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AGREEMENT AND PLAN OF ORGANIZATION
dated as of October 1, 1997
by and among
CONDOR TECHNOLOGY SOLUTIONS, INC.
MST ACQUISITION CORP.
(a subsidiary of Condor Technology Solutions, Inc.)
MANAGEMENT SUPPORT TECHNOLOGY CORP.
and
the STOCKHOLDER named herein
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (this "Agreement") is made as of
September __, 1997, by and among CONDOR TECHNOLOGY SOLUTIONS, INC., a Delaware
corporation ("CTS"), MST ACQUISITION CORP., a Delaware corporation ("NEWCO"),
MANAGEMENT SUPPORT TECHNOLOGY CORP., a Delaware corporation (the "COMPANY"), and
C. Xxxxxxxx Xxxxxx (the "STOCKHOLDER"). The STOCKHOLDER is the sole stockholder
of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on July 7,
1997, solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of CTS;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that NEWCO
merge with and into the COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the State of Delaware (the "Merger"),
and in furtherance thereof have approved the Merger;
WHEREAS, CTS is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with companies in
the information technology industry (collectively, the "Other Founding
Companies"), and their respective stockholders in order to acquire
additional information technology companies. The COMPANY, together with
each of the entities with which CTS has entered into the Other Agreements,
are collectively referred to herein as the "Founding Companies;"
WHEREAS, this Agreement, the Other Agreements and the IPO (as
hereinafter defined) of CTS Stock (as hereinafter defined) constitute the
"CTS Plan of Organization;"
WHEREAS, the Boards of Directors of CTS and each of the Founding
Companies have approved and adopted the CTS Plan of Organization as an
integrated plan to transfer the capital stock of the Founding Companies to
CTS and the cash raised in the IPO of CTS Stock to CTS as a transfer of
property under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDER and the Board
of Directors of the COMPANY and the stockholders and the boards of
directors of each of CTS and NEWCO have approved this Agreement and the
transactions contemplated hereby;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined herein shall have the following meanings for all
purposes of this Agreement:
"Acquired Party" means the COMPANY, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by CTS prior to the Closing Date.
"Acquisition Transaction" has the meaning set forth in Section 7.4.
"Affiliates" has the meaning set forth in Section 5.8.
"A/R Aging Reports" has the meaning set forth in Section 9.16.
"Articles of Merger" means those Articles or Certificates of Merger with
respect to the Merger substantially in the form[s] attached as Annex I hereto or
with such changes therein as may be required by applicable state laws.
"Balance Sheet Date" means December 31, 1996.
"Benefit Plan" means any Plan, existing at the Closing Date or prior
thereto, established or to which contributions have at any time been made by the
COMPANY, any ERISA Affiliate, or any predecessor of any of the foregoing, under
which any employee or former employee of the COMPANY, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"CTS" has the meaning set forth in the first paragraph of this Agreement.
"CTS Charter Documents" has the meaning set forth in Section 6.1.
"CTS Plan of Organization" has the meaning set forth in the fourth recital
of this Agreement.
"CTS Stock" means the common stock, par value $.01 per share, of CTS.
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"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" means the consummation of the transactions contemplated by this
Agreement on the Closing Date.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Current Assets" means all assets of the COMPANY classified in the balance
sheet of the COMPANY at such date as current assets in accordance with GAAP in
the manner applied in the audited financial statements of the COMPANY included
in the Registration Statement (excluding, however, amounts due and to become due
from affiliates of the COMPANY and/or the STOCKHOLDER which have arisen from
transactions which are other than arm's-length and in the ordinary course of the
COMPANY's business).
"Current Liabilities" means all liabilities of the COMPANY classified in
the balance sheet of the COMPANY at such date as current liabilities in
accordance with GAAP in the manner applied in the audited financial statements
of the COMPANY included in the Registration Statement.
"Current Ratio" means the ratio of (a) Current Assets to (b) Current
Liabilities.
"Delaware Law" has the meaning set forth in Section 1.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the Closing
Date.
"Environmental Requirements" has the meaning set forth in Section 5.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" means any Person who is, or at any time was, a member of
a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the COMPANY or any predecessor of the
COMPANY.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"GAAP" means generally accepted accounting principles of the United States
applied in a manner consistent with the past practices of the COMPANY.
"Governmental Authority" means any governmental, regulatory or
administrative body, agency, subdivision or authority, any court or judicial
authority, or any public, private or industry regulatory authority, whether
national, Federal, state, local or otherwise.
"Hazardous Materials" has the meaning set forth in Section 5.13(b).
"Intellectual Property" means all trademarks, service marks, trade dress,
trade names, patents and copyrights and any registration or application for any
of the foregoing, and any trade secret, invention, process, know-how, computer
software or technology systems.
"IPO" means the initial public offering of CTS Stock pursuant to the
Registration Statement.
"Laws" has the meaning set forth in Section 5.21.
"Material Adverse Effect" means, with respect to any Person, any event or
occurrence which would have a material adverse effect on such Person's business,
condition (financial or other), properties, business prospects or financial
results.
"Material Contract" means any lease, instrument, agreement, license or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any
other material agreement to which the COMPANY is a party or by which its
properties are bound.
"Merger" means the merger of NEWCO with and into the COMPANY pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO STOCK" means the common stock, par value $.01 per share, of
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NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"PGBC" means the Pension Benefit Guaranty Corporation.
"Person" means any natural person, corporation, partnership,
proprietorship, other business organization, trust, union, association or
Governmental Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by CTS and the Underwriters of
the public offering price of the shares of CTS Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Registration Statement" means that certain registration statement of CTS
on Form S-1 covering the shares of CTS Stock to be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(a).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
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"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3(e).
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving party in
the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section 5.22.
"Taxing Authority" has the meaning set forth at the end of Section 5.22.
"Third Person" has the meaning set forth in Section 11.2.
"Transfer Taxes" has the meaning set forth in Section 17.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement dated the
Closing Date between the Underwriters and CTS in respect of the IPO.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and filed
with the Secretary of State of the State of Delaware and stamped receipt copies
of each such filing to be delivered to CTS on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger and
subject to the terms and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law (the "Delaware Law"), NEWCO
shall be merged with and into the COMPANY in accordance with the Articles of
Merger, the separate existence of NEWCO shall cease and the COMPANY shall be the
surviving party in the Merger. At the Effective Time of the Merger, the effect
of the Merger otherwise shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of the Merger, all
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the property, rights, privileges, powers and franchises of the COMPANY and NEWCO
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the COMPANY and NEWCO shall become the debts, liabilities and duties of the
Surviving Corporation. The Merger will be effected in a single transaction.
1.3 Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until amended as provided by law;
(b) the By-laws of the COMPANY then in effect shall be the By-laws
of the Surviving Corporation until amended as provided by law;
(c) two directors of NEWCO and four nominees of the STOCKHOLDER
shall be the directors of the Surviving Corporation until their respective
successors are elected or appointed and qualified in accordance with the
terms the By-laws of the Surviving Corporation; the Board of Directors of
the Surviving Corporation shall hold office subject to the provisions of
the laws of the State of Delaware and of the Certificate of Incorporation
and By-laws of the Surviving Corporation; and
(d) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger, J. Xxxxxxxx Xxxxxxx shall be appointed as a
vice president and assistant secretary of the Surviving Corporation and
shall not be entitled to any compensation from the COMPANY as a result of
such appointment and his serving in such capacity, such officers to serve,
subject to the provisions of the Certificate or Articles of Incorporation
and By-laws of the Surviving Corporation, until his or her successor is
duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
CTS and NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY, CTS and
NEWCO as of the date of this Agreement are as follows:
(a) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(b) immediately prior to the Closing Date, the authorized capital
stock of CTS will consist of 50,000,000 shares; and
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(c) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding and beneficially owned by CTS.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) CTS Stock and (y) common stock of the Surviving
Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(a) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be canceled and
extinguished and, by virtue of the Merger and without any action on the
part of the holder thereof, automatically shall be deemed to represent,
with respect to the STOCKHOLDER, (1) the right to receive the number of
shares of CTS Stock set forth on Annex III hereto with respect to the
STOCKHOLDER and (2) the right to receive the amount of cash set forth on
Annex III hereto with respect to the STOCKHOLDER;
(b) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of CTS Stock or
other consideration shall be delivered or paid in exchange therefor; and
(c) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of CTS, automatically be converted into
one fully paid and non-assessable share of common stock of the Surviving
Corporation, which shall constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation immediately after the
Effective Time of the Merger.
All CTS Stock received by the STOCKHOLDER pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 5 and
15 hereof and the registration rights described in Section 16 hereof, have the
same rights as all the other shares of outstanding CTS Stock by reason of the
provisions of the Certificate of Incorporation of CTS or as otherwise provided
by the Delaware Law. All voting rights of such CTS Stock received by the
STOCKHOLDER shall be fully exercisable by the STOCKHOLDER and the STOCKHOLDER
shall not be deprived nor restricted in
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exercising those rights. At the Effective Time of the Merger, CTS shall have no
class of capital stock issued and outstanding other than the CTS Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Closing Date the
STOCKHOLDER, who is the holder of all outstanding certificates representing
shares of COMPANY Stock, shall, upon surrender of such certificates, receive (i)
the respective number of shares of CTS Stock and (ii) the amount of cash, all as
set forth on Annex III hereto with respect to the STOCKHOLDER, provided that
such cash shall be paid out of the net proceeds from the IPO. The cash payable
pursuant to clause (ii) shall be paid by wire transfer.
3.2 The STOCKHOLDER shall deliver in trust to Xxxxxx, Xxxxx & Bockius LLP,
counsel to CTS, at the Pre-Closing the certificates representing COMPANY Stock,
duly endorsed in blank by the STOCKHOLDER, or accompanied by stock powers duly
endorsed in blank, with signatures guaranteed by a national or state chartered
bank or other financial institution, and with all necessary Transfer Tax and
other revenue stamps, acquired at the STOCKHOLDER's expense, affixed and
canceled. The STOCKHOLDER agrees promptly to cure any deficiencies with respect
to the endorsement of the stock certificates or other documents of conveyance
with respect to such COMPANY Stock or with respect to the stock powers
accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date, all of such certificates
shall be deemed released by such counsel to CTS without any further action on
the part of such counsel.
4. CLOSING
At or prior to the Pre-Closing, the parties shall take all actions
necessary to prepare to (i) effect the Merger (including, if permitted by
applicable state law, the advance filing with the appropriate state authorities
of the Articles of Merger, which shall become effective at the Effective Time of
the Merger) and (ii) effect the conversion and delivery of shares referred to in
Section 2 hereof; provided, that such actions shall not include the actual
completion of the Merger for purposes of this Agreement or the conversion and
delivery of the shares and transmission of funds by wire referred to in Section
3 hereof, each of which actions shall only be taken upon the Closing Date as
herein provided. In the event that there is no Closing and this Agreement
terminates, CTS hereby covenants and agrees to do all things required by
Delaware Law and all things which counsel for the COMPANY advise CTS are
required by applicable laws of the State of Delaware in order to rescind any
merger or other actions effected by the advance filing of the Articles of Merger
as described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Pre-Closing") shall take place on the date of the execution
of the underwriting agreement to be used in connection with the
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IPO (the "Pre-Closing Date") at the offices of Xxxxxx, Xxxxx & Xxxxxxx LLP, 000
Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. On the Closing Date (x) the Articles of
Merger shall be or shall have been filed with the appropriate state authorities
so that they shall be or, as of 8:00 a.m. New York City time on the Closing
Date, shall become effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the transmission of funds by wire in an amount equal to the
cash portion of the consideration which the STOCKHOLDER shall be entitled to
receive pursuant to the Merger referred to in Section 3 hereof shall be
completed and (z) the closing with respect to the IPO shall occur and be deemed
to be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occur shall be referred to as the "Closing Date." Time
is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER
(A) Representations and Warranties of the COMPANY and the STOCKHOLDER.
