EXHIBIT 2.5
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of March 11, 1998
by and among
VACATION PROPERTIES INTERNATIONAL, INC.
HOUSTON AND ▇'▇▇▇▇▇ COMPANY
and
the STOCKHOLDERS named herein
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TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF ORGANIZATION.............................................1
1. PURCHASE AND SALE........................................................2
1.1 General..............................................................2
1.2 Intentionally Deleted................................................2
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY and VPI.....................................................3
2. INTENTIONALLY DELETED....................................................3
3. DELIVERY OF CONSIDERATION FOR STOCK PURCHASE.............................3
3.1 Delivery of VPI Stock and Cash.......................................3
3.2 Delivery of COMPANY Stock............................................3
3.3 Balance Sheet Test...................................................4
4. CLOSING..................................................................4
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS...............5
(A) Representations and Warranties of COMPANY and STOCKHOLDERS...........5
5.1 Due Organization..................................................6
5.2 Authority.........................................................7
5.3 Capital Stock of the COMPANY......................................7
5.4 Transactions in Capital Stock.....................................7
5.5 No Bonus Shares...................................................8
5.6 Subsidiaries......................................................8
5.7 Predecessor Status; etc...........................................8
5.8 Spin-off by the COMPANY...........................................8
5.9 Financial Statements..............................................8
5.10 Liabilities and Obligations......................................9
5.11 Accounts and Notes Receivable...................................10
5.12 Permits and Intangibles.........................................10
5.13 Environmental Matters...........................................11
5.14 Personal Property...............................................12
5.15 Significant Customers...........................................13
5.16 Material Contracts and Commitments..............................13
5.17 Real Property...................................................14
5.18 Insurance.......................................................15
5.19 Compensation; Employment Agreements; Organized Labor Matters....15
5.20 Employee Plans..................................................16
5.21 Compliance with ERISA...........................................17
5.22 Conformity with Law; Litigation.................................19
5.23 Taxes...........................................................19
5.24 No Violations...................................................22
5.25 Government Contracts............................................23
5.26 Absence of Changes..............................................23
5.27 Deposit Accounts; Powers of Attorney............................24
5.28 Validity of Obligations.........................................25
5.29 Relations with Governments......................................25
5.30 Disclosure......................................................25
5.31 Prohibited Activities...........................................26
(B) Representations and Warranties of STOCKHOLDERS......................26
5.32 Authority; Ownership............................................26
5.33 Preemptive Rights...............................................27
5.34 No Intention to Dispose of VPI Stock............................27
6. REPRESENTATIONS OF VPI..................................................28
6.1 Due Organization....................................................28
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6.2 Authorization.......................................................29
6.3 Capital Stock of VPI................................................29
6.4 Transactions in Capital Stock.......................................29
6.5 Subsidiaries........................................................30
6.6 Financial Statements................................................30
6.7 Liabilities and Obligations.........................................30
6.8 Conformity with Law; Litigation.....................................30
6.9 No Violations.......................................................31
6.10 Validity of Obligations............................................31
6.11 VPI Stock..........................................................32
6.12 No Side Agreements.................................................32
6.13 Business; Real Property; Material Agreements.......................32
6.14 Taxes..............................................................32
6.15 Completion of Due Diligence........................................35
6.16 Disclosure........................................................35
6.17 Tax Treatment......................................................35
7. COVENANTS PRIOR TO CLOSING..............................................35
7.1 Access and Cooperation; Due Diligence...............................35
7.2 Conduct of Business Pending Closing.................................36
7.3 Prohibited Activities...............................................37
7.4 No Shop.............................................................39
7.5 Notice to Bargaining Agents.........................................40
7.6 Agreements..........................................................40
7.7 Notification of Certain Matters.....................................40
7.8 Amendment of Schedules..............................................41
7.9 Cooperation in Preparation of Registration Statement................42
7.10 Final Financial Statements.........................................44
7.11 Further Assurances.................................................44
7.12 Authorized Capital.................................................44
7.13 Best Efforts to Consummate Transaction.............................45
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.........45
8.1 Representations and Warranties......................................45
8.2 Performance of Obligations..........................................46
8.3 No Litigation.......................................................46
8.4 Opinion of Counsel..................................................46
8.5 Registration Statement..............................................46
8.6 Consents and Approvals..............................................46
8.7 Good Standing Certificates..........................................46
8.8 No Material Adverse Change..........................................47
8.9 Closing of IPO......................................................47
8.10 Secretary's Certificate............................................47
8.11 Employment Agreements..............................................47
8.12 Directors and Officers Insurance...................................47
8.13 Stock Options......................................................47
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VPI..............................48
9.1 Representations and Warranties......................................48
9.2 Performance of Obligations..........................................48
9.3 No Litigation.......................................................49
9.4 Secretary's Certificate.............................................49
9.5 No Material Adverse Effect..........................................49
9.6 STOCKHOLDERS' Release...............................................49
9.7 Termination of Related Party Agreements.............................50
9.8 Opinion of Counsel..................................................50
9.9 Consents and Approvals..............................................50
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9.10 Good Standing Certificates.........................................50
9.11 Registration Statement.............................................50
9.12 Employment Agreements..............................................50
9.13 Closing of IPO.....................................................50
9.14 FIRPTA Certificate.................................................50
9.15 Insurance..........................................................50
9.16 Lockup Agreement...................................................50
9.17 Letter of Representation...........................................51
9.18 Termination of Defined Benefit Plans...............................51
10. COVENANTS OF VPI AND THE STOCKHOLDERS AFTER CLOSING....................51
10.1 Release From Guarantees; Repayment of Certain Obligations..........51
10.2 Preservation of Tax and Accounting Treatment.......................51
10.3 Preparation and Filing of Tax Returns..............................52
10.4 Appointment of Directors...........................................53
10.5 Preservation of Employee Benefit Plans.............................53
10.6 Maintenance of Books...............................................53
10.7 Securities Covenants...............................................54
11. INDEMNIFICATION........................................................54
11.1 General Indemnification by the STOCKHOLDERS........................54
11.2 Indemnification by VPI.............................................55
11.3 Third Person Claims................................................56
11.4 Exclusive Remedy...................................................58
11.5 Limitations on Indemnification.....................................58
12. TERMINATION OF AGREEMENT...............................................59
12.1 Termination........................................................59
12.2 Liabilities in Event of Termination................................60
13. NONCOMPETITION.........................................................61
13.1 Prohibited Activities..............................................61
13.2 Damages............................................................62
13.3 Reasonable Restraint...............................................63
13.4 Severability; Reformation..........................................63
13.5 Independent Covenant...............................................64
13.6 Materiality........................................................64
13.7 Limitation.........................................................64
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................65
14.1 STOCKHOLDERS.......................................................65
14.2 VPI................................................................66
14.3 Damages............................................................67
14.4 Survival...........................................................67
14.5 Return of Data Submitted...........................................67
15. TRANSFER RESTRICTIONS..................................................67
15.1 Transfer Restrictions..............................................67
15.2 Certain Transfers..................................................68
16. SECURITIES LAW REPRESENTATIONS.........................................68
16.1 Compliance with Law................................................69
16.2 Economic Risk; Sophistication......................................69
17. REGISTRATION RIGHTS....................................................69
17.1 Piggyback Registration Rights......................................70
17.2 Demand Registration Rights.........................................71
17.3 Registration Procedures............................................72
17.4 Underwriting Agreement.............................................72
17.5 Availability of Rule 144...........................................72
17.6 Registration Rights Indemnification................................72
18. GENERAL................................................................77
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18.1 Press Releases.....................................................77
18.2 Cooperation........................................................78
18.3 Successors and Assigns; Third Party Beneficiaries..................78
18.4 Entire Agreement...................................................78
18.5 Counterparts.......................................................79
18.6 Brokers and Agents.................................................79
18.7 Expenses...........................................................79
18.8 Notices............................................................80
18.9 Governing Law......................................................81
18.10 Exercise of Rights and Remedies...................................81
18.11 Time..............................................................81
18.12 Reformation and Severability......................................81
18.13 Remedies Cumulative...............................................82
18.14 Captions..........................................................82
18.15 Amendments and Waivers............................................82
18.16 Incorporation by Reference........................................82
18.17 Defined Terms.....................................................82
ANNEX I INTENTIONALLY DELETED
ANNEX II CERTIFICATE OF INCORPORATION AND BYLAWS OF VPI
ANNEX III CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF VPI
ANNEX VI FORM OF OPINION OF COUNSEL TO VPI
ANNEX VII FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDERS
ANNEX VIII FORM OF EMPLOYMENT AGREEMENT
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
March 11, 1998, by and among VACATION PROPERTIES INTERNATIONAL, INC., a Delaware
corporation ("VPI"), HOUSTON AND ▇'▇▇▇▇▇ COMPANY, a Colorado corporation (the
"COMPANY"), and ▇▇▇▇▇ ▇'▇▇▇▇▇ Houston (the "STOCKHOLDERS").
WHEREAS, the respective Boards of Directors of VPI and the COMPANY
deem it advisable and in the respective best interests of VPI and the
COMPANY and their respective stockholders that the STOCKHOLDERS contribute
all of the COMPANY Stock owned by the STOCKHOLDERS to VPI in exchange for
VPI Stock and cash pursuant to this Agreement and in accordance with the
applicable provisions of the laws of the State of Delaware and the State in
which the COMPANY is incorporated;
WHEREAS, VPI is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is
entitled "Agreement and Plan of Organization," with each of B&B On The
Beach, Inc., a North Carolina corporation, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Realty &
Development, Inc., a North Carolina corporation, Coastal Resorts Realty
L.L.C., a Delaware limited liability company, Coastal Resorts Management,
Inc., a Delaware corporation, Collection of Fine Properties, Inc., a
Colorado corporation, Ten Mile Holdings, Ltd., a Colorado corporation,
First Resort Software, Inc., a Colorado corporation, Hotel Corporation of
the Pacific, Inc., a Hawaii corporation, Jupiter Property Management at
Park City, Inc., a Utah corporation, Maui Condominium & Home Realty, Inc.,
a Hawaii corporation, The Maury People, Inc., a Massachusetts corporation,
▇▇▇▇▇ Acquisition, Inc., a Florida corporation, Realty Consultants, Inc., a
Florida corporation, Resort Property Management, Inc., a Utah corporation,
Telluride Resort Accommodations, Inc., a Colorado corporation,
▇▇▇▇▇-▇▇▇▇▇▇▇ Enterprises, Inc., a Georgia corporation, THE Management
Company, a Georgia
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corporation, and Whistler Chalets Limited, a British Columbia corporation,
and their respective stockholders in order to acquire additional businesses
(the COMPANY, together with each of the entities with which VPI has entered
into the Other Agreements, are collectively referred to herein as the
"Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO of VPI Stock
constitute the "VPI Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of VPI, each of the Other Founding Companies and each of the
subsidiaries of VPI that are parties to the Other Agreements intend to
consummate the VPI Plan of Organization as an integrated plan pursuant to
which the STOCKHOLDERS and the stockholders of the Other Founding Companies
shall transfer the capital stock of the Founding Companies to VPI or a
subsidiary of VPI, and will acquire the stock of VPI as an exchange
pursuant to which gain is not recognized under Section 351(a) of the Code;
and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the VPI Plan of Organization
in order to transfer the capital stock of the COMPANY to VPI;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE
1.1 GENERAL. Upon the terms and subject to the conditions of this
Agreement, the STOCKHOLDERS hereby agree to sell, assign, transfer and deliver
to VPI, and VPI hereby agrees to purchase, all of the outstanding capital stock
of the COMPANY (the "COMPANY Stock").
1.2 INTENTIONALLY DELETED.
1.3 INTENTIONALLY DELETED
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1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY
AND VPI . The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the COMPANY and VPI
as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto; and
(ii) immediately prior to the Closing Date, the authorized capital
stock of VPI will consist of 50,000,000 shares of VPI Stock, of which the
number of issued and outstanding shares will be as set forth in the
Registration Statement, and 10,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding;
2. INTENTIONALLY DELETED
3. DELIVERY OF CONSIDERATION FOR STOCK PURCHASE
3.1 DELIVERY OF VPI STOCK AND CASH. On the Closing Date the STOCKHOLDERS,
who are the holders of all outstanding certificates representing shares of
COMPANY Stock, shall, upon surrender of such certificates, receive the
respective number of shares of VPI Stock and the amount of cash (subject to
adjustment pursuant to Section 3.3) set forth on Annex III hereto, said cash to
be payable by certified check or wire transfer.
3.2 DELIVERY OF COMPANY STOCK. The STOCKHOLDERS shall deliver to VPI at the
Pre-Closing (subject to Section 4) the certificates representing COMPANY Stock,
duly endorsed in blank by the STOCKHOLDERS, or accompanied by blank stock
powers, and with all necessary transfer tax and other revenue stamps, acquired
at the STOCKHOLDERS' expense, affixed and canceled; provided, however, that such
delivery shall not constitute the actual transfer and delivery of the COMPANY
Stock, which shall take place only on the Closing Date provided in Section 4.
The STOCKHOLDERS agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such COMPANY Stock or with respect to the stock powers accompanying
any COMPANY Stock.
