EXECUTION COPY
AGREEMENT AND PLAN OF CONTRIBUTION
BY AND AMONG
REALTY INFORMATION GROUP (DELAWARE), INC.
AND
REALTY INFORMATION GROUP, INC.
AND
REALTY INFORMATION GROUP, L.P.
AND
XXXXXXX RESEARCH, INC.
AND
THE STOCKHOLDERS OF XXXXXXX RESEARCH, INC.
DATED FEBRUARY 17, 1998
TABLE OF CONTENTS
ARTICLE I.
PLAN OF CONTRIBUTION...........................................................2
1.1 THE CONTRIBUTION.............................................2
1.2 CONSIDERATION................................................2
1.3 POST-CLOSING ADJUSTMENT. ....................................3
1.4 PLEDGED ASSETS...............................................4
1.5 STOCKHOLDERS' REPRESENTATIVE.................................5
1.6 ACCOUNTING TERMS.............................................6
ARTICLE II.
CLOSING........................................................................6
2.1 LOCATION AND DATE............................................6
2.2 DELIVERIES...................................................6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS...................................................................7
3.1 DUE ORGANIZATION.............................................7
3.2 AUTHORIZATION; VALIDITY......................................7
3.3 NO CONFLICTS.................................................8
3.4 CAPITAL STOCK OF THE COMPANY.................................8
3.5 TRANSACTIONS IN CAPITAL STOCK; ACCOUNTING TREATMENT..........8
3.6 SUBSIDIARIES STOCK...........................................9
3.7 COMPLETE COPIES OF MATERIALS.................................9
3.8 COMPANY FINANCIAL CONDITIONS.................................9
3.9 FINANCIAL STATEMENTS........................................10
3.10 LIABILITIES AND OBLIGATIONS.................................10
3.11 BOOKS AND RECORDS...........................................11
3.12 BANK ACCOUNTS; POWERS OF ATTORNEY...........................11
3.13 ACCOUNTS AND NOTES RECEIVABLE...............................11
3.14 PERMITS.....................................................12
3.15 REAL PROPERTY...............................................12
3.16 PERSONAL PROPERTY...........................................13
3.17 INTELLECTUAL PROPERTY.......................................13
3.18 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS...15
3.19 PREDECESSOR STATUS; ETC.....................................16
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3.20 INSURANCE...................................................16
3.21 ENVIRONMENTAL MATTERS.......................................16
3.22 LABOR AND EMPLOYMENT MATTERS................................17
3.23 EMPLOYEE BENEFIT PLANS......................................18
3.24 TAXES.......................................................19
3.25 CONFORMITY WITH LAW; LITIGATION.............................21
3.26 ABSENCE OF CLAIMS AGAINST COMPANY...........................22
3.27 ABSENCE OF CHANGES..........................................22
3.28 DISCLOSURE..................................................24
3.29 SECURITIES REPRESENTATIONS..................................24
3.30 NO KNOWLEDGE OF RIG PARTY BREACHES..........................24
ARTICLE IV.
REPRESENTATIONS OF THE RIG PARTIES...........................................25
4.1 DUE ORGANIZATION............................................25
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS......................25
4.3 NO CONFLICTS................................................25
4.4 CAPITALIZATION OF PARENT AND OWNERSHIP OF PARENT STOCK......26
4.5 FINANCIAL STATEMENTS........................................26
4.6 LIABILITIES AND OBLIGATIONS.................................27
4.7 PERMITS.....................................................27
4.8 INTELLECTUAL PROPERTY.......................................28
4.9 ENVIRONMENTAL MATTERS.......................................29
4.10 INSURANCE...................................................29
4.11 TAXES.......................................................30
4.12 CONFORMITY WITH LAW; LITIGATION.............................30
4.13 ABSENCE OF CHANGES..........................................31
4.14 NO KNOWLEDGE OF XXXXXXX BREACHES............................31
ARTICLE V.
COVENANTS.....................................................................31
5.1 TAX MATTERS. ...............................................31
5.2 EMPLOYEE BENEFIT PLANS......................................32
5.3 RELATED PARTY AGREEMENTS....................................33
5.4 COOPERATION.................................................33
5.5 ACCESS TO INFORMATION; PUBLIC DISCLOSURE....................33
5.6 CONDUCT OF BUSINESS PENDING CLOSING.........................34
5.7 PROHIBITED ACTIVITIES.......................................34
5.8 NOTIFICATION OF CERTAIN MATTERS.............................36
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5.9 SALES OF PARENT COMMON STOCK; REGISTRATION RIGHTS. .........37
5.10 IPO.........................................................37
5.11 GUARANTEE...................................................37
5.14 GUARANTEED LOAN.............................................38
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE RIG PARTIES........................38
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS..38
6.2 NO LITIGATION...............................................39
6.3 NO MATERIAL ADVERSE CHANGE..................................39
6.4 CONSENTS AND APPROVALS......................................39
6.5 OPINION OF COUNSEL..........................................39
6.6 COMPANY CHARTER DOCUMENTS...................................39
6.7 OTHER AGREEMENTS............................................39
6.8 DUE DILIGENCE REVIEW........................................39
6.9 REGISTRATION STATEMENT......................................40
6.10 IPO.........................................................40
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY...............................................................40
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS..40
7.2 NO LITIGATION...............................................40
7.3 CONSENTS AND APPROVALS......................................41
7.4 OTHER AGREEMENTS............................................41
7.5 REGISTRATION STATEMENT......................................41
7.6 IPO.........................................................41
7.7 OTHER TRANSACTIONS..........................................41
7.8 LOAN ASSUMPTION.............................................41
ARTICLE VIII.
INDEMNIFICATION...............................................................42
8.1 INDEMNIFICATION BY THE STOCKHOLDERS AND THE COMPANY.........42
8.2 INDEMNIFICATION BY PARENT...................................42
8.3 LIMITATION AND EXPIRATION...................................43
8.4 INDEMNIFICATION PROCEDURES..................................44
8.5 EFFECTIVENESS OF REPRESENTATIONS WARRANTIES. ...............46
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8.6 REMEDIES....................................................46
8.7 SET OFF.....................................................46
8.8 SPECIAL TAX PROVISION.......................................46
ARTICLE IX.
NONCOMPETITION................................................................47
9.1 PROHIBITED ACTIVITIES.......................................47
9.2 CONFIDENTIALITY.............................................47
9.3 DAMAGES.....................................................48
9.4 REASONABLE RESTRAINT........................................48
9.5 SEVERABILITY; REFORMATION...................................49
9.6 INDEPENDENT COVENANT........................................49
9.7 MATERIALITY.................................................49
ARTICLE X.
GENERAL.......................................................................49
10.1 TERMINATION.................................................49
10.2 EFFECT OF TERMINATION.......................................50
10.3 SUCCESSORS AND ASSIGNS......................................51
10.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER.........................51
10.5 COUNTERPARTS................................................51
10.6 BROKERS AND AGENTS..........................................51
10.7 EXPENSES....................................................51
10.8 NOTICES.....................................................52
10.9 GOVERNING LAW...............................................53
10.10 SEVERABILITY................................................54
10.11 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS...................54
10.12 MUTUAL DRAFTING.............................................54
10.13 FURTHER REPRESENTATIONS.....................................54
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AGREEMENT AND PLAN OF CONTRIBUTION
THIS AGREEMENT AND PLAN OF CONTRIBUTION (the "Agreement") is made and
entered into this 17th day of February, 1998, by and among Realty Information
Group (Delaware), Inc., a Delaware corporation ("Parent"), Realty Information
Group, Inc. a Delaware corporation ("RIGINC"), Realty Information Group, L.P., a
Delaware limited partnership ("RIGLP" and, together with Parent and RIGINC, the
"RIG Parties") and Xxxxxxx Research, Inc., a Georgia corporation (the
"Company"), Xxxxx X. Xxxxxxx, XX and Xxxxxx Xxxx Xxxxxxx (each a "Stockholder"
and collectively, the "Stockholders" and, together with the Company, the
"Xxxxxxx Parties").
BACKGROUND
A. Parent was incorporated on February 2, 1998 (the "Formation") under
the laws of the State of Delaware for the purpose of acquiring certain
commercial real estate information businesses; and
B. Parent intends to undertake an initial public offering of its common
stock (the "IPO") in March or April 1998 and in connection therewith intends to
file a Registration Statement on Form S-1 with the Securities and Exchange
Commission promptly following the execution of this Agreement; and
C. The shareholders of RIGINC intend to contribute their shares of
capital stock of RIGINC to Parent in exchange for Parent shares in connection
with the IPO (the "RIGINC Contribution");
D. The limited partners of RIGLP intend to contribute their partnership
units of RIGLP to Parent in exchange for Parent shares in connection with the
IPO (the "RIGLP Contribution" and, collectively with the RIGINC Contribution,
the "RIG Contributions");
E. The Stockholders are the owners of all of the issued and outstanding
shares (the "Shares") of the capital stock of the Company;
F. The Stockholders, the Company, and Parent deem it advisable and in
their respective best interests that the Stockholders contribute all of their
shares of capital stock of the Company to Parent in exchange for Parent shares
as set forth herein (the "Xxxxxxx Contribution");
G. The Formation, the IPO, the RIG Contributions, and the Xxxxxxx
Contribution are being undertaken pursuant to an integrated transaction intended
to qualify under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Transaction"); and
H. Prior to, in connection with or following the Transaction, the board
of directors of RIGINC intend to rename RIGINC formally as "RIG, Inc." and,
immediately thereafter, the board of directors of Parent intend to rename Parent
formally as "Realty Information Group, Inc.";
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE I.
PLAN OF CONTRIBUTION
1.1 THE CONTRIBUTION. Upon the terms and subject to the conditions
hereof, at the Closing (defined below), the Stockholders will contribute to
Parent all of the Shares free and clear of all Liens (defined below) in exchange
for the Consideration specified in Section 1.2. For the purposes of this
Agreement, "Lien" means any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge, preference, priority or other security agreement, option, warrant,
attachment, right of first refusal, preemptive, conversion, put, call or other
claim or right, restriction on transfer (other than restrictions imposed by
federal and state securities laws), or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic effect
as any of the foregoing and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).
1.2 CONSIDERATION.
(a) For purposes of this Agreement, the "Consideration" shall
be Ten Million Dollars ($10,000,000.00), as adjusted pursuant to Section 1.3.
The Consideration shall be paid in shares of common stock of Parent, par value
$0.01 (the "Parent Common Stock"), valued at the Share Price. The Share Price
shall be either (i) the price at which the underwriters named in the
registration statement on Form S-1 covering the offer and sale of shares of
Parent Common Stock (the "Registration Statement") in connection with the
Transaction and the IPO have agreed to purchase such shares, or (ii) if no such
IPO is accomplished by May 15, 1998, such other price (or alternative pricing
methodology) as the Stockholders' Representative (as defined in Section 1.5) and
the Parent may have agreed to on or prior to May 25, 1998. The Parent Common
Stock constituting the Consideration shall be validly issued, fully paid,
non-assessable and, as of the Closing, free and clear of all Liens (other than
liens specifically contemplated herein). Parent Common Stock constituting
sixty-five percent (65%) of the Consideration will be registered by Parent as
part of the IPO for immediate resale by the Stockholders (the "Registered
Shares"), twenty-five percent (25%) of the Consideration, which shall be
Consideration other than the Registered Shares, shall be restricted from sale
pursuant to Section 5.9 (the "Restricted Shares") and ten percent (10%) of the
Consideration, which shall be Consideration other than the Registered Shares,
shall be pledged pursuant to Section 1.4 (the "Pledged Shares").
(b) The Consideration has been calculated based upon several
factors, including the Company having a Net Worth (defined below) as of Closing
(the "Actual Net Worth") no less
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than the Net Worth of the Company reflected on the Audited Financials, which is
$(49,038) (the "Net Worth Target"). For purposes of this Agreement, "Net Worth"
shall mean the total shareholders' equity (deficit) as shown on the Company's
balance sheet in conformity with GAAP (defined below).
1.3 POST-CLOSING ADJUSTMENT. The Consideration shall be subject to
adjustment after the Closing Date as specified in this Section 1.3:
(a) Within one hundred twenty (120) days following the
Closing, Parent shall cause Ernst & Young LLP (the "Parent's Independent
Auditors") to audit the Company's books to determine the Net Worth of the
Company as of the Closing and the accuracy of the information set forth in
Section 3.8 (the "Post-Closing Audit"). The parties acknowledge and agree that
for purposes of determining the financial performance of the Company, all
financial calculations shall be done, except with the prior written consent of
Parent, as provided in Section 3.8. The Stockholders shall cooperate and shall
use their reasonable efforts to cause the officers and employees of the Company
to cooperate with Parent and Parent's Independent Auditors after the Closing
Date in furnishing information, documents, evidence and other assistance to
Parent's Independent Auditors to facilitate the completion of the Post-Closing
Audit within the aforementioned time period. In the event that Parent's
Independent Auditors determine that the Net Worth of the Company as of Closing
was less than the Net Worth Target, Parent shall promptly deliver a written
notice (the "Financial Adjustment Notice") to the Stockholders' Representative,
as defined in Section 1.5, setting forth (i) the determination made by Parent's
Independent Auditors of the Net Worth of the Company, (ii) the amount by which
the Net Worth Target exceeds the Net Worth determined by the Parent's
Independent Auditors (the "Proposed Consideration Adjustment") and (iii) the
amount by which the number of Shares issued as Consideration would have been
reduced at Closing had the Consideration been reduced at Closing by the Proposed
Consideration Adjustment.
