1
EXHIBIT 10.15
FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT
THIS FOUNDERS RESTRICTED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of December 14, 1998 (the "EFFECTIVE DATE") by and
between ProfitSource Corporation, a Delaware corporation (the "Company") and
Early Price Pritchett, III (the "PURCHASER").
A. The Company has been formed for the purpose of providing cost
reduction, cost recovery and profit enhancement services and is acquiring, in a
series of transactions by means of mergers into the Company, or acquisitions by
the Company of all or substantially all of the assets or stock or other equity
interests, various companies providing such services (the "CONSOLIDATION
TRANSACTIONS").
B. The Purchaser has entered into that certain Employment Agreement
with the Company or its affiliate of even date herewith (the "EMPLOYMENT
AGREEMENT").
C. The Purchaser and certain other persons affiliated with certain
companies being acquired by the Company in the Consolidation Transactions and
who are to serve as employees of the Company pursuant to employment agreements
executed concurrently with the acquisition of such companies (collectively, the
"FOUNDERS") and certain persons responsible for effecting the Consolidation
Transactions (the "SPONSORS") are being offered an opportunity to purchase
shares of the common stock of the Company, par value $0.001 per share (the
"COMMON STOCK") (in the case of Founders, Series A Common Stock and in the case
of Sponsors, Series B Common Stock) at a price of $1.56 per share (or if less,
the value per share determined by Houlihan, Lokey, Howard & Zukin as of the date
hereof).
D. The Shares (as hereinafter defined) shall be subject to repurchase
by the Company, in the Company's discretion, if certain performance related
milestones described herein are not met.
E. The Shares shall be subject to certain additional restrictions as
set forth herein.
F. The Purchaser desires to purchase and the Company desires to sell
the Shares as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter set forth, the Company and the Purchaser hereby
agree as follows:
1. SALE AND PURCHASE OF THE SHARES.
1.1 SALE AND PURCHASE. Subject to the terms and conditions set forth
herein, the Company hereby sells and issues to the Purchaser, and the Purchaser
hereby purchases from the Company, the number of shares of Series A Common Stock
set forth on Schedule 1.1 (the "SHARES") for the consideration of $1.56 per
Share (or if less, the value per share determined by Houlihan, Lokey, Howard &
Zukin as of the date hereof), resulting in an aggregate purchase price as set
forth on Schedule 1.1 (the "PURCHASE PRICE"). Concurrently herewith the
Purchaser
2
is paying to the Company in cash $0.001 per Share, resulting in an aggregate
payment of the amount set forth on Schedule 1.1 under the item "Cash Payment"
(the "CASH PAYMENT"). The obligation of the Purchaser to pay the remainder of
the Purchase Price in the amount set forth on Schedule 1.1 under the item "Note"
is evidenced by the Purchaser's delivery to the Company concurrently herewith of
a secured promissory note of the Purchaser in the form attached hereto as
Exhibit A (the "NOTE"). The Note is secured by a pledge of the Shares made
pursuant to Section 5 of the Note. The Shares are sold pursuant to and governed
by this Agreement and not any other contract or plan of the Company.
1.2 DELIVERIES. In exchange for the Cash Payment and the Note, the
Company is issuing the Shares in the Purchaser's name on the Company's stock
transfer ledger, and valid stock certificates representing the Shares (the
"CERTIFICATES") shall be held by the Company or its agent pending release
pursuant to Section 4.1(h).
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company and its officers, directors and agents as follows:
2.1 SECURITIES MATTERS.
(a) The Purchaser understands that (i) neither the Shares nor the
offer and sale thereof are registered or qualified under the Securities Act of
1933, as amended (the "Securities Act") or any state securities or "Blue Sky"
laws, on the ground that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration and qualification
under Sections 4(2) and 18 of the Securities Act, and (ii) the Company's
reliance on such exemptions is predicated on the Purchaser's representations set
forth herein.
(b) The Purchaser acknowledges that an investment in the Company
involves an extremely high degree of risk, lack of liquidity and substantial
restrictions on transferability and that the Purchaser may lose the Purchaser's
entire investment in the Shares.
(c) The Company has made available to the Purchaser or the
Purchaser's advisors the opportunity to obtain information to evaluate the
merits and risks of the purchase of the Shares, and the Purchaser has received
all information requested from the Company. The Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, plans,
prospects, and financial condition of the Company and to obtain such additional
information as the Purchaser has deemed appropriate for purposes of investing in
the Shares pursuant to this Agreement.
(d) The Shares to be acquired by the Purchaser hereunder will be
acquired for the Purchaser's own account, for investment purposes, not as a
nominee or agent, and not with a view to or for sale in connection with any
distribution of the Shares in violation of applicable securities laws.
(e) The Purchaser understands that no federal or state agency has
passed upon the Shares or made any finding or determination as to the fairness
of the investment in the Shares.
2
3
(f) The Purchaser, personally or through advisors, has expertise in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development to the Company and has sufficient
knowledge and experience in financial and business matters to assess the
relative merits and risks of an investment in the Shares. In connection with the
purchase of the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser, and has consulted the Purchaser's own
investment advisors, counsel and accountants. The Purchaser has adequate means
of providing for current needs and personal contingencies, and has no need for
liquidity and can sustain a complete loss of the investment in the Shares.
(g) The Purchaser is an "Accredited Investor" as defined in Rule
501(a) under the Securities Act and has documented his or her accredited status
by delivery to the Company of a completed questionnaire in the form of Exhibit B
hereto attesting thereto (the "ACCREDITED INVESTOR QUESTIONNAIRE").
(h) The Purchaser has not received any general solicitation or
general advertising concerning the Shares, nor is the Purchaser aware of any
such solicitation or advertising.
2.2 REVOCATION, CANCELLATION. The Purchaser acknowledges that the
Purchaser shall not have any right to cancel, terminate or revoke this
Agreement, or rescind purchase of the Shares, or return the Shares for a refund.
2.3 THE COMPANY AND THE CONSOLIDATION TRANSACTIONS.
(a) The Purchaser is aware that:
(i) The Company has recently been organized and has no financial or
operating history.
