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Exhibit 10.17
CONLEY, CANITANO & ASSOC., INC.
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STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
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As of October 15, 1997
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CONLEY, CANITANO & ASSOC., INC.
Stock Purchase
and Shareholders Agreement
As of October 15, 1997
Page
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION.......................................................1
1.1 Description of Securities.....................................................................1
1.2 Sale and Purchase; Redemption.................................................................2
1.3 Closing.......................................................................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES................................................................2
2.1 Organization and Corporate Power..............................................................2
2.2 Authorization and Non-Contravention...........................................................3
2.3 Capitalization................................................................................4
2.4 Subsidiaries; Investments.....................................................................5
2.5 Financial Statements and Matters..............................................................5
2.6 Absence of Undisclosed Liabilities............................................................6
2.7 Absence of Certain Developments...............................................................6
2.8 Ordinary Course...............................................................................6
2.9 Accounts Receivable...........................................................................7
2.10 Title to Properties...........................................................................7
2.11 Tax Matters...................................................................................7
2.12 Certain Contracts and Arrangements............................................................8
2.13 Intellectual Property Rights; Employee Restrictions...........................................9
2.14 Litigation...................................................................................10
2.15 Employee Benefit Plans.......................................................................10
2.16 Labor Laws...................................................................................11
2.17 Employees and Suppliers......................................................................11
2.18 Hazardous Waste, Etc.........................................................................12
2.19 Business; Compliance with Laws...............................................................12
2.20 Investment Banking; Brokerage................................................................12
2.21 Insurance....................................................................................12
2.22 Transactions with Affiliates.................................................................12
2.23 Customers....................................................................................12
2.24 Product and Service Warranties...............................................................13
2.25 Certain Events...............................................................................13
2.26 Disclosure...................................................................................13
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS..............................................14
SECTION 3. CONDITIONS OF PURCHASE.......................................................................15
3.1 Satisfaction of Conditions...................................................................15
3.2 Director Election............................................................................15
3.3 Opinion of Counsel...........................................................................15
(i)
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3.4 Consent of Spouse............................................................................15
3.5 Authorization................................................................................15
3.6 All Proceedings Satisfactory.................................................................15
3.7 Investors' Fees..............................................................................16
3.8 No Violation or Injunction...................................................................16
3.9 Consents and Waivers.........................................................................16
3.10 Management Compensation......................................................................16
3.11 Completion of Audit..........................................................................16
3.12 Reissuance of Stock Certificates.............................................................16
3.13 Release by Joseph Minadeo....................................................................16
3.14 Election of Officers.........................................................................16
3.15 Kenneth L. Conley as Shareholder.............................................................17
3.16 Payment of Broker Fee........................................................................17
SECTION 4. COVENANTS....................................................................................17
4.1 Financial Statements and Budgetary Information; Inspection...................................17
4.2 Indemnification; Insurance...................................................................17
4.3 Board of Directors...........................................................................18
4.4 Restrictive Covenants........................................................................18
4.5 Redemption...................................................................................18
4.6 Key Person Insurance.........................................................................18
4.7 Management Compensation......................................................................18
4.8 Stock Awards.................................................................................18
4.9 Assignment...................................................................................19
4.10 Hiring of a Chief Financial Officer..........................................................19
SECTION 5. TRANSFER RESTRICTIONS........................................................................19
5.1 General Restriction..........................................................................19
5.2 Right of First Refusal.......................................................................20
5.3 Rights of Co-Sale............................................................................21
5.4 Assignment...................................................................................24
SECTION 6. RIGHTS TO PURCHASE...........................................................................24
6.1 Right to Participate in Certain Sales of Additional Securities...............................24
6.2 Assignment of Rights.........................................................................25
SECTION 7. REGISTRATION RIGHTS..........................................................................25
7.1 Optional Registrations.......................................................................25
7.2 Required Registrations.......................................................................26
7.3 Registrable Securities.......................................................................28
7.4 Further Obligations of the Company...........................................................28
7.5 Indemnification; Contribution................................................................30
7.6 Rule 144 and Rule 144A Requirements..........................................................32
7.7 Transfer of Registration Rights..............................................................33
7.8 "Market Stand-off" Agreement.................................................................33
(ii)
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SECTION 8 ELECTION OF DIRECTORS........................................................................33
SECTION 9 SURVIVAL; INDEMNIFICATION....................................................................34
9.1 Survival of Representations; Warranties and Covenants; Assignability of Rights...............34
9.2 Indemnification by the Company and the Shareholders..........................................34
9.3 Limitations on Indemnification by the Company and the Shareholders...........................35
9.4 Indemnification by the Investors.............................................................36
9.5 INTENTIONALLY OMITTED........................................................................37
9.6 Notice; Defense of Claims....................................................................37
9.7 Rights of Investors..........................................................................38
SECTION 10 GENERAL......................................................................................40
10.1 Amendments, Waivers and Consents.............................................................40
10.2 Legend on Securities.........................................................................40
10.3 Governing Law................................................................................41
10.4 Section Headings and Gender..................................................................41
10.5 Counterparts.................................................................................41
10.6 Notices and Demands..........................................................................41
10.7 Dispute Resolution...........................................................................42
10.8 Remedies; Severability.......................................................................42
10.9 Integration..................................................................................43
10.10 Fees and Expenses............................................................................43
EXHIBITS
A. Schedule of Investors
B. Preferred Stock Terms
C. Schedule of Common Stock Redemptions
D. Form of Redemption Agreement
E. Disclosure Schedule
F. Projections
G. Opinion of Counsel
H. Form of Consent of Spouse
I. Form of Employee Confidentiality Agreement
(iii)
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DISCLOSURE SCHEDULES
Section
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2.2(a) Authorization and Non-Contravention
2.2(b) Authorization and Non-Contravention (Shareholders)
2.3 Restricted Stock Plan; Capitalization
2.5(c) Projections
2.6 Undisclosed Liabilities
2.7 Certain Developments
2.9 Accounts Receivable
2.10 Properties
2.11 Tax Matters
2.12 Contracts
2.13 Intellectual Property
2.15 Employee Benefit Plans
2.17 Employees and Suppliers
2.20 Investment Banking; Brokerage
2.21 Insurance
2.22 Transactions with Affiliates
2.23 Customers
2.24 Product and Service Warranties
2.25 Certain Events
4.7 Management Compensation
5.1(d) Competitors
(iv)
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STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
STOCK PURCHASE AND SHAREHOLDERS AGREEMENT made as of this 15th day of
October, 1997, by and among Conley, Canitano & Assoc., Inc., an Ohio corporation
(together with any predecessors or successors thereto and subject to Section 2,
the "Company"), Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley and
Kenneth L. Conley (collectively, the "Management Shareholders"), NAC
Enterprises, Inc., CKCK Enterprises, Inc., the Kenneth L. Conley Charitable
Remainder Trust and the Karen M. Conley Charitable Remainder Trust (collectively
with the Management Shareholders, the "Shareholders" and individually a
"Shareholder"), and the investment partnerships named in EXHIBIT A hereto
(together with their successors and assigns, collectively the "Investors," and
each individually an "Investor").
WHEREAS, all of the outstanding shares of the Company's capital stock
prior to the date hereof are owned by the Shareholders; and
WHEREAS, the Company has authorized the issuance and sale to the
Investors of a total of 250,400 shares of Series A Convertible Redeemable
Preferred Stock, par value $.01 per share ("Convertible Preferred Stock"),
having the rights and preferences set forth in EXHIBIT B for an aggregate
purchase price of $17,500,000;
WHEREAS, the Company has agreed to redeem and the Shareholders have
agreed to sell to the Company an aggregate of 135,000 shares of the Company's
Common Stock, no par value ("Common Stock"), for an aggregate purchase price of
$15,877,284;
WHEREAS, the Company has authorized the issuance and sale to the
Investors of a total of 135,000 shares of Common Stock, to be obtained by the
Company through the redemption of heretofore outstanding shares, for an
aggregate purchase price of $1,350.00; and
WHEREAS, the parties hereto desire to set forth the terms of their
ongoing relationship in connection with the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION
1.1 DESCRIPTION OF SECURITIES. The Company's authorized capital stock
consists of Common Stock, Convertible Preferred Stock and Redeemable Preferred
Stock, par value $.01 per share, having the rights and preferences set forth in
EXHIBIT B (the "Redeemable Preferred Stock"). The Company has authorized and has
reserved, and covenants to continue to reserve, a sufficient number of shares of
its Common Stock and Redeemable Preferred Stock to satisfy the rights of
conversion of the holders of the Convertible Preferred Stock. For purposes of
this Agreement, (i) the shares of Convertible Preferred Stock to be acquired by
the Investors from the Company
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hereunder are referred to as the "Convertible Preferred Shares," (ii) the shares
of Common Stock to be issued hereby are sometimes referred to herein as the
"Common Shares," (iii) the shares of Redeemable Preferred Stock and Common Stock
issuable upon conversion of the Convertible Preferred Shares are referred to as
the "Conversion Shares," and (iv) the Convertible Preferred Shares, the Common
Shares and the Conversion Shares are sometimes referred to herein as the
"Securities."
1.2 SALE AND PURCHASE; REDEMPTION. Upon the terms and subject to the
conditions herein, and in reliance on the representations and warranties set
forth in Section 2, (a) each Investor hereby purchases from the Company, and the
Company hereby issues and sells to each of the Investors, at the Closing (as
defined in Section 1.3), the number of Convertible Preferred Shares and Common
Shares set forth opposite the name of such Investor in EXHIBIT A for the
purchase price of $69.89 per Convertible Preferred Share (or $17,500,000 in the
aggregate), and $.01 for each Common Share, with proportionate amounts for
fractional shares, and the Company hereby grants the Investors the rights set
forth herein. The closing of the purchase and sale of the Common Shares shall
occur following the purchase and sale of the Convertible Preferred Shares and
the redemption of stock from the Shareholders as contemplated by Section 4.5
hereof. The transactions contemplated hereby as further described in Sections 2
and 4 shall constitute a single integrated transaction or series of transactions
for federal income tax purposes. All purchase and redemption payments hereunder
shall be made by wire transfer of next day available funds.
1.3 CLOSING. The closing of the purchases and sales of the Convertible
Preferred Shares and the redemption of Common Stock from the Shareholders
contemplated by Section 1.2 (the "Closing") shall take place at 10:00 a.m. on
the date hereof (the "Closing Date").
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Investors to enter into this Agreement, the
Company and the Shareholders jointly and severally, but subject to Section
9.3(c)(ii) of this Agreement, represent and warrant to each of the Investors the
following, except as set forth in the schedule of exceptions attached hereto as
EXHIBIT E (the "Disclosure Schedule"). All references to "knowledge of the
Company" or the "the Company's knowledge" herein shall mean the actual knowledge
of the Management Shareholders after due inquiry and in the Management
Shareholders' capacities as shareholders, officers and directors of the Company.
2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio, and is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on its assets, liabilities, financial condition, business or
results of operations (a "Material Adverse Effect"). The Company has all
required corporate power and authority to carry on its business as presently
conducted, to enter into and perform this Agreement and the agreements
contemplated hereby to which it is a party and to carry out the transactions
contemplated hereby and thereby, including the issuance of the Securities and
the redemption of the Redemption Shares (as defined in Section 4.5 hereof). The
copies of the Amended and Restated Articles of Incorporation and Code of
Regulations of the
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Company, as amended to date (the "Articles of Incorporation" and the "Code of
Regulations," respectively), and of the minute book of the Company, which have
been furnished to the Investors by the Company, are correct and complete at the
date hereof. The Company is not in violation of any term of its Articles of
Incorporation or Code of Regulations.
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
(a) The execution, delivery and performance by the Company of this
Agreement and all other agreements, documents and instruments to be executed and
delivered by the Company as contemplated hereby (including, without limitation,
the Redemption Agreement (as defined in Section 4.5 hereof)) and the issuance
and delivery of (i) the Convertible Preferred Shares and the Common Shares, and
(ii) upon the conversion of the Convertible Preferred Shares, the Conversion
Shares, have been duly authorized by all necessary corporate action of the
Company. This Agreement and all documents executed by the Company pursuant
hereto (including, without limitation, the Redemption Agreement) are valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms except to the extent that enforceability may be
limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors' rights and remedies and (ii) general
principles of equity, including without limitation, general principles of good
faith and fair dealing (regardless of whether enforcement is sought in equity or
at law). Except as set forth in SECTION 2.2(A) OF THE DISCLOSURE SCHEDULE, the
execution, delivery and performance by the Company of this Agreement and all
other agreements, documents and instruments to be executed and delivered by the
Company as contemplated hereby (including, without limitation, the Redemption
Agreement) and the issuance and delivery of (i) the Convertible Preferred Shares
and Common Shares and (ii) upon the conversion of the Convertible Preferred
Shares, the Conversion Shares, do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any material contract or obligation to which the Company is a party
or by which it or its assets are bound, or any provision of the Articles of
Incorporation or Code of Regulations of the Company, or cause the creation of
any encumbrance upon any of the assets of the Company; (B) violate or result in
a violation of, or constitute a default under, any provision of any law,
regulation or rule, or any order of, or any restriction imposed by, any court or
governmental agency applicable to the Company; (C) require from the Company any
notice to, declaration or filing with, or consent or approval of any
governmental authority or third party; or (D) accelerate any obligation under,
or give rise to a right of termination of, any agreement, permit, license or
authorization to which the Company is a party or by which the Company is bound.
(b) Each Shareholder has full right, authority, power and (if
applicable) capacity to enter into this Agreement and each agreement, document
and instrument to be executed and delivered by or on behalf of such Shareholder
pursuant to or as contemplated by this Agreement (including, without limitation,
the Redemption Agreement) and to carry out the transactions contemplated hereby
and thereby. This Agreement and each agreement, document and instrument executed
and delivered by each Shareholder pursuant to or as contemplated by this
Agreement (including, without limitation, the Redemption Agreement) constitute,
or when executed and
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delivered will constitute, valid and binding obligations of such Shareholder
enforceable against such Shareholder in accordance with their respective terms
except to the extent that enforceability may be limited by (i) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws from time to time in effect affecting generally the enforcement of
creditors' rights and remedies and (ii) general principles of equity, including
without limitation, general principles of good faith and fair dealing
(regardless of whether enforcement is sought in equity or at law). Except as set
forth in SECTION 2.2(B) OF THE DISCLOSURE SCHEDULE, the execution, delivery and
performance by each Shareholder of this Agreement and each such other agreement,
document and instrument (including, without limitation, the Redemption
Agreement), and the performance by such Shareholder of the transactions
contemplated hereby and thereby do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any material contract or obligation to which such Shareholder or the
Company is a party or by which such Shareholder's or the Company's assets are
bound, or any provision of the Articles of Incorporation or Code of Regulations
of the Company, or cause the creation of any encumbrance upon any of the assets
of such Shareholder or the Company; (B) violate or result in a violation of, or
constitute a default under, any provision of any law, regulation or rule, or any
order of, or any restriction imposed by, any court or other governmental agency
applicable to the Company or such Shareholder; (C) require from such Shareholder
or the Company any notice to, declaration or filing with, or consent or approval
of any governmental authority or other third party; or (D) accelerate any
obligation under, or give rise to a right of termination of, any agreement,
permit, license or authorization to which such Shareholder or the Company is a
party or by which such Shareholder or the Company is bound.
2.3 CAPITALIZATION. Immediately prior to the closing of the
transactions contemplated hereby, each of the Shareholders owns beneficially and
of record the shares of Common Stock set forth opposite such Shareholder's name
on SECTION 2.3 OF THE DISCLOSURE SCHEDULE free and clear of any liens,
restrictions or encumbrances, and such shares of capital stock represent all of
the outstanding shares of the Company's capital stock prior to the date hereof.