Each of the COMPANY and the STOCKHOLDER jointly and severally represents
and warrants to CTS and NEWCO that all of the following representations and
warranties in this Section 5(A) are true and correct at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true and correct at the
time of the Pre-Closing and the Closing Date, and that such representations and
warranties shall survive the Closing Date for a period of eighteen months (the
last day of such period being the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO, CTS
actually incurs liability under the 1933 Act, the 1934 Act, or any other Federal
or state securities laws, the representations and warranties set forth in this
Section 5(A) shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5 and for the opinion referred to in
Sectionn 9.8 of this Agreement, the term "COMPANY" shall mean and refer to the
COMPANY and all of its subsidiaries, if any.
5.1 Due Organization. The COMPANY is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted, to own
or hold under lease the properties and assets it now owns or holds under lease,
and to perform all of its obligations under the Material Contracts; is duly
qualified in the jurisdictions listed in Schedule 5.1 and there are no
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other jurisdictions in which the conduct of the COMPANY's business or activities
or its ownership of assets requires any other qualification under applicable
law, the absence of which would have a Material Adverse Effect on the COMPANY.
True, complete and correct copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to CTS, are correct and complete in
all material respects. The most recent minutes of the COMPANY, which are dated
no earlier than 10 business days prior to the date hereof, affirm and ratify all
prior acts of the COMPANY and of its officers and directors on behalf of the
COMPANY.
5.2 Authorization. The representatives of the COMPANY executing this
Agreement have the authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by the COMPANY and performance by the COMPANY of its obligations under this
Agreement and the consummation by the COMPANY of the transactions contemplated
hereby have been duly authorized by all necessary corporate and stockholder
action in accordance with applicable law and the Articles of Incorporation and
By-Laws of the COMPANY on the part of the COMPANY and the STOCKHOLDER. This
Agreement constitutes the valid and binding obligation of the COMPANY,
enforceable in accordance with its terms.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Schedule 1.4. All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDER in the
amounts set forth in Annex IV and, except as set forth on Schedule 5.3, are
owned free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind. All of the issued
and outstanding shares of capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDER and were offered, issued, sold and delivered by
the COMPANY in compliance with all applicable state and Federal laws concerning
the issuance of securities. The COMPANY and the STOCKHOLDER have full right,
power and authority to exchange the COMPANY Stock as provided herein without
obtaining the consent or approval of any other person or Governmental Authority.
Further, none of such shares were issued in violation of the preemptive
rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the
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COMPANY has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) the
voting stock structure of the COMPANY has not been altered or changed in
contemplation of the Merger and/or the CTS Plan of Organization. Schedule 5.4
also includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY Stock and a description of the material terms of
such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from which the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. The COMPANY has delivered to CTS copies of the
following financial statements (the "Financial Statements").
(a) Audited Balance Sheets, Income Statements, Statements of
Stockholders' Equity and Statements of Cash Flows at and for the years
ended December 31, 1994, 1995 and 1996.
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(b) Unaudited Balance Sheets, Income Statements, Statements of
Stockholders' Equity, and Statements of Cash Flows for the six months
ended June 30, 1996 and 1997.
Each of the Financial Statements is consistent with the books and records
of the COMPANY (which, in turn, are accurate and complete in all material
respects) and fairly presents the COMPANY's financial condition, assets and
liabilities as of their respective dates and the results of operations and cash
flows for the periods related thereto in accordance with GAAP, consistently
applied among the periods which are the subject of the Financial Statements,
except unaudited interim financial statements which were or are subject to
normal year-end adjustments which were not and are not expected to be material
in amount and the addition of required footnotes thereto.
5.10 Liabilities and Obligations. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY in excess of $10,000 which are not
reflected on the balance sheet of the COMPANY at the Balance Sheet Date or
otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements to which the COMPANY is a
party. Except as set forth on Schedule 5.10, since the Balance Sheet Date, the
COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also set forth on Schedule 5.10, in the case of those contingent
liabilities related to pending or threatened litigation, or other liabilities
which are not fixed or are being contested, the following information:
(a) a summary description of the liability and has provided CTS's
counsel with: (i) copies of all relevant documentation relating
thereto;
(ii) amounts claimed and any other action or relief
sought;
(iii) and name of claimant and all other parties to the
claim, suit or proceeding;
(b) the name of each court or agency before which such claim, suit
or proceeding is pending;
(c) the date such claim, suit or proceeding was instituted; and
(d) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes of
this Agreement be deemed to be zero.
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5.11 Accounts and Notes Receivable. The COMPANY has delivered to CTS an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDER. Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to CTS in a writing accompanying the A/R Aging Reports, as the case
may be, the accounts, notes and other receivables shown on Schedule 5.11 and on
the A/R Aging Reports are and shall be, and the COMPANY has no reason to believe
that any such account receivable is not or shall not be, collectible in the
amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the balance sheet calculated
consistent with the reserves as of the Balance Sheet Date).
5.12 Intellectual Property; Permits and Intangibles.
(a) The COMPANY owns or has licenses to all Intellectual Property
the absence of any of which would have a Material Adverse Effect on the
COMPANY, and the COMPANY has delivered to CTS an accurate list (which is
set forth on Schedule 5.12(a)) of all Intellectual Property owned by or
licensed by the COMPANY. Each item of Intellectual Property owned by or
licensed by the COMPANY is valid and in full force and effect. Except as
set forth on Schedule 5.12(a), all right, title and interest in and to
each item of Intellectual Property is owned by the COMPANY and is not
subject to any license except as set forth on Schedule 5.12(a), royalty
arrangement or pending or threatened claim or dispute. To the COMPANY's
knowledge, none of the Intellectual Property owned by or licensed by the
COMPANY nor any product sold or licensed by the COMPANY, infringes any
Intellectual Property right of any other entity and to the COMPANY's
knowledge, no Intellectual Property owned by the COMPANY is infringed upon
by any other entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY, and the COMPANY has delivered to
CTS an accurate list and summary description (which is set forth on
Schedule 5.12(b)) of all governmental licenses, franchises, permits and
other governmental authorizations, including permits, titles, licenses,
franchises and certificates (it being understood and agreed that a list of
all environmental permits and other environmental approvals is set forth
on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on
Schedules 5.12(b) and 5.13 are valid, and the COMPANY has not received any
notice that any Governmental Authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental
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authorization. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set
forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in
violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANY. Except
as specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not (i) to the COMPANY's knowledge,
result in the infringement by the COMPANY of any Intellectual Property
right of any other entity, (ii) infringe any Intellectual Property listed
on Schedule 5.12(a), or (iii) result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any licenses, franchises, permits or government authorizations
listed on Schedule 5.12(b).
5.13 Environmental Matters.
(a) Except as set forth on Schedule 5.13,
(i) the COMPANY is and at all times has been in compliance
in all material respects with, and has not been in
violation of or liable under, all Environmental
Requirements, and
(ii) the COMPANY possesses all permits, licenses and
certificates required by all Environmental Requirements,
and has filed all notices or applications required
thereby.
As used herein, "Environmental Requirements" shall mean all applicable federal,
state and local laws, rules, regulations, ordinances and requirements relating
to pollution and protection of the environment, all as amended to date.
(b) Except as disclosed on Schedule 5.13:
(i) the COMPANY has not been subject to, or received any
notice of any private, administrative or judicial
action, or notice of any intended private,
administrative or judicial action relating to the
presence or alleged presence of Hazardous Materials in,
under or upon any real property currently or formerly
owned, leased or used by (A) the COMPANY or (B) any
other person that has, at any time, disposed of
Hazardous Materials on behalf of the COMPANY;
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(ii) the COMPANY does not have any basis for any such notice
or action; and
(iii) there are no pending or, to the knowledge of the
COMPANY, threatened actions or proceedings (or notices
of potential actions or proceedings) from any
Governmental Authority or any other entity regarding any
matter relating to health, safety or protection of the
environment against the COMPANY.
"Hazardous Materials" for purposes of this Agreement shall include,
without limitation: (A) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), and any
other Environmental and Safety Requirements; (B) petroleum, including,
without limitation, crude oil or any fraction thereof which is liquid at
standard conditions of temperature and pressure (60 degrees Fahrenheit and
14.7 pounds per square inch absolute); (C) any radioactive material,
including, without limitation, any source, special nuclear, or by-product
material as defined in 42 U.S.C. ss. 2011 et seq.; and (D) asbestos in any
form or condition.
(c) To the Company's knowledge, there are and have been no past or
present events, conditions, circumstances, activities, practices,
incidents or actions which could reasonably be expected to interfere with
or prevent continued compliance with any Environmental Requirements, give
rise to any legal obligation or liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation against or
involving the COMPANY or any real property presently or previously owned
or used by the COMPANY under any Environmental Requirements or related
common law theories, except as identified on Schedule 5.13.
(d) Schedule 5.13 sets forth the name and principal place of
business of every off-site waste disposal organization, and each of the
haulers, transporters or cartage organization engaged now or in the
preceding three years by the COMPANY to dispose of Hazardous Materials to
any such off-site waste disposal location on behalf of the COMPANY or any
of its predecessors.
5.14 Personal Property. The COMPANY has delivered to CTS an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property with a fair
market value individually in excess of $10,000 which is included (or that will
be included) in "depreciable plant, property and equipment" (or similarly named
line item) on the
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balance sheet of the COMPANY as of the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value individually in excess of
$10,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property
with a value individually in excess of $10,000, including, in the case of each
of (x), (y) and (z), (1) true, complete and correct copies of all such leases
which have been provided to CTS's counsel, (2) a listing of the capital costs of
all such assets which are subject to capital leases and (3) an indication as to
which assets are currently owned, or, to the COMPANY's knowledge, were formerly
owned, by the STOCKHOLDER or Affiliates of the COMPANY or the STOCKHOLDER.
Except as set forth on Schedule 5.14, (i) all personal property with a value
individually in excess of $10,000 used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted, and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the COMPANY, and to the COMPANY's
knowledge, of the other parties (and their successors) thereto in accordance
with their respective terms.
5.15 Significant Customers: Material Contracts and Commitments. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.15) of all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers has canceled or substantially reduced or, to
the knowledge of the COMPANY, is currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
Except as listed or described on Schedule 5.15, as of or on the date
hereof, neither the COMPANY is a party to or bound by, nor do there exist any,
Contracts relating to or in any way affecting the operation or ownership of the
COMPANY's business that are of a type described below:
(a) any collective bargaining arrangement with any labor union or
any such agreement currently in negotiation or proposed;
(b) any contract for capital expenditures or the acquisition or
construction of fixed assets for or in respect to real property other than
in the COMPANY's ordinary course of business in excess of $50,000;
(c) any contract with a term in excess of one year for the purchase,
maintenance, acquisition, sale or furnishing of materials, supplies,
merchandise, machinery, equipment, parts or other property or services
(except that the
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COMPANY need not list any such contract made in the ordinary course of
business) which requires aggregate future payments of greater than
$100,000;
(d) any contract relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation, all
notes, mortgages, indentures and other obligations, agreements and other
instruments for or relating to any lending or borrowing, including assumed
indebtedness;
(e) any contract granting any person a lien on any of the assets of
the COMPANY, in whole or in part;
(f) any contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (as defined in Section 5.13), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any contract granting to any person a first-refusal, first-offer
or similar preferential right to purchase or acquire any of the assets of
the COMPANY's business other than in the ordinary course of business;
(h) any contract under which the COMPANY is
(i) a lessee or sublessee of any machinery, equipment,
vehicle or other tangible personal property or real
property, or
(ii) a lessor of any real property or tangible personal
property owned by the COMPANY,
in either case having an original value in excess of $50,000;
(i) any contract providing for the indemnification of any officer,
director, employee or other person, where such indemnification may exceed
the sum of $50,000;
(j) any joint venture or partnership contract; and
(k) any other contract with a term in excess of one year, whether or
not made in the ordinary course of business, which involves payments in
excess of $100,000.
The COMPANY has provided CTS with a true and complete copy of each written
Material Contract, including all amendments or other modifications thereto.