(ii) There can be no assurance that the Consolidation Transactions
will occur, that the Company will be successful in accomplishing the purpose for
which it was formed or that it will ever be profitable. No assurances can be
given regarding what companies will ultimately participate in the Consolidation
Transactions. No company is obligated to participate in the Consolidation
Transactions unless a written agreement to such effect is entered into by the
Company and such Consolidation Transaction company.
(iii) No assurances can be given that an initial public offering
("IPO") of the Company's securities will occur. If an IPO does occur, no
assurances can be given as to timing of the IPO, whether the Purchaser will be
able to participate, or the price at which any shares of Common Stock would be
sold.
(iv) No assurances can be given as to the ultimate value of the
Common Stock or the Shares or the liquidity thereof.
(v) All decisions regarding the Consolidation Transactions, any
IPO, and the Company's management and operations will be made by the Company's
management, and certain individuals involved in planning the Consolidation
Transactions and managing the
3
4
business of the Company will have the right to vote the Shares pursuant to the
voting agreement referenced in Section 4.1(i).
(b) The Purchaser acknowledges that no assurances have been made to the
Purchaser with respect to any of the foregoing and no representations, oral or
written, have been made to the Purchaser by the Company or any of its employees,
representatives or agents concerning the Shares, their potential value or the
prospects of the Company, except as set forth herein.
(c) The proceeds from the sale of the Common Stock to the Founders are
intended to be used by the Company for general and administrative expenses and
working capital. The proceeds from such sales may be exhausted notwithstanding
failure of the Company to achieve its objectives.
2.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and all
other documents to be delivered in connection herewith (collectively, the
"TRANSACTION DOCUMENTS") have been (or upon execution and delivery will have
been) duly executed and delivered by the Purchaser, and (assuming due execution
and delivery by the other parties thereto) constitute (or upon execution by the
Purchaser will constitute) legal, valid and binding obligations of the
Purchaser, except as such enforceability may be limited by general principles of
equity and bankruptcy, insolvency, reorganization and moratorium and other
similar laws relating to creditors' rights (the "BANKRUPTCY EXCEPTION").
2.5 BROKERS. No broker, finder, investment banker, or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
2.6 TAX MATTERS. The Purchaser has received tax advice from the
Purchaser's own advisors and has not received, and is not relying upon, any tax
representations or advice from the Company or any representative of the Company.
2.7 SUMMARY OF CERTAIN CONSIDERATIONS. The Purchaser acknowledges
receipt and understanding of the Summary of Certain Considerations attached
hereto as Exhibit C.
2.8 ACCURACY OF INFORMATION. No representation or warranty made by the
Purchaser contained in this Agreement or in any other Transaction Document
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein not
materially false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Purchaser that:
3.1 ORGANIZATION AND CORPORATE AUTHORITY. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement and the other Transaction Documents to be executed and delivered by
the Company have been (or upon execution and delivery by the Company will have
been) duly executed and delivered by the Company, have been effectively
4
5
authorized by all necessary action of the Company, corporate or otherwise, and
(assuming due execution and delivery by the other parties thereto) constitute
(or upon execution and delivery by the Company will constitute) legal, valid and
binding obligations of the Company, except as such enforceability may be limited
by the Bankruptcy Exception.
3.2 NO CONFLICT OR VIOLATION. The execution, delivery and performance
by the Company of the Transaction Documents to be executed and delivered by the
Company and the consummation of the transactions contemplated thereby do not and
will not: (i) violate or conflict with any provision of the charter documents or
bylaws of the Company; or (ii) violate any provision or requirement of any
domestic or foreign, national, federal, state or local law, statute, judgment,
order, writ, injunction, decree, award, rule, or regulation of any court,
arbitrator, federal, state, local or foreign government agency, regulatory body,
or other governmental authority or any department, agency, board, commission,
bureau or instrumentality of any of the foregoing (each a "GOVERNMENTAL ENTITY,"
and collectively "GOVERNMENTAL ENTITIES") applicable to the Company.
3.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 240,000,000 shares of Common Stock, of which 200,000,000 are Series
A Common Stock and 40,000,000 are Series B Common Stock; and 10,000,000 shares
of undesignated preferred stock. All capital stock of the Company has a par
value of $0.001 per share. Holders of Series B Common Stock are entitled to
elect all the directors in one of the Company's three classes of directors, with
the holders of the Series A Common Stock entitled to elect the remaining
directors. In all other respects, the Series A Common Stock and the Series B
Common Stock is identical. The Shares, when issued, sold, and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein will be duly and validly issued, fully paid, and nonassessable, except
that the Purchaser may be required to pay amounts owed under the Note.
3.4 ENFORCEABILITY OF TRANSACTION DOCUMENTS. This Agreement and the
other Transaction Documents have been (or upon execution and delivery will have
been) duly executed and delivered by the Company, and (assuming the execution
and delivery by the other parties thereto) constitute (or upon execution by the
Company will constitute) legal, valid and binding obligations of the Company,
except as such enforceability may be limited by the Bankruptcy Exception.
3.5 ACCURACY OF INFORMATION. No representation or warranty made by the
Company contained in this Agreement or in any other Transaction Document
delivered by the Company contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements and facts contained herein or therein, not
materially false or misleading.
4. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
4.1 PERFORMANCE RESTRICTIONS, STOCKHOLDER AND VOTING AGREEMENTS.
(a) The Shares are subject to "RESTRICTIONS" and may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the Shares "vest" by the lapse of the Restrictions as set
forth in Section 4.1(b) and any additional
5
6
requirements or restrictions contained herein have been satisfied, terminated or
expressly waived by the Company in writing. Any attempted transfer in violation
of such Restrictions will be void.
(b) The Restrictions will lapse and the Shares will vest in accordance
with Schedule 4 (the "VESTING SCHEDULE"), provided, however, that the Company,
in its discretion, may from time to time accelerate the vesting of any Shares at
any time or forgive Restrictions and allow Shares or restricted shares owned by
any other Founder or other third party to vest notwithstanding that the
conditions to vesting thereof may not have been satisfied.