As of the Closing and after giving effect to the transactions contemplated
hereby, the authorized capital stock of the Company will consist of 1,000,000
shares of Common Stock, of which 674,600 shares will be issued and outstanding,
250,400 shares of Convertible Preferred Stock, of which 250,400 shares will be
issued and outstanding, and 250,400 shares of Redeemable Preferred Stock, of
which no shares will be issued and outstanding. In addition, the Company has
authorized and reserved for issuance upon conversion of the Convertible
Preferred Shares up to 250,400 shares of Common Stock and 250,400 shares of
Redeemable Preferred Stock (subject to adjustment for stock splits, stock
dividends and the like) and has reserved for issuance upon the exercise of
options or issuance of restricted stock under the Company's 1997 Equity and
Performance Incentive Plan (the "Plan") 75,000 shares of Common Stock (subject
in each case to adjustments for stock splits, stock dividends and the like). A
copy of the Plan is included in SECTION 2.3 OF THE DISCLOSURE SCHEDULE. Except
for the 75,000 shares of Common Stock issuable as shares of restricted stock or
upon conversion of outstanding options under the Plan and the Conversion Shares,
the Company has not issued or agreed to issue and is not obligated to issue any
outstanding warrants, options or other rights to purchase or acquire any shares
of its capital stock, nor any outstanding securities convertible into such
shares or any warrants, options or other rights to acquire any such convertible
securities. As of the Closing, and after giving effect to the transactions
contemplated
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hereby, all of the outstanding shares of capital stock of the Company (including
without limitation the Convertible Preferred Shares) will have been duly and
validly authorized and issued and will be fully paid and nonassessable and will
have been offered, issued, sold and delivered in compliance with applicable
federal and state securities laws and not subject to any preemptive rights. The
Conversion Shares issuable upon conversion of the Convertible Preferred Shares
will upon issuance be duly and validly authorized and issued, fully paid and
nonassessable and not subject to any preemptive rights and will be issued in
compliance with federal and state securities laws. The relative rights,
preferences and other provisions relating to the Convertible Preferred Shares
and the Redeemable Preferred Stock are as set forth in EXHIBIT B attached
hereto. There are no preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution rights with respect to the issuance, sale
or redemption of the Company's capital stock, other than as described in SECTION
2.3 OF THE DISCLOSURE SCHEDULE and rights to which the Investors and
Shareholders are entitled as set forth in this Agreement and the Articles of
Incorporation, and except as described in the Redemption Agreement. Except as
set forth herein, there are no rights to have the Company's capital stock
registered for sale to the public under the laws of any jurisdiction, no
agreements relating to the voting of the Company's voting securities, and no
restrictions on the transfer of the Company's capital stock, except as set forth
in SECTION 2.3 OF THE DISCLOSURE SCHEDULE. After giving effect to the
transactions contemplated hereby, the outstanding shares of the Company's
capital stock are held beneficially and of record by the persons identified in
SECTION 2.3 OF THE DISCLOSURE SCHEDULE in the amounts indicated thereon.
2.4 SUBSIDIARIES; INVESTMENTS. The Company has no subsidiaries or
interests in any corporation, joint venture, partnership or other entity.
2.5 FINANCIAL STATEMENTS AND MATTERS.
(a) The Company has previously furnished to the Investors copies of
its audited financial statements for the fiscal year ended December 31, 1996
together with copies of its unaudited financial statements for the six-month
periods ended June 30, 1997 and June 30, 1996 and the fiscal year ended December
31, 1995. The 1996 and 1997 financial statements (including the statements for
the six-month periods) were, and to the Company's and the Shareholder's best
knowledge the 1995 financial statements were, prepared in conformity with
generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of the Company as of the dates thereof and
the results of operations and cash flows of the Company for the periods shown
therein (subject to the absence of footnotes and normal year-end adjustments in
the case of the unaudited statements).
(b) The Company has at least $1,500,000 of working capital at the
date hereof.
(c) The projections attached hereto as EXHIBIT F are based upon
assumptions which are consistent with assumptions made by the Company with
respect to projections of the Company's performance for fiscal years 1994, 1995
and 1996 and which assumptions were in good faith believed to be reasonable when
made and except as set forth in SECTION 2.5(C) OF THE DISCLOSURE SCHEDULE and to
the best knowledge of the Company, continue to be reasonable as of the date
hereof.
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2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the unaudited balance sheet of the Company at
June 30, 1997 contained in the financial statements referred to in Section
2.5(a) (the "Base Balance Sheet") or as set forth in SECTION 2.6 OF THE
DISCLOSURE SCHEDULE or immaterial liabilities incurred since June 30, 1997 in
the ordinary course of business, the Company does not have and is not subject to
any material liability that is required to be reflected in a balance sheet that
is prepared in accordance with GAAP.
2.7 ABSENCE OF CERTAIN DEVELOPMENTS. Since the date of the Base Balance
Sheet, except as set forth in SECTION 2.7 OF THE DISCLOSURE SCHEDULE or as
contemplated by this Agreement, there has not been any: (i) material adverse
change in the financial condition of the Company or in the assets, liabilities,
business or results of operations of the Company, (ii) declaration, setting
aside or payment of any dividend or other distribution with respect to, or any
direct or indirect redemption or acquisition of, any of the capital stock of the
Company, (iii) cancellation of any debt or claim held by the Company, (iv) loss,
destruction or damage to any property which would have a Material Adverse
Effect, whether or not insured, (v) acquisition or disposition of any assets or
other transaction by the Company other than in the ordinary course of business,
(vi) transaction or agreement involving the Company and any officer, director,
employee (other than in the ordinary course of business) or shareholder of the
Company, (vii) increase, direct or indirect, in the compensation paid or payable
to any officer, director, employee or agent of the Company or any establishment
or creation of any employment or severance agreement or employee benefit plan,
(viii) material loss of personnel of the Company, material change in the terms
and conditions of the employment of the Company's key personnel or, to the best
knowledge of the Company, any organized labor trouble involving the Company,
(ix) arrangements relating to any royalty, dividend or similar payment based on
the sales volume of the Company, whether as part of the terms of the Company's
capital stock or by any separate agreement, (x) customer contract or other
arrangement pursuant to which the Company has agreed to provide products or
services at a below-market rate other than in the ordinary course of business,
(xi) loss or, to the best knowledge of the Company, any development that could
result in a loss of any significant customer, account or employee of the Company
other than the ordinary course of business, (xii) incurrence of indebtedness or
any lien other than in the ordinary course of business but in no event greater
than $200,000 in the aggregate, or (xiii) any agreement with respect to any of
the foregoing actions.
2.8 ORDINARY COURSE. Except as disclosed in SECTION 2.7 OF THE
DISCLOSURE SCHEDULE, since the date of the Base Balance Sheet, the Company has
conducted its business only in the ordinary course and consistent with its prior
practices.
2.9 ACCOUNTS RECEIVABLE. Except as set forth in SECTION 2.9 OF THE
DISCLOSURE SCHEDULE, all of the accounts receivable of the Company, whether
shown or reflected on the Base Balance Sheet or otherwise, represent bona fide
completed sales of products or services made in the ordinary course of business,
are to the Company's best knowledge valid and enforceable claims, and are, in
the best judgment of the Company, fully collectible in the normal course of
business after deducting the reserve set forth in the Base Balance Sheet and
adjusted since that date, which reserve is a reasonable estimate of the
Company's uncollectible accounts.
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2.10 TITLE TO PROPERTIES. SECTION 2.10 OF THE DISCLOSURE SCHEDULE sets
forth the addresses and uses of all real property that the Company owns, leases
or subleases. The Company has good and marketable title (fee simple in the case
of owned real property) to, or a valid leasehold interest in all of its assets
including without limitation those assets reflected on the Base Balance Sheet or
acquired by it after the date thereof (except for properties disposed of since
that date in the ordinary course of business), free and clear of all liens,
claims or encumbrances of any nature except for (i) liens for taxes not yet due
and payable or being contested in good faith by appropriate proceedings and for
which adequate reserves have been established, (ii) with respect to the real
property, easements, covenants, conditions, encroachments and restrictions,
including any zoning or other governmentally established restrictions or
encumbrances which do not, individually or in the aggregate, materially
interfere with the conduct of the business of the Company as presently conducted
or the use or enjoyment of such real property for the purposes it is currently
used for and as to which no material violation exists (iii) statutory liens
securing payments not yet due and (iv) liens set forth in SECTION 2.10 OF THE
DISCLOSURE SCHEDULE. All equipment included in such properties which is
necessary to the conduct of the business of the Company is in good condition and
repair (ordinary wear and tear excepted) and the Company is not materially in
breach of any lease of real or personal property to which the Company is a party
and which is necessary to the conduct of the business of the Company. The
property and assets of the Company are sufficient for the conduct of its
business as presently conducted. The Company is not in violation of any zoning,
building or safety ordinance, regulation or requirement or other law or
regulation applicable to the operation of its owned or leased properties, which
violation would have a Material Adverse Effect, nor has it received any notice
of any such violation. There are no defaults by the Company or to the best
knowledge of the Company, by any other party, which would have a Material
Adverse Effect. The performance by the Company of this Agreement will not result
in the termination of, or in any increase of any amounts payable under, any of
its real property leases.
2.11 TAX MATTERS. Each of the following representations in this Section
2.11 is qualified by SECTION 2.11 OF THE DISCLOSURE SCHEDULE. The Company has
filed all federal, state, local and foreign income, excise and franchise tax
returns, real estate and personal property tax returns, sales and use tax
returns and other tax returns required by applicable law to be filed by it where
the failure to file such returns would have a Material Adverse Effect and has
paid all taxes shown on such returns as owed by it, except taxes which have not
yet accrued or otherwise become due, for which adequate provision has been made
in the pertinent financial statements referred to in Section 2.5 above or which
will not have a Material Adverse Effect. The provision for taxes on the Base
Balance Sheet is sufficient as of its date for the payment of all accrued and
unpaid federal, state, county and local taxes of any nature of the Company, and
any applicable taxes owing to any foreign jurisdiction, whether or not assessed
or disputed. All taxes and other assessments and levies which the Company is
required to withhold or collect have been withheld and collected and have been
paid over to the proper governmental authorities except where the failure to
withhold or collect and pay over would not have a Material Adverse Effect. With
regard to the federal income tax returns of the Company, the Company has never
received notice of any audit or of any proposed deficiencies from the Internal
Revenue Service. There are in effect no waivers of applicable statutes of
limitations with respect to any taxes owed by the Company for any year. To the
best knowledge of the Company, neither the Internal Revenue
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Service nor any other taxing authority is now asserting or threatening to assert
against the Company any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith.
2.12 CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth in SECTION
2.12 OF THE DISCLOSURE SCHEDULE (with true and correct copies delivered to the
Investors except where specifically noted on the Disclosure Schedule), the
Company is not a party or subject to or bound by:
(a) any plan or contract providing for collective bargaining or the
like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation of the
Company to pay to any third party $50,000 or more with respect to any single
such contract or agreement and which is not cancelable without penalty or other
charge by the Company on 30 days notice or less;
(c) any contract or agreement for the sale, license, lease or
disposition of products or services in excess of $750,000 annually;
(d) any contract containing covenants directly or explicitly limiting
the freedom of the Company to compete in any line of business or with any person
or entity;
(e) any license agreement (as licensor or as licensee with respect to
any agreement with ongoing payments in excess of $50,000 on an annual basis);
(f) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $100,000;
(g) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $250,000 or
any pledge or security arrangement;
(h) any material joint venture, partnership, manufacturing,
development or supply agreement;
(i) any endorsement or any other advertising, promotional or
marketing agreement with any third party with respect to the endorsement,
advertising, promotion or marketing of the Company or its services;
(j) any employment contracts, or agreements with officers, directors,
employees or shareholders of the Company or persons or organizations related to
or affiliated with any such persons;
(k) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company, including without
limitation any agreement with any
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shareholder of the Company which includes without limitation, anti-dilution
rights, registration rights, voting arrangements, operating covenants or similar
provisions;
(l) any pension, profit sharing, retirement, stock option, phantom
stock or other equity incentive, bonus or commission plans;
(m) any royalty, dividend or similar arrangement based on the sales
volume of the Company;
(n) any acquisition, merger or similar agreement relating to the
acquisition of another business;
(o) any contract with a governmental body under which the Company may
have an obligation for renegotiation;
(p) any agreement with any shareholder of the Company or any
affiliate of any shareholder; or
(q) any other contract not executed in the ordinary course of
business.
All of the Company's contracts and commitments listed or required to be
listed in SECTION 2.12 OF THE DISCLOSURE SCHEDULE are in full force and effect
and neither the Company, nor, to the knowledge of the Company, any other party
is in default thereunder (nor, to the knowledge of the Company, has any event
occurred which with notice, lapse of time or both would constitute a default
thereunder), except to the extent that any such default would not have a
Material Adverse Effect, and the Company has not received notice of any alleged
default under any such contract, agreement, understanding or commitment.
2.13 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS. Except as
set forth in SECTION 2.13 OF THE DISCLOSURE SCHEDULE:
(a) To the best knowledge of the Company, the business of the Company
as presently conducted and the providing of services by the Company do not
violate any agreements which the Company has with any third party or infringe
any patent, trademark, service mark, copyright or trade secret or any other
Intellectual Property Rights of any third party.
(b) No claim is pending or, to the best knowledge of the Company,
threatened against the Company nor has the Company received any notice or claim
from any person asserting that any of the Company's present or contemplated
activities infringe or may infringe any Intellectual Property Rights of such
person, and the Company is not aware of any infringement by any other person of
any rights of the Company under any Intellectual Property Rights.
(c) Each current and former employee of the Company, and each of the
Company's consultants and independent contractors involved in development of any
of the Intellectual Property Rights, has executed an agreement in the form
attached hereto as EXHIBIT I, and, to the
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best knowledge of the Company, except as set forth in SECTION 2.13 OF THE
DISCLOSURE SCHEDULE, none of such employees, consultants or independent
contractors is in violation of any agreement or in breach of any agreement or
arrangement with former or present employers relating to proprietary information
or assignment of inventions.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights, including, without limitation, all of the
registered rights set forth on SECTION 2.13 OF THE DISCLOSURE SCHEDULE and all
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, copyright
applications, computer programs and other computer software, inventions,
designs, samples, specifications, schematics, know-how, trade secrets,
proprietary processes and formulae, including production technology and
processes, all source and object code, algorithms, promotional materials,
customer lists, supplier and dealer lists and marketing research, and all
documentation and media constituting, describing or relating to the foregoing,
including without limitation, manuals, memoranda and records. SECTION 2.13 OF
THE DISCLOSURE SCHEDULE contains a list and brief description of all registered
Intellectual Property Rights.
2.14 LITIGATION. There is no litigation or governmental proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company or affecting any of its properties or assets or against any
officer, director or key employee of the Company in his or her capacity as an
officer, director or employee of the Company, which litigation, proceeding or
investigation is reasonably likely to have a Material Adverse Effect, or which
may call into question the validity or hinder the enforceability of this
Agreement or any other agreements or transactions contemplated hereby; nor to
the best knowledge of the Company has there occurred any event nor does there
exist any condition on the basis of which any such litigation, proceeding or
investigation might be properly instituted or commenced.
2.15 EMPLOYEE BENEFIT PLANS. The Company does not maintain or
contribute to any employee benefit plan, stock option, bonus or incentive plan,
severance pay policy or agreement, deferred compensation agreement, or any
similar plan or agreement (an "Employee Benefit Plan") other than the Employee
Benefit Plans identified and described in SECTION 2.15 OF THE DISCLOSURE
SCHEDULE. The terms and operation of each Employee Benefit Plan comply in all
material respects with all applicable laws and regulations relating to such
Employee Benefit Plans. There are no unfunded obligations of the Company under
any retirement, pension, profit-sharing, deferred compensation plan or similar
program. The Company is not required to make any payments or contributions to
any Employee Benefit Plan pursuant to any collective bargaining agreement or, to
the knowledge of the Company, any applicable labor relations law, and all
Employee Benefit Plans are terminable at the discretion of the Company without
liability to the Company upon or following such termination. The Company has
never maintained or contributed to any Employee Benefit Plan providing or
promising any health or other nonpension benefits to terminated employees.