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3.3 BALANCE SHEET TEST. As of the Closing Date, the COMPANY shall have (i)
positive net worth (excluding all customer deposits and similar escrow-type
accounts); (ii) positive net working capital (defined as current assets minus
current liabilities, excluding all customer deposits and similar escrow-type
accounts); and (iii) all customer deposit accounts and other similar escrow-type
accounts fully funded in cash or cash equivalents. To the extent that any
condition set forth in clauses (i) through (iii) is not met, the cash portion of
the consideration to be paid to the STOCKHOLDERS pursuant to this Section 3
shall be reduced by the amount required to cure any such failure. Indebtedness
of the COMPANY in excess of the amount set forth on Annex III that was incurred
in connection with the acquisition of the COMPANY by the STOCKHOLDERS, or the
acquisition of nonoperating assets by the COMPANY or the STOCKHOLDERS, shall
result in a corresponding dollar-for-dollar reduction in the cash portion of the
consideration paid to the STOCKHOLDERS pursuant to this Section 3. If necessary,
a post-Closing adjustment shall be made to effect the intent of this Section
3.3.
Indebtedness, if any, that was incurred for working capital or in
connection with the operating assets of the COMPANY, in each case in amounts
that are reasonable and consistent with the past practice of the COMPANY, will
be assumed or repaid by VPI without a corresponding reduction to consideration
paid hereunder. In addition, so long as the conditions set forth in clauses (i)
through (iii) are satisfied as of the Closing Date, the COMPANY shall be
permitted to distribute any additional cash or cash equivalents to the
STOCKHOLDERS or to pay bonuses to the STOCKHOLDERS or employees of the COMPANY
at any time prior to the Closing Date, notwithstanding anything in this
Agreement to the contrary.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary to
prepare to (i) effect the transfer and delivery of the COMPANY Stock as
contemplated by Section 1 hereof and (ii) effect the delivery of shares referred
to in Section 3 hereof; provided, however, that such actions shall not
constitute the actual transfer and delivery of the shares of COMPANY Stock and
certified check(s) or
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wire transfer(s) referred to in Section 3 hereof, each of which actions shall
only be taken upon the Closing Date as herein provided. In the event there is no
Closing, VPI shall redeliver the certificates for the COMPANY Stock to the
STOCKHOLDERS. The taking of the actions described in clauses (i) and (ii) above
(the "Pre-Closing") shall take place on the pre-closing date (the "Pre-Closing
Date") at the offices of Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P., ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇. On the Closing Date (x) all
transactions contemplated by this Agreement, including the transfer and delivery
of COMPANY Stock, the delivery of a certified check or checks or wire
transfer(s) in an amount equal to the cash portion of the consideration which
the STOCKHOLDERS shall be entitled to receive pursuant to Section 3 hereof shall
occur and (y) the closing with respect to the IPO shall be completed. The taking
of the actions described in the preceding clauses (x) and (y) shall constitute
the closing of the transactions hereunder (the "Closing"), and the date on which
the actions described in the preceding clauses (x) and (y) occur shall be
referred to as the "Closing Date." Except as provided in Sections 8 and 9 hereof
with respect to actions to be taken on the Closing Date, during the period from
the Pre-Closing Date to the Closing Date this Agreement may only be terminated
by a party if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such agreement. This Agreement shall in any event
terminate if the Closing Date has not occurred within 15 business days of the
Pre-Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally represents
and warrants that all of the following representations and warranties in this
Section 5(A) are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Pre-Closing and the Closing Date. Each of
the COMPANY and the STOCKHOLDERS agrees that such representations
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and warranties shall survive the Closing Date for a period of two years (the
last day of such period being the "Expiration Date"), except that (i) the
warranties and representations set forth in Section 5.23 hereof shall survive
until such time as the limitations period has run for all Tax periods ended on
or prior to the Closing Date, which shall be deemed to be the Expiration Date
for Section 5.23 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.1(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, VPI actually incurs
liability under the 1933 Act, the 1934 Act or any other federal or state
securities laws as a result of a breach of a representation or warranty by the
COMPANY or the STOCKHOLDERS, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes. For purposes of
this Section 5, the term "COMPANY" shall mean and refer to the COMPANY and all
of its Subsidiaries, if any.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and the COMPANY is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted except
(i) as set forth on Schedule 5.1 or (ii) where the failure to be so authorized
or qualified would not have a material adverse effect on the business,
operations, affairs, properties, assets, condition (financial or otherwise) or,
to the knowledge of the COMPANY or the STOCKHOLDERS, prospects of the COMPANY
taken as a whole (as used herein with respect to the COMPANY, or with respect to
any other person, a "Material Adverse Effect"). Schedule 5.1 sets forth the
jurisdiction in which the COMPANY is incorporated and contains a list of all
such jurisdictions in which the COMPANY is authorized or qualified to do
business. True, complete and correct copies of the Articles of Incorporation and
Bylaws, each as amended, of the COMPANY (the "Charter Documents") are all
attached hereto as Schedule 5.1. The stock records of the COMPANY, as heretofore
made available to VPI, are correct and complete in all material respects. There
are no minutes in the possession of the
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COMPANY or the STOCKHOLDERS which have not been made available to VPI, and all
of such minutes are correct and complete in all material respects. Except as set
forth on Schedule 5.1, the most recent minutes of the COMPANY, which are dated
no earlier than ten business days prior to the date hereof, affirm and ratify
all prior acts of the COMPANY, and of its officers and directors on behalf of
the COMPANY.
5.2 AUTHORITY. The COMPANY has the full legal right, power and authority to
enter into and perform this Agreement.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 1.4. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and further, except as set forth on Schedule 5.3,
are owned free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind. All of the
issued and outstanding shares of the capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and further, such shares were
offered, issued, sold and delivered by the COMPANY in compliance with all
applicable state and federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of the preemptive rights
of any past or present stockholder of the COMPANY.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4, the
COMPANY has not acquired any COMPANY Stock since January l, 1995. Except as set
forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
capital stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the transactions contemplated hereby
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and/or the VPI Plan of Organization. Schedule 5.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list of
all outstanding options, warrants or other rights to acquire shares of the
COMPANY's stock and the material terms of such outstanding options, warrants or
other rights.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries, whether a corporation, limited liability company or
other business entity (each, a "Subsidiary"), and sets forth the number and
class of the authorized capital stock of each Subsidiary and the number of
shares or interests of each Subsidiary which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned by the COMPANY,
free and clear of all liens, security interests, pledges, voting trusts,
equities, restrictions, encumbrances and claims of every kind. Except as set
forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there has
not been any sale, spin-off or split-up of material assets of the COMPANY since
January 1, 1995.
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5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9, except as set
forth thereon, are copies of the following financial statements (the "COMPANY
Financial Statements") of the COMPANY: the COMPANY's (i) audited Balance Sheet,
if any, as of December 31, 1997 and unaudited Balance Sheet, if any, as of
December 31, 1996; (ii) audited Statement of Operations, if any, for the period
ended December 31, 1997 (December 31, 1997 being hereinafter referred to as the
"Balance Sheet Date") and unaudited Statement of Operations, if any, for the
period ended December 31, 1996; (iii) audited Statement of Changes in
Stockholders' Equity, if any, for the period ended on the Balance Sheet Date;
and (iv) audited Statement of Cash Flows, if any, for the period ended on the
Balance Sheet Date. Except as set forth on Schedule 5.9, such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted thereon or on Schedule 5.9 and, with respect to unaudited
COMPANY Financial Statements, except for the requirement of footnote
disclosures). Except as set forth on Schedule 5.9, such Balance Sheets as of
December 31, 1997 and 1996 present fairly the financial position of such COMPANY
as of the dates indicated thereon, and such Statements of Operations, Statements
of Changes in Stockholders' Equity and Statements of Cash Flows present fairly
the results of operations for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to VPI an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected in the COMPANY
Financial Statements at the Balance Sheet Date, (ii) any material liabilities of
the COMPANY (including all liabilities in excess of $10,000) and (iii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, liens, pledges
or other security agreements, together with true, correct and complete copies of
such documents. Except as set forth on Schedule 5.10, since the Balance Sheet
Date the COMPANY has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The
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COMPANY has also delivered to VPI on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to VPI an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. The COMPANY shall also provide to VPI (x) an accurate list of all
receivables obtained subsequent to the Balance Sheet Date up to the Pre-Closing
Date and (y) an aging of all accounts and notes receivable showing amounts due
in 30 day aging categories (the "A/R Aging Reports"). Except to the extent
reflected on Schedule 5.11 or as disclosed by the COMPANY to VPI in a writing
accompanying the A/R Aging Reports, the accounts, notes and other receivables
shown on Schedule 5.11 and on the A/R Aging Reports are and shall be collectible
in the amounts shown, net of reserves reflected in the balance sheet as of the
Balance Sheet Date with respect to accounts receivable as of the Balance Sheet
Date, and net of reserves reflected in the books and records of the COMPANY
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(consistent with the methods used for the balance sheet) with respect to
accounts receivable of the COMPANY after the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY holds all licenses, franchises,
permits and other governmental authorizations that are necessary for the
operation of the business of the COMPANY as now conducted, and the COMPANY has
delivered to VPI an accurate list and summary description (which is set forth on
Schedule 5.12) of all such licenses, franchises, permits and other governmental
authorizations, including permits, titles, licenses, franchises, certificates,
trademarks, trade names, patents, patent applications and copyrights owned or
held by the COMPANY (including interests in software or other technology
systems, programs and intellectual property) (it being understood and agreed
that a list of all environmental permits and other environmental approvals is
set forth on Schedule 5.13). The licenses, franchises, permits and other
governmental authorizations listed on Schedules 5.12 and 5.13 are valid, and the
COMPANY has not received any notice that any governmental authority intends to
cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12 and 5.13 and is not in violation of any
of the foregoing, except for inadvertent, immaterial noncompliance with such
requirements, standards, criteria and conditions (provided that any such
noncompliance shall be deemed a breach of this Section 5.12 for purposes of
Section 11 hereof). Except as specifically provided on Schedule 5.12, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to the COMPANY by, any such licenses, franchises, permits or government
authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance with all federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their respective properties, assets, operations and businesses
11
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as such terms are defined in any applicable Environmental
Law); (ii) the COMPANY has obtained and adhered to all permits and other
approvals necessary to treat, transport, store, dispose of and otherwise handle
Hazardous Wastes and Hazardous Substances, a list of all of which permits and
approvals is set forth on Schedule 5.13, and has reported to the appropriate
authorities, to the extent required by all Environmental Laws, all past and
present sites owned and operated by the COMPANY where Hazardous Wastes or
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (iii) there have been no releases or threats of releases (as defined in
Environmental Laws) at, from, in or on any property owned or operated by the
COMPANY except as permitted by Environmental Laws; (iv) the COMPANY knows of no
on-site or off-site location to which the COMPANY has transported or disposed of
Hazardous Wastes and Hazardous Substances or arranged for the transportation of
Hazardous Wastes and Hazardous Substances, which site is the subject of any
federal, state, local or foreign enforcement action or any other investigation
which could lead to any claim against the COMPANY or VPI for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANY has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to VPI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property included in
"depreciable plant, property and equipment" on the balance sheet of the COMPANY
as of the Balance Sheet Date or that will be included on any balance sheet of
the COMPANY prepared after the Balance Sheet Date, (y) all other personal
property (except cash and cash equivalents) owned by the COMPANY with a value in
excess of $10,000 (i) as of the Balance Sheet Date and (ii) acquired since the
Balance Sheet Date and
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(z) all leases and agreements in respect of personal property used in the
operation of the COMPANY's business as now conducted, including, true, complete
and correct copies of all such leases and agreements. The COMPANY shall indicate
on Schedule 5.14 those assets listed thereon that are currently owned, or that
were formerly owned, by STOCKHOLDERS, relatives of STOCKHOLDERS, or Affiliates
of the COMPANY. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and, assuming due
execution and delivery thereof by the parties thereto other than the COMPANY,
the STOCKHOLDERS and their respective Affiliates, constitute valid and binding
agreements of the COMPANY, the STOCKHOLDERS and, to the knowledge of the COMPANY
or the STOCKHOLDERS, the other parties (and their successors) thereto in
accordance with their respective terms.
5.15 SIGNIFICANT CUSTOMERS. The COMPANY has delivered to VPI an accurate
list (which is set forth on Schedule 5.15) of (i) all significant customers, it
being understood and agreed that a "significant customer," for purposes of this
Section 5.15, means a customer (or person or entity) representing 5% or more of
the COMPANY's annual revenues as of the Balance Sheet Date. Except to the extent
set forth on Schedule 5.15, none of the COMPANY's significant customers (or
persons or entities that are sources of a significant number of customers) have
canceled or substantially reduced or, to the knowledge of the COMPANY, are
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
5.16 MATERIAL CONTRACTS AND COMMITMENTS. The COMPANY has listed on Schedule
5.16 all material contracts, commitments and similar agreements to which the
COMPANY currently is a party or by which it or any of its properties are bound
(including, but not limited to, contracts with significant customers, joint
venture or partnership agreements, contracts with any labor organizations,
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strategic alliances and options to purchase land), other than contracts,
commitments and agreements otherwise listed on Schedules 5.10, 5.14 or 5.17, (a)
in existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to VPI. The COMPANY has complied with all material commitments
and obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.16 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.16 a summary description of all pending plans or projects involving
the opening of new operations, expansion of existing operations, and the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $25,000 by the COMPANY.