(c) If Shares do not vest in accordance with the Vesting Schedule for
any Measurement Period, the Company, or its assignee, may, in the Company's
discretion, at any time and from time to time for a period of one (1) year
following the end of such Measurement Period, repurchase from the Purchaser at
the price per Share that the Purchaser paid to the Company, and the Purchaser
will sell to the Company, any or all of the number of Shares by which the
maximum potential number of Shares that could vest for such Measurement Period
exceeds the number of Shares actually vested for such Measurement Period, if
any. Any Shares that do not vest in accordance with the Vesting Schedule shall
be subject to repurchase by the Company regardless of the services performed, or
other consideration given, by the Purchaser to the Company. Shares not vested in
accordance with the Vesting Schedule but not repurchased by the Company during
the applicable one-year repurchase period as described herein shall vest.
(d) (i) Termination of the Purchaser's employment by the Company or its
affiliate under the circumstances described in Schedule 4 under the heading
"Vesting Upon Certain Termination of Employment" will cause vesting as described
therein, provided that the vesting of any Shares upon termination of the
Purchaser's employment with the Company, or subsequent to such termination shall
be contingent upon execution and delivery by the Purchaser to the Company of an
unconditional release in form satisfactory to the Company of all claims against
the Company or any of its officers, directors or affiliates arising from or in
connection with this Agreement or the Purchaser's employment with the Company or
the termination of that employment. Any Shares that do not vest as described
therein shall be subject to repurchase by the Company or its assignee, in the
Company's discretion, at any time and from time to time for a period of one (1)
year following the end of the Measurement Period in which employment of the
Purchaser is terminated at the price per Share that the Purchaser paid to the
Company.
(ii) In case of termination of the Purchaser's employment by
the Company or its affiliate for any reason other than a reason that causes
vesting as described in Schedule 4, the Company or its assignee may, in the
Company's discretion, at any time and from time to time for a period of one (1)
year following the termination of employment, repurchase from the Purchaser at
the price per Share that the Purchaser paid to the Company, and the Purchaser
will sell to the Company, any or all of the Shares designated by the Company
that have not vested as of the date of termination of employment.
(iii) In addition to the Company's repurchase right set forth
in subparagraph (ii) above, if any of the events or circumstances constituting
"Cause" listed in items A or B of Schedule 1 of the Purchaser's Employment
Agreement occurs at any time before the end of the final Measurement Period,
then notwithstanding any prior vesting the Company or its assignee
6
7
may, in the Company's discretion, at any time and from time to time for a period
of one (1) year following such occurrence, repurchase from the Purchaser at the
price per Share that the Purchaser paid to the Company, and the Purchaser will
sell to the Company, any or all Shares designated by the Company, that had not
vested at the time of such occurrence, or that vested effective as of a date
within 365 days before such occurrence, provided however, that if the
Purchaser's employment with the Company or its affiliate was terminated by the
Company without Cause or by the Purchaser for Good Reason (each as defined in
the Employment Agreement), then the Company will not be entitled to repurchase
Shares pursuant to this subparagraph (iii) solely because of the occurrence
after termination of employment of any of the events or circumstances
constituting Cause listed in item A of Schedule 1 of the Purchaser's Employment
Agreement.
(e) (i) The purchase price for any repurchase pursuant to this Section
4.1 shall be paid, (A) by deducting the purchase price from any amount
outstanding on the Note and canceling the Note upon deduction of the full amount
outstanding on the Note, if applicable; and (B) if the purchase price exceeds
the amount outstanding on the Note, in the Company's discretion, in cash or by a
promissory note bearing interest at 7% and payable in up to 12 equal monthly
amortizing installments of principal and accrued interest, or any combination of
cash and such a promissory note.
(ii) If the Company wishes to exercise its right to repurchase any
Shares under this Agreement but the Purchaser cannot deliver such Shares to the
Company because such Shares have previously been sold by the Purchaser, the
Company may, in its discretion, upon payment to the Purchaser of the price per
Share that the Purchaser paid to the Company, recover from the Purchaser, and
the Purchaser shall deliver to the Company, all proceeds to the Purchaser of the
sale of such Shares (or the cash value thereof), such that the Purchaser retains
no benefit from having owned the Shares.
(f) The exercise of the Company's right to repurchase Shares or to
accelerate vesting or forgive Restrictions pursuant to this Section 4.1, and its
right to repurchase Common Stock purchased by other Founders, the Sponsors or
other third parties that are subject to restrictions, or to accelerate vesting
or forgive Restrictions applicable to such Common Stock, shall be within the
discretion of the Company. The Company may (but will not be required to)
exercise its right to repurchase, accelerate, or forgive Restrictions with
respect to any or all shares of restricted Common Stock owned by the Purchaser
or any Founder, Sponsor or other third party without incurring any obligation to
repurchase, accelerate, or forgive Restrictions with respect to any other Common
Stock owned by the Purchaser or any Founder, Sponsor or other third party.
(g) The Shares shall be subject to a Stockholder Agreement in the form
attached hereto as Exhibit D (the "STOCKHOLDER AGREEMENT") restricting transfers
and imposing certain obligations upon the Purchaser, which must be executed and
delivered by the Purchaser as described in Section 5.2(b). Shares that have
vested shall nevertheless be governed by the Stockholder Agreement. The
Company's repurchase rights hereunder will supersede the purchase provisions of
the Stockholder Agreement.
(h) The Company will release the Certificates representing Shares as
such Shares become free of both the Restrictions and the Stockholder Agreement,
provided that (a) the
7
8
Purchaser has paid to the Company the full Purchase Price for such Shares, and
an amount sufficient to satisfy any taxes or other amounts required by any
Governmental Entity to be withheld and paid over to such Governmental Entity for
the Purchaser's account, or otherwise made arrangements satisfactory to the
Company for payment of such amounts through withholding or otherwise, and (b)
the Purchaser has, if requested by the Company, made appropriate representations
in a form satisfactory to the Company that such Shares will not be transferred
other than (i) pursuant to an effective registration statement under the
Securities Act, or an applicable exemption from the registration requirements of
the Securities Act; (ii) in compliance with all applicable state securities laws
and regulations; and (iii) in compliance with all terms and conditions of the
Stockholder Agreement.
(i) The Shares shall be subject to a Voting Agreement in the form
attached hereto as Exhibit E (the "VOTING AGREEMENT"), which must be executed
and delivered by the Purchaser as described in Section 5.2(b).
