EXHIBIT 10.9
AGREEMENT OF PURCHASE AND SALE OF ASSETS
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This Agreement of Purchase and Sale of Assets (this "Agreement") is entered
into and effective as of May 19, 1997 by and among LITIGATION RESOURCES OF
AMERICA-CALIFORNIA, INC., a California corporation (the "Buyer"), LITIGATION
RESOURCES OF AMERICA, INC., a Texas corporation and the parent of Buyer (the
"Parent"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, individuals who are husband and
wife residing in the State of California doing business as G & G COURT REPORTERS
(the "Giammancos") and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Trustees of the
▇▇▇▇▇▇▇▇▇ FAMILY TRUST established under Declaration of Trust dated August 21,
1996 governed by the law of the State of California, also doing business as G &
G COURT REPORTERS (the "Trust") (the Giammancos and the Trust are herein
collectively referred to as "Seller"). Buyer, Parent and Seller are hereinafter
sometimes referred to collectively as the "Parties" or singularly as a "Party."
W I T N E S S E T H :
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WHEREAS, the Seller is the owner of various assets associated with the
Business (as hereinafter defined);
WHEREAS, the Buyer desires to purchase all of the Assets (as hereinafter
defined) owned by the Seller and used in the Business, and the Seller desires to
sell such Assets to the Buyer;
WHEREAS, in connection with the purchase and sale of the Assets, the
Parties desire to set forth in this Agreement the terms and conditions with
respect to the transfer of such Assets;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
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As used herein, the following terms shall have the following meanings:
1997 Operational Taxes. The term "1997 Operational Taxes" shall have the
meaning set forth in Section 2.6.
Accounts Payable Report. The term "Accounts Payable Report" shall mean a
report prepared as of the time specified which shows accounts payable of the
Business by service provider and age of each account payable.
Accounts Receivable. The term "Accounts Receivable" shall mean all accounts
receivable of Seller generated in connection with the operations of the Business
prior to the Effective Date and reflected on the Financial Statements as of the
Effective Date in a manner consistent with Seller's past practices and the
manner in which such information has been provided to Buyer.
Accounts Receivable Report. The term "Accounts Receivable Report" shall
mean a report prepared as of the time specified which shows accounts receivable
of the Business by customer and age of each account receivable.
Affiliate. The term "Affiliate" of a person shall mean, with respect to
that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of that person.
As used in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of management and policies of a person whether
through the ownership of voting securities, by contract, through the holding of
a position as a director or officer of such person, or otherwise. As used in
this definition, the term "person" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, an incorporated
organization, or a government or political subdivision thereof.
Ancillary Agreements. The term "Ancillary Agreements" shall mean the
Employment Agreement, the Employment Side Letter Agreement, the ▇▇▇▇ of Sale,
the Trust Side Letter Agreement, the Registration Rights Agreement, the
Contingent Stock Pledge Agreement, the Subordination Agreements, Note 1 and Note
2.
Assets. The term "Assets" shall have the meaning set forth in Section 2.1.
Assumed Liabilities. The term "Assumed Liabilities" shall have the meaning
as contained in Section 2.6.
Balance Sheet Report. The term "Balance Sheet Report" means the cash basis
balance sheet of the Seller as of a given date showing the assets, liabilities
and equity of the Seller adjusted to include accounts receivable, accounts
payable and accrued liabilities and further adjusted to exclude Excluded Assets
and Retained Liabilities, prepared by the Seller on a consistent basis as with
prior time periods.
▇▇▇▇ of Sale. The term "▇▇▇▇ of Sale" shall have the meaning set forth in
Section 6.2(h).
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Books and Records. The term "Books and Records" shall have the meaning set
forth in Section 2.1(c).
Business. The term "Business" shall mean the court reporting and litigation
support business of the Seller as presently conducted.
Buyer Indemnified Parties. The term "Buyer Indemnified Parties" shall have
the meaning set forth in Section 7.1(A).
Cash Purchase Price. The term "Cash Purchase Price" shall have the meaning
set forth in Section 2.3(i).
Closing. The term "Closing" shall mean the consummation of the events and
transactions to take place on the Closing Date.
Closing Date. The term "Closing Date" shall mean May 19, 1997.
Closing Date Accounts Payable Report. The term "Closing Date Accounts
Payable Report" shall mean an Accounts Payable Report prepared as of the Closing
Date.
Closing Date Accounts Receivable Report. The term "Closing Date Accounts
Receivable Report" shall mean an Accounts Receivable Report prepared as of the
Closing Date.
Closing Date Balance Sheet Report. The term "Closing Date Balance Sheet
Report" shall mean a Balance Sheet Report prepared as of the Closing Date.
Closing Date Income Statement. The term "Closing Date Income Statement"
shall mean an income statement of the Seller, prepared as of the Closing Date.
Closing Date Reports. The term "Closing Date Reports" shall have the
meaning set forth in Section 2.4.
Closing Date Schedule of Accrued Liabilities. The term "Closing Date
Schedule of Accrued Liabilities" shall mean a Schedule of Accrued Liabilities
prepared as of the Closing Date.
Contracts. The term "Contract" shall have the meaning as contained in
Section 2.1(b).
Customers. The term "Customers" shall have the meaning set forth in Section
3.23.
Damages. The term "Damages" shall have the meaning set forth in Section
7.1(A).
Effective Date. The term "Effective Date" shall mean 12:01 a.m., May 19,
1997.
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Employee. The term "Employee" shall mean any employee of the Seller who, as
of the Effective Date, is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Seller's applicable policies, are eligible to return to active status,
but shall not include any independent contractor providing court reporting
services to Seller from time to time. The Employees of Seller are listed on
Schedule 1-A.
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Employment Side Letter Agreement. The term "Employment Side Letter
Agreement" shall mean that certain letter agreement between the Buyer and ▇▇▇▇
▇▇▇▇▇▇▇▇▇ of even date herewith, relating to salary increases of ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
as an employee of Buyer.
ERISA. The term "ERISA" shall have the meaning as contained in Section
3.16.
Equipment. The term "Equipment" shall have the meaning as contained in
Section 2.1(a).
Excluded Assets. The term "Excluded Assets" shall have the meaning as
contained in Section 2.2.
Final Net Worth. The term "Final Net Worth" means total assets minus total
liabilities, as reflected on the Closing Date Balance Sheet Report.
Financial Statements. The term "Financial Statements" shall mean the
internally compiled financial statements of the Seller as more fully described
in Section 3.15 herein.
GAAP. The term "GAAP" shall mean generally accepted accounting principles,
consistently applied.
Guaranteed Net Worth. The term "Guaranteed Net Worth" shall mean $220,911.
Intellectual Property. The term "Intellectual Property" shall have the
meaning as contained in Section 2.1(g).
Net Worth. The term "Net Worth" means total assets minus total liabilities
as of a given time period as determined by the Balance Sheet Reports as of such
time period.
Note 1. The term "Note 1" shall have the meaning set forth in Section
2.3(ii).
Note 2. The term "Note 2" shall have the meaning set forth in Section
2.3(iii).
Notice of Action. The term "Notice of Action" shall have the meaning set
forth in Section 7.1(C).
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Notice of Election. The term "Notice of Election" shall have the meaning
set forth in Section 7.1(C).
Offset. The term "Offset" shall have the meaning set forth in Section 9.11.
Offset Claim. The term "Offset Claim" shall have the meaning set forth in
Section 9.11.
Owner. The term "Owner" shall mean the Giammancos and the Trust, the owners
of the Business.
Parent Financial Statements. The term "Parent Financial Statements" shall
have the meaning set forth in Section 4.7.
Parent Shares. The term "Parent Shares" shall mean any of the shares of
common stock of the Parent into which amounts due Seller under Note 1 or Note 2
have been converted, or any other security derived from such shares.
Purchase Price. The term "Purchase Price" shall mean the consideration
payable to the Seller for the Assets as set forth or contemplated in Section
2.3.
Registration Rights Agreement. The term "Registration Rights Agreement"
shall have the meaning as contained in Section 6.2(g).
Retained Liabilities. The term "Retained Liabilities" shall have the
meaning as contained in Section 2.6.
Schedule of Accrued Liabilities. The term "Schedule of Accrued Liabilities"
shall mean a schedule of accrued liabilities prepared for the period and as of
the date specified.
Seller Ancillary Agreements. The term "Seller Ancillary Agreements" shall
have the meaning set forth in Section 3.11.
Seller Indemnified Parties. The term "Seller Indemnified Parties" shall
have the meaning set forth in Section 7.1(B).
Shareholders' Agreement. The term "Shareholders' Agreement" shall have the
meaning set forth in Section 6.10.
Stock Pledge Agreement. The term "Stock Pledge Agreement" shall have the
meaning as contained in Section 6.2(j).
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Subordination Agreements. The term "Subordination Agreements" shall mean
those certain Subordination Agreements of even date herewith entered into among
Sellers and any of the Company, the Parent, Affiliates, and holders of Senior
Indebtedness (as such item is defined in Note 1).
Trade Payables. The term "Trade Payables" shall mean all of the accounts
payable of the Business incurred in the ordinary course of business existing as
of the Effective Date, as set forth on the Closing Date Balance Sheet Report.
Trust Side Letter Agreement. The term "Trust Side Letter Agreement" shall
mean that certain letter agreement between the Buyer and the Sellers of even
date herewith, relating to trustees of the Trust.
ARTICLE II
PURCHASE OF ASSETS AND PURCHASE PRICE
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2.1 Sale of Assets. Subject to the terms and conditions set forth in
this Agreement, the Seller agrees to sell, convey, transfer, assign and deliver
to the Buyer, and the Buyer agrees to purchase from the Seller on the Effective
Date, all assets owned by Seller and used in or derived from the Business (other
than those specifically excluded under Section 2.2 below) including the
following (such assets to be referred to herein as the "Assets"):
(a) All office equipment, service equipment, supplies, computer
hardware, computer software, and data processing equipment (the
"Equipment"), including the Equipment described on Schedule 2.1(a);
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(b) All contracts, documents, franchises, licenses, instruments,
agreements and other written or oral agreements relating to the
Business of Seller to which Seller is a party or by which Seller or any
of the Assets may be bound as well as all rights, privileges, claims
and option relating to the foregoing (the "Contracts"), including the
Contracts described on Schedule 2.1(b);
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(c) All customer and supplier files, accounting and financial
records, invoices, and other books and records relating principally to
the Business (the "Books and Records"), including the Books and Records
described on Schedule 2.1(c);
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(d) Employee files for those employees actually hired by Buyer;
(e) All right, title and interest of Seller, in, to and under
all service marks, trademarks, trade and assumed names, principally
related to the Business together with the right to recover for
infringement thereon, if any (the "Intellectual Property"), and other
marks and/or names described on Schedule 2.1(e);
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(f) All advertising materials and all other printed or written
materials related to the conduct of the Business;
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(g) All of the Seller's general intangibles, claims, rights of
set off, rights of recoupment, goodwill, patents, inventions, trade
secrets and royalty rights and other proprietary intangibles, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder, which are used in the Business, and remedies against
infringements thereof, and rights to protection of interests therein
under the laws of all jurisdictions (the "General Intangibles"),
including the General Intangibles described on Schedule 2.1(g); and
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(h) All goodwill and going concern value and all other
intangible properties related to the Business; and
(i) All of Seller's Accounts Receivable.
2.2 Excluded Assets. Seller is not selling and Buyer is not purchasing
any of the following excluded assets related to the Business ("Excluded
Assets"): (i) cash other than customer deposits, if any, (ii) notes receivable,
and (iii) all cash equivalents and other investments, all as more specifically
described on Schedule 2.2.
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2.3 Purchase Price. Upon the terms and subject to the conditions
contained herein and as consideration for the sale of the Assets and the
performance by the Seller of various other matters as provided herein, the Buyer
shall pay the Seller, at the Closing, the aggregate amount of the following (the
"Purchase Price"):
(i) One Million Two Hundred Sixty-Seven Thousand Seven Hundred
Fifty Dollars ($1,267,750) (the "Cash Purchase Price"), paid by the
wire transfer of immediately available funds; and
(ii) Subject to the provisions of Section 2.4, a convertible
subordinated promissory note in substantially the form of Exhibit A-1
in the amount of Three Hundred Forty-Five Thousand Seven Hundred Fifty
Dollars and No/100 ($345,750) which shall be subordinated and
convertible into shares of common stock of LRA-Texas as provided
therein ("Note 1"); Note 1 shall, subject to certain cash flow
requirements and certain limitations imposed by the Subordination
Agreements, bear interest at an annual rate of Seven and One-Half
Percent (7.5%), and provide for equal quarterly payments of accrued
interest for the first year and equal quarterly payments of principal
and accrued interest over a four (4) year period commencing with the
fifth quarterly payment date; and
(iii) Subject to the provisions of Section 2.4, a convertible
subordinated promissory note in substantially the form of Exhibit A-2
in the amount of Six Hundred Ninety-One Thousand Seven Hundred Fifty
Dollars and No/100 ($691,750) which shall be subordinated and
convertible into shares of common stock of LRA-Texas as provided
therein ("Note 2"); Note 2 shall bear interest at an annual rate of
Six and Three-Eighths Percent (6.375%), and shall provide for equal
monthly
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payments of accrued interest for the eight years and a final payment of
principal and all accrued and unpaid interest on the eighth anniversary
of the Closing Date, subject to certain limitations imposed by the
Subordination Agreements.
2.4 Determination of Final Net Worth. Each of the Closing Date
Balance Sheet Report, the Closing Date Accounts Receivable Report, the Closing
Date Accounts Payable Report, the Closing Date Schedule of Accrued Liabilities
and the Closing Date Income Statement (collectively, the "Closing Date Reports")
of the Seller shall be prepared by the Seller, as promptly as possible after the
Closing. Seller's accountants shall then review and certify the Closing Date
Reports, and deliver them to Buyer and Buyer's accountants within 30 days after
the Closing Date. The Buyer's accountants shall review the Closing Date Reports
(including any corresponding work papers of Seller's accountants) and report to
the Seller's accountants in writing within 15 days of receipt thereof of any
discrepancy between the Seller's accountants certification and the Buyer's
accountants results of review. If Seller's accountants and Buyer's accountants
cannot resolve such discrepancy within 15 days after Seller's accountants
receipt of such reported discrepancy, then they shall so notify the Seller and
the Buyer, and the Seller and the Buyer shall attempt to resolve the discrepancy
within 15 days of such notice. If the Seller and the Buyer cannot resolve the
discrepancy to their mutual satisfaction, another independent public accounting
firm acceptable to the Seller and the Buyer shall be retained to review the
Closing Date Reports. Such firm's conclusions as to the carrying values to
appear on the Closing Date Reports for purposes of determining the Final Net
Worth of the Seller shall be conclusive. The Seller and the Buyer shall share
equally in the expenses of retaining such accounting firm. The Buyer shall pay
the expenses of the Buyer's accountants for their review of the Closing Date
Reports, and the Seller shall pay the expenses of Seller's accountants for their
review of the Closing Date Reports.
2.5 Adjustment of Purchase Price. The Purchase Price set forth in
Section 2.3 shall be adjusted as follows. If the Final Net Worth as finally
determined pursuant to Section 2.4 shall be more than the Guaranteed Net Worth,
then the original principal amounts of Note 1 and Note 2 shall be increased as
follows: Note 1 shall be increased by 33 and 1/3% of the amount of the increase
and Note 2 shall be increased by 66 and 2/3% of the amount of the increase. If
the Final Net Worth of Seller as finally determined pursuant to Section 2.4
shall be less than the Guaranteed Net Worth, then the original principal amounts
of Note 1 and Note 2 shall be decreased as follows: Note 1 shall be decreased by
33 and 1/3% of the amount of the increase and Note 2 shall be decreased by 66
and 2/3% of the amount of the increase.