5.17 REAL PROPERTY. Schedule 5.17 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired or leased since the Balance Sheet Date, and all other real property, if
any, used by the COMPANY in the conduct of its business. The COMPANY has good
and insurable title to the real property owned by it, including those reflected
on Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.17 as securing specified
liabilities (with respect to which no default exists);
(ii) liens for current Taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect the current use of the property.
Schedule 5.17 contains, without limitation, true, complete and correct
copies of all title reports and title insurance policies currently in possession
of the COMPANY with respect to real property owned by the COMPANY.
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The COMPANY has also delivered to VPI an accurate list of real property
leased by the COMPANY as lessee (which list is set forth on Schedule 5.17),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY as lessee (which copies are
attached to Schedule 5.17), and an indication as to which such properties, if
any, are currently owned, or were formerly owned, by STOCKHOLDERS or business or
personal affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on
Schedule 5.17, all of such leases included on Schedule 5.17 are in full force
and effect and, assuming due execution and delivery thereof by the parties
thereto other than the COMPANY, the STOCKHOLDERS and their respective
affiliates, constitute valid and binding agreements of the COMPANY, the
STOCKHOLDERS and, to the knowledge of the COMPANY or the STOCKHOLDERS, the other
parties (and their successors) thereto in accordance with their respective
terms.
5.18 INSURANCE. The COMPANY has delivered to VPI, as set forth on and
attached to Schedule 5.18, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs and workers compensation claims received for the past three
(3) policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Closing Date. No insurance carried by the COMPANY has
ever been canceled by the insurer and the COMPANY has never been unable to
obtain insurance coverage for its assets and operations.
5.19 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to VPI an accurate list (which is set forth on Schedule
5.19) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons (i) as of the
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Balance Sheet Date and (ii) as of the date hereof. The COMPANY has provided to
VPI true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.19. Except as set forth on Schedule 5.19, since the Balance
Sheet Date, there have been no increases in the compensation payable or any
special bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.19, (i) the COMPANY is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the best of the COMPANY's knowledge, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the COMPANY's knowledge, threatened labor dispute involving the
COMPANY and any group of its employees nor has the COMPANY experienced any labor
interruptions over the past three years. The COMPANY believes its relationship
with employees to be good.
The COMPANY (i) is in compliance with all applicable federal, state and
local laws, rules and regulations (domestic or foreign) respecting employment,
employment practices, labor, terms and conditions of employment and wages and
hours, except for inadvertent, immaterial noncompliance with such laws, rules,
and regulations (provided that any such noncompliance shall be deemed a breach
of this Section 5.19 for purposes of Section 11 hereof); (ii) is not liable for
any arrears of wages or any taxes or any penalty for failure to comply with any
of the foregoing; (iii) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other employment-related benefits; and
(iv) has provided employees with the benefits to which they are entitled
pursuant to the terms of all COMPANY benefit plans.
5.20 EMPLOYEE PLANS. The COMPANY has delivered to VPI an accurate schedule
(Schedule 5.20) showing all employee benefit plans currently sponsored or
maintained or contributed to by, or which cover the current or former employees
or directors of the COMPANY, all employment
16
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and all deferred compensation agreements, together
with true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of employees covered thereby as of the
Balance Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 5.20, the COMPANY does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit plan"
(within the meaning of Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) nor has the COMPANY any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of
ERISA) or any non-qualified deferred compensation arrangement). The COMPANY has
not sponsored, maintained or contributed to any employee pension benefit plan
other than the plans, agreements, arrangements and trusts set forth on Schedule
5.20, nor is the COMPANY required to contribute to any retirement plan pursuant
to the provisions of any collective bargaining agreement establishing the terms
and conditions or employment of any of the COMPANY's employees.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.20 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.21 COMPLIANCE WITH ERISA. All such plans, agreements, arrangements and
trusts of the COMPANY that are currently maintained or contributed to by the
COMPANY or cover employees or former employees of the COMPANY listed on Schedule
5.20 that are intended to qualify under Section 401(a) of the Code (the
"Qualified Plans") are, and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 5.21 hereof. All employee
benefit plans, agreements, arrangements and trusts listed on Schedule 5.20 and
the administration thereof are in substantial compliance with
17
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations. Except as disclosed on Schedule 5.21, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audit reports, Forms 5500, summary plan descriptions or
Tax Returns) have been timely filed or distributed, and copies thereof for the
three most recent plan years are included as part of Schedule 5.21 hereof. No
plan listed on Schedule 5.20, nor the COMPANY, nor any STOCKHOLDER with respect
to any such plan or the COMPANY, has engaged in any transaction prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No such plan
listed on Schedule 5.20 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and the
COMPANY has not incurred any liability for excise tax or penalty due to the
Internal Revenue Service nor any liability to the Pension Benefit Guaranty
Corporation. The COMPANY and STOCKHOLDERS further represent that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed on Schedule 5.20 subject to the provisions of
Title IV of ERISA has been terminated except in accordance with applicable
laws and regulations or as may be required pursuant to Section 9.18 hereof;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed on
Schedule 5.20;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA;
(v) the COMPANY is not now, and cannot as a result of its past
activities become, liable to the Pensions Benefit Guaranty Corporation or
to any multi-employer pension benefit plan under the provisions of Title IV
of ERISA; and
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(vi) no circumstances exist pursuant to which the COMPANY has or could
have any direct or indirect liability whatsoever (including, but not
limited to, any liability to the Internal Revenue Service for any excise
tax or penalty, or being subject to any Statutory Lien to secure payment of
any liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the COMPANY that is, or at any time
was, a member of a "controlled group" (as defined in Section 412(n)(6)(B)
of the Code) that includes the COMPANY.
5.22 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedules 5.22 or 5.13, the COMPANY is not in violation of any law or regulation
or of any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the COMPANY, except for inadvertent, immaterial noncompliance
with any such law, regulation or order (provided that any such noncompliance
shall be deemed a breach of this Section 5.22 for purposes of Section 11
hereof); and except to the extent set forth on Schedules 5.10 or 5.13, there are
no claims, actions, suits or proceedings, commenced or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. The COMPANY has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations, and is not in
violation of any of the foregoing.
5.23 TAXES.
(a) The COMPANY has timely filed all requisite federal, state, local
and other Tax returns, reports, declarations or Tax return filing extension
requests ("Tax Returns") for all fiscal periods ended on or before the Balance
Sheet Date. All such Tax Returns have set forth all material items required to
be set forth therein and were prepared in compliance with applicable laws and
were
19
true, correct and complete in all material respects. No material fact or
information has become known to the COMPANY or its officers or employees
responsible for maintaining the financial records of the COMPANY subsequent to
the filing of such Tax Returns to the contrary of any information contained
therein. Except as set forth on Schedule 5.23, there are no examinations in
progress (and the COMPANY and its employees are not aware of any proposed
examinations) or claims against the COMPANY (including liens against the
COMPANY's assets) for federal, state, local and other Taxes (including penalties
and interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. Except as set forth on Schedule 5.23, neither the COMPANY nor the
STOCKHOLDERS have entered into an agreement or waiver or have been requested to
enter into an agreement or waiver extending any statute of limitations regarding
Taxes.
(b) All Taxes, including interest and penalties (whether or not shown
on any Tax Return) owed by the COMPANY, any member of an affiliated or
consolidated group which includes or included the COMPANY, or with respect to
any payment made or deemed made by the COMPANY, required to be paid by the date
hereof, have been paid. All amounts required to be deposited, withheld or
collected under applicable federal, state, local or other Tax laws and
regulations by the COMPANY for Taxes have been so deposited, withheld or
collected, and such deposit, withholding or collection has either been paid to
the respective governmental agencies or set aside and secured in accounts for
such purpose or secured and reserved against and entered on the COMPANY
Financial Statements (and, if applicable, any balance sheet and income statement
delivered pursuant to Section 7.10 hereof).
(c) The amounts, if any, shown as accruals for Taxes on the COMPANY
Financial Statements (and, if applicable, any Financial Statements delivered
pursuant to Section 7.10 hereof) are sufficient for the payment of all Taxes of
the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date.
20
(d) Except as set forth in Schedule 5.23, the COMPANY has not been
included in or joined in the filing of any consolidated or combined Tax Return
(other than as a common parent). The COMPANY is not a party to or bound by or
obligated under any Tax sharing, Tax benefit or similar agreement with any
person or entity.
(e) Except as set forth in Schedule 5.23, the COMPANY (i) has not
assumed or is not liable for any Taxes of any other person or entity, including
any predecessor corporation or partnership, as a result of any purchase of
assets or other business acquisition transaction (other than a merger in which
the COMPANY or such person or entity was the surviving corporation or a
consolidation) and (ii) has not indemnified any other person or entity or
otherwise agreed to pay on behalf of any other person or entity any Taxes
arising from or which may be asserted on the basis of any Tax treatment adopted
with respect to all or any aspect of such business acquisition transaction.
(f) Copies of (i) the federal, state and local income tax returns and
franchise tax returns of COMPANY for its last three (3) fiscal years or such
shorter period of time as the COMPANY shall have existed, (ii) any Tax
examinations commenced or closed or outstanding during their three (3) most
recent fiscal years, and (iii) currently outstanding extensions of statutory
limitations, are attached hereto as Schedule 5.23.
(g) The COMPANY has a taxable year ended on the date set forth as such
on Schedule 5.23.
(h) Except as disclosed on Schedule 5.23, the COMPANY's methods of
accounting have not changed in the past five years. No adjustment to taxable
income by reason of a change of accounting method is required in respect of any
period for which the statute of limitations has not expired.
(i) The COMPANY is not an investment company as defined in Section
351(e)(1) of the Code.
(j) All statutory or regulatory material elections with respect to
Taxes affecting the COMPANY as of the date hereof are disclosed on Schedule
5.23. After the date
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hereof, no statutory or regulatory election with respect to Taxes will be made
without the written consent of VPI.
(k) The COMPANY has not filed a consent with the Internal Revenue
Service pursuant to section 341(f) of the Code and has not agreed to have
section 341(f)(2) of the Code apply to any disposition of any subsection (f)
asset (as defined in section 341(f) of the Code) owned by the COMPANY.
5.24 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 5.12, 5.13, 5.14, 5.15, 5.16 or 5.17, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on Schedule 5.24, (a) the
rights and benefits of the COMPANY under the Material Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.24, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 5.24, none of the
Material Documents prohibits the use or publication by the COMPANY or VPI of the
name of any other party to such Material Document, and none of the Material
Documents prohibits or restricts the COMPANY from freely providing services to
any other customer or potential customer of the COMPANY or VPI or any Other
Founding Company.
5.25 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.25, the
COMPANY is not now a party to any governmental contract subject to price
redetermination or renegotiation.
22
5.26 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.26, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock (except for dividends or distributions of cash
that do not cause the COMPANY to fail to meet the financial requirements,
as of the Closing Date, set forth in the first sentence of Section 3.3) or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the COMPANY to any person (other
than VPI), including, without limitation, the STOCKHOLDERS and their
respective affiliates;
(viii) any cancellation of, or agreement to cancel, any indebtedness
or other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of the STOCKHOLDERS or any affiliate thereof,
except for immaterial
23
cancellations of or agreements to cancel any such indebtedness or
obligation (provided that any such cancellation or agreement to cancel
shall be deemed a breach of this Section 5.26 for purposes of Section 11
hereof);
(ix) any plan, agreement or arrangement granting (other than to VPI)
any preferential rights to purchase or acquire any interest in any of the
assets, property or rights of the COMPANY or requiring consent of any party
to the transfer and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
(xiii) any transaction by the COMPANY outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY.
5.27 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to VPI
an accurate schedule (which is set forth on Schedule 5.27) as of the date of the
Agreement of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held; (iii) the type
of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
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Schedule 5.27 also sets forth a complete list of the names of each person,
corporation, firm or other entity holding a general or special power of attorney
from the COMPANY and a description of the terms of such power.
5.28 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms except as may be limited by (i)
bankruptcy, insolvency or other similar laws of general application relating to
or affecting the enforcement of creditors' rights generally or (ii) the
discretionary power of a court exercising equity jurisdiction. The individual
signing this Agreement on behalf of the COMPANY has the legal power, authority
and capacity to bind the COMPANY to the terms of this Agreement.
5.29 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office in violation of applicable law nor has it
otherwise taken any action which would cause the COMPANY to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
5.30 DISCLOSURE.
(a) This Agreement (which includes the Schedules and Annexes attached
hereto) does not contain any untrue statement of a material fact by the COMPANY
or the STOCKHOLDERS and does not omit to state any material fact necessary in
order to make the statements made herein (or therein) by the COMPANY or the
STOCKHOLDERS, in light of the circumstances under which they are made, not
misleading. The COMPANY's rights under the documents delivered pursuant to this
Agreement would not be materially adversely affected by, and no statement made
in this Agreement would be rendered untrue in any material respect by, (i) any
other document to which the COMPANY is a party, or to which its properties are
subject, or (ii) any other fact or circumstance regarding the
25
COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant to this
Agreement or to such delivered documents.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; and (ii) that neither VPI or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all.
5.31 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.31, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3 (Prohibited Activities).
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the representations
and warranties set forth below are true as of the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of Pre-Closing and on
the Closing Date, and that the representations and warranties set forth in
Sections 5.32, 5.33 and 5.34 shall survive until the second anniversary of the
Closing Date, which shall be the Expiration Date for purposes of those Sections.