4.2 SECURITIES RESTRICTIONS.
(a) In addition to the contractual restrictions on transfer set forth
in this Agreement and the Stockholder Agreement, the Shares (or interests
therein) cannot be offered, sold or transferred unless the Shares are registered
and qualified under the Securities Act and applicable state securities laws or
exemptions from such registration and qualification requirements are available,
or such registration and qualification requirements are inapplicable, as
reflected in an opinion of counsel to the Purchaser in form and substance
reasonably satisfactory to the Company. In the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act and applicable state securities laws, the
Shares must be held indefinitely and may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that rule
are met.
(b) In addition to any legends required by the Stockholder Agreement
and the Voting Agreement, the Certificates will bear a legend to the effect set
forth below, and appropriate stop transfer instructions against the Shares will
be placed with any transfer agent of the Company to ensure compliance with the
restrictions set forth herein.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THE HOLDER OF THE SHARES OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
(c) Each recipient of Shares or interests therein shall, as a condition
to transfer of any Shares or interest therein, cause the transferee to enter
into the Stockholder Agreement and the Voting Agreement, provided that, with
respect to each such agreement, this requirement will not apply to transfers
made after the agreement has terminated.
8
9
(d) In connection with any underwritten public offering of securities
of the Company or any of its affiliates within three (3) years of the date
hereof, if the managing underwriter believes that it is appropriate in
connection with the offering to limit public sales of such securities by
Company's stockholders, the Purchaser will agree to the managing underwriter's
standard form of "lock up" agreement prohibiting transfers of Common Stock
(other than shares included in the offering) for such period as may be required
by the managing underwriter not to exceed twenty (20) days prior to, and one
hundred and eighty (180) days after, the effective date of the registration
statement for such offering, provided however, that (i) such lock up provision
may not be invoked more than once in any 365 day period, (ii) such lock up
provision will be contingent upon the officers and directors of the registrant
entering into similar lock up agreements, and (iii) the Purchaser will not be
required to comply with this lock up provision if any other stockholder owning
more shares of Common Stock than the Purchaser and who is subject to a
contractual lock up provision similar to this one has been released from such
lock up obligation.
4.3 STOCKHOLDER RIGHTS. During the period prior to the lapse and
removal of the Restrictions, except as otherwise provided herein, and subject to
the Voting Agreement, the Purchaser will have all of the rights of a stockholder
of the Company with respect to all of the Shares, including without limitation
the right to receive all dividends or other distributions with respect to such
Shares. In connection with the payment of such dividends or other distributions,
the Company will be entitled to deduct any taxes or other amounts required by
any Governmental Entity to be withheld and paid over to such Governmental Entity
for the Purchaser's account.
4.4 MERGER, CONSOLIDATION OR REORGANIZATION. In the event of a merger,
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "EXCHANGE
CONSIDERATION"), the Purchaser will be entitled to receive a proportionate share
of the Exchange Consideration in exchange for the Shares the Purchaser owns at
the time of such merger, consolidation or reorganization; provided, however,
that the Purchaser's share of the Exchange Consideration shall be subject to the
Restrictions not yet satisfied, unless the Board of Directors of the Company, in
its discretion, forgives the Restrictions.
4.5 SECTION 83(b) ELECTION. The Purchaser may make an election pursuant
to Section 83(b) of the Internal Revenue Code, or comparable provisions of any
state tax law, to include in the Purchaser's gross income the amount by which
the fair market value of the Shares the Purchaser acquires exceeds the price
paid therefor only if, prior to making any such election, the Purchaser (a)
notifies the Company of the Purchaser's intention to make such election, by
delivering to the Company a copy of the fully-executed Section 83(b) Election
Form attached hereto as Exhibit F, and (b) pays to the Company an amount
sufficient to satisfy any taxes or other amounts required by any Governmental
Entity to be withheld or paid over to such Governmental Entity for the
Purchaser's account, or otherwise makes arrangements satisfactory to the Company
for the payment of such amounts through withholding or otherwise.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement nor the
ownership of the Shares confers upon the Purchaser any right to continue as an
employee of the Company, or limits in any way the right of the Company to
terminate the Purchaser's services to
9
10
the Company at any time, with or without cause. Such matters are addressed, if
at all, only pursuant to the Employment Agreement.
4.7 REGISTRATION.
(a) The Purchaser will have no rights to demand registration of any of
the Shares, or to participate in any registration undertaken by the Company
except as set forth in this Section 4.7. If the Company files a registration
statement with the Securities and Exchange Commission for an underwritten IPO of
its equity securities or any subsequent underwritten public offering within
twenty-four (24) months of the closing of the IPO (not including a registration
statement filed in connection with an acquisition or employee benefit plan), and
if the managing underwriter of such offering believes that the market will
accommodate selling stockholders in the offering, then the Purchaser shall have
the right, subject to the limitations set forth in this Section 4.7(a), to
include in such registration statement or statements and offering or offerings
Shares and other Common Stock owned by the Purchaser. Other stockholders
(including but not limited to stockholders who acquired Common Stock in the
Consolidation Transactions and stockholders who acquired Common Stock in the
formation, or work on behalf of, the Company) will have rights to include shares
of Common Stock in such offering, and if the aggregate amount of shares that all
stockholders with such rights (collectively, the "SELLING STOCKHOLDERS") desire
to include exceeds the number of shares of Common Stock that can be sold by all
Selling Stockholders, then all Selling Stockholders desiring to sell in any such
offering will participate pro-rata on the basis of the relative numbers of
shares of Common Stock eligible for inclusion that they originally sought to
include. However, notwithstanding the foregoing no Selling Stockholder will be
permitted to include in any such registration and offering (i) any Shares
subject to performance-related restrictions at the time of filing of the
registration statement for such offering, or (ii) more than, in the aggregate
for all such registrations and offerings, half of the Shares and other Common
Stock owned by the Purchaser as of the date hereof. Furthermore, in no case will
the Purchaser be permitted to include in all such registrations and offerings,
in the aggregate, more than the number of shares listed on Schedule 1.1 under
the item "Maximum IPO Shares."
(b) If the Purchaser acting pursuant to this Section 4.7 includes any
securities in any registration of the Company, the Company will agree to
indemnify the Purchaser from and against any claims, costs and liabilities
incurred by the Purchaser as a result of any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus or prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such claims, costs or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by the Purchaser
expressly for use therein, for which the Purchaser will be responsible.