Except as set forth on Schedule 5.15, each Material Contract is a valid and
binding obligation of the
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COMPANY, enforceable against the COMPANY in accordance with its terms, and is in
full force and effect. Except as set forth on Schedule 5.15, the COMPANY has
performed all obligations required to be performed by it under each Material
Contract and neither the COMPANY nor, to the knowledge of the COMPANY, any other
party to any Contract, is (with or without the lapse of time or the giving of
notice or both) in breach or default in any material respect thereunder; and
there exists no condition which, to the knowledge of the COMPANY, would
constitute a breach or default thereunder. The COMPANY has not been notified
that any party to any Material Contract intends to cancel, terminate, not renew
or exercise an option under any Material Contract, whether in connection with
the transactions contemplated hereby or otherwise.
5.16 Real Property. (a) Schedule 5.16(a) includes a list of all real
property owned by the COMPANY (i) as of the Balance Sheet Date and (ii) acquired
since the Balance Sheet Date, and all other real property, if any, used by the
COMPANY in the conduct of its business. The COMPANY has good and insurable title
to the real property owned by it, including that reflected on Schedule 5.14,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing
specified liabilities (with respect to which no default
by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and
assessments not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other
exceptions to title shown of record in the office of the
County Clerks in which the properties, assets and
leasehold estates are located which do not adversely
affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
(b) Schedule 5.16(b) includes an accurate list of real property leases to
which the COMPANY is a party and an indication as to which such properties, if
any, are currently owned, or were formerly owned, by the STOCKHOLDER or
Affiliates of the COMPANY or the STOCKHOLDER. Counsel to CTS has been provided
with true, complete and correct copies of all leases and agreements in respect
of such real property leased by the COMPANY. Except as set forth on Schedule
5.16(b), all of such leases
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included on Schedule 5.16(b) are in full force and effect and constitute valid
and binding agreements of the COMPANY and, to the COMPANY's knowledge, of the
parties (and their successors) thereto in accordance with their respective
terms.
5.17 Insurance.
(a) The COMPANY has delivered to CTS:
(i) true and complete copies of all policies of insurance to
which the COMPANY is a party or under which the COMPANY,
or any director of the COMPANY, is or has been covered
at any time within two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the COMPANY's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17(b) describes:
(i) any self-insurance arrangement by or affecting the
COMPANY, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by
the COMPANY; and
(iii) all obligations of the COMPANY to third parties with
respect to insurance (including such obligations under
leases and service agreements), and identifies the
policy under which such coverage is provided.
(c) Schedule 5.17(c) sets forth, by year, for the current policy
year and each of the preceding two policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance
policy for an amount in excess of $25,000, which sets
forth:
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a) the name of the claimant;
b) a description of the policy by insurer, type of
insurance and period of coverage; and
c) the amount and a brief description of the claim;
and
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Schedule 5.17(d):
(i) All policies to which the COMPANY is a party or that
provide coverage to the COMPANY:
a) are valid, outstanding and enforceable;
b) are issued by an insurer that is financially sound
and reputable;
c) taken together, provide adequate insurance for the
assets and the operations of the COMPANY for all
risks normally insured against by a person
carrying on the same business or businesses of the
COMPANY;
d) are sufficient for compliance with all legal
requirements and Material Contracts to which the
COMPANY is a party or by which it is bound;
e) will continue in full force and effect following
the Closing in accordance with their respective
terms;
(ii) the COMPANY has not received (A) any refusal of coverage
or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation
or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder;
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(iii) the COMPANY has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to
which it is a party or that provides coverage to it or
any director thereof.
(iv) the COMPANY has given notice to the insurer of all
claims known by it to be insured thereby.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to CTS an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The COMPANY has provided to CTS
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, there is no, and within the last
three years the COMPANY has not experienced any, strike, picketing, boycott,
work stoppage or slowdown, other labor dispute, union organizational activity,
allegation, charge or complaint of unfair labor practice, employment
discrimination or other matters relating to the employment of labor, pending or,
to the COMPANY's knowledge, threatened against the COMPANY; nor is there, to the
knowledge of the COMPANY, any basis for any such allegation, charge or
complaint. Except as set forth on Schedule 5.18, to the knowledge of the
COMPANY, none of the employees of any critical subcontractor utilized by the
COMPANY are represented by a labor union. There is no request directed to the
COMPANY for union or similar representation pending and, to the COMPANY's
knowledge, no question concerning representation has been raised. To the
COMPANY's knowledge, there is no grievance pending which might have a Material
Adverse Effect on the COMPANY nor any which might have a Material Adverse Effect
on any arbitration proceeding arising out of any union agreement. There are no
arbitration awards, court orders, orders of the National Labor Relations Board
or private settlement agreements which in any way alter, amend or clarify any
union agreement or which restrict or otherwise impact the COMPANY's ability to
act with respect to the employees covered by any union agreement in the future.
To the COMPANY's knowledge, no key employee and no group of employees has any
plans to terminate employment with the COMPANY. The COMPANY has complied in all
material respects with all applicable laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes.
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The COMPANY is not liable for any arrearages of wages or any taxes or penalties
for failure to comply with any such laws, ordinances or regulation.
5.19 Employee Plans. The COMPANY has delivered to CTS an accurate schedule
(which is set forth on Schedule 5.19) showing all Benefit Plans of the COMPANY,
together with true, complete and correct copies of such Benefit Plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. The COMPANY is not required to
contribute to any Benefit Plan pursuant to the provisions of any collective
bargaining agreement establishing the terms and conditions of employment of any
of COMPANY's employees.
5.20 Compliance with ERISA. All Benefit Plans that are intended to qualify
under Section 401 (a) of the Code are and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 5.19 hereof. Except
as disclosed on Schedule 5.20, all reports and other documents required to be
filed with any Governmental Authority or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 5.19 hereof other than those reports required to be
distributed to Plan participants and beneficiaries. Neither the STOCKHOLDER, any
such Benefit Plan, nor the COMPANY has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
Benefit Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(l) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. The COMPANY further represents that:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any such Benefit Plan intended to
qualify under Section 401 (a) of the Code without notice to and approval
by the Internal Revenue Service;
(b) no such Benefit Plan subject to the provisions of Title IV of
ERISA has been terminated;
(c) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any Benefit Plan;
(d) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(e) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any
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liability to any multiemployer plan or the PBGC under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or being
subject to any statutory lien to secure payment of any such liability)
with respect to any Benefit Plan now or heretofore maintained or
contributed to by any entity other than the COMPANY that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY;
(f) the COMPANY is not now, nor can it as a result of its past
activities become, liable to the PBGC or to any multiemployer employee
pension benefit plan under the provisions of Title IV of ERISA;
(g) all Benefit Plans listed on Schedule 5.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations; and
(h) all accrued contribution obligations of the COMPANY with respect
to any Benefit Plan have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance
Sheet Date.
5.21 Conformity with Law; Litigation. Except as set forth on Schedule 5.13
or 5.21, the COMPANY has complied with all laws, rules, regulations, writs,
injunctions, decrees, and orders applicable to it or to the operation of its
Business (collectively, "Laws") and has not received any notice of any alleged
claim or threatened claim, violation of, liability or potential responsibility
under, any such Law which has not heretofore been cured and for which there is
no remaining liability other than, in each case, those not having a Material
Adverse Effect on the COMPANY. Without limiting the generality of the foregoing,
the COMPANY has complied with all applicable federal, state and local Laws
relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 5.10 or 5.13 or as set forth on
Schedule 5.21 (which shall disclose the parties to, nature of, and relief sought
for each matter to be disclosed on Schedule 5.21) :
(a) There is no suit, action, proceeding, claim, order or, to the
Company's knowledge, investigation pending or, to the COMPANY's knowledge,
threatened against either the COMPANY or any Benefit Plan, or any
fiduciary of any such Benefit Plan or, to the knowledge of the COMPANY,
pending or threatened against any of the officers, directors or employees
of the COMPANY with respect to its business or proposed business
activities or to which the COMPANY is otherwise a party, which would have
a Material Adverse Effect on the COMPANY, before any court, or before any
Governmental
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Authority (collectively, "Claims"); nor, to the COMPANY's knowledge, is
there any basis for any such Claims.
(b) The COMPANY is not subject to any judgment, order or decree of
any court or Governmental Authority; the COMPANY has not received any
opinion or memorandum from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be
material to its business. The COMPANY is not engaged in any legal action
to recover monies due it or for damages sustained by it.
(c) The COMPANY's current insurance is believed in good faith to be
adequate to cover all pending or threatened Claims, the COMPANY has given
all required notice of such Claims to its appropriate insurance carrier(s)
and/or all such claims have been fully reserved for on the financial
statements of the COMPANY has delivered to CTS pursuant to the terms of
this Agreement. Schedule 5.21 lists the insurer for each Claim covered by
insurance or designates each Claim, or portion of each Claim, as uninsured
and the individual and aggregate policy limits for the insurance covering
each insured Claim and the applicable policy deductibles for each insured
Claim.
Schedule 5.21 sets forth all closed litigation matters (other than workers
compensation claims) to which the COMPANY was a party during the three
years preceding the Closing, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts
paid in settlement or judgment).
5.22 Taxes. Except as set forth on Schedule 5.22:
(a) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed, and each such Return correctly
and completely reflects the Tax liability and all other information
required to be reported thereon. All Taxes (whether or not shown on any
Return) owed by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(b) To the knowledge of the COMPANY and the STOCKHOLDER, the
provisions for Taxes due by the COMPANY and any subsidiaries (as opposed
to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
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(c) No Acquired Party is a party to any agreement extending the time
within which to file any Return. No claim has ever been made by any Taxing
Authority in a jurisdiction in which an Acquired Party does not file
Returns that it is or may be subject to taxation by that jurisdiction that
is unresolved or if adversely determined would have a Material Adverse
Effect on such Acquired Party.
(d) Each Acquired Party has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party.
(e) No Acquired Party expects any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is
no dispute or claim concerning any Tax liability of any Acquired Party
either (i) claimed or raised by any Taxing Authority or (ii) otherwise
known to any Acquired Party. No issues have been raised in any examination
by any Taxing Authority with respect to any Acquired Party which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
5.22(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any Acquired Party for all taxable
periods ended on or after January 1, 1991, indicates those Returns, if
any, that have been audited, and indicates those Returns that currently
are the subject of audit. Each Acquired Party has delivered to CTS
complete and correct copies of all federal, state, local and foreign
income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(f) No Acquired Party has waived any statute of limitations, the
waiver of which remains in effect on the date hereof, in respect of Taxes
or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(g) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible (i) under Section 280G of the Code or (ii) as compensation
under Section 162(m) of the Code or any similar provision under state
and/or local law.
(h) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(i) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section
-26-
168 of the Code. No Acquired Party is a party to any "safe harbor lease"
that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986, or to any "
long-term contract" within the meaning of Section 460 of the Code.
(j) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(k) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(l) There are no accounting method changes or proposed or threatened
accounting method changes, of any Acquired Party that could give rise to
an adjustment under Section 481 of the Code for periods after the Closing
Date.
(m) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(n) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(o) No Acquired Party has any liability for Taxes of any person
other than such Acquired Party (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(p) Prior to CTS's acquisition of the COMPANY pursuant to this
Agreement, there currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1 502-15A of the Treasury regulations, (vi)
Section 1.1502-21 and Section 1.1502-21A of the Treasury regulations or
(vii) Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in
each case as in effect both prior to and following the Tax Reform Act of
1986.
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(q) At the Balance Sheet Date, the Acquired Parties had aggregate
Tax Losses for federal income Tax purposes as described on Schedule
5.22(9) attached hereto.
(r) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(s) The fair market value of the assets of the COMPANY exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(t) The COMPANY is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 351(e)(2) of the Code.