2.16 LABOR LAWS. The Company employs approximately 235 employees. The
Company is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it as of the date
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hereof or amounts required to be reimbursed to such employees. The Company is in
compliance in all material respects with all applicable laws and regulations
respecting labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours. There are no charges of employment
discrimination or unfair labor practices or strikes, slowdowns, stoppages of
work or any other concerted interference with normal operations existing,
pending or, to the best knowledge of the Company, threatened against or
involving the Company.
2.17 EMPLOYEES AND SUPPLIERS.
(a) SECTION 2.17 OF THE DISCLOSURE SCHEDULE contains a list of all
managers, employees and consultants of the Company who, individually, have
received compensation from the Company for the fiscal year of the Company ended
December 31, 1996 in excess of $250,000. In each case, such Schedule includes
the current job title, years of service with the Company and aggregate annual
compensation and benefits of each such individual. To the knowledge of the
Company and the Shareholders, no key employee of the Company has any plan or
intention to terminate his employment with the Company. For each of the fiscal
years ended December 31, 1995 and December 31, 1996 and on an annualized basis
for the six-month period ended June 30, 1997, the employee turnover rate has
been less than 10% (excluding employees that have retired or have been
terminated by the Company). The Company has complied in all material respects
with the immigration laws of the United States with respect to the hiring,
employment and engagement of all of its employees and consultants who are not
United States citizens, and, to the best knowledge of the Company, the
immigration or residency status of each of such employees and consultants is
sufficient to allow such employees and consultants to remain lawfully employed
or engaged by the Company. As of the date hereof, the Company is in compliance
with all rules, regulations and requirements of SAP AG or SAP America, Inc.
("SAP") applicable to the Company, including without limitation that 70% of the
employees or consultants of the Company's that are engaged in providing
implementation or consulting services with respect to products or systems made
or developed by SAP have been certified by SAP as trained in the Accelerated SAP
methodology. As of the date hereof, Kenneth Conley is a member of the
Accelerated SAP advisory council.
(b) SECTION 2.17 OF THE DISCLOSURE SCHEDULE sets forth a list of all
material suppliers of the Company for the fiscal year ended December 31, 1996
(collectively, the "Suppliers"), showing, with respect to each, the name,
address and dollar volume involved. To the knowledge of the Company, no Supplier
has any plan or intention to terminate or reduce its business with the Company
or to materially and adversely modify its relationship with the Company.
2.18 HAZARDOUS WASTE, ETC. No hazardous wastes, substances or materials
or oil or petroleum products have been generated, transported, used, disposed,
stored or treated by the Company.
2.19 BUSINESS; COMPLIANCE WITH LAWS. The Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently or
contemplated to be conducted. The Company is currently
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in compliance with all federal, state, local and foreign laws and regulations
applicable to the Company, the breach or violation of which would have a
Material Adverse Effect.
2.20 INVESTMENT BANKING; BROKERAGE. Except as set forth in SECTION 2.20
OF THE DISCLOSURE SCHEDULE, there are no claims for investment banking fees,
brokerage commissions, finder's fees or similar compensation (exclusive of
professional fees to lawyers and accountants) in connection with the
transactions contemplated by this Agreement payable by the Company or based on
any arrangement or agreement made by or on behalf of the Company or any of the
Shareholders.
2.21 INSURANCE. SECTION 2.21 OF THE DISCLOSURE SCHEDULE constitutes a
full and complete list of all insurance policies and any underlying risk
financing and claims adjustment agreements maintained by the Company. There is
no default or, to the best knowledge of the Company, event which could give rise
to a default under any such policy.
2.22 TRANSACTIONS WITH AFFILIATES. Except as set forth in SECTION 2.22
OF THE DISCLOSURE SCHEDULE, there are no loans, leases, contracts or other
transactions between the Company and any officer, director or five percent (5%)
shareholder of the Company or any family member or affiliate of the foregoing
persons and there have been no such transactions within the past five (5) years
except as set forth in SECTION 2.22 OF THE DISCLOSURE SCHEDULE.
2.23 CUSTOMERS. SECTION 2.23 OF THE DISCLOSURE SCHEDULE sets forth each
material customer of the Company for the twelve (12) months ended December 31,
1996 (collectively, the "Customers"). Except as set forth in SECTION 2.23 OF THE
DISCLOSURE SCHEDULE, no Customer of the Company has canceled or otherwise
terminated its relationship with the Company, or has during the last twelve
months decreased materially its services, supplies or materials to the Company
or its usage or purchases of the services or products of the Company except as
projects have been completed in the ordinary course of business. No Customer
has, to the best knowledge of the Company, any plan or intention to terminate,
to cancel or otherwise materially and adversely modify its relationship with the
Company or to decrease materially or limit its services, supplies or materials
to the Company or its usage, purchase or distribution of the services or
products of the Company except as projects have been completed or will be
completed in the ordinary course of business.
2.24 PRODUCT AND SERVICE WARRANTIES. No product or service
manufactured, sold, leased or delivered by the Company is subject to any
guaranty, warranty, right of return or other indemnity other than the applicable
standard terms and conditions that are set forth in SECTION 2.24 OF THE
DISCLOSURE SCHEDULE.
2.25 CERTAIN EVENTS.
(a) Except as set forth in SECTION 2.25 OF THE DISCLOSURE SCHEDULE,
during the past ten years, neither the Company nor any of the Shareholders,
officers or directors of the Company has had a petition under the Bankruptcy
Reform Act of 1978, as amended, or any state insolvency law filed by or against
any of them, or has had a receiver, fiscal agent or similar officer appointed
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by a court for any of their business or property or any partnership in which any
of them was a general partner at or within two years before the time of such
filing, or any corporation or business association of which any of them was an
officer, director or stockholder at or within two years before the time of such
filing.
(b) During the past ten years, neither the Company nor the
Shareholders, officers and directors of the Company has been convicted in a
criminal proceeding or is a named subject of a criminal proceeding which is
presently pending (excluding traffic violations and other minor offenses).
(c) During the past ten years, neither the Company nor the
Shareholders, officers and directors of the Company has been, or is, the subject
of any order, judgment or decree, whether or not subsequently reversed,
suspended or vacated, of any court or any administrative agency, requiring the
payment of money damages in excess of $50,000 or permanently or temporarily
enjoining any of them from, or otherwise limiting any of their abilities to
engage in, any type of business practice.
2.26 DISCLOSURE. To the best knowledge of the Company and the
Shareholders, the representations and warranties made or contained in this
Agreement and the Disclosure Schedules do not and shall not contain any untrue
statement of a material fact and do not and shall not omit to state a material
fact required to be stated therein or necessary in order to make such
representations or warranties not misleading in light of the circumstances in
which they were made or delivered. There have been no events or transactions, or
information which has come to the attention of the Management Shareholders,
having a direct impact on the Company or its assets, liabilities, financial
condition, business, results of operations or prospects which, in the reasonable
judgment of the Management Shareholders, could be expected to have a Material
Adverse Effect.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
(a) Each Investor represents to the Company that it has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment contemplated by this Agreement
and making an informed investment decision with respect thereto. Each Investor
represents that it is an "accredited investor" as such term is defined in Rule
501 under the Securities Act of 1933, as amended (the "Securities Act"). Each
Investor represents to the Company that it is purchasing the Convertible
Preferred Shares for its own account, for investment only and not with a view
to, or any present intention of, effecting a distribution of such securities or
any part thereof except pursuant to a registration or an available exemption
under applicable law. Such Investor acknowledges that its respective Convertible
Preferred Shares have not been registered under the Securities Act or the
securities laws of any state or other jurisdiction and cannot be disposed of
unless they are subsequently registered under the Securities Act and any
applicable state laws or exemption from such registration is available.
(b) Each Investor (if such Investor is an entity) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, with its principal office located
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in Boston, Massachusetts (other than McDonald & Company Securities, Inc., McD
Venture Capital Fund, L.P., and GHK Investments, L.L.C. which have offices
located in Ohio, and has full right, authority and power under its governing
partnership agreement to enter into this Agreement and each agreement, document
and instrument to be executed and delivered by or on behalf of such Investor
pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action under
such Investor's governing partnership agreement. This Agreement and each
agreement, document and instrument executed and delivered by each Investor
pursuant to or as contemplated by this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of each of the
Investors enforceable in accordance with their respective terms. The execution,
delivery and performance by each Investor of this Agreement and each such other
agreement, document and instrument, and the performance of the transactions
contemplated hereby and thereby do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any contract or obligation to which any Investor is a party or by
which it or its assets are bound, or cause the creation of any encumbrance upon
any of the assets of any Investor; (B) violate or result in a violation of, or
constitute a default under, any provision of any law, regulation or rule, or any
order of, or any restriction imposed by, any court or other governmental agency
applicable to such Investor; (C) require from such Investor any notice to,
declaration or filing with, or consent or approval of any governmental authority
or other third party; or (D) accelerate any obligation under, or give rise to a
right of termination of, any agreement, permit, license or authorization to
which any Investor is a party or by which such Investor is bound.
(c) Each Investor represents that there are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of such Investor.
SECTION 3. CONDITIONS OF PURCHASE
Each Investor's obligation to purchase and pay for the Convertible
Preferred Shares to be purchased by it shall be subject to compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investors' satisfaction, or the waiver by the Investors, on or before and at the
Closing Date of the following conditions:
3.1 SATISFACTION OF CONDITIONS. The representations and warranties of
the Company and the Shareholders contained in this Agreement shall be true and
correct on and as of the Closing Date; each of the conditions specified in this
Section 3 shall have been satisfied or waived in writing by the Investors; and,
on the Closing Date, certificates to such effect executed by the President and
Chief Operating Officer of the Company shall have been delivered to the
Investors.
3.2 DIRECTOR ELECTION. Each of Kenneth T. Schiciano and A. Bruce
Johnston, as the nominees of the Investors, shall have been elected as a
director of the Company (together with any subsequent nominees of the Investors,
the "Investors' Nominees").
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3.3 OPINION OF COUNSEL. The Investors shall have received from Jones,
Day, Reavis & Pogue an opinion dated as of the Closing Date substantially in the
form attached hereto as EXHIBIT F.
3.4 CONSENT OF SPOUSE. Each Management Shareholder shall have entered
into a Consent of Spouse in the form attached hereto as EXHIBIT G.
3.5 AUTHORIZATION. The Board of Directors of the Company shall have
duly adopted resolutions in the form reasonably satisfactory to the Investors
and shall have taken all action necessary for the purpose of authorizing the
Company to consummate the transactions contemplated hereby in accordance with
the terms hereof and to cause the Articles of Incorporation establishing the
Convertible Preferred Shares in the form attached hereto as EXHIBIT B to become
effective; and the Investors shall have received a certificate of the Secretary
of the Company setting forth a copy of the resolution and the Articles of
Incorporation and Code of Regulations of the Company and such other matters as
may be reasonably requested by the Investors.
3.6 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Investors.
3.7 INVESTORS' FEES. The Company shall have paid on behalf of the
Investors all legal fees and related expenses incurred by the Investors in
connection with the transactions contemplated by this Agreement, provided that
such payment shall in no event exceed $75,000.
3.8 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
3.9 CONSENTS AND WAIVERS. The Company and the Shareholders shall have
obtained all material consents or waivers necessary to execute this Agreement
and the other agreements and documents contemplated herein, to issue and sell
the Securities to be sold to the Investors hereunder, to redeem the shares of
Common Stock as contemplated by the Redemption Agreement and to carry out the
transactions contemplated hereby and thereby and shall have delivered evidence
thereof to the Investors. All corporate and other action and governmental
filings necessary to effectuate the terms of this Agreement and other agreements
and instruments executed and delivered by the Company in connection herewith
shall have been made or taken.
3.10 INTENTIONALLY OMITTED
3.11 COMPLETION OF AUDIT. Coopers & Lybrand LLP shall have completed an
audit of the financial statements of the Company for the fiscal year ended
December 31, 1996 and a review of the financial statements of the Company for
the six-month period ended June 30, 1997.
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3.12 REISSUANCE OF STOCK CERTIFICATES. All certificates representing
shares of Common Stock issued to the Shareholders on or prior to the date hereof
shall have been reissued with the legends set forth in Section 10.2 of this
Agreement typed on each of such reissued certificates.
3.13 RELEASE BY JOSEPH MINADEO. Joseph Minadeo shall have executed a
release which releases and discharges the Company, the Shareholders and the
Investors from any and all claims which Joseph Minadeo has or which may arise in
connection with his ownership of shares of capital stock of the Company and the
repurchase of such shares of capital stock, such release to be in form and
substance reasonably satisfactory to the Investors.
3.14 ELECTION OF OFFICERS. Nicholas A. Canitano shall have been elected
Chairman and Chief Executive Officer of the Company; Kenneth L. Conley shall
have been elected President and Chief Operating Officer of the Company; Annette
M. Canitano shall have been elected Executive Vice President and Secretary of
the Company; and Karen M. Conley shall have been elected Executive Vice
President and Treasurer of the Company.
3.15 KENNETH L. CONLEY AS SHAREHOLDER. Kenneth L. Conley or a trust
established for his benefit, shall have become the owner, individually or as a
joint tenant with Karen M. Conley, of at least 25% of the issued and outstanding
Common Stock of the Company immediately prior to the Closing.
3.16 PAYMENT OF BROKER FEE. The broker fee set forth in SECTION 2.20 OF
THE DISCLOSURE SCHEDULE shall be paid by the Company.
SECTION 4. COVENANTS
The Company agrees for the benefit of the Investors that it shall
comply with the following covenants, except as may be agreed to in writing by
two-thirds in interest of the Investors, provided that the covenants set forth
in Sections 4.1, 4.3, 4.4, 4.8 and 4.9 shall terminate as of the closing of the
Company's first Qualified Public Offering. A "Qualified Public Offering" shall
have the meaning provided in the Articles of Incorporation attached hereto as
EXHIBIT B.
4.1 FINANCIAL STATEMENTS AND BUDGETARY INFORMATION; INSPECTION. So long
as the Investors hold at least 38,540 Convertible Preferred Shares or shares of
Common Stock (subject to adjustments for stock splits, stock dividends and the
like), the Investors shall have the rights, and the Company shall have the
obligations, set forth in this Section 4.1. The Company will deliver to the
Investors internally prepared unaudited monthly and quarterly financial
statements and audited annual financial statements, as well as annual budgets
and operating plans. The monthly and quarterly financial information will be
provided within 25 days after the end of each month and quarter. The annual
budget and operating plan will be presented at a Board of Directors' meeting at
least one month prior to the end of the fiscal year of the Company preceding the
year covered. An annual audit by an accounting firm of national recognition
selected by the Board of Directors will be provided within 90 days after each
fiscal year-end of the Company.
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The Company will, upon reasonable prior notice to the Company, permit
authorized representatives of the Investors to visit and inspect any of the
properties of the Company, including its books of account (and to make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with its officers, administrative employees and independent
accountants, all at such reasonable times and as often as may be reasonably
requested.
4.2 INDEMNIFICATION; INSURANCE. For so long as any of the Securities
remain outstanding, the Articles of Incorporation or Code of Regulations of the
Company will at all times during which any nominee of any of the Investors
serves as director of the Company provide for indemnification of the directors
and limitations on the liability of the directors to the fullest extent
permitted under applicable state law. Prior to any initial public offering, the
Company will purchase a directors and officers insurance policy on terms
reasonably acceptable to the Investors' Nominees (who shall be a third party
beneficiary of this Agreement) covering directors and officers of the Company in
the amount of at least $3 million, covering, among other things, violations of
federal or state securities laws.