(c) Shares may only be included in a registration and offering pursuant
to this Section 4.7 pursuant to the underwriting agreement negotiated between
the Company and the underwriters, and the Purchaser must enter into the
underwriting agreement with respect to any Shares to be included in the
registration and offering. The Purchaser shall pay (i) all
10
11
underwriting discounts and commissions applicable to any such sale of shares,
(ii) the Purchaser's ratable share (based on the relative number of shares of
Common Stock included in the offering) of any fees and disbursements of a single
counsel for all selling stockholders, which counsel shall be selected by the two
(2) stockholders (or affiliated stockholder groups) selling the most shares in
the offering, and (iii) the fees and costs of any separate counsel retained by
the Purchaser alone.
(d) At all times that equity securities of the Company are registered
pursuant to the Securities Exchange Act of 1934, as amended, the Company shall
use its best efforts to fulfill all conditions applicable to a registrant as are
necessary to enable selling security holders of the Company to make sales
pursuant to Rule 144 under the Securities Act.
4.8 INDEMNIFICATION. The Purchaser shall indemnify, defend and hold
harmless the Company, its affiliates, their successors and assigns, and the
officers, directors, employees and agents of any of them, from and against any
and all losses, liabilities, claims, damages, obligations, assessments,
penalties, interests, demands, actions and expenses (including, without
limitation, settlement costs and any and all expenses reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim) arising out of or in connection with or based upon any
false acknowledgment, representation or warranty, or breach or failure by the
Purchaser to comply with any covenant or agreement, made by the Purchaser herein
or in any other Transaction Document.
4.9 ENFORCEMENT OF THE AGREEMENT.
(a) The Company and the Purchaser acknowledge that irreparable damage
would occur if any of the obligations of the parties under this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Either party shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other and to enforce specifically the
terms and provisions hereto, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(b) Concurrent herewith, the Purchaser shall deliver a stock power
executed by the Purchaser and the Purchaser's spouse, if applicable (the "STOCK
POWER"), in blank to the Secretary of the Company, to hold in escrow to
facilitate the enforcement of restrictions on transfer of the Shares set forth
herein or in the Stockholder Agreement. The Company shall have the right, in its
discretion, to exercise the Stock Power if the Company becomes entitled to
repurchase any or all of the Shares pursuant to the provisions of this Agreement
or the Stockholder Agreement.
4.10 SUPPLEMENTAL DISCLOSURE. Until the second anniversary of the
Effective Date, the Purchaser shall promptly provide written notice to the
Company with particularity of any breach or inaccuracy of any representation,
warranty, agreement or covenant contained herein or in any other Transaction
Document.
11
12
5. CONCURRENT DELIVERIES.
5.1 DELIVERIES BY THE COMPANY. Concurrent herewith, the Company shall
deliver to the Purchaser a photocopy of the Certificates issued in the
Purchaser's name.
5.2 DELIVERIES BY THE PURCHASER.
(a) The Cash Payment. Concurrent herewith, the Purchaser shall deliver
to the Company the Cash Payment.
(b) Documents of the Purchaser. In addition to the Note and the
Accredited Investor Questionnaire, concurrent herewith and as a condition to
receipt of any Shares, the Purchaser shall execute and deliver to the Company,
each dated the Effective Date:
(i) The Stockholder Agreement described in Section 4.1(g);
(ii) The Voting Agreement described in Section 4.1(i); and
(iii) The Stock Power described in Section 4.9(b);
(c) Other Closing Documents. The Company shall receive such other duly
executed certificates, instruments and documents in furtherance of the
transactions contemplated by this Agreement and the other Transaction Documents
as the Company may reasonably request.
6. MISCELLANEOUS.
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
party's investigations prior to the date hereof, the representations and
warranties contained herein and in the other Transaction Documents shall survive
the execution and delivery hereof and the purchase and sale of the Shares.
6.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given upon personal delivery
or three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or one (1) business day after being sent via
a nationally recognized overnight courier service if overnight courier service
is requested from such service or upon receipt of electronic or other
confirmation of transmission if sent via facsimile, to the parties, their
successors in interest or their assignees at the addresses and telephone numbers
set forth on the signature page hereof or at such other addresses or telephone
numbers as the parties may designate by written notice in accordance with this
Section 6.2.
6.3 ASSIGNABILITY AND PARTIES IN INTEREST. This Agreement and any of
the rights, interests or obligations hereunder may not be assigned by any of the
parties hereto except that the Company may assign this Agreement or any of its
rights hereunder to its affiliates or to successors to all or substantially all
of its business. Nothing in this Agreement will confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, without
regard to its conflicts-of-law principles.
12
13
6.5 COUNTERPARTS. This Agreement and the other Transaction Documents
may be executed in counterparts, each of which shall be deemed an original, but
all of which shall constitute but one and the same instrument.
6.6 COMPLETE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the other Transaction Documents contain the entire agreement between
the parties hereto with respect to the subject matter contemplated herein and
therein and supersede all previous oral and written and all contemporaneous oral
negotiations, commitments, and understandings with respect thereto. The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.
6.7 AMENDMENTS. This Agreement and the other Transaction Documents may
be amended only by written instrument duly executed and delivered by the parties
hereto or thereto, as the case may be.
6.8 CONSTRUCTION. The headings contained in this Agreement and the
other Transaction Documents are for reference purposes only and shall not affect
in any way the meaning or interpretation hereof or thereof. References herein or
therein to Articles, Sections, Schedules and Exhibits refer to the referenced
Articles, Sections, Schedules or Exhibits hereof or thereof as the case may be,
unless otherwise specified. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the parties hereto or thereto without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable.
6.9 SEVERABILITY. Any provision of this Agreement or any other
Transaction Document which is invalid, illegal, or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement or any other Transaction Document invalid,
illegal, or unenforceable in any other jurisdiction.
6.10 EXPENSES OF TRANSACTIONS. All fees, costs and expenses incurred by
the Company or the Purchaser in connection with the transactions contemplated by
this Agreement and the other Transaction Documents shall be borne by the party
incurring the same.
