall have performed and complied with all of their
covenants hereunder in all material respects at and as of the Closing Date;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions
-28-
contemplated by this Agreement to be rescinded following consummation,
(C) affect adversely the right of the Buyer to own the Company Shares and
to control the Company, or (D) materially and adversely affect in any
material respect the right of the Company to own its assets and to operate
its business (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in (S) 7(a)(i)-(iii)
is satisfied in all respects; provided, however, that with respect to (S) 7
(a)(iii), Seller shall certify only as to its Actual Knowledge;
(v) the Buyer shall have received from counsel to the Seller an
opinion, addressed to the Buyer, and dated as of the Closing Date
containing such assumptions and qualifications as may be reasonably
acceptable to the Buyer's legal counsel;
(vi) the Buyer shall have received the resignations, effective as of
the Closing, of each director and officer of the Company other than the
Seller and those whom the Buyer shall have specified in writing prior to
the Closing;
(vii) the Buyer shall have obtained on terms and conditions
reasonably satisfactory to it and Seller all of the financing it reasonably
needs in accordance with the Commitment Letters in order to consummate the
transactions contemplated hereby;
(viii) the Seller shall have entered into an Employment Agreement
with the Company and the Buyer in the form of EXHIBIT A attached hereto
(the "Employment Agreement');
(ix) the Seller shall have entered into the Stock Pledge Agreement
with the Buyer in the form of EXHIBIT B attached hereto (the "Pledge
Agreement");
(x) the Seller shall have entered into a certain Shareholders'
Agreement, a certain Securityholders Agreement and a certain Registration
Rights Agreement which shall grant to the Seller certain piggyback rights
with respect to the Buyer Shares and shall provide that, to the extent any
greater registration rights are ever granted to any seller of a company
acquired by the Buyer, the Seller shall be granted the same or equivalent
registration rights (the "Registration Rights Agreement") each on terms and
conditions reasonably satisfactory to it;
(xi) each of the appropriate parties shall have executed and
delivered the Asset Purchase Agreement, the Assumption of Obligations -
Reporters, the Assumption of Obligations - Looney, the Settlement
Agreement - Reporters, the Long Employment Agreement, the Settlement
Agreement -Looney, and the Rice Employment Agreement; and
-29-
(xii) the Xxxxx, Bury Acquisition shall have been simultaneously
consummated.
The Buyer may waive any condition specified in this (S) 7(a) if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the Seller
to proceed with Closing and consummate the transactions to be performed by them
in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in (S) 3(b) and
(S) 4B above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Seller to own the Buyer Shares, or (D) affect adversely in any material
respect the right of the Buyer and its Subsidiaries to own its assets and
to operate its business (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in (S) 7(b)(i)-(iii)
is satisfied in all respects; provided, however, that with respect to (S)
7(a)(iii), Buyer shall certify only as to its Actual Knowledge;
(v) the Seller shall have obtained the full and final releases (a)
of any guaranty of the Seller of the debt of the Company or any of its
Subsidiaries and (b) of any collateral pledged by the Seller securing such
debt or guarantees; provided, however, that the foregoing releases will not
require the payment by the Buyer of any additional consideration in excess
of the Purchase Price by the Buyer;
(vi) Buyer shall have entered into and caused the Company to enter
into the Employment Agreement with the Seller;
(vii) the Seller shall have received from counsel to the Buyer an
opinion addressed to the Seller and dated as of the Closing Date containing
such assumptions and qualifications as may be reasonably acceptable to the
Seller's legal counsel;
-30-
(viii) the election of the Seller as a member of the Board of
Directors of the Buyer;
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller;
(x) the Buyer shall have entered into the Shareholders' Agreement,
the Securityholders Agreement, and the Registration Rights Agreement on
terms and conditions reasonably satisfactory to Seller;
(xi) the terms and provisions of the Securities Purchase Agreement,
including all other agreements and documents executed by Buyer and/or
Seller in connection therewith, shall be satisfactory to Seller in all
respects in his sole discretion;
(xii) each of the appropriate parties shall have executed and
delivered the Asset Purchase Agreement, the Assumption of Obligations -
Reporters, the Assumption of Obligations - Legal Enterprise, the Settlement
Agreement - Looney, the Long Employment Agreement, the Settlement
Agreement - Reporters, and the Rice Employment Agreement; and
(xiii) the Xxxxx, Bury Acquisition shall have been simultaneously
consummated.
The Seller may waive any condition specified in this (S) 7(b) if he executes a
writing so stating at or prior to the Closing.