4.3 BOARD OF DIRECTORS. The Board of Directors of the Company shall
consist of seven (7) members including the two (2) Investors' Nominees and one
(1) director with information technology services industry experience who shall
be elected by the Investors, subject to approval by the Management Shareholders,
and shall be independent of and unaffiliated with any Investor or any
Shareholder (the "Independent Director"). The Company shall cause meetings of
its Board of Directors to be held at least four (4) times each year at intervals
of not more than four (4) months and shall pay all reasonable out-of-pocket
expenses incurred by the Investors' Nominees in connection with attending
meetings or other functions of the Company's Board of Directors or any
committees thereof and shall pay the Investors' Nominees' and Independent
Director's fees in an amount equal to any direct fees that are paid to the other
non-management directors of the Company. Compensation (including option and
related awards) for members of management will be determined by a Compensation
Committee of the Board of Directors comprised of one member of management who is
also a director, one of the Investors' Nominees and one independent director.
4.4 RESTRICTIVE COVENANTS. The Company will comply with the provisions
in Section A.8 of Article IV of the Articles of Incorporation.
4.5 REDEMPTION. Immediately following the closing of the purchase and
sale of the Convertible Preferred Shares, but prior to the closing of the
purchase of the Common Shares, the Company shall acquire from the Shareholders,
and each such Shareholder shall sell to the Company, the respective number of
shares of Common Stock set forth on EXHIBIT C hereto for a price of $117.61 per
share, or an aggregate of 135,000 shares of Common Stock (the "Redemption
Shares") for an aggregate redemption price of $15,877,284, pursuant to the
redemption agreement (the "Redemption Agreement") and disclosure documents in
the form attached hereto as EXHIBIT D, such redemption and the other
transactions contemplated hereby to constitute a single transaction or series of
transactions for federal income tax purposes.
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4.6 KEY PERSON INSURANCE. Within 120 days after the date hereof, the
Company will purchase and maintain "key person" term life insurance policies of
$1 million each on the lives of each of Annette M. Canitano, Nicholas A.
Canitano, Karen M. Conley and Kenneth L. Conley, with the Company named as
beneficiary. The Company hereby agrees that such policy shall not be assigned,
borrowed against or pledged.
4.7 MANAGEMENT COMPENSATION. The annual compensation paid by the
Company to Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley and
Kenneth L. Conley shall be as set forth on SECTION 4.7 OF THE DISCLOSURE
SCHEDULE and shall be adjusted from time to time with reference to employees at
similar levels in companies of similar size, of similar maturity, and in similar
industries by the Compensation Committee of the Company's Board of Directors.
4.8 STOCK AWARDS. Except for option and stock awards with respect to up
to 75,000 shares of Common Stock pursuant to the Plan as in effect as of the
date hereof, the Company will not grant or award options, stock or other
equity-based or quasi-equity rights to officers, employees, advisers,
consultants or directors without the consent of the Investors' Nominees. The
Plan and grant awards thereunder may not be amended, revised or waived after the
date hereof without the consent of the Investors' Nominees.
4.9 ASSIGNMENT. Each Investor shall have the right to assign its rights
under this Section 4 in connection with any transaction or series of related
transactions involving the Transfer (as defined in Section 5.1) to one or more
transferees that are not Competitors (as defined in Section 5.1(c) hereof) of at
least 38,540 shares of capital stock of the Company (subject to adjustments for
stock splits, stock dividends and the like and aggregating all contemporaneous
Transfers by two or more Investors), or to any fund managed by or associated
with TA Associates, Inc. ("TA Funds"). Upon any such Transfer such transferee or
TA Fund thereupon shall sign a counterpart signature page hereto and in any
event shall be deemed an "Investor" for purposes of this Section 4.
4.10 HIRING OF A CHIEF FINANCIAL OFFICER. The Company shall use its
reasonable efforts to hire a Chief Financial Officer of the Company, who shall
be reasonably satisfactory to the Investors, prior to the date which is six
months after the Closing Date.
4.11 INSURANCE POLICIES. The Company shall not surrender New York Life
Insurance Company insurance policy numbers 43691745, 43691674, 43795208 and
43726251 (of which the Company is the owner and beneficiary) for purposes of
paying the cash surrender value of such policies to the Management Shareholders,
and the Company shall not assign such policies or change the beneficiary of such
policies.
4.12 MANAGEMENT COMPENSATION. The terms of the compensation payable to
each of Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley and Kenneth
L. Conley, in his or her capacity as an employee of the Company, shall be as set
forth in SECTION 4.7 OF THE DISCLOSURE SCHEDULE.
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SECTION 5. TRANSFER RESTRICTIONS
The following provisions of this Section 5 shall terminate immediately
prior to a Qualified Public Offering and shall not apply with respect to any
Qualified Public Offering.
5.1 GENERAL RESTRICTION.
(a) Each Shareholder agrees that neither such Shareholder nor any of
such Shareholder's permitted transferees as contemplated below will directly or
indirectly offer, transfer, donate, sell, assign, pledge, hypothecate or
otherwise dispose of (any such action a "Transfer") all or any portion of the
shares of capital stock of the Company now owned or hereafter acquired by such
Shareholder or them, except (i) to permitted transferees as permitted by Section
5.1(b) and (ii) in bona fide sales to third parties for value following
compliance with Section 5.
(b) Permitted Transfers by a Shareholder shall include (i) Transfers
by any Shareholder to its Affiliates (as defined below), (ii) Transfers upon a
Shareholder's death to his or her heirs, executors or administrators or to a
trust under his or her will or to his or her guardian or conservator and (iii)
any Transfer from an employee of the Company to the Company in connection with
the termination of his or her employment; provided that in any such case the
transferee shall have entered into an enforceable written agreement providing
that all shares so Transferred shall continue to be subject to all provisions of
this Agreement as if such shares were still held by the Shareholder, and
provided further that such permitted transferee shall not be permitted to make
any further Transfers without complying with the provisions of this Section 5.
Anything to the contrary in this Agreement notwithstanding, Transfers under this
Section 5.1(b) shall not be subject to Section 5.2 or 5.3 and transferees
permitted by this Section 5.1(b) shall take any shares so Transferred subject to
all obligations under this Agreement as if such shares were still held by the
Shareholder whether or not they so expressly agree.
(c) For purposes of this Agreement, "Affiliate" shall mean, (i) with
respect to an individual, a parent, descendent or spouse of such individual;
(ii) with respect to an individual, any trust for the primary benefit of the
individual or any person described in clause (i); (iii) with respect to a trust,
the beneficiaries of the trust or another trust established for the primary
benefit of such beneficiaries; and (iv) with respect to any person (other than a
natural person), any other person that is wholly owned by those persons
described in clauses (i), (ii) or (iii) or the Shareholders.
(d) Each Investor agrees that it will not, without the prior written
consent of the Company, transfer all or any portion of its Securities to any of
the competitors of the Company listed in SECTION 5.1(D) OF THE DISCLOSURE
SCHEDULE ("Competitors").
5.2 RIGHT OF FIRST REFUSAL. If at any time on or after the date hereof
a Shareholder (including for all purposes of this Section 5.2, any permitted
transferee of his or her shares pursuant to Section 5.1(b)) receives a bona fide
offer to purchase any or all of his or her shares
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(the "Offer") from an unaffiliated third party (the "Offeror") which the
Shareholder wishes to accept such Shareholder may Transfer such shares pursuant
to and in accordance with the following provisions of this Section 5.2:
(a) Such Shareholder (the "Selling Shareholder") shall cause the
Offer to be reduced to writing and shall notify the Company and the Investors in
writing of such Selling Shareholder's desire to accept the Offer and otherwise
comply with the provisions of this Section 5. The Selling Shareholder's notice
shall constitute an irrevocable offer to sell such shares to the Company and the
Investors at a purchase price equal to the price contained in, and on the same
terms and conditions of, the Offer. The notice shall be accompanied by a true
copy of the Offer (which shall identify the Offeror).
(b) The Company shall have the right to offer to purchase all, but
not less than all, of the shares covered by the Offer. To exercise such right,
the Company shall, within ten (10) days of receipt of such written notice (the
"Company Notice Period"), communicate in writing such election to the Selling
Shareholder (with copies to the Investors). Such written election to purchase
shall constitute a valid, legally binding and enforceable agreement for the sale
and purchase of all of the shares covered by the Offer.
(c) In the event that the Company does not exercise its rights
pursuant to Section 5.2(b), the Selling Shareholder shall notify the Investors
in writing of such fact (the "Investor Notice"). At any time within 20 days
after receipt by the Investors of the Investor Notice (the "Notice Period"), one
or more of the Investors may, subject to the terms hereof, choose to accept the
Offer with respect to all, but not less than all, of the shares covered thereby
and not purchased by the Company by giving written notice to the Selling
Shareholder proposing to sell to such effect; provided that if two or more of
the Investors choose, in the aggregate, to accept such Offer with respect to an
aggregate number of shares which exceeds the number of shares subject to such
Offer and available for purchase, the number of shares for which the Offer may
be accepted by each such Investor shall, in each case, be reduced by the
smallest number of shares as shall be necessary to reduce the aggregate number
of shares for which the Offer may be accepted by the electing Investors as
contemplated herein to the number of shares for which the Offer was made and
which are available for purchase by them; provided further, that the number of
shares for which any Investor or Shareholder may accept such Offer as
contemplated herein shall in no event be reduced to less than the number of
shares which bears the same proportion to the total number of shares which are
available for purchase as the number of shares of Common Stock then held by such
Investor (on an as converted basis as contemplated by the Articles of
Incorporation) bears to the total number of shares of Common Stock then held by
all Investors (on an as converted basis as contemplated by the Articles of
Incorporation) accepting such Offer.
(d) If shares covered by any Offer are purchased pursuant to Section
5.2(b) or 5.2(c), such purchase shall be (i) at the same price and on the same
terms and conditions as the Offer if the Offer is for cash and/or notes or (ii)
if the Offer includes any consideration other than cash and notes, then at the
equivalent all cash price for such other consideration. The closing of the
purchase of the shares subject to an Offer pursuant to this Section 5.2 shall
take place within 15 days after the expiration of the Notice Period, or upon
satisfaction of any governmental approval
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requirements, if later, by delivery by the respective purchasers of the purchase
price for shares being purchased as provided above to the Selling Shareholder
against delivery of the certificates representing the shares so purchased,
appropriately endorsed for Transfer by such Selling Shareholder.
5.3 RIGHTS OF CO-SALE.
(a) INVESTORS CO-SALE OPTION. In the event any Shareholder (including
for all purposes of this Section 5.3 any permitted transferees of a Shareholder
as contemplated by Section 5.1(b)) proposes to sell any shares or receives an
Offer and any of such shares are not purchased pursuant to Section 5.2, such
Shareholder may Transfer the shares subject thereto only following compliance
with this Section 5.3 and Section 5.4 below:
(i) In such event, immediately following the last day of the
Notice Period, the Shareholder shall give an additional notice of the proposed
sale to the Investors, once again enclosing a copy of the Offer, if applicable,
which shall identify the Offeror and the number of shares proposed to be sold
(the "Co-Sale Notice").
(ii) Upon the election of an Investor or Investors holding
at least ten percent (10%) of the Securities, each of the Investors shall have
the right, exercisable upon written notice to the Shareholder and any such
permitted transferee within 20 days after delivery to it of the Co-Sale Notice
(the "Co-Sale Notice Period"), to participate in the sale on the terms and
conditions stated in the Co-Sale Notice, except that any Investor who holds
Convertible Preferred Shares shall be permitted to sell to the relevant
purchaser shares of Common Stock acquired upon conversion thereof or, at its
election, either (A) an option to acquire such Common Stock when it receives the
same upon such conversion at the election of such Investor or as otherwise
provided in the Company's Articles of Incorporation with the same effect as if
Common Stock were being conveyed, or (B) shares of Convertible Preferred Stock
provided the acquiror pays the full liquidation preference of the shares being
sold plus the relevant price per share for the underlying Common Stock. Each of
the Investors shall have the right to sell all or any portion of its shares on
the terms and conditions in the Co-Sale Notice (subject to the foregoing), with
the maximum number of shares equal to the product obtained by multiplying the
number of shares proposed to be sold by the relevant Shareholder and any of such
Shareholder's permitted transferees as described in the Co-Sale Notice by a
fraction, the numerator of which is the number of shares of Common Stock owned
by such Investor on the date of the Co-Sale Notice on an as converted basis, and
the denominator of which is the sum of the number of shares of Common Stock
owned by the Shareholders and their permitted transferees and the number of
shares of Common Stock owned by all of the Investors (including all assignees of
the Investors) as of the date of the Co-Sale Notice on an as converted basis. To
the extent one or more Investors elect not to sell the full amount of shares
which they are entitled to sell pursuant to this Section 5.3(a), the other
participating Investors' rights to sell shares shall be increased
proportionately to their relative holdings of Securities, such that the
Investors shall have the right to sell the full number of shares allocable to
them in any transaction subject to this Section 5.3(a) even if some Investors
elect not to participate.
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(iii) Within five (5) days after the expiration of the
Co-Sale Notice Period, the relevant Shareholder shall notify each participating
Investor of the number of shares held by such Investor that will be included in
the sale and the date on which the sale will be consummated, which shall be no
later than the later of (i) 30 days after the delivery of the Co-Sale Notice and
(ii) the satisfaction of all governmental approval requirements, if any.
(iv) Each of the Investors may effect its participation in
any sale hereunder by delivery to the purchaser, or to the relevant Shareholder
for transfer to the purchaser, of one or more instruments, certificates and/or
option agreements, properly endorsed for transfer, representing the shares it
elects to sell therein, provided that no Investor shall be required to make any
representations or warranties or to provide any indemnities in connection
therewith other than with respect to title to the stock being conveyed. At the
time of consummation of the sale, the purchaser shall remit directly to each
Investor that portion of the sale proceeds to which each Investor is entitled by
reason of its participation therein. No shares may be purchased by a purchaser
from the relevant Shareholder or any of such Shareholder's permitted transferees
unless the purchaser simultaneously purchases from the Investors all of the
shares that they have elected to sell pursuant to this Section 5.3(a).
(b) SHAREHOLDERS CO-SALE OPTION. In the event that any Investor (a
"Transferring Investor") receives a bona fide offer to purchase all or any
portion of the Common Shares or shares of Common Stock received by such Investor
upon conversion of its Convertible Preferred Shares (collectively, "Shares") (an
"Investor Transaction Offer") from an offeror that is not a TA Fund (a
"Purchaser"), such Transferring Investor may Transfer the number of Shares held
by the Transferring Investor subject to the Investor Transaction Offer only
pursuant to and in accordance with the following provisions of this Section
5.3(b):
(i) Such Transferring Investor shall deliver a written
notice containing equivalent information to that required under Section 5.2(a)
hereof to the Company and each of the Shareholders (an "Offer Notice"). Each of
the Shareholders shall have the right to participate in the Investor Transaction
Offer on the terms and conditions herein stated (the "Shareholder Co- Sale
Option"), which right shall be exercisable upon written notice (an "Acceptance
Notice") to the Transferring Investor within the Co-Sale Notice Period. The
Acceptance Notice shall indicate the maximum number of shares of Common Stock
such Shareholder wishes to sell (including the number of shares it would sell if
one or more other Shareholders do not elect to participate in the sale) on the
terms and conditions stated in the Offer Notice.
(ii) Each of the Shareholders shall have the right to sell a
portion of his or her shares of Common Stock pursuant to the Investor
Transaction Offer which is equal to or less than twenty percent (20%) of the
product obtained by multiplying (i) the total number of Shares subject to the
Investor Transaction Offer divided by the total number of Shares held by the
Investors and (ii) the total number of Shares of Common Stock held by such
Shareholder on the date of the Acceptance Notice. To the extent one or more
Shareholders elect not to exercise their Shareholder Co-Sale Option, then the
rights of the other Shareholders (who exercise their Shareholder Co-Sale Option)
to sell Shares shall be increased proportionately by the full amount of Shares
which the non-electing Shareholders were entitled to sell pursuant to this
Section 5.3(b)
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(iii) Within five (5) days after the expiration of the
Co-Sale Notice Period, the Transferring Investor shall notify each participating
Shareholder of the number of shares held by such Shareholder that will be
included in the sale and the date on which the Investor Transaction Offer will
be consummated, which shall be no later than the later of (i) thirty (30) days
after the date by which the Shareholders were required to notify the
Transferring Investor of their intent to exercise their Shareholder Co-Sale
Option and (ii) the satisfaction of any governmental approval or filing
requirements, if any.