6.11 ARBITRATION.
(a) (i) Any controversy or claim arising out of or relating to this
Agreement shall be solely and finally settled by arbitration administered by the
American Arbitration Association (the "AAA") in accordance with its Commercial
Arbitration Rules as then in effect (the "RULES"), except to the extent such
Rules vary from the following provisions. Notwithstanding the previous sentence,
the parties hereto may seek provisional remedies in courts of appropriate
jurisdiction and such request shall not be deemed a waiver of the right to
compel arbitration of a dispute hereunder.
(ii) If any controversy or claim arising out of or relating to this
Agreement also arises out of or relates to the employment of the Purchaser by
the Company or any affiliate of the Company, the provisions of this Agreement
governing dispute resolution shall govern resolution
13
14
of such controversy or claim. The provisions of this Agreement governing dispute
resolution supersede any provisions relating to such matters in an employment
agreement between the Purchaser and the Company or any affiliate of the Company.
(iii) The arbitration shall be conducted by one independent and
impartial arbitrator, appointed by the AAA; provided however, if the claim and
any counterclaim, in the aggregate, together with other arbitrations that are
consolidated pursuant to Section 6.11(f), exceed Five Hundred Thousand Dollars
($500,000) (the "THRESHOLD"), exclusive of interest and attorneys' fees, the
dispute shall be heard and determined by three (3) arbitrators as provided
herein (such arbitrator or arbitrators are hereinafter referred to as the
"ARBITRATOR"). The judgment of the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. The arbitration proceedings
shall be held in Orange County, California unless the parties agree to another
location.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Section 6.11, such party shall furnish the other party with
whom it has the dispute with a notice of arbitration as provided in the Rules
(an "ARBITRATION NOTICE") which, in addition to the items required by the Rules,
shall include a statement of the nature, with reasonable detail, of the dispute.
A copy of the Arbitration Notice shall be concurrently provided to the AAA,
along with a copy of this Agreement, and if pursuant to Section 6.11(a) one (1)
Arbitrator is to be appointed, a request to appoint the Arbitrator. If a party
has a counterclaim against the other party, such party shall furnish the party
with whom it has the dispute a notice of such claim as provided in the Rules (a
"NOTICE OF COUNTERCLAIM") within ten (10) days of receipt of the Arbitration
Notice, which, in addition to the items required by the Rules, shall include a
statement of the nature, with reasonable detail, of the dispute. A copy of the
Notice of Counterclaim shall be concurrently provided to the AAA. If the claim
set forth in the Notice of Counterclaim causes the aggregate amount in dispute
to exceed the Threshold, the Notice of Counterclaim shall so state. If pursuant
to Section 6.11(a) three (3) Arbitrators are to be appointed, within fifteen
(15) days after receipt of the Arbitration Notice or the Notice of Counterclaim
as applicable, each party shall select one person to act as Arbitrator and the
two (2) selected shall select a third arbitrator within ten (10) days of their
appointment. If the Arbitrators selected by the parties are unable or fail to
agree upon the third arbitrator within such time, the third arbitrator shall be
selected by the AAA. Each arbitrator shall be a practicing attorney or a retired
or former judge with at least twenty (20) years experience with and knowledge of
securities laws, complex business transactions, and mergers and acquisitions.
(c) Once the Arbitrator is selected, the Arbitrator shall schedule a
pre-hearing conference to reach agreement on procedural and scheduling matters,
arrange for the exchange of information, obtain stipulations and attempt to
narrow the issues.
(d) At the pre-hearing conference, the Arbitrator shall have the
discretion to order, to the extent the Arbitrator deems relevant and
appropriate, that each party may (i) serve a maximum of one set of no more than
twenty (20) requests for production of documents and one set of ten (10)
interrogatories (without subparts) upon the other parties; and (ii) depose a
maximum of three (3) witnesses. All objections to discovery are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information. The responses to the document demand, the documents to
be produced thereunder, and the responses
14
15
to the interrogatories shall be delivered to the propounding party thirty (30)
days after receipt by the responding party of such document demand or
interrogatory. Each deposition shall be taken on reasonable notice to the
deponent, and must be concluded within four (4) hours and all depositions must
be taken within forty-five (45) days following the pre-hearing conference. Any
party deposing an opponent's expert must pay the expert's fee for attending the
deposition. All discovery disputes shall be decided by the Arbitrator.
(e) The parties must file briefs with the Arbitrator at least three (3)
days before the arbitration hearing, specifying the facts each intends to prove
and analyzing the applicable law. The parties have the right to representation
by legal counsel throughout the arbitration proceedings. The presentation of
evidence at the arbitration hearing shall be governed by the Federal Rules of
Evidence. Oral evidence given at the arbitration hearing shall be given under
oath. Any party desiring a stenographic record may secure a court reporter to
attend the arbitration proceedings. The party requesting the court reporter must
notify the other parties and the Arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
(f) Any arbitration can be consolidated with one or more arbitrations
involving other parties, which arise under agreement(s) between the Company and
such other parties, if more than one such arbitration is commenced and any party
thereto contends that two or more arbitrations are substantially related and
that the issues should be heard in one proceeding. The Arbitrator selected in
the first-filed of such proceedings shall determine whether, in the interests of
justice and efficiency, the proceedings should be consolidated before that
Arbitrator.
(g) The Arbitrator's award shall be in writing, signed by the
Arbitrator and shall contain a concise statement regarding the reasons for the
disposition of any claim.
(h) To the extent permissible under applicable law, the award of the
Arbitrator shall be final. It is the intent of the parties that the arbitration
provisions hereof be enforced to the fullest extent permitted by applicable law.
6.12 SUBMISSION TO JURISDICTION. All actions or proceedings arising in
connection with this Agreement or any other Transaction Document for preliminary
or injunctive relief or matters not subject to arbitration, if any, shall be
tried and litigated exclusively in the state or federal courts located in the
County of Orange, State of California. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement or any other Transaction Document in any
jurisdiction other than that specified in this paragraph. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens or
similar doctrine or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates and acknowledges that it has had
sufficient minimum contacts with California such that the State and Federal
courts located in the County of Orange, State of California shall have in
personam jurisdiction over each of them for the purpose of litigating any such
dispute, controversy, or proceeding. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this Section by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices as set
forth in Section 6.2. Nothing herein shall affect the right of any party to
serve process in any other manner permitted by law.