2.6 Assumption of Liabilities. Subject to the exceptions and
exclusions of this Section 2.6, the Buyer agrees that on the Effective Date, it
will assume and agree to perform and pay when due: (i) all Trade Payables, (ii)
all unperformed and unfulfilled obligations under the Contracts set forth on
Schedule 2.1(c), for which the Seller is not in default on or prior to the
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Effective Date, (iii) all liabilities pertaining to customer deposits, (iv) a
prorated portion of all franchise, Los Angeles City, business and related taxes
of the Business due with respect to the 1997 calendar year (the "1997
Operational Taxes") and (v) any and all debts, liabilities and obligations
relating to the Business as conducted on and after the Closing Date
(collectively, the "Assumed Liabilities"). Except as otherwise specifically
provided herein, the Assumed Liabilities shall not include any other debts,
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liabilities or obligations, whether accrued, absolute, contingent or otherwise,
in contract or in tort, of the Seller or the Business, or relating to the Assets
such as and including but not limited to (i) accrued income taxes, (ii) deferred
income taxes, (iii) a pro rated portion of the 1997 Operational Taxes, (iv) any
taxes imposed on the Seller because of the operations of any of their respective
businesses or sale of the Business, (v) any of the liabilities or expenses of
the Seller incurred in negotiating and carrying out its obligations under this
Agreement, (vi) any obligations of the Seller owed to each Employee prior to the
Closing Date under employee benefits agreements, (vii) any obligations incurred
by the Seller before the Effective Date except as otherwise specifically assumed
by Buyer pursuant to this Section 2.6, (viii) any liabilities or obligations
incurred by the Seller in violation of, or as a result of the Seller's violation
of, this Agreement, (ix) liabilities arising from sales of products or services
before the Effective Date, and (x) liabilities, costs, and expenses associated
with the litigation described in Schedule 3.9 hereto (all of the foregoing being
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hereinafter collectively referred to as the "Retained Liabilities"). Subject to
Sections 7.1(E), 7.2 and 9.11 hereof, Buyer shall be permitted to recover for
any damages caused by breaches of representations, warranties, covenants and
agreements by Seller relating to the Assumed Liabilities.
2.7 Allocation of Purchase Price. Within 90 days following the date
of this Agreement, Buyer and Seller shall agree in writing upon the proportion
of the consideration to be allocated to each of the Assets purchased pursuant to
this Agreement in the manner proposed by Buyer and reasonably approved by
Seller. Buyer and Seller agree that they will not take any position or action
which is inconsistent with such allocation in the filing of any federal income
tax returns.
2.8 Taxes. Seller shall be liable for the payment of all sales and
use taxes arising out of the sale and transfer or removal of the Assets, if any,
and the assumption of the Assumed Liabilities. The Buyer shall not be
responsible for any business, occupation, withholding or similar tax, or any
taxes of any kind of the Seller, related to any period before the Effective
Date.
2.9 Title to Assets and Risk of Loss. Title to the Assets and risk of
loss or damage to the Assets by casualty (whether or not covered by insurance)
will pass to the Buyer immediately upon completion of the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
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The Seller hereby represents and warrants, except as otherwise
set forth on the Schedules attached hereto, that:
3.1 Title to Assets. Up until the Effective Date, the Seller has
good, marketable and indefeasible title to the Assets free and clear of
restrictions or conditions to transfer or assignment, mortgages, liens, pledges,
charges, encumbrances, equities, claims, easements, rights-of-way, covenants,
conditions or restrictions, except with respect to those Assets subject to lease
and as otherwise disclosed on Schedule 3.1. The Seller is in possession of all
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property leased to it from others. Except for the Excluded Assets, the Assets
constitute all of the material property, whether real, personal, mixed, tangible
or intangible, that are used in the Business by the Seller.
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3.2 Tax Returns. Within the times and in the manner prescribed by
law, including extensions permitted thereunder, the Seller has filed and will
file all federal, state and local tax returns required by law and has paid and
will pay all taxes, assessments and penalties, if any, due and payable in
connection with the Business through the Effective Date. There are no pending,
or to Seller's knowledge, threatened disputes as to taxes of any nature payable
by the Seller.
3.3 Contracts. Schedule 2.1(b) lists all of the material contracts,
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agreements, and other written or oral arrangements relating to the Business to
which the Seller is a party, or by which the Seller or the Assets are bound. As
of the Effective Date, each of the Contracts is valid and in full force and
effect, and there has not been any default by the Seller or, to the best of
Seller's knowledge, by any other party to any of the Contracts, or any event
that with notice or lapse of time or both, would constitute a default by the
Seller or, to the best of Seller's knowledge, any other party to any of the
Contracts. Except as shall be disclosed in Schedule 2.1(b), each Contract is
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assignable to the Buyer without the consent of any other party. The Seller will
obtain and deliver at Closing all of the requisite consents relating to the
items set forth on Schedule 2.1(b). Seller has not received notice that any
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party to any of the Contracts intends to cancel or terminate any of the
Contracts or exercise or not exercise any options that they might have under any
of the Contracts. In the event any of the Contracts are, or are later determined
to be, non-assignable, and the other party to any such Contracts refuses to
consent to the assignment of same, then the Seller shall subcontract to the
Buyer or its designee, if the Buyer so desires, the remaining work on such
Contracts, and the Seller shall forward to the Buyer or its designee all
proceeds of such Contracts received by the Seller; provided, however, that
Seller shall be reimbursed for any reasonable out-of-pocket expenses incurred by
it.
3.4 Equipment. All of the Equipment owned or leased by the Seller is
described on Schedule 2.1(a) attached hereto. Except as disclosed on Schedule
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2.1(a), none of the Equipment will be, at the Effective Date, held under any
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security agreement, conditional sales contract, or other title retention or
security arrangement.
3.5 Inventory. The Seller does not carry or maintain any inventory.
3.6 Licenses. Except as set forth on Schedule 3.6, the Business of
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Seller does not require any governmental licenses or permits or authorization,
consent or approval of, or filing with, any public body or governmental
authority.
3.7 Employment Contracts. The Seller does not have any employment
contracts, collective bargaining agreements, pension, bonus, or profit sharing
plans providing for employee remuneration or benefits.
3.8 Compliance with Laws. The Seller has complied with, and is not in
violation of, applicable federal, state or local statutes, laws, and regulations
(including, without limitation, any applicable building or other law, ordinance
or regulation) that affect, directly or indirectly, any of the Assets or the
Business, except where the failure to so comply would not have a material
adverse
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effect. There are not any uncured violations, known to Seller, of federal, state
or municipal laws,ordinances, orders, regulations or requirements affecting any
portion of the Assets or the Business.
3.9 Litigation. Except as disclosed in Schedule 3.9, there is no
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suit, action, arbitration or legal, administrative or other proceeding or
governmental investigation pending or, to the best of Seller's knowledge,
threatened against or affecting the Seller, the Assets, or the Business that
could result in a material adverse effect on the Business.
3.10 No Breach or Violation. As of the Effective Date and except as
set forth on Schedule 3.10, the consummation of the transactions contemplated by
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this Agreement will not result in or constitute any of the following: (i) a
default or an event that, with notice or lapse of time or both, would be a
default, breach or violation, or give rise to a right of modification,
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under, except for third party consents described in this Agreement or
any schedule prepared and delivered in connection herewith, of any lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, security agreement, concession, franchise, permit or
other agreement, instrument or arrangement by which the Assets, the Business or
the Seller may be affected, or to which the Assets, the Business or the Seller
may be bound, (ii) the creation or imposition of any lien, charge, or
encumbrance on any of the Assets or the Business, or (iii) a breach of any term
or provision of this Agreement, except for breaches and violations that could
not reasonably be expected to have a material adverse effect on the Business.
3.11 Authority. Each of the Giammancos has the full right, power,
legal capacity and authority to execute, deliver and perform Seller's
obligations under this Agreement and the Employment Agreement, the Employment
Side Letter Agreement, the ▇▇▇▇ of Sale, the Registration Rights Agreement, the
Contingent Stock Pledge Agreement, the Trust Side Letter Agreement and the
Subordination Agreements (collectively, the "Seller Ancillary Agreements"). The
Trust has the full right, power, legal capacity and authority to execute,
deliver and perform Seller's obligations under this Agreement and the Seller
Ancillary Agreements. The Giammancos have delivered to Buyer a true and correct
copy of all instruments evidencing or creating the Trust, which has been
properly formed in accordance with the laws of the State of California under the
Declaration of Trust dated August 21, 1996 and has not been amended, modified,
revoked or rescinded since such date. The sole trustees of the Trust are and
have been at all times from August 21, 1996 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
(the "Trustees"). The Trustees have full authority to enter into this Agreement
and the Seller Ancillary Agreements on behalf of the Trust. No approvals or
consents of any persons other than the Seller are necessary in connection
herewith, except as set forth on Schedule 2.1(b).
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3.12 Personnel. Schedule 1-A sets forth a complete and accurate list
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of all Employees employed by Seller in connection with the Business. At or after
Closing, the Seller shall deliver such additional information as the Buyer shall
reasonably request with respect to such Employees.
3.13 Valid and Binding Obligations. Upon execution and delivery, each
of this Agreement, the Seller Ancillary Agreements and each other document,
instrument and agreement
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to be executed by the Seller in connection herewith, will constitute the legal,
valid, and binding obligation of the Seller, enforceable in accordance with its
terms, except as limited by bankruptcy laws, insolvency laws, and other similar
laws affecting the rights of creditors generally.
3.14 Leased Assets. Schedule 3.14 contains a description of all of
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the real and personal property leased pursuant to the Contracts, which are the
only assets used in the conduct of the Business which are not owned by the
Seller. The Seller is not in default of any such lease.
3.15 Financial Statements. The financial statements of Seller consist
of an unaudited balance sheet and unaudited income statement for the fiscal
years ending December 31, 1993, December 31, 1994, December 31, 1995 and
December 31, 1996, together with unaudited balance sheets and unaudited income
statements of Seller for the two-month period ended February 28, 1997
(collectively the "Financial Statements"). Each of the Financial Statements (i)
fairly presents the financial position of Seller as of each respective Financial
Statement date, and the results of its operations for the respective periods
indicated, (ii) were true and correct in all material respects as of the
respective dates thereof, and (iii) were prepared consistently and in accordance
with Seller's past practices. In addition, Seller has provided at least four (4)
days prior to Closing the following, all of which are unaudited: (i) a Balance
Sheet Report dated as of February 28, 1997, (ii) Accounts Receivable Reports
dated as of February 28, 1997 and ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇▇) Accounts Payable Reports
dated as of February 28, 1997, (iv) a Schedule of Accrued Liabilities dated as
of February 28, 1997 and (v) an income statement dated as of March 31, 1997.
3.16 Employee Benefits. Seller has no "employee benefit plans" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
3.17 Absence of Certain Changes or Events. Except as disclosed in
Schedule 3.17(a) with regard to the Business and the Assets, since December 31,
----------------
1996, there has been no:
(i) material adverse change in the condition, financial or
otherwise, of the Seller, the Assets or the Business;
(ii) waiver of any right of or claim held by the Seller;
(iii) material loss, destruction or damage to any property of
the Seller, whether or not insured;
(iv) material change in the personnel of the Seller or the
terms or conditions of their compensation or employment;
(v) acquisition or disposition of any assets (or any contract
or arrangement therefor), nor any other transaction by the Seller
otherwise than for value and in the ordinary course of business;
(vi) transaction by the Seller except in the ordinary course of
business;
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(vii) capital expenditure by the Seller exceeding $5,000 except
in the ordinary course of business;
(viii) change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies
or rates) by the Seller;
(ix) re-valuation by the Seller of any of its Assets;
(x) amendment, modification or termination of any Contract or
license to which the Seller is a party, except in the ordinary course
of business;
(xi) mortgage, pledge or other encumbrance of any of the
Assets;
(xii) litigation or facts or circumstances that could result
in litigation that, if adversely determined, might reasonably be
expected to have a material adverse effect on Seller, Seller's
financial condition, Seller's prospects, the Business or the Assets;
(xiii) other event or condition of any character that has or
might reasonably be expected to have a material adverse effect on the
Business, Assets or financial condition of the Seller; or
(xiv) agreement by the Seller to do any of the things described
in the preceding clauses (i) through (xiii).
Except as disclosed in Schedule 3.17(b), there have been no contractual
----------------
commitments by Seller to spend more than $10,000 per contractual commitment over
a continuous 12-month period.
3.18 Consents and Approvals. Except as set forth on Schedule 3.18 no
-------------
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by the Seller in connection with the execution, delivery
or performance of this Agreement by Seller or the consummation of the
transactions contemplated hereby by Seller.
3.19 Brokers. Neither Seller nor any of Seller's Affiliates has
employed any broker, agent, or finder, or incurred any liability for any
brokerage fees, agent's fees, commission or finder's fees in connection with the
transactions contemplated herein.
3.20 Sale of Assets. For purposes of determining whether a sales and
use tax charge is applicable, the sale of the Assets constitutes: (i) the sale
of the entire operating assets of a business or of a separate division, branch,
or identifiable segment of a business, and (ii) a sale outside the ordinary
course of Seller's business, and represents an isolated or occasional sale by a
seller who does not regularly engage in such business. The income and expenses
of the Business can be separately established from the Books and Records in the
same manner as previously provided to Buyer.
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3.21 Absence of Certain Business Practices. Neither the Seller nor
any agent of the Seller, nor to Seller's best knowledge, any other person acting
on Seller's behalf, has, directly or indirectly, within the past five years,
given or agreed to give any gift or similar benefit to any customer, supplier,
government employee of the United States or any state or foreign government, or
other person who is or may be in a position to help or hinder the Business which
(1) would subject the Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (2) if not given in the past, would have
an adverse effect on the Business, or (3) if not continued in the future, would
have a material adverse effect on the Business or the Assets, or which would
subject the Seller to suit or penalty in a private or governmental litigation or
proceeding.
3.22 Liens on Assets. Except as set forth on Schedule 3.22, all liens
-------------
or security interests of any third party as to any of the Assets have been
removed on or before the Effective Date, and the Seller has furnished evidence
thereof to Buyer.
3.23 Customers. To the best of Seller's knowledge, Schedule 3.23
-------------
contains a true and correct list of all customers of the Business within the
period beginning January 1, 1996 and ending on the Effective Date (the
"Customers"). Except as set forth on Schedule 3.23, the Seller has no
-------------
information, nor is the Seller aware of any facts, indicating that any of the
material Customers intend to cease doing business with the Seller.
3.24 Insurance Policies. Schedule 3.24 to this Agreement is a
-------------
description of all insurance policies held by the Seller concerning the Business
and Assets. The Seller has maintained and now maintains insurance protection
against all liabilities, claims and risks against which, with respect to the
Business and the Assets, it is customary to insure.
3.25 Interest in Customers, Suppliers and Competitors. Except as set
forth in Schedule 3.25, neither the Seller, nor any Affiliate, spouse or child
-------------
of the Seller, has any direct or indirect interest in any competitor, supplier
or customer of any of them, has any direct or indirect interest in any
competitor, supplier or customer of the Seller, or in any person from whom or to
whom the Seller leases any property, or in any other person with whom the Seller
is doing business.
3.26 Full Disclosure. This Agreement, the Seller Ancillary
Agreements, the Schedules and Exhibits hereto and thereto, and all other
documents and written information furnished by the Seller to the Buyer pursuant
hereto or in connection herewith, are true, complete and correct, and do not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made herein and therein not misleading. To
the best of Seller's knowledge, there are no facts or circumstances relating to
the Assets or the Business which adversely affect or might reasonably be
expected to adversely affect the Assets, the Business, or the ability of the
Seller to perform this Agreement, the Seller Ancillary Agreements or any of
Seller's obligations hereunder or thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
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Each of Buyer and Parent represents and warrants, except as
otherwise set forth on the Schedules attached hereto, that:
4.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all the necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has all the necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it.
4.2 Authority. Each of Buyer and Parent, as applicable, has the
right, power, legal capacity, and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party. The execution,
delivery and performance of this Agreement and the Ancillary Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby by each of Buyer and Parent, as applicable, have been duly authorized by
all necessary corporate action.
4.3 Valid and Binding Obligations. Upon execution and delivery, each
of this Agreement and the Ancillary Agreements to which it is a party will
constitute the legal, valid, and binding obligation of Buyer or Parent, as
applicable, enforceable in accordance with its terms, except as limited by
bankruptcy laws, insolvency laws, and other similar laws affecting the rights of
creditors generally.
4.4 Brokers. Neither Buyer nor any of its respective Affiliates,
officers, directors, or employees, has employed any broker, agent, or finder, or
incurred any liability for any brokerage fees, agent's fees, commissions or
finder's fees in connection with the transactions contemplated herein, except
for the fee payable to The GulfStar Group, Inc., which fee shall be paid solely
by Buyer or its Affiliates in connection with this transaction.
4.5 No Operations. Buyer is a recently formed California corporation,
with no operations to date, and has no liabilities or obligations, except as may
arise under this Agreement and the Ancillary Agreements to which it is a party
and obligations that may be imposed by applicable federal, state or local law.
4.6 Consents, Violations and Authorizations.
(a) Except as set forth on Schedule 4.6, neither the Buyer nor
------------
the Parent is a party to or bound by any mortgage, indenture, lien, deed of
trust, lease, agreement, permit, concession, franchise, license, instrument,
order, judgment or decree which would require the consent of another to the
execution of this Agreement or the Ancillary Agreements to which it is a party
or the consummation of the transactions contemplated hereby or thereby.
