EXHIBIT 10.17
CLASS B COMMON STOCK AND WARRANT PURCHASE
AGREEMENT
by and among
RAYMOND KARSAN HOLDINGS, INC.
and
PARTHENON INVESTORS, L.P.
PCIP INVESTORS
JMH PARTNERS CORP.
SHAD RUN INVESTMENTS, L.P.
TSG CO-INVESTORS, LLC
THE SHATTAN GROUP, LLC
THOMAS S. SHATTAN
GREGORY E. MENDEL
G. KEVIN FECHTMEYER
Dated as of December 16, 1999
CLASS B COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
This Class B Common Stock and
Warrant Purchase Agreement (the “Agreement”) dated as
of December 16, 1999 by and among Raymond Karsan Holdings, Inc., a
Pennsylvania corporation (“RK Holdings” and together
with its subsidiaries, the “Company”), Parthenon
Investors, L.P., a Delaware limited partnership (the
“Parthenon Investors”), PCIP Investors, a Delaware
general partnership (“PCIP”), JMH Partners Corp., a
Delaware corporation (together with Parthenon Investors and PCIP,
“Parthenon”), Shad Run Investments, L.P., a Delaware
limited partnership (“Shad Run”), TSG Co-Investors,
LLC, a Delaware limited liability company (“TSG”), The
Shattan Group, LLC, a Delaware limited liability company, Thomas S.
Shattan, Gregory E. Mendel, and G. Kevin Fechtmeyer (together with
The Shattan Group, LLC, Thomas S. Shattan and Gregory E. Mendel,
“Shattan”) (Shattan, Parthenon, Shad Run and TSG are
referred to herein collectively as the “Investors”)
provides for the issuance and sale of certain shares of Class B
common stock and warrants for the purchase of Class A common stock
of the Company. To the extent an Investor assigns certain of its
rights under this Agreement to any co-investment fund or Affiliate,
such entities, together with the Investors, will be referred to as
the “Investors.”
Recitals
WHEREAS, the Company recently
effected a reorganization (the “Reorganization”),
whereby International Holding Company, Inc., a Pennsylvania
corporation (“IHC”) and Insurance Services, Inc., a
Pennsylvania corporation (“ISI”) were merged with and
into Raymond Karsan Associates, Inc. (“RKA”), a wholly
owned subsidiary of RK Holdings;
WHEREAS, RK Holdings wishes to issue
and sell to Parthenon, Shad Run and TSG and Parthenon, Shad Run and
TSG wish to purchase from RK Holdings 98,948 shares of Class B
Common Stock, $.01 par value (“Class B Common Stock”),
of RK Holdings, Warrants for the purchase of 9,905 shares of Class
A Common Stock, $.01 par value, of RK Holdings (“Class A
Common Stock”) at an exercise price of $0.01 per share, in
the form of Exhibits A-1 and A-2 hereto (the “Class A-1
Warrants” and “Class A-2 Warrants”), Warrants for
the purchase of 17,888 shares of Class A Common Stock of RK
Holdings at an exercise price of $835.00 per share, in the form of
Exhibit B hereto (the “Class B Warrants” and,
collectively with the Class A-1 and A-2 Warrants, the “Cash
Warrants”), and certain rights to require the Company to
repurchase certain shares of Class B Common Stock and Warrants
pursuant to the Investor Put Agreements between RK Holdings and
each of such Investors (the “Put Rights”). The Class B
Common Stock, the Cash Warrants, and the Put Rights are referred to
herein collectively as the “Purchased Securities”. The
terms of the Class B Common Stock are set forth in the Amended and
Restated Articles of Incorporation of RK Holdings, a copy of which
is set forth as Exhibit F hereto, which has been filed by RK
Holdings with the Pennsylvania Secretary of State’s office
immediately prior to the Closing hereunder.
1
WHEREAS, RK Holdings wishes to issue
and sell to Shattan, and Shattan wishes to purchase from RK
Holdings, Warrants for the purchase of 3,962 shares of Class A
Common Stock, at an exercise price of $167 per share, in the form
of Exhibit D hereto (the “Class D Warrants”) and
Warrants for the purchase of 328 shares of Class A Common Stock of
RK Holdings, at an exercise price of $835 per share, in the form of
Exhibit E hereto (the “Class E Warrants”, and together
with the Class D Warrants, the “Shattan Warrants”). The
Cash Warrants and the Shattan Warrants are referred to collectively
herein as the “Investor Warrants”;
WHEREAS, the Company will redeem at
Closing, on terms which shall be reasonably satisfactory to the
Investors, all of its capital stock owned by each of Barry Raymond
and Jerry Connolly for an aggregate price of $7,338,564.00 (the
“Raymond Redemption Agreement” and the “Connolly
Redemption Agreement”, respectively);
WHEREAS, the Company will issue
Class C-1 Warrants and Class C-2 Warrants for the purchase, in the
aggregate, of 9,905 shares of Class A Common Stock to Existing
Stockholders as a dividend on the Closing Date;
WHEREAS, the Board of Directors of
RK Holdings has approved and deems it advisable and in the best
interest of RK Holdings to complete the transactions hereinabove
described upon the terms and subject to the conditions set forth
herein; and
WHEREAS, in furtherance of such
transactions, the Board of Directors of each of RK Holdings, ISI
and IHC have unanimously approved and the stockholders of both ISI
and IHC have each by majority vote approved this
Agreement.