(iv) Each of the Shareholders participating in the sale may
effect its participation in any Investor Transaction Offer hereunder by delivery
to the Purchaser, or to the Transferring Investor for delivery to the Purchaser,
of one or more instruments or certificates, properly endorsed for transfer,
representing the shares it elects to sell therein, provided that no Shareholder
shall be required to make any representations or warranties or provide any
indemnities in connection therewith other than with respect to the stock being
conveyed. At the time of consummation of the Investor Transaction Offer, the
Purchaser shall remit directly to each Shareholder that portion of the sale
proceeds to which each Shareholder is entitled by reason of its participation
therein. No Shares may be purchased by a purchaser from the relevant Investor or
any of such Investor's permitted transferees unless the purchaser simultaneously
purchases from the Shareholders all of the shares that they have elected to sell
pursuant to this Section 5.3(b).
(c) Any shares held by an Investor or Shareholder or any of their
permitted transferees that the Investor, Shareholder or transferee desires to
sell following compliance with Section 5.3(a) may be sold to the purchaser only
during the 90-day period after the expiration of the Co-Sale Notice Period and
only on terms no more favorable to the Investor, Shareholder or transferee than
those contained in the relevant notice. Promptly after such sale, such Investor
or Shareholder shall notify the parties hereto of the consummation thereof and
shall furnish such evidence of the completion and time of completion of such
sale and of the terms thereof as may reasonably be requested by the other
parties hereto. So long as the purchaser is neither a party, nor an affiliate or
relative of a party, to this Agreement, such purchaser shall take the shares so
Transferred free and clear of any further restrictions of this Section 5. If, at
the end of such 90-day period, such Investor, Shareholder or any of such
transferees have not completed the sale of such shares as aforesaid, all the
restrictions on Transfer contained in this Section 5 shall again be in effect
with respect to such shares.
5.4 ASSIGNMENT. If two or more Shareholders (and their permitted
transferees, if any) propose concurrent Transfers which are subject to Section
5.2 or Section 5.3, then the provisions of Sections 5.2 and Section 5.3 shall
apply to each such proposed Transfer independently. Each Investor shall have the
right to assign its rights under this Section 5 in connection with any
transaction or series of related transactions involving the Transfer to one or
more transferees that are not Competitors (as defined in Section 5.1(c) hereof)
of at least 38,540 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous Transfers by two or more Investors), or to any TA Funds. Each
Shareholder shall have the right to assign its rights under this Section 5 in
connection with any transaction or series of related transactions involving the
Transfer of Common Stock to permitted transferees of such Shareholder. Upon any
such Transfer such transferee or TA Fund thereupon
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shall sign a counterpart signature page hereto and in any event shall be deemed
an "Investor" or "Shareholder," as the case may be, for purposes of this Section
5.
SECTION 6. RIGHTS TO PURCHASE
Notwithstanding anything herein to the contrary, the following
provisions of this Section 6 shall terminate immediately prior to the closing of
a Qualified Public Offering and shall not apply with respect to any Qualified
Public Offering.
6.1 RIGHT TO PARTICIPATE IN CERTAIN SALES OF ADDITIONAL SECURITIES.
Notwithstanding anything to the contrary in the Articles of Incorporation, the
Company agrees that it will not sell or issue any shares of capital stock of the
Company, or other securities convertible into or exchangeable for capital stock
of the Company, or options, warrants or rights carrying any rights to purchase
capital stock of the Company unless the Company first submits a written offer to
the Investors and the Shareholders (including for all purposes of this Section 6
each permitted transferee of a Shareholder pursuant to Section 5.1(b))
identifying the terms of the proposed sale (including price, number or aggregate
principal amount of securities and all other material terms), and offers to each
Investor and Shareholder the opportunity to purchase its Pro Rata Share (as
hereinafter defined) of the securities (subject to increase for over-allotment
if some Investors or Shareholders do not fully exercise their rights) on terms
and conditions, including price, not less favorable to the Investors and
Shareholders than those on which the Company proposes to sell such securities to
a third party or parties. Each Investor's or Shareholder's "Pro Rata Share" of
such securities shall be based on the ratio which the shares of Common Stock
held by he, she or it bears to all the issued and outstanding shares of Common
Stock calculated on a fully-diluted basis giving effect to the conversion of
convertible securities as of the date of such written offer. The Company's offer
to the Investors and Shareholders shall remain open and irrevocable for a period
of 30 days, and Investors and Shareholders who elect to purchase shall have the
first right to take up and purchase any shares or other securities which other
Investors or Shareholders do not elect to purchase, based on the relative
holdings of the electing purchasers. Any securities so offered which are not
purchased pursuant to such offer may be sold by the Company but only on the
terms and conditions set forth in the initial offer to the Investors and
Shareholders, at any time within 90 days following the termination of the
above-referenced 30-day period but may not be sold to any other person or on
terms and conditions, including price, that are more favorable to the purchaser
than those set forth in such offer or after such 90-day period without renewed
compliance with this Section 6.1.
Notwithstanding the foregoing, the Company may (i) issue options and
shares of restricted stock to its officers and employees with respect to up to
75,000 shares pursuant to the Plan and issue shares of its Common Stock upon the
exercise of any such stock options, (ii) issue Conversion Shares upon the
conversion of the Convertible Preferred Shares, and this Section 6 shall not
apply with respect to such issuances and (iii) issue securities as a result of
any stock split, stock dividend, reclassification or reorganization of the
Company's stock.
6.2 ASSIGNMENT OF RIGHTS. Each Investor may assign its rights under
this Section 6 in connection with any transaction or series of related
transactions involving the transfer to one
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or more transferees that are not Competitors (as defined in Section 5.1(c)
hereof) of at least 38,540 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous transfers by Investors), to any TA Fund or permitted transferee
of a Shareholder. Upon any such transfer such transferee or TA Fund shall sign a
counterpart signature page hereto and in any event be deemed an "Investor" or
"Shareholder," as the case may be, for purposes of Sections 6.1 and 6.2 with the
rights set forth in such Sections.
SECTION 7. REGISTRATION RIGHTS
7.1 OPTIONAL REGISTRATIONS. If at any time or times after the date
hereof, the Company shall seek to register any shares of its capital stock or
securities convertible into capital stock under the Securities Act (whether in
connection with a public offering of securities by the Company (a "primary
offering"), a public offering of securities by shareholders of the Company (a
"secondary offering"), or both), the Company will promptly give written notice
thereof to each Investor (the "Holders," subject to Section 7.7) holding
Registrable Securities as hereinafter defined in Section 7.3 below. If within 30
days after their receipt of such notice one or more Holders request the
inclusion of some or all of the Registrable Securities owned by them in such
registration, the Company will, subject to the next sentence, use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which such Holders may request in a writing delivered to the Company
within 30 days after their receipt of the notice given by the Company. In the
case of the registration of shares of capital stock by the Company in connection
with any underwritten public offering, if the underwriter(s) determines that
marketing factors require a limitation on the number of Registrable Securities
to be offered, the Company shall not be required to register Registrable
Securities of the Holders in excess of the amount, if any, of shares of the
capital stock which the principal underwriter of such underwritten offering
shall reasonably and in good faith agree to include in such offering in excess
of any amount to be registered for the Company; provided, however, that the
number of shares of Registrable Securities of the Holders included in any such
offering subsequent to the Company's first Qualified Public Offering shall in no
event be less than thirty percent (30%) of the aggregate number of shares of
capital stock to be registered, unless the aggregate number of shares of
Registrable Securities the Holders requested in writing to be in such offering
is less than thirty percent (30%) of the aggregate number of shares of capital
stock to be registered. If any limitation of the number of shares of Registrable
Securities to be registered by the Holders is required pursuant to this Section
7.1, the number of shares that may be included in the registration on behalf of
the Holders shall be allocated among the Holders or the holders of any other
registration rights in proportion, as nearly as practicable, to the respective
holdings of Registrable Securities of all Holders requesting registration. The
provisions of this Section will not apply to a registration effected solely to
implement (i) an employee benefit plan, or (ii) a transaction to which Rule 145
or any other similar rule of the Securities and Exchange Commission (the "SEC"or
the "Commission") under the Securities Act is applicable. The Company may
withdraw any registration initiated by the Company pursuant to Section 7.1 at
any time before it becomes effective, or postpone such offering without
obligation or liability to the holders of Registrable Securities.
7.2 REQUIRED REGISTRATIONS.
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(a) DEMAND REGISTRATION. On one or more occasions at any time after
the earlier of December 31, 1998 or the effective date of the Company's first
registration statement under the Securities Act, an Investor or Investors
holding at least 50% of the Registrable Securities held by the Investors may
request that the Company register under the Securities Act all or a portion of
the Registrable Securities held by such requesting Investors.
(b) FORM S-3. After the first public offering of its securities
registered under the Securities Act, the Company shall use its commercially
reasonable efforts to qualify and remain qualified to register securities on
Form S-3 (or any successor form allowing substantial incorporation by reference
to Exchange Act reports filed by the Company) under the Securities Act. If the
Company is eligible to use Form S-3 or any such successor form for Registrable
Securities, the Investors will be entitled to demand up to three registrations
on Form S-3 or such successor forms, including registrations for the sale of
such Registrable Securities on a delayed or continuous basis pursuant to Rule
415 under the Securities Act; PROVIDED, HOWEVER, that the Company need not file
a registration statement applying to the sale of the Registrable securities for
a period of up to 60 calendar days if the Board of Directors of the Company so
determines in the good faith exercise of its reasonable judgment that due to a
pending or contemplated material acquisition or disposition or other material
transaction or occurrence, it would be inadvisable to file a registration
statement at such time. Such demands shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such Investor or Investors.
(c) REGISTRATION REQUIREMENTS. Following a request pursuant to
Section 7.2(a) or (b) above, the Company will notify all of the Holders who
would be entitled to notice of a proposed registration under Section 7.1 above
and any other holder of piggyback registration rights of its receipt of such
notification from such Investor or Investors. Upon the written request of any
such Holder or other holder of the Company's securities delivered to the Company
within 20 days after receipt from the Company of such notification, the Company
will either (i) elect to make a primary offering, in which case the rights of
such Holders shall be as set forth in Section 7.1 above (in which case the
registration shall not count as one of the Investors' permitted demand
registrations hereunder), or (ii) use its best efforts to cause such of the
Registrable Securities as may be requested by any Holders and any other holders
of piggyback registration rights to be registered under the Securities Act in
accordance with the terms of this Section 7.2; provided, however, that the
number of shares of Registrable Securities of the Holders included in any such
offering shall in no event be less than thirty percent (30%) of the aggregate
number of shares of capital stock to be registered, unless the aggregate number
of shares of Registrable Securities the Holders requested in writing to be in
such offering is less than thirty percent (30%) of the aggregate number of
shares of capital stock to be registered.
(d) NUMBER OF REQUIRED REGISTRATIONS. The Company will not be
obligated pursuant to this Section 7.2 to effect more than two registration
statements on Form S-1 or S-2, but shall be obligated to file an unlimited
number of registration statements on Form S-3.
(e) POSTPONEMENT. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed 60 days in the
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aggregate during any twelve-month period, if the Board of Directors of the
Company determines in the good faith exercise of its reasonable judgment that
due to a pending or contemplated material acquisition or disposition or other
material transaction or occurrence, it would be inadvisable to file a
registration statement at such time. The Company shall not be required to cause
a registration statement requested pursuant to this Section 7.2 to become
effective prior to 90 days following the effective date of a registration
statement initiated by the Company or the Investors, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Investors that the
Company is commencing to prepare a Company-initiated registration statement
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 or any other similar rule of the SEC under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly.
(f) SUSPENSION. In the case of a registration for the sale of
Registrable Securities, upon receipt of any notice (a "Suspension Notice") from
the Company of the happening of any event which makes any statement made in the
registration statement or related prospectus untrue or which requires the making
of any changes in such registration statement or prospectus so that they will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
each holder of Registrable Securities registered under such registration
statement shall forthwith discontinue disposition of such Registrable Securities
pursuant to such registration statement until such holder's receipt of the
copies of the supplemented or amended prospectus or until it is advised in
writing (the "Advice") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus; provided, however, that the
Company shall not give a Suspension Notice until after the registration
statement has been declared effective and shall not give more than one
Suspension Notice to the Holders in respect to all Registrable Securities and
pursuant to this Section 7 during any period of twelve (12) consecutive months
and in no event shall the period from the date on which any Holder receives a
Suspension Notice to the date on which any Holder receives either the Advice or
copies of the supplemented or amended prospectus (the "Suspension Period")
exceed 60 days. In the event that the Company shall give any Suspension Notice,
the Company shall use its best efforts and take such actions as are reasonably
necessary to render the Advice and end the Suspension Period as promptly as
practicable.
7.3 REGISTRABLE SECURITIES. For the purposes of this Section 7, the
term "Registrable Securities" shall mean any shares of Common Stock held by a
Holder (including without limitation the Common Shares) or subject to
acquisition by a Holder upon conversion of Convertible Preferred Shares, as
applicable, including any shares issued by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization; provided, however, that if an Investor
owns Convertible Preferred Shares, the Investor may exercise its registration
rights hereunder by converting the shares to be sold publicly into Common Stock
as of the closing of the relevant offering and shall not be required to cause
such Convertible Preferred Shares to be converted to Common Stock until and
unless such Closing occurs, it being understood that the Company shall at the
request of the relevant
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Investor effect the reconversion of Common Stock and any Redeemable Preferred
Stock to Convertible Preferred Stock if such a conversion occurs notwithstanding
the foregoing and a public offering does not close; and provided, further, that
any Common Stock that is sold in a registered sale pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144
thereunder, or that may be sold without restriction as to volume or otherwise
pursuant to Rule 144 under the Securities Act (as confirmed by an unqualified
opinion of counsel to the Company), shall not be deemed Registrable Securities.
7.4 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is
required hereunder to register any Registrable Securities, it agrees that it
shall also do the following:
(a) Pay all expenses of such registrations and offerings (exclusive
of underwriting discounts and commissions) and the reasonable fees and expenses
of not more than one independent counsel for the Holders satisfactory to the
Investors in connection with any registrations pursuant to Section 7.1, up to
one registration on Form S-1 or S-2 designated by the Investors and up to three
registrations on Form S-3 designated by the Investors, provided that the
Investors shall pay all such expenses in connection with any other demand
registrations;
(b) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources)
diligently to prepare and file with the SEC a registration statement and such
amendments and supplements to said registration statement and the prospectus
used in connection therewith as may be necessary to keep said registration
statement effective for at least 180 days from the date the SEC declares each
such Registration Statement effective or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs, and to comply with the provisions of the
Securities Act with respect to the sale of securities covered by said
registration statement for the period necessary to complete the proposed public
offering;
(c) Furnish to each selling Holder such copies of each preliminary
and final prospectus and such other documents as such Holder may reasonably
request to facilitate the public offering of its Registrable Securities;
(d) Enter into any reasonable underwriting agreement required by the
proposed underwriter (which underwriter shall be selected by the selling
Investors in connection with any registration requested pursuant to Section 7.2,
subject to the Company's prior approval, which approval shall not be
unreasonably withheld), if any, in such form and containing such terms as are
customary; provided, however, that no Holder shall be required to make any
representations or warranties other than with respect to its title to the
Registrable Securities and any written information provided by the Holder to the
Company, and if the underwriter requires that representations or warranties be
made and that indemnification be provided, the Company shall make all such
representations and warranties and provide all such indemnities, including,
without limitation, in respect of the Company's business, operations and
financial information and the disclosures relating thereto in the prospectus;
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(e) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources) to
register or qualify the securities covered by said registration statement under
the securities or "blue sky" laws of such jurisdictions as any selling Holder
may reasonably request, provided that the Company shall not be required to
register or qualify the securities in any jurisdictions which require it to
qualify to do business therein;
(f) Immediately notify each selling Holder, at any time when a
prospectus relating to his or her Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(h) Otherwise use its best efforts to comply with the securities laws
of the United States and other applicable jurisdictions and all applicable rules
and regulations of the SEC and comparable governmental agencies in other
applicable jurisdictions and make generally available to its holders, in each
case as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act;
(i) Obtain and furnish to each selling Holder, immediately prior to
the effectiveness of the registration statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable Securities
sold pursuant thereto), a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Holders of a majority of the
Registrable Securities being sold may reasonably request; and
(j) Otherwise cooperate with the underwriter or underwriters, the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any Registrable Securities under this Section 7.