(b) Neither the execution and delivery of this Agreement or
the Ancillary Agreements to which it is a party nor the consummation of the
transactions contemplated hereby or
-15-
thereby will (i) violate any provision of the Articles of Incorporation or
Bylaws of either Buyer or Parent or (ii) conflict with, or result (immediately
or upon the giving of notice or the passage of time or both) in any violation of
or any default under, or give rise to a right of modification, termination,
cancellation or acceleration of any obligation or to a loss of a benefit under,
any mortgage, indenture, lease, instrument, permit, concession, franchise,
license or other agreement which either the Buyer or Parent or its properties or
assets is a party to, beneficiary of, or bound by, or violate any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to either
the Buyer or Parent or its properties or assets, other than such conflicts,
violations or defaults or possible modifications, terminations, cancellations or
accelerations which individually or in the aggregate do not and will not have a
material adverse effect on the Buyer or the Parent.
(c) No authorization, consent or approval of, or filing with,
any public body or governmental authority is necessary for the consummation by
the Buyer or Parent of the transactions contemplated by this Agreement or the
Ancillary Agreements to which it is a party.
4.7 Financial Statements. Buyer has delivered to Seller the unaudited
consolidated balance sheet, unaudited consolidated income statement, and
unaudited consolidated cash flow statement of Parent for the one and one-half
month period ended February 28, 1997 (the "Parent Financial Statements"). Each
of the Parent Financial Statements (i) fairly presents the financial position of
Parent and its consolidated subsidiaries as of each respective Parent Financial
Statement date, and the results of their operations for the respective periods
indicated, and (ii) were true and correct in all material respects as of the
respective dates thereof, subject to finalization of purchase accounting
adjustments in accordance with GAAP.
4.8 Absent Certain Changes. Since February 28, 1997, there have been
no (a) material adverse changes in the business, financial condition, assets,
operations or prospects of Parent, (b) amendments, modifications or terminations
of any material contract applicable to Parent, (c) any changes in the accounting
methods or practices of Parent or (d) any litigation or facts or circumstances
that could result in litigation that, if adversely determined, might reasonably
be expected to have a material adverse effect on Parent or on its business,
financial condition or prospects.
4.9 Full Disclosure. No representation or warranty of the Buyer or
Parent in this Article IV or in any other Article of this Agreement or in the
Ancillary Agreements to which it is a party or any schedule, exhibit,
certificate or other document furnished or to be furnished by the Buyer or
Parent to the Seller pursuant to this Agreement or the Ancillary Agreements to
which it is a party, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements made herein or therein not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
Buyer and Seller covenant and agree as follows:
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5.1 Conduct of the Business. Except as otherwise permitted by this
Agreement or consented to by Buyer in writing, Seller shall conduct the Business
in the ordinary course in substantially the same manner as heretofore, using its
best efforts to preserve intact its present business organization, to keep
available the services of its Employees, and to preserve its relationships with
its customers, suppliers, service providers and others having business dealings
with it.
5.2 Certain Changes. Except as otherwise permitted by this Agreement
or consented to by Buyer in writing, Seller shall not (a) subject any of the
Assets to any lien or encumbrance, (b) dispose of any of the Assets, (c) grant
any increase in compensation or benefits to any Employee, except for periodic
bonuses in the ordinary course consistent with past practices, (d) materially
modify any of the Assumed Liabilities, or (e) with respect to the Business,
perform any act outside the ordinary course of the Business except as otherwise
contemplated by this Agreement.
5.3 Insurance. Seller maintains and shall continue to maintain
through the Closing the insurance coverage set forth in the list previously
provided to Buyer.
5.4 Bulk Sales. It may not be practicable to comply or attempt to
comply with the procedures of Division 6 of the California Commercial Code (the
"California Bulk Sales Laws"). Accordingly, to induce Buyer to waive any
requirements for compliance with any or all of such laws, Seller hereby agrees
that except for the Assumed Liabilities, the indemnity provisions of Article VII
hereof shall apply to any damages of Buyer arising out of or resulting from the
failure of Buyer or Seller to comply with the California Bulk Sales Laws.
ARTICLE VI
THE CLOSING
-----------
6.1 Closing. Payment of the Purchase Price required to be made by the
Buyer to the Seller and the transfer of the Assets by the Seller and the other
transactions contemplated hereby shall take place on the Closing Date at the
offices of ▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇▇ Incorporated, ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ or by fax unless the time or location is changed by mutual
agreement of the Parties. At the Closing, (a) the Seller will deliver to the
Buyer and Parent the various certificates, instruments, and documents referred
to in Section 6.2 below, (b) the Buyer and Parent will deliver to the Seller the
various certificates, instruments, and documents referred to in Section 6.3
below, and (c) the Buyer will deliver to the Seller the Purchase Price specified
in Section 2.3 above.
6.2 Conditions to Obligations of the Buyer and Parent. The obligation
of the Buyer and Parent to proceed with the Closing and consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(a) the representations and warranties of Seller hereunder
shall be true and correct in all material respects at and as of the
Closing Date;
-17-
(b) the Seller shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (i) prevent consummation of any of the transactions contemplated
by this Agreement, (ii) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (iii) affect
adversely in any material respect the rights in and to the Assets (and
no such injunction, judgment, order, decree, ruling, or charge shall be
in effect);
(d) the Seller shall have delivered to the Buyer and Parent a
certificate to the effect that each of the conditions specified above
in Section 6.2(a) -(c) is satisfied in all respects;
(e) the Buyer and Parent shall have received from counsel to
the Seller an opinion in form and substance acceptable to Buyer and
Parent , addressed to the Buyer and Parent, and dated as of the Closing
Date containing such assumptions and qualifications as may be
reasonably acceptable to legal counsel to Buyer and Parent;
(f) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall have entered into an Employment
Agreement with Buyer in the form attached hereto as Exhibit B
("Employment Agreement");
(g) Seller shall have entered into with Parent a Registration
Rights Agreement in a form similar to those previously entered into by
similarly situated shareholders of Parent and reasonably acceptable to
Parent and its counsel (the "Registration Rights Agreement");
(h) the Seller shall have delivered to Buyer instruments of
assignment and transfer or bills of sale signed by Seller as the Buyer
shall reasonably request, including the ▇▇▇▇ of Sale in substantially
the form attached hereto as Exhibit C (the "▇▇▇▇ of Sale");
(i) Seller shall have delivered to Buyer an Affidavit of Title
and Ownership in form reasonably satisfactory to Buyer and its counsel;
(j) Seller shall have entered into with Buyer a Contingent
Stock Pledge Agreement in substantially the form attached hereto as
Exhibit D (the "Stock Pledge Agreement");
(k) Seller shall have entered into the Subordination
Agreements on terms substantially similar to those contained in
subordination agreements executed by creditors of a similar class of
Parent or its subsidiaries;
-18-
(l) Buyer shall have completed its due diligence review of
Seller and the Business and been satisfied with the results;
(m) the Board of Directors of Buyer and Parent shall have
approved the terms of this transaction;
(n) Seller shall have delivered to Buyer and Parent all other
items required to be delivered hereunder or as may be requested which
are reasonably necessary or would reasonably facilitate consummation of
the transactions contemplated hereby; and
(o) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer and Parent.
The Buyer and Parent may waive any condition specified in Section 6.2 if they
execute a writing so stating at or prior to the Closing Date.
6.3 Conditions to Obligations of the Seller. The obligation of the
Seller to proceed with Closing and consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Buyer and Parent
hereunder shall be true and correct in all material respects at and as
of the Closing Date;
(b) each of Buyer and Parent shall have performed and complied
with all of its covenants hereunder in all material respects through
the Closing;
(c) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement, or (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(d) each of Buyer and Parent shall have delivered to the
Seller a certificate to the effect that each of the conditions
applicable to it which are specified above in Section 6.3(a)-(c) is
satisfied in all respects;
(e) the Seller shall have received from counsel to the Buyer
an opinion in form and substance acceptable to Seller, addressed to the
Seller, and dated as of the Closing
-19-
Date containing such assumptions and qualifications as may be
reasonably acceptable to Seller's legal counsel;
(f) Parent shall have entered into the Registration Rights
Agreement in a form similar to those previously entered into by
similarly situated shareholders of Parent;
(g) the Buyer shall have paid the Purchase Price required by
Section 2.3;
(h) the Buyer shall have entered into the Employment Agreement
and the Stock Pledge Agreement, each in a form reasonably acceptable to
Seller and its counsel;
(i) Seller shall have completed its due diligence review of
Buyer and Parent and been satisfied with the results; and
(j) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this Section 6.3 if Seller
executes a writing so stating at or prior to the Closing.
6.4 Insurance and Ad Valorem Taxes. The Buyer shall be obligated to
procure its own insurance on the Business commencing on the Effective Date.
Seller shall be solely responsible for receiving a refund of any insurance
premium payments that have been prepaid. With regard to ad valorem taxes on the
Assets for the 1997 tax year, the Seller and the Buyer agree that the taxes to
be paid shall be prorated as of the Effective Date.
6.5 Further Assurances. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. The Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
the Buyer, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the Buyer, for the purpose of
assigning and confirming to the Buyer, all of the Assets. The Buyer shall notify
the Seller promptly, and in no event more than ten (10) business days after the
Buyer's receipt, of any tax inquiries or notifications thereof which relate to
any period prior to the Effective Date, and the Seller shall prepare and deliver
responses to such inquiries as the Seller deems necessary or appropriate. In
addition, the Seller shall make available the books and records of the Business
during reasonable business hours and take such other actions as are reasonably
requested by the Buyer to assist the Buyer in the operation of the Business.
-20-
6.6 Availability of Records to the Seller. For a period of three (3)
years following the Closing Date, Buyer shall make available to the Seller such
of the Books and Records relating to the Business prior to the Closing Date as
the Seller may reasonably require after the Closing Date in connection with any
tax determination, defense of any claim against the Seller relating to the
conduct of the Business prior to the Closing Date or for any other reason.
During such time, Buyer agrees not to destroy any files or records which are
subject to this Section 6.6 without giving reasonably notice to the Seller, and
within 15 business days of receipt of such notice, the Buyer may cause to be
delivered to Seller the records intended to be destroyed, at the Seller's
expense.
6.7 Termination of Employment of the Seller's Employees. Buyer may
terminate any Employee at any time. Seller shall pay all wages, benefits,
accrued vacation, sick pay and any other benefits any of the Employees are
entitled to receive before the Closing Date.
6.8 Confidential Information. After the Closing and except as
otherwise specifically permitted in this Agreement, each party to this Agreement
agrees, on behalf of itself and its Affiliates, to use reasonable efforts not to
divulge, communicate, use to the detriment of any other party to this Agreement
or its Affiliates or for the benefit of any other person or persons, any
confidential information or trade secrets of such other party with respect to
the Assets or the Business, including personnel information, secret processes,
know-how, customer lists, formulae, or other technical data; provided, if any
party to this Agreement or any of its Affiliates is compelled to disclose such
information to any tribunal, regulatory or governmental authority or agency or
else stand liable for contempt or suffer other censure and penalty, such party
may so disclose such information without any liability hereunder.
6.9 Assignment of Contracts. On or before the Effective Date, Seller
shall have delivered to Buyer all of the Contracts presently in force and shall
have effected a valid assignment of all of Seller's rights and obligations
thereunder.
6.10 Shareholders' Agreement; Investment Representations. No shares of
Parent Stock can or will be issued upon conversion of Note 1 and Note 2 until
Seller becomes a party to a Shareholders' Agreement in the form required by the
Parent ("Shareholders' Agreement") and gives appropriate investment
representations concerning knowledge about the investment and acknowledgments of
any applicable restrictions on transferability.
6.11 Customer List. On or before 45 days following the Effective Date,
Seller shall deliver to Buyer a new Schedule 3.23, revised to show the total
receipts of the Business attributable to each listed Customer during the period
beginning January 1, 1996 and ending on the Effective Date.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 Indemnification.
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A. By the Seller. Subject to Section 7.1(E) hereof, the Seller,
shall indemnify, save, defend and hold harmless the Buyer and Buyer's
shareholders and the directors, officers, partners, agents and employees of each
(collectively, the "Buyer Indemnified Parties") from and against any and all
costs, lawsuits, losses, liabilities, deficiencies, claims and expenses,
including interest, penalties, attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing (collectively
referred to herein as "Damages"), (i) incurred in connection with or arising out
of or resulting from or incident to any breach of any covenant, breach of
warranty as of the Effective Date, or the inaccuracy of any representation as of
the Effective Date, made by the Seller in or pursuant to this Agreement or any
other agreement contemplated hereby or in any schedule, certificate, exhibit, or
other instrument furnished or to be furnished by the Seller or its Affiliates
under this Agreement, or (ii) based upon, arising out of, or otherwise in
respect of any liability or obligation of the Business or relating to the Assets
relating to any period prior to the Effective Date, other than those Damages
based upon or arising out of the Assumed Liabilities; provided, however, that
the Seller shall not be liable for any such Damages to the extent, if any, such
Damages result from or arise out of a breach or violation of this Agreement by
any Buyer Indemnified Parties.
B. By the Parent and the Buyer. Subject to Section 7.1(E)
hereof, the Parent and the Buyer, jointly and severally, shall indemnify, save,
defend and hold harmless the Seller and Seller's successors in interest or heirs
(collectively, the "Seller Indemnified Parties") from and against any and all
Damages (i) incurred in connection with or arising out of or resulting from or
incident to any breach of any covenant, breach of warranty as of the Effective
Date, or the inaccuracy of any representation as of the Effective Date, made by
Parent and/or the Buyer in or pursuant to this Agreement or any other agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by the Parent and/or the Buyer under
this Agreement, or (ii) based upon, arising out of or otherwise in respect of
any liability or obligation of the Business or relating to the Assets (a)
relating to any period on and after the Effective Date, other than those Damages
based upon or arising out of the Retained Liabilities, or (b) arising out of
facts or circumstances existing on and after the Effective Date, other than
those Damages based upon or arising out of the Retained Liabilities; provided,
however, that neither Parent nor Buyer shall be liable for any such Damages if
such Damages result from or arise out of a breach or violation of this Agreement
by any Seller Indemnified Parties.
C. Defense of Claims. If any lawsuit or enforcement action is
filed against any Party entitled to the benefit of indemnity hereunder, written
notice thereof describing such lawsuit or enforcement action in reasonable
detail and indicating the amount (estimated, if necessary) or good faith
estimate of the reasonably foreseeable estimated amount of Damages (which
estimate shall in no way limit the amount of indemnification the indemnified
Party is entitled to receive hereunder), shall be given to the indemnifying
Party as promptly as practicable (and in any event within ten (10) days, after
the service of the citation or summons) ("Notice of Action"); provided that the
failure of any indemnified Party to give timely notice shall not affect its
rights to indemnification hereunder to the extent that the indemnified Party
demonstrates that the amount the indemnified Party is entitled to recover
exceeds the actual damages to the indemnifying Party caused by such failure to
so notify within ten (10) days and so long as the indemnifying Party is not
materially prejudiced by the failure
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to receive such notice. The indemnifying Party may elect to compromise or defend
any such asserted liability and to assume all obligations contained in this
Section 7.1 to indemnify the indemnified Party by a delivery of notice of such
election ("Notice of Election") within ten (10) days after delivery of the
Notice of Action. Upon delivery of the Notice of Election, the indemnifying
Party shall be entitled to take control of the defense and investigation of such
lawsuit or action and to employ and engage attorneys of its own choice to handle
and defend the same, at the indemnifying Party's sole cost, risk and expense,
and such indemnified Party shall cooperate in all reasonable respects, at the
indemnifying Party's sole cost, risk and expense, except with respect to the
fees and expenses of the indemnified Party's attorney, which shall be borne by
the indemnified Party, with the indemnifying Party and such attorneys in the
investigation, trial, and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified Party may, at its own
cost, risk and expense, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. If the Notice of
Election is delivered to the indemnified Party, the indemnified Party shall not
pay, settle or compromise such claim without the indemnifying Party's consent,
which consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified Party or does not deliver to
the indemnified Party a Notice of Election within ten (10) days after delivery
of the Notice of Action, the indemnified Party may, but shall not be obligated
to defend, provided that in no circumstances shall the indemnified Party
compromise or settle the claim or other matter on behalf or for the account of
the indemnifying Party without the consent of the indemnifying Party, which
shall not be unreasonably withheld.
D. Third Party Claims. The provisions of this Section 7.1 are
not limited to matters asserted by the Parties, but cover Damages incurred in
connection with third party claims. The indemnity hereunder is in addition to
any and all rights and remedies of the Parties in connection herewith.