Agreement
Therefore, in consideration of the
foregoing and the mutual agreements and covenants set forth below,
the parties hereto hereby agree as follows:
Certain capitalized terms are used
in this Agreement as specifically defined herein. These definitions
are set forth or referred to in Section 10 hereof.
|
|
2.
|
THE ISSUANCE
AND SALE.
|
2.1 The Issuance and Sale .
On the Closing Date (as defined in Section 3.1 below), subject to
the terms and conditions set forth in this Agreement, Parthenon,
Shad Run and TSG will purchase and RK Holdings will sell and issue:
(a) 98,948 shares of RK Holdings’ Class B Common Stock, (b)
the Class A-1, Class A-2 and Class B Warrants for the purchase of
shares of RK Holdings’ Class A Common Stock, and (c) the Put
Rights requiring RK Holdings to
-2-
repurchase from Parthenon, Shad Run and TSG
certain shares of Class B Common Stock and Warrants for $22,000,000
(the “Cash Investment”).
2.2 The Seller Warrants . On
the Closing Date (as defined in Section 3.1 below), RK Holdings
will issue to the Existing Stockholders as a dividend Class C-1 and
Class C-2 Warrants for the purchase, in the aggregate, of 9,905
shares of RK Holdings’ Class A Common Stock, in the form of
Exhibit C-1 and Exhibit C-2 hereto (the “Seller
Warrants”).
2.3 The Shattan Warrants . On
the Closing Date (as defined in Section 3.1 below), subject to the
terms and conditions set forth in this Agreement, RK Holdings will
issue to Shattan (a) the Class D Warrants for the purchase of 3,962
shares of RK Holdings’ Class A Common Stock and (b) the Class
E Warrants for the purchase of 328 shares of RK Holdings’
Class A Common Stock.
2.4 Purchase Price
Adjustments .
2.4.1 In the event that the Company
recognizes a Tax Liability at any time after the Closing, the
aggregate amount paid for the Purchased Securities shall be
adjusted and shall require either (a) a return of cash to the
Investor equal to 47% of the total Tax Liability (the “Cash
Adjustment”) or (b) a distribution of additional shares of
Class B Common Stock equal to the amount of the Cash Adjustment
divided by $167. RK Holdings shall make the foregoing adjustment in
accordance with clause (b) above if the Board of Directors
(including at least one Investor Director) determines that making
the adjustment pursuant to clause (a) above would (i) constitute,
result in or give rise to any breach or violation of, or any
default or right or cause of action under, any agreement to which
the Company is, from time to time, a party or (ii) leave the
Company with less cash than, in the good faith judgment of the
Board of Directors, is necessary to operate the business of the
Company and its subsidiaries in the ordinary course or
business.
2.4.2 After the Closing, the number
of outstanding Investor Securities and Seller Warrants shall be
adjusted (the “ Adjustment ”) as
follows:
(a) the Company shall issue (i) to
each Investor a number of additional shares of Class B Common Stock
equal to such Investor’s Class B Common Adjustment, if any,
(ii) to each Investor, additional Class A Warrants exercisable for
a number of shares of Class A Common Stock equal to such
Investor’s Class A Warrant Adjustment, (iii) to each
Parthenon Investor additional Class B Warrants exercisable for a
number of shares of Class A Common Stock equal to its Class B
Warrant Adjustment, if any, (iv) to each holder, additional Class C
Warrants exercisable for a number of shares of Class A Common Stock
equal to
-3-
such holder’s Class C Warrant
Adjustment, (v) additional Class D Warrants exercisable for a
number of shares of Class A common Stock equal to the Class D
Warrant Adjustment, if any, and (vi) additional Class E Warrants
exercisable for a number of shares of Class A common Stock equal to
the Class E Warrant Adjustment, if any.
(b) each Call Right Agreement and
each Investor Put Agreement shall be automatically amended to
increase the number of shares subject to the Class B Call Right and
the Primary Put Right by the relevant Call Right Adjustment, if
any, and to increase the number of shares subject to the Secondary
Put Right by the relevant Put Right Adjustment, if any.
2.4.3 As soon as practicable, and in
any event within 120 days, after the Closing Date, the Company
shall cause Deloitte & Touche LLP (or other independent
certified public accountants of recognized national standing
selected by Company) to prepare and deliver to Parthenon an audited
consolidated balanced sheet as of December 31, 1999 and related
statement of earnings of the Company for the year ended December
31, 1999 (the “ 1999 Statement of Earnings ”).
The 1999 Statement of Earnings shall be prepared in accordance with
GAAP in a manner consistent with the preparation of the
Company’s most recent audited financial statements delivered
to Parthenon prior to the date of this Agreement. The Company shall
prepare and deliver to Parthenon, simultaneously with the delivery
of the 1999 Statement of Earnings, a statement (the “
Statement ”) setting forth in reasonable detail the
Company’s calculation of its Adjusted EBITDA, and its
calculation of the Adjustment, if any.
2.4.4 Parthenon’s accountants
shall, at the Company’s expense, have 45 days after the
delivery of the 1999 Statement of Earnings and the Statement to
dispute any portion of the Company’s calculation of the 1999
Statement of Earnings or the Adjustment (a “Dispute”).