8. INDEMNIFICATION.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two years thereafter except for: (i) any representations and
warranties of title contained as part of (S)4 A(j), which shall survive until
the expiration of the applicable statute of limitation, and (ii) the
representations and warranties contained as in (S)4 A(i) regarding tax matters,
which shall survive until the expiration of the applicable statute of
limitation.
(b) INDEMNIFICATION PROVISIONS.
(I) BY THE SELLER. The Seller shall indemnify, save, defend and
hold harmless the Buyer and the Buyer's shareholders, directors, officers,
partners, agents and employees (and in the event the Buyer assigns its right,
title and interest hereunder to a
-31-
corporation, which shall be permitted hereunder, such assignee) (collectively,
the "Buyer Indemnified Parties") from and against any and all costs, lawsuits,
losses, damages, Liabilities, deficiencies, claims and expenses, including
interest, penalties, reasonable attorneys' fees and all reasonable amounts paid
in investigation, defense or settlement of any of the foregoing (collectively
referred to herein as "Damages"), incurred in connection with or arising out of
or resulting from or incident to any breach (or in the event any third party
alleges facts that, if true, would mean the Seller has breached), of any
covenant, warranty or representation (subject to applicable survival periods)
made by the Seller in or pursuant to this Agreement or any other agreement
delivered pursuant to this Agreement or in any schedule, certificate, exhibit,
or other instrument furnished or to be furnished by the Seller or his Affiliates
pursuant to the terms of this Agreement; provided, however, that the Seller
shall not be liable for any such Damages to the extent, if any, such Damages
result from or arise out of a breach or violation of this Agreement by any Buyer
Indemnified Parties.
(ii) BY THE BUYER. The Buyer shall indemnify, save, defend and hold
harmless the Seller and his heirs, successors and assigns (collectively, the
"Seller Indemnified Parties") from and against any and all Damages incurred in
connection with or arising out of or resulting from or incident to any breach
(or in the event any third party alleges facts that, if true, would mean the
Buyer has breached), of any covenant, warranty or representation (subject to
applicable survival periods) made by the Buyer in or pursuant to this Agreement
or any other agreement delivered pursuant to this Agreement contemplated hereby
or in any schedule, certificate, exhibit, or other instrument furnished or to be
furnished by the Buyer under this Agreement; provided, however, that the Buyer
shall not be liable for any such Damages to the extent, if any, such Damages
result from or arise out of a breach or violation of this Agreement by any
Seller Indemnified Parties.
(iii) DEFENSE OF CLAIMS. If any claim is filed against any Party
entitled to the benefit of indemnity hereunder, written notice thereof
describing such claim in reasonable detail and indicating the amount (estimated,
if necessary) or good faith estimate of the reasonably foreseeable estimated
amount of Damages (which estimate shall in no way limit the amount of
indemnification the indemnified Party is entitled to receive hereunder), shall
be given to the indemnifying Party as promptly as practicable (and in any event
within ten (10) days, after the service of the citation or summons) ("Notice of
Action"); provided that the failure of any indemnified Party to give timely
notice shall not affect its rights to indemnification hereunder to the extent
that the indemnified Party demonstrates that the amount the indemnified Party is
entitled to recover exceeds the actual damages to the indemnifying Party caused
by such failure to so notify within ten (10) days. The indemnifying Party may
elect to compromise or defend any such asserted liability and to assume all
obligations contained in this Section 8(b) to indemnify the indemnified Party by
a delivery of notice of such election ("Notice of Election") within ten (10)
days after delivery of the Notice of Action. Upon delivery of the Notice of
Election, the indemnifying Party shall be entitled to take control of the
defense and investigation of such lawsuit or action and to employ and engage
attorneys of its own choice to handle and defend the same, at the indemnifying
Party's sole cost, risk and expense, and such indemnified Party shall cooperate
in all reasonable
-32-
respects, at the indemnifying Party's sole cost, risk and expense, with the
indemnifying Party and such attorneys in the investigation, trial, and defense
of such lawsuit or action and any appeal arising therefrom; provided, however,
that the indemnified Party may, at its own cost, risk and expense, participate
in such investigation, trial and defense of such lawsuit or action and any
appeal arising therefrom. If the Notice of Election is delivered to the
indemnified Party, the indemnified Party shall not pay, settle or compromise
such claim without the indemnifying Party's consent, which consent shall not be
unreasonably withheld. If the indemnifying Party elects not to defend the claim
of the indemnified Party or does not deliver to the indemnified Party a Notice
of Election within ten (10) days after delivery of the Notice of Action, the
indemnified Party may, but shall not be obligated to defend, or the indemnified
Party may compromise or settle (exercising reasonable business judgment) the
claim or other matter on behalf, for the account, and at the risk, of the
indemnifying Party.