E. Limitation on Indemnification. Notwithstanding the other
provisions of this Section 7.1, Seller shall not be liable to Buyer Indemnified
Parties, and Parent and Buyer shall not be liable to Seller Indemnified Parties,
for the first $25,000 in aggregate Damages suffered by such indemnified Parties;
provided, however, that once any such indemnified Parties have suffered Damages
aggregating in excess of $25,000, the indemnifying Party shall reimburse the
indemnified Parties for the full amount of such Damages, including the $25,000
in Damages initially excluded. In no event shall the aggregate Damages payable
by an indemnifying Party to indemnified Parties exceed the Purchase Price.
7.2 Survival of Representations and Warranties. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for two (2) years thereafter, except that the representations and
warranties contained in Sections 3.1 and 3.2 shall survive for a period of three
(3) years after Closing.
-23-
ARTICLE VIII
REMEDIES
--------
8.1 Specific Performance; Remedies. Each of the Parties hereby agrees
that the transactions contemplated by this Agreement are unique, and that each
Party shall have, in addition to any other legal or equitable remedy available
to it, the right to enforce this Agreement by decree of specific performance. If
any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it, he or they may be entitled at law
or equity. The rights and remedies granted herein are cumulative and not
exclusive of any other right or remedy granted herein or provided by law.
ARTICLE XI
MISCELLANEOUS
-------------
9.1 Fees. Except as expressly set forth herein to the contrary, each
Party shall be responsible for all costs, fees and expenses (including attorney
and accountant fees and expenses) paid or incurred by such Party in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, or otherwise in connection with the transaction contemplated hereby.
9.2 Modification of Agreement. This Agreement may be amended or
modified only in writing signed by all of the Parties.
9.3 Notices. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed with receipt of
transmission confirmed during regular business hours during a business day to
the appropriate location described below, or three (3) business days after
posting thereof by United States first-class, registered or certified mail,
return receipt requested, with postage and fees prepaid and addressed as
follows:
IF TO SELLER: ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
The ▇▇▇▇▇▇▇▇▇ Family Trust
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: 818/▇▇▇-▇▇▇▇
Fax: 818/▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: 213/▇▇▇-▇▇▇▇
Fax: 213/▇▇▇-▇▇▇▇
-24-
IF TO BUYER: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Litigation Resources of America-California, Inc.
650 First City Tower, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Phone: 713/▇▇▇-▇▇▇▇
IF TO PARENT: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Litigation Resources of America, Inc.
650 First City Tower, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Phone: 713/▇▇▇-▇▇▇▇
Fax: 713/▇▇▇-▇▇▇▇
Fax: 713/▇▇▇-▇▇▇▇
With copy to: J. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇ Incorporated
Nine ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Phone: 713/▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any addressee at any time by furnishing notice to the other addressees in the
manner described above may designate additional or different addresses for
subsequent notices or communications.
9.4 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
9.5 Entire Agreement; Binding Effect. This Agreement and the
Ancillary Agreements set forth the entire agreement among the Parties with
respect to the subject matter hereof. This Agreement shall be binding upon and
shall inure to the benefit of the Parties and their respective successors and
assigns.
9.6 Waiver. No delay in the exercise of any right under this
Agreement shall waive such rights. Any waiver, to be enforceable, must be in
writing.
9.7 Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
9.8 Assignment. The Seller shall not assign this Agreement or any
interest herein .
9.9 Headings. Headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
9.10 Schedules and Exhibits. All Schedules and Exhibits attached to
this Agreement or to be delivered by the Seller, upon review and approval by the
Buyer, are and shall be hereby
-25-
incorporated in and made a part of this Agreement. All Schedules to this
Agreement must be delivered no later than four (4) days prior to Closing, in
order to provide the Buyer ample time to review and evaluate the items described
therein and disclosed thereby. Although the Schedules remain subject to the
review and approval of the Buyer, no such review or approval shall constitute a
waiver by the Buyer of any breach or default caused by the inaccuracy or
incompleteness of any Schedule, the accuracy and completeness of the Schedules
being the sole responsibility of the Seller.
9.11 Offset; Remedies. To the extent not otherwise prohibited by
applicable law, (i) all amounts due and owing by the Buyer to the Seller under
this Agreement, Note 1, Note 2, or any document, instrument, or agreement
executed in connection herewith, and (ii) the Parent Shares, if issued, shall be
subject to offset by the Buyer to the extent of any Damages incurred by Buyer
that have triggered an indemnification obligation of Seller under Section 7.1.A.
In the event Buyer elects to offset any such Damages, Buyer shall furnish Seller
notice containing detailed information with respect to such Damages, the
specific obligation of Seller that triggered such Damages and such other
information as may be reasonably appropriate in respect of Seller's
consideration of such claim (an "Offset Claim"). Seller shall have twenty (20)
days after receipt of such information to dispute any such Offset Claim, and
shall so notify Buyer of the basis for such dispute. If the Parties are unable
to resolve such dispute within fifteen (15) days, the Offset Claim shall be
submitted to arbitration, as further described in Section 9.15. If Seller agrees
to pay such Offset Claim or fails to contact Buyer within such twenty (20) day
period, and pending final resolution of any Offset Claim which has been
submitted to arbitration, the offset shall be applied as follows (the act of
offsetting by Buyer shall be referred to as an "Offset"): (a) First against Note
1 until the full amount of Note 1, both principal and interest, has been repaid,
(b) next against Note 2 until the full amount of Note 2, both principal and
interest, has been repaid, and (c) finally, against the Parent Shares. In order
to secure the Buyer's offset rights against the Parent Shares, Buyer and Seller
shall execute the Stock Pledge Agreement. Upon issuance, the Parent Shares shall
have a restrictive legend typed on the back thereof specifying that the Parent
Shares are subject to a right of offset as specified in the Agreement. The
Seller acknowledges and agrees that but for the right of Offset contained in
this Agreement, the Buyer would not have entered into this Agreement or any of
the transactions contemplated herein. Notwithstanding anything contained herein
to the contrary, the offset rights of Buyer hereunder shall terminate in the
manner set forth in Section 7.2.
9.12 Rights and Liabilities of Parties. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
9.13 Survival. Subject to Section 7.2, this Agreement, including but
not limited to all covenants, warranties, representations and indemnities
contained herein, shall survive the Closing, and the ▇▇▇▇ of Sale and all other
documents, instruments or agreements relating to the Assets and the transactions
contemplated herein shall not be deemed merged therein.
-26-
9.14 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
9.15 Arbitration. If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 9.15. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 9.15, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Los Angeles, California. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided in Section 9.16 herein. The
fees of the arbitrator and of the American Arbitration Association, if any,
shall be divided equally among the Parties involved in the controversy. Judgment
upon the award rendered by the arbitrator (which may, if deemed appropriate by
the arbitrator, include equitable or mandatory relief with respect to
performance of obligations hereunder) may be entered in any court of competent
jurisdiction.
9.16 Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees from the other Parties hereto.
9.17 Drafting. All Parties hereto acknowledge that each Party was
actively involved in the negotiation and drafting of this Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Agreement shall be construed in favor or against any Party hereto because
one is deemed to be the author thereof.
-27-
IN WITNESS WHEREOF, the undersigned have executed and delivered
this Agreement in multiple counterparts effective as of the date first written
above.
BUYER:
-----
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC.,
a California corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
----------------------------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------------
Title: CEO
-------------------------------------------------
PARENT:
------
LITIGATION RESOURCES OF AMERICA, INC.,
a Texas corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
----------------------------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------------
Title: CEO
-------------------------------------------------
SELLER:
------
GIAMMANCOS:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Individually
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Individually
TRUST:
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as a Trustee of the ▇▇▇▇▇▇▇▇▇
Family Trust established under Declaration of Trust
dated August 21, 1996 governed by the law of the
State of California
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as a Trustee of the ▇▇▇▇▇▇▇▇▇
Family Trust established under Declaration of Trust
dated August 21, 1996 governed by the law of the
State of California
-28-
Schedules
---------
1-A Employees of Seller
2.1(a) Equipment
2.1(b) Contracts
2.1(c) Books and Records
2.1(e) Intellectual Property
2.1(g) General Intangibles
2.2 Excluded Assets
3.1 Encumbrances on Assets
3.6 Licenses
3.9 Litigation
3.10 Breaches or Violations
3.14 Leased Assets
3.17(a and b) Certain Changes or Events
3.18 Consents and Approvals
3.22 Liens
3.23 Customers
3.24 Insurance Policies
3.25 Interest in Customers, Suppliers and Competitors
4.6 Consents
Exhibits
--------
A-1 Note 1
A-2 Note 2
B Employment Agreement
C ▇▇▇▇ of Sale, Assignment and Assumption Agreement
D Contingent Stock Pledge Agreement
Other Documents
---------------
Registration Rights Agreement
Subordination Agreements
--TCB Note 1
--TCB Note 2
--Pecks Note 1
--Pecks Note 2
-29-
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE SENIOR DEBT
(AS DEFINED IN THE SUBORDINATION AGREEMENT BELOW REFERRED TO) PURSUANT TO, AND
TO THE EXTENT PROVIDED IN, THE SUBORDINATION AGREEMENT EFFECTIVE AS OF MAY 14,
1997, BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE BANK
NATIONAL ASSOCIATION.
G& G COURT REPORTERS
Convertible Subordinated Promissory Note
(Note 1)
$345,750.00 Houston, Texas May 19, 1997
Litigation Resources of America-California, Inc. d/b/a G & G Court
Reporters, a California corporation (hereinafter called the "Company," which
term includes any directly or indirectly controlled subsidiaries or successor
entities), for value received, hereby promises to pay to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, individuals who are husband and wife (referred to in their
individual capacities as the "Giammancos") acting in their capacities as the
Trustees (referred to in their trustee capacities as the "Trustees") of the
▇▇▇▇▇▇▇▇▇ FAMILY TRUST (the "Trust") established under Declaration of Trust
dated August 21, 1996 governed by the law of the State of California (the Trust
being hereinafter called the "Holder"), or permitted assigns, the principal sum
of THREE HUNDRED FORTY-FIVE THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS
($345,750.00) together with accrued interest on the amount of such principal
sum, payable in accordance with the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SUBORDINATED TO
ALL SENIOR INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING
OR ARISING, AND SHALL BE ON AN EQUIVALENT BASIS WITH OTHER SUBORDINATED
INDEBTEDNESS, AS HEREINAFTER DEFINED.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally accepted
accounting principles of the Accounting Principles Board of the American
Institute of Certified Public Accountants and the Financial Accounting Standards
Board that are applicable from time to time, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Annual Cash Flow" means the Company's net income from operations
before interest, taxes, depreciation and amortization ("Net Income"), calculated
quarterly on a trailing twelve-month basis. For the first three quarterly
computations during the term of this Note, Annual Cash Flow shall be computed
as follows: For the first quarterly computation following the date of this
Note, Net Income for the first calendar quarter following the date of this Note
(the "First
Calendar Quarter") shall be multiplied by four (4); for the second
quarterly computation following the date of this Note, Net Income for the second
calendar quarter following the date of this Note shall be added to Net Income
for the First Calendar Quarter and the sum (the "Second Quarter Sum") shall be
multiplied by two (2); for the third quarterly computation following the date
of this Note, Net Income for the third calendar quarter following the date of
this Note shall be added to the Second Quarter Sum and the total shall be
divided by .75. If Net Income for a full calendar quarter is not available for
purposes of this calculation, Net Income for the partial quarter shall be
divided by the number of days in the partial quarter and the result shall be
multiplied by 90 to create a full calendar quarter.
1.2 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.3 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.4 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of ▇▇▇▇ (▇▇▇
"▇▇▇▇▇▇▇▇ ▇▇▇"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Parent, either of
the Giammancos or the Holder, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding securities other than as a result of the sale by the
Parent of securities in a private transaction, and the Pecks Group of Investors
no longer has the right to elect a majority of the Board of Directors of the
Parent, or (X) during any period of two consecutive years during the term of
this Note, individuals who at the beginning of such period constitute the Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period is as a result of the stockholder permitted to designate such
director to fill a position making a change in such designee or if additional
directors are added to the board as a result of an expansion of the board of
directors for purposes of the Company conducting a Public Offering or for any
other business reason, or (Y) the Parent consummates a Public Offering, or (Z)
all or substantially all of the assets of the Parent are sold.
1.5 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.6 "G&G Cash Flow" means $311,000.
1.7 "Event of Default" has the meaning specified in Section 3.1.
1.8 "GAAP" means generally accepted accounting principles of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
2
1.9 "G&G Division" means the separate operating division of the Company
which operates the business known as G&G Court Reporters.
1.10 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals, renewals, extensions
and refundings of, and amendments, modifications and supplements to, any of the
indebtedness referred to in (i), (ii) or (iii) above.
1.11 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.12 "Maturity Date", when used with respect to this Note means May 19,
2002 (or such other date upon which this Note becomes due and payable).
1.13 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended.
1.14 "Note" means this Convertible Subordinated Promissory Note.
1.15 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Company or to any person who is the seller of a
court reporting and/or litigation service business and who finances all or part
of the purchase price thereof.
1.16 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.17 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.18 "Pecks Group of Investors" means those persons defined as "Investors"
who are parties to the Securities Purchase Agreement dated effective January
17, 1997 among the Investors, the Parent and certain subsidiaries of the Parent,
and the permitted assigns of the Investors.
1.19 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.20 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
3
1.21 "Purchase Agreement" means that certain Agreement of Purchase and
Sale of Assets dated as of May 19, 1997 executed by and among the Company, the
Parent, the Giammancos and the Holder.
1.22 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.23 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person other than Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting and/or litigation service
business, whether direct or indirect, absolute or contingent, now owing or
hereafter existing or arising, or due or to become due, including without
limitation, future indebtedness (principal, interest, fees and expenses,
collection costs or otherwise) and future advances of funds, and all
modifications, renewals, extensions or rearrangements of any of the foregoing.
1.24 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Holder, the Giammancos, the holders of the Senior Indebtedness, and the holders
of the Other Subordinated Indebtedness.
1.25 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of seven and one-half percent (7.5%) per annum, calculated on the
basis of a 365-day year or 366-day year as the case may be. All past due
payments of principal, and if permitted by applicable law, of interest shall
bear interest from day to day at a rate of fourteen percent (14%) per annum, all
to be computed from maturity (whether stated or by acceleration) until paid.
2.2 Payment of Principal and Interest. Beginning August 1, 1997, the
Company shall make quarterly payments of interest and, in addition, beginning
August 1, 1998, the Company shall make fifteen (15) quarterly payments of
principal, each in the amount of $21,609.38, on or before the first day of each
November, February, May and August (and if the first day is not a Business Day,
the first Business Day thereafter) of each quarter thereafter, with the
sixteenth (16/th/) and final payment of principal and accrued interest being due
and payable on May 19, 2002, subject to the provisions of Section 2.3 below.
Prepayments will be credited first to the accrued but unpaid interest, and then
to installments of unpaid principal in the order of maturity.
2.3 Cash Flow Requirements. Notwithstanding Section 2.2 above, the
Company shall not be required to make a payment due under this Note if the G&G
Division of the Company has not
4
generated Annual Cash Flow at least equal to the G & G Cash Flow for the period
ended on the last day of the month preceding the month in which the payment is
due. In each such case, the Maturity Date shall be extended for an additional
three-month period until the Note has been paid in full. This Section 2.3 shall
not apply if (i) a Termination Without Cause or a Termination for Good Reason
(as such terms are defined in the Employment Agreement of even date herewith
between the Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇) has occurred and Annual Cash Flow for
the twelve-month period immediately preceding the date of termination was at
least equal to the G & G Cash Flow or (ii) if the Parent assumes this Note in
accordance with Section 3.3 hereof.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1 the Company defaults in the performance of any covenant made by
the Company in this Note, and such default remains uncured for a period of 180
days after notice from the Holder; or
3.1 the Company defaults in the performance of or breaches any of the
terms, covenants, or conditions contained in any of the documents evidencing,
securing or guaranteeing any Senior Indebtedness, including, but not limited to,
any loan agreements, promissory notes or security agreements, and the applicable
grace periods expire, unless such default is waived or the holders of the
Senior Indebtedness elect not to declare a default thereunder or the Company is
permitted to make payments under this Note; or
3.1 (i) a receiver, liquidator, custodian, or trustee of the Company,
or of any material property thereof is appointed by court order of a court of
competent jurisdiction and such order remains in effect on the 90th day after
its entry, or (ii) a petition is filed, a case is commenced, or relief is
ordered against the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed with 90
days of such filing, commencement, or order; or
3.1 the Company (i) commences a voluntary case or proceeding under
any applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding and is adjudicated a bankrupt or
insolvent, (ii) files a petition, answer or consent seeking reorganization or
similar relief under any applicable federal or state law, (iii) makes an
assignment for the benefit of creditors, or (iv) admits in writing its inability
to pay its debts generally as they become due.