The Company shall cause its accountants to make their work papers
available to Parthenon’s accountants. In the event of a
Dispute, Parthenon or its accountants may deliver a notice of the
Dispute to the Company (the “ Disagreement Notice
”), specifying, in reasonable detail, those items or amounts
in the 1999 Statement of Earnings as to which Parthenon disagrees.
If Parthenon does not deliver a Disagreement Notice to the Company
within such 45-day period, the 1999 Statement of Earnings and the
Statement shall become final, conclusive and binding on all of the
parties hereto for all purposes of calculating the Adjustment and
shall not be subject to appeal of any kind.
2.4.5 If Parthenon or its
accountants delivers a Disagreement Notice to the Company pursuant
to Section 2.4.4, Parthenon and its accountants and the Company and
its accountants shall use their reasonable efforts to reach
agreement
-4-
on the disputed items or amounts in
order to determine the Adjustment. If both parties do not resolve
all disputed items or amounts within 30 days after delivery of the
Disagreement Notice, this Agreement and the disputed items and
amounts will be submitted to an independent nationally recognized
accounting firm mutually acceptable to both Parthenon and the
Company (the “ Independent Accountants ”) for
determination of the appropriate Adjustment pursuant to this
Section 2.4. The written report of the Independent Accountants (the
“ Report ”) shall be delivered to each of the
Company and Parthenon promptly, and shall be final, conclusive and
binding upon each of the Sellers and the Buyer. The procedures for
resolution of disputes concerning the 1999 Statement of Earnings
and the Statement set forth in Section 2.4.4 hereof and this
Section 2.4.5 shall be final, conclusive and binding on all of the
parties hereto for all purposes of calculating the Adjustment, and
shall not be subject to appeal of any kind. The fees and expenses
of the Independent Accountants shall be borne equally by the
Company, on the one hand, and the Investors, on the other hand, and
each of the Company and the Investors agree to execute a reasonably
acceptable engagement letter, if requested to do so by the
Independent Accountants.
2.4.6 From the Closing Date until
the final determination of the Adjustment, the Company shall give
Parthenon, its accountants and the Independent Accountants, if any,
reasonable access to the Company’s books and records and
their respective employees who are responsible for financial
matters.
2.4.7 The Adjustment, if any, shall
be computed as follows:
(a) calculate the excess of $7.5
million over the Adjusted EBITDA (the
“Deficit”),
(b) multiply the Deficit by 6, and
divide by $45 million (the “Interim Adjustment
Percentage”),
2.4.8 Calculation of adjusted total
capitalization
(a) Management Share and Option
Percentage (the “MSOP”) = TSOP-Interim Adjustment
Percentage
(i) TSOP = total equity percentage
prior to the Adjustment represented by shares held by stockholders
other than Investors and by options outstanding or authorized for
issuance pursuant to Section 6.9 (assuming the exercise of all
options and the Class A and Class D Warrants)
(b) Total Outstanding Initial
Adjusted (“TOIA”) = MSO/MSOP
-5-
(i) MSO = total number of shares
outstanding held by stockholders who are not investors and total
shares of Class A Common Stock issuable in respect of options
outstanding or authorized for issuance pursuant to Section
6.9
(c) Investor Percentage = with
respect to any security in question, number of Class A shares
represented by the amount of such security held by such
holder/Investor prior to the Adjustment / total number of Class A
shares represented by the total outstanding amount of such security
prior to the Adjustment
2.4.9 Class A-1 Warrant
Adjustments
(a) Adjusted Class A-1 Warrant
(“ACAW”) = TOIA * CAWP * Investor Percentage
(i) CAWP = 2.5% + (.5 * Interim
Adjusted Percentage)
(b) Class A Warrant Adjustment =
ACAW - CAW
(i) CAW = total number of shares of
Class A Common Stock issuable to such Investor upon the exercise of
the Class A Warrant prior to the Adjustment
2.4.10 Class C-1 Warrant
Adjustments
(a) Adjusted Class C Warrant
(“ACCW”) = TOIA * CCWP * Investor Percentage
(i) CCWP = 2.5% + (.5 * Interim
Adjusted Percentage)
(b) Class C Warrant Adjustment =
ACCW - CCW
(i) CCW = total number of shares of
Class A Common Stock issuable to such holder upon the exercise of
the Class C Warrant prior to the Adjustment
2.4.11 Class D Warrant
Adjustments
(a) Adjusted Class D Warrant
(“ACDW”) = TOIA * 1.8%* Investor Percentage
-6-
(b) Class D Warrant Adjustment =
ACDW - CDW
(i) CDW = total number of shares of
Class A Common Stock issuable to such Investor upon the exercise of
the Class D Warrant prior to the Adjustment
2.4.12 Class B Warrant
Adjustments
(a) Adjusted Class B Warrants
(“ACBW”) = TOFD * 7.5% * Investor Percentage
(i) TOFD = MSO / DMSOP
(ii) DMSOP = MSOP *
92.36%
(b) Class B Warrant Adjustment =
ACBW - CBW
(i) CBW = total number of shares of
Class A Common Stock issuable to such Investor upon the exercise of
the Class B Warrant prior to the Adjustment
2.4.13 Class E Warrant
Adjustments
(a) Adjusted Class E Warrant
(“ACEW”) = TOFD * 1.8% * Investor Percentage
(b) Class E Warrant Adjustment =
ACEW - CEW
(i) CEW = total number of shares of
Class A Common Stock issuable to such Investor upon the exercise of
the Class E Warrant
2.4.14 Class B Common Stock
Adjustments
(a) Investor Class B Common Initial
Adjusted (“CBCIA”) = TOIA * CBP * Investor
Percentage
(i) CBP = 27.5% + (.5 * Interim
Adjustment Percentage)
(b) Investor Initial Adjusted
Percentage (“IIAP”) = Investor Holdings / Adjusted
Outstanding
(i) Investor Holdings = the sum of
such Investor’s CBCIA, ACAW, ACBW, ACDW.