For purposes of this Section 5.22, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or Governmental Authority.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any Governmental Authority, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY or the
STOCKHOLDER, any other party thereto, is in default under any Material Contract;
and, except as set forth on Schedule 5.23, (a) the rights and benefits of the
COMPANY under the Material Contracts will not be adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance by the COMPANY and the STOCKHOLDER of their obligations hereunder
and the consummation by the COMPANY and the STOCKHOLDER of the transactions
contemplated hereby will not (i) result in any violation or breach of, or
constitute a default under, any of the terms or provisions of the Material
Contracts or the Charter Documents or (ii) require the consent, approval, waiver
of any acceleration, termination or other right or remedy or action of or by, or
make any filing with or give any notice to, any other party. Except as set forth
on
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Schedule 5.23, none of the Material Contracts requires notice to, or the consent
or approval of, any Governmental Authority or other third party with respect to
any of the transactions contemplated hereby in order to remain in full force and
effect and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Contracts prohibits the use or publication by the COMPANY, CTS or NEWCO
of the name of any other party to such Material Contracts, and none of the
Material Contracts prohibits or restricts the COMPANY from freely providing
services to any other customer or potential customer of the COMPANY, CTS, NEWCO
or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Business Conduct. Except as set forth on Schedule 5.25, since
December 31, 1996, the COMPANY has conducted its business only in the ordinary
course consistent with past custom and practices and has incurred no liabilities
other than in the ordinary course of business consistent with past custom and
practices. Except as forth on Schedule 5.25, since December 31, 1996, there has
not been any:
(a) Material adverse change in the COMPANY's operations, condition
(financial or otherwise), operating results, assets, liabilities,
employee, customer or supplier relations or business prospects;
(b) Damage, destruction or loss of any property owned by the COMPANY
or used in the operation of the business, whether or not covered by
insurance, having a replacement cost or fair market value in excess of
$50,000 affecting the COMPANY's property, financial status or the
Business;
(c) Voluntary or involuntary sale, transfer, surrender, abandonment
or other disposition of any kind by the COMPANY of any assets or property
rights (tangible or intangible), having a replacement cost or fair market
value in excess of $50,000, except in each case the sale of inventory and
collection of accounts in the ordinary course of business consistent with
past custom and practices;
(d) Loan or advance by the COMPANY to any party other than sales to
customers on credit in the ordinary course of business consistent with
past custom and practices;
(e) Declaration, setting aside, or payment of any dividend or other
distribution in respect to the COMPANY's capital stock, any direct or
indirect
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redemption, purchase, or other acquisition of such stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate;
(f) Incurrence of debts, liabilities or obligations except current
liabilities incurred in connection with or for services rendered or goods
supplied in the ordinary course of business consistent with past custom
and practices, liabilities on account of taxes and governmental charges
but not penalties, interest or fines in respect thereof, and obligations
or liabilities incurred by virtue of the execution of this Agreement;
(g) Issuance by the COMPANY of any notes, bonds, or other debt
securities or any equity securities or securities convertible into or
exchangeable for any equity securities;
(h) Cancellation, waiver or release by the COMPANY of any debts,
rights or claims, except in each case in the ordinary course of business
consistent with past custom and practices;
(i) Amendment of the COMPANY's Articles or Certificate of
Incorporation or By-Laws;
(j) Amendment or termination of any Material Contract, other than
expiration of such contract in accordance with its terms;
(k) Change in accounting principles, methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) utilized by the COMPANY;
(l) Discharge or satisfaction of any material liability, encumbrance
or payment of any material obligation or liability, other than current
liabilities paid in the ordinary course of business consistent with past
custom and practices or cancellation of any debts or claims;
(m) Sale or assignment by the COMPANY of any tangible assets other
than in the ordinary course of business;
(n) Capital expenditures or commitments therefor by the COMPANY
other than in the ordinary course of business in excess of $100,000 in the
aggregate;
(o) Charitable contributions or pledges by the COMPANY in excess of
$25,000 per year in the aggregate;
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(p) Mortgage, pledge or other encumbrance of any asset of the
COMPANY other than in the ordinary course of business;
(q) Adoption, amendment or termination of any Benefit Plan;
(r) Increase in the benefits provided under any Benefit Plan; or
(s) An occurrence or event not included in clauses (a) through (r)
that has resulted or might be expected to have a Material Adverse Effect
on the COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
CTS an accurate schedule (which is set forth on Schedule 5.26) as of the date of
this Agreement of:
(a) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account and account number; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.28 Disclosure.
(a) The representations and warranties of the COMPANY and the
STOCKHOLDER contained in this Agreement, the schedules to this Agreement
provided by the COMPANY and/or the STOCKHOLDER, the certificates and the
other documents furnished by the COMPANY and/or the STOCKHOLDER to CTS
pursuant hereto and for inclusion in the Registration Statement (which,
for purposes of this Agreement, shall include the completed Directors and
Officers
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Questionnaires and Registration Statement Questionnaires), taken as a
whole, present fairly the business and operations of the COMPANY for the
time periods with respect to which such information was requested. The
COMPANY's rights under the documents delivered pursuant hereto would not
be materially adversely affected by, and no statement made herein would be
rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any
other fact or circumstance regarding the COMPANY (which fact or
circumstance was, or should reasonably, after due inquiry, have been known
to the COMPANY) that is not disclosed pursuant hereto or thereto. If,
prior to the 25th day after the date of the final prospectus of CTS
utilized in connection with the IPO, the COMPANY or the STOCKHOLDER
becomes aware of any fact or circumstance which would change (or, if after
the Closing Date, would have changed) a representation or warranty of the
COMPANY or the STOCKHOLDER in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDER shall immediately give notice of such fact or circumstance to
CTS. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDER of their
respective obligations under this Agreement.
(b) The COMPANY and the STOCKHOLDER acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant
thereto will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither CTS or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDER or any other person affiliated
or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (iii) that the
decision of the STOCKHOLDER to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or
other communications, or due diligence investigations which have been or
will be made or performed by any prospective Underwriter, relative to CTS
or the prospective IPO.
5.29 Prohibited Activities. Except as set forth on Schedule 5.29, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3.
5.30 Affiliate Transactions. Schedule 5.30 sets forth the parties to and
the date, nature and amount of (A) each transaction or series of similar
transactions (other than payments of salary and bonus which are reflected as
line items in the Financial
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Statements) involving the transfer of any cash, property or rights in which the
amount involved individually or collectively exceeded $60,000 to or from the
COMPANY from, to, or for the benefit of any Affiliate or former Affiliate of the
COMPANY ("Affiliate Transactions") during the period commencing January 1, 1994
through the date hereof and (B) any existing commitments of the COMPANY to
engage in the future in any Affiliate Transactions. Each Affiliate Transaction
was effected on terms equivalent to those which would have been established in
an arms'-length negotiation, except as disclosed on Schedule 5.30.
5.31 Misrepresentation. To the knowledge of the COMPANY and the
STOCKHOLDER, none of the representations and warranties set forth in this
Agreement, the certificates and the other documents furnished by the COMPANY to
CTS pursuant hereto and for inclusion in the Registration Statement, taken as a
whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
(B) Representations and Warranties of the STOCKHOLDER
The STOCKHOLDER represents and warrants to CTS and NEWCO that the
representations and warranties set forth below with respect to such STOCKHOLDER
are true and correct as of the date of this Agreement and, subject to Section
7.8 hereof, shall be true and correct at the time of the Pre-Closing and on the
Closing Date.
5.32 Securities Act Representations. The STOCKHOLDER alone, or together
with the STOCKHOLDER's "purchaser representative" (as defined in Rule 501(h)
promulgated under the 0000 Xxx):
(a) acknowledges and agrees that (x) the shares of CTS Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act, and therefore may not be sold, transferred
or otherwise conveyed without compliance with the 1933 Act or pursuant to an
exemption therefrom and (y) the CTS Stock to be acquired by the STOCKHOLDER
pursuant to this Agreement is being acquired solely for its own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of the CTS Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the CTS Stock is a speculative investment which involves a high
degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the CTS Stock acquired pursuant to this Agreement, can afford
to sustain a total loss of such investment and has such knowledge and experience
in financial and
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business matters that it is capable of evaluating the merits and risks of the
proposed investment in the CTS Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) CTS's private placement memorandum
and (ii) this Agreement;
(e) represents and warrants that it has had an adequate opportunity to ask
questions and receive answers concerning (i) the background and experience of
the current and proposed officers and directors of CTS, (ii) the plans for the
operations of the business of CTS, (iii) the business, operations and financial
condition of the Other Founding Companies, and (iv) any plans for additional
acquisitions and the like;
(f) represents and warrants that it is either an "accredited investor" (as
defined in Rule 501(a) promulgated under the 0000 Xxx) or, after taking into
consideration the information and advice provided to the STOCKHOLDER, has the
requisite knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the CTS Stock;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
CTS regarding an investment in the CTS Stock; and
(h) acknowledges and agrees that the CTS Stock shall bear the following
legend in addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
CONDOR TECHNOLOGY SOLUTIONS, INC., AN OPINION OF COUNSEL TO CONDOR
TECHNOLOGY SOLUTIONS, INC. STATING THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
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The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the CTS Stock.
5.33 Authority; Ownership. The STOCKHOLDER has the full legal right, power
and authority to enter into this Agreement. The STOCKHOLDER owns beneficially
and of record all of the shares of the COMPANY Stock identified on Annex IV as
being owned by the STOCKHOLDER, and, except as set forth on Schedule 5.33, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.34 Preemptive Rights. The STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or CTS Stock
that the STOCKHOLDER has or may have had other than rights of the STOCKHOLDER to
acquire CTS Stock pursuant to (i) this Agreement or (ii) any option granted by
CTS.
5.35 No Intention to Dispose of CTS Stock. No STOCKHOLDER has any current
plan or intention, or is under any binding commitment or contract, to sell,
exchange or otherwise dispose of shares of CTS Stock received pursuant to
Section 3.1.
5.36 Questionnaires. The Completed Directors and Officers Questionnaires
and Registration Statement Questionnaires attached hereto as Schedule 5.36,
present fairly the business and operations of the COMPANY for the time periods
with respect to which such information was requested. If, prior to the 25th day
after the date of the final prospectus of CTS utilized in connection with the
IPO, the STOCKHOLDER becomes aware of any fact or circumstance which would
affect the information disclosed in his Directors and Officers Questionnaires or
their Registration Statement Questionnaires in any material respect, then the
STOCKHOLDER shall immediately give notice of such fact or circumstance to CTS.
However, subject to the provisions of Section 7.8, such notification shall not
relieve the STOCKHOLDER of his obligations under this Agreement.
6. REPRESENTATIONS OF CTS and NEWCO
CTS and NEWCO jointly and severally represent and warrant to the COMPANY
and the STOCKHOLDER that all of the following representations and warranties in
this Section 6 are true and correct at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true and correct at the time of the Pre-Closing
and on the Closing Date, and that such representations and warranties shall
survive the Closing Date for a period of eighteen months.
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6.1 Due Organization. CTS and NEWCO are each corporations duly
incorporated, validly existing and in good standing under the laws of the state
of their incorporation, and are duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on their business in the places and in the manner as now
conducted, to own or hold under lease the properties and assets they now own or
hold under lease, and to perform all of their obligations under any material
agreement to which they are a party or by which their properties are bound. CTS
and NEWCO are not qualified to do business as foreign corporations in any
jurisdiction, and there is no jurisdiction in which the conduct of CTS'S and
NEWCO's business or activities or their ownership of assets requires
qualification under applicable law, the absence of which would have a Material
Adverse Effect on either CTS or NEWCO. True, complete and correct copies of the
Certificate or Articles of Incorporation and By-Laws, each as amended, of CTS
and NEWCO (the "CTS Charter Documents") are all attached hereto as Annex II. The
minute books and stock records of each of CTS and NEWCO as heretofore made
available to the COMPANY, are correct and complete in all material respects. The
most recent minutes of each of CTS and NEWCO, which are dated no earlier than 10
business days prior to the date hereof, affirm and ratify all prior acts of CTS
and NEWCO, as the case may be, and of their respective officers and directors.
6.2 Authorization. The respective representatives of CTS and NEWCO
executing this Agreement have the authority to execute and deliver this
Agreement and to bind CTS and NEWCO to perform their respective obligations
hereunder. The execution and delivery of this Agreement by CTS and NEWCO and the
performance by CTS and NEWCO of their respective obligations under this
Agreement and the consummation by CTS and NEWCO of the transactions contemplated
hereby have been duly authorized by all necessary corporate action by each in
accordance with applicable law and the Certificate or Articles of Incorporation
and By-Laws of CTS and NEWCO, as the case may be. Each share of CTS Stock to be
issued to the STOCKHOLDER on the Closing Date will be duly and validly
authorized and issued, free and clear of all liens, claims and other
encumbrances and fully paid and nonassessable. This Agreement constitutes the
valid and binding obligation of CTS and NEWCO, enforceable in accordance with
its terms.