(b) The Stockholders' Representative shall have fifteen (15)
days from the receipt of the Financial Adjustment Notice to notify Parent if the
Stockholders dispute such Financial Adjustment Notice. If Parent has not
received notice of such a dispute within such 15-day period, the Proposed
Consideration Adjustment shall be the Final Consideration Adjustment and Parent
shall be entitled to receive from the Stockholders the Final Consideration
Adjustment, subject to the provisions of Section 8.7 hereof. If, however, the
Stockholders' Representative has delivered notice of such a dispute to Parent
within such 15-day period (which such notice shall state the Stockholders'
calculation of Net Worth), then Parent's Independent Auditors shall select an
independent accounting firm that has not represented any of the parties hereto
within the preceding two (2) years to review the Company's books, the Financial
Adjustment Notice and the notice of dispute (and related information) to
determine the amount, if any, of the Final Consideration Adjustment (defined
below). Such independent accounting firm shall be confirmed by the Stockholders'
Representative and Parent within three (3) days of its selection, unless there
is an actual conflict of interest. The independent accounting firm shall be
directed to consider only those agreements, contracts, commitments or other
documents (or summaries thereof) that were either (i) delivered or made
available to Parent's Independent Auditors in connection with the transactions
contemplated hereby, (ii) reviewed by
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Parent's Independent Auditors during the course of the Post-Closing Audit or
(iii) supplemental information supplied by either party to the Independent
Accountant. The independent accounting firm shall make its determination of the
Actual Net Worth and the amount by which the Net Worth Target exceeds the Actual
Net Worth determined by the independent accounting firm (the "Final
Consideration Adjustment"), if any, within thirty (30) days of its selection.
The determination of the independent accounting firm shall be final and binding
on the parties hereto, and upon such determination, Parent shall be entitled to
receive from the Stockholders the Final Consideration Adjustment, subject to the
provisions of Section 8.7 hereof. The costs of the independent accounting firm
shall be borne by the party (either the RIG Parties or the Stockholders as a
group) whose determination of the Net Worth as of the Closing was further from
the determination of the Actual Net Worth by the independent accounting firm, or
equally by the RIG Parties and the Stockholders in the event that the
determination by the independent accounting firm is equidistant between the
determination of the Net Worth by the RIG Parties on one hand, and the
Stockholders' calculation of Net Worth, on the other.
1.4 PLEDGED ASSETS.
(a) As collateral security for the payment of any post-Closing
adjustment to the Final Consideration Adjustment under Section 1.3, or any
indemnification obligations of the Stockholders pursuant to Article VIII, the
Stockholders shall, and by execution hereof do hereby, transfer, pledge and
assign to Parent, for the benefit of Parent, a security interest in the
following assets (the "Pledged Assets"):
(i) each Stockholder's Pledged Shares and the
certificates and instruments, if any, representing or evidencing each such
Stockholder's Pledged Assets;
(ii) all securities hereafter delivered to such
Stockholder with respect to or in substitution for such Stockholder's Pledged
Shares, all certificates and instruments representing or evidencing such
securities, and all non-cash dividends and other property (other than cash
dividends) at any time received, receivable or otherwise distributed in respect
of or in exchange for any or all thereof; and in the event any Stockholder
receives any such property, such Stockholder shall hold such property in trust
for Parent and shall immediately deliver such property to Parent to be held
hereunder as Pledged Assets; and
(iii) all non-cash proceeds of all of the foregoing
property and all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
(b) Each certificate, if any, evidencing a Stockholder's
Pledged Assets issued in his or her name in the transactions contemplated
hereby, shall be delivered to Parent directly by the transfer agent, such
certificate bearing no restrictive or cautionary legend other than those
provided for by this Agreement or imprinted by the transfer agent at Parent's
request. Each Stockholder shall, at the Closing, deliver to Parent, for each
such certificate, a stock power duly signed in blank by him or her.
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(c) The Stockholders shall be entitled to retain cash proceeds
from, and exercise any voting powers incident to, the Pledged Assets that are
not applied to satisfy any Final Consideration Adjustment pursuant to Section
1.3 or any indemnification obligation of the Stockholders pursuant to Article
VIII.
(d) The Pledged Assets shall be available to satisfy any Final
Consideration Adjustment pursuant to Section 1.3 and any indemnification
obligations of the Stockholders pursuant to Article VIII until the date that is
one (1) year after the Closing (the "Release Date"). On the Release Date or the
first business day thereafter, Parent shall return or cause to be returned to
the Stockholders the Pledged Assets, less Pledged Assets having an aggregate
value equal to the amount of (i) any pending claim for a post-Closing adjustment
to the Consideration under Section 1.3 or any settled or finally-determined
claim for a post-Closing adjustment to the Consideration under Section 1.3, and
(ii) any pending claim for indemnification made by any Parent Indemnified Party
(as defined in Article VIII), or any settled or finally-determined claim for
indemnification made by any Parent Indemnified Party (as defined in Article
VIII), which such Pledged Assets shall be transferred to Parent. For purposes of
clause (i) of the preceding sentence, the Parent Common Stock held as Pledged
Assets shall be valued at the Share Price; and for purposes of clause (ii) of
the preceding sentence, the Parent Common Stock held as Pledged Assets shall be
valued at the average Closing Price of Parent Common Stock on the twenty (20)
trading days immediately preceding the date of settlement or final determination
of such claim. "Closing Price" on any trading day shall mean the closing sale
price of Parent Common Stock on NASDAQ (or such other principal quotation system
or national securities exchange on which the Parent Common Stock is admitted to
trading or quoted or listed) or, if not admitted to trading or quoted or listed
on any quotation system or national securities exchange, the average of the
closing bid and asked prices of the Parent Common Stock on the over-the-counter
market on the day in question as reported by the National Quotation Bureau
Incorporated, or a similarly generally accepted reporting service, or if not so
available in such manner, as reasonably determined by an independent accounting
firm designated by the parties that has not represented any of the parties
hereto, their affiliates, successors or assigns at any time during the two-year
period immediately preceding the day in question.
1.5 STOCKHOLDERS' REPRESENTATIVE.
(a) Each holder of Company Common Stock, by signing this
Agreement, designates Xxxxxx Xxxx Xxxxxxx, or, in the event that Xxxxxx Xxxx
Xxxxxxx is unable or unwilling to serve, Xxxxx X. Xxxxxxx, XX to be the
Stockholders' Representative for purposes of this Agreement. The Stockholders
shall be bound by any and all actions taken by the Stockholders' Representative
on their behalf.
(b) Parent shall be entitled to rely upon any communication or
writings given or executed by the Stockholders' Representative. All notices to
be sent to Stockholders pursuant to this Agreement may be addressed to the
Stockholders' Representative and any notice so sent shall be deemed notice to
all of the Stockholders hereunder. The Stockholders hereby consent and agree
that
5
the Stockholders' Representative is authorized to accept notice on behalf of the
Stockholders pursuant hereto.
(c) The Stockholders' Representative is hereby appointed and
constituted the true and lawful attorney-in-fact of each Stockholder, with full
power in his or her name and on his or her behalf to act according to the terms
of this Agreement in the absolute discretion of the Stockholders'
Representative; and in general to do all things and to perform all acts
including, without limitation, executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with this Agreement. This power of attorney and
all authority hereby conferred is granted subject to the interest of the other
Stockholders hereunder and in consideration of the mutual covenants and
agreements made herein, and shall be irrevocable and shall not be terminated by
any act of any Stockholder, by operation of law, whether by such Stockholder's
death or any other event.
1.6 ACCOUNTING TERMS. Except as otherwise expressly provided herein or
in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles ("GAAP") consistently
applied.
ARTICLE II.
CLOSING
2.1 LOCATION AND DATE. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxxx, Xxxxxx & Xxxxxxxxx on the date that the IPO is scheduled to close,
providing that all conditions to Closing shall have been satisfied or waived, or
at such other time and date as Parent, the Company and the Stockholders may
mutually agree, which date shall be no later than May 25, 1998 and shall be
referred to as the "Closing Date."
2.2 DELIVERIES. The Stockholders shall deliver to Parent the following
at the Closing: (a) stock certificates representing (i) the Shares, accompanied
by stock powers duly executed in blank or duly executed instruments of transfer,
in each case with signatures guaranteed by a national bank or member firm of the
New York Stock Exchange, and with all necessary stock transfer and other
documentary stamps attached, and any other documents that are necessary to
transfer to Parent good and marketable title to the Shares free and clear of all
Liens, and (ii) all the issued and then outstanding shares of capital stock of
the Company's subsidiaries, if any, free and clear of all Liens; (b)
resignations as directors of such directors of the Company (other than Xxxxx X.
Xxxxxxx, XX) as Parent may request prior to the Closing Date; and (c) all other
documents, certificates, instruments or writings required to be delivered by the
Stockholders or the Company at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith. Against delivery of the
Shares, Parent shall deliver to the Stockholders at the Closing the
Consideration free and clear of all
6
Liens (other than Liens specifically contemplated herein) and all documents,
certificates, instruments or writings required to be delivered by Parent at or
prior to the Closing pursuant to this Agreement or otherwise required in
connection herewith.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS
To induce Parent to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Company and the Stockholders,
jointly and severally, represents and warrants to Parent as follows (for
purposes of this Agreement, the phrases "knowledge of the Stockholders" or the
"Stockholders' knowledge," or words of similar import, mean the knowledge of
Xxxxx X. Xxxxxxx, XX and Xxxxxx Xxxx Xxxxxxx, including facts of which either,
in the reasonably prudent exercise of his or her duties as an officer, director
and/or stockholder of the Company, should be aware):
3.1 DUE ORGANIZATION.
(a) The Company is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l(a) hereto contains a list of
all jurisdictions in which the Company is authorized or qualified to do
business. The Company is in good standing as a foreign corporation in each
jurisdiction in which it does business.
(b) The Company has delivered to Parent true, complete and
correct copies of the Articles of Incorporation and Bylaws of the Company. Such
Articles of Incorporation and Bylaws are collectively referred to as the
"Company Charter Documents." The Company is not in violation of any Company
Charter Document. The minute books of the Company have been made available to
Parent (and at Closing shall be delivered, along with the Company's original
stock ledger and corporate seal, to Parent) and are correct and, except as set
forth in Schedule 3.1(b), complete in all material respects.
(c) Schedule 3.1(c) contains a complete and accurate list of
the directors and officers of the Company.
3.2 AUTHORIZATION; VALIDITY. The Company has all requisite corporate
power and authority to enter into and perform its obligations pursuant to the
terms of this Agreement. The Company has the full legal right, corporate power
and authority to enter into this Agreement and the transactions contemplated
hereby. Each Stockholder has the full legal right and authority to enter into
this Agreement and perform the transactions contemplated hereby. The execution
and delivery
7
of this Agreement by the Company and the performance by the Company of the
transactions contemplated herein have been duly and validly authorized by the
Board of Directors of the Company and the Stockholders and this Agreement has
been duly and validly authorized by all necessary corporate action. This
Agreement is a legal, valid and binding obligation of the Company and each
Stockholder, enforceable in accordance with its terms.
3.3 NO CONFLICTS. Except as set forth on Schedule 3.3, the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any
of the Company Charter Documents;
(b) conflict with, or result in a default (or would constitute
a default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or any Stockholder
is a party or by which the Company or any Stockholder is bound, or result in the
creation or imposition of any lien, charge or encumbrance on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or any Stockholder or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or any Stockholder is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of 500,000 shares of common stock, $0.10 par value, of which
9,000 shares are issued and outstanding and no shares of preferred stock. All of
the issued and outstanding shares of the capital stock of the Company have been
duly authorized and validly issued, are fully paid and nonassessable and are
owned of record and beneficially by the Stockholders in the amounts set forth in
Schedule 3.4 free and clear of all Liens. All of the issued and outstanding
shares of the capital stock of the Company were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of such shares was
issued in violation of any preemptive rights. There are no voting agreements or
voting trusts with respect to any of the outstanding shares of the capital stock
of the Company.
3.5 TRANSACTIONS IN CAPITAL STOCK; ACCOUNTING TREATMENT. Except as set
forth on Schedule 3.5, no option, warrant, call, subscription right, conversion
right or other contract or commitment of any kind exists of any character,
written or oral, which may obligate the Company to issue, sell or otherwise
become outstanding any shares of capital stock. The Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity
8
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. As a result of the Xxxxxxx Contribution, Parent
will be the record and beneficial owner of all outstanding capital stock of the
Company and rights to acquire capital stock of the Company.
3.6 SUBSIDIARIES STOCK
(a) Except as set forth on Schedule 3.6(a), the Company has no
subsidiaries.
(b) Except as set forth on Schedule 3.6(b), 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 noncorporate entity.
3.7 COMPLETE COPIES OF MATERIALS. The Company has delivered to Parent
true and complete copies of each agreement, contract, commitment or other
document (or summaries thereof) that is referred to in the Schedules or that has
been requested by Parent, except for certain contracts for which representative
samples only have been provided to Parent.
3.8 COMPANY FINANCIAL CONDITIONS.
(a) The Net Worth (deficit) of the Company as of December 31,
1997 is not less than the Net Worth Target.
(b) The Company's revenues for the fiscal year ended December
31, 1997 were not less than $3,600,000.