-7-
(ii) Adjusted Outstanding = the sum
of the CBCIA for all Investors + all outstanding Class A Common
Stock + such Investor’s ACAW, ACBW and ACDW.
(c) Investor Final Adjustment
Percentage (“IFAP”) = IIAP / 80%
(d) Investor Final Adjustment
(“IFA”) = ((IFAP * Adjusted Outstanding) - Investor
Holdings / (1 - IFAP))
(e) Class B Common Adjustment for
each Investor = CBCIA + IFA + 5 - Class B Common Stock held by such
Investor prior to the Adjustment
2.4.15 Call Right
Adjustments
(a) Call Right Adjustment for each
Investor = IFA + 5 - CRS
(i) CRS = number of shares of Class
B Common Stock subject to the Class B Call Right in such
Investor’s Call Right Agreement prior to the
Adjustment.
2.4.16 Put Right
Adjustments
(a) Put Right Adjustment for each
Investor = CBCIA - PRS
(i) PRS = number of shares of Class
B Common Stock subject to the Secondary Put Right in such
Investor’s Investor Put Agreement prior to the
Adjustment.
3.1 Time and Place of Closing
. The closing of the purchase and sale of the Purchased Securities
and the other transactions contemplated by this Agreement (the
“Closing”) shall take place at the offices of Ropes
& Gray, One International Place, Boston, or such other location
as the parties may agree, at 10:00 a.m. (Boston time) on December
16, 1999 or if the conditions to Closing set forth in Sections 8
and 9 hereof shall not have been satisfied at such date, at such
later time or date prior to termination of this Agreement as the
Investors may specify by not fewer than three (3) business days
prior written notice to the Company (such date being referred to
herein as the “Closing Date”).
3.2 Closing Date Transfers .
At the Closing:
3.2.1 Parthenon, Shad Run and TSG
will deliver the Cash Investment to the Company by wire transfer of
immediately available federal funds as directed by the Company;
and
-8-
3.2.2 the Company will issue to the
Investors certificates and warrants representing the Purchased
Securities and the Shattan Warrants.
|
|
4.
|
REPRESENTATIONS
AND WARRANTIES REGARDING THE COMPANY.
|
In order to induce the Investors to
enter into and perform this Agreement and to consummate the
transactions contemplated hereby, the Company represents and
warrants to the Investor as follows:
4.1 Organization, Power and
Standing . RK Holdings and each of its Subsidiaries is a
corporation duly organized or formed, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
formation, has all requisite corporate power and authority to
execute, deliver and perform each of the Transaction Agreements to
which it is a party, to carry on the Business as currently
conducted and to consummate the transactions contemplated hereby.
The Company has heretofore delivered to the Investors a true and
complete copy of (a) the Charter and By-laws of the Company and
each of its Subsidiaries (including the charter and By-laws of ISI
and IHC in effect prior to the Reorganization), (b) the minute
books of the Company and each of its Subsidiaries and (c) the stock
or other ownership interest ledger of the Company and each of its
Subsidiaries, each of which is accurate and complete through the
date hereof. The Company is duly qualified or licensed to do
business as a foreign corporation, and is in good standing as such,
in each jurisdiction listed on Schedule 4.1, and the jurisdictions
so listed are the only jurisdictions where the failure to be so
qualified or licensed and in good standing would have a Material
Adverse Effect.
4.2 Capitalization and
Investments .
4.2.1 The total capital stock
authorized and the capitalization of RK Holdings is set forth on
Schedule 4.2.1. All of the Class A Common Stock will be owned of
record by the Existing Stockholders on the Closing Date in the
amounts set forth with respect to such stockholders under the
heading “Class A Stock Ownership” on Schedule 4.2.1
hereto. All of the outstanding shares of capital stock of RK
Holdings are duly authorized and validly issued, fully paid and
nonassessable.
4.2.2 Except as set forth on
Schedule 4.2.2, there is no Contractual Obligation or Charter or
By-law provision which obligates the Company to issue, purchase or
redeem, or make any payment in respect of, any shares of capital
stock or other securities convertible into or exchangeable for
shares of capital
-9-
stock or which provides for any
stock appreciation or similar right or grants any right to share in
the equity, income, revenues or cash flow of the
Company.
4.2.3 Except as set forth on
Schedule 4.2.3, there are no voting trusts, shareholder agreements,
commitments, undertakings, understandings, proxies or other
restrictions to which any Existing Stockholder or the Company is a
party which directly or indirectly restrict or limit in any manner,
or otherwise relate to, the voting, sale or other disposition of
any shares of capital stock of RK Holdings.