7.5 INDEMNIFICATION; CONTRIBUTION.
(a) Incident to any registration statement referred to in this
Section 7, the Company will indemnify and hold harmless each underwriter, each
Holder who offers or sells any such Registrable Securities in connection with
such registration statement (including its partners (including partners of
partners and stockholders of any such partners), and directors, officers,
employees and agents of any of them (a "Selling Holder"), and each person who
controls any of
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them within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") (a "Controlling Person")),
from and against any and all losses, claims, damages, expenses and liabilities,
joint or several (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, as the same are incurred), to which they, or
any of them, may become subject under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are based
on (i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement (including any related preliminary or
definitive prospectus, or any amendment or supplement to such registration
statement or prospectus), (ii) any omission or alleged omission to state in such
document a material fact required to be stated in it or necessary to make the
statements in it not misleading, or (iii) any violation by the Company of the
Securities Act, any state securities or "blue sky" laws or any rule or
regulation thereunder in connection with such registration; provided, however,
that the Company will not be liable to the extent that such loss, claim, damage,
expense or liability arises from and is based on an untrue statement or omission
or alleged untrue statement or omission made in reliance on and in conformity
with information furnished in writing to the Company by such underwriter,
Selling Holder or Controlling Person expressly for use in such registration
statement; and PROVIDED, FURTHER, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, expense or liability
that arises out of or is based upon an untrue statement or allegedly untrue
statement or omission or alleged omission in the prospectus, if such untrue
statement or allegedly untrue statement, omission or alleged omission is
corrected so as to comply with all applicable securities laws in an amendment or
supplement to the prospectus and if, having previously been furnished by or on
behalf of the Company with copies of the prospectus as so amended or
supplemented, such holder thereafter fails to deliver such prospectus as so
amended or supplemented prior to or concurrently with the sale of a Registrable
Security to the person asserting such loss, claim, damage, expense or liability
who purchased such Registrable Security which is the subject thereof from such
holder. With respect to such untrue statement or omission or alleged untrue
statement or omission in the information furnished in writing to the Company by
such Selling Holder expressly for use in such registration statement, such
Selling Holder will indemnify and hold harmless each underwriter, the Company
(including its directors, officers, employees and agents), each other Holder
(including its partners (including partners of partners and stockholders of such
partners) and directors, officers, employees and agents of any of them, and each
person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), from and against any and all
losses, claims, damages, expenses and liabilities, joint or several, to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise to the same extent provided in the immediately preceding sentence. In
no event, however, shall the liability of a Selling Holder for indemnification
under this Section 7.5(a) exceed the lesser of (i) that proportion of the total
of such losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by such Selling Holder or (ii) the proceeds received by such
Selling Holder from its sale of Registrable Securities under such registration
statement.
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(b) If the indemnification provided for in Section 7.5(a) above for
any reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
7.5, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the other
Selling Holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the other Selling Holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Holders and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the Selling Holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Holders, and the underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7.5(b)
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a Selling
Holder be required to contribute any amount under this Section 7.5(b) in excess
of the lesser of (i) that proportion of the total of such losses, claims,
damages or liabilities indemnified against equal to the proportion of the total
Registrable Securities sold under such registration statement which are being
sold by such Selling Holder or (ii) the proceeds received by such Selling Holder
from its sale of Registrable Securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
(c) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 7.5 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for in this Section 7.5 will remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified
parties or any officer, director, employee, agent or controlling person of the
indemnified parties.
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7.6 RULE 144 AND RULE 144A REQUIREMENTS. In the event that the Company
becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 or Rule 144A under the Securities Act (or any
successor or similar exemptive rules hereafter in effect). The Company shall
furnish to any Holder, within 15 days of a written request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirement of Rule 144 or Rule 144A or such successor rules.
7.7 TRANSFER OF REGISTRATION RIGHTS. The registration rights and
related obligations under this Section 7 of the Holders with respect to their
Registrable Securities may be assigned in connection with any transaction or
series of related transactions involving the Transfer to one or more transferees
that are not Competitors (as defined in Section 5.1(c) hereof) of at least
38,540 shares of capital stock of the Company, other than pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 thereunder (subject to adjustments for stock splits, stock dividends and the
like and aggregating all contemporaneous transfers by Holders), or to any TA
Funds or permitted transferee, and upon any such transfer such transferee or TA
Fund shall sign a counterpart signature page hereto and in any event shall be
deemed to be included within the definition of a "Holder" for purposes of this
Section 7 with the rights set forth herein. The relevant Holder as the case may
be, shall notify the Company at the time of such transfer.
7.8 "MARKET STAND-OFF" AGREEMENT. In connection with any underwritten
public offering by the Company, the Holders, if requested in good faith by the
Company and the managing underwriter of the Company's securities, shall agree
not to sell or otherwise transfer or dispose of any securities of the Company
held by them (except for any securities sold pursuant to such registration
statement) for a period following the effective date of the applicable
registration statement; provided, however that in no event shall such period
exceed 180 days; and provided further that such agreement shall not be required
in the Company's initial public offering unless all officers and directors and
two percent (2%) or greater stockholders of the Company (who do not hold their
shares due to a transfer from the Investors or the Investors' transferees) and
all other persons with registration rights enter into similar agreements. In
order to enforce the foregoing, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares of securities of every other person subject to the foregoing restriction)
until the end of such period.
SECTION 8 ELECTION OF DIRECTORS
Notwithstanding any other provision of this Agreement or the Articles
of Incorporation, from the date hereof until the earliest of (i) the closing of
a Qualified Public Offering, (ii) the date on which no shares of Convertible
Preferred Stock or Redeemable Preferred Stock are outstanding or (iii) the date
which is 10 years after the date hereof, each Investor and each Shareholder
agrees to vote all of its shares of the Company's capital stock having voting
power (and any other shares over which he, she or it exercises voting control)
and to take such other actions as are necessary so as to cause the Board of
Directors of the Company to include and consist of the Investors' Nominees and
the Independent Director, who shall be the Directors subject to election by the
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holders of the Convertible Preferred Stock or the Redeemable Preferred Stock
under the terms of the Articles of Incorporation, and four (4) nominees of the
Management Shareholders each of whom shall be a Management Shareholder or a
member of the Company's management or an otherwise qualified individual
reasonably acceptable to the Investors; provided, however, that the Investors'
Nominees shall at all times be Kenneth T. Schiciano and A. Bruce Johnston for so
long as such individuals remain in the employ of TA Associates, Inc., and
thereafter shall be such nominees of the Investors that have been reasonably
approved by the Management Shareholders, provided that the Management
Shareholders shall have the right to reject no more than five (5) of such
nominees. Each Shareholder and each Investor agrees to vote all shares of the
Company's capital stock having voting power (and any other shares over which he,
she or it exercises voting control) in such manner as shall be necessary or
appropriate to ensure that any vacancy on the Board of Directors of the Company
with respect to the Directors subject to nomination as provided herein shall be
filled in accordance with the provisions of this Section 8.
SECTION 9 SURVIVAL; INDEMNIFICATION.
9.1 SURVIVAL OF REPRESENTATIONS; WARRANTIES AND COVENANTS;
ASSIGNABILITY OF RIGHTS. All covenants, agreements, representations and
warranties of the Company, the Shareholders and the Investors made herein and in
the Disclosure Schedules and the Articles of Incorporation (a) are material,
shall be deemed to have been relied upon by the party or parties to whom they
are made and shall survive the Closing regardless of any investigation or
knowledge on the part of such party or its representatives and (b) shall bind
the parties' successors and assigns (including without limitation any successor
to the Company by way of acquisition, merger or otherwise), whether so expressed
or not, and, except as otherwise provided in this Agreement, all such covenants,
agreements, representations and warranties shall inure to the benefit of the
Investors' permitted successors and permitted assigns and to their permitted
transferees of Securities, whether so expressed or not, subject to the
provisions of Sections 4.8, 5.4, 6.2 and 7.7, and any such transferee shall be
deemed an "Investor" for purposes hereof; provided, however, that such
representations and warranties (other than representations and warranties made
pursuant to Sections 2.1 and 2.2 which shall survive indefinitely and
representations and warranties made pursuant to Sections 2.3, 2.11, 2.20 and
2.22 which shall survive until the expiration of the applicable statute of
limitations) shall only survive the Closing until, (i) with respect to
indemnification from the Company, the Company Expiration Date (as defined in
Section 9.3(b) below), and (ii) with respect to indemnification from the
Shareholders, the Shareholder Expiration Date (as defined in Section 9.3(b)
below).
9.2 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. Subject to the
other provisions of this Section 9, the Company and each of the Shareholders
agrees, jointly and severally, to indemnify and hold harmless the Investors,
their affiliates and their respective officers, directors, partners, employees
and agents and each person who controls any of them within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (or any
successor provision) (individually, a "Investor Indemnified Party" and
collectively, the "Investor Indemnified Parties") from and against and in
respect of all losses, liabilities, obligations, damages, deficiencies, actions,
suits, proceedings, demands, assessments, orders, judgments,
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fines, penalties, costs and expenses (including the reasonable fees,
disbursements and expenses of attorneys, accountants and consultants) of any
kind or nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) sustained, suffered or incurred by or made against any Investor
Indemnified Party (a "Loss" or "Losses") arising out of, based upon or in
connection with:
(a) fraud, intentional misrepresentation or a deliberate or
willful breach by the Company or any Shareholder of any of their
representations, warranties or covenants under this Agreement, the Disclosure
Schedules or the Articles of Incorporation;
(b) any other breach of any representation or warranty made by
the Company or any Shareholder in this Agreement, the Disclosure Schedules or
the Articles of Incorporation, or by reason of any claim, action or proceeding
asserted or instituted arising out of any matter or thing covered by any such
representations or warranties;
(c) any breach of any other covenant or agreement made by the
Company or any of the Shareholders in this Agreement, the Disclosure Schedules
or the Articles of Incorporation, or by reason of any claim, action or
proceeding asserted or instituted arising out of any matter or thing covered by
any such covenant or agreement; and
(d) any fees and expenses related to this Agreement or any
transactions contemplated hereby to be paid by the Company or the Shareholders
pursuant to Section 3.16 or 10.10 of this Agreement.
Claims under clauses (a) through (d) of this Section 9.2 are hereinafter
collectively referred to as "Investor Indemnifiable Claims."
The rights of Investor Indemnified Parties to recover indemnification
in respect of any occurrence referred to in clauses (a), (c) and (d) of this
Section 9.2 shall not be limited by the fact that such occurrence may not
constitute an inaccuracy in or breach of any representation or warranty referred
to in clause (b) of this Section 9.2.
9.3 LIMITATIONS ON INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS.
(a) GENERAL THRESHOLD. The Company and the Shareholders shall
not be obligated to indemnify Investor Indemnified Parties in respect of any
Loss arising from Investor Indemnifiable Claims pursuant to Section 9.2(b)
(other than with respect to the representations and warranties set forth in
Sections 2.1, 2.2, 2.3, 2.11, 2.20 and 2.22, to which the following threshold
shall not apply) except to the extent the cumulative amount of such claims under
such clause (b) of Section 9.2 exceeds $500,000, whereupon the full amount of
such Losses in excess of such $500,000 shall be recoverable in accordance with
the terms hereof; provided, however, that in the event the cumulative amount of
such claims under such clause (b) of Section 9.2 exceeds $1,000,000, the full
amount of such Losses (including the first $500,000 of such Losses) shall be
recoverable in accordance with the terms hereof.
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(b) TIME LIMITS FOR CLAIMS. Indemnification with respect to
Losses arising from Investor Indemnifiable Claims pursuant to Section 9.2(b)
shall expire with respect to (i) the Company on the sixtieth day following
receipt by the Investors of the Company's audited annual financial statements
with respect to the Company's 1998 fiscal year (the "Company Expiration Date")
and (ii) the Shareholders on the sixtieth day following receipt by the Investors
of the Company's audited annual financial statements with respect to the
Company's 1997 fiscal year (the "Shareholder Expiration Date"); PROVIDED,
HOWEVER, that any Investor Indemnifiable Claim arising from a breach of any of
the representations or warranties contained in Section 2.3 and 2.11 shall expire
on the applicable statute of limitations; PROVIDED FURTHER, HOWEVER, that in
each case if prior to the applicable date of expiration a specific state of
facts shall have become known which may constitute or give rise to any Loss as
to which indemnity may be payable and an Investor Indemnified Party shall have
given written notice of such facts to the Company, then the right to
indemnification with respect thereto shall remain in effect until such matter
shall have been finally determined and disposed of, and any indemnification due
in respect thereof shall have been paid, according to the date on which notice
of the applicable claim is given.
(c) LIMITATION ON CLAIMS.
(i) COMPANY. Notwithstanding any other provision of
this Agreement, the Company's obligations to indemnify Investor Indemnified
Parties in respect of Losses arising pursuant to Section 9.2(b) (other than with
respect to the representations and warranties set forth in Sections 2.1, 2.2,
2.3, 2.11, 2.20 and 2.22 to which the following limits shall not apply) shall be
limited in the aggregate to $17,500,000.
(ii) SHAREHOLDERS. Notwithstanding any other
provision of this Agreement, the Shareholders' obligations to indemnify Investor
Indemnified Parties in respect of Losses arising pursuant to Section 9.2(b)
(other than with respect to the representations and warranties set forth in
Sections 2.1, 2.2, 2.3, 2.11, 2.20 and 2.22 to which the following limits shall
not apply) shall be limited in the aggregate to $5,722,000.00 with respect to
the Conley Shareholders (as identified on EXHIBIT C hereto) and $5,722,000.00
with respect to the Canitano Shareholders (as identified on EXHIBIT C hereto).
(d) NONAPPLICABILITY OF LIMITATIONS. Notwithstanding anything
in this Section 9.3 to the contrary, Investor Indemnified Parties shall not be
subject to any limitation, whether pursuant to this Section 9.3 or otherwise,
and shall be entitled to dollar-for-dollar recovery, in seeking indemnification
from the Company and the Shareholders with respect to Losses arising under or
described in Sections 9.2(a), (c) or (d).
9.4 INDEMNIFICATION BY THE INVESTORS. The Investors agree to indemnify
and hold harmless the Company, its affiliates and its officers, directors,
employees and agents and each person who controls any of them within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act (or any
successor provision) (individually, a "Company Indemnified Party" and
collectively, the "Company Indemnified Parties") from and against and in respect
of all Losses sustained, suffered or incurred by or made against any Company
Indemnified Party arising out of, based upon or in connection with:
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(a) fraud, intentional misrepresentation or a deliberate or
willful breach by any Investor of any of their representations, warranties or
covenants under this Agreement or in any certificate, schedule or exhibit
delivered hereto.
(b) any other breach of any representation or warranty made by
any Investor in this Agreement or in any exhibit, certificate, agreement or
other instrument delivered under or in connection with this Agreement, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing covered by any such representations or warranties; or
(c) any breach of any other covenant or agreement made by any
Investor in this Agreement or in any exhibit, certificate, agreement or other
instrument delivered under or in connection with this Agreement, or by reason of
any claim, action or proceeding asserted or instituted arising out of any matter
or thing covered by any such covenant or agreement.