(c) The Company's earnings before interest and taxes for the
fiscal year ended December 31, 1997 were not less than $20,000.
(d) The Company's Working Capital (Deficit) as of December 31,
1997 is not less than $(327,000).
(e) The sum of the Company's total outstanding long-term and
short-term indebtedness to banks, the Stockholders, and other financial
institutions and creditors as of December 31, 1997 (in each case including the
current portions of such indebtedness, but excluding trade payables and other
ordinary course accounts payable) is no greater than $178,000.
(f) The parties acknowledge and agree that for purposes of
determining the amounts in Sections 1.3 and 3.8: (i) the amount of any material
decrease or increase in intangible assets (including without limitation
goodwill, franchises and intellectual property) accounted for after the end of
Company's most recent fiscal year preceding the date hereof, shall be excluded,
and (ii) the effect of changes to GAAP on or after January 1, 1998 shall also be
excluded.
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3.9 FINANCIAL STATEMENTS. Schedule 3.9 includes true, complete and
correct copies of the Company's audited balance sheet as of December 31, 1997
(the end of its most recent completed fiscal year (the "Balance Sheet Date")),
and income statement for the year ended December 31, 1997 (collectively, the
"Audited Financials"). As noted on the auditors' report accompanying the Audited
Financials, the Audited Financials have been prepared in accordance with GAAP
consistently applied. The balance sheet included in the Audited Financials
presents fairly the financial condition of the Company as of the date indicated
thereon, and the income statement included in the Audited Financials presents
fairly the results of its operations for the periods indicated thereon. Since
the dates of the Audited Financials, there have been no material changes in the
Company's accounting policies other than as requested by Parent to conform the
Company's accounting policies to GAAP.
3.10 LIABILITIES AND OBLIGATIONS.
(a) To the Stockholders' knowledge, the Company is not liable
for or subject to any liabilities except for:
(i) those liabilities reflected on the Audited
Financials and Schedule 3.10(a) and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course
of its business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance
Sheet Date in the ordinary
course of business consistent with past practice, which liabilities are not,
individually or in the aggregate, material.
(b) Where so requested by Parent, the Company has delivered to
Parent, in the case of those liabilities which are not fixed or are contested, a
reasonable estimate of the maximum amount which may be payable.
(c) Schedule 3.10(c) includes a summary description of all
plans or projects presently in effect or contemplated by the Stockholders
involving the opening of new operations, expansion of any existing operations or
the acquisition of any real property or existing business, to which management
of the Company has made any material expenditure in the two-year period prior to
the date of this Agreement, which if pursued by the Company would require
additional material expenditures of capital.
(d) For purposes of this Section 3.10, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
10
unmature or otherwise and whether known or unknown, fixed or unfixed, xxxxxx or
inchoate, liquidated or unliquidated, secured or unsecured.
3.11 BOOKS AND RECORDS. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company (except for omissions that are not, individually or in
aggregate, material). The Company has not engaged in any transaction, maintained
any bank account, or used any corporate funds except for transactions, bank
accounts, and funds which have been and are reflected in its normally maintained
books and records.
3.12 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.12 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the
Company has any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have
access thereto; and
(e) 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.
3.13 ACCOUNTS AND NOTES RECEIVABLE. Schedule 3.13 sets forth a complete
and accurate list, as of a date not more than forty-five (45) days prior to the
date hereof, of the accounts and notes receivable of the Company (including
without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in 30-day aging categories (collectively, the "Accounts
Receivable"). All Accounts Receivable represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business. Subject to reserves shown on the Company's books and records (which
reserves are adequate and calculated consistent with past practice) each of the
Accounts Receivable is expected to be collected in full, without any set-off,
within one hundred twenty (120) days after the day on which it first became due
and payable. Except as set forth on Schedule 3.13, there is no material contest,
claim, or right of set-off, other than rebates and returns in the ordinary
course of business, under any contract with any obligor of a material Account
Receivable relating to the amount or validity of such Account Receivable.
3.14 PERMITS. To the Stockholders' knowledge, the Company owns or holds
all licenses, franchises, permits and other governmental authorizations,
including without limitation permits, titles (including without limitation motor
vehicle titles and current registrations), fuel permits, licenses and
11
franchises necessary for the continued operation of its business as it is
currently being conducted (the "Company Permits"). To the Stockholders'
knowledge, the Company Permits are valid, and the Company has not received any
notice that any governmental authority intends to modify, cancel, terminate or
fail to renew any Company Permit. No present or former officer, manager, member
or employee of the Company or any affiliate thereof, or any other person, firm,
corporation or other entity, owns or has any proprietary, financial or other
interest (direct or indirect) in any Company Permits. To the Stockholders'
knowledge, the Company has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in the Company Permits and other applicable orders, approvals, variances, rules
and regulations and is not in violation of any of the foregoing, and the
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company, by any Company Permit.
3.15 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof.
(b) Schedule 3.15(b) contains a complete and accurate
description of all Real Property (including street address, legal description
(where known), owner, and Company's use thereof) and, to the Stockholder's
knowledge, any claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, covenants, easements, restrictions, encroachments,
leases, or encumbrances of any nature thereon ("Encumbrances"). The Company does
not now own, nor has it ever owned, Real Property. The Real Property listed on
Schedule 3.15 includes all interests in real property necessary to conduct the
business and operations of the Company.
(c) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company leases from any other party any real property, including all material
amendments, renewals, extensions, modifications or supplements to any of the
foregoing or substitutions for any of the foregoing (collectively, the "Leases")
are valid and in full force and effect. The Company has provided Parent with
true and complete copies of all of the Leases, all amendments, renewals,
extensions, modifications or supplements thereto, and all material
correspondence received or sent by the Company related thereto, including all
correspondence pursuant to which any party to any of the Leases declared a
default thereunder or provided notice of the exercise of any operation granted
to such party under such Lease. The Leases and the Company's interests
thereunder are free of all Liens. Except as set forth on Schedule 3.15(c), none
of the Leases requires the consent or approval of any party thereto in
connection with the consummation of the transactions contemplated hereby.
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3.16 PERSONAL PROPERTY.
(a) Schedule 3.16(a) sets forth a complete and accurate list
of all personal property included on the Audited Financials and all other
personal property owned or leased by the Company with a current book value in
excess of $2,500 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by any Stockholder or business or
personal affiliates of any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) To the Stockholders' knowledge, all of the property listed
on Schedule 3.16(a) is in good working order and condition, ordinary wear and
tear excepted. All leases set forth on Schedule 3.16(a) are in full force and
effect and constitute valid and binding agreements of the Company. The Company
is not in material breach of any of the leases set forth on Schedule 3.16(a).
All fixed assets used by the Company that are material to the operation of its
business are either owned by the Company or leased under an agreement listed on
Schedule 3.16(a).
3.17 INTELLECTUAL PROPERTY.
(a) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks listed on Schedule 3.17(a). Such schedule
lists (i) all of the Marks registered in the United States Patent and Trademark
Office ("PTO") or the equivalent thereof in any state of the United States or in
any foreign country by the Company or any affiliate thereof, and (ii) all of the
unregistered Marks, that the Company now owns or uses in connection with its
business (collectively, the "Company Marks"). Except with respect to those Marks
shown as licensed on Schedule 3.17(a), the Company owns all of the registered
and unregistered trademarks, service marks, and trade names that it uses. The
Marks listed on Schedule 3.17(a) will not cease to be valid rights of the
Company by reason of the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby. For purposes of
this Section 3.17 and Section 4.8, the term "Marks" shall mean all right, title
and interest in and to any United States or foreign trademarks, service marks
and trade names now held by a party hereto, including any registration or
application for registration of any trademarks and services marks in the PTO or
the equivalent thereof in any state of the United States or in any foreign
country, as well as any unregistered marks used by a party hereto, and any trade
dress (including logos, designs, company names, business names, fictitious names
and other business identifiers) used by a party hereto in the United States or
any foreign country.
(b) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents listed on Schedule 3.17(b)(i) (the "Company Patents") and in the
Copyright registrations listed on Schedule 3.17(b)(ii) (the "Company
13
Copyrights"). Such Patents and Copyrights constitute all of the Company Patents
and Company Copyrights that the Company now owns or is licensed to use. The
Company owns or is licensed to practice under all Company Patents and Company
Copyrights that the Company now owns or uses in connection with its business.
For purposes of this Section 3.17 and Section 4.8, the term "Patent" shall mean
any United States or foreign patent to which a party hereto has title as of the
date of this Agreement, as well as any application for a United States or
foreign patent made by a party hereto; the term "Copyright" shall mean any
United States or foreign copyright owned by a party hereto as of the date of
this Agreement, including any registration of copyrights, in the United States
Copyright Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by a
party hereto.
(c) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the trade secrets, franchises, or similar rights (collectively, "Company Other
Rights") listed on Schedule 3.17(c). Those Company Other Rights constitute all
of the Company Other Rights that the Company now owns or is licensed to use. The
Company owns or is licensed to practice under all trade secrets, franchises or
similar rights that it owns, uses or practices under.
(d) For purposes of this Section 3.17, the Company Marks,
Company Patents, Company Copyrights, and Company Other Rights are referred to
collectively herein as the "Company Intellectual Property." The Company
Intellectual Property owned by the Company is referred to herein collectively as
the "Company Owned Intellectual Property." All other Company Intellectual
Property used by the Company is referred to herein collectively as the "Company
Third Party Intellectual Property." Except as indicated on Schedule 3.17(d), the
Company has no obligations to compensate any person for the use of any Company
Intellectual Property. Except as indicated on Schedule 3.17(d) or except in the
ordinary course of business, the Company has not granted to any person any
license, option or other rights to use in any manner any Company Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Company Third Party Intellectual Property
license, sublicense or agreement described in Schedule 3.17. No claims with
respect to the Company Owned Intellectual Property or Company Third Party
Intellectual Property are currently pending or, to the knowledge of the
Stockholders are threatened by any person, nor, to the Stockholder's knowledge,
do any grounds for any claims exist: (i) to the effect that the manufacture,
sale, licensing or use of any product as now used, sold or licensed or proposed
for use, sale or license by the Company infringes on any copyright, patent,
trademark, service xxxx or trade secret; (ii) against the use by the Company of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
business as currently conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Owned Intellectual Property or
other trade secret material to the Company; or (iv) challenging the Company's
license or legally enforceable right to use of the Company Third Party
Intellectual Property. To the Stockholders' knowledge, there is no
14
unauthorized use, infringement or misappropriation of any of the Company Owned
Intellectual Property by any third party. Except as set forth in Schedule
3.17(e), neither the Company nor any of its subsidiaries (x) has been sued or
charged in writing as a defendant in any claim, suit, action or proceeding which
involves a claim or infringement of trade secrets, any patents, trademarks,
service marks, or copyrights and which has not been finally terminated or been
informed or notified by any third party that the Company may be engaged in such
infringement or (y) has knowledge of any infringement liability with respect to,
or infringement by, the Company or any of its subsidiaries of any trade secret,
patent, trademark, service xxxx, or copyright of another.
3.18 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.
(a) To the Stockholders' knowledge, Schedule 3.18(a) contains
a complete and accurate list of all contracts, commitments, leases, instruments,
agreements, licenses or permits, written or oral, to which the Company is a
party or by which it or its properties are bound (including without limitation
joint venture or partnership agreements, contracts with any labor organizations,
employment agreements, consulting agreements, loan agreements, indemnity or
guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges
or other security agreements) (i) to which the Company and any affiliate of the
Company or any officer, director or stockholder of the Company are parties
("Related Party Agreements"); (ii) that may give rise to obligations or
liabilities exceeding, during the current term thereof, $5,000, or (iii) that
may generate revenues or income exceeding, during the current term thereof,
$5,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Parent true, complete and correct
copies of the Material Contracts, except for certain contracts for which
representative samples only have been provided to Parent.
(b) Except to the extent set forth on Schedule 3.18(b),to the
Stockholders' knowledge, (i) none of the Company's customers has canceled or
substantially reduced or, to the knowledge of the Stockholders, is currently
attempting or threatening to cancel or substantially reduce, any purchases from
the Company, (ii) none of the Company's suppliers has canceled or substantially
reduced or, to the knowledge of the Stockholders, is currently attempting to
cancel or substantially reduce, the supply of products or services to the
Company, (iii) the Company has complied with all of its commitments and
obligations and is not in default under any of the Material Contracts, and no
notice of default has been received with respect to any thereof, and (iv) other
than the Related Party Agreements, there are no Material Contracts that were not
negotiated at arm's length. The Company has not received any material customer
complaints concerning its products and/or services, nor has it had any of its
products returned by a purchaser thereof except for normal warranty returns
consistent with past history and those returns that would not result in a
reversal of any material revenue.
(c) To the Stockholders' knowledge, each Material Contract,
except those terminated pursuant to Section 5.6, is valid and binding on the
Company and is in full force and effect and is not subject to any default
thereunder by any party obligated to the Company pursuant thereto. The Company
will obtain prior to the Closing Date all necessary consents, waivers and
approvals of
15
parties to any Material Contracts that are required in connection with any of
the transactions contemplated hereby, or are required by any governmental agency
or other third party in order that any such Material Contract remain in effect
without modification after the transactions contemplated hereby and without
giving rise to any right to termination, cancellation or acceleration or loss of
any right or benefit ("Third Party Consents"). All Third Party Consents are
listed on Schedule 3.18(c).