6.3 Transaction Not a Breach. Neither the execution and delivery of this
Agreement nor their performance will violate, conflict with, or result in a
breach of any provision of any Law, rule, regulation, order, permit, judgment,
injunction, decree or other decision of any court or other tribunal or any
Governmental Authority binding on CTS or NEWCO or conflict with or result in the
breach of any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or the By-laws of CTS or NEWCO or of any contract,
agreement, mortgage or other instrument or obligation of any nature to which CTS
or NEWCO is a party or by which CTS or NEWCO is bound.
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6.4 Misrepresentation. None of the representations and warranties set
forth in this Agreement or in any of the certificates, schedules, exhibits,
lists, documents, exhibits, or other instruments delivered, or to be delivered,
to the COMPANY as contemplated by any provision hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
6.5 Capital Stock. The entire authorized capital stock of CTS will consist
of 50,000,000 shares. Except as disclosed on Schedule 6.5, there are no
outstanding options, rights (preemptive or otherwise), warrants, calls,
convertible securities or commitments or any other arrangements to which CTS is
a party requiring issuance, sale or transfer of any equity securities of CTS or
any securities convertible directly or indirectly into equity securities of CTS,
or evidencing the right to subscribe for any equity securities of CTS, or giving
any person other than the Founding Companies any rights with respect to the
capital stock of CTS. Except as contemplated by this Agreement or disclosed on
Schedule 6.5, there are no voting agreements, voting trusts, other agreements
(including cumulative voting rights), commitments or understandings with respect
to the CTS Stock.
6.6 Subsidiaries. Schedule 6.6 attached hereto lists the name of each of
CTS's and NEWCO's subsidiaries and sets forth the number and class of the
authorized capital stock of each of CTS's and NEWCO's subsidiaries and the
number of shares of each of CTS's and NEWCO's subsidiaries which are issued and
outstanding prior to the Merger, all of which shares (except as set forth on
Schedule 6.6) are owned by CTS and NEWCO, as the case may be, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind. Except as set forth on Schedule 6.6, CTS
and NEWCO do not presently own, of record or beneficially, or control, directly
or indirectly, any capital stock, securities convertible into capital stock or
any other equity interest in any corporation, association or business entity nor
is CTS or NEWCO, as the case may be, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
6.7 Conformity with Law; Litigation. Except as set forth on Schedule 6.7,
CTS and NEWCO have complied with all Laws applicable to them or to the operation
of their businesses and have not received any notice of any alleged claim or
threatened claim, violation of, liability or potential responsibility under, any
Law which has not heretofore been cured and for which there is no remaining
liability other than, in each case, those not having a Material Adverse Effect
on CTS or NEWCO, taken as a whole. Without limiting the generality of the
foregoing, CTS and NEWCO each have complied with all applicable Federal, state
and local Laws relating to antitrust and trade regulations.
Except to the extent set forth on Schedule 6.7 (which shall disclose the
parties to, nature of, and relief sought for each matter):
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(a) There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of CTS and NEWCO, threatened against
either of CTS or NEWCO or any Plan, or any fiduciary of any such Plan or,
to the knowledge of CTS and NEWCO, pending or threatened against any of
the officers, directors or employees of CTS or NEWCO with respect to their
businesses or proposed business activities which are material to CTS or
NEWCO, or to which CTS or NEWCO are otherwise a party, or which may affect
either CTS or NEWCO, their assets or their businesses, before any court,
or before any Governmental Authority.
(b) CTS and NEWCO are not subject to any judgment, order or decree
of any court or Governmental Authority; CTS and NEWCO have not received
any opinion or memorandum from legal counsel to the effect that either is
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to their businesses. Neither CTS nor NEWCO are engaged in
any legal action to recover monies due it or them for damages sustained by
either of them.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence.
(a) Between the date of this Agreement and the Closing Date, the
COMPANY will afford to the officers and authorized representatives of CTS
and the Other Founding Companies access during business hours to all of
the COMPANY's sites, properties, books and records and will furnish CTS
with such additional financial and operating data and other information as
to the business and properties of the COMPANY as CTS or the Other Founding
Companies may from time to time reasonably request. The COMPANY will
cooperate with CTS and the Other Founding Companies and their respective
representatives, including CTS's auditors and counsel, in the preparation
of any documents or other material (including the Registration Statement)
which may be required in connection with the transactions contemplated by
this Agreement. CTS, NEWCO, the STOCKHOLDER and the COMPANY will treat all
information obtained in connection with the negotiation and performance of
this Agreement or the due diligence investigations conducted with respect
to the Other Founding Companies as confidential in accordance with the
provisions of Section 14 hereof. In addition, CTS will cause each of the
Other Agreements, binding each of the Other Founding Companies, to contain
a provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees
and agents to keep confidential any information obtained by such Other
Founding Company.
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(b) Between the date of this Agreement and the Closing Date, CTS
will afford to the officers and authorized representatives of the COMPANY
access during business hours to all of CTS's and NEWCO's sites,
properties, books and records and will furnish the COMPANY with such
additional financial and operating data and other information as to the
business and properties of CTS and NEWCO as the COMPANY may from time to
time reasonably request. CTS and NEWCO will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of
this Agreement to be treated as confidential in accordance with the
provisions of Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except as set forth on
Schedule 7.2:
(a) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) maintain and preserve its business organization intact and use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with the
COMPANY;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar Governmental Authorities; and
(g) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such
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replacement instruments are on terms at least as favorable to the COMPANY
as the instruments being replaced.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of CTS:
(a) make any change in its Articles or Certificate of Incorporation
or By-laws;
(b) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(c) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock or engage in
any transaction that will significantly affect the cash reflected on the
balance sheet of the COMPANY as of December 31, 1996.
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditure, except if it is in the
ordinary course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(e) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of
the business of the COMPANY, (2)(A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set forth
in clause (2) being referred to herein as "Statutory Liens"), or (3) liens
set forth on Schedule 5.10 or 5.15 hereto;
(f) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(g) negotiate for the acquisition of any business or the start-up of
any new business;
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(h) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(i) waive any material right or claim of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(j) commit a material breach, materially amend or terminate any
Material Contract;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) except in the ordinary course of business or as required by Law
or contractual obligations or other understandings or arrangements
existing on the date hereof, the COMPANY will not (i) increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of the employees engaged in the
COMPANY's business, (ii) pay or agree to pay any additional pension,
retirement allowance or other employee benefit to any such employee,
whether past or present, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any existing employee
engaged in the COMPANY's business, (iv) amend or enter into a new Plan
(except as required by Law) or amend or enter into a new collective
bargaining agreement (except as required by this Agreement), or (v) engage
in any Affiliate Transaction.
7.4 No Shop. In consideration of the substantial expenditure of time,
effort and expense undertaken by CTS in connection with its due diligence review
and the preparation and execution of this Agreement, the COMPANY and the
STOCKHOLDER agree that neither they nor their representatives, agents or
employees will, after the execution of this Agreement until the earlier of (i)
the termination of this Agreement or (ii) the Closing, directly or indirectly,
solicit, encourage, negotiate or discuss with any third party (including by way
of furnishing any information concerning the COMPANY) any acquisition proposal
relating to or affecting the COMPANY or any part of it, or any direct or
indirect interests in the COMPANY, whether by purchase of assets or stock,
purchase of interests, merger or other transaction ("Acquisition Transaction"),
and that the COMPANY will promptly advise CTS of the terms of any communications
the STOCKHOLDER or the COMPANY may receive or become aware of relating to any
bid for all or any part of the COMPANY.
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7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements. Set forth on
Schedule 7.5 is any and all proof that any such required notice has been sent.
7.6 Agreements. Except as set forth on Schedule 9.7, the STOCKHOLDER and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 9.12 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER, on or prior to the Closing Date. A list
of such agreements to be terminated is set forth on Schedule 7.6 and copies of
each such agreement to be terminated have been provided to counsel for CTS.
7.7 Notification of Certain Matters. The STOCKHOLDER and the COMPANY shall
give prompt notice to CTS of (i) the occurrence or non-occurrence of any event
of which the COMPANY or the STOCKHOLDER has knowledge, the occurrence or
non-occurrence of which, would cause any representation or warranty of the
COMPANY or the STOCKHOLDER contained herein to be untrue or inaccurate in any
material respect at or prior to the Closing and (ii) any material failure of the
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. CTS and
NEWCO shall give prompt notice to the COMPANY of (i) the occurrence or
non-occurrence of any event of which CTS or NEWCO has knowledge, the occurrence
or non-occurrence of which, would cause any representation or warranty of CTS or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Closing and (ii) any material failure of CTS or NEWCO to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules.
(a) Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or
described in the Schedules; provided, however, that supplements and
amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall only
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have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business.
(b) Until 24 hours prior to the anticipated effectiveness of the
Registration Statement, and notwithstanding the foregoing clause (a), the
provisions of this clause (b) shall apply: no amendment or supplement to a
Schedule prepared by the COMPANY or the STOCKHOLDER that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect
on the COMPANY may be made unless CTS and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement;
and provided further, that no amendment or supplement to a Schedule
prepared by CTS or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless a majority of the Founding Companies consent to such amendment
or supplement. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the
Other Agreements, and such amendment or supplement constitutes or reflects
an event or occurrence that would have a Material Adverse Effect on such
Other Founding Company, CTS shall give the COMPANY notice promptly after
it has knowledge thereof. If CTS and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been
deemed given by CTS or any Founding Company if no response is received
from CTS or any such Founding Company within 24 hours following receipt of
notice by CTS or any Founding Company of such amendment or supplement (or
sooner if required by the circumstances under which such consent is
requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.1(d) hereof. In the event
that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and CTS and a majority of the Other Founding Companies do not
consent to such amendment or supplement as provided above, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
12.1(a) hereof. In the event that CTS or NEWCO seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement as
provided above, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(d) hereof.
(c) Between 24 hours prior to the anticipated effectiveness of the
Registration Statement and the Closing Date, the provisions of this clause
(c) shall apply. No amendment or supplement to a Schedule prepared by the
COMPANY or the STOCKHOLDER that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on the COMPANY may be
made unless CTS consents to such amendment or supplement after
consultation with the Underwriters. CTS and NEWCO hereby covenant that
neither CTS nor NEWCO
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will amend or supplement any Schedule prepared by CTS or NEWCO that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on CTS or NEWCO, as the case may be, without consulting
with the Underwriters, and CTS shall provide immediate notice of such
amendment or supplement to the Founding Companies.
(d) For all purposes of this Agreement, including without limitation
for purposes of determining whether the conditions set forth in Sections
8.1 and 9.1 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 7.8.
No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section
7.8, except that, notwithstanding anything to the contrary contained in
this Agreement, if the COMPANY or the STOCKHOLDER on the one hand, or CTS
or NEWCO on the other hand, amends or supplements a Schedule which results
in a termination of this Agreement and such amendment or supplement arises
out of or reflects facts or circumstances which such party knew about at
the time of execution of this Agreement and knew would result in a
termination of this Agreement or if such amendment or supplement otherwise
is proposed in bad faith, such party shall pay or reimburse CTS or the
COMPANY and the STOCKHOLDER, as the case may be, for all of the legal,
accounting and other out of pocket costs reasonably incurred in connection
with this Agreement and the IPO as it relates to the COMPANY and the
STOCKHOLDER.