4.2.4 Except as disclosed on
Schedule 4.2.4, all of the outstanding shares of capital stock of
the Subsidiaries of RK Holdings are duly authorized, validly
issued, fully paid and nonassessable and are owned, beneficially
and of record, by RK Holdings free and clear of any Liens. Except
as disclosed on Schedule 4.2.4, there are no (i) outstanding
options obligating any of the Subsidiaries to issue or sell shares
of capital stock of such Subsidiary or to grant, extend or enter
into any such option or (ii) voting trusts, proxies or other
commitments, understandings, restrictions or arrangements in favor
of any person other than the Company with respect to the voting of,
or the right to participate in dividends or other earnings on, any
capital stock of the Subsidiaries.
4.2.5 The Company does not have an
Investment in any Person other than Investments in (a) demand
deposit or money market accounts, (b) cash equivalents (i.e.,
marketable obligations issued or guaranteed by the government of
the United States that mature within 180 days of the acquisition
thereof or money market funds that invest in securities similar to
such United States government securities) and (c) Investments
listed on Schedule 4.2.5.
4.3 Financial Statements, etc
.
4.3.1 Financial Information .
The Company has heretofore delivered to the Investors true and
complete copies of each of the following (collectively, the
“Financial Statements”):
(a) The audited combined balance
sheets of the Company as of December 31, 1997 and 1998, and the
combined statements of operations, of stockholders’ equity
(deficiency), and of cash flow for the respective fiscal years
ended December 31, 1997 and 1998, together with the notes thereto
and reports thereon by Deloitte & Touche (the “Year End
Financials”).
(b) The audited combined balance
sheet of the Company as of June 30, 1999, and the related combined
statements of operations, of stockholders’ equity
(deficiency), and of cash flow for the six months then
-10-
ended, together with the notes
thereof and report thereon by Deloitte & Touche (the “Six
Month Financials”).
(c) Monthly unaudited financial
statements of the Company, consisting of a balance sheet and
related statements of earnings and changes in retained earnings and
cash flow, for each calendar month since December 31, 1998 through
October 31, 1999 (the “Interim Financials” and together
with the Year End Financials and the Six Month Financials, the
“Financial Statements”).
(d) The pro forma financial
information of the Company (the “Pro Formas”), included
in the Offering Memorandum.
(e) The projected financial
information of the Company (the “Projections”) included
in the Offering Memorandum.
4.3.2 Character of Financial
Information . Except as set forth on Schedule 4.3.2, the
Financial Statements (including the notes thereto) were prepared in
accordance with GAAP consistently applied throughout the periods
specified therein. The Financial Statements are correct and
complete and present fairly, in all material respects, the
financial position and results of operations of the Company for the
periods specified therein, and are consistent with books and
records of the Company subject in the case of the Interim
Financials to an absence of notes and normal year-end adjustments
which will not in the aggregate be material. The Pro Formas were
prepared in good faith and represent the effects of the referenced
transactions on the Financial Statements covered thereby. The
Projections were prepared in good faith, based on assumptions
believed to be reasonable, and represent the Company’s best
estimate as of the date hereof respecting the Company’s
financial performance for the periods covered thereby.
4.4 Title to Assets . The
Company has good and marketable title to or, in the case of
property held under lease or other Contractual Obligation, a valid
and Enforceable right to use, all of its properties, rights and
assets, whether real or personal and whether tangible or intangible
(collectively, the “Assets”), including without
limitation all properties, rights and assets reflected in the
Balance Sheet (except for Assets which have been sold or otherwise
disposed of since the Balance Sheet Date as permitted under Section
4.12 hereof). The Assets are not subject to any Lien other than
Liens described on Schedule 4.4. The tangible Assets are in good
working order, operating condition and state of repair, ordinary
wear and tear excepted. The Assets constitute all properties,
rights and assets held for, used in or necessary for the conduct of
the Business of the Company as currently conducted.
4.5 Compliance with Laws, etc
. The operations of the Business as heretofore or currently
conducted were not and are not in violation of, nor is the Company
in default or
-11-
violation under, any Legal Requirement, except
for such violations or defaults as have not had and will not have
in the aggregate a Material Adverse Effect. To the Knowledge of the
Company, all future expenditures with respect to the operations of
its Business as currently conducted that are required to meet the
provisions of any Legal Requirement currently in effect (or, to the
Knowledge of the Company, enacted but to take effect in future)
will not in the aggregate have a Material Adverse Effect. The
Company has been duly granted all licenses, permits, franchises and
other authorizations under any Legal Requirement necessary for the
conduct of the Business as currently conducted or currently
proposed to be conducted, except licenses, permits, franchises and
other authorizations the failure of which to have been obtained has
not had and will not have in the aggregate a Material Adverse
Effect.
4.6 Non-Contravention, etc .
Neither the execution and delivery of this Agreement nor the
consummation by the Company of any of the transactions contemplated
hereby does or will constitute, result in or give rise to (a) a
breach of or a default or violation under any provision of the
Charter or By-laws of the Company or (b), except as set forth on
Schedule 4.6, (i) a breach or violation under any provision of any
Contractual Obligation of the Company, (ii) the acceleration of the
time for performance of any obligation under any such Contractual
Obligation, (iii) the imposition of any Lien upon or the forfeiture
of any Asset (including, without limitation, any Asset held under a
lease or license), (iv) a requirement that any consent under, or
waiver of, any such Contractual Obligations, Charter or By-law
provision be obtained or (v) any severance payments, right of
termination, modification of terms, or any other right or cause of
action under any such Contractual Obligation or Charter or By-law
provision, except in the case of clause (b)(i) above where such
breaches, defaults, events or violation would not have a Material
Adverse Effect.