(d) The outstanding balance on all loans or credit agreements
either (i) between the Company and any person in which any of the Stockholders
owns a material interest, or (ii) guaranteed by the Company for the benefit of
any Person in which any of the Stockholders owns a material interest, are set
forth in Schedule 3.18(d).
3.19 PREDECESSOR STATUS; ETC. Schedule 3.19 sets forth a listing of all
legal names, trade names, fictitious names or other names (including, without
limitation, any names of divisions or operations) of the Company and all of its
predecessor companies during the five-year period immediately preceding the date
hereof, including without limitation the names of any entities from whom the
Company has acquired material assets. During the five-year period immediately
preceding the date hereof, the Company has operated only under the names set
forth on Schedule 3.19 in the jurisdiction or jurisdictions set forth on
Schedule 3.19 and has not been a subsidiary or division of another corporation
or a part of an acquisition which was later rescinded.
3.20 INSURANCE. Schedule 3.20 sets forth a complete and accurate list,
as of the Balance Sheet Date, of all insurance policies carried by the Company
and all insurance loss runs or workmen's compensation claims received for the
past two (2) policy years. The Company has delivered to Parent true, complete
and correct copies of all current insurance policies, all of which are in full
force and effect. All premiums payable under all such policies have been paid
and the Company is otherwise in full compliance with the terms of such policies.
Such policies of insurance are of the type and in amounts customarily carried by
persons conducting businesses similar to that of the Company. To the knowledge
of the Stockholders, there have been no threatened terminations of, or material
premium increases with respect to, any of such policies.
3.21 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. To the Stockholders' knowledge, other
than as set forth on Schedule 3.21(a), no underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state, local or other applicable law to be radioactive,
toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies properly and safely
maintained (a "Hazardous Material"), are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned,
16
operated, occupied or leased. Schedule 3.21(a) identifies, to the knowledge of
the Stockholders, all underground and aboveground storage tanks, and the
capacity, age, and contents of such tanks, located on Real Property owned or
leased by the Company.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively,
"Company Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the Stockholders, threatened concerning any
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Company (or any person or entity whose
liability the Company has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
3.22 LABOR AND EMPLOYMENT MATTERS. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and has not and is not engaged
in any unfair labor practice;
(b) there is not now, nor within the past three (3) years has
there been, any unfair labor practice complaint against the Company pending or,
to the Stockholders' knowledge, threatened, before the National Labor Relations
Board or any other comparable authority;
(c) there is not now, nor within the past three (3) years has
there been, any labor strike, slowdown or stoppage actually pending or, to the
Stockholders' knowledge, threatened, against or directly affecting the Company;
(d) to the Stockholders' knowledge, no labor representation
organization effort exists nor has there been any such activity within the past
three (3) years;
17
(e) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the Stockholder's
knowledge, no claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company; and
(g) the Company and the Stockholders have a reasonable basis
for believing that all persons classified by the Company as independent
contractors do satisfy and have satisfied the requirements of law to be so
classified, and the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so.
3.23 EMPLOYEE BENEFIT PLANS.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit
arrangement, obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, other than any obligation, arrangement, custom or
practice that is an Employee Benefit Plan, including, without limitation,
employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which the
Company has or may have any liability (whether actual, contingent, with respect
to any of its assets or otherwise) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company.
(iii) "Company Plan" means, as of the Closing Date,
any Employee Benefit Plan for which the Company is the "plan sponsor" (as
defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by
the Company or to which the Company is obligated to make payments, in each case
with respect to any present or former employees of the Company.
18
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations and rules issued
thereunder, or any successor law.
(vi) "ERISA Affiliate" means any person that,
together with the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company is or has been a general partner.
(b) Schedule 3.23(b) contains a complete and accurate list of
all Company Benefit Arrangements. The Company does not now maintain, nor has it
ever maintained, any Company Plan.
(c) Schedule 3.23(c) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(d) Schedule 3.23(d) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who earned in 1997, or are
likely to earn in 1998, more than $75,000, all officers and all directors, and
lists all employment agreements with such employees, officers and directors and
the rate of compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such person as of (a) the
Balance Sheet Date and (b) the date hereof.
3.24 TAXES.
(a) (i) Except as set forth on Schedule 3.24, the Company has
timely filed all Tax Returns due on or before the date hereof, and all such Tax
Returns are true, correct, and complete in all respects.
(ii) Except as set forth on Schedule 3.24, the
Company has paid in full on a timely basis all Taxes owed by it, whether or not
shown on any Tax Return.
(iii) The amount of the Company's liability for
unpaid Taxes as of the Balance Sheet Date did not exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes)
included in the amounts shown on the balance sheet comprising the Audited
Financials, and the amount of the Company's liability for unpaid Taxes for all
periods or portions thereof ending on or before the Closing Date will not exceed
the amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected on the books and records of the
Company on the Closing Date.
19
(iv) Except as set forth on Schedule 3.24, there are
no ongoing examinations or claims against the Company for Taxes, and no notice
of any audit, examination, or claim for Taxes, whether pending or threatened,
has been received.
(v) The Company has a taxable year ended on December
31, in each year commencing 1984.
(vi) The Company currently utilizes the cash method
of accounting for income Tax purposes and such method of accounting has not
changed in the past 13 years. The Company has not agreed to, and is not and will
not be required to, make any adjustments under Code Section 481(a) as a result
of a change in accounting methods.
(vii) The Company has withheld and paid over to the
proper governmental
authorities all Taxes required to have been withheld and paid over, and complied
with all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid to any employee, independent contractor, creditor, or other third party.
(viii) Copies of (A) any Tax examinations, (B)
extensions of statutory
limitations for the collection or assessment of Taxes and (C) the Tax Returns of
the Company for the last fiscal year have been delivered to Parent.
(ix) There are (and as of immediately following the
Closing there will be) no Liens on the assets of the Company relating to or
attributable to Taxes.
(x) To the Stockholder's knowledge, there is no basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company or
otherwise have an adverse effect on the Company or its business.
(xi) None of the Company's assets are treated as "tax
exempt use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
(xiii) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
20
(xiv) The Company is not, and has not been at any
time, a party to a tax sharing, tax indemnity or tax allocation agreement, and
the Company has not assumed the tax liability of any other person under
contract.
(xv) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xvi) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records.
(xvii) The Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return and does not
have any liability for the Taxes of another person under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise.
(b) The Company has always been a C corporation.
(c) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar
governmental charge, impost or levy (including without limitation income taxes,
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes or windfall
profit taxes) together with any related penalties, fines, additions to tax or
interest imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return
(including any information return), report, statement, schedule, notice, form,
estimate, or declaration of estimated tax relating to or required to be filed
with any governmental authority in connection with the determination,
assessment, collection or payment of any Tax.
3.25 CONFORMITY WITH LAW; LITIGATION.
(a) To the Stockholders' knowledge, the Company has not
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it.
(b) Except as set forth on Schedule 3.24, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received.
21
There are no judgments, orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
the Company or against any of its properties or business.
3.26 ABSENCE OF CLAIMS AGAINST COMPANY. No Stockholder has any claims
against the Company.
3.27 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its business in the ordinary course and, except as contemplated herein
(including, without limitation, as contemplated in Section 7.8) or as set forth
on Schedule 3.27, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in its ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock, or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions
or fee arrangements payable or to become payable by the Company to any of its
officers directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, nor has the Company entered into or amended any Company
Benefit Arrangement, Company Plan, employment, severance or other agreement
relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g) any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of the Company to any person,
including without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of the
22
Stockholders and their affiliates, 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;
(i) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party (x) by the Company or (y) to the knowledge of the Stockholders, by any
other party;
(m) any transaction by the Company outside the ordinary course
of business;
(n) any capital commitment by the Company, either individually
or in the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $25,000;
(r) any loan by the Company to any person or entity, incurring
by the Company, of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Stockholders, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs;
(t) any introduction of any promotional offer, including,
without limitation, discounted and free products or services or reduction of
standard pricing levels for the Company's
23
goods or services with pricing that is less than 20% below the average pricing
for comparable clients; or
(u) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (t) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
3.28 DISCLOSURE. All written agreements, lists, schedules, instruments,
exhibits, documents, certificates, reports, statements and other writings
furnished to Parent pursuant hereto or in connection with this Agreement or the
transactions contemplated hereby, are and will be complete and accurate in all
material respects. No representation or warranty by the Stockholders or the
Company contained in this Agreement, in the Schedules attached hereto or in any
certificate furnished or to be furnished by the Stockholders or the Company to
Parent in connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary in order to make any statement contained herein or therein not
misleading. There is no fact known to any Stockholder that has specific
application to such Stockholder or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as far as such
Stockholder can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Company that has
not been set forth in this Agreement or any Schedule hereto.
3.29 SECURITIES REPRESENTATIONS. Each Stockholder is an "Accredited
Investor" within the meaning of the federal securities laws. Each Stockholder
has either directly, and/or through the Company, obtained sufficient information
concerning RIGINC, RIGLP, Parent and their business, present and proposed, to
have made an informed investment decision concerning this Agreement and the
Transactions contemplated hereby, and has had an adequate opportunity to ask
questions and receive answers to his or her satisfaction from the officers of
RIGINC, RIGLP and Parent concerning the business, operations and financial
condition of RIGINC, RIGLP and Parent. Each Stockholder has such knowledge and
experience in business and financial matters as to be capable of evaluating the
merits and risks of an investment in shares of Parent Common Stock and
protecting its own interest in connection with the investment in such shares.
3.30 NO KNOWLEDGE OF RIG PARTY BREACHES. As of the date of this
Agreement, the Xxxxxxx Parties have no knowledge that any RIG Party is in
material breach of its representations or warranties under this Agreement.
24
ARTICLE IV.
REPRESENTATIONS OF THE RIG PARTIES
For purposes of this Article IV, "the RIG Business" shall mean the
business of RIGLP and RIGINC prior to the RIG Contributions, and the business of
Parent from and after the RIG Contributions (but excluding the Xxxxxxx
Contribution). To induce the Company and the Stockholders to enter into this
Agreement and consummate the transactions contemplated hereby, each of the RIG
Parties represents and warrants to the Company and the Stockholders as follows
(for purposes of this Agreement the phrases "knowledge of the RIG Parties" or
"RIG Parties' knowledge," or words of similar import, mean the knowledge of
Xxxxxx X. Xxxxxxxx and Xxxxxxx X. Xxxxx, including facts of which either, in the
reasonably prudent exercise of his duties as an officer, director and/or
beneficial owner of an interest in RIGINC and RIGLP, should be aware):
4.1 DUE ORGANIZATION. Each of RIGINC and Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities and to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. RIGLP is a limited partnership validly
existing and in good standing under the laws of the state of Delaware and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities and to own, operate and
lease its properties and to carry on its business in the places and in the
manner as now conducted. True, complete and correct copies of the Certificate of
Incorporation and the Bylaws, each as amended, of Parent and RIGINC, and the
Partnership Agreement of RIGLP, (collectively, the "RIG Charter Documents") have
been made available to the Company. No RIG Party is in violation of any of the
RIG Charter Documents.
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representatives of each
of the RIG Parties executing this Agreement have all requisite power and
authority to enter into and bind such party to the terms of this Agreement. Each
of the RIG Parties has the full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. The execution
and delivery of this Agreement by each of the RIG Parties and the performance by
each of the RIG Parties of the transactions contemplated herein have been duly
and validly authorized by the Board of Directors or the General Partner of each
such party, and this Agreement has been duly and validly authorized by all
necessary action. This Agreement is a legal, valid and binding obligation of
each of the RIG Parties, as the case may be, enforceable in accordance with its
terms.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
RIG Charter Documents;
25
(b) subject to compliance with any agreements between any RIG
Party and its lenders and as indicated in Schedule 4.3(b), conflict with, or
result in a default (or would constitute a default but for a requirement of
notice or lapse of time or both) under any document, agreement or other
instrument to which a RIG Party is a party, or result in the creation or
imposition of any lien, charge or encumbrance on any properties of the RIG
Parties pursuant to (i) any law or regulation to which any RIG Party or any of
its property is subject, or (ii) any judgment, order or decree to which any RIG
Party is bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of any RIG
Party; or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which any RIG Party is subject, or by which any RIG Party is
bound.
4.4 CAPITALIZATION OF PARENT AND OWNERSHIP OF PARENT STOCK. As of the
date of this Agreement: (a) the authorized capital stock of Parent consists of
6,000,000 shares of Common Stock and no shares of Preferred Stock; (b) no of
Parent Common Stock and no shares of Preferred Stock were outstanding; (c)
1,023,030 shares of RIGINC Common Stock and no shares of Preferred Stock were
outstanding; and (d) 2,030,497 general and limited partnership units of RIGLP
were outstand ing. All of the shares of Parent Common Stock to be issued to the
Stockholders in accordance herewith will be offered, issued, sold and delivered
by Parent in compliance with all applicable state and federal laws concerning
the issuance of securities and none of such shares was or will be issued in
violation of the preemptive rights of any stockholder of Parent.