3.2 Acceleration of Maturity. This Note and all accrued interest shall
become immediately due and payable at the option of the Holder at any time after
notice by Holder to the Company of the occurrence of an Event of Default which
is not cured within fifteen (15) days thereafter. In addition, notwithstanding
the provisions of Section 3.1 herein, this Note and all accrued interest shall
at the option of the Holder either become immediately due and payable or
immediately convertible into shares of Parent Stock as hereinafter provided
concurrently with the consummation of the transactions resulting in a Change in
Control, as further set forth in Article V
5
hereof. The provisions of this Section 3.2 shall govern notwithstanding any
other agreement or document of the Company or the Parent (with the exception of
the Subordination Agreements).
3.3 Sale of Company. If all or substantially all of the stock or assets
of the Company is sold, the Parent shall have the option to either (i) pay this
Note in full or cause this Note to be paid in full or (ii) assume the
obligations of the Company under this Note.
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
4.2 Limitation on Liens. The Company will not create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Company in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business in respect of
obligations which are not overdue for a period of more than 90 days beyond the
Company's customary payment terms or which are being contested in good faith by
appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business not to exceed $1,000,000 in the aggregate at any
given time;
(e) encumbrances and restrictions on the use of real property which do
not materially impair the use thereof;
(f) any interest or title of (i) a lessor in assets being leased to
the Company or (ii) a seller in assets being purchased by the Company; and
(g) Liens granted in connection with the Senior Indebtedness.
6
4.3 No Further Indebtedness. The G&G Division of the Company shall not
incur any additional Indebtedness, except with respect to accounts payable
arising in the ordinary course of business.
ARTICLE V
Conversion
5.1 At the Option of Holder. On the date of and simultaneously with the
closing of the first event following execution of this Note which causes a
Change in Control, the Holder shall have the one-time right to convert all, or
any portion, of the outstanding principal balance of this Note and any accrued
interest due thereon into shares of Parent Stock at a price equal to the
Transaction Price, as hereinafter defined, and otherwise on and subject to the
terms and conditions set forth in this Article V. As used herein, the term
"Transaction Price" shall mean the initial issuance price per share of the
Parent Stock issued in the Public Offering, without giving effect to any
underwriting discounts or commissions, or the value of the Parent Stock
determined at the time of any other transaction giving rise to a Change in
Control. The Company must give the Holder 20 days' prior written notice of the
date of the event (the "Event Date") giving rise to the Change in Control and
the Holder may then exercise such Holder's right to convert all, or any portion,
of the outstanding principal amount of this Note into shares of Parent Stock by
(i) giving written notice at least 10 days prior to the Event Date to the
Company that the Holder elects to convert all or a portion of the outstanding
principal amount of this Note and any accrued interest due thereon into Parent
Stock, (ii) stating in such written notice the denominations in which the Holder
wishes the certificate or certificates for Parent Stock to be issued, and (iii)
surrendering this Note to the Company for notation or cancellation, as
appropriate. If not exercised when it first becomes available, or if exercised
only in part, the right to convert all or the portion of this Note for which
this option has not been exercised as described herein shall not continue and
shall expire at midnight, Houston, Texas time, on the date which is 10 days
prior to the Event Date.
5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained,
cause to be issued and delivered to the surrendering Holder certificates for the
number of full shares of Parent Stock to which the Holder shall be entitled as
aforesaid, together with any unpaid interest on the principal amount, if not
converted, accrued through the Event Date. The Holder shall not be entitled to
receive fractional shares of Parent Stock upon conversion or script in lieu
thereof, but the number of shares of Parent Stock to be received by the Holder
upon conversion shall be rounded down to the next whole number and the Holder
shall be entitled to payment for the fractional share in cash at the then
applicable Transaction Price. Such conversion shall be deemed to have been made
as of the Event Date, so that the persons entitled to receive the shares of
Parent Stock upon conversion of the principal amount hereof shall be treated for
all purposes as having been the record holder or holders of such shares of
Parent Stock at such time.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding
7
principal amount hereof and any accrued interest due thereon shall be converted.
No shares of Parent Stock can or will be issued upon conversion until the Holder
becomes a party to a Shareholders' Agreement in the form required by the Parent
and gives appropriate investment representations concerning knowledge about the
investment and acknowledgments of any applicable restrictions on
transferability.
ARTICLE VI
Miscellaneous
6.1 Collection Fees. If this Note is placed in the hands of an attorney
for collection, and if it is collected through any legal proceedings at law or
in equity or in bankruptcy, receivership or other court proceedings, the Company
hereby undertakes to pay all costs and expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
6.2 Consent to Amendments. This Note may be amended, and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
6.3 Benefits of Note. Except as set forth in Section 3.3, nothing in this
Note, express or implied, shall give to any Person, other than the Company,
Holder, and their successors any benefit or any legal or equitable right, remedy
or claim under or in respect of this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever; provided that this Note may be assigned by
Holder to the Giammancos, the children of the Giammancos or any other trust
created in favor of the children of the Giammancos, so long as the only trustees
under any such trust shall be the Trustees or either of them for so long as this
Note remains outstanding (the only permitted substitution being in the event of
the death or incapacity of both Trustees).
6.6 Waiver; Remedies Cumulative. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are cumulative to and not exclusive of any rights or remedies
otherwise available thereto.
8
6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, or by telefax with confirmed receipt, to the
following addresses: if to the Company, 650 First City Tower, ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Fax 713/▇▇▇-▇▇▇▇ or at any other address designated by the
Company in writing to Holder; if to Holder, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Fax 818/▇▇▇-▇▇▇▇ or at any other address
designated by Holder to the Company in writing.
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
6.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (referred to as "Applicable Law"). The
Holder shall have no right to claim, to charge or to receive any interest in
excess of the maximum rate of interest, if any, permitted to be charged on that
portion of the amount representing principal which is outstanding and unpaid
from time to time by Applicable Law. Determination of the rate of interest for
the purpose of determining whether this Note is usurious under Applicable Law
shall be made by amortizing, prorating, allocating and spreading in equal parts
during the period of the actual time of this Note, all interest or other sums
deemed to be interest (referred to in this Section as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
6.11 Arbitration. The arbitration provisions contained in Section 9.15 of
the Purchase Agreement shall govern this Note.
6.12 No Protest. The Company hereby waives presentment, protest and demand
and notice of protest, demand, dishonor and nonpayment of this Note.
9
THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT TO
THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC.,
A CALIFORNIA CORPORATION
By:_____________________________________________
Name:__________________________________________
Title:__________________________________________
10
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE SENIOR DEBT
(AS DEFINED IN THE SUBORDINATION AGREEMENT BELOW REFERRED TO) PURSUANT TO, AND
TO THE EXTENT PROVIDED IN, THE SUBORDINATION AGREEMENT EFFECTIVE AS OF MAY 14,
1997, BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF TEXAS COMMERCE BANK
NATIONAL ASSOCIATION.
G& G COURT REPORTERS
Convertible Subordinated Promissory Note
(Note 2)
$691,750.00 Houston, Texas May 19, 1997
Litigation Resources of America-California, Inc. d/b/a G & G Court
Reporters, a California corporation (hereinafter called the "Company," which
term includes any directly or indirectly controlled subsidiaries or successor
entities), for value received, hereby promises to pay to ▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, individuals who are husband and wife (referred to in their individual
capacities as the "Giammancos") acting in their capacities as the Trustees
(referred to in their trustee capacities as the "Trustees") of the ▇▇▇▇▇▇▇▇▇
FAMILY TRUST (the "Trust") established under Declaration of Trust dated August
21, 1996 governed by the law of the State of California (the Trust being
hereinafter called the "Holder"), or permitted assigns, the principal sum of SIX
HUNDRED NINETY-ONE THOUSAND SEVEN HUNDRED FIFTY AND NO/100 DOLLARS ($691,750.00)
together with accrued interest on the amount of such principal sum, payable in
accordance with the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE, OTHER THAN THE
OBLIGATIONS TO PAY INTEREST HEREUNDER, ARE SUBORDINATED TO ALL SENIOR
INDEBTEDNESS, AS HEREINAFTER DEFINED, NOW OWING OR HEREAFTER EXISTING OR
ARISING.
ARTICLE I
Definitions
For all purposes of this Note, except as otherwise expressly provided or
unless the context otherwise requires, (i) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally accepted
accounting principles of the Accounting Principles Board of the American
Institute of Certified Public Accountants and the Financial Accounting Standards
Board that are applicable from time to time, and (iii) the words "herein" and
"hereof" and other words of similar import refer to this Note as a whole and not
to any particular Article, Section or other subdivision.
1.1 "Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
1.2 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
1.3 "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of ▇▇▇▇ (▇▇▇
"▇▇▇▇▇▇▇▇ ▇▇▇"); provided that, without limitation, such a change in control
shall be deemed to have occurred if (W) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Parent, either of
the Giammancos or the Holder, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding securities other than as a result of the sale by the
Parent of securities in a private transaction, and the Pecks Group of Investors
no longer has the right to elect a majority of the Board of Directors of the
Parent, or (X) during any period of two consecutive years during the term of
this Note, individuals who at the beginning of such period constitute the Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period is as a result of the stockholder permitted to designate such
director to fill a position making a change in such designee or if additional
directors are added to the board as a result of an expansion of the board of
directors for purposes of the Company conducting a Public Offering or for any
other business reason, or (Y) the Parent consummates a Public Offering, or (Z)
all or substantially all of the assets of the Parent or the Company are sold.
1.4 "Default" means any event which is, or after notice or passage of
time would be, an Event of Default.
1.5 "Event of Default" has the meaning specified in Section 3.1.
1.6 "GAAP" means generally accepted accounting principles of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board that are applicable
from time to time.
1.7 "Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (i) for the principal of, premium on and interest on all
debts of the Person whether outstanding on the date of this Note or thereafter
created for money borrowed by such Person (including capitalized lease
obligations), money borrowed by others (including capitalized lease obligations)
and guaranteed, directly or indirectly, by such Person, or purchase money
indebtedness, or indebtedness secured by property ("Purchase Money
Indebtedness") at the time of the acquisition of such property by such Person,
for the payment of which the Person is directly or contingently liable, (ii) for
all accrued obligations of the Person in respect of any contract, agreement or
instrument imposing an obligation upon the Person to pay over funds, (iii) for
all trade debt of the Person, and (iv) for all deferrals,
2
renewals, extensions and refundings of, and amendments, modifications and
supplements to, any of the indebtedness referred to in (i), (ii) or (iii) above.
1.8 "Lien" means any mortgage, deed of trust, lien, security interest,
pledge, claim, charge, liability, obligation or other encumbrance.
1.9 "Maturity Date", when used with respect to this Note means May 19,
2005 (or such other date upon which this Note becomes due and payable).
1.10 "Maximum Nonusurious Rate" means the indicated rate ceiling from time
to time in effect as defined by Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended.
1.11 "Note" means this Convertible Subordinated Promissory Note.
1.12 "Other Subordinated Indebtedness" means any other Indebtedness now or
hereinafter due and owing by the Company or to any person who is the seller of a
court reporting and/or litigation service business and who finances all or part
of the purchase price thereof.
1.13 "Parent" means Litigation Resources of America, Inc., a Texas
corporation.
1.14 "Parent Stock" means shares of common stock, $.01 par value, of
Parent and any securities for which such stock may be exchanged or into which it
may be converted.
1.15 "Pecks Group of Investors" means those persons defined as "Investors"
who are parties to the Securities Purchase Agreement dated effective January
17, 1997 among the Investors, the Parent and certain subsidiaries of the Parent,
and the permitted assigns of the Investors.
1.16 "Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
1.17 "Public Offering" means the sale by the Parent of securities for cash
in an underwritten public offering registered on the appropriate form with the
SEC.
1.18 "Purchase Agreement" means that certain Agreement of Purchase and
Sale of Assets dated as of May 19, 1997 executed by and among the Company, the
Parent, the Giammancos, and the Holder.
1.19 "SEC" means the United States Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933 or
any successor act thereto.
1.20 "Senior Indebtedness" means any and all indebtedness, liabilities and
obligations of the Company to any Person including Other Subordinated
Indebtedness that is incurred by the Company or its affiliates in financing the
purchase by it or its affiliates of a court reporting and/or litigation service
business, whether direct or indirect, absolute or contingent, now owing or
hereafter
3
existing or arising, or due or to become due, including without limitation,
future indebtedness (principal, interest, fees and expenses, collection costs or
otherwise) and future advances of funds, and all modifications, renewals,
extensions or rearrangements of any of the foregoing.
1.21 "Subordination Agreements" means those certain Subordination
Agreements executed as of even date herewith by and among the Company, the
Holder, the Giammancos and the holders of the Senior Indebtedness.
1.22 "Subsidiary" means a corporation or other entity in which more than
50% of the outstanding voting stock or equity interests is owned or controlled,
directly or indirectly, by the Company or any combination of the Company and one
or more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock or other interests which ordinarily has voting power for the
election of directors, and equity interests means the right to receive the
profits of the entity, when disbursed, or the assets of the entity upon
liquidation or dissolution.
ARTICLE II
Payments
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate of six and three-eighths percent (6.375%) per annum, calculated
on the basis of a 365-day year or 366-day year as the case may be.
2.2 Payment of Principal and Interest. Beginning June 15, 1997, the
Company shall make monthly payments of interest on the fifteenth day of each
month during the term of this Note (and if the fifteenth day is not a Business
Day, the first Business Day thereafter) with the entire principal amount of this
Note and accrued interest thereon being due and payable on May 19, 2005.
Prepayments of this Note are not permitted without the consent of the Holder in
Holder's sole discretion.
ARTICLE III
Remedies
3.1 Events of Default. An "Event of Default" occurs if:
3.1.1 the Company fails to make when due any payment of interest due
under this Note, and such default remains uncured for a period of 10 days after
notice from the Holder;
3.1.2 the Company fails to make when due the principal payment due
under this Note, and such default remains uncured for a period of 180 days after
notice from the Holder; or
3.1.3 the Company defaults in the performance of any other covenant
made by the Company in this Note, and such default remains uncured for a period
of 180 days after notice from the Holder.
4
3.2 No Acceleration of Maturity. Regardless of the occurrence of an
Event of Default (and the expiration of any applicable cure or grace period),
the Holder shall have no right to accelerate the maturity of this Note.
ARTICLE IV
Covenants
The Company covenants and agrees that, so long as this Note is outstanding:
4.1 Payment of Principal and Accrued Interest. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof, except to the extent of any limitations
contained in the Purchase Agreement or the Subordination Agreements.
ARTICLE V
Conversion
5.1 Conversion Events.
(a) At the Option of Holder. At any time following the date of
execution of this Note through the Maturity Date, the Holder shall have the
right to convert all, but not less than all, of the outstanding principal amount
of this Note into shares of Parent Stock at a price equal to the Conversion
Price, as hereinafter defined, and otherwise on and subject to the terms and
conditions set forth in this Article V. As used herein, the term "Conversion
Price" shall mean $7.56, calculated in accordance with Exhibit A attached
hereto. The Holder may exercise such Holder's right to convert all, but not
less than all, of the outstanding principal amount of this Note into shares of
Parent Stock by (i) giving written notice to the Company that the Holder elects
to convert the outstanding principal amount into Parent Stock, (ii) stating in
such written notice the denominations in which the Holder wishes the certificate
or certificates for Parent Stock to be issued, and (iii) surrendering this Note
to the Company.
(b) Automatic Conversion. On the date of and simultaneously with the
closing (the "Event Date") of the first event which causes a Change in Control,
all of the outstanding principal amount of this Note shall be automatically
converted into shares of Parent Stock at a price equal to the Conversion Price,
and otherwise on and subject to the terms and conditions set forth in this
Article V. The outstanding principal amount of this Note shall be deemed
converted into shares of Parent Stock on the Event Date but shall not be
complete until (i) the Company has given written notice to the Holder, which
notice shall be given at least twenty days prior to the Event Date, that the
outstanding principal amount of this Note has been converted, which notice shall
disclose the Conversion Price, the Event Date and the number of shares of Parent
Stock to be received by the Holder, (ii) the Holder has delivered written
instructions to the Company which states the denominations in which the Holder
wishes the certificate or certificates for Parent Stock to be issued, and (iii)
the Holder has surrendered this Note to the Company.