5.32 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right, power
and authority to enter into this Agreement. Such STOCKHOLDER owns beneficially
and of record all of the shares of the COMPANY Stock identified on Annex IV as
being owned by such STOCKHOLDER, and, except as set forth on Schedule 5.3, such
COMPANY Stock is owned free and clear of all liens, encumbrances and claims of
every kind.
26
5.33 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or VPI Stock
that such STOCKHOLDER has or may have had on the date hereof other than rights
of the STOCKHOLDER to acquire VPI Stock pursuant to any option granted by VPI.
5.34 NO INTENTION TO DISPOSE OF VPI STOCK. The STOCKHOLDERS do not have any
present plan, intention, commitment, binding agreement, or arrangement to
dispose of any shares of VPI Stock received as described in Section 3.1 in a
manner that would cause the transactions contemplated hereby to violate the
control requirement set forth in Code section 368(c).
27
6. REPRESENTATIONS OF VPI
VPI represents and warrants that all of the following representations and
warranties in this Section 6 are true at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true at the time of Pre-Closing and the Closing
Date, and that such representations and warranties shall survive the Closing
Date for a period of two years (the last day of such period being the
"Expiration Date"), except that (i) the warranties and representations set forth
in Section 6.14 hereof shall survive until such time as the limitations period
has run for all Tax periods ended on or prior to the Closing Date, which shall
be deemed to be the Expiration Date for Section 6.14, (ii) the warranties and
representations set forth in Section 6.17 hereof shall survive until April 15,
2002, or until such later date as the limitations period on the assessment of
additional tax relating to the taxable year in which the transactions
contemplated herein occur may be extended from time to time, so long as VPI has
been notified of such extension and has consented to such extension (which
consent shall not be unreasonably withheld) and (iii) solely for purposes of
determining whether a claim for indemnification under Section 11.2(iv) hereof
has been made on a timely basis, and solely to the extent that in connection
with the IPO, the STOCKHOLDERS or the COMPANY actually incur liability under the
1933 Act, the 1934 Act, or any other federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. VPI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and is duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business in the
places and in the manner as now conducted except where the failure to be so
authorized or qualified would not have a Material Adverse Effect. True, complete
and correct copies of the Certificate of Incorporation and Bylaws, as amended,
of VPI (the "VPI Charter Documents") are all attached hereto as Annex II. The
VPI Charter Documents provide for indemnification of officers and directors to
the full extent permitted by the General Corporation Law of Delaware.
28
6.2 AUTHORIZATION. (i) The representatives of VPI executing this Agreement
have the authority to enter into and bind VPI to the terms of this Agreement and
(ii) VPI has the full legal right, power and authority to enter into and perform
this Agreement, and all required approvals of the shareholders and board of
directors of VPI have been obtained.
6.3 CAPITAL STOCK OF VPI . Immediately prior to the Closing Date, the
authorized capital stock of VPI is as set forth in Section 1.4(ii). All of the
issued and outstanding shares of the capital stock of VPI are owned by the
persons set forth on Annex V hereof, and further are owned, in each case, free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. Upon consummation of the
IPO, the number of outstanding shares of VPI will be as set forth in the
Registration Statement. All of the issued and outstanding shares of the capital
stock of VPI have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by VPI and the persons set
forth on Annex V and further, such shares were offered, issued, sold and
delivered by VPI in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares was issued
in violation of the preemptive rights of any past or present stockholder of VPI.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates VPI to issue any of its
authorized but unissued capital stock; and (ii) VPI has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of VPI.
6.5 SUBSIDIARIES. VPI has no subsidiaries except for companies to become
subsidiaries of VPI pursuant to each of the Other Agreements. Except as set
forth in the preceding sentence, VPI presently does not own, of record or
beneficially, or control, directly or indirectly, any capital stock,
29
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity nor is VPI, directly or indirectly,
a participant in any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of the
following financial statements (the "VPI Financial Statements") of VPI, which
reflect the results of its operations from inception: VPI's audited Balance
Sheet as of December 31, 1997 and Statements of Income, Cash Flows and Retained
Earnings for the period from inception through December 31, 1997. Such VPI
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.6). Except as set forth on
Schedule 6.6, such Balance Sheets as of December 31, 1997 present fairly the
financial position of VPI as of such date, and such Statements of Income, Cash
Flows and Retained Earnings present fairly the results of operations for the
period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7, VPI
has no material liabilities, contingent or otherwise, except as set forth in or
contemplated by this Agreement and the Other Agreements and except for fees and
expenses incurred in connection with the transactions contemplated hereby and
thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, VPI is not in violation of any law or regulation, or of any order
of any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
it; and except to the extent set forth on Schedule 6.8, there are no material
claims, actions, suits or proceedings, pending or, to the knowledge of VPI,
threatened, against or affecting VPI, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over it and no notice of
any claim, action, suit or proceeding, whether pending or threatened, has been
received. VPI has conducted and is conducting its business in compliance with
the requirements, standards, criteria
30
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing.
6.9 NO VIOLATIONS. VPI is not in violation of any VPI Charter Document.
Neither VPI nor, to the knowledge of VPI, any other party thereto, is in default
under any lease, instrument, agreement, license or permit to which VPI is a
party, or by which VPI, or any of its respective properties, are bound
(collectively, the "VPI Documents"); and (a) the rights and benefits of VPI
under the VPI Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the VPI Documents or the VPI
Charter Documents. Except as set forth on Schedule 6.9, none of the VPI
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by VPI performance of the transactions contemplated herein have been duly and
validly authorized by the Board of Directors of VPI and this Agreement has been
duly and validly authorized by all necessary corporate action and is a legal,
valid and binding obligation of VPI, enforceable against VPI in accordance with
its terms except as limited by bankruptcy, insolvency or other similar laws of
general application relating to or affecting the enforcement of creditors'
rights generally, and the individuals signing this Agreement on behalf of VPI
have the legal power, authority and capacity to bind such parties.
6.11 VPI STOCK. At the time of issuance thereof, the VPI Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of VPI, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15
31
and 16 hereof, will be identical in all material and substantive respects to the
VPI Stock issued and outstanding as of the date hereof and the VPI Stock to be
issued pursuant to the Other Agreements by reason of the provisions of the
Delaware GCL. The shares of VPI Stock to be issued to the STOCKHOLDERS pursuant
to this Agreement will not be registered under the 1933 Act, except as provided
in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. VPI has not entered and will not enter into any
agreement with any of the Founding Companies or any of the stockholders of the
Founding Companies or VPI other than the Other Agreements and the agreements
specifically contemplated by each of the Other Agreements, including the
employment agreements referred to therein, and neither VPI nor its equity owners
or affiliates have received any cash compensation or payments in connection with
this transaction except for reimbursement of out-of-pocket expenses which are
necessary or appropriate to this transaction. None of the Other Agreements shall
provide for a valuation of any of the Other Founding Companies based on the use
of a multiplier greater than ten percent (10%).
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. VPI has not conducted
any operations or business since inception other than activities related to the
VPI Plan of Organization. VPI does not own and has not at any time owned any
real property or any material personal property and is not a party to any other
agreement, except as listed on Schedule 6.13 and except that VPI is a party to
the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES.
(a) VPI has timely filed all requisite federal, state, local and other
Tax Returns for all fiscal periods ended on or before the date hereof. All such
Tax Returns have set forth all material items required to be set forth therein
and were prepared in compliance with applicable laws and were true, correct and
complete in all material respects. No material fact or information has become
known to VPI or its officers or employees responsible for maintaining the
financial records of VPI subsequent to the filing of such Tax Returns to the
contrary of any information
23
contained therein. Except as set forth on Schedule 6.14, there are no
examinations in progress (and VPI and its employees are not aware of any
proposed examinations) or claims against VPI (including liens against assets of
VPI) for federal, state, local and other Taxes (including penalties and
interest) for any period or periods prior to and including the date hereof and
no notice of any claim for Taxes, whether pending or threatened, has been
received. Except as set forth on Schedule 6.14, VPI has not entered into an
agreement or waiver and has not been requested to enter into an agreement or
waiver extending any statute of limitations regarding Taxes.
(b) All Taxes, including interest and penalties (whether or not shown
on any Tax Return) owed by VPI, any member of an affiliated or consolidated
group which includes or included VPI, or with respect to any payment made or
deemed made by VPI, required to be paid by the date hereof, have been paid. All
amounts required to be deposited, withheld or collected under applicable
federal, state, local or other Tax laws and regulations by VPI for Taxes have
been so deposited, withheld or collected, and such deposit, withholding or
collection has either been paid to the respective governmental agencies or set
aside and secured in accounts for such purpose or secured and reserved against
and entered on the financial statements.
(c) The amounts, if any, shown as accruals for Taxes on the VPI
Financial Statements are sufficient for the payment of all Taxes of the kinds
indicated (including penalties and interest) for all fiscal periods ended on or
before that date.
(d) Except as set forth on Schedule 6.14, VPI has not been included in
or joined in the filing of any consolidated or combined Tax Return (other than
as a common parent). VPI is not a party to or bound by or obligated under any
Tax sharing, Tax benefit or similar agreement with any person or entity.
(e) Except as set forth on Schedule 6.14, VPI (i) has not assumed and
is not liable for any Taxes of any other person or entity, including any
predecessor corporation or partnership, as a result of any purchase of assets or
other business acquisition transaction (other than a merger in which VPI or such
person or entity was the surviving corporation or a
33
consolidation) and (ii) has not indemnified any other person or entity or
otherwise agreed to pay on behalf of any other person or entity any Taxes
arising from or which may be asserted on the basis of any Tax treatment adopted
with respect to all or any aspect of such business acquisition transaction.
(f) Copies of (i) the federal, state and local income tax returns and
franchise tax returns of VPI for its last three (3) fiscal years or such shorter
period of time as VPI shall have existed, (ii) any Tax examinations commenced or
closed or outstanding during their three (3) most recent fiscal years, and (iii)
currently outstanding extensions of statutory limitations, are attached hereto
as Schedule 6.14.
(g) VPI has a taxable year ended on the date set forth as such on
Schedule 6.14.
(h) Except as disclosed on Schedule 6.14, VPI's methods of accounting
have not changed in the past five years. No adjustment to taxable income by
reason of a change of accounting method is required in respect of any period for
which the statute of limitations has not expired.
(i) VPI is not an investment company as defined in Section 351(e)(1)
of the Code.
(j) All statutory or regulatory material elections with respect to
Taxes affecting VPI as of the date hereof are disclosed on Schedule 6.14.
(k) VPI has not filed a consent with the Internal Revenue Service
pursuant to section 341(f) of the Code and has not agreed to have section
341(f)(2) of the Code apply to any disposition of any subsection (f) asset (as
defined in section 341(f) of the Code) owned by VPI.
6.15 COMPLETION OF DUE DILIGENCE. VPI has substantially completed its due
diligence of the COMPANY as of the date hereof, except for any additional
investigation that may be needed as a result of a notice pursuant to Section 7.7
or an amendment pursuant to Section 7.8.
34
6.16 DISCLOSURE. This Agreement (which includes the Schedules and Annexes
attached hereto) and the Registration Statement do not contain any untrue
statement of a material fact by VPI, and do not omit to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they are made, not misleading.
6.17 TAX TREATMENT. The receipt by the STOCKHOLDERS of the shares of VPI
Stock pursuant to Section 3 hereof will qualify as an exchange pursuant to which
gain is not recognized under Section 351(a) of the Code, provided that the
representations of the STOCKHOLDERS set forth in the letter of representations
(referenced in the tax opinion letter to be delivered pursuant to Section 8.4
hereof) are true and correct in all material respects.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of VPI and the Other Founding Companies (including
the Underwriters and their counsel) access to all of the COMPANY's sites,
properties, books and records and will furnish VPI with such additional
financial and operating data and other information as to the business and
properties of the COMPANY as VPI or the Other Founding Companies may from time
to time reasonably request. The COMPANY will reasonably cooperate with VPI and
the Other Founding Companies and their respective representatives, including
VPI's auditors and counsel, in the preparation of any documents or other
material (including the Registration Statement) which may be required in
connection with any documents or materials required by this Agreement. VPI, the
STOCKHOLDERS and the COMPANY shall treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, VPI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives,
35
employees and agents to keep confidential any information regarding the COMPANY
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Closing Date, VPI will
afford to the officers and authorized representatives of the COMPANY access to
all of VPI's sites, properties, books and records and all due diligence,
agreements, documents and information of or concerning the Founding Companies
and will furnish the COMPANY with such additional financial and operating data
and other information as to the business and properties of VPI as the COMPANY
may from time to time reasonably request. VPI will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. VPI will provide complete access to its
operations and key officers and employees to the COMPANY, its representatives
and advisors on a continuing basis through the Closing Date. The COMPANY will
cause all information obtained in connection with the negotiation and
performance of this Agreement to be treated as confidential in accordance with
the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this Agreement
and the Closing Date, the COMPANY shall, except (x) as set forth on Schedule
7.2, (y) as requested by VPI or (z) as consented to by VPI (which consent shall
not be unreasonably withheld):
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any new method of management, operation or
accounting;
(ii) maintain its properties and facilities, including those held
under leases, in at least as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under debt and
lease instruments and other agreements relating to or affecting its assets,
properties, equipment or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
36
(v) maintain and preserve its business organization intact, and use
its best efforts to retain its present employees and relationships and
present agreements with suppliers, customers and others having business
relations with the COMPANY;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities, except for
inadvertent, immaterial noncompliance with any such permit, law, rule,
regulation or order (provided that any such noncompliance shall be deemed a
breach of this Section 7.2 for purposes of Section 11 hereof);
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, other than in the ordinary course
of business; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for regularly
scheduled raises to non-officers consistent with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between the
date hereof and the Closing Date, the COMPANY shall not, without the prior
written consent of VPI or unless requested by VPI:
(i) make any change in its Charter Documents;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding (except for dividends or
distributions of cash that do not cause the COMPANY to fail to meet the
financial requirements, as of the Closing Date, set forth in the first
sentence of Section 3.3), or purchase, redeem or otherwise acquire or
retire for value any shares of its stock;
37
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except: (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of the
businesses of the COMPANY; (2)(A) liens for Taxes either not yet due or
payable or being contested in good faith and by appropriate proceedings
(and for which contested Taxes adequate reserves have been established and
are being maintained) or (B) materialmen's, mechanics', workers',
repairmen's, employees' or other like liens arising in the ordinary course
of business (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedules 5.10 and/or 5.17
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included
on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY;
38
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder;
(xii) effect any change in the capital structure of the COMPANY,
including, but not limited to, the issuance of any option, warrant, call,
conversion right or commitment of any kind with respect to the COMPANY's
capital stock or the purchase or other reacquisition of any outstanding
shares for treasury stock, except that the STOCKHOLDERS may give shares of
COMPANY Stock to their children and may transfer shares of COMPANY Stock to
employees of the COMPANY provided the total number of issued and
outstanding shares of COMPANY Stock does not increase; or
(xiii) make expenditures outside the normal course of business.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Closing Date or the termination of this Agreement in accordance
with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than VPI
or its authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Pre-Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide VPI on Schedule 7.5 with proof that any required notice has been sent.