4.5 FINANCIAL STATEMENTS.
(a) Schedule 4.5(a) includes true, complete and correct copies
of RIGLP's audited balance sheets as of December 31, 1995, 1996 and 1997, and
income statements for the years ended December 31, 1995, 1996 and 1997
(collectively, the "RIGLP Audited Financials"). Except as noted on the auditors'
report accompanying the RIGLP Audited Financials, the RIGLP Audited Financials
have been prepared in accordance with GAAP consistently applied. Each balance
sheet included in the RIGLP Audited Financials presents fairly the financial
condition of RIGLP as of the date indicated thereon, and each of the income
statements included in the RIGLP Audited Financials presents fairly the results
of its operations for the periods indicated thereon. Since the date of the most
recent RIGLP Audited Financials, there has been no material changes in RIGLP's
accounting policies except as required in connection with the IPO and the
Contributions.
(b) Schedule 4.5(b) includes true, complete and correct copies
of RIGINC's unaudited balance sheets as of December 31, 1995, 1996 and 1997, and
unaudited income statements for the years ended December 31, 1995, 1996 and 1997
(collectively, the "RIGINC Unaudited Financials"). The RIGINC Unaudited
Financials have been prepared in accordance with GAAP consistently applied
subject (i) to normal year-end audit adjustments, which individually or in the
26
aggregate will not be material and (ii) to the omission of footnote information.
Each balance sheet included in the RIGINC Unaudited Financials presents fairly
the financial condition of RIGINC as of the date indicated thereon, and each of
the income statements included in the RIGINC Unaudited Financials presents
fairly the results of its operations for the periods indicated thereon. Since
the date of the most recent RIGINC Unaudited Financials, there has been no
material changes in RIGINC's accounting policies except as required in
connection with the IPO and the Contributions.
4.6 LIABILITIES AND OBLIGATIONS.
(a) To the knowledge of the RIG Parties, the RIG Parties are
not liable for or subject to any liabilities except for:
(i) those liabilities reflected on financial
statements and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course
of their business consistent with past practice under any contract, commitment
or agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the December
31, 1997 in the ordinary
course of business consistent with past practice, which liabilities are not,
individually or in the aggregate, material.
(b) For purposes of this Section 4.6, the term "liabilities"
shall include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, xxxxxx or
inchoate, liquidated or unliquidated, secured or unsecured.
4.7 PERMITS. To the knowledge of the RIG Parties, the RIG Parties own
or hold all licenses, franchises, permits and other governmental authorizations,
including without limitation permits, titles (including without limitation motor
vehicle titles and current registrations), fuel permits, licenses and franchises
necessary for the continued operation of the RIG Business as it is currently
being conducted ( "RIG Permits"). To the knowledge of the RIG Parties, the RIG
Permits are valid, and the RIG Parties have not received any notice that any
governmental authority intends to modify, cancel, terminate or fail to renew any
RIG Permit. No present or former officer, manager, member or employee of any RIG
Party or any affiliate thereof, or any other person, firm, corporation or other
entity, owns or has any proprietary, financial or other interest (direct or
indirect) in any RIG Permit. To the knowledge of the RIG Parties, the RIG
Business has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the RIG Permits
and other applicable orders, approvals, variances, rules and regulations and is
not in violation of any of the foregoing, and the transactions contemplated by
this Agreement will not result in a default
27
under, or a breach or violation of, or adversely affect the rights and benefits
afforded to the RIG Business, by any RIG Permit.
4.8 INTELLECTUAL PROPERTY.
(a) One of the RIG Parties is the true and lawful owner of, or
is licensed or otherwise possesses legally enforceable rights to use, the
registered and unregistered Marks (the "RIG Marks") necessary for the RIG
Business as currently conducted. Except with respect to those RIG Marks which
are licensed by one of the RIG Parties from a third party, the RIG Parties own
all of the registered and unregistered trademarks, service marks, and trade
names used by the RIG Business. The RIG Marks will not cease to be valid rights
of one of the RIG Parties by reason of the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated hereby.
(b) One of the RIG Parties is the true and lawful owner of, or
is licensed or otherwise possesses legally enforceable rights to use, all rights
in the Patents (the "RIG Patents") and Copyrights (the "RIG Copyrights")
necessary for the RIG Business as currently conducted.
(c) One of the RIG Parties is the true and lawful owner of, or
is licensed or otherwise possesses legally enforceable rights to use, all other
rights in trade secrets, franchises or similar rights that are necessary for the
RIG Business as currently conducted (the "RIG Other Rights").
(d) For purposes of this Section 4.8, the RIG Marks, RIG
Patents, RIG Copyrights, and RIG Other Rights are referred to herein
collectively as the "RIG Intellectual Property." The RIG Intellectual Property
owned by the RIG Parties is referred to as the "RIG Owned Intellectual
Property". All other RIG Intellectual Property used by the RIG Parties is
referred to herein collectively as the "RIG Third Party Intellectual Property."
Except as indicated on Schedule 4.8(d), the RIG Parties have no obligations to
compensate any person for the use of any RIG Intellectual Property. Except as
indicated on Schedule 4.8(d) or except in the ordinary course of business, the
RIG Parties have not granted to any person any license, option or other rights
to use in any manner any RIG Intellectual Property, whether requiring the
payment of royalties or not.
(e) No RIG Party is, nor will any RIG Party be, as a result of
the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any material RIG Third Party Intellectual
Property license, sublicense or agreement. No claims with respect to the RIG
Owned Intellectual Property or RIG Third Party Intellectual Property are
currently pending or, to the knowledge of the RIG Parties are threatened by any
person, nor, to the knowledge of the RIG Parties, do any grounds for any claims
exist: (i) to the effect that the manufacture, sale, licensing or use of any
product as now used, sold or licensed or proposed for use, sale or license by
any RIG Party infringes on any copyright, patent, trademark, service xxxx or
trade secret; (ii) against the use by any RIG Party of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the RIG Business
28
as currently conducted by the RIG Parties; (iii) challenging the ownership,
validity or effectiveness of any of the RIG Owned Intellectual Property or other
trade secret material to the RIG Business; or (iv) challenging the license or
legally enforceable right of the RIG Parties to use of the RIG Third Party
Intellectual Property. No RIG Party (x) has been sued or charged in writing as a
defendant in any claim, suit, action or proceeding which involves a claim or
infringement of trade secrets, any patents, trademarks, service marks, or
copyrights and which has not been finally terminated or been informed or
notified by any third party that any RIG Party may be engaged in such
infringement or (y) has knowledge of any infringement liability with respect to,
or infringement by, any RIG Party of any trade secret, patent, trademark,
service xxxx, or copyright of another.
4.9 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. Other than as set forth on Schedule
4.9(a), no Hazardous Materials are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that any RIG Party has at any time owned, operated, occupied or leased. Schedule
4.9(a) identifies, to the knowledge of the RIG Parties, all underground and
aboveground storage tanks, and the capacity, age, and contents of such tanks,
located on real property owned or leased by any RIG Party.
(b) Hazardous Materials Activities. The RIG Business has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the RIG Business disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (collectively,
"RIG Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the RIG Parties, threatened concerning any
Hazardous Material or any RIG Hazardous Materials Activity. There are no past or
present actions, activities, circumstances, conditions, events, or incidents
that could involve the RIG Business (or any person or entity whose liability any
RIG Party has retained or assumed, either by contract or operation of law) in
any environmental litigation, or impose upon the RIG Business (or any person or
entity whose liability the RIG Business has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
4.10 INSURANCE. The RIG Business is the beneficiary of insurance
policies of the type and in amounts customarily carried by persons conducting
businesses similar to that of the RIG Business. To the knowledge of the RIG
Parties, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies. All premiums payable under all
such policies have been paid and the RIG Business is otherwise in full
compliance with the terms of such policies.
29
4.11 TAXES.
(a) The RIG Parties have timely filed all Tax Returns due on
or before the Closing Date, and all such Tax Returns are true, correct, and
complete in all respects.
(b) The RIG Parties have paid in full on a timely basis all
Taxes owed by such Parties whether or not shown on any Tax Return.
(c) The amount of RIGLP's liability for unpaid Taxes as of the
Balance Sheet Date did not exceed the amount of the current liability accruals
for Taxes (excluding reserves for deferred Taxes) shown on the RIGLP Audited
Financials, and the amount of RIGLP's liability for unpaid Taxes for all periods
or portions thereof ending on or before the Closing Date will not exceed the
amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected on the books and records of RIGLP
on the Closing Date.
(d) RIGLP has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(e) There are (and as of immediately following the Closing
there will be) no Liens on the assets of RIGLP relating to or attributable to
Taxes.
(f) Except as set forth on Schedule 4.11, there are no ongoing
examinations or claims against any of the RIG Parties for Taxes, and no notice
of any audit, examination, or claim for Taxes, whether pending or threatened,
has been received.
(g) To the knowledge of the RIG Parties, there is no basis for
the assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the RIG Business or
otherwise have an adverse effect on the RIG Business.
4.12 CONFORMITY WITH LAW; LITIGATION.
(a) To the knowledge of the RIG Parties, no RIG Party has
violated any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it.
(b) Except as set forth on Schedule 4.12(b), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the RIG
Parties, threatened against or affecting any RIG Party at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no
30
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against any RIG Party or against any of their properties or
business.
4.13 ABSENCE OF CHANGES. Since the date of the RIG Interim Financial
Statements, the RIG Business has been conducted in the ordinary course and,
except as contemplated herein or as set forth on Schedule 4.13, there has not
been any change, by itself or together with other changes, that has affected
adversely, or is likely to affect adversely, the business, operations, affairs,
prospects, properties, assets, profits or condition (financial or otherwise) of
the RIG Business.
4.14 NO KNOWLEDGE OF XXXXXXX BREACHES. As of the date of this
Agreement, the RIG Parties have no knowledge that any Xxxxxxx Party is in
material breach of his, her or its representations or warranties under this
Agreement.
ARTICLE V.
COVENANTS
5.1 TAX MATTERS.
The following provisions shall govern the allocation of responsibility
as between the Company, on the one hand, and the Stockholders, on the other, for
certain tax matters following the Closing Date:
( a) Stockholders shall prepare or cause to be prepared and
file or cause to be filed, within the time and in the manner provided by law,
all Tax Returns of the Company (i) for all periods ending on or before the
Closing Date that are due after the Closing Date and (ii) for all state and
Federal Tax Returns, Tax Returns covering the stub period from January 1, 1998
until the date of Closing Date. Stockholders shall pay to the Company on or
before the due date of such Tax Returns the amount of all Taxes shown as due on
such Tax Returns to the extent that such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Company's books and records as of the Closing Date. Such Returns shall be
prepared and filed in accordance with applicable law and in a manner consistent
with past practices and shall be subject to review and approval by Parent. To
the extent reasonably requested by the Stockholders or required by law, Parent
and the Company shall participate in the filing of any Tax Returns filed
pursuant to this paragraph.
(b) The Company shall prepare or cause to be prepared and file
or cause to be filed any Tax Returns for Tax periods which begin before the
Closing Date and end after the Closing Date (except as provided in Section
5.1(a)(ii)). The Stockholders shall pay to the Company within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the
31
portion of such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the current
liability accruals for Taxes (excluding reserves for deferred Taxes) shown on
the Company's books and records as of the Closing Date. For purposes of this
Section 5.1, in the case of any Taxes that are imposed on a periodic basis and
are payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
(c) Parent and the Company on one hand and Stockholders on the
other hand shall (A) cooperate fully, as reasonably requested, in connection
with the preparation and filing of Tax Returns pursuant to this Section 5.1 and
any audit, litigation or other proceeding with respect to Taxes; (B) make
available to the other, as reasonably requested, all information, records or
documents with respect to Tax matters pertinent to the Company for all periods
ending prior to or including the Closing Date; and (C) preserve information,
records or documents relating Tax matters pertinent to the Company that is in
their possession or under their control until the expiration of any applicable
statute of limitations or extensions thereof.
(d) The Stockholders shall timely pay all transfer,
documentary, sales, use, stamp, registration and other Taxes and fees arising
from or relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
Parent and the Company will join in the execution of any such Tax Returns and
other documentation.
5.2 EMPLOYEE BENEFIT PLANS. If reasonably requested by Parent, the
Company shall terminate any Company Plan or Company Benefit Arrangement
substantially contemporaneously with the Closing. Notwithstanding the foregoing,
with respect to any Company Plan or Company Benefit Arrangement that is not
terminated or merged into an existing Parent plan or benefit arrangement
substantially contemporaneously with the Closing, the Stockholders shall
cooperate (and shall use their reasonable efforts to cause the officers and
employees of the Company that are responsible to administering any such Company
Plan or Company Benefit Arrangement to cooperate) with Parent on and after the
Closing Date in continuing to administer and maintain such Company Plan or
Company Benefit Arrangement in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
applicable federal and state securities laws,
32
until such time as the Company Plan or Company Benefit Arrangement are
terminated or merged into a Parent plan or benefit arrangement.
5.3 RELATED PARTY AGREEMENTS. The Company and/or the Stockholders, as
the case may be, shall terminate any Related Party Agreements which Parent
requests the Company or Stockholders to terminate.
5.4 COOPERATION.
(a) The Company, Stockholders and Parent 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 instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the chairman and vice president of the Company shall
execute any documentation reasonably required by Parent's Independent Auditors
(in connection with such accountant's audit of the Company) or the Nasdaq
National Market.