5
5.2 Accrued Interest; Fractional Shares; Conversion Date. In the event of
any conversion, the Company will, as soon as practicable after surrender of this
Note and compliance by the Holder with the other conditions herein contained,
cause to be issued and delivered to the surrendering Holder certificates for the
number of full shares of Parent Stock to which the Holder shall be entitled as
aforesaid, together with any unpaid interest on the principal amount converted
accrued through the Conversion Date, as hereinafter defined, or Event Date, as
applicable. The Holder shall not be entitled to receive fractional shares of
Parent Stock upon conversion or script in lieu thereof, but the number of shares
of Parent Stock to be received by the Holder upon conversion shall be rounded
down to the next whole number and the Holder shall be entitled to payment for
the fractional share in cash at the Conversion Price. So that the persons
entitled to receive the shares of Parent Stock upon conversion of the principal
amount hereof shall be treated for all purposes as having been the record holder
or holders of such shares of Parent Stock at such time, (i) if conversion takes
place under Section 5.1(a), such conversion shall be deemed to have been made as
of the close of business on the date the notice of conversion is delivered to
the Company in accordance with the notice provisions hereinafter set forth (the
close of business on such date being herein sometimes called the "Conversion
Date"), and (ii) if conversion takes place under Section 5.1(b), such conversion
shall be deemed to have been made as of the close of business on the Event Date.
5.3 No Shareholder Rights; Representations and Agreements Upon Issuance.
This Note shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Parent, or to any other rights whatsoever except the rights
herein expressed and such as are set forth, and no dividends shall be payable or
accrue in respect of this Note or the interest represented hereby or the Parent
Stock purchasable hereunder until or unless, and except to the extent that, the
outstanding principal amount hereof shall be converted. No shares of Parent
Stock can or will be issued upon conversion until the Holder becomes a party to
a Shareholders' Agreement in the form required by the Parent and gives
appropriate investment representations concerning knowledge about the investment
and acknowledgments of any applicable restrictions on transferability.
ARTICLE VI
Miscellaneous
6.1 No Collection Fees. If this Note is placed in the hands of an
attorney for collection, and if it is collected through any legal proceedings at
law or in equity or in bankruptcy, receivership or other court proceedings, the
Company will not pay any costs or expenses of collection including, but not
limited to, court costs and the reasonable attorney's fees of Holder.
6.2 Consent to Amendments. This Note may be amended, and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, if and only if the Company shall obtain the prior written
consent to such amendment, action or omission to act from the Holder.
6
6.3 Benefits of Note. Nothing in this Note, express or implied, shall
give to any Person, other than the Company, Holder, and their successors any
benefit or any legal or equitable right, remedy or claim under or in respect of
this Note.
6.4 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
6.5 Restrictions on Transfer. This Note shall not be transferable or
assignable in any manner whatsoever; provided that this Note may be assigned by
Holder to the Giammancos, the children of the Giammancos or any other trust
created in favor of the children of the Giammancos so long as the only trustees
under any such trust shall be the Trustees or either of them for so long as this
Note remains outstanding (the only permitted substitution being in the event of
the death or incapacity of both Trustees).
6.6 Waiver; Remedies Exclusive. No failure to exercise and no delay on
the part of Holder in exercising any power or right in connection herewith shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No course of dealing between the Company
and Holder shall operate as a waiver of any right of Holder under this Note. No
modification or waiver of any provision of this Note or any other instrument
evidencing, securing, or guaranteeing this Note nor any consent to any departure
therefrom shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is to be sought, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. All rights and remedies of Holder existing
hereunder are exclusive and not cumulative of any rights or remedies otherwise
available thereto.
6.7 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, or by telefax with confirmed receipt, to the
following addresses: if to the Company, 650 First City Tower, ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Fax 713/▇▇▇-▇▇▇▇ or at any other address designated by the
Company in writing to Holder; if to Holder, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Fax 818/▇▇▇-▇▇▇▇ or at any other address
designated by Holder to the Company in writing
6.8 Separability Clause. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
6.9 Governing Law. This Note shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
7
6.10 Usury. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (referred to as "Applicable Law"). The
Holder shall have no right to claim, to charge or to receive any interest in
excess of the maximum rate of interest, if any, permitted to be charged on that
portion of the amount representing principal which is outstanding and unpaid
from time to time by Applicable Law. Determination of the rate of interest for
the purpose of determining whether this Note is usurious under Applicable Law
shall be made by amortizing, prorating, allocating and spreading in equal parts
during the period of the actual time of this Note, all interest or other sums
deemed to be interest (referred to in this Section as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
6.11 Arbitration. The arbitration provisions contained in Section 9.15 of
the Purchase Agreement shall govern this Note.
6.12 Antidilution Protection. The Company shall, and shall induce Parent
to, grant to Holder any antidilution protection granted to any other holder of
shares of Parent Stock or of securities, options, warrants or other rights to
acquire, or any other securities convertible into, shares of Parent Stock,
except for antidilution protection previously granted or granted in the future
to institutional investors.
THIS NOTE, ANY AND ALL ADDITIONAL PROMISSORY NOTES, IF ANY, ISSUED BY THE
COMPANY TO HOLDER AND ALL DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION
HEREWITH OR THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANY AND
HOLDER WITH RESPECT TO THE OBLIGATIONS OWED THEREBY TO HOLDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE COMPANY AND HOLDER. PAYMENT OF THIS NOTE IS SUBJECT TO
THE PURCHASE AGREEMENT AND THE SUBORDINATION AGREEMENTS.
8
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC.
A CALIFORNIA CORPORATION
By:_____________________________________________
Name:__________________________________________
Title:_________________________________________
Exhibit A--Calculation of Conversion Price
9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated effective the 19th day
of May, 1997 (the "Effective Date"), is entered into by and between LITIGATION
RESOURCES OF AMERICA-CALIFORNIA, INC., a California corporation (hereinafter
called the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, an individual residing
in the State of California (the "Employee"). The Company may sometimes
hereinafter be referred to as "Employer." The Employer and Employee may
sometimes hereinafter be referred to singularly as a "Party" or collectively as
the "Parties." All capitalized terms not otherwise defined herein shall have
the same meaning as contained in that certain Agreement of Purchase and Sale of
Assets executed effective as of May 19, 1997 (the "Purchase Agreement"), by and
among the Company, ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ doing business as G&G Court
Reporters (the "Giammancos"), ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Trustees of
the ▇▇▇▇▇▇▇▇▇ Family Trust established under Declaration of Trust dated August
21, 1996 governed by the law of the State of California, also doing business as
G & G Court Reporters (the "Trust"), and Litigation Resources of America, Inc.,
a Texas corporation (the "Parent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employee has been an employee of the business known as G&G Court
Reporters ("G&G") and his knowledge of the affairs of the business, particularly
the court reporting business in California, are of great value to the Company;
and
WHEREAS, pursuant to the terms of the Purchase Agreement the Company has
purchased from the Employee and others, and the Employee and others have sold to
the Company, all the Assets of G&G; and
WHEREAS, part of the consideration given to the Employee under the Purchase
Agreement included an agreement by the Company to enter into this Agreement; and
WHEREAS, the Parties would not have entered into the Purchase Agreement
without the execution of this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants, promises
and undertakings herein contained and other consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby undertake and
agree as follows:
1. Employment Term. The Employer hereby employs the Employee commencing
on the Effective Date for a term of six (6) years (the "Employment Term"),
unless
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sooner terminated as hereinafter provided. The term of this Agreement
may be renewed or extended for one or more successive additional one (1) year
terms upon mutual agreement of the Parties at least 90 days prior to the
expiration of the initial term or any such renewal term. Unless otherwise
provided herein, Sections 12 - 26 of this Agreement shall survive the expiration
or termination of this Agreement, for any reason whatsoever. The Employee
accepts such employment and agrees to perform the services specified herein, all
upon the terms and conditions hereinafter stated.
2. Duties. The Employee shall serve as the President of the G&G Division
of the Company and shall report to, and be subject to the general direction and
control of, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or his duly appointed successor (the "Chief
Executive Officer") and the Board of Directors of the Company (the "Board").
The Employee shall perform such management and administrative duties, consistent
with the Employee's position, as are from time to time assigned to the Employee
by the Chief Executive Officer and the Board including developing local,
regional and national customers for the Company and its Affiliates (as defined
below). The Employee also agrees to perform, without additional compensation,
such other services for the Company, and for any parent, subsidiary or affiliate
corporations of the Company and any partnerships in which the Company may from
time to time have an interest (herein collectively called "Affiliates"), as the
Chief Executive Officer or Board shall from time to time specify, if such
services are of the nature commonly associated with the position of a President
of an operating division or company engaged in activities similar to the
activities engaged in by the Company and to perform such other activities as are
consistent with the Employee's past responsibilities as an employee of G & G;
provided, however, that Employee shall under no circumstances be required by the
Company to relocate his primary residence, and provided further, that Employee
shall not be required to engage in any business that is not reasonably related
to the Business of the Company, as hereinafter defined. For purposes of this
Agreement, the "Business of the Company" shall be defined as the current
business of the Company, including, but not limited to, the marketing and
providing of court reporting and litigation support services in the Southern
California area. The term "Company" as used in this Agreement shall be deemed
to include and refer to all such Affiliates. The Employee may, at any time
during the term of this Agreement, perform court reporting services for the
Company, in which case Employee shall be paid an additional amount of
compensation as provided in Section 4(d) hereof.
3. Extent of Service. The Employee shall devote his full business time,
attention and energy to the business of the Employer, and shall not be engaged
in any other business activity during the term of this Agreement. The foregoing
shall not be construed as preventing the Employee from making passive
investments in other businesses or enterprises, if (i) such investments will not
require services on the part of the Employee which would in any material way
impair the performance of his duties under this Agreement, (ii) such other
businesses or enterprises are not engaged in any business competitive with the
business of the Company, and (iii) the Employee has complied with Sections 12
and 13 of this Agreement with respect to each such passive investment.
4. Compensation. As payment for the services to be rendered by the
Employee hereunder during the initial term, the Employee shall be entitled to
receive:
-2-
(a) a salary in the amount of Sixty-Six Thousand Dollars ($66,000.00)
per year effective as of the date hereof, which shall be payable monthly or in
accordance with the payroll policies of the Company in effect from time to
time if such policies provide for payment of salary more frequently than
monthly, until the first to occur of (i) the termination of this Agreement,
(ii) the date upon which the Parent consummates an initial public offering of
shares of its common stock (the "IPO Date"), or (iii) the date upon which
there occurs an Event of Default under Section 3.1 of Note 2 (the "Default
Date"), and such default remains uncured for a period of five (5) days; or
(b) a salary in the amount of One Hundred Ten Thousand Dollars
($110,000.00) per year effective as of the IPO Date through the term of this
Agreement payable monthly or in accordance with the payroll policies of the
Company in effect from time to time if such policies provide for payment of
salary more frequently than monthly; provided that, following a Default Date,
Employee's salary shall be payable in an amount equal to the amount set forth
in this Section 4(b) until the Event of Default under Section 3.1 of Note 2
has been cured; and
(c) a bonus to be calculated in accordance with Schedule A attached
hereto, payable within ninety (90) days after the end of each fiscal year of
the Company (the "Annual Bonus") including, without limitation, the first
fiscal year of the Company; provided, however, that any Annual Bonus
calculated with respect to a fiscal year during which the Employee was
employed for only a part of such year shall be prorated to account for the
number of days during such year in which Employee was employed by the Company;
and
(d) an amount of compensation in accordance with the prevailing rate
that the Company pays to its court reporters for any court reporting services
personally performed by the Employee from time to time, in his discretion, for
the Company.
5. Expenses. During the term of this Agreement, the Employer shall
promptly pay or reimburse the Employee for all reasonable out-of-pocket expenses
for travel, meals, hotel accommodations and similar items incurred by him in
connection with the Business of the Company and approved by the Board or
incurred in accordance with the travel and reimbursement policies of the Company
as the same shall be in effect from time to time, upon submission by him of an
appropriate statement documenting such expenses. The Company shall also pay the
Employee an automobile allowance in the amount of $600.00 per month.
6. Employee Benefits. During the term of this Agreement, the
Employee shall be entitled to participate in all employee benefit plans from
time to time made generally available to the executive employees of the Company
and the Parent, including any stock option plan, retirement plan, profit-sharing
plan, group life plan, health or accident insurance or other employee
-3-
benefit plans as the same shall be maintained in effect, as determined by the
Board and the Parent. Until the Company is able to procure its own insurance
coverage, the Company agrees to continue the prior insurance previously provided
to the Employee by G&G. The Employer will use commercially reasonably efforts to
assist Employee in procuring insurance coverage for any preexisting conditions.
7. Vacation. During the term of this Agreement, the Employee shall
be entitled to annual vacation time determined in accordance with the vacation
policies of the Company in effect from time to time but not less than four (4)
weeks per year, during which time his compensation shall be paid in full.
Unused vacation time shall not accrue from year to year, unless otherwise
required by law.
8. Covenants of Employee. For and in consideration of the
employment herein contemplated and the consideration paid or promised to be paid
by the Company, the Employee does hereby covenant, agree and promise that during
the term hereof and thereafter to the extent specifically provided in this
Agreement:
(a) Except as otherwise specifically permitted by this Agreement,
during the term of this Agreement, Employee will not actively engage, directly
or indirectly, in any other business other than that of Company, except at the
direction or approval of the Company.
(b) The Employee will use his best reasonable efforts to truthfully
and accurately make, maintain and preserve all records and reports that the
Company may from time to time request or require.
(c) The Employee will fully account for all money, records, and other
property belonging to the Company of which the Employee has custody, and will
pay over and deliver same promptly whenever and however he may be reasonably
directed to do so by the Company.
(d) The Employee will obey all rules, regulations and special
instructions of the Company applicable to him, following receipt of notice
thereof, and will take no action which can reasonably be expected to undermine
or compromise the Company and the Business.
(e) The Employee will make available to the Company any and all of the
information of which he has knowledge relating to the Business or the Company.
(f) The Employee agrees that upon termination of his employment
hereunder he will immediately surrender and turn over to the Company all
books, records, forms, specifications, formulae, data, processes, papers and
writings related
-4-
to the Business of the Company and all other property belonging to the
Company, together with all copies of the foregoing, it being understood and
agreed that the same are the sole property of the Company.
(g) The Employee agrees that all ideas, concepts, processes,
discoveries, devices, machines, tools, materials, designs, improvements,
inventions and other things of value relating to the Business of the Company
(hereinafter collectively referred to as "intangible rights"), whether
patentable or not, which are conceived, made, invented or suggested by him
alone or in collaboration with others during the term of his employment, and
whether or not during regular working hours, shall be promptly disclosed in
writing to the Company and shall be the sole and exclusive property of the
Company. The Employee hereby assigns all of his right, title and interest in
and to all such intangible rights to the Company, and its successors or
assigns. In the event that any of such intangible rights shall be deemed by
the Company to be patentable or otherwise registerable under any federal,
state or foreign law, the Employee further agrees that, at the expense of the
Company, he will execute all documents and do all things reasonably necessary,
advisable or proper to obtain patents therefor or registration thereof, and to
vest in the Company full title thereto.
9. Mutual Covenants of the Company and the Employee. For and in
consideration of the employment herein contemplated and the compensation,
covenants, conditions and promises herein recited, the Company and the Employee
do hereby mutually agree that during the term hereof:
(a) The Employee shall not, by reason of this Agreement, have any
vested interest in, or right, title or claim to, any land, buildings,
equipment, machinery, processes, systems, products, contracts, goods, wares,
merchandise, business assets or other things of value belonging to or which
may hereafter be acquired or owned by the Company.
(b) In carrying out his duties as President of the G&G Division of the
Company, the Employee shall primarily be responsible for making day-to-day
decisions in the ordinary course of business of the Company, subject to
possible review by the Chief Executive Officer and/or the Board. The Company
plans, properties, contracts, methods, and policies shall be vested in the
Board and the Company may, in its sole and absolute discretion, give, sell,
assign, transfer or otherwise dispose of any or all of its assets or
businesses in whole or in part, to any person, firm or corporation, whether or
not such person, firm or corporation is in any manner owned by or associated
with or affiliated with the Company.
-5-
(c) The Employee acknowledges that because of the nature of the
position for which he has been employed, the Employee may be called upon to
perform such duties and render such services as are required of him hereunder
irregularly, and agrees to perform to the best of his abilities such duties as
the business may reasonably demand, and acknowledges that the number of hours
per day or per week may vary. Notwithstanding the foregoing, the Employee
shall work in a manner that is consistent with his prior customary practice on
behalf of G&G.
(d) The Company agrees that it will not terminate any employee of the
Company without giving prior notification of such termination to the Employee.