Claims under clauses (a) through (c) of this Section 9.4 are
hereinafter collectively referred to as "Company Indemnifiable Claims."
9.5 INTENTIONALLY OMITTED.
9.6 NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by an indemnified
party of notice of any claim, liability or expense to which the indemnification
obligations set forth in Sections 9.2 or 9.4 would apply, the indemnified party
shall give notice thereof in writing to the indemnifying party, but the omission
to so notify the indemnifying party promptly will not relieve the indemnifying
party from any liability except to the extent that the indemnifying party shall
have been prejudiced as a result of the failure or delay in giving such notice.
Such notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within twenty (20) days after receiving such notice the
indemnifying party gives written notice to the indemnified party stating that
(a) it would be liable under the provisions hereof for indemnity in the amount
of such claim if such claim were successful and (b) that it disputes and intends
to defend against such claim, liability or expense at its own cost and expense,
then counsel for the defense shall be selected by the indemnifying party
(subject to the consent of the indemnified party which consent shall not be
unreasonably withheld) and the indemnified party shall not be required to make
any payment with respect to such claim, liability or expense as long as the
indemnifying party is conducting a good faith and diligent defense at its own
expense; PROVIDED, HOWEVER, that the assumption of defense of any such matters
by the indemnifying party shall relate solely to the claim, liability or expense
that is subject or potentially subject to indemnification. The indemnifying
party shall have the right, with the consent of the indemnified party, which
consent shall not be unreasonably withheld, to settle all indemnifiable matters
related to claims by third parties which are susceptible to being settled
provided its obligation to indemnify the indemnifying party therefor will be
fully satisfied. The indemnifying party shall keep the indemnified party
apprised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish the indemnified party with
all documents and information that the indemnified party shall reasonably
request and shall consult with the indemnified party prior to acting on major
matters, including settlement discussions.
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Notwithstanding anything herein stated to the contrary, the indemnified party
shall at all times have the right to fully participate in such defense at its
own expense directly or through counsel; PROVIDED, HOWEVER, if the named parties
to the action or proceeding include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct, the expense
of separate counsel for the indemnified party shall be paid by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of (with counsel selected by the
indemnified party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.
9.7 RIGHTS OF INVESTORS.
(a) The Company shall, to the full extent permitted by law,
and in addition to any such rights which any Investor may have under this
Section 9, pursuant to statute, the Company's Articles of Incorporation or Code
of Regulations, or otherwise, indemnify and hold harmless each Investor
Indemnified Party from and against any and all losses, claims, damages, expenses
and liabilities, joint or several (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject by reason of, in their capacity as or as a result of
any action taken or omitted to be taken by them as a security holder, creditor,
director, agent, representative or controlling person of the Company, including,
without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted) under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, including without limitation any such claim alleging so-called
control person liability or securities law liability, which relates directly or
indirectly to the registration, purchase, sale or ownership of any securities of
the Company or to any fiduciary obligation owed with respect thereto; PROVIDED,
HOWEVER, that the Company will not be liable to the extent that such loss,
claim, damage, expense or liability arises from, is based upon or is in
connection with (i) an untrue statement or omission or alleged untrue statement
or omission in a registration statement or prospectus which is made in reliance
on and in conformity with written information furnished to the Company in an
instrument duly executed by or on behalf of such Investor Indemnified Party
specifically stating that it is for use in the preparation thereof, (ii) an act
of such Investor Indemnified Party that either was in bad faith or was in a
manner such Investor Indemnified Party did not reasonably believe to be in or
not opposed to the best interests of the Company, (iii) conduct by the Investor
Indemnified Party which constitutes fraud, gross negligence or willful
malfeasance, or (iv) a knowing and willful violation of the federal securities
laws by an Indemnified Party, in each case as finally determined by a court of
competent jurisdiction without a right of appeal.
37
43
(b) If the indemnification provided for in Section 9.7(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Investor Indemnified Party in respect of any losses, claims,
damages, expenses or liabilities referred to therein, then the Company, in lieu
of indemnifying such Investor Indemnified Party thereunder, shall contribute to
the amount paid or payable by such Investor Indemnified Party as a result of
such losses, claims, damages, expenses or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Investors, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Investors in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In connection with any
registration of the Company's securities, the relative benefits received by the
Company and the Investors shall be deemed to be in the same respective
proportions that the net proceeds from the offering (before deducting expenses)
received by the Company and the Investors, in each case as set forth in the
table on the cover page of the applicable prospectus, bear to the aggregate
public offering price of the securities so offered. The relative fault of the
Company and the Investors shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Investors and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Investors agree that it would not be just
and equitable if contribution pursuant to this Section 9.7(b) were determined by
pro rata or per capita allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. In connection with the registration of the
Company's securities, in no event shall an Investor be required to contribute
any amount under this Section 9.7(b) in excess of the lesser of (i) that
proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total securities sold under
such registration statement which is being sold by such Investor or (ii) the
proceeds received by such Investor from its sale of securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(c) The indemnification and contribution provided for in this
Section 9.7 will remain in full force and effect regardless of any investigation
made by or on behalf of the Investor Indemnified Parties or any officer,
director, partner, employee, agent of an Investor Indemnified Party or any
person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (or any successor provision).
(d) Any Investor Indemnified Party that proposes to assert the
right to be indemnified under this Section 9.7 will, promptly after receipt of
notice of commencement of any claim or action against such party in respect of
which a claim is to be made against the Company under this Section 9.7, notify
the Company of the commencement of such action, enclosing a copy
38
44
of all papers served, but the omission so to notify the Company will not relieve
the Company from any liability that the Company may have to any Investor
Indemnified Party under the foregoing provisions of this Section 9.7 unless, and
only to the extent that, such omission results in the forfeiture of substantive
rights or defenses by the Company. The Investor Indemnified Party will have the
right to retain its own counsel in any such action and all fees, disbursements
and other charges incurred in the investigation, defense and/or settlement of
such action shall be advanced and reimbursed by the Company promptly as they are
incurred; provided, however, that the Investor Indemnified Party shall agree to
repay any expenses so advanced hereunder if it is ultimately determined by a
court of competent jurisdiction that the Investor Indemnified Party to whom such
expenses are advanced is not entitled to be Investor Indemnified as a matter of
law. The Company shall not settle any action or claim for which indemnification
is sought under this Section 9.7 without the prior written consent of the
Investor Indemnified Party.
SECTION 10 GENERAL
10.1 AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this
Agreement and all agreements executed pursuant hereto, no course of dealing
between or among any of the parties hereto and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No provision hereof may be waived
otherwise than by a written instrument that makes reference to this Agreement
and is signed by the party or parties so waiving such covenant or other
provision. No amendment to this Agreement may be made without the written
consent of the Company and the Investors; provided that the written consent of
the Shareholders shall be required for any amendment of Sections 4, 5, 6, 7,
8.1, 9 or 10 hereof. Any actions required to be taken or consents, approvals,
votes or waivers required or contemplated to be given by the Investors or the
Shareholders shall require a vote of one-half in interest of the Investors or
three-fourths (3/4) in interest of the Shareholders, as applicable, based on the
relative holdings of capital stock of the Company of the Investors as a group or
of the Shareholders as a group, as applicable, at the relevant time, and any
such action by such Investors or Shareholders, as applicable, shall bind all of
the Investors, or Shareholders, as applicable.
10.2 LEGEND ON SECURITIES. The Company, the Investors and the
Shareholders acknowledge and agree that the following legend shall be typed on
each certificate evidencing any of the securities issued hereunder held at any
time by an Investor or Shareholder:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
39
45
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE COMPANY AND A STOCK
PURCHASE AND SHAREHOLDERS AGREEMENT DATED AS OF OCTOBER 15, 1997, INCLUDING
THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION AND THE AGREEMENT ARE AVAILABLE
FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED TO
THE SHAREHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE WITHIN FIVE (5) DAYS
AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR ADDRESSED TO THE COMPANY.
10.3 GOVERNING LAW. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of
Massachusetts, without giving effect to conflict of laws principles thereof.
10.4 SECTION HEADINGS AND GENDER. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
10.5 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
10.6 NOTICES AND DEMANDS. Any notice or demand which is required or
provided to be given under this Agreement or the Articles of Incorporation shall
be deemed to have been sufficiently given and received for all purposes when
delivered by hand, telecopy, telex or other method of facsimile, or five days
after being sent by certified or registered mail, postage and charges prepaid,
return receipt requested, or two days after being sent by overnight delivery
providing receipt of delivery, to the following addresses:
if to the Company:
Conley, Canitano & Assoc., Inc.
Signature Square, Suite 300
25101 Chagrin Boulevard
Beachwood, OH 44122
Fax: (216) 831-0317
if to Nicholas or Annette Canitano:
c/o Conley, Canitano & Assoc., Inc.
Signature Square, Suite 300
25101 Chagrin Boulevard
40
46
Beachwood, OH 44122
Fax: (216) 831-0317
If to Kenneth or Karen Conley:
c/o Conley, Canitano & Assoc., Inc.
Signature Square, Suite 300
25101 Chagrin Boulevard
Beachwood, OH 44122
Fax: (216) 831-0317
; if to an Investor, c/o TA Associates, Inc. at its mailing address as shown on
EXHIBIT A hereto, or at any other address designated by TA Associates, Inc. to
the Company and the Shareholders in writing.
10.7 DISPUTE RESOLUTION. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Cleveland, Ohio. Such
proceedings shall be guided by the following agreed upon procedures:
(a) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;
(b) no other discovery;
(c) hearings before the neutral advisor which shall consist of
a summary presentation by each side of not more than three hours; such hearings
to take place on one or two days at a maximum;
(d) decision to be rendered not more than ten (10) days
following such hearings; and
(e) punitive damages shall not be permitted under any
circumstances.
10.8 REMEDIES; SEVERABILITY. Notwithstanding Section 10.7, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. Whenever possible, each provision of this
Agreement shall be
41
47
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be deemed prohibited or invalid
under such applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.
10.9 INTEGRATION. The terms and provisions of this Agreement and its
Schedules and Exhibits constitute the entire agreement between the parties and
there are no collateral agreements or representations or warranties other than
as expressly set forth or referred to in this Agreement. This Agreement
(including the Schedules and Exhibits) supersedes any other agreement, whether
written or oral, that may have been made or entered into by any party hereto or
any of their respective affiliates (or by any director, officer or
representative hereof) relating to the matters contemplated hereby.
10.10 FEES AND EXPENSES. The Company shall reimburse the Investors for
the reasonable out-of-pocket expenses incurred by the Investors in connection
with the transactions contemplated by this Agreement, such expenses not to
exceed $75,000.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
42
48
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
COMPANY:
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Nicholas A. Canitano
---------------------------------------
Name: Nicholas A. Canitano
Title: President
SHAREHOLDERS:
/s/ Annette M. Canitano
------------------------------------------
Annette M. Canitano
/s/ Nicholas A. Canitano
------------------------------------------
Nicholas A. Canitano
/s/ Karen M. Conley
------------------------------------------
Karen M. Conley
/s/ Kenneth L. Conley
------------------------------------------
Kenneth L. Conley
NAC ENTERPRISES, INC.
By: /s/ Nicholas A. Canitano
---------------------------------------
Name: Nicholas A. Canitano
Title: President
S-1
49
CKCK ENTERPRISES, INC.
By: /s/ Kenneth L. Conley
---------------------------------------
Name: Kenneth L. Conley
Title:
KENNETH L. CONLEY CHARITABLE
REMAINDER TRUST
By: /s/ Kenneth L. Conley
---------------------------------------
Name: Kenneth L. Conley
Title: Trustee
KAREN M. CONLEY CHARITABLE
REMAINDER TRUST
By: /s/ Karen M. Conley
---------------------------------------
Name: Karen M. Conley
Title: Trustee
S-2
50
INVESTORS:
TA/ADVENT VIII L.P.
By: TA Associates VIII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
*
------------------------------------------
Name: Kenneth T. Schiciano
Title: Principal
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
*
------------------------------------------
Name: Kenneth T. Schiciano
Title: Principal
TA VENTURE INVESTORS LIMITED
PARTNERSHIP
*
------------------------------------------
Name: Kenneth T. Schiciano
Title: Principal
* /s/ Kenneth T. Schiciano
- ---------------------------------------
By: Kenneth T. Schiciano
Title: Principal
S-3
51
McDonald & Company Securities, Inc.
By: /s/ Ralph M. Della Ratta, Jr.
---------------------------------------
Name: Ralph M. Della Ratta, Jr.
Title: Senior Managing Partner
McD Venture Capital Fund, L.P.
By: /s/ Ralph M. Della Ratta, Jr.
---------------------------------------
Name: Ralph M. Della Ratta, Jr.
Title: General Partner
GHK Investments, L.L.C.
By: /s/ William R. Koehler
---------------------------------------
Name: William R. Koehler
Title: Agent
S-4
52
Exhibit A
---------
List of Investors
-----------------
1. Convertible Preferred Shares
Number of Aggregate Purchase Price
Investor Preferred Shares ($69.89 Per Share)
-------- ---------------- ------------------
TA/Advent VIII L.P. 201,416 $14,076,964.24
Advent Atlantic 37,803 $2,642,051.67
and Pacific III L.P.
TA Venture Investors L.P. 4,027 $281,447.03
McDonald & Company 5,008 $350,036.13
Securities, Inc.
McD Venture Capital Fund, L.P. 1,431 $100,012.59
GHK Investments, L.L.C. 715 $49,971.35
------- -------------
TOTALS 250,400 $17,500,456.00
======= ===============
A-1
53
2. Common Shares
Number of Aggregate Purchase Price
Investor Common Shares ($.01 Per Share)
-------- ------------- ----------------
TA/Advent VIII L.P. 108,591 $1,085.91
$1,082.71
Advent Atlantic 20,381 $203.81
and Pacific III L.P.
TA Venture Investors L.P. 2,171 $21.71
McDonald & Company 2,701 $27.01
Securities, Inc.
McD Venture Capital Fund, L.P. 771 $7.71
GHK Investments, L.L.C. 385 $3.85
------- ---------
TOTALS 135,000 $1,350.00
======= =========
Notices to:
TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Jeffrey C. Hadden, Esq.
A-2
54
EXHIBIT C
Redemption Shares
Name of Shareholder Number of Shares to be Redeemed
------------------- -------------------------------
CANITANO SHAREHOLDERS:
Annette M. Canitano 0
Nicholas A. Canitano 0
NAC Enterprises, Inc. 67,500
CONLEY SHAREHOLDERS:
Karen M. Conley 0
Kenneth L. Conley 0
CKCK Enterprises, Inc. 61,000
Kenneth L. Conley Charitable
Remainder Trust 3,250
Karen M. Conley Charitable
Remainder Trust 3,250
C-1
55
DISCLOSURE SCHEDULE to Stock Purchase and Shareholders Agreement, dated October
15, 1997, ("Stock Purchase Agreement") by and among Conley, Canitano & Assoc.,
Inc. ("Company"), Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley,
Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises, Inc. and Conley
Charitable Remainder Unitrust (the "Shareholders"), and the investment
partnerships named in Exhibit A thereto ("Investors").
Introduction
The contents of this Disclosure Schedule are qualified in their entirety by
reference to specific provisions of the Stock Purchase Agreement. This
Disclosure Schedule is not intended to constitute, and shall not be deemed to
constitute, representations and warranties of the Company except as and to the
extent provided in the Stock Purchase Agreement.
This Disclosure Schedule may contain certain information which is not
specifically required by the Stock Purchase Agreement. Any such information is
provided only for Investor's general information and is not separately
represented or warranted. The inclusion of any such information in this
Disclosure Schedule shall not be evidence of or constitute an admission that
such information is material for purposes of the Stock Purchase Agreement.