(b) The Stockholders and the Company shall cooperate and use
their reasonable efforts to have the present officers, directors and employees
of the Company cooperate with Parent on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) Each party hereto shall cooperate in obtaining all
consents and approvals required under this Agreement to effect the transactions
contemplated hereby
5.5 ACCESS TO INFORMATION; PUBLIC DISCLOSURE.
(a) Between the date of this Agreement and the Closing Date,
the Company will provide to the officers and authorized representatives of
Parent (i) access to all of the sites, properties, books and records of the
Company, (ii) within thirty (30) days of the end of each calendar month starting
with February 1998, a copy of the Company's unaudited balance sheet and income
statements for such month on a cash basis and a statement of Accounts Receivable
with the detail set forth in Section 3.13, (iii) as promptly as reasonably but
in any event within thirty days of March 31, 1998 and the Closing, a copy of the
Company's unaudited balance sheet and income statements as of such dates on an
accrual basis, and (iv) such additional financial and operating data and other
information as to the business and properties of the Company as Parent may from
time to time reasonably request, including without limitation, access upon
reasonable request to the Company's employees, customers, vendors, suppliers and
creditors for due diligence inquiry. No information or knowledge obtained in any
investigation pursuant to this Section 5.5 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the transactions contemplated
hereby. Parent shall bear the cost of the preparation of accrual basis
statements pursuant to clause (iii) of this Section 5.5(a).
33
(b) Prior to the Closing, neither the Company nor any
Stockholder shall make any disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement unless previously approved by Parent in
writing. Parent agrees to keep the Company and the Stockholders apprised in
advance of any disclosure of the subject matter of this Agreement by Parent
prior to the Closing.
5.6 CONDUCT OF BUSINESS PENDING CLOSING. Between the date hereof and
the Closing, the Company will (except to the extent approved in writing by
Parent, or except as requested or agreed by Parent in writing):
(a) carry on its business in substantially the same manner as
it has heretofore and not introduce any material new method of management,
operation or accounting (except for the conversion of the Company from the cash
to accrual method of 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 all of its obligations under agreements relating
to or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use all commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present officers and key
employees and maintain its relationships with suppliers, vendors, customers,
creditors and others having business relations with it;
(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;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments (except as may be permitted in
connection with the performance of the provisions of Section 7.8); and
(h) maintain present salaries and commission levels for all
officers, directors, employees, agents, representatives and independent
contractors, except for ordinary and customary bonuses and salary increases for
employees (other than employees who are also Stockholders) in accordance with
past practice.
5.7 PROHIBITED ACTIVITIES. Between the date hereof and the Closing,
except as provided in Section 5.13, the Company will not, without the prior
written consent of Parent, which consent shall not be unreasonably withheld:
34
(a) make any change in its Articles of Incorporation or
Bylaws, or authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance,
delivery or sale of any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind, or authorize or propose
any change in its equity capitalization, or issue or authorize the issuance of
any debt securities;
(c) declare or pay any dividend, or make any distribution
(whether in cash, stock or property) in respect of its stock whether now or
hereafter outstanding, or split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or purchase, redeem
or otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, or guarantee any
indebtedness, except in the ordinary course of business and consistent with past
practice in an amount not to exceed, in aggregate, $50,000 (or except as may be
permitted in connection with the performance of the provisions of Section 7.8),
including contracts to provide services to customers;
(e) increase the compensation payable or to become payable to
any officer, director, Stockholder, employee, agent, representative or
independent contractor (for purposes of this clause, the current combined
compensation of Xxxxx X. Xxxxxxx, XX and Xxxxxx Xxxx Xxxxxxx, in whatever
capacities, shall be deemed not to exceed, in aggregate, $30,000 on a monthly
basis); make any bonus or management fee payment to any such person; make any
loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; grant any severance or termination pay; or hire any employees other
than clerical or secretarial employees who have annual salaries exceeding, in
aggregate, $50,000;
(f) create or assume any mortgage, pledge or other lien or
encumbrance upon any assets or properties whether now owned or hereafter
acquired (except as may be permitted in connection with the performance of the
provisions of Section 7.8);
(g) sell, assign, lease, pledge or otherwise transfer or
dispose of any property or equipment except in the ordinary course of business
consistent with past practice in an amount not to exceed, in aggregate, $10,000
(or except as may be permitted in connection with the performance of the
provisions of Section 7.8);
(h) except as permitted by Section 5.7(d), acquire or
negotiate for the acquisition of (by merger, consolidation, purchase of a
substantial portion of assets or otherwise) any business or the start-up of any
new business, or otherwise acquire or agree to acquire any assets;
35
(i) merge or consolidate or negotiate or agree to merge or
consolidate with or into any other corporation;
(j) waive any material rights or claims 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;
(k) commit a breach of or amend or terminate any material
agreement, permit, license or other right;
(l) enter into any transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of
bills;
(n) revalue any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
tax accounting method other than in the ordinary course of business and
consistent with past practice, change any tax accounting method, file any Tax
Return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax Return, enter into any closing agreement,
settle any tax claim or assessment, or consent to any tax claim or assessment,
without the prior written consent of Parent;
(p) change the name of the Company, or operate under or use
any legal name, trade name, fictitious name or other name, other than the names
listed on Schedule 3.19 in the jurisdictions indicated;
(q) introduce any promotional offer, including, without
limitation, discounted and free products or services or reduce standard pricing
levels for the Company's goods or services with pricing that is less than 20%
below the average pricing for comparable clients; or
(r) take, or agree (in writing or otherwise) to take, any of
the actions described in Sections 5.10(a) through (q) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles VI and VII not being satisfied.
5.8 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall give
prompt notice to the other parties hereto of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (b)
any material
36
failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such party hereunder. The delivery
of any notice pursuant to this Section 5.12 shall not, without the express
written consent of the other parties be deemed to (x) modify the representations
or warranties hereunder of the party delivering such notice, (y) modify the
conditions set forth in Articles VI and VII, or (z) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
5.9 SALES OF PARENT COMMON STOCK; REGISTRATION RIGHTS.
(a) Neither Stockholder will, directly or indirectly, offer,
sell, contract to sell, pledge or otherwise dispose of the Restricted Shares
prior to the second anniversary of the Closing.
(b) The certificate or certificates evidencing the Restricted
Shares to be delivered to the Stockholders in the Transaction will be subject to
appropriate stop transfer instructions and bear the restrictive legends
described on Schedule 5.9. The Pledged Shares shall bear the restrictive legends
described on Schedule 5.9. The parties shall enter into a registration rights
agreement substantially in the form of the agreement attached hereto as Exhibit
5.9 (the "Registration Rights Agreement").
5.10 IPO. Parent shall exercise commercially reasonable efforts to
undertake and cause to become effective the IPO and register the Registered
Shares for resale by the Stockholders in the IPO.
5.11 GUARANTEE. RIGINC and RIGLP hereby guarantee the performance of
the obligations of Parent under this Agreement until completion of the RIG
Contributions. RIGINC and RIGLP shall be released from any and all obligations
under this Agreement, including without limitation obligations based on the
guarantee provided in this Section 5.11, upon completion of the RIG
Contributions.
5.12 STANDSTILL. Upon and after execution of this Agreement until the
Closing Date, the RIG Parties on the one hand, and the Xxxxxxx Parties on the
other, for themselves and on behalf their respective affiliates, successors and
assignees, agree not to (i) engage, directly or indirectly, in any business
providing real estate information services in the state of Florida or the city
of Houston, Texas, or (ii) enter into any discussions, negotiations or
agreements to engage in any such activity, without the prior written consent of
the Parent or the Stockholders' Representative for actions to be taken by the
Xxxxxxx Parties or the RIG Parties, respectively.
5.13 OTHER OBLIGATIONS. Notwithstanding any other provision of this
Agreement and except as provided in the following sentence, the Xxxxxxx Parties
agree to assume responsibility for, and indemnify and hold the RIG Parties
harmless from, any and all liabilities arising from or relating to the Company's
obligations set forth on Schedule 5.13. The Company may take actions described
in clauses (c), (d) or (e) of Section 5.7 and/or pay for the liabilities assumed
by the Xxxxxxx Parties pursuant to the preceding sentence of this Section 5.13
provided that the amounts so expended and
37
liabilities so incurred do not exceed, in aggregate, fifty percent (50%) of the
amount, if any, by which (i) the Actual Net Worth as of the Closing Date plus
reasonable attorneys' fees paid by the Company in accordance with Section 10.7
hereof exceeds (ii) the Net Worth Target.
5.14 GUARANTEED LOAN. Prior to the Closing the Company and the
Stockholders will use, and after the Closing the Company and the Parent will
use, commercially reasonable efforts to obtain the release of any agreements of
the Stockholders guaranteeing amounts borrowed by and for the benefit of the
Company from Wachovia Bank, N.A (the "Guaranteed Loans"). If the release of such
guarantees are not obtained prior to Closing, Parent shall indemnify and hold
the Stockholders harmelss from any and all Damages (defined below) they may
incur in connection with the Guaranteed Loans (and no Indemnification Threshold
(defined below) shall apply to such indemnity).
5.15 XXXXXXX WEBSITE. Notwithstanding any other provision of this
Agreement, the Company shall be permitted to convey to one or both of the
Stockholders all of the Company's right, title and interest in and to the
"xxxxxxx.xxx" Internet Website; provided, however, that such conveyance shall be
subject to the Company's and, following the Closing, the RIG Parties',
royalty-free exclusive worldwide right to use the "xxxxxxx.xxx" Internet Website
address for a period of two years following the Closing; provided further,
however, that following the expiration of the Company's and the RIG Parties'
rights pursuant to the preceding proviso, the Stockholders shall have exclusive
rights to the "xxxxxxx.xxx" Internet Website address but shall use such address
solely for personal (and not commercial) use.
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
RIG PARTIES
The obligation of the RIG Parties to effect the transactions
contemplated hereby is subject to the satisfaction or waiver, at or before the
Closing, of the following conditions and deliveries:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date unless changes in the matters represented and
warranted herein are expressly permitted or provided herein, all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by the Company and the Stockholders on or before the
Closing Date shall have been duly complied with, performed or satisfied; and a
certificate to the foregoing effects dated the Closing Date and signed on behalf
of the Company and by each of the Stockholders shall have been delivered to
Parent.
6.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or
38
provision challenging Parent's proposed acquisition of the Company, or limiting
or restricting Parent's conduct or operation of the business of the Company (or
its own business) following the transactions contemplated hereby shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending. There shall be no action, suit
claim or proceeding of any nature pending or threatened against Parent or the
Company, their respective properties or any of their officers or directors, that
could materially and adversely affect the business, assets, liabilities,
financial condition, results of operations or prospects of the Company.
6.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and Parent shall have received a certificate signed by each
Stockholder dated the Closing Date to such effect.
6.4 CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made.
6.5 OPINION OF COUNSEL. Parent shall have received an opinion from
counsel to the Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to Parent.
6.6 COMPANY CHARTER DOCUMENTS. Parent shall have received (a) a copy of
the Articles of Incorporation of the Company certified by an appropriate
authority in the state of its incorporation and (b) a copy of the Bylaws of the
Company certified by the Secretary of the Company, and such documents shall be
in form and substance reasonably acceptable to Parent.
6.7 OTHER AGREEMENTS.
(a) Xxxxx X. Xxxxxxx, XX shall have entered into an employment
agreement with the Company substantially in the form attached hereto as Exhibit
6.7(a).
(b) Xxxxx X. Xxxxxxx, XX and Xxxxxx Xxxx Xxxxxxx shall each
have entered into an Affiliate Agreement in a form reasonably satisfactory to
Parent.
(c) Xxxxxx Xxxx Xxxxxxx shall have resigned as an employee,
officer and director of the Company with no further liability of the Company.
6.8 DUE DILIGENCE REVIEW. The Company shall have made such deliveries
as are called for hereby or reasonably requested by Parent. Parent shall be
fully satisfied in its sole discretion with the results of its review of all of
the Schedules, whether delivered before or after the execution hereof, and such
deliveries, and its review of, and other due diligence investigations with
respect to, the
39
business, operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits and condition (financial or
otherwise) of the Company.
6.9 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the Securities and Exchange Commission ("SEC") not later
than May 15, 1998 and the underwriters named therein shall have agreed to
acquire, subject to the conditions set forth in the underwriting agreement, the
shares of Parent Stock covered by such Registration Statement.
6.10 IPO. The IPO shall have been consummated or shall be consummated
simultaneously herewith, and shall have produced an implicit valuation for all
of Parent's equity (valued at the Share Price) equal to or exceeding $75
million. Notwithstanding the foregoing sentence, Parent agrees to waive the
condition set forth in this Section if the parties hereto agree on an
alternative pricing mechanism for Parent Common Stock pursuant to Section
1.2(a)(ii).
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY
The obligation of the Stockholders and the Company to effect the
transactions contemplated hereby is subject to the satisfaction or waiver, at or
before the Closing, of the following conditions and deliveries:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All of
the representations and warranties of Parent contained in this Agreement shall
be true, correct and complete on and as of the Closing Date with the same effect
as though such representations and warranties had been made as of such date; all
of the terms, covenants, agreements and conditions of this Agreement to be
complied with, performed or satisfied by Parent on or before the Closing Date
shall have been duly complied with, performed or satisfied; and a certificate to
the foregoing effects dated the Closing Date and signed by the President or any
Vice President of Parent shall have been delivered to the Company and the
Stockholders.
7.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Parent's proposed acquisition of the Company, or limiting or restricting
Parent's conduct or operation of the business of the Company (or its own
business) following the transactions contemplated hereby shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature pending or threatened, against Parent or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Parent and its subsidiaries
taken as a whole.