4.7 Real Property
.
4.7.1 Schedule 4.7.1 sets forth a
list of the addresses of each location at which any equipment or
inventory is located or where the Company has an office or other
place of business.
4.7.2 The Company does not and has
never owned any real property. Schedule 4.7.2 lists all contracts
for the lease or sublease of real property by the Company currently
in effect (the “Leases”). The Company has delivered to
the Investor correct and complete copies of the Leases (as amended
to date). To the best of the Company’s Knowledge, with
respect to each Lease:
(a) the Lease is legal, valid
binding, enforceable, and in full force and effect;
(b) the Lease will continue to be
legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
-12-
(c) the Company is not, and, to the
Company’s Knowledge, no other party to the lease or sublease
is in material breach or default, and no event has occurred which,
with notice or lapse of time or both, would constitute a material
breach or default or permit termination, modification, or
acceleration thereunder or impair any right of the Company to
exercise and obtain the benefit of any options contained in such
Lease;
(d) there are no disputes, oral
agreements, or forbearance programs in effect as to the
Lease;
(e) with respect to each Lease that
is a sublease, the representations and warranties set forth in
subsections (a) through (d) above are true and correct are true and
correct with respect to the underlying Lease;
(f) the Company has not assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered
any interest in the Lease; or
(g) all facilities leased or
subleased thereunder have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations.
4.8 Litigation, etc . Except
as set forth on Schedule 4.8, there is no litigation, at law or in
equity, or any proceeding before or investigation by any
Governmental Authority pending (or, to the Knowledge of the
Company, threatened) against the Company, or any basis therefor,
except for such potential litigation or proceedings which have not
had and will not have in the aggregate a Material Adverse Effect.
There is no litigation at law or in equity, or any proceeding
before, or investigation by, any Governmental Authority, pending
(or, to the Knowledge of the Company, threatened) against the
Company, or any basis therefor, which seeks rescission of, seeks to
enjoin the consummation of, or otherwise relates to, this Agreement
or any of the transactions contemplated hereby. No judgment, decree
or order of any Governmental Authority (a) has been, to the
Company’s knowledge, issued against any Person (other than
the Company) which has had or will have a Material Adverse Effect
or (b) has been issued against the Company.
4.9 Intellectual Property
Rights . For purposes of this Agreement,
“Intangibles” shall mean: all trade and product names;
foreign letters patent, patents, patent applications, and
unpatented proprietary developmental records; trademarks, service
marks, logos and copyrights (including registrations and
applications); trade secrets, know-how and other proprietary or
confidential information; computer software; and other intangible
property and rights that are directly or indirectly owned, licensed
or otherwise used by the Company. Schedule 4.9 lists all
-13-
significant Intangibles owned or used by the
Company. Except as set forth on Schedule 4.9, the Company owns or
has the valid right to use all Intangibles used in or necessary for
the conduct of its Business as presently conducted free and clear
of all liens, licenses or encumbrances of any kind. The Company has
never received any charge, complaint, claim, demand, or notice
alleging any interference, infringement, misappropriation, or
violation, including any claim that the Company must license or
refrain from using any Intangibles. The use by the Company of the
Intangibles does not infringe or misappropriate and has not
infringed or misappropriated any rights of any third party, and, to
the Company’s Knowledge, no activity, except as set forth on
Schedule 4.9 hereto, of any third party infringes upon or
misappropriates the rights of the Company with respect to any of
the Intangibles. The Company does not own any patents, and has no
pending patent applications, relating to the Business. Except as
set forth on Schedule 4.9 hereto, no other Person has any ownership
of or right to use the Intangibles (except such right to use such
Intangibles as would not have a Material Adverse Effect) or has
notified the Company in writing that it is claiming any ownership
of or right to use any Intangibles.
4.10 Contracts, etc
.
4.10.1 Certain Contractual
Obligations . Set forth on Schedule 4.10.1 hereto is a true and
complete list of all of the following Contractual Obligations of
the Company:
(a) All collective bargaining
agreements and other labor agreements, all employment or consulting
agreements, and all other plans, agreements, arrangements,
practices or other Contractual Obligations (other than any Employee
Plan) which constitute Compensation or benefits, including post
retirement benefits, to any of the officers or employees or former
officers or employees (or any spouse or family member of any such
current or former officer or employee) of the Company.
(b) All Contractual Obligations
under which the Company is or may become obligated to pay any
legal, accounting, brokerage, finder’s or similar fees or
expenses in connection with, or has incurred any severance pay or
special Compensation obligations which would become payable by
reason of, this Agreement or consummation of the transactions
contemplated hereby.
(c) All Contractual Obligations
(including, without limitation, options) to sell or otherwise
dispose of any Assets other than in the Ordinary Course of
Business.
-14-
(d) All Contractual Obligations
under which the Company has or will after the Closing have any
liability or obligation to or for the benefit of any Existing
Stockholder or any other Affiliate of the Company.
(e) All Contractual Obligations
under which the Company has any liability or obligation for Debt or
constituting or giving rise to a Guarantee of any liability or
obligation of any Person, or under which any Person has any
liability or obligation constituting or giving rise to a Guarantee
of any liability or obligation of the Company (including, without
limitation, partnership and joint venture agreements).