7.9 Cooperation in Preparation of Registration Statement.
(a) The COMPANY and STOCKHOLDER shall furnish or cause to be
furnished to CTS and the Underwriters all of the information concerning
the COMPANY and the STOCKHOLDER requested by CTS or the Underwriters for
inclusion in, and will cooperate with CTS and the Underwriters in the
preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with GAAP, in form suitable for inclusion in the Registration
Statement). The COMPANY and the STOCKHOLDER agree promptly to advise CTS
if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDER contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates
solely to the COMPANY or the STOCKHOLDER, the COMPANY represents and
warrants as to such information furnished by the COMPANY or the
STOCKHOLDER for use in the Registration Statement with respect to itself,
and
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the STOCKHOLDER represents and warrants, as to such information furnished
by the COMPANY or the STOCKHOLDER for use in the Registration Statement
with respect to the COMPANY and himself or herself, that the Registration
Statement at its effective date, at the date of the final Prospectus, each
preliminary prospectus and each amendment to the Registration Statement,
and at each closing date with respect to the IPO under the Underwriting
Agreement (including with respect to any over-allotment option) will not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(b) CTS agrees that it will use its best efforts to provide to the
COMPANY and its counsel copies of material drafts of the Registration
Statement as they are prepared and to the extent practicable in light of
the timetable of the IPO and the potential need to respond promptly to
SEC, NASD or Nasdaq comments, to give the COMPANY sufficient time to
review and comment upon such documents prior to filing with the SEC. Any
objections posed by the COMPANY or its counsel shall state with
specificity the material in question, the reason for the objection, and
the COMPANY's proposed alternative. If the objection is founded upon a
rule promulgated under the Securities Act, the objection shall cite the
rule. Notwithstanding the foregoing, during the five business days
immediately preceding the date scheduled for the effective date of the
IPO, the COMPANY and the STOCKHOLDER agree that (i) two hours from the
time the proposed changes are transmitted to the COMPANY's counsel if such
transmission is during the COMPANY's normal business hours or (ii) four
hours from the time the proposed changes are transmitted to the COMPANY's
counsel if such transmission is not during the COMPANY's normal business
hours, is sufficient time to review and respond to proposed changes.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and CTS shall have had sufficient time prior thereto to review,
the unaudited consolidated balance sheets of the COMPANY as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statements of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended no earlier than 30 days prior to the Closing Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Such financial statements shall have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods indicated (except
as noted therein), but shall not include all of the footnotes and adjustments
required by GAAP for complete financial statements. Except as noted in such
financial statements, all of such financial statements will present fairly the
results of operations of the COMPANY for the periods indicated thereon.
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7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Approval of Merger Agreement. The STOCKHOLDER agrees to vote all of
its shares of the COMPANY Stock in favor of the Merger and all other
transactions contemplated by this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND THE COMPANY
The obligations of the STOCKHOLDER and the COMPANY with respect to actions
to be taken on the Pre-Closing Date and, to the extent specified in this Section
8, on the Closing Date are subject to the satisfaction or waiver on or prior to
the Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 8. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by the COMPANY and the STOCKHOLDER unless such parties have
objected by notifying CTS in writing of such objection on or before the
Pre-Closing Date or consummation of the transactions on the Closing Date,
respectively, except that no such waiver shall be deemed to affect the survival
of the representations and warranties of CTS and NEWCO contained in Section 6
hereof.
8.1 Representations and Warranties. All representations and warranties of
CTS and NEWCO contained in the Agreement shall be true and correct in all
material respects as of the Pre-Closing Date and the Closing Date as though such
representations and warranties had been made on and as of that date; and a
certificate to the foregoing effect dated the Pre-Closing Date and the Closing
Date and signed by the President or any Vice President of CTS shall have been
delivered to the COMPANY and the STOCKHOLDER.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by CTS and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of CTS shall have been delivered
to the COMPANY and the STOCKHOLDER.
8.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
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8.4 Opinion of Counsel. The STOCKHOLDER shall have received an opinion
from counsel for CTS and NEWCO, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VI.
8.5 Consents and Approvals. All necessary consents of and filings required
to be obtained or made by CTS or NEWCO with any Governmental Authority or agency
relating to the consummation of the transactions contemplated herein shall have
been obtained and made.
8.6 Good Standing Certificates. CTS and NEWCO each shall have delivered to
the COMPANY a certificate, dated as of a date no earlier than 10 days prior to
the Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which CTS or NEWCO is authorized to do business, showing that each of
CTS and NEWCO is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for CTS and NEWCO,
respectively, for all periods prior to the Closing have been filed and paid.
8.7 Consummation of Other Agreements. The Other Agreements shall have been
delivered by each of the Other Companies and each of the Other Agreements and
this Agreement shall be in effect immediately prior to the Merger.
8.8 Secretary's Certificate. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and the Closing Date and signed by
the secretary of CTS and of NEWCO, certifying the truth and correctness of
attached copies of the CTS's and NEWCO's respective Certificates of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of CTS and NEWCO approving CTS's and NEWCO's entering into this
Agreement and the consummation of the transactions contemplated hereby.
8.9 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF CTS AND NEWCO
The obligations of CTS and NEWCO with respect to actions to be taken on
the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date or the
Closing Date, as the case may be, all conditions not satisfied shall be
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deemed to have been waived by CTS and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDER in writing of such objection on or
before the Pre-Closing Date or consummation of the transactions on the Closing
Date, respectively, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY and the
STOCKHOLDER contained in Section 5 hereof.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDER and the COMPANY contained in this Agreement shall be true and
correct in all material respects as of the Pre-Closing Date and the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date; and the STOCKHOLDER shall have delivered to CTS
certificates dated the Pre-Closing Date and the Closing Date and signed by them
to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDER and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDER shall have delivered to CTS certificates dated the Pre-Closing Date
and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
Governmental Authority or body shall have been instituted or threatened to
restrain or prohibit the Merger or the IPO.
9.4 Secretary's Certificate. CTS shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the shareholders approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect on the COMPANY, and the
COMPANY shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDER's Release. The STOCKHOLDER shall have delivered to CTS an
instrument dated the Closing Date releasing the COMPANY from
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any and all (i) claims prior to the Closing Date of the STOCKHOLDER against the
COMPANY and CTS and (ii) obligations prior to the Closing Date, of the COMPANY
and CTS to the STOCKHOLDER, except for (x) items specifically identified on
Schedules 5.10 and 5.15 as being claims of or obligations to the STOCKHOLDER,
(y) continuing obligations to the STOCKHOLDER relating to his employment by the
COMPANY and (z) obligations arising under this Agreement or the transactions
contemplated hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. CTS shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDER, dated the Pre-Closing Date and including a
statement to the effect that it may be relied upon as of the Closing Date,
substantially in the form annexed hereto as Annex VII, which form shall be
deemed to include any additional opinions by such counsel or separate counsel
retained by the COMPANY covering matters customary under the circumstances,
including, without limitation, opinions covering the COMPANY's intellectual
property, and the Underwriters shall have received a copy of the same opinion
addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
Governmental Authority relating to the consummation of the transactions
contemplated herein shall have been obtained and made and all consents and
approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to CTS a
certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate Governmental Authority in the
COMPANY's state of incorporation and, unless waived by CTS, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act, or
any state securities laws, and the Underwriters shall have agreed to acquire on
a firm commitment basis, subject to the conditions set forth in the Underwriting
Agreement, shares of CTS Stock at a price to the public acceptable to CTS.
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9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement substantially in the form of
Annex I hereto.
9.13 Closing of IPO. The closing of the sale of the CTS Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. The STOCKHOLDER shall have delivered to CTS a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1. 1445-2(b) of the Treasury regulations.
9.15 Consummation of Other Agreements. The Other Agreements shall have
been delivered by each of the Other Companies and each of the Other Agreements
and this Agreement shall be in effect immediately prior to the Merger.
9.16 A/R Aging Reports. Within ten (10) days prior to Closing, the COMPANY
shall have provided CTS (x) an accurate list of all outstanding receivables
obtained subsequent to the Balance Sheet Date and as of a date which is within
10 calendar days of the Closing Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports").
9.17 Current Ratio. The COMPANY will have a Current Ratio of no less than
2.00:1.00.
9.18 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall have been approved by counsel to CTS.
10. COVENANTS OF CTS AND THE STOCKHOLDER AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. CTS shall
use its best efforts to have the STOCKHOLDER released from any and all
guarantees on any indebtedness that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by CTS, if necessary to achieve such releases. In the event that CTS cannot
obtain such releases from the lenders of any such guaranteed indebtedness on or
prior to 180 days subsequent to the Closing Date, CTS shall pay off or otherwise
refinance or retire such indebtedness.
10.2 Preservation of Tax and Accounting Treatment. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, CTS
shall not and shall not permit any of its subsidiaries to undertake any act that
would
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jeopardize the tax-free status of the organization, including liquidating or
merging the COMPANY into CTS.
10.3 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Closing Date. The STOCKHOLDER shall pay or cause to be paid
all Tax liabilities (in excess of all amounts already paid with respect
thereto or properly accrued or reserved with respect thereto on the
COMPANY Financial Statements) shown by such Returns to be due.
(b) CTS shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(d) Each of the COMPANY, NEWCO, CTS and the STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax
free transfer of property under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of CTS, as and
to the extent set forth in the Registration Statement, promptly following the
Closing Date. For a period of two years after the Closing Date, the STOCKHOLDER
shall have the right to nominate a majority of the members to serve on the
COMPANY's Board of Directors; provided, that, (i) at the time of such nomination
the STOCKHOLDER is employed by either CTS or the COMPANY and (ii) CTS has
consented to such nominees, whose consent will not be
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unreasonably withheld. CTS agrees to vote all of its shares of COMPANY Stock for
such nominees, subject to the proviso of the preceding sentence.
10.5 Preservation of Employee Benefit Plans. Following the Closing Date,
CTS shall not terminate any health insurance, life insurance, 401(k) or any
other Benefit Plan in effect at the COMPANY until such time as CTS is able to
replace such Benefit Plan with a Plan that is applicable to CTS and all of its
then existing subsidiaries. CTS shall have no obligation to provide replacement
Plans that have the same terms and provisions as the existing Benefit Plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 Rule 144. For a period of two years after the Closing Date, CTS shall
take all actions that are within its powers and that are reasonably necessary to
make Rule 144 promulgated under the 1933 Act available to the STOCKHOLDER.
10.7 Authorization of Shares. CTS agrees to take all actions as may be
necessary from time to time to reserve an adequate number of shares of CTS Stock
to pay the stock portion of the consideration to the STOCKHOLDER pursuant to
Annex III hereof.
11. INDEMNIFICATION
The STOCKHOLDER, CTS and NEWCO each make the following covenants that are
applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDER. The STOCKHOLDER covenants
and agrees that it will indemnify, defend, protect and hold harmless CTS, NEWCO,
the COMPANY and the Surviving Corporation at all times, from and after the date
of this Agreement until the Expiration Date, from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and reasonable expenses of investigation) incurred by CTS,
NEWCO, the COMPANY or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the STOCKHOLDER or the
COMPANY set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
STOCKHOLDER or the COMPANY under this Agreement, (iii) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the COMPANY or the STOCKHOLDER,
and provided to CTS or its counsel by the COMPANY or the STOCKHOLDER for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission by the COMPANY and/or the
STOCKHOLDER
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to state therein a material fact relating to the COMPANY or the STOCKHOLDER
required to be stated therein or necessary to make the statements therein not
misleading, (iv) the matters described on Schedule 11.1(iv) or (v) any Tax
imposed upon or relating to any third party or Acquired Party for a pre-Closing
Date period, including, in each case, any such Tax arising out of or in
connection with the transactions effected pursuant to this Agreement or any such
Tax for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury Regulations (or any similar provisions of state, local or foreign law),
as a transferee or successor, by contract or otherwise; provided, however, that
in the case of any indemnity arising pursuant to clause (iii) such indemnity
shall not inure to the benefit of CTS, NEWCO, the COMPANY or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the STOCKHOLDER provided, in writing, corrected
information to CTS counsel and to CTS for inclusion in the final prospectus, and
such information was not so included or properly delivered.