10. Termination of Employment for Cause. The Employer may terminate
the employment of the Employee if the Employer suffers or may reasonably be
expected to suffer any material adverse effect as a result of the Employee (any
such termination being a termination for "Cause"):
(a) Breaching any material provision of this Agreement and failing to
cure such breach within thirty (30) days after receipt of written notice
thereof;
(b) Misappropriating funds or property of the Company;
(c) Securing any personal profit not thoroughly disclosed to and
approved by the Company in connection with any transaction entered into on
behalf of the Company;
(d) Engaging in conduct, even if not in connection with the
performance of his duties hereunder, which would reasonably be expected to
result in a material adverse effect to the interest of the Company if he was
retained as an employee, such as his commission of a felony or a crime of
moral turpitude;
(e) Becoming and remaining "Disabled," as hereinafter defined (either
physically, mentally or otherwise) for a period of one hundred thirty-five
(135) days during any consecutive twelve-month time period;
(f) Failing to carry out and perform the duties assigned to the
Employee in accordance with the terms hereof and failing to cure such breach
within thirty (30) days after written notice thereof; or
(g) Failing to comply with corporate policies of the Company that
are promulgated from time to time and made known to Employee and failing to
cure such breach within thirty (30) days after written notice thereof.
-6-
In the event of the death of the Employee, such occurrence shall
immediately constitute a termination for Cause. Except as provided in item (e)
above, no termination for Cause shall be effective if the Employee is Disabled.
In the event the Employee is terminated for Cause because he is
Disabled, the Employee may be permitted to participate in any disability
insurance policy the Company then has in effect.
In the event of termination of his employment for Cause, the Employee
shall be entitled to receive his compensation, as determined in Section 4 of
this Agreement, due or accrued on a pro rata basis to the date of termination.
Any salary or remuneration owed as of the date of termination shall be paid less
the amount of damages, if any, caused to the Company by such breach, but no such
damages offset shall extend beyond any compensation due and owing under this
Agreement.
Notwithstanding the cure provisions provided in Sections 10(a), 10 (f)
and 10(g), the Employee shall not have the opportunity to cure any violation of
these subsections if such violation cannot reasonably be expected to be cured.
In such event, the Company shall be required to furnish the Employee notice of
the violation, but the Employee shall not be furnished an opportunity to cure.
"Disabled" shall mean the continuous inability, whether mental or
physical, of Employee to perform his normal job functions as determined by at
least two of three medical physicians selected as follows: the Employee or his
legal designee shall be entitled to appoint one physician, the Company shall be
entitled to appoint one physician, and such two appointed physicians shall
mutually appoint a third physician. Notwithstanding the foregoing, the
Employee, or his designee, and the Company may mutually agree that he is
"Disabled" within the meaning of this Agreement.
11. Termination By the Company Without Cause or By the Employee With
Good Reason. The Company may not terminate the employment of Employee for any
reason other than those for Cause during the first year of the Employment Term.
After such time, the Company may terminate the employment of Employee for any
reason other than those for Cause, in which event such termination shall be
deemed a "Termination Without Cause," provided that the Employee shall be
furnished thirty (30) days notice of the reason for such termination and an
opportunity to cure within the thirty-day period. Notwithstanding the cure
provisions provided in the preceding sentence, the Employee shall not have the
opportunity to cure the reason for such termination if such reason cannot
reasonably be expected to be cured but the Company shall still furnish notice to
the Employee. In addition, the Employee shall have the right to terminate this
Agreement for any material breach of this Agreement by the Company, which shall
include but not be limited to materially changing the duties assigned to
Employee beyond those contemplated in Section 2 of this Agreement or causing
Employee to relocate his primary residence in violation of Section 2 of this
Agreement; provided that the Company shall be furnished thirty (30) days notice
of such breach and
-7-
an opportunity to cure (any such termination constituting a "Termination By
Employee With Good Reason"). Notwithstanding the cure provisions provided in the
preceding sentence, the Company shall not have the opportunity to cure any
violation of this Agreement if such violation cannot reasonably be expected to
be cured but the Employee shall still furnish notice to the Company. In the
event of a Termination Without Cause or a Termination with Good Reason by the
Employee after the end of the first year of the Employment Term, the Company
shall continue making payments to Employee in an amount equal to the
compensation of the Employee, as determined in Section 4 of this Agreement, as
if he were still employed for a period equal to the lesser of (i) twenty-four
(24) months, or (ii) the remaining term of this Agreement. In the event of a
Termination Without Cause or a Termination By Employee With Good Reason after
the end of the first year of the Employment Term, the amounts referred to in the
preceding sentence shall constitute the full and total amount of liquidated
damages that the Employee shall be entitled to receive from the Company and its
Affiliates for any contractual or tort claims arising out of his employment
relationship with the Company.
12. Covenant Not to Compete. The Employee recognizes that the
Employer has business goodwill and other legitimate business interests which
must be protected in connection with and in addition to the Information (as
defined hereinafter), and therefore, in exchange for access to the Information,
the specialized training and instruction which the Company will provide, the
Company's agreement to employ the Employee on the terms and conditions set forth
herein, the Company's agreement to execute and consummate the Purchase
Agreement, and the promotion and advertisement by the Company of Employee's
skill, ability and value in the Company's business, subject to the provisions of
the next full paragraph of this Section 12, the Employee agrees that in the
event (i) Employee is terminated for Cause, or (ii) Employee leaves the employ
of the Company other than a Termination By Employee With Good Reason prior to
expiration of the term of the Agreement, or (iii) upon the expiration of the
term of this Agreement, then for a period of the latest date of (i) five (5)
years after the date of this Agreement, or (ii) three (3) years after the date
employment is so terminated:
(a) Employee will not in any capacity or relationship enter into,
engage in, or be connected with any business or business operation or activity
within a fifty (50) mile radius of any office location then operated by the
Employer at the time of such termination, which consists in whole or in part
of the Business of the Company; and
(b) Employee will not call upon any customer whose account is
serviced in whole or in part by the Employer or its Affiliates at the time of
the termination of Employee's employment, with the purpose of selling or
attempting to sell to any such customer any services included within that
offered by the Employer or its Affiliates; and
-8-
(c) Employee will not intentionally divert, solicit or take away any
customer, supplier or employee of the Employer or its Affiliates, or the
patronage of any customer or supplier of the Employer or its Affiliates, or
otherwise interfere with or disturb the relationship existing between the
Employer or its Affiliates and any of their respective customers, suppliers or
employees, directly or indirectly.
In addition, the foregoing restrictive covenants shall also apply to
the Employee in the event of his Termination Without Cause or in the event of
Termination By Employee With Good Reason by the Employee, but only for so long
as the Company is making payments to the Employee as required by Section 11
herein.
Notwithstanding anything to the contrary contained herein, (x) the
Employee shall be permitted to own up to five percent (5%) of the issued and
outstanding shares of stock of any publicly traded company on a passive basis
and to personally perform court reporting services for the Company, without
violating the provisions contained in this Section 12, (y) the Employee shall be
permitted to personally perform court reporting services only as a sole
practitioner and freelance court reporter for parties other than the Company
("Third Parties") so long as the Employee does not refer court reporting
business to such Third Parties, does not perform such services as an employee of
any Third Parties, does not have management or administrative responsibilities
for any Third Parties and does not solicit or accept court reporting jobs from
Clients (as defined below) of the Company, without violating the provisions of
this Section 12, and (z) the provisions of this Section 12 shall be null and
void if the Company fails to timely pay, subject to a thirty (30) day cure
period after receipt of written notice, the Employee any amounts due and owing
to the Employee under this Agreement, including without limitation, the amounts
due under Section 11. As used herein, the term "Clients" shall mean (i)
Customers (as defined in the Purchase Agreement) who have generated $7,500 or
more in revenues for G&G as reflected on postclosing Schedule 3.23 to the
Purchase Agreement during the period covered by such schedule and (ii) any other
customer of the Business who has generated $7,500 or more in revenues for the
Business during the 12-month period ending with the date of termination of the
Employee's employment with the Company.
In the event the Company ceases operation of the Business of the
Company other than in a merger, consolidation, or similar transaction, or upon
the filing of a bankruptcy or receivership proceeding against the Employer, or
upon the appointment of a liquidator for the Company, the provisions of this
Section 12 shall not be applicable to the conduct of Employee subsequent
thereto.
It is mutually understood and agreed that if any of the provisions
relating to the scope, time or territory in this Section 12 are more extensive
than is enforceable under applicable laws or are broader than necessary to
protect the good will and legitimate business interests of the Company, then the
Parties agree that they will reduce the degree and extent of such provisions by
whatever minimal amount is necessary to bring such provisions within the ambit
of enforceability under applicable law.
-9-
The Parties acknowledge that the remedies at law for breach of
Employee's covenants contained in this Section 12 are inadequate, and they agree
that the Company shall be entitled, at its election, to injunctive relief
(without the necessity of posting bond against such breach or attempted breach),
and to specific performance of such covenants in addition to any other remedies
at law or equity that may be available to the Company.
13. Business Opportunities. Except for (i) passive investments by
the Employee in publicly traded entities, or investments in private ventures
which do not compete with, or are not in the same business as, the Company and
which come to the attention of the Employee outside of the scope of his
employment and (ii) any court reporting services which Employee personally
performs from time to time on behalf of the Company, for as long as the Employee
shall be employed by the Company and thereafter with respect to any business
opportunities learned about during the time of Employee's employment by the
Company, the Employee agrees that with respect to any future business
opportunity or other new and future business proposal which is offered to, or
comes to the attention of, the Employee and which is in any way related to, or
connected with, the Business of the Company, the Company shall have the right to
take advantage of such business opportunity or other business proposal for its
own benefit. The Employee agrees to promptly deliver notice to the Board in
writing of the existence of such opportunity or proposal and the Employee may
take advantage of such opportunity only if the Employer does not elect to
exercise its right to take advantage of such opportunity.
14. Confidential Information. The Employee acknowledges that in the
course of his employment with the Company, he will receive certain trade
secrets, know-how, lists of customers, employee records and other confidential
information and knowledge concerning the Business of the Company (hereinafter
collectively referred to as "Information") which the Company desires to protect.
The Employee understands that such Information is confidential and he agrees
that he will not reveal such Information to anyone outside the Company except
(i) for information already known to the public, now or in the future, or (ii)
in connection with any legal proceeding regarding this Agreement, the Purchase
Agreement or the transactions contemplated thereby or as otherwise required by
law or judicial order. The Employee further agrees that during the term of this
Agreement and thereafter he will not use such Information in competing with the
Company. Upon termination of his employment hereunder, the Employee shall
surrender to the Company all papers, documents, writings and other property
produced by him or coming into his possession by or through his employment
hereunder and relating to the information referred to in this Section 14, which
are not general knowledge in the industry, and the Employee agrees that all such
materials will at all times remain the property of the Company.
15. Notices. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally with a written receipt
acknowledging delivery or telefaxed with receipt confirmed, or three (3)
business days after the posting thereof by United States first class, registered
or certified mail, return receipt requested, with postage fee prepaid and
addressed as follows:
-10-
If to the Company: Litigation Resources of America-California, Inc.
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telefax:(▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to the Employee: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telefax:(▇▇▇) ▇▇▇-▇▇▇▇
Any Party may change its address for notice hereunder by providing written
notice of such change to the other Party hereto.
16. Specific Performance. The Employee acknowledges that a remedy at
law for any breach or attempted breach of Sections 12, 13 or 14 of this
Agreement will be inadequate, the Employee agrees that the Company shall be
entitled to specific performance and injunctive and other equitable relief in
case of any such breach or attempted breach, and further agrees to waive any
requirement for the securing or posting of any bond in excess of $50,000 in
connection with the obtaining of any such injunctive or any other equitable
relief.
17. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such provision or invalidity only, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
18. Assignment. This Agreement may not be assigned by the Employee.
Neither the Employee, his spouse nor their estates shall have any right to
encumber or dispose of any right to receive payments hereunder, it being
understood that such payments and the right thereto are nonassignable and
nontransferable; provided, however in the event of the death of Employee, any
payments that Employee is entitled to receive may be assigned to the
beneficiaries of the Employee's estate.
19. Binding Effect. Subject to the provisions of Section 18 of this
Agreement, this Agreement shall be binding upon and inure to the benefit of the
Parties hereto, the Employee's heirs and personal representatives, and the
successors and assigns of the Company.
20. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of California.
-11-
21. Prior Employment Agreements. Employee represents and warrants to
the Company that he has fulfilled all of the terms and conditions of all prior
employment agreements to which he may be or have been a party, and at the time
of execution of this Agreement is not a party to any other employment agreement.
22. Parole Evidence. This Agreement and any letter agreement
executed of even date herewith constitute the complete agreement between the
Parties hereto with respect to the subject matter hereof, and no verbal or other
statements, inducements or representations have been made to or relied upon by
either Party, and no modification hereof shall be effective unless in writing
signed and executed in the same manner as this Agreement, provided, however, the
amount of compensation to be paid Employee for services to be performed for
Company may be changed from time to time by the Parties hereto by written
agreement without in any other way modifying, changing or affecting this
Agreement and the performance by the Employee of any of the duties of his
employment with the Company.
23. Waiver. Any waiver to be enforceable must be in writing and
executed by the Party against whom the waiver is sought to be enforced.
24. Arbitration. If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if such dispute cannot be settled through
negotiation, the Parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, litigation, or some other dispute
resolution procedure as required by this Section 24. Failing an adequate
resolution by mediation, any controversy or claim arising out of or relating to
this Agreement or the transactions contemplated hereby, including any
controversy or claim arising out of or relating to the Parties' decision to
enter into this Agreement, shall be settled by binding arbitration. There shall
be one arbitrator to be mutually agreed upon by the Parties involved in the
controversy and to be selected from the National Panel of Commercial Arbitrators
(or successor panel, if any). If within 45 days after service of the demand for
arbitration the Parties are unable to agree upon such an arbitrator who is
willing to serve, then an arbitrator shall be appointed by the American
Arbitration Association in accordance with its rules. Except as specifically
provided in this Section 24, the arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator shall not render an award of punitive damages. Any arbitration
hereunder shall be held in Los Angeles, California. Expenses related to the
arbitration, including counsel fees, shall be borne by the Party incurring such
expenses except to the extent otherwise provided in Section 25 herein. The fees
of the arbitrator and of the American Arbitration Association, if any, shall be
divided equally among the Parties involved in the controversy. Judgment upon
the award rendered by the arbitrator (which may, if deemed appropriate by the
arbitrator, include equitable or mandatory relief with respect to performance of
obligations hereunder) may be entered in any court of competent jurisdiction.
The arbitrator shall award the prevailing Party in any arbitration proceeding
recovery of its attorneys' fees, the arbitrators' fees and other costs in
connection with the arbitration from the non-prevailing Party.
-12-
25. Attorney's Fees. If any litigation is instituted to enforce or
interpret the provisions of this Agreement or the transactions described herein,
the prevailing Party in such action shall be entitled to recover its reasonable
attorneys' fees and other costs from the other Party hereto.
26. Drafting. All Parties hereto acknowledge that each was actively
involved in the negotiation and drafting of this Agreement and that no law or
rule of construction shall be raised or used in which the provisions of this
Agreement shall be construed in favor or against any Party hereto because one is
deemed to be the author thereof.
27. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date and year first above written.
THE COMPANY:
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation
By: _______________________________________
Name:_________________________________
Title:__________________________________
THE EMPLOYEE:
_______________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-13-
SCHEDULE A
CALCULATION OF ANNUAL BONUS
Each year the accountants regularly employed by the Company shall
determine the amount of Net Profit, if any, of the G&G Division of the Company
during each consecutive twelve (12) month time period ending on the last day of
the fiscal year of the Company ("Annual Profits"), commencing with the first
fiscal year of the Company and continuing each year during the term of this
Agreement. Beginning with the first fiscal year of the Company, to the extent
that the Annual Profits of the current year exceed the Annual Profits of the
prior year, the Employee shall be paid an annual bonus equal to ten percent
(10%) of the amount of such excess, if any; provided that for the first fiscal
year of the Company (A)(i) the Annual Profits shall be calculated for each full
month of operations and added together, (ii) the Annual Profits for any partial
month of operations shall be divided by the number of actual days in such month
and multiplied by 30 to create a full month and (iii) the sum of (A)(i) and
(A)(ii) shall be added together, that result divided by the number of full and
partial months of operations and the quotient multiplied by 12 to create the
number representing Annual Profits for the first fiscal year and (B) the Annual
Profits of the prior year shall be deemed to be $366,000. For purposes of this
calculation, "Net Profit" shall mean earnings before income taxes, interest,
depreciation and amortization.