(f) All Contractual Obligations,
other than this Agreement, under which the Company is or may become
obligated to pay any amount in respect of deferred or conditional
purchase price, indemnification obligations, purchase price
adjustment or otherwise in connection with any (i) acquisition or
disposition of assets or securities, (ii) merger, consolidation or
other business combination, or (iii) series or group of related
transactions or events of a type specified in subclauses (i) and
(ii).
(g) All Contractual Obligations for
the sale of products or provision of services by the Company that
(i) individually involve products or services having a value of at
least $100,000, (ii) have a term extending more than one year after
the Closing Date, (iii) to which the United States federal
government or any state, local or foreign government or any agency
or department of any of the foregoing is a party, or (iv) that
renders the Company a subcontractor at any tier to any prime
Contractual Obligation to which the United States federal
government or any state, local or foreign government or any agency
or department of any of the foregoing is a party.
(h) All purchase obligations
(whether or not in the Ordinary Course of Business), which require
minimum purchases by the Company.
(i) All advertising
contracts.
(j) All standard forms of purchase
orders and sales orders.
(k) All leases or other Contractual
Obligations (including all amendments) under which any real
property or other tangible asset is held or used by the
Company.
-15-
(l) All leases or other Contractual
Obligations under which the Company is liable as lessor with
respect to any real property or other tangible asset.
(m) All licenses or other
Contractual Obligations (including all amendments) under which any
Intangible is held or used by the Company.
(n) All licenses or other
Contractual Obligations under which the Company is liable as
licensor with respect to any Intangibles.
(o) All Contractual Obligations
under which the Company is or may be prohibited or restricted from
competing (i) in any business, (ii) in any geographic area and/or
(iii) for any current or potential customers anywhere in the
world.
(p) All Contractual Obligations
(other than purchase orders or sales orders) not required to be
listed on Schedule 4.10.1 pursuant to clauses (a) through (n) above
which individually involve liabilities of the Company in excess of
$100,000.
The Company has heretofore delivered
to the Investors a true and complete copy of each of the
Contractual Obligations, or a narrative description of those
Contractual Obligations that are not in writing, listed on Schedule
4.10.1 hereto, each as in effect on the date hereof and as it will
be in effect at the Closing, including, without limitation, all
amendments thereto.
4.10.2 Nature of Contracts,
etc . Each Contractual Obligation to which the Company is a
party is, and after giving effect to the Closing hereunder and the
consummation of the transactions contemplated hereby will be,
Enforceable by the Company except for such failures to be so
Enforceable as have not had and will not have in the aggregate a
Material Adverse Effect. No breach or default by the Company under
any Contractual Obligation to which it is a party has occurred and
is continuing, and no event has occurred which with notice or lapse
of time would constitute such a breach or default or permit
termination, modification or acceleration by any other Person under
any of such contracts, other than such breaches, defaults and
events as have not had and will not have in the aggregate a
Material Adverse Effect. No breach or default by the Company under
any Contractual Obligation or Legal Requirement to which it is a
party or by which it or any of its property is bound or affected
with respect to any Government Order. To the Knowledge of the
Company, except as set forth on Schedule 4.10.2 hereto, no breach
or default by any other Person under any of the foregoing has
occurred and is continuing, and no event has occurred which with
notice or lapse of time would constitute such a breach or default
or permit termination, modification or
-16-
acceleration by the Company under
any of the foregoing, other than breaches, defaults and events
which have not had and will not have in the aggregate a Material
Adverse Effect.
4.11 Liabilities . The
Company does not have any liabilities or other obligations, whether
absolute, accrued, contingent, due, to become due, or otherwise,
other than: (a) obligations and liabilities of the Company set
forth on the Balance Sheet (or described specifically in the notes
thereto); (b) obligations and liabilities of the Company incurred
since the Balance Sheet Date in the Ordinary Course of Business;
(c) obligations and liabilities of the Company in respect of
Contractual Obligations; and (d) obligations and liabilities of the
Company that either individually or in the aggregate will not
exceed $25,000.
4.12 Change in Condition .
From and after the Balance Sheet Date to and including the date
hereof, the Company has conducted its Business only in the Ordinary
Course of Business and has maintained the value of its Business as
a going concern and, except as set forth on Schedule 4.12, its
relationships with customers, distributors, suppliers, vendors,
employees, agents and others. Without limiting the generality of
the foregoing, except as set forth on Schedule 4.12, which matters
have not had and will not have in the aggregate a Material Adverse
Effect, since the Balance Sheet Date the Company has
not:
(a) Entered into any transaction
otherwise than on an arms’ length basis or any transaction
with any Existing Stockholder or any Affiliate thereof (other than
the Raymond Redemption Agreement and the Connolly Redemption
Agreement);
(b) Made any capital expenditure in
excess of $100,000 individually or $500,000 in the
aggregate;
(c) Incurred or otherwise become
liable in respect of any Debt, except for borrowings in the
Ordinary Course of Business under the Company’s Loan and
Security Agreement with Heller Financial, Inc., or become liable in
respect of any Guarantee;
(d) Created or suffered the
imposition of any Lien upon any assets, whether tangible or
intangible, of the Company;
(e) (i) Sold, leased to others or
otherwise disposed of any of its assets, (ii) entered into any
Contractual Obligation relating to (A) the purchase of any capital
stock of or interest in any Person, (B) the purchase of assets
constituting a business or (C) any merger, consolidation or other
business combination, (iii) canceled or compromised any Debt or
claim (other than compromises of accounts receivable in the
Ordinary Course of
-17-
Business), (iv) waived or released
any right of substantial value or (v) instituted, settled or agreed
to settle any material Action;
(f) (i) Made any changes in the rate
of Compensation of any director, officer, employee, or consultant
to, or agent of the Company, except for changes in the Ordinary
Course of Business to the compensation of Persons other than
directors and officers of the Company, or (ii) paid or agreed to
pay any extra Compensation to any such Person (including, without
limitation, any such payments to be made in connection with and/or
from the proceeds of the transactions contemplated
hereby);
(g) Submitted any material bids or
proposals to any third party with respect to the Business, or
entered into any material contracts, commitments or
agreements;
(h) Suffered any material damage,
destruction or loss (whether or not covered by insurance) to any of
its assets, whether tangible or intangible;
(i) Made any change in its customary
methods of accounting or accounting practices, pricing policies or
payment or credit practices, or failed to pay any creditor any
amount owed to such creditor when due, or granted any extensions of
credit other than in the Ordinary Course of Business (it being
understood that the consummation of the Reorganization required the
Company to change from a cash method to an accrual method of
accounting for income tax purposes);
(j) Made any
Distributions;
(k) Entered into any Contractual
Obligation to do any of the things referred to in clauses (a)
through (i) above; and
(l) Suffered or incurred any
Material Adverse Effect, nor any event or events which in the
aggregate will have a Material Adverse Effect.