(iv) THIRD PARTY CLAIMS. The provisions of this Section 7.1 are not
limited to matters asserted by the Parties, but cover Damages incurred.
(v) LIMITATION ON INDEMNIFICATION. Notwithstanding any provision
of this Agreement, except for claims by the Buyer against the Seller under (S)
6(d) of this Agreement or by the Seller against the Buyer under (S) 6(f) of this
Agreement, neither the Buyer nor the Seller or any Affiliate of either shall be
required to pay an indemnified Party or any Affiliate thereof any amount with
respect to any claim for Damages under this Section 8(b) until the Damages which
the Indemnified Party and its or his Affiliates suffered under this Agreement
aggregate at least $50,000 (the "Threshold"), at which time and in such event
the indemnified Party or Affiliate shall be entitled to receive payment for the
entire amount of aggregate Damages to the extent they exceed $50,000; provided,
however, that such Threshold amount shall not limit any Party's liability for a
knowing and intended breach of a representation, warranty or covenant of such
Party hereunder. Any amounts owed by Seller under this Section 8(b)(v) shall be
satisfied first by reduction of the value of the Buyer Preferred Shares and then
against the Buyer Shares as provided in Section 9(c). Neither Party (considered
collectively with such Party's Affiliates) shall be liable to indemnify the
other Party in an amount in excess of one-half of the Purchase Price plus
$3,060,000.00 including any and all amounts due and owing under (S) 6(d) and (S)
6(f) of this Agreement.
9. TERMINATION AND REMEDIES.
(a) TERMINATION.
(i) This Agreement may be terminated at any time prior to the Closing:
(A) by the mutual consent of the Seller and the Buyer; or (B) by the Seller or
the Buyer, at any time after the date hereof and prior to the occurrence of the
Closing, if any of the conditions precedent to its obligations hereunder have
not been fulfilled, in any material respect, as of the Closing Date, other than
as a result of such terminating party's breach or negligence; or (C) if any bona
fide action or proceeding shall be pending against either Party as of the
Closing Date that might reasonably be expected to result in an unfavorable
judgment, decree
-33-
or order that would prevent or make unlawful the carrying out of this Agreement
or if any agency of the federal or of any state government shall have objected
at or before the Closing to this acquisition or to any other action required by
or in connection with this Agreement and such objection shall not have been
removed by the Closing Date.
(ii) This Agreement may be terminated by the Buyer at any time prior
to the Closing if the representations or warranties of the Seller herein shall
prove to have been inaccurate in any material respect when made, provided that,
the Buyer shall give the Seller a reasonable period of time, but only if there
is any such time prior to the scheduled Closing Date, to cure any default
hereunder, by the payment of compensation (if the matter is reasonably capable
of rectification by that means) or by the rectification of the matter before the
Closing.
(iii) This Agreement may be terminated by the Seller at any time
prior to the Closing if representations or warranties of the Buyer herein shall
prove to have been inaccurate in any material respect when made, provided that,
the Seller shall give the Buyer a reasonable period of time, but only if there
is any such time prior to the scheduled Closing Date, to cure any default
hereunder, by the payment of compensation (if the matter is reasonably capable
of rectification by that means) or by the rectification of the matter before the
Closing.
(iv) Nothing in this (S) 9(a) shall be deemed to release either
Party from any liability for any breach by such Party of the terms and
provisions of this Agreement; provided, however that such Party shall not be
liable in the event the Agreement is terminated pursuant to (S) 9(a)(i), or
pursuant to (S) 9(a)(ii) or (S) 9(a)(iii) if the default is not intentional, and
reasonable and good faith efforts are made to rectify the matter but it is not
resolved.
(v) For purposes only of determining whether termination of this
Agreement is permissible pursuant to (S) 9(a)(ii) or (S) 9(a)(iii), the
representations or warranties herein shall not be deemed to be inaccurate in any
material respect, unless such failure to comply or inaccuracy might reasonably
be expected to result in Damages to the other Party of in excess of $150,000.
(b) SPECIFIC PERFORMANCE. Each of the Parties hereby agrees that the
transactions contemplated by this Agreement are unique, and that each Party
shall have, in addition to any other legal or equitable remedy available to it,
the right to enforce this Agreement by decree of specific performance. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
-34-
(c) OFFSET. To the extent not otherwise prohibited by applicable law,
the Buyer Shares, the Buyer Preferred Shares and all amounts due and owing by
the Buyer to the Seller under this Agreement, shall be subject to offset by the
Buyer to the extent of any Damages incurred by the Buyer which permits the Buyer
to make an indemnification claim against the Seller. In the event the Buyer
elects to offset any damages incurred as a result of any such breach, the Buyer
shall furnish the Seller notice containing detailed information about the
breach, the magnitude of the Damages that the Buyer has or reasonably expects to
incur (the act of offsetting by the Buyer shall be referred to as an "Offset").