39
7.6 AGREEMENTS. The STOCKHOLDERS and the COMPANY shall terminate, on or
prior to the Closing Date, (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee listed on Schedule 8.11 hereto and (ii) any existing agreement
between the COMPANY and any STOCKHOLDER not reflecting fair market terms, except
such existing agreements as are set forth on Schedule 9.7. Such termination
agreements are listed on Schedule 7.6 and copies thereof are attached hereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY shall
give prompt notice to VPI of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. VPI shall give prompt notice to the
COMPANY of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of VPI contained herein to be untrue or inaccurate in any material respect at or
prior to the Pre-Closing and (ii) any material failure of VPI to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder. The delivery of any notice pursuant to this Section 7.7 that is
not accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 7.8 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Pre-Closing Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising which, if existing at the date of this Agreement,
40
would have been required to be set forth or described in the Schedules,
provided, however, that supplements and amendments to Schedules 5.10, 5.11,
5.14, 5.15, 5,16 and 5.19 shall only have to be delivered at the Pre-Closing
Date, unless such Schedule is to be amended to reflect an event occurring other
than in the ordinary course of business. Notwithstanding the foregoing sentence,
no amendment or supplement to a Schedule prepared by the COMPANY that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless VPI and a majority of the Founding Companies
other than the COMPANY consent to such amendment or supplement; and provided
further, that no amendment or supplement to a schedule prepared by VPI that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a schedule pursuant to Section 7.8 of one of the Other Agreements,
and such amendment or supplement constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on such Other Founding Company, VPI
shall give the COMPANY notice promptly after it has knowledge thereof. If VPI
and a majority of the Founding Companies consent to such amendment or
supplement, but the COMPANY does not give its consent, the COMPANY may terminate
this Agreement pursuant to Section 12.l(iv) hereof. In the event that the
COMPANY seeks to amend or supplement a Schedule pursuant to this Section 7.8,
and VPI and a majority of the Other Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i) hereof. In the event that VPI seeks to
amend or supplement a Schedule pursuant to this Section 7.8 and a majority of
the Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the
41
provisions of this Section 7.8. No amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement. For purposes of this Section 7.8, consent to an
amendment or supplement to a schedule pursuant to Section 7.8 of this Agreement
or one of the Other Agreements shall have been deemed given by VPI or any
Founding Company if no response is received within 24 hours following receipt of
notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested and so requested in the
notice). The provisions of this Section 7.8 shall be contained in the Other
Agreements executed in connection with the VPI Plan of Organization.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to VPI and the Underwriters
all of the information concerning the COMPANY and the STOCKHOLDERS required for
inclusion in, and will cooperate with VPI and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The COMPANY and the STOCKHOLDERS agree promptly to
advise VPI if, at any time during the period in which a prospectus relating to
the offering is required to be delivered under the 1933 Act, any information
contained in the prospectus concerning the COMPANY or the STOCKHOLDERS becomes
incorrect or incomplete in any material respect, and to provide the information
needed to correct such inaccuracy. VPI will give the COMPANY and the
STOCKHOLDERS an opportunity and a reasonable amount of time to review and
comment on a substantially final draft of the Registration Statement prior to
filing, and with respect to all amendments thereto, VPI will give the COMPANY
and STOCKHOLDERS an opportunity to review and comment on those portions of such
amendments that relate to the COMPANY. Insofar as the information contained in
the Registration Statement relates solely to the COMPANY or the STOCKHOLDERS, as
of the effective date of the Registration Statement the COMPANY represents and
warrants as to such information with respect to itself, and each STOCKHOLDER
42
represents and warrants, as to such information with respect to the COMPANY and
himself or herself, that the Registration Statement will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading and that the STOCKHOLDERS
and the COMPANY have had the opportunity to review and approve such information.
If, prior to the 25th day after the date of the final prospectus of VPI utilized
in connection with the IPO, the COMPANY or the STOCKHOLDERS become aware of any
fact or circumstance which would change (or, if after the Closing Date, would
have changed) a representation or warranty of the COMPANY or the STOCKHOLDERS in
this Agreement or would affect any document delivered pursuant hereto in any
material respect, the COMPANY and the STOCKHOLDERS shall immediately give notice
of such fact or circumstance to VPI. However, subject to the provisions of
Section 7.8, such notification shall not relieve either the COMPANY or the
STOCKHOLDERS of their respective obligations under this Agreement, and, subject
to the provisions of Section 7.8, at the sole option of VPI, the truth and
accuracy of any and all warranties and representations of the COMPANY, or on
behalf of the COMPANY and of STOCKHOLDERS at the date of this Agreement and on
the Pre-Closing Date and on the Closing Date, contained in this Agreement
(including the Schedules and Annexes hereto) shall be a precondition to the
consummation of this transaction.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Closing Date, and VPI shall have had sufficient time to review the unaudited
consolidated balance sheets of the COMPANY as of the end of all fiscal quarters
following the Balance Sheet Date, and the unaudited consolidated income
statement of the COMPANY for all fiscal quarters ended after the Balance Sheet
Date, disclosing no material adverse change in the financial condition of the
COMPANY or the results of its operations from the financial statements as of the
Balance Sheet Date. For the fiscal quarter ending March 31, 1998, such balance
sheet and income statement shall be delivered to VPI on or before April 21,
1998, unless the Closing Date shall have occurred on or before April 21, 1998.
Such balance sheet and income statement of the COMPANY for the fiscal quarter
ended March
43
31, 1998, shall have been prepared on a basis consistent with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, (i) except as noted therein, (ii) except for footnote disclosures
normally required by generally accepted accounting principles and (iii) subject
to year-end adjustments. Except as noted in such balance sheets and income
statements, such balance sheets and income statements will present fairly the
results of operations of the COMPANY for the periods indicated thereon and shall
be for such dates and time periods as required by Regulation S-X under the 1933
Act and the 1934 Act.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. VPI shall maintain its authorized capital stock as
set forth in the Registration Statement filed with the SEC except for such
changes in authorized capital stock as are made to respond to comments made by
the SEC or requirements of any exchange or automated trading system for which
application is made to register the VPI Stock.
7.13 BEST EFFORTS TO CONSUMMATE TRANSACTION. VPI agrees to use its
commercially reasonable best efforts to effectuate the acquisition of the
businesses of the Founding Companies pursuant to the Other Agreements, and the
IPO. Between the date hereof and the Closing Date, VPI agrees that it will take
no action except such actions which are in furtherance of the business of VPI as
described in the Registration Statement. In connection with the closings of the
transactions under the Other Agreements, VPI agrees that it will not waive any
closing condition under any Other Agreement that would result in a Material
Adverse Effect to VPI.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of STOCKHOLDERS and the COMPANY with respect to actions to
be taken on the Pre-Closing Date are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date of all of the following conditions. The
obligations of the STOCKHOLDERS and the COMPANY with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of the conditions set forth in Sections 8.2, 8.3, 8.8 and
8.9. From and after the Pre-Closing Date or, with respect to the conditions set
forth in Sections 8.2, 8.3, 8.8 and 8.9, from and after the Closing Date, all
conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of VPI contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
VPI contained in Section 6 shall be true and correct in all material respects as
of the Pre-Closing Date as though such representations and warranties had been
made as of that time; and a certificate to the foregoing effect dated the
Pre-Closing Date and signed by the President or any Vice President of VPI shall
have been delivered to the STOCKHOLDERS.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by VPI on or before the
Pre-Closing Date and the Closing Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Pre-Closing Date and the Closing Date and signed by the President or
any Vice President of VPI shall have been delivered to the STOCKHOLDERS.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
45
8.4 OPINION OF COUNSEL. The COMPANY and the Underwriters shall have
received a corporate opinion letter and a tax opinion letter from counsel for
VPI, dated the Pre-Closing Date, in the forms annexed hereto as Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of VPI Stock to be received by the STOCKHOLDERS is not less
than the Minimum Value set forth on Annex III.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made, and all consents and
approvals of third parties listed on Schedule 6.9 shall have been obtained.
8.7 GOOD STANDING CERTIFICATES. VPI shall have delivered to the COMPANY a
certificate, dated as of a date no later than ten days prior to the Pre-Closing
Date, duly issued by the Delaware Secretary of State and in each state in which
VPI is authorized to do business, showing that VPI is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for VPI respectively for all periods prior to the Pre-Closing Date
have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to VPI which would constitute a Material Adverse Effect,
and VPI shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of VPI to conduct its business.
8.9 CLOSING OF IPO. The closing of the sale of the VPI Stock to the
Underwriters in the IPO and the acquisitions of at least eight of the Other
Founding Companies with aggregate earnings before taxes of at least $8 million
for the 12-month period ended December 31, 1997, pursuant to the Other
Agreements shall have occurred simultaneously with the Closing Date hereunder.
46
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a certificate
or certificates, dated the Pre-Closing Date and signed by the secretary of VPI,
certifying the truth and correctness of attached copies of VPI's respective
Certificates of Incorporation (including amendments thereto), Bylaws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the stockholders of VPI approving VPI's entering into this Agreement
and the consummation of the transactions contemplated hereby. Such certificate
or certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 DIRECTORS AND OFFICERS INSURANCE. VPI shall have obtained Directors
and Officers liability insurance in amounts that are customary and commercially
reasonable.
8.13 STOCK OPTIONS. VPI shall have established a stock option plan pursuant
to which 6% of the outstanding shares of VPI will be made available for issuance
by the Founding Companies to their employees on a pro rata basis based upon the
respective consideration amounts paid by VPI under this Agreement and the Other
Agreements. The exercise price of all options granted under such stock option
plan as of the Closing Date will be the price per share of VPI Stock in the IPO,
and all such options shall vest in four equal installments commencing on the
first anniversary of the Closing Date and on each of the three anniversaries
thereafter. The terms set forth in the preceding sentence and all other terms of
the options shall be no less favorable than the options made available to the
Other Founding Companies.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF VPI
The obligations of VPI with respect to actions to be taken on the
Pre-Closing Date are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date of all of the following conditions. The obligations of VPI with
respect to actions to be taken on the Closing Date are subject to the
47
satisfaction or waiver on or prior to the Closing Date of the conditions set
forth in Sections 9.2, 9.3, 9.5 and 9.13. From and after the Pre-Closing Date
or, with respect to the conditions set forth in Sections 9.2, 9.3, 9.5 and 9.13,
from and after the Closing Date, all conditions not satisfied shall be deemed to
have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of the COMPANY contained in
Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true and
correct in all material respects as of the Pre-Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date; and the STOCKHOLDERS shall have delivered to VPI certificates dated the
Pre-Closing Date and signed by them to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before the Pre-Closing Date or the Closing Date, as the case may
be, shall have been duly performed or complied with in all material respects;
and the STOCKHOLDERS shall have delivered to VPI certificates dated the
Pre-Closing Date and the Closing Date, respectively, and signed by them to such
effect.
9.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of VPI as a
result of which the management of VPI deems it inadvisable to proceed with the
transactions hereunder.
9.4 SECRETARY'S CERTIFICATE. VPI shall have received a certificate, dated
the Pre-Closing Date and signed by the secretary or an assistant secretary of
the COMPANY, certifying the truth and correctness of attached copies of the
Charter Documents and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the
48
consummation of the transactions contemplated hereby. Such certificate also
shall be addressed to the Underwriters and a copy thereof shall be delivered to
the Underwriters.