4.13 Insurance . Set forth on
Schedule 4.13(a) is a list of all liability (including, without
limitation, public liability, products liability and automobile
liability), workers’ compensation, property, casualty,
directors and officers, errors and omissions and other policies by
which the Company has been insured since December 31, 1997 and, in
the case of liability policies, since December 31, 1995 (the
“Insurance Policies”), true and complete copies of
which have been furnished to the Investors. Such list includes the
type of policy, form of coverage, policy number and insurer,
coverage dates, named insured, limit of liability and deductible.
Except for the
-18-
matters set forth on the loss runs annexed to
Schedule 4.13(b) and the matters set forth on Schedule 4.13(b),
there have been no liability claims which have been made against
the Company or, to the Knowledge of the Company, any occurrence
which may give rise to any such claim against the
Company.
4.14 Transactions with
Affiliates . All of the Existing Stockholders are officers,
directors or employees of the Company. Except as set forth on
Schedule 4.14(a) (together with the Existing Stockholders
relationships described in the preceding sentence, the
“Affiliate Relationships”), none of the Affiliates of
Existing Stockholders (other than the Company) or of the Company is
an officer, director, employee, consultant, competitor, customer,
distributor, supplier or vendor of the Company. During the two-year
period ending on the Closing Date, (a) the terms of the Affiliate
Relationships have not been altered in any respect which has had or
will have in the aggregate a Material Adverse Effect, and (b)
except as set forth on Schedule 4.14(b), there have been no
transactions between the Company, on the one hand, and any Existing
Stockholder or any Affiliate thereof, on the other hand, other than
the Affiliate Relationships and other relationships, Contractual
Obligations and transactions the termination or non-continuation of
which has not had and will not have in the aggregate a Material
Adverse Effect. Except as set forth on Schedule 4.14(c), all
transactions between the Company on the one hand, and the Existing
Stockholders or any Affiliate thereof on the other hand, which
occurred during the periods covered by the Financial Statements are
reflected in the Financial Statements at amounts which do not
overstate the net worth or net income of the Company as compared
with fair market values and prices which would have been charged
and paid between parties at arms’ length at the time of the
entering into of the transactions in question.
4.15 Tax Matters . Except as
set forth on Schedule 4.15:
4.15.1 all Tax Returns that are
required to have been filed by or with respect to the Company have
been duly and timely filed in accordance with all applicable Legal
Requirements and such Tax Returns are true, correct and complete,
and no claim has been made by any taxing authority in a
jurisdiction where the Company does not file Tax Returns that the
Company is or may be subject to taxation by that
jurisdiction,
4.15.2 all Taxes due and payable
(whether or not shown on any Tax Return) in respect of the Company
have been paid in full,
4.15.3 the liability of the Company
for Taxes (a) did not, as of the date of the most recent financial
statements, exceed the accruals for Taxes (excluding any reserve
established to reflect timing differences between book and Tax
income) set forth on the face of the Balance Sheet (rather than in
any notes thereto), and (b) will not, as of the Closing Date,
exceed the accruals for Taxes liability (excluding any reserve
established to reflect timing differences between book
and
-19-
Tax income) set forth on the face of
the Balance Sheet (rather than in any notes thereto),
4.15.4 except as set forth on
Schedule 4.15.4, no Tax Return referred to in Section 4.15.1 has
been the subject of examination or audit by the Internal Revenue
Service (“IRS”) or the appropriate state, local or
foreign taxing authority,
4.15.5 no deficiencies have been
asserted or assessments made as a result of any examinations of the
Tax Returns referred to in Section 4.15.1 by the IRS and/or a
state, local or foreign taxing authority,
4.15.6 there is no action, suit,
proceeding, audit, claim, deficiency or assessment pending (or, to
the Knowledge of the Company, threatened) with respect to any Taxes
of the Company, and there are no Liens on or other security
interests in any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax
other than for current Taxes not yet due and payable,
4.15.7 no waivers of statutes of
limitations ha