40
7.3 CONSENTS AND APPROVALS. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by Parent of the transactions contemplated herein, shall have been
obtained and made.
7.4 OTHER AGREEMENTS. The Company shall have afforded Xxxxx X. Xxxxxxx,
XX an opportunity to enter into an employment agreement with the Company
substantially in the form attached hereto as Exhibit 6.7(a), and the
Registration Rights Agreement with the Parent substantially in the form attached
hereto as Exhibit 5.9.
7.5 REGISTRATION STATEMENT. Parent shall have filed with the SEC the
Registration Statement. The Registration Statement shall have been declared
effective by the SEC not later than May 15, 1998 and the underwriters named
therein shall have agreed to acquire, subject to the conditions set forth in the
underwriting agreement, the shares of Parent Common Stock covered by such
Registration Statement.
7.6 IPO. The IPO shall have been consummated or shall be consummated
simultaneously herewith, and shall have produced a valuation for number of
shares of the Parent Common Stock to be issued to the Stockholders equal to or
exceeding the Consideration. The Registered Shares shall have been registered by
the Parent as part of the IPO for immediate resale by the Stockholders, and the
sale of such shares shall not be subject to any underwriter or other
restrictions except as provided by applicable federal or state securities laws.
Notwithstanding the foregoing sentence, the Stockholders agrees to waive the
condition set forth in this Section if the parties hereto agree on an
alternative pricing mechanism for Parent Common Stock pursuant to Section
1.2(a)(ii).
7.7 OTHER TRANSACTIONS. The RIG Contributions shall have occurred prior
to the Closing or shall occur simultaneously with the consummation of this
Agreement.
7.8 LOAN ASSUMPTION. The Company shall have assumed all obligations
under that certain loan by Wachovia Bank, N.A. to the Stockholders and shall
have obtained the release of the Stockholders from all obligations, duties and
liabilities related thereto; provided, however, that the liabilities assumed by
the Company shall not exceed $111,000; provided further, however, that the
Xxxxxxx Parties shall have cooperated fully with the RIG Parties in obtaining
such assumption and release.
41
ARTICLE VIII.
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE STOCKHOLDERS AND THE COMPANY. Each
Stockholder and, if no Closing occurs, the Company, jointly and severally,
covenants and agrees to indemnify, defend, protect and hold harmless RIGINC and
RIGLP (prior to the RIG Contributions) and Parent (thereafter) and their
respective officers, directors, employees, stockholders, assigns, successors and
affiliates (individually, a "Parent Indemnified Party" and collectively, "Parent
Indemnified Parties") from, against and in respect of all liabilities, losses,
claims, damages, punitive damages, causes of action, lawsuits, administrative
proceedings (including informal proceedings), investigations, audits, demands,
assessments, adjustments, judgments, settlement payments, deficiencies,
penalties, fines, interest (including interest from the date of such damages)
and costs and expenses (including without limitation reasonable attorneys' fees
and disbursements of every kind, nature and description) (collectively,
"Damages") suffered, sustained, incurred or paid by the Parent Indemnified
Parties in connection with, resulting from or arising out of, directly or
indirectly:
(a) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(b) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Closing, the Company, under this Agreement; or
(c) any untrue statement of a material fact relating to the
Company or the Stockholders, and provided to Parent or its counsel by the
Company or the Stockholders, contained 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 to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, and not provided to Parent or its counsel by the Company
or the Stockholders.
8.2 INDEMNIFICATION BY PARENT. RIGINC and RIGLP (prior to the RIG
Contributions) and Parent (thereafter) covenant and agree to indemnify, defend,
protect and hold harmless the Stockholders and, prior to the Closing (if any),
the Company, and their respective assigns, successors and affiliates
(individually, a "Stockholder Indemnified Party" and collectively, "Stockholder
Indemni fied Parties") from, against and in respect of all Damages suffered,
sustained, incurred or paid by the Stockholder Indemnified Parties in connection
with, resulting from or arising out of, directly or indirectly:
42
(a) any breach of any representation or warranty of the RIG
Parties set forth in this Agreement or any schedule or certificate, delivered by
or on behalf of the RIG Parties in connection herewith; or
(b) any nonfulfillment of any covenant or agreement by the RIG
Parties under this Agreement; or
(c) any untrue statement or alleged untrue statement of a
material fact relating to any RIG Party contained 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 a RIG
Party required to be stated therein or necessary to make the statements therein
not misleading.
8.3 LIMITATION AND EXPIRATION. Notwithstanding anything herein to the
contrary:
(a) there shall be no liability for indemnification
(i) under Section 8.1 unless, and solely to the
extent that, the aggregate amount of Damages suffered by the Parent Indemnified
Parties under the applicable provisions exceeds $150,000.00 (an "Indemnification
Threshold"); or
(ii) under Section 8.2 unless, and solely to the
extent that, the aggregate amount of Damages suffered by the Xxxxxxx Indemnified
Parties under the applicable provisions exceeds $150,000.00 (an "Indemnification
Threshold");
provided, however, that neither Indemnification Threshold shall apply to (i)
Damages arising out of any breaches of the covenants of any Xxxxxxx Party or any
RIG Party, as the case may be, set forth in Article V of this Agreement, or
representations and warranties made in Sections 3.4 (capital stock of the
Company), 3.5 (transactions in capital stock of the Company), 3.24 (but solely
matters relating to the payment of past due sales taxes to the State of Texas by
the Company), and 4.4 (capital stock of Parent);
(b) (i) the aggregate amount of the Stockholders' and the
Company's (if any) liability under this Article VIII shall not exceed ten
percent (10%) of the Consideration (the "Stockholders' Cap"), provided, however,
that any liability arising from or in connection with any Final Consideration
Adjustment or the representations and warranties contained in Section 3.24
(taxes) and the covenants and agreements contained herein with respect to Taxes
shall not apply towards, nor be limited by, the Stockholders' Cap; and
(ii) the aggregate amount of the RIG Parties'
liability under this Article VIII shall not exceed ten percent (10%) of the
Consideration (the "RIG Cap"), provided, however, that any liability arising
from or in connection with the representations and warranties contained in
43
Section 4.11 (taxes) and the covenants and agreements contained herein with
respect to Taxes shall not apply towards, nor be limited by, the RIG Cap;
(c) the indemnification obligations under this Section 8 or in
any certificate or writing furnished in connection herewith shall terminate on
the later of clause (i) or (ii) below:
(i) (1) except as to representations,
warranties, and covenants specified in clause (i)(2) of this Section 8.3(c), the
first anniversary of the Closing, or
(2) with respect to representations and
warranties contained in Sections 3.21 (environmental matters), 3.23 (employee
benefit plans), 3.17 (intellectual property), 3.24 (taxes) and 4.9 (taxes), on
(A) the date that is six (6) months after the expiration of the longest
applicable federal or state statute of limitation (including extensions
thereof), or (B) if there is no applicable statute of limitation, five (5) years
after the Closing; or
(ii) the final resolution of claims or demands (a
"Claim") pending as of the relevant dates described in clause (i) of this
Section 8.3(c) (such claims referred to as "Pending Claims").
8.4 INDEMNIFICATION PROCEDURES. All claims or demands for
indemnification under this Article VIII ("Claims") shall be asserted and
resolved as follows:
(a) In the event that any Parent Indemnified Party or
Stockholder Indemnified Party (an "Indemnified Party") has a Claim against any
party obligated to provide indemnification pursuant to Section 8.1 or 8.2 hereof
(the "Indemnifying Party") which does not involve a Claim being asserted against
or sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Indemnifying Party of such Claim, specifying
the nature of such Claim and the amount or the estimated amount thereof to the
extent then feasible (the "Claim Notice"). If the Indemnifying Party does not
notify the Indemnified Party within thirty (30) days after the date of delivery
of the Claim Notice that the Indemnifying Party disputes such Claim, with a
detailed statement of the basis of such position, the amount of such Claim shall
be conclusively deemed a liability of the Indemnifying Party hereunder. In case
an objection is made in writing in accordance with this Section 8.4(a), the
Indemnified Party shall respond in a written statement to the objection within
fifteen (15) days and, for sixty (60) days thereafter, attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
Claims (and, if the parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties).
(b) (i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Indemnifying Party . The Indemnifying
Party shall have fifteen (15) days from date of delivery of the Claim Notice to
notify the Indemnified Party (A) whether the Indemnifying Party disputes
liability to the Indemnified Party hereunder with respect to the Third Party
Claim, and, if so, the basis for such a dispute, and (B)
44
if such party does not dispute liability, whether or not the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend
against the Third Party Claim, provided that the Indemnified Party is hereby
authorized (but not obligated), prior to and during the Notice Period, to file
any motion, answer or other pleading and to take any other action which the
Indemnified Party shall deem necessary or appropriate to protect the Indemnified
Party's interests.
(ii) In the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that the Indemnifying
Party does not dispute the Indemnifying Party's obligation to indemnify with
respect to the Third Party Claim, the Indemnifying Party shall defend the
Indemnified Party against such Third Party Claim by appropriate proceedings,
provided that, unless the Indemnified Party otherwise agrees in writing, the
Indemnifying Party may not settle any Third Party Claim (in whole or in part) if
such settlement does not include a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party may do so at its
sole cost and expense. If the Indemnifying Party elects not to defend the
Indemnified Party against a Third Party Claim, whether by failure of such party
to give the Indemnified Party timely notice as provided herein or otherwise,
then the Indemnified Party, without waiving any rights against such party, may
settle or defend against such Third Party Claim in the Indemnified Party's sole
discretion and the Indemnified Party shall be entitled to recover from the
Indemnifying Party the amount of any settlement or judgment and, on an ongoing
basis, all indemnifiable costs and expenses of the Indemnified Party with
respect thereto, including interest from the date such costs and expenses were
incurred.
(iii) If at any time, in the reasonable opinion of
the Indemnified Party, notice of which shall be given in writing to the
Indemnifying Party, any Third Party Claim seeks material prospective relief
which could have an adverse effect on any Indemnified Party or the Company or
any subsidiary, the Indemnified Party shall have the right to control or assume
(as the case may be) the defense of any such Third Party Claim and the amount of
any judgment or settlement and the reasonable costs and expenses of defense
shall be included as part of the indemnification obligations of the Indemnifying
Party hereunder. If the Indemnified Party elects to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such Third Party Claim at the sole cost and expense of the
Indemnifying Party.
(iv) If the Indemnifying Party is a Stockholder, then
any notice required to be given under this Section 8.4 shall be given to the
Stockholders' Representative.
(c) Nothing herein shall be deemed to prevent the Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) Subject to the provisions of Section 8.3, the Indemnified
Party's failure to give reasonably prompt notice as required by this Section 8.4
of any actual, threatened or possible claim
45
or demand which may give rise to a right of indemnification hereunder shall not
relieve the Indemnifying Party of any liability which the Indemnifying Party may
have to the Indemnified Party except to the extent that failure to give such
notice materially and adversely prejudiced the Indemnifying Party.
8.5 EFFECTIVENESS OF REPRESENTATIONS WARRANTIES. All representations
and warranties made by the Company, the Stockholders, and each of the RIG
Parties in or pursuant to this Agreement or in any document delivered pursuant
hereto shall be deemed to have been made on the date of this Agreement (except
as otherwise provided herein) and, if a Closing occurs, as of the Closing Date.
8.6 REMEDIES. Except for any liability based on a finding of fraud, the
exclusive remedy of any party hereto arising by reason of the breach of any
representation or warranty set forth herein or the default in or breach of any
covenant, condition, agreement or undertaking by any other party hereto shall be
limited to the indemnification rights set forth in this Article VIII.
8.7 SET OFF. Subject only to the limitations of this Article VIII, and
without limitation of any right of the Parent Indemnified Parties to
indemnification or payment under this Agreement or applicable law, the Parent
Indemnified Parties shall have the obligation to seek recovery of (a) any Final
Consideration Adjustment under Section 1.3 (but such obligation to seek set off
shall not exceed 25% of the value of the then existing Pledged Assets) or (b)
any Damages under Section 8.4, first by set-off against the Pledged Assets. To
the extent that the liability of the Stockholders hereunder exceeds the value of
the Pledged Assets, Parent agrees to accept from the Stockholders Restricted
Shares before seeking the delivery of any other shares or cash. For purposes of
the preceding two sentences, the Pledged Shares shall be valued as provided in
Section 1.4(d) above.
8.8 SPECIAL TAX PROVISION. If the Company or Parent receives any Tax
refund attributable to the period prior to the Closing, then the amount of such
refund shall reduce the amount of claims, if any, of Parent against the
Stockholders for breach of the representations and warranties in Section 3.24 or
of the covenants in Section 5.1.
ARTICLE IX.
NONCOMPETITION
9.1 PROHIBITED ACTIVITIES. No Stockholder will, for a period of two (2)
years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself, herself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant
46
or adviser, or as a sales representative, in any business selling any products
or services in direct competition with Parent, in the United States, Canada, or
the United Kingdom, (the "Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of Parent in a managerial capacity for the purpose or
with the intent of enticing such employee away from or out of the employ of
Parent;
(c) call upon any person who is or entity that is, at that
time, or that has been, within one year prior to that time, a customer of Parent
within the Territory for the purpose of soliciting or selling products or
services in competition with Parent within the Territory; or
(d) call upon any prospective acquisition candidate that was,
to the knowledge of such Stockholder, either called upon by Parent as a
prospective acquisition candidate or was the subject of an acquisition analysis
by Parent. Each Stockholder, to the extent lacking the knowledge described in
the preceding sentence, shall immediately cease all contact with such
prospective acquisition candidate upon being informed that Parent had called
upon such candidate or made an acquisition analysis thereof.