9.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.6 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to VPI an
instrument dated the Pre-Closing Date effective as of the Closing Date,
releasing the COMPANY and VPI from (i) any and all claims of the STOCKHOLDERS
against the COMPANY and VPI and (ii) obligations of the COMPANY and VPI to the
STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10,
5.11 and 5.16 as being claims of or obligations to the STOCKHOLDERS, (y)
continuing obligations to the STOCKHOLDERS relating to their employment by the
COMPANY and (z) obligations arising under this Agreement or the transactions
contemplated hereby.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
not reflecting fair market terms shall have been canceled effective prior to or
as of the Closing Date.
9.8 OPINION OF COUNSEL. VPI shall have received an opinion from Counsel to
the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date, substantially in
the form annexed hereto as Annex VII, and the Underwriters shall have received a
copy of the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.24 shall have been
obtained.
49
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to VPI a
certificate, dated as of a date no earlier than ten days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by VPI, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Pre-Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the VPI Stock to the
Underwriters in the IPO and the acquisitions of at least eight of the Other
Founding Companies with aggregate earnings before taxes of at least $8 million
for the 12-month period ended December 31, 1997, pursuant to the Other
Agreements shall have occurred simultaneously with the Closing Date hereunder.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to VPI a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 INSURANCE. VPI shall have been named as an additional insured on all
insurance policies of the COMPANY, and certificates of insurance to that effect
shall have been delivered to VPI. VPI shall reimburse the COMPANY for the
incremental cost of having VPI so named as an additional insured.
9.16 LOCKUP AGREEMENT. Each of the COMPANY and the STOCKHOLDERS shall have
signed an agreement with the Underwriters, in form and substance identical to
agreements signed by the Other Founding Companies and the Founding Stockholders
in connection with the Other Agreements, by which the STOCKHOLDERS covenant to
hold all of the VPI Stock acquired hereunder for a period of at least 180 days
after the Closing Date except for transfers to immediate
50
family members, and trusts for the benefit of STOCKHOLDERS and/or immediate
family members, who agree to be bound by such restrictions on transfer.
9.17 LETTER OF REPRESENTATION. Each of the STOCKHOLDERS shall have
delivered the letter of representations referenced in the tax opinion letter to
be delivered pursuant to Section 8.4 hereof.
9.18 TERMINATION OF DEFINED BENEFIT PLANS. The COMPANY shall have
terminated any qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA) in accordance with applicable laws and regulations.
10. COVENANTS OF VPI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. VPI shall
use its best efforts to have the STOCKHOLDERS released, contemporaneously with
the Closing Date, from any and all guarantees on any indebtedness that they
personally guaranteed and from any and all pledges of assets that they pledged
to secure such indebtedness for the benefit of the COMPANY, with all such
guarantees on indebtedness being assumed by VPI. In the event that VPI cannot
obtain such releases from the lenders of any such guaranteed indebtedness on the
Closing Date, VPI shall repay all indebtedness of the COMPANY relating to such
personal guarantees within 60 days after the Closing Date. VPI shall indemnify
and hold harmless the STOCKHOLDERS from the payment of any guaranties on any
indebtedness or contractual obligations that the STOCKHOLDERS had incurred prior
to the Pre-Closing Date provided that such indebtedness or obligations are
related to the business of the COMPANY as being conducted at the Pre-Closing
Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Closing Date, VPI
shall not and shall not permit any of its subsidiaries to undertake any act that
would jeopardize the status of the transaction contemplated hereby as an
exchange pursuant to which gain is not recognized under Section 351(a) of the
Code, including:
51
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the VPI Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of the
STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Tax Returns of any Acquired Party for all taxable periods that end
on or before the Closing Date. All such Tax Returns shall have set forth
all material items required to be set forth therein and shall have been
prepared in compliance with applicable laws and shall be true, correct and
complete in all material respects. Each STOCKHOLDER shall pay or cause to
be paid all Tax liabilities (in excess of all amounts already paid with
respect thereto or properly accrued or reserved with respect thereto on the
COMPANY Financial Statements and books and records) required to be shown by
such Tax Returns to be due.
(ii) VPI shall file or cause to be filed all consolidated Tax Returns
of, or that include, any Acquired Party for all taxable periods ending
after the Closing Date. VPI shall pay or cause to be paid all Tax
liabilities (in excess of amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the VPI Financial
Statements and books and records) required to be shown by such Tax Returns
to be due.
(iii) Each party hereto shall, and shall cause its subsidiaries and
component members of a controlled group of corporations including the
COMPANY, as defined in Section 1563 of the Code, to, provide to each of the
other parties hereto such cooperation and information as any of them
reasonably may request in filing any Tax Return, amended Tax Return or
claim for refund, determining a liability for Taxes or a right to refund of
Taxes or in conducting any audit or other proceeding in respect of Taxes.
Such cooperation and information shall include providing copies of all
relevant portions of relevant Tax Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
52
relating to rulings or other determinations by taxing authorities and
relevant records concerning the ownership and Tax basis of property, which
such party may possess. Each party shall make its employees reasonably
available on a mutually convenient basis at its cost to provide explanation
of any documents or information so provided. Subject to the preceding
sentence, each party required to file Tax Returns pursuant to this
Agreement shall bear all costs of filing such Tax Returns.
(iv) Each of the COMPANY, VPI and each STOCKHOLDER shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as an
exchange pursuant to which gain is not recognized under Section 351(a) of
the Code.
10.4 APPOINTMENT OF DIRECTORS. The STOCKHOLDERS hereby designate ▇▇▇▇▇
▇'▇▇▇▇▇ Houston to serve as a director of VPI effective as of the Closing Date.
Representatives of the Founding Companies shall constitute a majority of the
directors of VPI immediately following the Closing Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Closing Date,
VPI shall not terminate any health insurance, life insurance or 401(k) plan in
effect at the COMPANY until such time as VPI is able to replace such plan with a
plan that is applicable to VPI and all of its then existing subsidiaries. VPI
shall have no obligation to provide replacement plans that have the same terms
and provisions as the existing plans, except as may be required by ERISA or
other applicable law; provided, however, that any new health insurance plan
shall provide for coverage for preexisting conditions for employees of the
COMPANY who were covered by the COMPANY's health insurance plan immediately
prior to the Closing Date or as otherwise required by law.
10.6 MAINTENANCE OF BOOKS. VPI will cause the COMPANY (a) to maintain the
books and records of the COMPANY existing prior to the Pre-Closing Date for a
period of six years after the Pre-Closing Date and (b) to make such books and
records available to the STOCKHOLDERS for any reasonable purpose.
53
10.7 SECURITIES COVENANTS. VPI shall meet the current public
information requirements of Rule 144, promulgated by the SEC, for the two-year
period following the Closing Date. In addition, VPI agrees that it shall remove
the restricted stock legend from the VPI Stock received by any STOCKHOLDER
pursuant to this Agreement as soon as practicable after receipt from such
STOCKHOLDER of a letter requesting removal of the restricted stock legend
provided that (i) the STOCKHOLDER has held such stock for a period of at least
two years after the Closing Date, (ii) the STOCKHOLDER is not, and has not been
for the three months preceding the removal of the legend, a director of VPI, an
officer of VPI (other than the President of the COMPANY or its successor), or a
beneficial owner of more than one percent of the outstanding shares of VPI and
(iii) there have been no amendments to Rule 144(k) that would prohibit VPI from
removing such legend.
11. INDEMNIFICATION
The STOCKHOLDERS and VPI each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS covenant
and agree that they, jointly and severally, will indemnify, defend, protect and
hold harmless VPI and the COMPANY at all times, from and after the date of this
Agreement until the Expiration Date, from and against all losses, claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by VPI and the COMPANY
as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
Schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material
54
fact relating solely to the COMPANY or the STOCKHOLDERS, and provided to VPI or
its counsel by the COMPANY or the STOCKHOLDERS, contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating solely to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading, or (iv) the matters described on Schedule 11.1(iv)
(relating to specifically identified matters such as ongoing claims and/or
litigation), which Schedule shall be prepared by VPI, provided, however, (A)
that in the case of any indemnity arising pursuant to clause (iii) such
indemnity shall not inure to the benefit of VPI or the COMPANY to the extent
that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to VPI counsel and to
VPI for inclusion in the final prospectus, and such information was not so
included or properly delivered, and (B) that no STOCKHOLDER shall be liable for
any indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
11.2 INDEMNIFICATION BY VPI. VPI covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the Expiration Date, from and against
all losses, claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by VPI of its
representations and warranties set forth herein or on the Schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
VPI under this Agreement, (iii) any liabilities which the STOCKHOLDERS may incur
due to VPI's failure to be responsible for the liabilities and obligations of
the COMPANY as provided in Section 1 hereof (except to the extent that VPI has
claims against the STOCKHOLDERS under Section 11.1 hereof by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934
55
Act or other federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to VPI or any of the Other Founding Companies contained
in any preliminary prospectus, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact relating to VPI or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading, or
(v) the matters described on Schedule 11.2(v) (relating to specifically
identified matters including the release of the guarantees pursuant to Section
10.1 hereof).
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle (subject to the consent of the Indemnified Party, as
hereinafter provided), at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any criminal
proceeding without the written consent of the Indemnified Party. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in the defense thereof and
in any settlement thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party that are in the
Indemnified Party's possession or control. All Indemnified Parties shall use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying
56
Party shall have a conflict of interest that prevents counsel for the
Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel. Further, absent a conflict, the
Indemnified Party may select counsel and have such counsel participate in such
matter at the sole cost of the Indemnified Party. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the Indemnified Party in connection
with any defense or settlement of such asserted liability, except (i) as set
forth in the preceding sentence and (ii) to the extent such participation is
requested in writing by the Indemnifying Party, in which event the Indemnified
Party shall be reimbursed by the Indemnifying Party for reasonable additional
legal expenses and out-of-pocket expenses. If the Indemnifying Party desires to
accept a final and complete settlement of any such Third Person claim in which
no admission of wrongdoing is required of the Indemnified Party and the
Indemnified Party refuses to consent to such settlement, then the Indemnifying
Party's liability under this Section with respect to such Third Person claim
shall be limited to the amount so offered in settlement by said Third Person. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld, conditioned or delayed. All settlements hereunder shall
effect a complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties
57
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party relating to this Agreement or the
preparation of the Registration Statement and the IPO, provided, however, that
nothing herein shall be construed to limit the right of a party, in a proper
case, to seek injunctive relief for a breach of this Agreement. The obligations
set forth herein are contingent upon similar obligations being incorporated in
all of the Other Agreements.
11.5 LIMITATIONS ON INDEMNIFICATION. VPI and the other persons or entities
indemnified pursuant to Section 11.1 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS until such time as, and
solely to the extent that, the aggregate of all claims which such persons may
have against the STOCKHOLDERS shall exceed 2.0% of the sum of (i) the cash paid
to the STOCKHOLDERS and (ii) the value of the VPI Stock delivered to the
STOCKHOLDERS (the "Indemnification Threshold"), provided, however, that VPI and
the other persons or entities indemnified pursuant to Section 11.1 may assert
and shall be indemnified for any claim under Section 11.l(iv) at any time,
regardless of whether the aggregate of all claims which such persons may have
against the STOCKHOLDERS exceeds the Indemnification Threshold, it being
understood that the amount of any such claim under Section 11.1(iv) shall not be
counted towards the Indemnification Threshold. The STOCKHOLDERS shall not assert
any claim for indemnification hereunder against VPI until such time as, and
solely to the extent that, the aggregate of all claims which the STOCKHOLDERS
may have against VPI shall exceed $50,000, provided, however, that the
STOCKHOLDERS and the other persons or entities indemnified pursuant to Section
11.2 may assert and shall be indemnified for any claim under Section 11.2(v) at
any time, regardless of whether the aggregate of all claims which such persons
may have against VPI exceed $50,000, it being understood that the amount of any
such claim under Section 11.2(v) shall not be counted towards such $50,000
58
amount. No person shall be entitled to indemnification under this Section 11 if
and to the extent that: (a) such person's claim for indemnification is directly
or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement; or (b) such
person receives a tax benefit as a result of the claim or loss for which
indemnification is sought (i.e., the amount of such claim or loss for which
indemnification is provided hereunder shall be reduced by the amount of such tax
benefit).