11.2 Indemnification by CTS. CTS covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDER at all times from
and after the date of this Agreement until the eighteenth month anniversary of
the Closing Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDER as a result of or arising from (i)
any breach by CTS or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of CTS or NEWCO under this
Agreement, (iii) any liability which the STOCKHOLDER may incur due to CTS's or
NEWCO's failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 10.1 hereof (except to the extent that CTS or
NEWCO has claims against the STOCKHOLDER by reason of such liabilities); (iv)
any liability to a Person not a party to this Agreement (a "Third Person") under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to CTS or NEWCO for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to CTS or NEWCO required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, in the case of any indemnity arising pursuant to clause (iv) such
indemnity shall not inure to the benefit of the STOCKHOLDER if any such claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses incurred by the STOCKHOLDER are based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by the STOCKHOLDER for use in the preliminary
prospectus, Registration Statement or any
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prospectus forming a part thereof, or any amendment thereof or supplement
thereto unless the STOCKHOLDER provided, in writing, corrected information to
CTS counsel and to CTS for inclusion in the final prospectus to the Registration
Statement, and such information was not so included or properly delivered by CTS
(or its representative).
In the event the breach relates to the representation contained in Section
6.5 concerning the absence of options, rights (preemptive or otherwise),
warrants, calls, convertible securities or commitments or any other arrangements
dealing with CTS Stock as set forth in Section 6.5 (a "CTS Security Right") and
the existence of an undisclosed CTS Security Right will dilute the CTS capital,
the stockholders of the Founding Company whose representation caused the breach
of Section 6.5 shall suffer such dilution proportionately to the number of
shares of CTS Stock owned by each of them.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Third Person or of the commencement of any action or proceeding by a Third
Person, the Indemnified Party shall, as a condition precedent to a claim with
respect thereto being made against any party obligated to provide
indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter the
"Indemnifying Party"), give the Indemnifying Party written notice of such claim
or the commencement of such action or proceeding. Such notice shall state the
nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party, such consent not to be unreasonably
withheld or delayed. If the Indemnifying Party undertakes to defend or settle,
it shall promptly notify the Indemnified Party of its intention to do so, and
the Indemnified Party shall cooperate, at the Indemnifying Party's expense, with
the Indemnifying Party and its counsel in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall endeavor to use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest in the opinion of such counsel that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel and experts. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth
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in the preceding sentence and (ii) to the extent such participation is requested
by the Indemnifying Party, in which event the Indemnified Party shall be
reimbursed by the Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses. If the Indemnifying Party desires to accept a final
and complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement to said Third Person, plus all indemnifiable
costs and expenses incurred to date, the Indemnifying Party shall be relieved of
its duty to defend and shall tender the Third Person claim back to the
Indemnified Party, who shall thereafter, at its own expense, be responsible for
the defense and negotiation of such Third Person claim. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any Tax benefits, Tax detriments or
insurance proceeds in determining the amount of any indemnification obligation
under this Section, provided that no Indemnifying Party shall be obligated to
seek any payment pursuant to the terms of any insurance policy.
11.4 Exclusive Remedy. Except as provided in Section 11.5(b) or Section
14.3 hereof, the indemnification provided for in this Section 11 shall (except
as prohibited by ERISA) be the exclusive remedy in any action seeking damages or
any other form of monetary relief brought by any party to this Agreement against
another party, provided that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement or to seek relief for a breach of any employment agreement with,
or any stock option issued by, CTS.
11.5 Limitations on Indemnification. (a) CTS, NEWCO, the Surviving
Corporation and the other Persons or entities indemnified pursuant to Section
11.1 (other than the STOCKHOLDER) shall not assert any claim other than a Third
Person claim for indemnification hereunder against the STOCKHOLDER until such
time as, and solely to the extent that, the aggregate of all claims which such
Persons may have against the STOCKHOLDER shall exceed 1.0% of the sum of (i) the
cash paid to the STOCKHOLDER plus (ii) the value (determined in accordance with
Section 11.5(c) hereof) of the CTS Stock delivered to the STOCKHOLDER (the
"Indemnification
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Threshold"); provided, however, that CTS, NEWCO, the Surviving Corporation and
the other Persons or entities indemnified pursuant to Section 11.1 (other than
the STOCKHOLDER) may assert and shall be indemnified for any claim under Section
11.1(iv) or 11.1(v) at any time, regardless of whether the aggregate of all
claims which such Persons may have against the STOCKHOLDER exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold. The STOCKHOLDER shall not assert any claim for
indemnification hereunder against CTS, NEWCO, the Surviving Corporation or the
other Persons set forth in Section 11.1 (other than the STOCKHOLDER) until such
time as, and solely to the extent that, the aggregate of all claims which the
STOCKHOLDER may have against any of such Persons exceeds $100,000. No Person
shall be entitled to indemnification under this Section 11 if and to the extent
that such Person's claim for indemnification is directly or indirectly related
to a breach by such Person of any representation, warranty, covenant or other
agreement set forth in this Agreement.
(b) CTS shall have the right, upon written notice, to offset
indemnification amounts due to it pursuant to this Agreement against payments
due to the STOCKHOLDER under (i) this Agreement (including, without limitation,
the consideration set forth on Annex III hereto) and/or (ii) any contract
contemplated by, or referred to in, this Agreement.
(c) Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of CTS Stock, or a combination thereof. For purposes of
calculating the value of the CTS Stock received or delivered by the STOCKHOLDER
(for purposes of determining the Indemnification Threshold and the amount of any
indemnity paid), CTS Stock shall be valued at its initial public offering price
as set forth in the Registration Statement.
(d) Notwithstanding any other term of this Agreement (except the proviso
to this sentence), the STOCKHOLDER shall not be liable under this Section 11 for
an amount which exceeds the amount of proceeds received by the STOCKHOLDER in
connection with the Merger, such proceeds to be equal to the sum of (i) the cash
paid to the STOCKHOLDER (ii) the additional consideration, if any, earned by the
STOCKHOLDER pursuant to Annex III hereof, and (iii) the value of the CTS Stock
delivered to the STOCKHOLDER (determined in accordance with Section 11.5(c)
hereof); provided, that the STOCKHOLDER's indemnification obligations pursuant
to Sections 11.1(iv) and (v) shall not be limited.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
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(a) by mutual consent of the boards of directors of CTS and the
COMPANY;
(b) by the STOCKHOLDER or the COMPANY (acting through its board of
directors), on the one hand, or by CTS (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, unless the failure of such transactions to be
consummated is due to the willful failure of the party seeking to
terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(c) by the STOCKHOLDER or the COMPANY, on the one hand, or by CTS,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants, agreements or conditions contained herein, and the
curing of such default shall not have been made on or before the Closing
Date; or
(d) pursuant to Section 7.8 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof. the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDER acknowledges and agrees to
be bound by the noncompetition terms and provisions set forth in the
employment agreement referred to in Section 8.9 hereof.
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13.2 Damages. Because of the difficulty of measuring economic losses to
CTS as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to CTS for which it would
have no other adequate remedy, the STOCKHOLDER agrees that, in the event of
breach by the STOCKHOLDER, the foregoing covenant may be enforced by CTS by
injunctions and restraining orders.
13.3 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the STOCKHOLDER
against CTS (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by CTS
of such covenants.
13.4 Materiality. The COMPANY and the STOCKHOLDER hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
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14.1 STOCKHOLDER. The STOCKHOLDER recognizes and acknowledges that it had
in the past, currently has, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
CTS, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or CTS's respective businesses. The STOCKHOLDER agrees that it
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of CTS or the Other Founding Companies
who need to know information in connection with the transactions contemplated
hereby, who have been informed of the confidential nature of such information
and who have agreed to keep such information confidential as provided hereby,
(b) following the Closing, such information may be disclosed by the STOCKHOLDER
as is required in the course of performing its duties for CTS or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of the STOCKHOLDER, (ii) disclosure is required by law or the order of
any Governmental Authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDER shall,
if possible, give prior written notice thereof to CTS and provide CTS with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event the transactions contemplated
by this Agreement are not consummated, the STOCKHOLDER shall have none of the
above-mentioned restrictions on his ability to disseminate confidential
information with respect to the COMPANY.
14.2 CTS AND NEWCO. CTS and NEWCO recognize and acknowledge that they had
in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. CTS and NEWCO agree that, prior to the Closing, or if the
Transactions contemplated by this Agreement are not consummated, they will not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
the STOCKHOLDER and to authorized representatives of the COMPANY, (b) to counsel
and other advisers, provided that such advisors (other than counsel) agree to
the confidentiality provisions of this Section 14.2 and (c) to the Other
Founding Companies and their representatives pursuant to Section 7. 1 (a),
unless (i) such information becomes known to the public generally through no
fault of CTS or NEWCO, (ii) disclosure is required by law or the order of any
Governmental Authority under color of law; provided, that, prior to disclosing
any information pursuant to this clause (ii), CTS and NEWCO shall, if possible,
give prior written notice thereof to the COMPANY and the STOCKHOLDER and provide
the COMPANY and the STOCKHOLDER with the opportunity to contest such disclosure,
or (iii) the disclosing
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party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by CTS or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDER shall be entitled to an injunction restraining CTS
and NEWCO from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting the COMPANY and the STOCKHOLDER
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
Nothing herein shall be construed as prohibiting a party hereto from pursuing
any other available remedy for such breach or threatened breach of Sections 14.1
and 14.2, including the recovery of damages.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Closing Date.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of one year from the Closing
Date, except pursuant to Section 16 hereof, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose of (a) any shares of CTS Stock received by the STOCKHOLDER pursuant to
the terms hereunder or (b) any interest (including, without limitation, an
option to buy or sell) in any such shares of CTS Stock, in whole or in part, and
no such attempted transfer shall be treated as effective for any purpose; or
(ii) engage in any transaction, whether or not with respect to any shares of CTS
Stock or any interest therein, the intent or effect of which is to reduce the
risk of owning the shares of CTS Stock acquired pursuant to Section 2 hereof
(including, by way of example and not limitation, engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, the STOCKHOLDER may (x) transfer shares of CTS Stock to immediate
family members (or trusts for the benefit of the STOCKHOLDER or family members,
the trustees of which so agree) or (y) encumber or pledge any of such shares of
CTS Stock; provided, that the family member, trust, trustee, pledgee or other
beneficiary of such transfer, encumbrance or pledge, as the case may be, agrees
in writing prior to such transaction to be bound by (1) the provisions of this
Section as if the STOCKHOLDER and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a STOCKHOLDER and party hereto. The
certificates evidencing the CTS Stock delivered to the STOCKHOLDER pursuant to
Section 3 of this Agreement will bear a legend
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substantially in the form set forth below and containing such other information
as CTS may deem necessary or appropriate:
EXCEPT AS PROVIDED BY THAT CERTAIN AGREEMENT AND PLAN OF ORGANIZATION, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC
INSPECTION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE FIRST ANNIVERSARY OF
THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE,
THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever CTS proposes to register any CTS Stock for its own or others'
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by CTS, (ii) registrations relating to Plans and (iii)
registrations relating to rights offerings made to the stockholders of CTS, CTS
shall give the STOCKHOLDER prompt written notice of its intent to do so. Upon
the written request of the STOCKHOLDER given within 30 days after receipt of
such notice, CTS shall cause to be included in such registration all of the CTS
Stock issued to the STOCKHOLDER pursuant to this Agreement which any such
STOCKHOLDER requests, provided that CTS shall have the right to reduce the
number of shares included in such registration to the extent that inclusion of
such shares could, in the opinion of tax counsel to CTS or its independent
auditors, jeopardize the status of the transactions contemplated hereby and by
the Registration Statement as a tax-free organization. In addition, if CTS is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 16.1 that the number of shares to be sold by persons other
than CTS is greater than the number of such shares which can be offered without
adversely affecting the offering, CTS may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
proposed to be sold by each such person) to a number deemed satisfactory by such
managing underwriter, provided, that, for each such offering made by CTS after
the IPO, such reduction shall be made first by reducing the number of shares to
be sold by persons other than CTS, the STOCKHOLDER and the stockholders of the
Other Founding Companies (collectively, the STOCKHOLDER and the stockholders of
the Other Founding
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Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing pro rata the number
of shares to be sold by the Founding Stockholders.