For purposes of this Article IX, the term "Parent" includes all subsidiaries of
Parent (including without limitation the Company and any companies Parent has
resolved to acquire).
9.2 CONFIDENTIALITY.
(a) Each Stockholder recognizes that by reason of his or her
ownership of the Company and his or her employment by the Company, he or she has
acquired confidential information and trade secrets concerning the operation of
the Company, the use or disclosure of which could cause the Company or its
affiliates or subsidiaries substantial loss and damages that could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, each Stockholder covenants and agrees with the Company and Parent
that he or she will not for a period of two (2) years following the Closing Date
(or in the case of trade secrets (as defined under applicable law) for so long
as the information remains a trade secret) except in performance of
Stockholder's obligations to the Company or with the prior written consent of
the Company pursuant to authority granted by a resolution of the Board, directly
or indirectly, disclose any secret or confidential information that he or she
may learn or has learned by reason of his or her ownership of the Company or his
or her employment by the Company, or any of its subsidiaries and affiliates, or
use any such information in a manner detrimental to the interests of the Company
or Parent, unless (i) such information becomes known to the public generally
through no fault of any Stockholder, (ii) disclosure is required by law or the
order of any governmental authority under color of law, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information pursuant to clause (i), (ii) or (iii) above, the
Stockholder (as applicable) shall give prior written notice thereof to Parent
and provide Parent with the opportunity to contest such disclosure and shall
cooperate with efforts to prevent such disclosure. The term "confidential
information" includes, without limitation, information not
47
previously disclosed to the public or to the trade by the Company's or Parent's
management with respect to the Company's or Parent's, or any of their
affiliates' or subsidiaries', products, facilities, and methods, trade secrets
and other intellectual property, software, source code, systems, procedures,
manuals, confidential reports, product price lists, customer lists, financial
information (including the revenues, costs, or profits associated with any of
the Company's products), business plans, prospects, or opportunities but shall
exclude any information already in the public domain.
(b) The RIG Parties and their affiliates on the one hand, and
the Xxxxxxx Parties and their affiliates on the other, shall not disclose the
existence or terms of this Agreement or the transactions contemplated hereby
(whether or not in response to any inquiry) without the prior written consent of
the other side; provided, however, that the parties and their respective
affiliates shall have the right to disclose in filings with the Securities and
Exchange Commission all information relating to the transactions contemplated
hereby required or deemed desirable to be disclosed in connection with the IPO.
9.3 DAMAGES. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Parent in the event of breach by such Stockholder,
by injunctions and restraining orders.
9.4 REASONABLE RESTRAINT. The parties agree that the foregoing
covenants in this Article IX impose a reasonable restraint on each Stockholder
in light of the activities and business of Parent on the date of the execution
of this Agreement, assuming the completion of the transactions contemplated
hereby, and the current plans of Parent; but it is also the intent of Parent and
each Stockholder that such covenants be construed and enforced in accordance
with the changing activities and business of Parent throughout the term of this
covenant. The parties further agree that so long as a Stockholder is not an
employee of the Company, in the event a Stockholder shall enter into a business
or pursue other activities not in competition with Parent or similar activities
or business in locations the operation of which, under such circumstances, does
not violate Section 9.1(a) or the terms of any employment agreement with Parent,
such Stockholder shall not be chargeable with a violation of this Article IX if
Parent shall thereafter enter the same, similar or a competitive (a) business,
(b) course of activities or (c) location, as applicable.
9.5 SEVERABILITY; REFORMATION. The covenants in this Article IX are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
9.6 INDEPENDENT COVENANT. All of the covenants in this Article IX shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim
48
or cause of action of any Stockholder against Parent, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. The parties expressly acknowledge that the terms and
conditions of this Article IX are independent of the terms and conditions of any
other agreements including, but not limited to, any employment agreements
entered into in connection with this Agreement. It is specifically agreed that
the period of two (2) years stated at the beginning of this Article IX during
which the agreements and covenants of the Stockholder made in this Article IX
shall be effective, shall be computed by excluding from such computation any
time during which the Stockholder is found by a court of competent jurisdiction
to have been in violation of any provision of this Article IX. The covenants
contained in Article IX shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
9.7 MATERIALITY. The Company and each Stockholder hereby agree that the
covenants set forth in this Article IX are a material and substantial part of
the transactions contemplated by this Agreement, supported by adequate
consideration.
ARTICLE X.
GENERAL
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of Parent and
the Company; or
(b) by the Stockholders and the Company as a group, on the one
hand, or by Parent, on the other hand, if the Closing shall not have occurred on
or before May 25, 1998 and no alternative pricing methodology (as described in
Section 1.2(a)) has been agreed to; or
(c) by the Stockholders and the Company as a group, on the one
hand, or by Parent, on the other hand, if there is or has been a material
breach, failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one
hand, or by Parent, on the other hand, if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
transactions contemplated hereby; or there shall be any action taken, or any
statute, rule regulation or order enacted, promulgated or issued or deemed
applicable
49
to the transactions contemplated hereby by any governmental entity which would
make the consummation of the transactions contemplated hereby illegal.
10.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant
to Section 10.1 for a Qualifying Purpose (defined below), this Agreement shall
forthwith become ineffective, and no party hereto or any of their officers,
directors or shareholders shall have any liability or obligation hereunder, and,
with respect to such termination for a Qualifying Purpose, the parties hereby
release and covenant and agree not to xxx the other parties hereto for any
Damages suffered, sustained or incurred for such termination.
(b) In the event of the termination of this Agreement pursuant
to Section 10.1 for other than a Qualifying Purpose (including, without
limitation, termination by any party for the failure by the other party to close
the Transaction), then this Agreement shall become ineffective except that: (i)
the provisions of Articles VIII and X and Section 9.2 shall remain in full force
and effect and survive any termination of this Agreement and (ii) each party
shall remain liable to the other for such breach of this Agreement prior to its
termination.
(c) For purposes of this Section 10.2: (i) a "Qualifying
Purpose" means an "Equity Shortfall," a breach of the "Qualifying
Representations, Warranties or Covenants" or a "Non-Material Breach"; (ii) an
"Equity Shortfall" means that the underwriter has notified any of the parties
that it expects that the IPO will produce an implicit valuation for all of the
Parent's equity (valued at the Share Price) of less than $75 million, and none
of the RIG Parties has previously given written notice to the Xxxxxxx Parties
(acting in good faith) of a material breach of any of the representations,
warranties, covenants and agreements that are not Qualifying Representations,
Warranties or Covenants or are other than Non-Material Breaches; (iii)
"Qualifying Representations, Warranties or Covenants" means those
representations, warranties and/or covenants set forth in Sections 3.10 (but
only to the extent of litigation that was unknown and not reasonably foreseeable
as of the date hereof), 3.16(c) (but only to the extent relating to ordinary
wear and tear), 3.17 (but only to the extent of litigation that was unknown and
not reasonably foreseeable as of the date hereof), 3.22(g), 3.25(a), 3.27(a),
3.27(m), 3.28, 4.4(a), 4.4(b), 4.6 (but only to the extent of litigation that
was unknown and not reasonably foreseeable as of the date hereof), 4.8 (but only
to the extent of litigation that was unknown and not reasonably foreseeable as
of the date hereof), 4.12(a), 5.6(a), 5.6(b), 5.6(e) and 5.7(k) (provided,
however, Sections 5.6(a), 5.6(b), 5.6(e) and 5.7(k) shall constitute Qualifying
Representations, Warranties or Covenants only to the extent that the
Stockholders had no knowledge of the action(s) giving rise to the claim of
breach); and (iv) a "Non-Material Breach" means any breach of the
representations, warranties, covenants or agreements set forth herein that could
not reasonably be expected, individually or in aggregate, to be likely to lead
to the loss by any or all of the RIG Parties, on the one hand, or the Xxxxxxx
Parties, on the other, of greater than $150,000.
50
10.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Parent, and the heirs and legal representatives of the
Stockholders.
10.4 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 9.5. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
10.6 BROKERS AND AGENTS. The RIG Parties on the one hand, and the
Xxxxxxx Parties on the other, each represent and warrant to the other that it
has not employed any broker or agent in connection with the transactions
contemplated by this Agreement and agrees to indemnify the other against all
losses, damages or expenses relating to or arising out of claims for fees or
commission of any broker or agent employed or alleged to have been employed by
such party.
10.7 EXPENSES. The RIG Parties have and will pay the fees, expenses and
disbursements of their agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement. The Stockholders (and
not the Company) have and will pay the fees, expenses and disbursements of the
Stockholders, the Company, and their agents, representatives, financial
advisers, accountants and counsel incurred in connection with the subject matter
of this Agreement, including, without limitation, personal legal expenses and
underwriting discounts and fees incurred in connection with the sale of the
Registered Shares. Notwithstanding the foregoing, the Company shall pay
reasonable attorneys' fees not in excess of thirty-five thousand dollars
($35,000) incurred by the Company in preparing the Company for the Transactions,
and the RIG Parties shall bear the expense of converting the financial
statements of the Company to the accrual method of accounting and the cost of
the audits of the Company required to effect the IPO and the Post-Closing Audit.
10.8 NOTICES. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
51
If to Parent to:
Xx. Xxxxxxx X. Xxxxx, Chairman
Xx. Xxxxxx Xxxxxxxx, President
Realty Information Group
0000 Xxxxxxxxx Xxxxxx
Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
(Telefax: (000) 000-0000)
with a required copy to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxx X. Xxxxxx, Esq.
(Telefax: (000) 000-0000)
If to any Stockholder to:
Xxxxxx Xxxx Xxxxxxx
000 Xxxxxxxxxx Xxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000
(Telefax: (000) 000-0000)
with a required copy to:
Cushing, Morris, Xxxxxxxxxx & Xxxxx, LLP
2110 Peachtree Center
International Tower
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000
Attn: Xxx X. Xxxxx
(Telefax: (000) 000-0000)
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
52
10.9 GOVERNING LAW.
(a) This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of Delaware
(b) Any disputes arising out of, in connection with or with
respect to this Agreement, the subject matter hereof, the performance or
non-performance of any obligation hereunder, or any of the transactions
contemplated hereby ("Disputes") that seek specific performance of any
obligations hereunder or injunctive relief may be adjudicated in any court of
competent civil jurisdiction.
(c) Except as provided in Section 10.9(b), all Disputes shall
be resolved by binding arbitration administered by the American Arbitration
Association ("AAA") and, except as expressly provided in this Agreement, shall
be conducted in accordance with the Expedited Procedures under the Commercial
Arbitration Rules of the AAA, as such rules may be amended from time to time
(the "Rules").
(i) The hearing locale shall be determined in
accordance with the Rules. A single, neutral arbitrator (the "Arbitrator") shall
be appointed by the AAA, within thirty (30) days after an Arbitrated Dispute is
submitted for arbitration under this Section 10.9(c), to preside over the
arbitration and resolve the Dispute. The Arbitrator shall be selected from the
AAA's Commercial Panel, and shall be qualified to practice law in at least one
jurisdiction in the United States and have expertise in the interpretation of
commercial contracts. The parties shall have ten (10) days to object in writing
to the appointment of the Arbitrator, the sole basis for such objection being an
actual conflict of interest. The AAA, in its sole discretion, shall determine
within ten (10) days the validity of any objection to the appointment of the
Arbitrator based on an actual conflict of interest.
(ii) The Arbitrator's decision (the "Decision") shall
be binding, and the prevailing party may enforce the Decision in any court of
competent jurisdiction.
(iii) The parties shall use their best efforts to
cooperate with each other in causing the arbitration to be held in as efficient
and expeditious a manner as practicable, including but not limited to, providing
such documents and making available such of their personnel as the Arbitrator
may request, so that the Decision may be reached timely. The Arbitrator shall
take into account the parties' stated goal of expedited proceedings in
determining whether to authorize discovery and, if so, the scope of permissible
discovery and other hearing and pre-hearing procedures.
(iv) The authority of the Arbitrator shall be limited
to deciding liability for, and the proper amount of, a Claim, and the Arbitrator
shall have no authority to award punitive damages. The Arbitrator shall have
such powers and establish such procedures as are provided for in the Rules, so
long as such powers and procedures are consistent with this Section 10.9(c) and
are necessary to resolve the Dispute within the time periods specified in this
Agreement. The Arbitrator
53
shall render a Decision within sixty (60) days after being appointed to serve as
Arbitrator, unless the parties otherwise agree in writing or the Arbitrator
makes a finding that a party has carried the burden of showing good cause for a
longer period.
10.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.5.
10.11 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
10.12 MUTUAL DRAFTING. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
10.13 FURTHER REPRESENTATIONS. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
[EXECUTION PAGE FOLLOWING]
54
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
REALTY INFORMATION GROUP XXXXXXX RESEARCH, INC.
(DELAWARE), INC.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
REALTY INFORMATION GROUP, STOCKHOLDERS:
INC.
----------------------------------
By: Xxxxx X. Xxxxxxx, XX
------------------------------
Name:
Title:
----------------------------------
Xxxxxx Xxxx Xxxxxxx
REALTY INFORMATION GROUP, L.P.
By:
------------------------------
Name:
Title:
55