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the transactions contemplated hereby, provided that a
STOCKHOLDER's indemnification obligations pursuant to Section 11.1(iv) shall not
be limited. Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of VPI Stock, or a combination thereof, at the
STOCKHOLDER's election. For purposes of calculating the value of the VPI Stock
received or delivered by a STOCKHOLDER (for purposes of determining the
Indemnification Threshold, the limitation on indemnity set forth in the second
preceding sentence and the amount of any indemnity paid), VPI Stock shall be
valued at its initial public offering price as set forth in the Registration
Statement. Any indemnification payment made by the STOCKHOLDERS pursuant to this
Section 11 shall be deemed to be a reduction in the consideration received by
the STOCKHOLDERS pursuant to Section 3.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated by written notice from
the party asserting termination to the other parties at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of VPI and the COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by VPI (acting through its board of directors),
on the other hand, if the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by June
59
30, 1998, unless the failure of such transactions to be consummated is due to
the willful failure of the party seeking to terminate this Agreement to perform
any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by VPI, on the
other hand, if a breach or default shall be made by the other party in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein (including but not limited to the
condition that the aggregate value of the cash and the number of shares of VPI
Stock to be received by the STOCKHOLDERS is not less than the Minimum Value set
forth on Annex III), which breach or default has a Material Adverse Effect, and
the curing of such default shall not have been made on or before the Closing
Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section 7.8
hereof, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses relating to the transactions contemplated
hereby. No party hereto shall be liable to any other party if the Agreement is
terminated under Sections 12.1(i), (ii) (except as set forth therein), (iv) or
(v), provided, however (and notwithstanding anything in Section 18.7 to the
contrary), that VPI shall reimburse the COMPANY for the reasonable documented
fees and expenses of its attorneys and accountants incurred in connection with
the transactions contemplated by this Agreement in the event that this Agreement
is terminated by the COMPANY or the STOCKHOLDERS pursuant to Section 12.1(iii);
and further provided, however (and notwithstanding anything in Section 18.7 to
the contrary), that the COMPANY and the STOCKHOLDERS shall reimburse VPI for the
reasonable documented fees and expenses of
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its attorneys and accountants incurred in connection with the transactions
contemplated by this Agreement in the event that this Agreement is terminated by
VPI pursuant to Section 12.1(iii).
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Provided that VPI shall have complied with and
performed all of its obligations hereunder in all material respects and the
STOCKHOLDERS shall have received payment in full of the consideration described
in Section 3, each of the STOCKHOLDERS shall not, during the Noncompetition
Period, for any reason whatsoever, directly or indirectly, for themselves or on
behalf of or in conjunction with any other person, persons, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any noncommercial property management, rental or sales
business or hotel management business in direct competition with VPI or any
of its subsidiaries, within 100 miles of the locations in which VPI or the
COMPANY, or any of their subsidiaries, conduct a noncommercial property
management, rental or sales business or hotel management business (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory,
an employee of VPI (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of VPI (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to
call upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is at that time, or which
has been, within one (l) year prior to that time, a customer of VPI
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of providing
noncommercial property management, rental or sales services or hotel
61
management services to property owners and/or renters in direct competition
with VPI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER's own behalf or on behalf of any competitor in the
noncommercial property management, rental or sales business or hotel
management business, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by VPI (including the
subsidiaries thereof) or for which, to the actual knowledge of such
STOCKHOLDER after due inquiry, VPI (or any subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity, unless VPI
(or any subsidiary thereof) has expressly declined to pursue such
acquisition candidate or at least one (1) year has elapsed since VPI (or
any subsidiary thereof) has taken any action with respect to pursuing such
acquisition candidate; or
(v) disclose customers, whether in existence or proposed, of the
COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in
the past disclosed such information to the types of persons to whom
disclosure is then presently contemplated for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (a) any STOCKHOLDER from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter or (b) ▇▇▇▇▇ ▇'▇▇▇▇▇
Houston from engaging in any noncommercial property management, rental or sales
business or hotel management business only with respect to her primary personal
residence or any real property in which she has a noncontrolling interest such
that she is unable to direct management, rental or sales business or hotel
management business relating to such real property to the COMPANY or VPI.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to VPI
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to VPI for which it would have no
other adequate remedy, each STOCKHOLDER agrees that
62
the foregoing covenant may be enforced by VPI in the event of breach by such
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of VPI (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of VPI (including VPI's subsidiaries); but it is also the intent
of VPI and the STOCKHOLDERS that such covenants be construed and enforced in
accordance with the changing locations of VPI (including VPI's other
subsidiaries) from the date hereof through the Noncompetition Period. For
example, if, during the Noncompetition Period, VPI (including VPI's other
subsidiaries) establishes new locations for its current activities or business
in addition to the locations currently established therefor, then the
STOCKHOLDERS will be precluded from soliciting the customers or employees from
such new location and from directly competing within 100 miles of such new
location(s) through the term of the Noncompetition Period.
It is further agreed by the parties hereto that, in the event that any
STOCKHOLDER shall enter into a business or pursue other activities not in
competition with VPI (including VPI's other subsidiaries), or similar
activities, or business in locations the operation of which, under such
circumstances, does not violate clause (i) of Section 13.1, and in any event
such new business, activities or location are not in violation of this Section
13 or of such STOCKHOLDER's obligations under this Section 13, if any, such
STOCKHOLDER shall not be chargeable with a violation of this Section 13 if VPI
(including VPI's subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities, or (iii) location, as
applicable.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such
63
restrictions be enforced to the fullest extent which the court deems reasonable,
and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. Subject to the introductory clause of Section
13.1, all of the covenants in this Section 13 shall be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any STOCKHOLDER against VPI (including the
subsidiaries thereof), whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by VPI of such covenants. It is
specifically agreed that the Noncompetition Period, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which a
court of competent jurisdiction or arbitrator or mediator has determined that
such STOCKHOLDER is in violation of any provision of this Section 13. The
covenants contained in Section 13 shall have no effect if the transactions
contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that the
covenants in this Section 13 are a material and substantial part of this
transaction.
13.7 LIMITATION. In the event that any STOCKHOLDER who is employed by VPI
or the COMPANY pursuant to an employment agreement is terminated without good
cause (as defined in such employment agreement), notwithstanding the definition
of "Noncompetition Period" in Section 18.17, the provisions of this Section 13
shall not be valid or enforceable by VPI if such STOCKHOLDER waives the
STOCKHOLDER's right to receive severance compensation under such employment
agreement. In the event such employment agreement is terminated as a result of a
material breach by the COMPANY of the employment agreement, the provisions of
this Section 13 likewise shall not be valid or enforceable.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
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14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they had
in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or VPI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or VPI's respective businesses. The STOCKHOLDERS agree that they
shall not use, except in connection with the transactions contemplated hereby,
or disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except
disclosures (a) to authorized representatives of VPI, (b) following the Closing,
by the STOCKHOLDERS as is required in the course of performing their duties for
VPI or the COMPANY and (c) to counsel and other advisors, provided that such
advisors (other than counsel) agree to the confidentiality provisions of this
Section 14.1, unless (i) such information is or becomes known to the public
generally or to businesses operating in the noncommercial property management,
rental or sales industry through no fault of the STOCKHOLDERS, (ii) disclosure
is required by law or the order of any governmental authority under color of
law, provided, however, that prior to disclosing any information pursuant to
this clause (ii), the STOCKHOLDERS shall, if possible, give two days' prior
written notice thereof to VPI and provide VPI with the opportunity within such
two-day period to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the STOCKHOLDERS of the provisions of this Section,
VPI shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting VPI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
STOCKHOLDERS shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the COMPANY.
Nothing herein shall restrict the STOCKHOLDERS from using confidential
information of the COMPANY described in this Section
65
14.1 in the businesses in which they are entitled to engage in competition with
the COMPANY pursuant to Section 13.1(b).
14.2 VPI . VPI recognizes and acknowledges that it has in the past and
currently have access to certain confidential information of the COMPANY, such
as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the COMPANY's business. VPI agrees that, prior to
the Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not use, except in connection with the transactions
contemplated hereby, or disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except disclosures (a) to authorized representatives of the COMPANY,
(b) to counsel and other advisors; provided, however, that such advisors (other
than counsel) agree to the confidentiality provisions of this Section 14.2 and
(c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of VPI, (ii) disclosure is required by law or the
order of any governmental authority under color of law; provided, however, that
prior to disclosing any information pursuant to this clause (ii), VPI shall,
unless otherwise required by law or such order, give two days' prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity within such two-day period to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. VPI will disclose confidential information relating to the
COMPANY to the Other Founding Companies only if such companies have agreed, in
advance, to treat such information as confidential and to the use restrictions
contained herein. In the event of a breach or threatened breach by VPI of the
provisions of this Section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining VPI from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for as
such breach or threatened breach, including the recovery of damages.
66
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of three years from (a)
the Closing Date if the transactions contemplated hereby are consummated or (b)
the date hereof if the transactions contemplated hereby are not consummated.
14.5 RETURN OF DATA SUBMITTED. Upon termination of this Agreement for any
reason, VPI will cause the return to the COMPANY of all data, and all copies
thereof, submitted to VPI or its agents pursuant to this Agreement.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of one year after the Closing Date, except
pursuant to Section 17 hereof, none of the STOCKHOLDERS shall sell, assign,
exchange, transfer, distribute or otherwise dispose of any shares of VPI Stock
received by the STOCKHOLDERS pursuant to Section 3.1. The certificates
evidencing the VPI Stock delivered to the STOCKHOLDERS pursuant to Section 3 of
this Agreement shall bear a legend substantially in the form set forth below and
containing such other information as VPI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO
[first anniversary of Closing Date]. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER
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AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
15.2 CERTAIN TRANSFERS. Except for transfers to family members who agree to
be bound by the restrictions set forth in Section 15.1 (or trusts for the
benefit of the STOCKHOLDERS or family members, the trustees of which so agree)
and except pursuant to Section 17 hereof, regardless of whether transfers of
such shares are restricted pursuant to the terms of this Agreement, during the
two-year period commencing on the Closing Date, the STOCKHOLDERS shall not sell,
assign, exchange, transfer, distribute or otherwise dispose of, in any
transaction or series of transactions involving more than 5,000 shares (a
"Future Sale"), any shares of VPI Stock received by the STOCKHOLDERS pursuant to
Section 3.1 except in accordance with this Section 15.2. If any STOCKHOLDER
desires to make a Future Sale, the STOCKHOLDER shall first provide written
notice thereof to VPI. VPI shall have three (3) days after receipt of such
notice by VPI in which to arrange for a private sale of such shares through one
or more of the Underwriters, and such STOCKHOLDER may not make the Future Sale
except pursuant to such arrangements; provided, however, that the terms of such
sale (including commissions) are at least as favorable as the terms the
STOCKHOLDER would have received in the absence of this Section 15.2. If VPI has
not successfully arranged for a private sale of such shares through one or more
the Underwriters within such three (3) day period, the restrictions of this
Section 15.2 shall not apply to such Future Sale. Any subsequent Future Sales by
such STOCKHOLDER must be made in accordance with this Section 15.2. The terms of
this Section 15.2 shall not apply to pledges of shares of VPI Stock.
16. SECURITIES LAW REPRESENTATIONS
The STOCKHOLDERS acknowledge that the shares of VPI Stock to be delivered
to the STOCKHOLDERS pursuant to this Agreement have not been registered under
the 1933 Act and therefore may not be resold without compliance with the 1933
Act. The VPI Stock to be acquired by such STOCKHOLDERS pursuant to this
Agreement is being acquired solely for their own respective
68
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution.
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and represent
that none of the shares of VPI Stock issued to such STOCKHOLDERS will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act, the rules and regulations of the SEC and applicable state
securities laws. All of the VPI Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND OTHER APPLICABLE SECURITIES LAWS.
16.2 ECONOMIC RISK; SOPHISTICATION. Each of the STOCKHOLDERS is able to
bear the economic risk of an investment in the VPI Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that he or she
is capable of evaluating the merits and risks of the proposed investment in the
VPI Stock. The STOCKHOLDERS have had an adequate opportunity to ask questions
and receive answers from the officers of VPI concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
VPI, the plans for the operations of the business of VPI, the business,
operations and financial condition of the Founding Companies other than the
COMPANY, and any plans for additional acquisitions and the like. The
STOCKHOLDERS have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
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17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing Date,
whenever VPI proposes to register any VPI Stock for its own or others' account
under the 1933 Act, other than (i) any shelf registration of shares to be used
as consideration for acquisitions of additional businesses by VPI and (ii)
registrations relating to employee benefit plans, VPI shall give each of the
STOCKHOLDERS prompt written notice of its intent to do so. Upon the written
request of any of the STOCKHOLDERS given within 30 days after receipt of such
notice, VPI shall cause to be included in such registration all of the VPI Stock
issued to such STOCKHOLDER pursuant to this Agreement which any such STOCKHOLDER
requests, provided that VPI shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the reasonable opinion of tax counsel to VPI or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as an exchange pursuant to which gain is not recognized
under Section 351(a) of the Code. In addition, if VPI is advised in writing in
good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 17.1 that the number of shares to be sold by persons other than VPI is
greater than the number of such shares which can be offered without adversely
affecting the offering, VPI may reduce pro rata the number of shares offered for
the accounts of such persons (based upon the number of shares desired to be sold
by such person) to a number deemed satisfactory by such managing underwriter,
provided, however, that for each such offering made by VPI after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
persons other than VPI, the STOCKHOLDERS and the stockholders of the Other
Founding Companies who receive shares of VPI Stock pursuant to the Other
Agreements (collectively, the STOCKHOLDERS and the stockholders of the other
Founding Companies who receive shares of VPI Stock pursuant to the Other
Agreements being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders on a pro rata basis based on the number
of shares proposed to be registered by each of the Founding Stockholders.
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17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years after
the Closing Date, the holders of a majority of the shares of VPI Stock issued to
the Founding Stockholders pursuant to this Agreement and the Other Agreements
which have not been previously registered or sold and which are not entitled to
be sold under Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act may request in writing (the "Demand Registration Request")
that VPI file a registration statement under the 1933 Act covering the
registration of up to all of the shares of VPI Stock issued to the STOCKHOLDERS
pursuant to this Agreement and the Other Agreements then held by such Founding
Stockholders (a "Demand Registration"). Within ten (10) days of the receipt of
the Demand Registration Request, VPI shall give written notice of such request
to all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after the Demand Registration Request, file and use its
best efforts to cause to become effective a registration statement covering all
shares requested to be registered pursuant to this Section 17.2. VPI shall be
obligated to effect only one Demand Registration for all Founding Stockholders.