15
16
6.13 ATTORNEYS' FEES. If the Purchaser brings any action, suit,
counterclaim, cross-claim, appeal, arbitration, or mediation for any relief
against the Company, or if the Company brings any action, suit, counterclaim,
cross-claim, appeal, arbitration, or mediation for any relief against the
Purchaser, declaratory or otherwise, to enforce the terms of or to declare
rights under this Agreement or any other Transaction Document (collectively, an
"ACTION"), in addition to any damages and costs which the Prevailing Party
otherwise would be entitled, the non-Prevailing Party shall pay to the
Prevailing Party a reasonable sum for attorneys' fees and costs (at the
Prevailing Party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting or defending such Action and/or enforcing any judgment, order,
ruling, or award (collectively, a "DECISION") granted therein, all of which
shall be deemed to have accrued on the commencement of such Action and shall be
paid whether or not such action is prosecuted to a Decision. Any Decision
entered in such Action shall contain a specific provision providing for the
recovery of attorneys' fees and costs incurred in enforcing such Decision.
For the purposes of this Section, attorneys' fees shall include, but
not be limited to, fees incurred in the following: (1) postjudgment motions and
collection actions; (2) contempt proceedings; (3) garnishment, levy and debtor
and third party examinations; (4) discovery; and (5) bankruptcy litigation.
"PREVAILING PARTY" within the meaning of this Section includes, without
limitation, a party who agrees to dismiss an action on the other party's payment
of the sum allegedly due or performance of the covenants allegedly breached, or
who obtains substantially the relief sought by it. If there are multiple claims,
the Prevailing Party shall be determined with respect to each claim separately.
The Prevailing Party shall be the party who has obtained the greater relief in
connection with any particular claim, although, with respect to any claim, it
may be determined that there is no Prevailing Party.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
PROFITSOURCE CORPORATION PURCHASER
By: /s/ MARK COLEMAN By: /s/ EARLY PRICE PRITCHETT, III
----------------------------------- ----------------------------------
Name: Mark Coleman Name: Early Price Pritchett, III
Title: CFO
Address: Address:
695 Town Center Drive, Suite 400 13155 Noel Road, Suite 1600
Costa Mesa, California 92626 Dallas, TX 75240
Telephone No.: (714) 429-5500 Telephone No.: (972) 789-7901
Facsimile No.: (714) 429-5559 Facsimile No.: (972) 789-9100
16
17
SCHEDULES
1.1 Shares and Purchase Price
4 Vesting Schedule
4A 1998 Projected Pro Forma
EXHIBITS
A. Form of the Note
B. Form of the Accredited Investor Questionnaire
C. Summary of Certain Considerations
D. Form of the Stockholder Agreement
E. Form of the Voting Agreement
F. Section 83(b) Election Form
18
SCHEDULE 1.1
SHARES AND PURCHASE PRICE
Aggregate Number of Shares: 179,147
Aggregate Purchase Price: $279,290.17
Cash Payment: $ 179.15
Note: $279,469.32
Maximum IPO Shares: 0
19
SCHEDULE 4
VESTING SCHEDULE
Subject to the terms and conditions described in this Agreement, the
Restrictions applicable to the Shares will lapse, and the Shares will vest if
and when the performance targets of the Purchaser set forth below are met,
provided, however, that except as set forth in this Schedule 4, in order for
Shares eligible to vest for any Measurement Period to vest the Purchaser must
have remained an employee of the Company, or an affiliate of the Company, from
the date hereof through the last day of that Measurement Period. The table below
lists five Measurement Periods, with each having corresponding Target Income and
a corresponding Vesting Percentage. Actual Income as of each Measurement Period
will be determined within ninety (90) days of the end of that Measurement
Period.
VESTING DURING EMPLOYMENT.
Shares will vest as follows:
(a) Cliff Vesting: January 1, 1998-December 31, 1998. If the
actual Income earned in the Measurement Period January 1, 1998-December
31, 1998 equals or exceeds the Target Income corresponding to that
Measurement Period, the Restrictions will lapse with respect to such
number of Shares as is equal to the product of the Vesting Percentage
corresponding to that Measurement Period and the total number of
Shares.
(b) Proportional Vesting: Subsequent Measurement Periods. For
all Measurement Periods after December 31, 1998:
(i) If the actual Income earned in any Measurement Period
equals or exceeds the Target Income corresponding to that
Measurement Period, the Restrictions will lapse, with respect
to such number of Shares as is equal to the product of the
Vesting Percentage corresponding to that Measurement Period
and the total number of Shares.
(ii) If the actual Income earned in any Measurement Period
is less than the Target Income for that Measurement Period,
but is more than the sum of the Target Income for the
immediately preceding Measurement Period plus half of the
Annual Target Delta, the Restrictions will lapse with respect
to such number of Shares as is equal to the product obtained
by multiplying the Vesting Percentage corresponding to that
Measurement Period, times the ratio of the Annual Actual Delta
to the Annual Target Delta, times the total number of Shares.
20
For purposes hereof:
"ANNUAL ACTUAL DELTA" means the difference between the actual
Income earned in any Measurement Period and the Target Income for the
immediately preceding Measurement Period.
"ANNUAL TARGET DELTA" means the difference between the Target
Income earned in any Measurement Period and the Target Income for the
immediately preceding Measurement Period.
If the actual Income earned in any Measurement Period exceeds the
Target Income corresponding to that Measurement Period, the amount by which the
actual Income exceeds the Target Income shall be carried forward to the
following Measurement Period and added to the actual Income for such Measurement
Period. Excess Incomes may not be carried backward to preceding periods and
Shares that are eligible to vest but do not vest in any Measurement Period will
not vest unless the Company forgives the Restrictions applicable thereto in its
discretion or fails to repurchase them within one (1) year of the end of that
Measurement Period (i.e., Shares that fail to vest cannot be "recovered" based
upon subsequent performance).
Any vesting for a Measurement Period will be effective as of the close
of business on the last day of that Measurement Period, but vesting for any
Measurement Period will not be finally determined until actual Income for the
subject Measurement Period is fully and finally determined. In no case will the
total number of Shares that the Purchaser has the right to have vested for any
Measurement Period exceed the product of the Shares and the Vesting Percentage
corresponding to that Measurement Period. Fractional vested Shares will be
carried forward and combined to constitute whole vested Shares that can be
issued, or cashed out by the Company at fair market value following
determination of actual Income for the last Measurement Period.