Certain information contained in various parts of this Disclosure Schedule may
pertain to other parts of this Disclosure Schedule. Accordingly, information
contained in any part of this Disclosure Schedule is hereby incorporated into
all other parts of this Disclosure Schedule to the extent relevant.
Terms defined in the Stock Purchase Agreement will have the meanings ascribed to
them in the Stock Purchase Agreement where used herein.
The contents of this Disclosure Schedule are as of October 15, 1997 except those
items included in the Disclosure Schedule which are marked with an earlier date.
56
SCHEDULE 2.2(a)
---------------
AUTHORIZATION AND NON-CONTRAVENTION
-----------------------------------
1. The investment by the Investors accelerates payments due to Joseph
Minadeo by the Company and the Shareholders and requires the Company to
pay Joseph Minadeo an amount equal to an aggregate of $200,000
multiplied by a fraction representing the aggregate fractional interest
purchased by the Investors. See the Amended and Restated Share
Redemption and Purchase Agreement, dated August 1, 1997, among the
Company, the Shareholders and Joseph Minadeo, as amended October 13,
1997 (the "Minadeo Agreement").
2. The investment will result in an event of default of the Equipment
Lease, dated January 9, 1997 with Fifth Third Bank.
57
SCHEDULE 2.2(b)
---------------
AUTHORIZATION AND NON-CONTRAVENTION (SHAREHOLDERS)
--------------------------------------------------
See Schedule 2.2(a).
58
SCHEDULE 2.3
------------
RESTRICTED STOCK PLAN; CAPITALIZATION
-------------------------------------
1. See attached copy of the Company's 1997 Equity and Performance Incentive
Plan.
2. Shareholder Shares Held
----------- -----------
Nicholas A. Canitano 134,900
Annette M. Canitano 134,900
Kenneth L. Conley 134,900
Karen M. Conley 134,900
NAC Enterprises, Inc. 67,500
CKCK Enterprises, Inc. 61,000
Kenneth L. Conley Charitable
Remainder Trust 3,250
Karen M. Conley Charitable
Remainder Trust 3,250
-------
Total Shares Outstanding 674,600
=======
59
SCHEDULE 2.6
------------
UNDISCLOSED LIABILITIES
-----------------------
1. $700,000 Variable Rate Commercial Promissory Note to Commerce Exchange
Bank, dated August 25, 1997 (the "Commerce Exchange Note").
2. The Company is obligated to pay rent on its Signature Square office
until March 31, 2001.
3. The Company is investigating potential tax liability in various states
where it might be considered doing business. The Company believes the
total liability for such unpaid taxes will not exceed $70,000.
4. The Company received a foreign tax refund in 1993 for $44,000, which
the Company believes may have been received in error.
60
SCHEDULE 2.7
CERTAIN DEVELOPMENTS
i. None.
ii. 1. The Company redeemed eight shares of its common stock
pursuant to the Minadeo Agreement.
2. The Company filed a Certificate of Amendment to its Articles
of Incorporation on October 10, 1997, which converted each
outstanding share of Common Stock outstanding into 6,364.151
shares of Common Stock.
iii. 1. The Company credited $64,000 of invoicing errors in August,
1997.
2. The Company cancelled a $96,712 debt owed by the Shareholders
to the Company pursuant to two $44,500 Notes issued on January
7, 1997.
iv. None.
v. Purchases by the Company for CCI Renaissance Centre including
approximately $250,000 for PBX, voice mail, cabling network
communications and video conferencing equipment; approximately $300,000
for flexible workstations; approximately $50,000 for networking and
communications equipment and approximately $100,000 for an upgrade to
standard finish.
vi. 1. Transactions contemplated by the Minadeo Agreement.
2. The Company paid bonuses to the Shareholders in the aggregate
amount of $400,000 on August 3, 1997.
vii. 1. See item (vi.) above.
2. On September 1, 1997 the Company adopted an Insured Qualified
Sick-Pay Plan for certain of its employees.
3. The Company changed its medical benefit plan from Medical
Mutual of Ohio to Safeco on July 1, 1997.
4. The Company changed its payroll service provider to ADP on
October 1, 1997.
viii. None.
61
ix. 1. Payments made and commissions earned under the Company's
Management Incentive Plan.
2. See item 2(vi) above.
x. None.
xi. None.
xii. 1. $700,000 Note to Commerce Exchange Bank.
2. Lease payments pursuant to the Equipment Lease, dated January
9, 1997 with the Fifth Third Bank (the "Fifth Third
Agreement").
3. Minadeo Agreement.
xiii. None other than listed.
62
SCHEDULE 2.9
------------
ACCOUNTS RECEIVABLE
-------------------
See item (iii) on Schedule 2.7
63
SCHEDULE 2.10
-------------
PROPERTIES
----------
Leased Headquarters of the Company
- ----------------------------------
Conley, Canitano and Assoc., Inc.
Suite 390
25201 Chagrin Boulevard
Beachwood, Ohio 44122
1. Signature Square Office Lease, dated June 12, 1986.
2. Lease Modification Agreement, dated October 31, 1990, between the
Company and Signature Square.
3. Second Lease Modification and Extension Agreement, dated June 2, 1993,
between the Company and Signature Square.
4. Lease Modification Agreement, dated November 11, 1996, between the
Company and Signature Square.
5. Lease Agreement, dated January 3, 1997, between American National
Development, Ltd. and the Company for CCAI Renaissance Centre.
6. Letter Agreement with American National, dated May 14, 1996.
7. Operating Agreement of Place Renaissance Ltd., dated January 3, 1997.
8. Liens:
a) Commerce Exchange Bank has a blanket lien on the assets of the
Company.
64
SCHEDULE 2.11
-------------
TAX MATTERS
-----------
1. The Company was audited by the IRS for the 1993 tax year. No items are
disputed or pending regarding this completed audit.
2. The Ohio Department of Taxation is currently calculating any
adjustments to Ohio franchise tax that will be required as a result of
the 1993 federal audit, if any.
3. The Company is currently undergoing an Ohio sales and use tax audit for
the years 1992, 1993, 1994 and 1995. The Company believes the total
liability relating to these audits will not exceed $20,000.
4. The Company has delivered to the Investors a copy of the federal and
state tax returns for 1994, 1995 and 1996. 1994 through 1996 are open
years for federal. 1993 through 1996 are open years for state.
5. See item 3 on Schedule 2.6.
65
SCHEDULE 2.12
-------------
CONTRACTS
---------
a. None.
b. 1. See Agreements listed on Schedule 2.10.
2. The Fifth Third Agreement
3. See Insurance Policies listed on Schedule 2.21.
4. See Schedule 2.15.
5. See Schedule 2.20.
6. The Minadeo Agreement.
c. 1. Purchase Order for Contract Programming Services dated
March 4, 1997, between the Company and Brush Wellman Inc.
2. Agreement for Consulting and Programming Services, dated
February 24, 1997, between the Company and Master Builders,
Inc. (the "Master Builders Agreement").
d. 1. National Implementation Partner Agreement, dated April 2,
1996, between the Company and SAP America, Inc.
2. ASAP Partner Addendum to National Implementation Agreement
effective July 1, 1997, between the Company and SAP America,
Inc.
3. Oracle Agreement.
e. 1. See item (d.) above.
2. CourtMaster Licensing Agreements with Lyndhurst Municipal
Court, Lawrence County Municipal Court, City of Shelby,
Garfield Heights Municipal Court, City of East Cleveland, City
of Alliance, City of Taylor, City of Gahanna, City of East
Liverpool, City of Avon Lake, Parma Municipal Court, City of
Shaker Heights, Ashtabula Municipal Court, Chillicothe
Municipal Court, Village of Oakwood, Athens Municipal Court,
City of Marion, City of Independence, City of Xenia, Village
of Boston Heights, City of Beachwood, Berea Municipal Court,
Euclid Municipal Court, Village of Northfield, Elyria
Municipal Court and the City of Westlake (the "Court Master
Agreements"). These agreements are substantially similar and
the Company has provided only examples to the Investors.
66
f. 1. See Schedule 2.7, item (v).
2. The Fifth Third Agreement.
g. 1. Commercial Security Agreement, dated June 5, 1996, between
Commerce Exchange Bank and the Company.
2. Commercial Security Agreement, dated May 31, 1997, between
Commerce Exchange Bank and the Company.
3. Bank Note, dated May 31, 1997, between Commerce Exchange and
the Company.
4. The Commerce Exchange Note.
h. 1. National Implementation Partner Agreement, dated November
2, 1994, between the Company and SAP America, Inc.
2. Letter from SAP America, dated November 13, 1995, regarding
their intent to renew the National Implementation Partner
Agreement.
3. National Implementation Partner Agreement, dated as of April
2, 1996, between the Company and SAP America, Inc.
4. ASAP Partner Addendum to National Implementation Agreement
effective July 1, 1997, between the Company and SAP America,
Inc. (items 1-4 of this Section h are herein referred to as
the "SAP Agreement").
5. Teaming Agreement, dated September 9, 1996, between the
Company and Elsag Bailey, Inc.
6. Oracle Agreement.
7. North American Consulting Agreement, dated November 3, 1994,
between the Company and Ernst & Young LLP, together with
Renewal and Extension, dated October 14, 1996 (the "Ernst &
Young Agreement").
8. Consultant Agreement, dated June 23, 1997, between the Company
and Arthur Anderson Consulting LLP (the "Arthur Anderson
Agreement").
i. 1. ASAP Partner Addendum to National Implementation Agreement
effective July 1, 1997, between the Company and SAP America,
Inc.
2. Advertising Agreement, dated April 22, 1996, between the
Company and Saifman, Richards & Associates.
67
j. 1. The Company has entered into an employment agreement with
each of its employees other than the Shareholders. The
agreements are generally of one of four types; Marketing,
Human Resources, SAP and Non-SAP. The Company has only
provided the Investors with a form of each type.
2. See Schedule 2.7(ii.).
3. See Schedule 2.22.
k. See Schedule 2.7(ii.).
l. 1. The Company has a discretionary profit sharing plan with
its employees, last year the Company deposited approximately
$135,000 into employees' 401(k) plans.
2. Earnings Incentive Plan as described in the Company's Employee
Manual.
3. Performance Incentive Plan.
4. Sales Commission Plan.
5. Recruiting Commission Plan.
6. Management Incentive Plan.
7. Flexible 401(k) and Profit Sharing Plan Agreement, dated
October 15, 1996, between the Company and Putnam.
m. 1. See Schedule 2.7(ii.)
2. See Incentive and Commission Plans in item l above.
n. None.
o. None.
p. See Schedule 2.7(ii.).
q. The Company has a verbal agreement with the court system of the City of
Bedford, Ohio, to pay to Bedford Courts a royalty fee of 15% on the
sale of any court master software product.
68
SCHEDULE 2.13
-------------
INTELLECTUAL PROPERTY
---------------------
None.
69
SCHEDULE 2.15
-------------
EMPLOYEE BENEFIT PLANS
----------------------
1. Flexible 401(k) and Profit Sharing Plan Agreement, dated October 15,
1996, between the Company and Putnam.
2. See Schedule 2.12(l.).
3. Insured Qualified Sick-Pay Plan.
4. See the Company's Employee Handbook, which explains other Company
benefits provided to employees.
5. See attached Summary of Insurance Policies of the Shareholders.
6. Voluntary Dental Plans
a. American Prepaid Dental Plan
b. Jefferson Pilot Dental Plan
7. Administrative Service Consultants Medical Plan (Plan #: C-97016)
70
SCHEDULE 2.17
-------------
EMPLOYEES AND SUPPLIERS
-----------------------
SCHEDULE 2.17(b) List of all managers, employees and consultants, 1996,
$250,000-- current job title, years of service and aggregate
annual compensation and benefits.
Tim May Account Executive 01/09/95
Jack Rhyne V.P. Enterprise Systems 03/07/94
Glenn Furth Advisory Assoc. 03/07/94
Alan Branstein Managing Assoc. 09/13/94
Hallie Rosenberg Account Exec. 07/10/95
Grant Margrett Account Exec. 08/07/95
Tim Flowers Account Exec. 03/29/90
Mark Soltys District Manager 11/14/94
Lia Koumbardou Sr. Consultant 04/24/95
Robert MacKinlay District Manager 04/18/94
SCHEDULE 2.17(b) List of all material suppliers, 1996
1. The only material suppliers to the Company are its insurance carriers.
71
SCHEDULE 2.20
-------------
INVESTMENT BANKING; BROKERAGE
-----------------------------
1. Engagement letter, dated February 26, 1997, between the
Company and McDonald & Co.
72
SCHEDULE 2.21
-------------
INSURANCE
---------
See attached Summary of Insurance for Conley, Canitano and Associates, Inc.
73
SCHEDULE 2.22
-------------
TRANSACTIONS WITH AFFILIATES
----------------------------
1. Promissory notes, dated January 7, 1997, from Annette and Nicholas
Canitano and Karen and Ken Conley to the Company each in the principal
amount of $44,500.
2. Operating Agreement of Place Renaissance Ltd., dated January 3, 1997.
3. Minadeo Agreement.
4. Lease Agreement with National Development, Ltd.
5. The following employees are related to one of the Shareholders:
a. Linda Newman - Accounting Manager
b. Don Newman - SAP Consultant
c. Christine Meredith - Clerk
d. Brian Conley - SAP Consultant
e. John Minadeo - Cobol Programmer
74
SCHEDULE 2.23
-------------
CUSTOMERS
---------
1. SAP America, Brush Wellman, Ernst & Young, Master Builders, Andersen
Consulting, Key Corp., Cole National, Office Max, Ciba-Geigy, Medical
Mutual, General Tire, Simon & Schuster, Allegiance, Unisys, Goodyear
Tire & Rubber, Pilkington Barnes Hind and EDS.
2. Key Services has notified the Company that the Company is no longer
designated as a preferred customer.
75
SCHEDULE 2.24
-------------
PRODUCT AND SERVICE WARRANTIES
------------------------------
1. Terms of the CourtMaster Agreements.
2. Terms of the Master Builders Agreement.
3. Purchase order for Contract Programming Services, a form of which is
attached.
4. Terms of the Arthur Anderson Agreement.
5. Terms of the SAP Agreement.
6. Terms of the Ernst & Young Agreement.
7. Terms of the Oracle Agreement.
76
SCHEDULE 2.25
-------------
CERTAIN EVENTS
--------------
None.
77
SCHEDULE 4.7
------------
MANAGEMENT COMPENSATION
-----------------------
Nicholas A. Canitano $ 250,000
Annette M. Canitano 150,000
Kenneth L. Conley 250,000
Karen M. Conley 150,000
The Shareholders will also participate in a Bonus Plan to be established by the
Board of Directors prior to 1998.
78
SCHEDULE 5.1(d)
---------------
COMPETITORS
-----------
Please see attached list of SAP Alliance Partners.
79
CONSENT OF SPOUSE
-----------------
I, Nicholas A. Canitano, spouse of Annette M. Canitano,
acknowledge that I have read the Stock Purchase and Shareholders Agreement dated
as of October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Nicholas A. Canitano
-------------------------------
Nicholas A. Canitano
80
CONSENT OF SPOUSE
-----------------
I, Annette M. Canitano, spouse of Nicholas A. Canitano,
acknowledge that I have read the Stock Purchase and Shareholders Agreement dated
as of October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Annette M. Canitano
-------------------------------
Annette M. Canitano
81
CONSENT OF SPOUSE
-----------------
I, Kenneth L. Conley, spouse of Karen M. Conley, acknowledge
that I have read the Stock Purchase and Shareholders Agreement dated as of
October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Kenneth L. Conley
-------------------------------
Kenneth L. Conley
82
CONSENT OF SPOUSE
-----------------
I, Karen M. Conley, spouse of Kenneth L. Conley, acknowledge
that I have read the Stock Purchase and Shareholders Agreement dated as of
October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Karen M. Conley
-------------------------------
Karen M. Conley