Notwithstanding the foregoing paragraph, following the Demand Registration
Request a majority of VPI's disinterested directors (i.e., directors who have
not demanded or elected to sell shares in any such public offering) may defer
the filing of the registration statement for a 60-day period if such deferral is
deemed by such directors to be in the best interests of VPI.
If immediately prior to the Demand Registration Request VPI has fixed plans
to file within 60 days after receipt of the Demand Registration Request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' VPI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless VPI is no longer proceeding
diligently to effect such registration (in which case the delay contemplated by
this sentence would not be applicable); provided that VPI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
71
17.3 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by VPI. In connection with
registrations under Sections 17.1 and 17.2, VPI shall (i) use its best efforts
to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the VPI Stock and use its best efforts to
cause such registration to promptly become and remain effective for a period of
at least 45 days (or such shorter period during which the Founding Stockholders
shall have sold all VPI Stock which they requested to be registered); (ii) use
its best efforts to register and qualify the VPI Stock covered by such
registration statement under applicable state securities laws as the holders
shall reasonably request for the distribution for the VPI Stock; and (iii) take
such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder to enable the
Founding Stockholders to sell their shares pursuant thereto.
17.4 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered public offering,
VPI and each participating holder agree to enter into a written agreement with
the managing underwriters in such form and containing such provisions (including
indemnification provisions) as are customary in the securities business for such
an arrangement between such managing underwriters and companies of VPI's size
and investment stature.
17.5 AVAILABILITY OF RULE 144. VPI shall not be obligated to register
shares of VPI Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER with respect to such
STOCKHOLDER's VPI Stock.
17.6 REGISTRATION RIGHTS INDEMNIFICATION.
(a) Indemnification by VPI. In the event any shares of VPI Stock received
by the STOCKHOLDERS pursuant to this Agreement (the "Registrable Securities")
are included in a registration statement under this Section 17, to the extent
permitted by law, VPI will, and hereby
72
does, indemnify and hold harmless each seller of any Registrable Securities
covered by such registration statement, its directors, officers, agents,
attorneys, each other Person who participates as an underwriter in the offering
or sale of such securities and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller
or any such director or officer or underwriter or controlling Person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the 1933 Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and VPI will reimburse such seller and each
such director, officer, underwriter and controlling Person for any expenses
(including but not limited to reasonable attorneys' fees) reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided that VPI shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to VPI by such seller expressly
for use in the preparation thereof, and provided further that VPI shall not be
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the 1933 Act, in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of such Person's failure to send or give a copy
of the final
73
prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected in such
final prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer, underwriter or controlling Person and shall survive the
transfer of such securities by such seller.
(b) Indemnification by Sellers. If any Registrable Securities are included
in any registration statement filed pursuant to this Section 17, each
prospective seller of such securities shall indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 17.6) each underwriter, each Person who controls such underwriter within
the meaning of the 1933 Act, VPI, each director of VPI, each officer of VPI,
VPI's agents and attorneys and each other Person, if any, who controls VPI
within the meaning of the 1933 Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
strict conformity with written information furnished to VPI by such seller
expressly for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement;
provided that such prospective seller shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or any other Person, if any, who controls such underwriter within the meaning of
the 1933 Act, in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
such Person's failure to send or give a copy of the final prospectus, as the
same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
Person if such statement or omission was corrected in
74
such final prospectus. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of any underwriter, VPI or
any such director, officer or controlling Person and shall survive the transfer
of such securities by such seller. In no event shall the liability of any
selling holder of Registrable Securities under this Section 17.6(b) be greater
in amount than the dollar amount of the proceeds received by such holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 17.6, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 17.6, except to the extent that the
indemnifying party is actually materially prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party, unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
75
(d) Other Indemnification. Indemnification similar to that specified in the
preceding subdivisions of this Section 17.6 (with appropriate modifications)
shall be given by VPI and each seller of Registrable Securities with respect to
any required registration or other qualification of securities under any federal
or state law or regulation of any governmental authority other than the 1933
Act.
(e) Indemnification Payments. The indemnification required by this Section
17.6 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this Section 17.6
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such loss, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue statement of material fact
or omission or alleged omission to state a material fact, has been made by, or
relates to information supplied by, such indemnifying party or indemnified
parties, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in Section 17.6(c) hereof, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
76
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 17.6(f) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 17.6(f), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason on such untrue or
alleged untrue statement or omission or alleged omission, and no selling holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such selling holder were
offered to the public exceeds the amount of any damages which such selling
holder has otherwise been required to pay by reason of such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 17.6, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section 17.6(a) through Section 17.6(e) hereof without regard to the relative
fault of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 17.6(f).
18. GENERAL
18.1 PRESS RELEASES. The parties hereto acknowledge that public disclosure
of this Agreement and/or any information regarding the transactions contemplated
hereby or the Other Agreements may adversely affect the ability of the parties
hereto and to the Other Agreements to consummate the transactions contemplated
hereby and by the Other Agreements. VPI, the COMPANY, and the STOCKHOLDERS
hereby agree that they shall not issue any press release or otherwise make any
public announcement (including communications with trade publications and other
77
media), or disclose information to any third party (except those agents or
representatives of a party directly involved in the transactions contemplated
hereby and except as required by law) concerning VPI, the Founding Companies or
the transactions contemplated hereby or by the Other Agreements without the
prior approval of VPI, the COMPANY and the STOCKHOLDERS.
18.2 COOPERATION. The COMPANY, the STOCKHOLDERS and VPI shall each deliver
or cause to be delivered to the other on the Closing Date, and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the other may reasonably request for the purpose of carrying out this
Agreement. The COMPANY shall cooperate and use its reasonable efforts to have
the present officers, directors and the employees of the COMPANY cooperate with
VPI on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any tax return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
18.3 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Agreement and
the rights of the parties hereunder may not be assigned (except by operation of
law) and shall be binding upon and shall inure to the benefit of the parties
hereto, the successors of VPI, and the heirs and legal representatives of the
STOCKHOLDERS. Nothing in this Agreement shall be deemed to create any right with
respect to any person or entity not a party to or property not subject to this
Agreement.
18.4 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the STOCKHOLDERS, the
COMPANY and VPI and supersede any prior agreement and understanding relating to
the subject matter of this Agreement, including but not limited to any letter of
intent entered into by any of the parties hereto. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS,
78
the COMPANY and VPI, acting through their respective officers or trustees, duly
authorized by their respective Boards of Directors.
18.5 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.6 BROKERS AND AGENTS. Except as disclosed on Schedule 18.6, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.7 EXPENSES. Whether or not the transactions herein contemplated shall be
consummated, VPI will pay the fees, expenses and disbursements of VPI and its
agents, representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance and compliance with all conditions to
be performed by VPI under this Agreement, including the fees and expenses of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP (including such fees and expenses in connection with the
audit of the COMPANY's financial statements), Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇,
L.L.P., and any other person or entity retained by VPI, and the costs of
preparing the Registration Statement. The STOCKHOLDERS shall pay the fees,
expenses and disbursements of the STOCKHOLDERS, the COMPANY and their respective
agents, representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments thereto, including all costs
and expenses incurred in the performance and compliance with all conditions to
be performed by the COMPANY and the STOCKHOLDERS under this Agreement, including
the fees and expenses of accountants and legal counsel to the COMPANY and the
STOCKHOLDERS. Notwithstanding the foregoing, if the transactions contemplated by
this Agreement are consummated, VPI shall reimburse the STOCKHOLDERS for such
reasonable fees, expenses and disbursements upon the closing of the IPO up to
$50,000. In addition, each STOCKHOLDER shall pay all sales, use, transfer, real
property
79
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the transactions contemplated
hereby, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Tax Returns with
respect to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that
he or she, and not the COMPANY or VPI, shall pay all taxes due upon receipt of
the consideration payable pursuant to Section 3 hereof, and shall assume all tax
risks and liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby; provided, however, that the foregoing shall not in any way
prejudice the ability of the STOCKHOLDERS and the COMPANY to rely upon the
opinions contained in the tax opinion letter referenced in Annex VI.
18.8 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given (i) by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, (ii) by delivering the same in person
to an officer or agent of such party or (iii) by facsimile transmission when
confirmation of receipt is received from the party being notified by the party
sending such notice.
(a) If to VPI, addressed to them at:
Vacation Properties International, Inc.
c/o Capstone Partners, LLC
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with copies to:
Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Facsimile no.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
(b) If to the STOCKHOLDERS, addressed to them at their respective addresses
set forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
80
(c) If to the COMPANY, addressed to it at:
Houston and ▇'▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile no: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇'▇▇▇▇▇ Houston
and marked "Personal and Confidential"
with copies to:
Krendl ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile no: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.8 from time to time.
18.9 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement
shall be held by any court of competent jurisdiction to be invalid, illegal or
unenforceable, it shall, to the extent possible, be modified in such manner as
to be valid, legal and enforceable but so as to most nearly retain the intent of
the parties, and if such modification is not possible, such provision shall be
severed from this Agreement, and in either case the validity, legality and
enforceability of the remaining
81
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. Except to the extent specifically set forth
herein, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but each shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the written
consent of VPI, the COMPANY and STOCKHOLDERS (as defined in the introductory
paragraph of this Agreement) who will hold or who hold at least 50% of the VPI
Stock issued or to be issued to the STOCKHOLDERS upon consummation of the
transactions contemplated hereby. Any amendment or waiver effected in accordance
with this Section 18.15 shall be binding upon each of the parties hereto, any
other person receiving VPI Stock in connection with the transactions
contemplated hereby and each future holder of such VPI Stock.
18.16 INCORPORATION BY REFERENCE. To the extent that an item is disclosed
in a particular Schedule or a subsection of a particular Schedule and such item
is readily apparent on its face as being applicable to another Schedule or
another subsection of the same Schedule, such item shall be deemed incorporated
by reference in such Schedule or such other subsection under the same Schedule.
18.17 DEFINED TERMS. Unless the context otherwise requires, capitalized
terms used in this Agreement or in any Schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of this
Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any Subsidiary and any member of a
Relevant Group.
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"Affiliates" shall mean, with respect to a corporation, any other person or
entity that, directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with such corporation,
and shall mean, with respect to an individual, any parent, spouse or child of
such individual.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section 5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 17.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.20.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"Future Sale" has the meaning set forth in Section 15.2.
"Indemnification Threshold" has the meaning set forth in Section 11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
83
"IPO" means the initial public offering of VPI Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.24.
"Noncompetition Period" means the longest of the following periods: (i)
three (3) years following the Closing Date; or (ii) (A) two (2) years following
the date of termination of any employment agreement entered into between VPI
and/or the COMPANY and the STOCKHOLDER subject to the Noncompetition Period or
(B) in the case of a termination without good cause under such employment
agreement of the STOCKHOLDER subject to the Noncompetition Period, one (1) year
following the termination of such employment agreement.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANY.
"Person" means any natural person, corporation, business trust,
association, company, partnership, limited liability company, joint venture or
any other entity, government, agency or political subdivision.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by VPI and the Underwriters of
the public offering price of the shares of VPI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Pre-Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.21.
"Registrable Securities" has the meaning set forth in Section 17.6.
"Registration Statement" means that certain registration statement on Form
S-1 covering the shares of VPI Stock to be issued in the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
84
"Restricted Common Stock" means the common stock of VPI, par value $0.01
per share, having the restricted voting rights and such other rights,
preferences, restrictions and limitations as are set forth in the Certificate of
Incorporation, as amended, of VPI on the Closing Date.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"stock" and "capital stock" and "shares" mean, when used with respect to a
limited liability company unless the context otherwise requires, the membership
interests of such limited liability company, and otherwise have their respective
ordinary meanings.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"stockholders" means, when used with respect to a corporation, the owners
of the capital stock of such corporation and means, when used with respect to a
limited liability company unless the context otherwise requires, the owners of
the membership interests of such limited liability company.
"Subsidiary" has the meaning set forth in Section 5.6.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Tax Returns" has the meaning set forth in Section 5.23.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
85
"Transfer Taxes" has the meaning set forth in Section 18.7.
"VPI" has the meaning set forth in the first paragraph of this Agreement.
"VPI Charter Documents" has the meaning set forth in Section 6.1.
"VPI Financial Statements" has the meaning set forth in Section 6.6.
"VPI Plan of Organization" has the meaning set forth in the third recital
of this Agreement.
"VPI Stock" means the common stock, par value $.01 per share, of VPI.
"Underwriters" means the prospective underwriters in the IPO, as identified
in the Registration Statement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
VACATION PROPERTIES INTERNATIONAL, INC.
By:/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Vice President
HOUSTON AND ▇'▇▇▇▇▇ COMPANY
By:/s/ ▇▇▇▇▇ ▇'▇▇▇▇▇ Houston
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▇▇▇▇▇ ▇'▇▇▇▇▇ Houston
President
STOCKHOLDER:
/s/ ▇▇▇▇▇ ▇'▇▇▇▇▇ Houston
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▇▇▇▇▇ ▇'▇▇▇▇▇ Houston