TARGET VESTING
MEASUREMENT PERIOD INCOME PERCENTAGE
- ------------------ ------ ----------
(IN MILLIONS)
January 1, 1998- December 31, 1998 $1.500 20%
January 1, 1999- December 31, 1999 $1.800 20%
January 1, 2000- December 31, 2000 $2.16 20%
January 1, 2001- December 31, 2001 $2.592 20%
January 1, 2002- December 31, 2002 $3.110 20%
For purposes hereof:
"BUSINESS" means the business division or subsidiary of the Company to
which the Purchaser is assigned.
"INCOME" for any Measurement Period means pre-tax income of the
Business for that Measurement Period calculated according to GAAP and consistent
with the 1998 pre-tax projected pro forma net income calculation for Pritchett
Publishing Company attached hereto as Schedule 4A, including, without limitation
the recastings and add-back adjustments reflected therein. In calculating
Income, except as set forth herein, all costs attributable directly to the
Business, whether paid by the Business, the Company or any of its affiliates,
shall be charged to
2
21
the Business, including, without limitation costs, bonuses and other
distributions to persons who are engaged principally in the Business. The
calculation of Income will not be affected by any allocation to the Business of
(i) any overhead charges of the Company not attributable directly to the
Business, or (ii) any costs incurred to comply with initiatives that are
required by the Company's management, without the consent of management of the
Business, that are in excess of the costs of the Business replaced by any such
initiatives.
VESTING UPON CERTAIN TERMINATION OF EMPLOYMENT:
(a) If the employment of the Purchaser is terminated by death or by
"Disability" as defined below, and if the actual Income for any Measurement
Period equals or exceeds the Target Income corresponding to that Measurement
Period, the Restrictions will lapse with respect to such number of Shares as is
equal to the product of the Vesting Percentage corresponding to that Measurement
Period and the total number of Shares. If the actual Income earned in any
Measurement Period is less than the Target Income for that Measurement Period,
but is more than the sum of the Target Income for the immediately preceding
Measurement Period plus half of the Annual Target Delta, the Restrictions will
lapse, with respect to such number of Shares as is equal to the product obtained
by multiplying the Vesting Percentage corresponding to that Measurement Period,
times the ratio of the Annual Actual Delta to the Annual Target Delta, times the
total number of Shares.
(b) As set forth in the Purchaser's Employment Agreement, the
employment of the Purchaser with the Company or an affiliate of the Company
shall not be terminated without "Cause" (as defined in the Employment Agreement)
without majority approval of an executive management committee of the Company,
which committee shall consist of four (4) members of the senior management of
the Company and one (1) representative of the President's Council of the
Company.
(c) If the employment of the Purchaser is terminated by the Company
without "Cause" or by the Purchaser for "GOOD REASON" (each as defined in the
Employment Agreement) pursuant to the procedure set forth in paragraph (b), and
(i) if the Purchaser's employment is terminated prior to the last day of the
first Measurement Period or if the actual Income has exceeded the Target Income
for all Measurement Periods prior to the termination of the Purchaser's
employment, upon the last day of each Measurement Period ending after the
termination of the Purchaser's employment with the Company or an affiliate of
the Company, the Restrictions will lapse with respect to such number of Shares
as is equal to the product of the Vesting Percentage corresponding to that
Measurement Period and the total number of Shares, or (ii) if the Purchaser's
employment is terminated after the last day of the first Measurement Period and
if the actual Income has not equaled or exceeded the Target Income for all
Measurement Periods prior to the termination of the Purchaser's employment, upon
the last day of each Measurement Period ending after the termination of the
Purchaser's employment with the Company or an affiliate of the Company, the
Restrictions will lapse with respect to such number of Shares as is equal to the
product of fifty percent (50%) of the Vesting Percentage corresponding to that
Measurement Period and the total number of Shares, provided however, that if any
of the events or circumstances constituting "Cause" listed in item A of Schedule
1 of the Purchaser's Employment Agreement occurs at any time before the end of
the final Measurement Period, then, in addition to the rights of the Company set
forth in Section 4.1(d),
3
22
the Shares shall no longer continue to vest as set forth in this paragraph (c)
and the Company or its assignee may, in the Company's discretion, at any time
and from time to time for a period of one (1) year following such occurrence,
repurchase from the Purchaser at the price per share that the Purchaser paid to
the Company, and the Purchaser will sell to the Company, any or all unvested
Shares.
For purposes hereof, the term "DISABILITY" means the Purchaser suffers
an ongoing physical or psychological impairment that has rendered Purchaser
unable, as determined in good faith by the Company's Chief Executive Officer, to
perform the Purchaser's duties to the Company, notwithstanding reasonable
accommodation by the Company (the Company, at its option and expense, being
entitled to retain a physician to confirm the existence of such disability), for
a period of three (3) consecutive months or six (6) months in any 12-month
period.
4
23
SCHEDULE 4A
1998 PROJECTED PRO FORMA
FOR
PRITCHETT PUBLISHING COMPANY
[SEE ATTACHED DOCUMENT]
24
PRITCHETT & ASSOCIATES, INC.
SCHEDULE 4(a.) -- 1998 PROJECTED PROFORMA PRETAX ADJUSTMENTS
This analysis represents the anticipated 1998 projected pretax income with an
explanation of agreed-upon proforma add-back adjustments.
Projected Pretax Income for the year ended December 31, 1998 $(1,039,812)
Proforma Adjustments:
Product Development Costs 280,867
Employee Termination 100,000
401(K) Plan 122,967
Signing Bonus to President 25,000
Compensation -- Pritchett 186,000
Compensation -- Aberger 85,000
Compensation -- Covert 50,000
Pritchett's Life Insurance 26,462
Employee Assistance Plan 1,004
Moving Costs 10,206
Brokerage Fee 94,163
Rent Savings 438,383
Depreciation/Amortization Savings From Move 189,672
Keys for the 17th Floor 225
Accounting Fees 2,500
Audit Fees 99,500
Legal Fees 46,346
Loss on Disposal of 17th floor assets 818,519
--------
Total Adjustments 2,576,814
----------
Projected Proforma Pretax Income $1,537,002
==========
Term Sheet $1,537,000