16.2 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 16 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts with respect to any CTS Stock sold on behalf of the
STOCKHOLDER), shall be borne by CTS. In connection with registrations under
Section 16.1, CTS shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the CTS Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 120 days (or such shorter
period during which stockholders of the Founding Companies shall have sold all
CTS Stock which they requested to be registered); (ii) use its best efforts to
register and qualify the CTS Stock covered by such registration statement under
applicable state securities laws as the holders shall reasonably request for the
distribution of the CTS Stock; (iii) take all actions necessary to have the CTS
Stock covered by such registration listed or quoted on the exchange or automated
quotation system on which the CTS Stock trades at the time of registration; (iv)
take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder; and (v) make
available its general counsel to advise the STOCKHOLDER and provide the legal
opinions required under the purchase agreement used in connection with the
registrations under this Section 16.
16.3 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 covering an underwritten registered public offering, CTS and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of CTS's size and investment stature,
including indemnification provisions.
16.4 Availability of Rule 144. CTS shall not be obligated to register
shares of CTS Stock held by the STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any successor provision) promulgated under the
1933 Act are available to the STOCKHOLDER for such shares.
16.5 Market Standoff. In consideration of the granting to the STOCK HOLDER
of the registration rights under this Section 16, the STOCKHOLDER agrees that it
will not sell, transfer or otherwise dispose of, including without limitation
through put or short sale arrangements, shares of CTS Stock in the 10 days prior
to the effectiveness of any registration of CTS Stock for sale to the public and
for up to 90 days following the effectiveness of such registration, provided,
that: (i) all directors, executive officers and holders of more than five
percent of the outstanding CTS Stock agree to the
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same restrictions; (ii) with respect to the first public offering of shares of
the CTS Stock within three years following the IPO, the STOCKHOLDER shall have
been afforded a meaningful opportunity to include shares in such registration
after any reduction by reason of underwriters' advice; and (iii) CTS has not
exercised its rights to delay under this Section 16.5 more than once in any 12
month period.
17. GENERAL
17.1 Cooperation. The COMPANY, the STOCKHOLDER, CTS and NEWCO shall each
deliver or cause to be delivered to the other on the Closing Date, and at such
other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The STOCKHOLDER will cooperate and use his reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
CTS on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
17.2 Successors and Assigns. During the period payments are to be made to
the STOCKHOLDER pursuant to Annex III hereof, this Agreement and the rights of
the parties hereunder may not be assigned (including by operation of law) and
shall be binding upon and shall inure to the benefit of the parties hereto, the
successors of CTS, and the heirs and legal representatives of the STOCKHOLDER;
provided, however, that this Agreement and the rights of the parties hereunder
may be assigned if the assignee is a company whose capital stock is traded on
the Nasdaq Stock Market, the New York Stock Exchange or the American Stock
Exchange.
17.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDER, the
COMPANY, NEWCO and CTS and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDER, the COMPANY, NEWCO and CTS,
acting through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY and the STOCKHOLDER shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
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17.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
17.5 Brokers and Agents. Except as disclosed on Schedule 17.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
17.6 Expenses.
(a) Whether or not the transactions herein contemplated shall be
consummated, CTS will pay the fees, expenses and disbursements of CTS and
its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by CTS under this
Agreement, including the fees and expenses of Price Waterhouse LLP,
Xxxxxx, Xxxxx & Xxxxxxx LLP, and any other person or entity retained by
CTS, and the costs of preparing the Registration Statement.
(b) If the transactions herein contemplated shall not be
consummated, the Company shall pay the fees, expenses and disbursements of
the STOCKHOLDER, the COMPANY and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of
this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to
be performed by the COMPANY and the STOCKHOLDER under this Agreement,
including the fees and expenses of legal counsel to the COMPANY and the
STOCKHOLDER.
(c) If the transaction herein contemplated is consummated, CTS will
pay the fees, expenses, and disbursements of the STOCKHOLDER and the
COMPANY as described in (b), above.
(d) The STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar
taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby. The STOCKHOLDER shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In
addition, the STOCKHOLDER acknowledges that he, and not the COMPANY or
CTS, will pay all Taxes due upon receipt of the consideration payable
pursuant to Section 2 hereof, and will
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assume all Tax risks and liabilities of the STOCKHOLDER in connection with
the transactions contemplated hereby.
17.7 Notices. All notices or communications required or permitted
hereunder shall be in writing and shall be deemed to have been given when
personally delivered or upon receipt if sent by first class certified mail,
return receipt requested or the next business day if sent by telefax (receipt
confirmed and followed up by one of the other delivery methods discussed herein
as well), or upon delivery if sent by express mail, in each case postage prepaid
and addressed as follows:
(a) If to CTS, or NEWCO:
0000 Xxxxxx Xxxxxxxxx
Xxxxx 000
XxXxxx, Xxxxxxxx 00000
with copies to:
The Commonwealth Group
0000 Xxxxxx Xxxxxxxxx
Xxxxx 000
XxXxxx, Xxxxxxxx 00000
and
Xxxxxx, Xxxxx & Bockius LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxxxxxx X. Xxxxxx, Esq.
(b) If to the STOCKHOLDER, addressed to him at his address set forth
on Annex IV, with copies to his counsel as is set forth with respect to
the STOCKHOLDER on such Annex IV;
(c) If to the COMPANY:
Management Support Technology, Corp.
0 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxxxxx 00000
Attn: Mr. C. Xxxxxxxx Xxxxxx
and marked "Personal and Confidential"
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with copies to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxx X. Fine, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 17.7 from time to time.
17.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein within the purview
of the matters covered by the General Corporation Law of the State of Delaware
shall be governed by such General Corporation Law, in each case without
reference to conflicts of laws principles.
17.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
17.10 Time. Time is of the essence with respect to this Agreement.
17.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
17.12 Remedies Cumulative. Except as provided in Section 11.4 of this
Agreement, no right, remedy or election given by any term of this Agreement
shall be deemed exclusive but each shall be cumulative with all other rights,
remedies and elections available at law or in equity.
17.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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17.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of CTS, NEWCO, the COMPANY and the STOCKHOLDER. Any amendment or
waiver effected in accordance with this Section 17.14 shall be binding upon each
of the parties hereto, any other person receiving CTS Stock in connection with
the Merger and each future holder of such CTS Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CONDOR TECHNOLOGY SOLUTIONS, INC.
By: /s/ Xxxxxxx X. Xxxx
---------------------------------
Name: Xxxxxxx X. Xxxx
Title: President and Chief Executive Officer
MST ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxx
---------------------------------
Name: Xxxxxxx X. Xxxx
Title: President and Chief Executive Officer
MANAGEMENT SUPPORT TECHNOLOGY
CORP.
By: /s/ C. Xxxxxxxx Xxxxxx
---------------------------------
Name: C. Xxxxxxxx Xxxxxx
Title: President
STOCKHOLDER:
/s/ C. Xxxxxxxx Xxxxxx
------------------------------------
Name: C. Xxxxxxxx Xxxxxx
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDER
(1) Total consideration to be paid to the STOCKHOLDER on the Closing Date:
$9,750,000 in cash and $7,850,000/IPO price per share shares of CTS
Stock.
(2) At the Closing, CTS shall grant options equal to 1.3333% of the
shares of CTS outstanding (giving effect to the Closing) under the
terms of the 1997 Long-Term Incentive Plan of CTS, such options to
be granted with an exercise price equal to the IPO price and vesting
provisions equal to other options being granted to executives of
CTS, and to be allocated to the employees of MST, including
Mr. C. Xxxxxxxx Xxxxxx, as may be designated in writing to CTS prior
to the Closing by Xx. Xxxxxx.
(3) Contingent consideration of up to $8,400,000 will be paid to the
STOCKHOLDER contingent on the 1998, 1999 and 2000 financial performance of
the COMPANY. Contingent consideration (if earned) is being offered herein
in view of the differences of opinion between CTS and the STOCKHOLDER
regarding the value of the COMPANY's business, including without limitation
its growth rate, sustainability of customer base and operating margins.
Accordingly, the contingent portion of the consideration (if any) will
enable the total consideration to be based on the actual value of the
COMPANY's business.
The following details the potential contingent consideration for the
COMPANY:
Annual Cumulative Annual Cumulative
Pre-tax Pre-tax Pre-tax Pre-tax
Conditions Income Target* Income Target* Income Threshold* Income Threshold*
----------------------------------------------------------------------------------------
1998 Cumulative Earn-out $3,464,000 $3,464,000 $2,750,000 $2,750,000
earn-out Consideration cannot
exceed $4,700,000
1999 Cumulative Earn-out $4,330,000 $7,794,000 $3,079,000 $5,829,000
earn-out Consideration cannot
exceed $8,400,000
2000 Cumulative Earn-out $4,330,000 $12,124,000 $3,000,000 $8,829,000
earn-out Consideration cannot
exceed $8,400,000
Basis of Earn-out Calculation %Cash / %Equity Consideration Cumulative Consideration
-------------------------------------------------------------------------------------------------
1998 4.27 x Cumulative Pre-tax 30% $3,052,214 $20,652,214
earn-out Income over Cumulative Threshold 70%
1999 4.27 x Cumulative Pre-tax Income over 30% $5,347,786 $26,000,000
earn-out Cumulative Threshold less 70%
1998 earn-out
2000 4.27 x Cumulative Pre-tax Income over 30% -- $26,000,000
earn-out Cumulative Threshold less 1998 70%
& 1999 earn-outs
* Pre-tax Income shall be calculated as follows:
(i) January 1, 1998 through December 31, 1998: Pre-tax Income
shall equal the COMPANY's earnings after interest,
depreciation and amortization, but before Federal and state
taxes for the period from January 1, 1998 through December 31,
1998, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in
the Registration Statement, but without giving effect to (x)
any intercompany costs or charges imposed by CTS for services
provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and
independently paid by the COMPANY, including, without
limitation, audit fees, insurance costs, and general overhead)
or (y) the amortization of intangible assets resulting from
the transactions contemplated by the Agreement.
Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services
or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
(ii) January 1, 1999 through December 31, 1999: Pre-tax
Income shall equal the COMPANY's earnings after interest,
depreciation and amortization, but before Federal and state
taxes for the period from January 1, 1999 through December 31,
1999, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in
the Registration Statement, but without giving effect to (x)
any intercompany costs or charges imposed by CTS for services
provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and
independently paid by the COMPANY, including, without
limitation, audit fees, insurance costs, and general overhead)
or (y) the amortization of intangible assets resulting from
the transactions contemplated by the Agreement.
Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services
or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
(iii) January 1, 2000 through December 31, 2000: Pre-tax
Income shall equal the COMPANY's earnings after interest,
depreciation and amortization, but before Federal and state
taxes for the period from January 1, 2000 through December 31,
2000, calculated in accordance with GAAP in the manner applied
in the audited financial statements of the COMPANY included in
the Registration Statement, but without giving effect to (x)
any intercompany costs or charges imposed by CTS for services
provided to the COMPANY (other than charges for services
provided by CTS that were previously arranged for and
independently paid by the COMPANY, including, without
limitation, audit fees, insurance costs, and general overhead)
or (y) the amortization of intangible assets resulting from
the transactions contemplated by the Agreement.
Notwithstanding the foregoing, Pre-tax Income for such period
shall include all costs or other charges imposed for services
or products provided by CTS to the COMPANY for use in
connection with the servicing of the COMPANY's customers.
The equity to be delivered hereunder shall be valued at a per
share price equal to one-tenth (1/10) of the sum of the
closing price per share of the CTS Stock as reported by the
"Exchange" (as defined in Section 3(a)(1) of the 0000 Xxx) on
which the CTS Stock is traded at the close of each of the last
ten business days immediately prior to the date the contingent
consideration is paid. If the CTS Stock is not traded on any
Exchange, then the value of the equity shall be determined by
one appraiser selected upon mutual agreement of CTS and the
STOCKHOLDER, whose fees and expenses shall be paid one-half by
CTS and one-half by the STOCKHOLDER.
(3) The equity and cash delivered hereunder shall be delivered to the
STOCKHOLDER no later than 30 days after CTS has received from its
independent accountants audited consolidated financial statements
for CTS.