▇▇▇▇ OF SALE,
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ▇▇▇▇ OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT (this "▇▇▇▇ of
Sale") is entered into effective as of May 19, 1997, among ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ AND
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, individuals who are husband and wife residing in the State of
California doing business as G & G COURT REPORTERS (the "Giammancos") and ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ AND ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, TRUSTEES OF THE ▇▇▇▇▇▇▇▇▇ FAMILY TRUST
established under Declaration of Trust dated August 21, 1996 governed by the law
of the State of California, also doing business as G & G COURT REPORTERS (the
"Trust") (the Giammancos and the Trust are herein collectively referred to as
"Seller"), and LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., a California
corporation ("Purchaser"). Purchaser and Seller may be hereinafter sometimes
referred to collectively as the "Parties" or individually as a "Party." All
defined terms not otherwise defined herein shall have the meanings ascribed to
them in that certain Agreement of Purchase and Sale of Assets of even date
herewith (the "Agreement"), executed among Seller, Purchaser and Litigation
Resources of America, Inc., a Texas corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser has agreed to purchase from Seller, and Seller has
agreed to grant, bargain, sell, convey, transfer, assign and deliver to
Purchaser, the Assets; and
WHEREAS, as partial consideration for the sale and assignment of the
Assets, Purchaser has agreed to assume the Assumed Liabilities, on and subject
to the terms and conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the delivery to Seller of the Purchase Price,
the receipt and sufficiency of which are hereby acknowledged, Purchaser and
Seller hereby agree as follows:
1. SALE AND ASSIGNMENT. Seller has granted, bargained, sold, conveyed,
transferred, assigned and delivered, and by these presents does grant, bargain,
sell, convey, transfer, assign and deliver unto Purchaser, its successors and
assigns, the Assets. Seller warrants that Seller is the lawful owner in every
respect of all of the Assets and that the Assets are free and clear of any and
all liens, security agreements, encumbrances, claims, demands, and charges of
every kind and character whatsoever other than as previously disclosed in
writing to Purchaser Seller hereby binds Seller and Seller's successors and
assigns to warrant and defend the title to all of the Assets unto Purchaser and
Purchaser's successors and assigns forever against every person whomsoever
lawfully
claiming or to claim the Assets or any part thereof. Purchaser hereby
accepts the conveyance, transfer, assignment and delivery of the Assets.
2. ASSUMPTION. Subject to the exceptions and exclusions of Section 2.6 of
the Agreement, and otherwise on and subject to the terms and conditions of the
Agreement, Purchaser hereby assumes and agrees to pay and perform the Assumed
Liabilities.
3. FURTHER ACTIONS. Seller hereby consents and agrees to any lawful
action taken by Purchaser in connection with the enforcement of, or the legal
protection of, the Assets, and confers upon Purchaser full right of substitution
in any and all such actions. Seller further covenants and agrees to execute
such further documents and take such additional actions as may reasonably be
requested by Purchaser to vest in Purchaser any and all of the Assets and
otherwise to effectuate the intent of this ▇▇▇▇ of Sale. Each of the Parties
shall perform such actions and deliver or cause to be delivered any and all such
documents, instruments and agreements as the other Party may reasonably request
for the purpose of fully and effectively carrying out this Agreement and the
transactions contemplated hereby.
4. GOVERNING LAW; JURISDICTION; VENUE; SERVICE. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Texas, without regard to conflicts of law principles, and the laws of the
United States applicable in Texas. Venue for any litigation between the Parties
hereto with respect to the subject matter of this Agreement shall be ▇▇▇▇▇▇
County, Texas. Each Party hereby irrevocably submits to personal jurisdiction
in Texas. Each Party hereby waives all objections to personal jurisdiction in
Texas and venue in ▇▇▇▇▇▇ County for purposes of such litigation. Each Party
waives summons or citation and agrees that delivery of a duly filed complaint or
petition as provided in the notice section of this Agreement will suffice as
substitute service of summons or citation.
5. MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only by written instrument signed by all of the Parties.
6. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement, and the documents,
instruments and agreements executed in connection herewith, set forth the entire
agreement and understanding between the Parties with respect to the subject
matter hereof and thereof. This Agreement shall be binding upon and shall inure
to the benefit of the Parties and their respective successors and assigns.
7. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall have the force and effect of an original, and all of which
together shall constitute one and the same agreement.
EXECUTED AND DELIVERED EFFECTIVE as of the date first written above.
2
PURCHASER:
LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation
By:_________________________________________
Name:__________________________
Title:___________________________
SELLER:
GIAMMANCOS:
____________________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Individually
____________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Individually
TRUST:
By:_____________________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as a Trustee of the ▇▇▇▇▇▇▇▇▇
Family Trust established under Declaration of Trust
dated August 21, 1996 governed by the law of the
State of California
By:_____________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as a Trustee of the ▇▇▇▇▇▇▇▇▇
Family Trust established under Declaration of Trust
dated August 21, 1996 governed by the law of the
State of California
3
CONTINGENT STOCK PLEDGE AGREEMENT
THIS CONTINGENT STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is
made effective as of the 19th day of May, 1997, by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ AND ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, individuals who are husband and wife (referred to in their individual
capacities as the "Giammancos") acting both individually and in their capacities
as the Trustees (referred to in their trustee capacities as the "Trustees") of
the ▇▇▇▇▇▇▇▇▇ FAMILY TRUST (the "Trust") established under Declaration of Trust
dated August 21, 1996 governed by the law of the State of California (the Trust
being hereinafter called the "Pledgor") and LITIGATION RESOURCES OF AMERICA-
CALIFORNIA, INC., a California corporation ("Secured Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor, the Giammancos, Litigation Resources of America, Inc., a
Texas corporation ("Parent"), and Secured Party have entered into an Agreement
of Purchase and Sale of Assets of even date herewith (the "Purchase Agreement"),
pursuant to which Pledgor and the Giammancos have sold to Secured Party
substantially all of the assets involved in the business of Pledgor and the
Giammancos known as G&G Court Reporters ("G&G"); and
WHEREAS, Pledgor and the Giammancos have certain obligations under the
Purchase Agreement, including, but not limited to, the obligation of Pledgor and
the Giammancos to indemnify Secured Party for any breaches of representations
and warranties of Pledgor and the Giammancos contained in the Purchase
Agreement; and
WHEREAS, pursuant to the terms of the Purchase Agreement and Note 1 and
Note 2 (as defined in the Purchase Agreement), the Pledgor has the right to
convert at certain times sums due under Note 1 and Note 2 into shares of the
common stock, $.01 par value (the "Parent Stock"), of Parent, on the terms and
conditions contained in Note 1 and Note 2; and
WHEREAS, the terms of the Purchase Agreement provide for the Pledgor to
pledge the Parent Stock to the Secured Party to partially secure the obligations
of Pledgor and the Giammancos under the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows (all capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Purchase
Agreement):
1. Pledge of Parent Stock. Pledgor hereby pledges and grants to Secured
Party a security interest in the Parent Stock, which shall attach immediately
upon each issuance of Parent Stock to all shares of Parent Stock issued to
Pledgor in accordance with Note 1 or Note 2. Immediately upon
-1-
receipt of any shares of Parent Stock, Pledgor shall be required to deliver to
Secured Party the certificate or certificates representing the Parent Stock in
order that Secured Party might perfect its security interest therein. The
Pledgor and the Secured Party hereby acknowledge and agree that the value of the
Parent Stock shall be deemed to be $7.56 per share of Parent Stock; provided,
however, that if the Parent has successfully consummated a public offering of
its shares of Parent Stock, then it shall mean the average public trading price
of each share of Parent Stock over the five (5) most recent business days
falling prior to the date of delivery by the Secured Party/Buyer to the
Pledgor/Seller of the notice of Offset Claim, as such term is defined in the
Purchase Agreement (the "Agreed Value"). Pledgor shall possess all voting rights
pertaining to the Parent Stock, so long as an Event of Offset, as hereinafter
defined in this Pledge Agreement, has not occurred, or if an Event of Offset has
allegedly occurred but is being disputed by the parties hereto prior to
submission to arbitration in accordance with Section 9.11 of the Purchase
Agreement, and Secured Party shall have no voting rights that may be presently
or hereafter attributable to the Parent Stock. In addition, so long as an Event
of Offset has not occurred, or if an Event of Offset has allegedly occurred but
is being disputed by the parties hereto prior to submission to arbitration in
accordance with Section 9.11 of the Purchase Agreement, then Pledgor shall have
the right to receive all dividends, if any, on the Parent Stock, and Pledgor
shall be entitled to receive all proceeds upon liquidation of the Parent Stock,
if any, as well as all other rights with respect to the Parent Stock except for
the right to transfer title thereto. Notwithstanding the foregoing, if an Event
of Offset has occurred and (i) has been resolved, either by failure to timely
dispute it as required by Section 9.11 of the Purchase Agreement, by agreement
or by arbitration decided in favor of Secured Party (a "Resolved Event of
Offset") or (ii) has been submitted to arbitration in accordance with Section
9.11 of the Purchase Agreement which arbitration is still pending or in process
(a "Continuing Event of Offset"), then Secured Party shall have the right to
designate a representative or trustee to vote those shares of Parent Stock
covered by or subject to the Resolved Event of Offset or Continuing Event of
Offset (the "Offset Shares"), to receive all dividends and liquidation proceeds
with respect to the Offset Shares, and to receive all other rights with respect
to the Offset Shares.
2. Representations and Warranties. Pledgor hereby represents, warrants
and covenants to and with Secured Party that:
(a) Pledgor will not, without the written consent of Secured Party,
sell, contract to sell, encumber, or dispose of the Parent Stock or any
interest therein until this Pledge Agreement and all obligations under the
Purchase Agreement have been fully satisfied.
(b) No consent of any party is necessary for Pledgor to perform its
obligations hereunder, or if any such consent is required, such consent has
been received prior to the execution of this Pledge Agreement.
3. Event of Offset. Each delivery by Secured Party/Buyer to the
Pledgor/Seller of a notice of Offset Claim shall constitute an Event of Offset
("Event of Offset") under this Pledge Agreement.
-2-
4. Remedies.
(a) Upon the occurrence of a Resolved Event of Offset, Secured Party
may, at its option, exercise with reference to the Parent Stock any and all
of the rights and remedies of a secured party under the Uniform Commercial
Code as adopted in the State of Texas and as otherwise granted therein or
under any other applicable law or under any other agreement executed by
Pledgor, including, without limitation, the right and power to sell, at
public or private sale(s), or otherwise dispose of or keep the Parent Stock
and any part or parts thereof, or interest or interests therein owned by
Pledgor, in any manner authorized or permitted under this Pledge Agreement
or under the Uniform Commercial Code, and to apply the proceeds thereof
toward payment of any costs and expenses and attorneys' fees and legal
expenses thereby incurred by Secured Party, and toward payment of the
obligations under the Purchase Agreement in such order or manner as Secured
Party may elect. Notwithstanding anything to the contrary contained
herein, the Secured Party shall only foreclose on that portion of the
Parent Stock that is reasonably necessary in the reasonable good faith
judgment of the Secured Party in order to satisfy the amount of the claim
constituting the Resolved Event of Offset. For purposes hereof, the Agreed
Value of the Parent Stock shall be deemed to be the value that the Secured
Party is receiving on the foreclosure of the Parent Stock and Secured Party
shall not be entitled to foreclose on more Parent Stock than is necessary
to recover all of its damages resulting from the Resolved Event of Offset.
(b) Secured Party is hereby granted the right, at its option, after a
Continuing Event of Offset, to transfer at any time to itself or its
nominee the securities or other property hereby pledged, or any part
thereof, and to thereafter exercise all voting rights with respect to such
Parent Stock so transferred and to receive the proceeds, payments, monies,
income or benefits attributable or accruing thereto and to hold the same as
security for the obligations hereby secured, or at Secured Party's
election, to apply such amounts to the obligations, only if due, and in
such order as Secured Party may elect or Secured Party may, at its option,
without transferring such securities or property to its nominee, exercise
all voting rights with respect to the securities pledged hereunder and vote
all or any part of such securities at any regular or special meeting of
shareholders.
(c) Pledgor hereby agrees to cooperate fully with Secured Party in
order to permit Secured Party to sell, at foreclosure or other private
sale, Pledgor's interest in the Parent Stock pledged hereunder as provided
in this Pledge Agreement. Specifically, Pledgor agrees to deliver to
Secured Party the certificate or certificates representing the Parent Stock
if Pledgor has possession at that time, to fully comply with the securities
laws of the United States and of the State of Texas and to take such other
action as may be necessary to permit Secured Party to sell or otherwise
transfer the securities pledged hereunder in compliance with such laws.
5. Termination. This Pledge Agreement shall continue as security for the
payment or satisfaction of the obligations under the Purchase Agreement until
the earliest to occur of (i) termination of the Purchase Agreement, (ii)
termination of this Pledge Agreement by written notice
-3-
of the Secured Party to the Pledgor, or (iii) three (3) years after the date of
this Pledge Agreement, provided that no Continuing Event of Offset exists. If
such a Continuing Event of Offset exists, the pledge shall continue only to the
extent of the amount of Parent Stock (based on the Agreed Value) equal to the
amount of Damages claimed in the Offset Claim or the amount of damages
reasonably expected to be caused by the Event of Offset, as applicable.
Notwithstanding anything to the contrary contained herein, (A) 1/3 of the shares
of Parent Stock then subject to this Pledge Agreement shall be released from
this Pledge Agreement and returned to the Pledgor, so long as there is not a
Continuing Event of Offset pending against Pledgor under the Purchase Agreement,
on the earlier to occur of (I) six (6) months after consummation of a public
offering of Parent Stock or (II) two (2) years after the effective date of this
Pledge Agreement and (B) 1/3 of the shares of Parent Stock then subject to this
Pledge Agreement shall be released from this Pledge Agreement and returned to
the Pledgor, so long as there is not a Continuing Event of Offset pending
against Pledgor under the Purchase Agreement two (2) years after the effective
date of this Pledge Agreement. If a Continuing Event of Offset is pending
against Pledgor under the Purchase Agreement, the action described in the
immediately preceding sentence shall be taken immediately at the time that such
Continuing Event of Offset is resolved, except that the computation of 1/3 of
the shares of Parent Stock then subject to the Pledge Agreement shall be made as
of the time of such resolution.
6. Release from Pledge. Upon the termination of this Pledge Agreement,
Secured Party shall immediately release its security interest in the Parent
Stock. In addition, Secured Party shall deliver the certificate or certificates
representing the Parent Stock to Pledgor if Secured Party has possession of such
certificates at that time. Upon such occurrence, the security interest of
Secured Party shall automatically terminate and Secured Party shall thereafter
have no interest whatsoever in the Parent Stock.
7. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
-4-
If to Pledgor: ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Trustees
The ▇▇▇▇▇▇▇▇▇ Family Trust
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇. ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to the
Secured Party: Litigation Resources of America-California, Inc.
650 First City Tower, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Copy to: ▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ Incorporated
Nine ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
8. Successors. This Pledge Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their successors and assigns. Any
assignee whatsoever will be bound by the obligations of the assigning party
under this Pledge Agreement, and any assignment shall not diminish the liability
or obligation of the assignor under the terms of this Pledge Agreement unless
otherwise agreed.
9. Severability. In the event that any one or more of the provisions
herein, shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Pledge Agreement or any such other
instrument.
10. Paragraph Headings. The paragraph headings used herein are
descriptive only and shall have no legal force or effect whatsoever.
11. Gender. Whenever the context so requires, the masculine shall include
the feminine and neuter, and the singular shall include the plural and
conversely.
12. Survival of Warranties. All representations, warranties, and
agreements made by the parties in this Pledge Agreement or in any certificates
delivered pursuant hereto will survive the execution date hereof.
13. Applicable Law. This Pledge Agreement shall be construed and
interpreted in accordance with the laws of the United States of America and the
State of Texas, and is intended to be performed in accordance with and as
permitted by such laws.
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14. Definitions. All terms and definitions used herein shall have the
same meaning as in the Purchase Agreement unless otherwise indicated.
15. Drafting. The parties hereto acknowledge that each party was actively
involved in the negotiation and drafting of this Pledge Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Pledge Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
16. Attorneys' Fees. If any litigation is instituted to enforce or
interpret the provisions of this Pledge Agreement or the transactions described
herein, the prevailing party in such action shall be entitled to recover its
reasonable attorneys' fees from the other party hereto.
17. Arbitration. The arbitration provisions contained in Section 9.15 of
the Purchase Agreement shall govern this Pledge Agreement.
18. Multiple Counterparts. This Pledge Agreement may be executed in
multiple counterparts each of which shall be deemed an original and all of which
shall constitute one instrument.
IN WITNESS WHEREOF, this Pledge Agreement has been executed effective as of
the date first above written.
PLEDGOR:
TRUST:
By:_________________________________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as a Trustee of the ▇▇▇▇▇▇▇▇▇ Family
Trust established under Declaration of Trust dated August
21, 1996 governed by the law of the State of California
By:_________________________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as a Trustee of the ▇▇▇▇▇▇▇▇▇ Family
Trust established under Declaration of Trust dated August
21, 1996 governed by the law of the State of California
_______________________________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Individually
_______________________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Individually
SECURED PARTY:
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LITIGATION RESOURCES OF AMERICA-CALIFORNIA, INC., a
California corporation
By:____________________________________________________
Name:__________________________________________________
Title:_________________________________________________
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