All Offsets shall first be against the Buyer Preferred Shares based on the Buyer
Preferred Shares Value in accordance with the Pledge Agreement. Any additional
Damages shall be Offset against the Buyer Shares. For purposes hereof, the
Buyer Shares shall be deemed to have the Buyer Shares Value. The Buyer Shares
shall have a restrictive legend typed on the back thereof specifying that the
Buyer Shares are subject to a right of Offset as specified in this Agreement.
The Seller acknowledges and agrees that but for the right of Offset contained in
this Agreement, the Buyer would not have entered into this Agreement or any of
the transactions contemplated herein. If any legal action or other proceeding
is brought for the enforcement of this Agreement, or any document, instrument,
or agreement executed in connection herewith, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement or any document, instrument, or agreement executed in connection
herewith, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it or they may be entitled at law or
equity. The rights and remedies granted herein are cumulative and not exclusive
of any other right or remedy granted herein or provided by law. Notwithstanding
anything to the contrary contained herein, Seller shall have the right to negate
an Offset in whole or in part, to the extent he elects to pay any Damages in
cash.
10. MISCELLANEOUS.
(a) PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement
(including the documents referred to herein) without the prior written approval
of the Buyer and the Sellers; provided, however, that any Party may make any
public disclosure it believes in good faith upon the advice of legal counsel it
is required by applicable law (in which case the disclosing Party will use its
best efforts to advise the other Party prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
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(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder (x) to one or more of
its Affiliates, and (y) to one or more financial institutions lending funds to
the Buyer for the purpose of financing the purchase of the Company Shares
hereunder and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller: Xxxxxxx X. Xxxxxx
00000 Xxxxxx Xxxx
Xxxxxxx, Xxxxx 00000
Telefax: (000) 000-0000
Copy to: Xxxxxxxxx & Xxxxxxxxx, L.L.P.
South Tower Pennzoil Place
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Attn: Xxxxxx X. Xxxxxxx III
Telefax: (000) 000-0000
If to the Buyer: Litigation Resources of America, Inc.
3850 Nationsbank Center
000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000-0000
Attn: G. Xxxx Xxxxx, President
Telefax: (000) 000-0000
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Copy to: Xxxxx Xxxxx & Xxxxxx Incorporated
Nine Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: J. Xxxxxxxx Xxxxx
Telefax: (000) 000-0000
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO
ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF TEXAS
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF TEXAS.
(i) AMENDMENTS AND WAIVERS. No amendments or waivers of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties, the Company, and its Subsidiaries
will bear his or its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations
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promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) ARBITRATION. If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if said dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 10(n). Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 10(n), the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Houston, Texas. Expenses related to the arbitration,
including counsel fees, shall be borne by the Party incurring such expenses
except to the extent otherwise provided herein. The fees of the arbitrator and
of the American Arbitration Association, if any, shall be divided equally among
the Parties involved in the controversy. Judgment upon the award rendered by the
arbitrator (which may, if deemed appropriate by the arbitrator, include
equitable or mandatory relief with respect to performance of obligations
hereunder) may be entered in any court of competent jurisdiction. The arbitrator
shall award the prevailing Party in any arbitration proceeding recovery of its
attorneys' fees and other costs in connection with the arbitration from the non-
prevailing Party.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER:
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ G. Xxxx Xxxxx
--------------------------
G. Xxxx Xxxxx
President
SELLER:
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------
Xxxxxxx X. Xxxxxx
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SCHEDULES AND EXHIBITS
SCHEDULES
---------
3A Exceptions to the Seller's Representations and Warranties
3B Exceptions to the Buyer's Representations and Warranties
4A Seller's Disclosure Schedule
4A(a) Director and Officer of Seller
4A(b) Company Share
4A(c) Noncontravention
4A(f) Events Subsequent to Most Recent Fiscal Year End
4A(g) Undisclosed Liabilities
4A(i) Tax Matters
4A(k) Real Property
4A(n) Contracts
4A(p) Powers of Attorney
4A(q) Insurance
4A(r) Litigation
4A(s) Certain Business Relationship with Company
4A(u) Employees
4A(v) Employee Benefit Plan
4B Buyer's Disclosure Schedule
4B(a) Directors and Officers of Buyer
4B(b) Capitalization
4B(d) Contracts
5(a) Conduct of Business
5(h) No Solicitation of Other Offers by the Buyer
6(f) Seller as Guarantor
EXHIBITS
--------
A Employment Agreement
B Pledge Agreement
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